Stocks’ Details
 

NIB Holdings Limited

 
Revenues up ~6.4% Year Over Year in 1HFY20: NIB Holdings Limited (ASX: NHF) is a private health insurer in Australia and New Zealand. The company is engaged in underwriting and distributing private health insurance to residents, international students and visitors to Australia. On 20 March 2020, NHF appointed Mr Nick Freeman as Group Chief Financial Officer (CFO) of the company, effective from early FY21.
 
H1FY20 Key Financial Highlights for the Period ended 31 December 2019: During the period, the company reported an increase of 6.4% in revenue to $1.3 billion, owing to growth in memberships and premium revenue.In 1HFY20, the company increased its overall memberships by 1.4% and paid $126.5 million to its health insurers, reflecting an increase of 10.3% on a year over year basis. In 1HFY20, NHF reported NPAT of $57.1 million, which declined 23.1% year over year. The company’s ROIC stood at 16.7% and statutory EPS came in at 12.6 cents per share. The management has also declared an interim dividend of 10 cents per share (fully franked), payable on 7 April 2020.  
 

H1FY20 Key Highlights (Source: Company Reports)
 
Outlook: The company predicts a positive near-term outlook with the growth of 2%- 3% per annum in organic net policyholders. For the arhi business segment, the company is targeting a net margin of ~6% and expects that M&A possibilities could prevail in the short to medium term. The company also expects FY20 net insurance margins for adjacent businesses to be in line with 1H20. The company has reaffirmed FY20 Group UOP guidance of at least $170 million with a Statutory Operating Profit of at least $150 million.
 
Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation

Price to Cash Flow Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The stock of NHF is trading at $4.96 with a market capitalisation of $2.15 million. The stock is trading below the average of its 52-week low and high of $3.335 and $8.2, respectively. The stock has generated a negative return of 36.69% in the last six months. Considering the current trading levels and business prospects, we have valued the stock using P/CF based relative valuation method. For the purpose, we have taken peers like Platinum Asset Management Ltd (ASX: OTM), Steadfast Group Ltd (ASX: SDF), Insurance Australia Group Ltd (ASX: IAG), to name few and arrived at a target price with single-digit upside (in % terms). Hence, we recommend a “Hold” rating on the stock at the current market price of $4.96 per share, up 5.308% as on 20 March 2020.
 

AUB Group Limited

 
AUB Rides on Organic Growth and Synergies from Acquisitions: AUB Group Limited (ASX: AUB) is a financial company, which is involved in insurance broking, underwriting agency as well as risk management businesses. Recently, the company stated that Wellington Management Group LLP and its related bodies corporate, a substantial holder of the company, has increased its voting power from 5.06% to 6.12%. In another update, the company stated that Perpetual Limited and its related bodies corporate has also increased its voting power from 9.28% to 10.74%.
 
H1FY20 Key Financial Highlights for the Period ended 31 December 2019: During the half, the company reported underlying revenue of $272.1 million, an increase of 5.9% on pcp. The increase was primarily due to 17.9% organic growth along with 7.1% growth from acquisition, which was partially offset by the reduced impact of interest rates. Underlying EBIT margin came in at 23%, up 90 basis points from the year-ago period. Adjusted NPAT for the period stood at $21.3 million, suggesting a rise of 25.3% on year over year basis. The company declared a fully franked dividend of 14.5 cents per share in 1HFY20, up 7.4% year over year.
 

Key Operational Highlights for H1FY20 (Source: Company Reports)
 
Outlook:As per the FY20 guidance, the company expects its adjusted NPAT to increase by 16% to 18% on y-o-y basis, on the back of synergies from recent acquisitions and robust operational performance.
 
Valuation Methodology: EV/Sales Multiple Based Relative Valuation

EV/Sales Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The stock of AUB is trading at $12.26 with a market capitalisation of $874.75 million. The stock is trading close to the average of its 52-week low and high of $10.15 and $14.84, respectively. The stock has generated a positive return of 7.73% in the last six months. The healthcare industry is expected to witness growth on the back of increased focus on an expanding footprint and product portfolio through acquisitions, as well as cost-saving initiatives. Considering the current trading levels and business prospects, we have valued the stock using EV/Sales based relative valuation method. For the purpose, we have taken peers like QBE Insurance Group Ltd (ASX: QBE), Steadfast Group Ltd (ASX: SDF) and PSC Insurance Group Ltd (ASX: PSI) and arrived at a target price with lower double-digit upside (in % terms). Hence, we recommend a “Buy” rating on the stock at the current market price of $12.26 per share, up 3.46% as on 20 March 2020.
 

Netwealth Group Limited

 
Business Update Pertaining to Market Volatility for March Quarter: Netwealth Group Limited (ASX: NWL) is engaged in providing financial investors and intermediaries with managed funds services, superannuation master fund service, and investor directed portfolio services, to name few. In a recent update, the company stated that its funds under administration (FUA) came in at $27.6 billion as at 17 March 2020. The company reported FUA net inflows of $2.95 billion, resulting in total FUA net inflows to date to be ~$7.3 billion. Total funds under management for the period came in at $6.3 billion, whereas managed accounts as at 17 March 2020 stood at $5.1 billion.
 

Key Metrics (Source: Company Reports)
 
Revised Outlook for FY20: The company now anticipates full year FUA net inflows to be approximately $8.5 billion, reflecting transition relating to market uncertainty and volatility. Further, the company now expects FY20 revenues to be in the range $116 to $120 million, down from the previous guidance of $120 to $122 million, following the RBA rate cut of 25 bps. Underlying EBITDA is now expected to be in the range of $58 to $62 million, down from the previous guidance of $61 to $63 million.
 
Valuation Methodology: EV/Sales Multiple Based Relative Valuation Method

EV/Sales Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: As per ASX, the stock is trading close to the average of its 52-week high and low level of $10.110 and $4.800, respectively. As on 20 March 2020, the company’s market capitalisation stands at ~$1.59 billion, with 237.69 million outstanding shares. Its net margin for 1HFY20 stood at 35.8%, higher than the industry median of 26.8%, respectively. Its EBITDA margin for the same time span came in at 53.1%, lower than the industry median of 59.2%. Considering the backdrop of the above factors, we have valued the stock using EV/Sales based relative valuation method and for the purpose, have taken the peer group - Challenger Ltd (ASX: CGF), Virgin Money UK PLC (ASX: VUK), Pinnacle Investment Management Group Ltd (ASX: PNI), to name few. Therefore, we have arrived at the target price with limited correction in % terms. Hence, we have a watch view on the stock at the current market price of $6.48, down 3.284% on 20 March 2020, primarily on the back of recent quarterly update.
 

HUB24 Limited

 
HUB Chosen by ClearView to Offer Wrap Platform Solutions: HUB24 Limited (ASX: HUB) is involved in the provision of investment and superannuation portfolio administration services, provision of licensee services, software license and IT consulting services. On 19 March 2020, the company announced that ClearView Wealth Limited has chosen HUB as the provider of ClearView’s strategic wrap platform. As per the deal, more than $1 billion of FUA from ClearView’s WealthSolutions wrap platform is intended to migrate across to HUB24. The move is expected to be implemented in stages by 31 December 2020. 
 
Other Recent Updates: Recently, the company notified that ECP Asset Management Pty Ltd, a substantial holder of the company, has increased its voting power from 8.37% to 9.49%. In another update, the company stated the appointment of Debbie Last as the interim CFO and Joint Company Secretary of HUB.
 
H1FY20 Key Financial Highlights for the Period ended 31 December 2019: During the period, the company reported platform segment revenue of $35 million, an increase of 38% year over year. Underlying EBITDA for the segment went up by 73% to $13.8 million. First half dividend came in at 3.5 cents per share, indicating a rise of 75% on pcp.
 

Key highlights (Source: Company Reports)
 
Valuation Methodology: EV/Sales Multiple Based Relative Valuation
 

EV/Sales Based Valuation (Source: Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: The stock of the company corrected by 45.84% in the last six months and is currently trading close to its 52-week low level of $6.06. The company is aiming for Funds under Administration in the band of $22 billion - $26 billion in FY21, owing to the continuous emphasis on innovation, robust financial growth, and expansion of market share. Considering the above factors, we have valued the stock using EV/Sales based relative valuation method and have arrived at a target price with lower double-digit upside in % terms. For this purpose, we have taken peers as Pacific Current Group Ltd (ASX: PAC), Magellan Financial Group Ltd (ASX: MFG) and Pengana Capital Group Ltd (ASX: PCG). Hence, we give a “Buy” recommendation on the stock at the current market price of $7.86, up 14.912% on 20 March 2020, on the back of the recently announced deal with ClearView and robust fundamentals.


Comparative Price Chart (Source: Thomson Reuters)

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