Stocks’ Details

IOOF Holdings Limited

ACCC Approves Proposed Acquisition of MLC: IOOF Holdings Limited (ASX: IFL) provides financial advice and distribution, along with portfolio and estate administration, and investment management solutions. The market capitalisation of the company stood at ~$2.32 billion as on 31^st December 2020. Recently, the company has received a final decision from the Australian Competition and Consumer Commission (ACCC) with respect to the proposed acquisition of MLC, which stated that ACCC would not oppose IOOF’s proposed acquisition of MLC. For the quarter ended 30^th September 2020 (Q1 FY21), the company reported a total FUMA (Funds Under Management, Advice and Administration) of $202.8 billion, reflecting a rise of $529 million as compared to the previous quarter. The financial advice business reported net inflows of $175 million while investment management recorded a net outflow of $62 million.  Also, the portfolio & estate administration business experienced continued net inflows of $226 million during the quarter.

Key Financials (Source: Company Reports)

Outlook: The company is expecting a run-rate synergy of $43 million in FY21 with respect to Pensions & Investments business. In addition, the company is building scale in its business for long-term benefits.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company ended FY20 with cash and cash equivalents of $374.7 million. The stock of IFL has corrected 9.27% and 22.06% in the last one and six months, respectively. As a result, the stock is trading towards its 52-weeks low level of $2.505. We have valued the stock using the price to earnings multiple based illustrative relative valuation and arrived at a target price with an upside of low double-digit (in percentage terms). For the purpose, we have taken peers like Challenger Ltd (ASX: CGF), Pendal Group Ltd (ASX: PDL), Perpetual Ltd (ASX: PPT), and others. On a technical analysis front, the stock has a support level of ~$2.824 and a resistance level of ~$5.188. Therefore, in light of the favorable final decision by ACCC regarding MLCAcquisition, growth in FUMA during Q1 FY21, current trading levels, and valuation, we give a “Buy” recommendation on the stock at the current market price of $3.520 per share, down by 1.676% on 31^st December 2020.

Pinnacle Investment Management Group Limited

Decent Growth in FUM: Pinnacle Investment Management Group Limited (ASX: PNI) is engaged in the development and operation of investment management businesses. The market capitalisation of the company stood at $1.35 billion as on 31^st December 2020. Despite the fall of 10.8% in the ASX300 index over the 12-month period ended 30^th June 2020, the company witnessed a rise of 8.1% in funds under management (FUM) to $58.7 billion. For the year ended 30^th June 2020, the company recorded a net profit after tax (NPAT) attributable to shareholders of $32.2 million, reflecting a rise of 5.6% over the prior year. The company declared a fully franked final dividend of 8.5 cps, which took the total dividend to 15.4 cps.

Key Metrics (Source: Company Reports)

Outlook: The company’s decision to keep its core capabilities well-resourced in FY20 is likely to place the business in a decent position for further growth. In addition, the company would also continue to invest in and seed new Affiliates where management teams have a strong track record and growth potential.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company recorded net inflows of $3.0 billion in FY20. Basic earnings per share (EPS) for the year stood at 18.8 cents, up 2.7% over FY19. In the last one and three months, the stock of PNI has provided positive returns of 16.39% and 40.03%, respectively. We have valued the stock using the price to earnings multiple based illustrative relative valuation and arrived at a target price with an upside of high single-digit (in percentage terms). For the purpose, we have taken peers like Challenger Ltd (ASX: CGF), HUB24 Ltd (ASX: HUB) and NIB Holdings Ltd (ASX: NHF). On a technical analysis front, the stock has a support level of ~$4.725 and a resistance level of ~$7.831. Hence, considering the decent returns in the past months, growth in FUM, outlook, and valuation, we give a “Hold” rating on the stock at the current market price of $7.100 per share, down by 1.934% on 31^st December 2020.

humm Group Limited

Signing of MOU with Douugh: humm Group Limited (ASX: HUM) provides the point of sale lease and rental finance for the IT equipment, electrical appliance and other retail markets. The market capitalisation of the company stood at ~$567.08 million as on 31^st December 2020. Recently, the company reached a Memorandum of Understanding with neobank Douugh in order to roll-out a Douugh-branded buy now pay anywhere feature into the U.S market in 1H FY22 via a proposed joint venture. The company is also making a strategic investment of $2.5 million in Douugh for supporting support research and development, marketing and growth.  For FY20, the company reported Statutory Net Profit After Tax amounting to $21.4 million and cash NPAT of $29.2 million, which indicates COVID-19 macro-overlay provision. In addition, the company witnessed a YoY growth of 30% in active customers to 2.3 million.

Financial Summary (Source: Company Reports)

Outlook: The strategic priority of the company revolves around delivery on its key strategic pillars with the significant rationalisation of products while achieving double-digit volume growth and strong customer engagement.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: At the end of FY20, the company had wholesale funding facility headroom of $648 million and $145 million of undrawn corporate debt facilities and unrestricted cash representing net gearing of 29%. We have valued the stock using the price to cash flow multiple based illustrative relative valuation and arrived at a target price with an upside of low double-digit (in percentage terms). For the purpose, we have taken peers like Smartgroup Corporation Ltd (ASX: SIQ), Credit Corp Group Ltd (ASX: CCP), IOOF Holdings Ltd (ASX: IFL), to name few. On a technical analysis front, the stock a support level of ~$0.907 and a resistance level of ~$1.366. Thus, considering the recent signing of MOU, growth in active customers, outlook and key risks associated with the business, we give a Speculative Buy” recommendation on the stock at the current market price of $1.125 per share, down by 1.747% on 31^st December 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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