Stocks’ Details 

Omni Bridgeway Limited

Higher Revenues and Profits Despite Covid-19 Challenges: Omni Bridgeway Limited (ASX: OBL) is engaged in providing services in civil and common law legal and recovery systems with operations spanning Asia, Australia, Canada, Europe, the Middle East, the United Kingdom, and the United States. The company recently announced that New South Wales Court has delivered a judgement in favour of Omni Bridgeway’s funded client in the AET / SEAS Sapfor forestry scheme litigation. OBL has posted significant growth in its revenues in FY20 to $314.3 million, up from $45 million in FY19 and similarly the profits increased to $17.6 million in FY20 from a loss of $36.1 million in FY19 despite a pandemic situation in the year 2020. The company’s cash and receivables grew by 35% over the year to $329.114 million.

Business Growth (Source: Company Reports) 

Change in Substantial Shareholding: Recently, Perpetual Limited reduced its holding in the company from 8.87% to 7.85%. It now holds around 20,586,061 ordinary shares of the company. 

Outlook: OBL was able to expand its investments, EPV, Funds Management and team size through making its presence in Canada, Asia and EMEA regions apart from existence in UK, US and Australia. OBL has an ambitious plan to reach $5bn funds in management by the end of FY2025.

Stock Recommendation: In the last 1 month, the stock of OBL has corrected by 9.6%. The stock is currently trading below the average 52-week price level range of $3.16-$5.380. On the technical analysis front, the stock has a support level of ~$3.607 and resistance of ~$4.004. Considering the company’s incremental funds under management, improved top and bottom line in FY20, expanding presence across geographies, and current trading level, we give a “Hold” rating on the stock at the current market price of $3.76, up by 1.347% as on 10 Feb 2021.

MyState Limited

Decline in Funding Cost: MyState Limited (ASX: MYS) is a provider of banking, trustee, and wealth management services. Due to a rapid fall in the funding cost and BBSW (Bank Bill Swap Rate) as illustrated below, the margins of MYS have significantly improved in 2HFY20. Net Interest Margins were up by 6bp on pcp.

Funding Cost (Source: Company Reports)

Better Credit Quality: MYS has witnessed a higher impairment though the credit quality has been improved with 99% of their loan book arrears are 30 days and lower performing loans. The home loan book has been consistently increasing during the FY18-FY20 period.

Robust Q1FY21: MYS posted an increase of 21.7% in net profit after tax in Q1FY21 compared to the same quarter previous year. Deposits have been increased by 1.5% in Q1FY21 as compared to Q1FY20, resulting in Net Interest Margins to improve to 1.91% from 1.76%.

Outlook: MYS is well capitalised with its capital position supported by earnings growth and securitized funding and capital ratios above regulatory minimums. The company is planning to increase its marketing spend to enhance retail funding and growth of Funds Under Management.

Valuation Methodology: P/E Based Illustrative Relative Valuation (Illustrative)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: In the last 3 months, the stock of MYS has provided a return of 11.25%. The stock is currently trading above the average 52-week price level range of $3.150-$6.170. On the technical analysis front, the stock has a support level of ~$4.88 and resistance of ~$5.27. We have valued the stock using P/E multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). For the purpose we have taken peers like Suncorp Group Ltd (ASX: SUN), Perpetual Ltd (ASX:PPT), and Bendigo and Adelaide Bank Ltd (ASX: BEN). Considering lower funding cost, better credit quality, increasing operating cost, current trading level, and valuation, we give “Hold” rating to the stock at the current market price of $5.14, up by 1.98% as on 10 Feb 2021.

Prospa Group Limited

Maintaining Positive Cash Flows: Prospa Group Limited (ASX: PGL) is an Australia-based financial technology company. The company design, build, and utilise cloud-based, application program interface-enabled (API) technologies. It offers amortizing term loan from $5,000 to $300,000 for a term of 3 to 24 months. Its line of credit ranges from $2,000 to $25,000 for a term of 12months, annual renewal. PGL has maintained a healthy positive net cash flow of $110.31mn in FY20 as compared with $69.839mn in FY19.

Positive Cash Flows (Source: Company Reports)

Rise in Originations: As per the company’s report, the total originations have increased by 25.9% QoQ to reach at $100.7 million in 2Q21 from $80.0 million in 1Q21. The company is keeping their operating costs under check and managed to lower at $17.2 million in 2Q21, down 18.9% on pcp (2Q20: $21.2 million). With better liquidity position ($110.9 million in cash) and decent balance sheet, the company is well positioned to continue to grow.

Outlook. As economic conditions continue to strengthen in Australia and New Zealand, the company believes that this is the time to invest in short- and long-term growth by increasing investment in research and development, and sales and marketing. For the first nine months of the FY20 financial year, PGL has achieved a 31.6% growth in originations compared to the same period in FY19. New Zealand business continues to grow at an average originations growth rate of 4.1% per month, made a strong contribution to the overall results.

Stock Recommendation: In the last 3 months, the stock of PGL has provided a return of 10.96%. The stock is currently trading below the average 52-week price level range of $0.40-$2.050. On the technical analysis front, the stock has a support level of ~$0.825 and resistance of ~$0.973. Considering lower operating costs, higher margins, positive net cash flows of $11.08mn, current trading level, and improving economic conditions, we give a “Speculative Buy” rating on the stock at the current market price of $0.845, down 1.745% as on 10 Feb 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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