Stocks’ Details

Westpac Banking Corporation

Business Assessment in the NZ Region: Westpac Banking Corporation (ASX: WBC) provides financial services to its customers. The market capitalisation of the company as on 07 April 2021 stood at ~$90.61 billion. The company has been reviewing its New Zealand Business, assessing the appropriate structure and whether a demerger would be beneficial to its shareholders. Its business in the New Zealand region has a strong foothold in retail and commercial banking.

As per a recent update, the Australian Prudential Regulation Authority (APRA) has approved the company’s Integrated Plan to address risk governance.

Q1FY21 Trading Update: The company reported an unaudited statutory net profit of $1.7 billion during the period. The results reflect an impairment benefit of $501 million through improved credit quality and decent economic outcomes. The net interest margin stood at 2.06%. It maintained a decent balance sheet with an 11.9% CET1 capital ratio, and a liquidity coverage ratio of 152%.

Q1FY21 Financial Performance (Source: Company Reports)

Dividend Declaration: The company has declared a dividend of 87 cents per share. The ex-date for the distribution will be June 21, 2021 and the payment date will be June 30, 2021.

Outlook: The company will look to address the issues of risk management in the near-term and exit its non-core businesses. It further plans to enhance the customer experience by using digital and data platforms. It expects the mortgage to be in-line with its peers by H2FY21.

Valuation Methodology: P/BV Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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: As per an announcement on 18 March 2021, the company has sold its lenders mortgage insurance business to Arch Capital Group, and has entered into a 10-year supply agreement for Arch to provide Lenders Mortgage Insurance (LMI) to WBC. As per ASX, the stock of WBC is trading above its average 52-weeks’ levels of $14.530-$25.300. The stock of WBC gave a positive return of ~1.84% in the past one week and a positive return of ~0.48% in the past one month. On a technical analysis front, the stock of WBC has a support level of ~$24.033 and a resistance level of ~$25.343. We have valued the stock using a P/BV multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe the company can trade at a slight premium to its peer average P/BV (NTM Trading multiple), considering the decent financial performance, enhancement of shareholder’s value and its focus on risk management. For the purpose, we have taken peers such as Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Limited (ASX: NAB), Australia and New Zealand Banking Group Limited (ASX: ANZ), to name a few. Considering the valuation, current trading levels, decent performance in Q1FY21 and the company’s focus on its core businesses, we recommend a ‘Hold’ rating on the stock at the current market price of $24.840, up by 0.566% as on April 07, 2021.

VGI Partners Limited

Business Update: VGI Partners Limited (ASX: VGI) is engaged in the provision of investment management services. The market capitalisation of the company as on 07 April 2021, stood at ~$524.04 million. As per a recent update, the company has announced that it has appointed Jonathan Howie as its Chief Executive Officer.

FY20 Performance Update: The company reported an uptick in management fees revenue to $43.1 million in FY20, compared to $32.4 million in FY19, aided by higher average FUM and an end to VGI fee waiver in April 2019. It reported a FUM of $3.1 billion as of 31 December 2020. The statutory NPAT stood at $25.9 million during the period. It has declared a final dividend of 28 cents per share, with a payment date of 11 March 2021.

FY20 Financial Performance (Source: Company Reports)

Outlook: The company has announced that it will hold its Annual General Meeting on 18 May 2021. It reported a FUM of $3.3 billion as of 19 February 2021.  VGI Partners’ strategies are accessible via investing in VG1 or VG8 shares.

Stock Recommendation: The company follows the Global and Asian Strategies in investing. As per ASX, the stock of VGI is trading below its average 52-weeks’ levels of $6.00-$10.950. The stock of VGI gave a negative return of ~1.32% in the past one month and a positive return of ~14.59% in the past six months. On a technical analysis front, the stock of VGI has a support level of ~$7.372 and a resistance level of ~$7.947. On a TTM basis, the stock of VGI is trading at an EV/Sales multiple of 9.1x, lower than the industry average (Financials) of 10.3x. Considering the current trading levels and the valuation on TTM basis, improvement in management fees and an increase in FUM levels, we recommend a ‘Hold’ rating on the stock at the current market price of $7.400, down ~1.465% as on April 07, 2021.

Cash Converters International

Change in Directors’ Interest: Cash Converters International (ASX: CCV) is a franchisor of second-hand stores and financial services stores which operates under the Cash Converters name. The market capitalisation of the company as on 07 April 2021, stood at ~$141.78 million. As per a recent update, there was a change in the interests of Mitsubishi UFJ Financial Group, Inc. on 1 March 2021 to 38,464,142 ordinary shares from 31,741,290 shares held previously.

 H1FY21 Results Update: During the period under consideration, the company reported a revenue of $98.4 million. It delivered an EBITDA of $24.6 million and the operating NPAT stood at $7.7 million. There was an improvement in the operating cash flow of the company to $8.6 million in H1FY21. The online retail sales grew by ~39% to $5.3 million, compared to the pcp. There was also a ~72% increase in the pawnbroking loan book to $16 million. It ended the period with a cash position of $91.3 million.

H1FY21 Financial Performance (Source: Company Reports)

Outlook: The company continues to leverage its network of extensive stores and online network to fight the impact of the COVID-19 pandemic. It has witnessed signs of recovery in the Australian market with an improvement in demand for credit.

Key Risks: The company’s activities expose it to a variety of risk factors like credit risk and interest rate risk. Moreover, it has to do a thorough credit assessment of its clients to mitigate the scope of any business losses.

Stock Recommendation: The company generates its revenues under its four business units of Personal Finance, Corporate Stores, Franchise Operations and Vehicle Finance. As per ASX, the stock of CCV is trading above its average 52-weeks’ levels of $0.140-$0.290. The stock of CCV gave a positive return of ~4.54% in the past three months and a positive return of ~39.39% in the past six months. On a technical analysis front, the stock of CCV has a support level of ~$0.22 and a resistance level of ~$0.24. On a TTM basis, the stock of CCV is trading at an EV/Sales multiple of 0.6x, lower than the industry median (Speciality Retailers) of 1.6x. Considering the valuation on TTM basis, growth in online retail sales, decent cash position and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.230 as on April 07, 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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