Australian Finance Group Limited

AFG recently posted annual results where revenue showed an increment of 2.3% while net profit was down by 14.8% for the year ending June 2018. P/E ratio of the company is around 10x as compared to market P/E of around 15 and sector P/E of around 12x, which signals the scrip looks undervalued as compared to both market and sector P/E.

The stock touched the levels of $1.83 in the month of Feb-2018 which was recorded as the all-time high of the scrip. Ever since it recorded a sharp decline on the charts till May-2018. Looking at the price charts, the scrip recorded a low of $1.28 in the month of June 2018 and closed at the levels of $1.36 with the formation of “Hammer” along with a wick giving an indication of rejection on downside and buyers gaining momentum over sellers. If we calculate mathematically also from the high to the low, a good difference is estimated. With the formation of a “Hammer “pattern a clear indication was shown that bullish phase is about to start for the scrip. Ever since from the Month of June, the scrip has retraced from the lower levels. The scrip made a high around $1.5 with the September month closing. The scrip is currently trading at the price levels of $1.50 near to the mean deviation of the Bollinger bands. Looking at the major indicators, Relative Strength Indicator (RSI) reflects that crossover is likely and Moving Average Convergence Divergence (MACD) is in positive territory. With all indicators pointing for a bullish move along with current price levels, the stock is expected to move on the upside trajectory.

In the long run, we expect that the group has a strong growth potential with decent financials supporting the growth. The stock has a market capitalization of $322.22M, as of October 23, 2018, and exhibits a “Buy” scenario at the current juncture. We, therefore, maintain our “Buy” recommendation on the stock at the current market price of $1.50.

Macquarie Group Limited 

The group has recently faced an investigation in the month of September against its ex and current chief executives on account of improper trades that were initiated around the ex-dividend dates of shares in order to obtain the benefit of dividend withholding tax credits. Such events leave a room of doubt in the minds of investors. Macquarie Group made a bearish engulfing in the month of September and ever since a downtrend is seen on the charts. Though the scrip is currently trading at the lower end of Bollinger bands, but it doesn’t signal any sign of stupendous reversal and also looking at Bollinger bands chances are that bands might expand. Looking at major indicators such as RSI and MACD in negative territory, the scrip looks expensive. Net cash outflow has significantly increased from $66 million in 2017 to $1755 million in 2018 while net cash inflow has reduced from $881 million in 2017 to $321 million in 2018.Total operating expenses of $A7,456 million increased 3% on prior year. Dividend per share showed a growth of 12% on prior year. Net Profit marked an increment of 15% on prior year.

The stock has a market capitalization of $39.13 Bn, a price-to-earnings ratio of 15.16x and a beta around 1.5x as of October 23, 2018, exhibiting expensive scenario at the current juncture. We, therefore, maintain our “Expensive” recommendation on the stock at the current market price of $113.9and we might consider a significant drop for evaluating a fresh entry.

QBE Insurance Group Limited 

Being one of Australia’s largest heavy vehicle insurers and committed to providing best customer experience, QBE launched its first heavy vehicle repairer network on October 22, providing access to end to end heavy vehicle repairs from accredited specialist provider across Australia.Management is putting rigorous efforts on enriching the customer experience using both data and technology to deliver best practices and through strategic supplier excellence. Company expects that its heavy haulage network will see positive customer outcomes and will reflect in company's growth in near term.

QBE Insurance continued the upside rally from the month of June and is maintaining till date. Lately, formation of “bullish engulfing” was well seen on the price charts and the stock touched the upper zone of Bollinger bands, and from such levels minor retracement is indicated on charts. With no sign of bearish trend on the charts and bullish candles on the price charts, a bull move is seen for the scrip in the near term. Looking at major indicators, the scrip seems to have a resilient scenario compared to last year.

Backed by strongbalance sheet as well as operating performance, with favorable business profile and appropriate enterprise risk management, QBE looks competitive with growth prospects. QBE’s business profile assessment reflects favorable position as a key general insurance and reinsurance group. Underlying gross written premium growth of 2% was recorded in 1H18. Profit after tax was up 4% to $358m. Inthe long run, we expect that the group with its competitive strengthand strong growth prospects will deliverbetter fundamentals with well-diversified business model. The stock has a market capitalization of $15.63 Bn, and a beta of around 1.6x as exhibiting buy scenario. We, therefore, maintain our “Buy” recommendation on the stock at the current market price of $11.64.
 

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