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Automotive Group Holdings, FlexiGroup & Insurance Australia Group- Are these the Smart Choices?

Sep 30, 2015 | Team Kalkine
Automotive Group Holdings, FlexiGroup & Insurance Australia Group- Are these the Smart Choices?

Automotive Group Holdings

Solid performance: Automotive Group Holdings Ltd (ASX:AHG) delivered a revenue rise of 10.8% yoy to $5.2 billion in the fiscal year of 2015 driven by  Bradstreet Motor Group and better Auto performance in NSW Qld Vic and NZ. Accordingly it’s Operating NPAT rose by 20% yoy to $94.2 million. The group improved its EBIT margins by 0.2% to 3.3% in FY15 while the Operating EPS rose 6% yoy to 30.7 cents. Automotive Group opened new Daimler Trucks Perth facility which offers a world class sales and service capability in Australia and even finished the development of AHG Service Centre Newman to enhance capabilities in the North West. AHG’s acquisitions Paceway Mitsubishi WA, Leo Muller CJD Qld and Hillcrest Mazda Qld would also continue to drive growth. AHG’s Mercedes passenger car brand addition would improve the group’s reach into the luxury market at WA. Recently, the company has also been granted a franchise for a Nissan dealership in Brisbane suburb of Aspley.


AHG Dealerships (Source: Company Reports)

Stock Performance: Automotive Group shares have delivered year to date returns of 2.1% even though the broader index S&P/ASX 200 fell by 8.9% during the same period. We believe that the group is well positioned to deliver growth through its acquisitions, investments and strategies. AHG continues to divest its non-core assets and focus on its core business. Having a relatively cheaper P/E of 14x and a decent dividend yield of 5.5%, we remain bullish on the stock at the current price of $3.95.


AHG Daily Chart (Source: Thomson Reuters)
 

FlexiGroup Limited



Solid potential despite management changes: FlexiGroup Limited (ASX: FXL) reported a 6% yoy increase of cash NPAT to $90.1 million for the fiscal year of 2015, boosted by better performance across its Interest Free Cards, New Zealand business and Certegy segments. Volumes and receivables surged by 5% and 8% respectively on a year over year basis. The group’s transaction volume for its Certegy segment improved by 9% yoy to $552 million, while the small and medium enterprise (SME) leasing division were under pressure, delivering 23% yoy decline during the year. But, FXL improved its fully franked annual dividends by 8% yoy to 17.75 cents per share.


FY15 Performance (Source: Company Reports)
 
Stock Outlook: FXL shares fell over 16.5% over the last three months impacted by the unexpected resignation of CEO and the Managing Director, Tarek Robbiati. The group’schairman Chris Beare and non-executive director Anne Ward also announced their resignations from the firm, raising concerns on the firm performance. But the group already gave a positive guidance and estimates its cash NPAT to be in the range of $92 million - $94 million, for the fiscal year of 2016, while dividends are estimated to be in the range of 50-60% of cash NPAT. Lower interest rates would continue to drive the demand for its products. Moreover, FXL’s core Certegy business growth would be coming from the better VIP customer program, improved penetration through present retail partners and expansion into new product and merchants. FXL is targeting the Education sector in New Zealand Leasing to boost its volumes. Flexigroup is also reorganizing the business to focus on broker based origination channels and managed service products, to offset the pressure from the Enterprise Leasing segment. Recent discussion in the media (as yet to be confirmed by the company) about winning the battle to buy Fisher & Paykel Finance (New Zealand) for about $NZ300 million will also be quite positive for FXL. Trading at attractive P/E of 8.4x, and having a strong dividend yield is 7.8%, we give a “BUY” recommendation on the stock at the current price of $2.35.
 

FXL Daily Chart (Source: Thomson Reuters)

Insurance Australia Group



Berkshire Hathaway Strategic Alliance coupled with Asian markets performance would underpin growth: Insurance Australia Group Ltd (ASX:IAG)entered into a strategic relationship with Berkshire Hathaway, with 20% quota share agreement across the group’s insurance business, so that IAG could shield its earnings volatility and capital requirements for the next ten years. IAG intends to maintain its 15% return on equity through this move. Insurance Australia estimates that this quota share arrangement would reduce its capital requirement of over $700 million for the next five years, while $400 million of that benefit estimated to be realized by FY16. IAG estimates to drive its Asia pacific markets growth through this deal. The group is raising its stake in SBI General, the general insurance joint venture with State Bank of India, to 49% from 24% subsequent to the legislative changes on foreign ownership by the end of 2015 fiscal year. IAG acquired PT Asuransi Parolamas, a small general insurance company, to get insurance license in Indonesia. IAG launched InsureLite, a new solution for families seeking for home insurance affordability stress in Queensland. There are speculations about the group looking to expand its portfolio in China by means of acquisitions. However, the market expects the company to have shares trading at a discount till a clarity is obtained on the reserves requirements for the New Zealand quakes and investment scenario in China and Asia.



Total Investment, Asset Allocation and Shareholder Funds (Source: Company Reports)

Stock Outlook: IAG shares fell over 15% in the last three months due to its lower than estimates fiscal year of 2015 performance. IAG reported decreasing insurance profit to $1.1 billion in FY15 as compared to $1.6 billion in the prior corresponding year. Underlying insurance margin reduced to 13.1% in FY15 from 14.2% in prior corresponding period. Although, personal insurance rose 5.2% in GWP, the net natural peril claims costs offset the gain, and surged to $1.05 billion in FY15, which is $348 million more than the allotted allowance of $700 million for the year. However, IAG is well positioned to drive growth from its Asian markets and Berkshire hatchway alliance. Management also gave a positive outlook for next fiscal year and estimates insurance margin to be in the range of 14% to 16%, including a 2% contribution from the Berkshire Hathaway agreement. Having a decent annual dividend yield of 6.12%,  we maintain our bullish stance on the stock at the current levels of $4.84.


IAG Daily Chart (Source: Thomson Reuters)

Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people.Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation.Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product.The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in:  BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.
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