Humm Group Limited

HUM Details

FY21 Key Results Highlights: Humm Group Limited (ASX: HUM) is a consumer finance products provider, providing interest-free digital payments, Buy Now and Pay Later (BPNL) and MasterCard services. It is mainly available in Australia, Ireland and New Zealand.

• Announced on 3^rd September, HUM was removed from S&P/ASX 300 list.
• Global Expansion: Humm was launched in UK in 2HFY21 and planning to enter the Canadian markets by 1HFY22.
• Cash NPAT Details: The increase from $30.9 million in FY20 Vs $68.4 million in FY21, is due to increased profitability in Cards and Commercial & Leasing segments. Also, strong credit performance led to a down of 59.5% of impairment losses.
• Cash Balance Details: A fair amount of increase in non-restricted cash balance has been reported from $14.5 million at the end of FY20 Vs $107.6 million at the end of FY21.
• Target of ~250k of additional customers by 2022: Through its current partnerships with Red Bird Ventures (a subsidiary of Westpac, NZ), loyalty program (Velocity Frequent Flyer), retailers (Mitre10 and Home Hardware) and issuer (MasterCard), HUM aims a new target.
• Net Operating Income Details: In FY21, the company reported Net Income as $342.9 million, as compared to $361.0 million in FY20.

Transaction Value Highlight (Source: Analysis by Kalkine Group) 

Key Risks: The company is exposed to credit and fraud risks. Besides, the globalisation of Humm Group Limited, makes it more prone to rapidly changing technology, government policies & regulations along with currency fluctuations risks in the international market.

Outlook: HUM’s focus on Global Expansion in UK & Canada, new growth products, new partnerships invite a new target volume of ~$150 million with a forecast of Cash NPAT of ~$12 – $14 million for FY22.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

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: Over the last six months, the stock has provided a negative return of 11.99% and is trading lower than the average 52-week price level band of $0.84 and $1.36. The stock has been valued using the EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company can trade at some discount to its peers’ average, considering its risks related to government policies & regulations, marketing risks and dependency on currency fluctuations. For the purpose of valuation, peers like Eclipx Group Ltd (ASX: ECX), Zip Co Ltd (ASX: Z1P), WISR Ltd (ASX: WZR) and others have been considered. Considering the company’s rise in FY21 net cash NPAT, Transaction Value, customers, various strategic alliances, current trading levels, valuation, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the current market price of $0.870, as on 13 September 2021, 04:00 PM (GMT+10), Sydney, Eastern Australia.

HUM Daily Technical Chart, Data Source: REFINITIV

Openpay Group Limited

OPY Details

Domestic & International Market Penetration Strategy: Openpay Group Ltd. (ASX: OPY) provides Buy Now and Pay Later (BPNL) payment solutions across automotive, healthcare, home improvement, memberships, and education industries.

• Multiple deals signed with various Partners, as announced on 7^th September 2021:
  1. Automotive –

1. Iconic tyre marketer “Goodyear & Dunlop Tyres, Australia” – which covers 450 auto services, 160 company owned beaurepaires stores.
2. Victorian Automobile Chamber of Commerce (VACC) and Bosch Car Services, Australia – covering over 5,000 locations.
   1. Healthcare –
      1. Nexus Hospital, Australia – such partnership aiding in strengthening of OPY’s current position in healthcare sector.
      2. Henry Schein (Software of Excellence) – covering over 6,000 locations in the dental practice management solutions and hence covering nearly half of UK.
      3. ezyVet (Veterinary Software) went live in UK.

FY21 Key Results Highlights:

• Cash Balance Details: A decline in cash balance has been reported from $70.05 million at the end of FY20 Vs $52.08 million at the end of FY21.
• Net Loss Details: Reported Net loss of $63.06 million in FY21 as compared to a loss of $35.40 million in FY20. Such an increase in losses is due to the increased expenditure in receivables impairment expenses and advertising and marketing expense.

Total Transaction Value Highlight (Source: Analysis by Kalkine Group)

Key Risks: Though, its global expansion in the UK Automotive & Healthcare segment reduces the credit and fraud risks, but it is still exposed to it. Besides, the risk related to efficiency and execution of third-party services also comes into play with the changing government policies & regulations.

Outlook: Looking ahead, other than the recent above-mentioned announcement on market expansion in the UK, Openpay targets ~$235 billion market in Australia. By introducing the services in Automotive and Healthcare industries, it focuses on customer acquisition, their retention and maintaining the positive relationships for longer lifecycle.

Valuation Methodology: Price/Sales Multiple Based Relative Valuation (Illustrative)

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: Over the last three months, the stock has provided a negative return of ~13.02% and is trading lower than the average 52-week price level band of $1.11 and $3.57. The stock has been valued using the Price/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company can trade at some discount to its peers’ average, considering its tough competition, liquidity risk, third party risks and increase in net losses, etc. For the purpose of valuation, peers like Credit Corp Group Ltd (ASX: CCP), Zip Co Ltd (ASX: Z1P), Eclipx Group Ltd (ASX: ECX), and others have been considered. Considering the company’s rise in FY21 customers & merchants, TTV, current trading levels, valuation, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the current market price of $1.32, as on 13 September 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

OPY Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.