humm group limited

HUM Details

Q1FY22 Financial Performance- humm group limited (ASX: HUM) provides commercial leasing and SME financial services that offer cards and buy now, pay later (BNPL) solution, an interest-free payment platform with repayment options.

• The company has recorded a year over year growth in BNPL volumes by 44.5% to $308.8 million in 1QFY22, compared to $213.6 million in 1QFY21, driven by strong volume growth in humm little things in Australia, humm New Zealand and bundle.
• In 1QFY22, humm ‘Big Things’ was impacted by the store closure in NSW, Victoria and Auckland and generated volume growth of 2.5% on pcp.
• However, ‘Little things’ reported robust volume growth of 156.8% on pcp, which was driven by eCommerce transactions during the lockdown.
• HUM has delivered strong growth in Commercial and Leasing volume of $205.1 million in 1QFY22, up 102.2% from $101.4 million in 1QFY21, reflecting a continued demand for capital equipment to support infrastructure growth.
• Additionally, HUM retails have integrated 1,433 new merchants in Australia and New Zealand in 1QFY22.

Cash and Cash Equivalent Highlights (Source: Analysis by Kalkine Group)

Key Risks:

• Retail Risk- The company has a significant impact on its income from retail stores, due to the closure of stores during the COVID-19 pandemic and, if it continues, might impact further earnings of HUM.
• Liquidity Risk- The company requires sufficient liquidity to meet its financial obligations, lend more customers, and mitigate the working capital risks.

Outlook:

• The management anticipates a net loss for BNPL in the range of 5% to 5.0% in Q2FY22.
• The company focuses on expanding customer, merchant base, and addressable markets both locally and internationally, which might support growth.
• The company plans to launch Humm in the UK and intends to be live in Canada by 1HFY22. Further, it aims to expand its geographic region and total addressable market opportunities in the near future.
• Recently, the company has announced to host a virtual Investor Strategy Day on 27 October 2021.
  

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of HUM is currently trading below its average 52-weeks' levels of $0.780-$1.360. The stock of HUM gave a positive return of ~11.65% in the past one month and a negative return of ~25.10% in the past nine-months. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount to its peers’ median EV/Sales multiple, considering the closure of retail stores, decreased spending power due to the economic slowdown and price volatility, etc. For the purpose of valuation, peers such as Zip Co Ltd (ASX: Z1P), Credit Corp Group Ltd (ASX: CCP), Money3 Corp Ltd (ASX: MNY) and others have been considered. Considering the current trading levels, indicative upside in valuation, strategic expansion, improvement in retail stores, optimistic outlook, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.905, as on 26 October 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

HUM Daily Technical Chart, Data Source: REFINITIV 

5G Networks Limited 

5GN Details

Update on Scheme of Arrangement: 5GN Networks Limited (ASX: 5GN) provides licensed telecommunications services that include data connectivity, cloud and data centre, and managed services in Australia and New Zealand. On 22 October 2021, the company and Webcentral Group Limited (ASX: WCG) updated on the proposed merger under which WCG will acquire all of the issued ordinary shares in 5GN through a scheme of arrangement. Under the Scheme of Arrangements, 5GN advised that ~99% of proxy votes have approved the scheme, lodged by 5GN shareholders, indicating 31% of total shareholder votes. The company expects to hold a virtual Scheme Meeting on 8 November 2021.

FY21 Financial Update-

• Strong Revenue Growth- The company has recorded an increase in revenue and other income to $91.69 million in FY21, compared to $49.32 million in FY20. The strategic acquisitions drove the top-line growth during the year.
• Robust Total Asset- The company has posted an improvement in total assets to $167.11 million as of 30 June 2021 vs $67.76 million as of 30 June 2020.
• Increase in Net Loss- The company has reported an increase in net loss after tax of $5.86 million in FY21 against a loss of $1.54 million in FY20, impacted due to an increase in marketing expense and acquisition costs during the year.
• Liquidity Position- The company's cash position stood at $19.17 million as of 30 June 2021 vs $22.11 million as of 30 June 2020.

Total Current Assets Highlights (Source: Analysis by Kalkine Group)

Key Risks:

• Financing Risk- The company requires sufficient liquidity to meet its financial obligations, strategic investment and mitigate the working capital risks.
• Competition Risk- The company is exposed to stiff competition risk. Therefore, it requires to invest in its R&D and offer updated technologies.

Outlook:

• The management expects capital expenditures to be circ $5 million in future years, increasing free cash flow and further anticipates revenue of more than $110 million and EBITDA margin to be more than 20% in FY22.
• The company’s strategies to increase its organic growth, infrastructure expansion and target acquisition, might drive growth in the long term.
• It is focused on launching .au domains and continued to cross-sell and upsell with webcentral customers in FY22 and beyond.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of 5GN is trading below its average 52-weeks' levels of $0.850-$1.820. The stock of 5GN gave a positive return of ~3.80% in the past one month and a negative return of ~25.96% in the past nine months. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount to its peers, considering the uncertainty of global financial conditions, competition risk, and also taking into consideration that the company has been trading at a discount in the past three years over its peers’ average EV/Sales multiple. For the purpose of valuation, peers such as Spirit Technology Solutions Ltd (ASX: ST1), Hubify Ltd (ASX: HFY) and others have been considered. Considering the current trading levels, indicative upside in valuation, strategic acquisition, strong revenue growth, optimistic outlook, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.955, as on 26 October 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

5GN Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined:  

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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