Latitude Group Holdings Limited

LFS Details

Issued Capital Notes: Latitude Group Holdings Limited (ASX: LFS) provides credit services through credit cards, personal loans, and motor loans through various channels. It also engages in instalment products that connect the customer and merchants for mutual benefits. Recently, the company has issued 1.5 million Capital notes at a price of $100 each, raising ~$150 million.

H1FY21 Financial Performance:

• The company has recorded revenue from ordinary activities of $506.7 million in H1FY21, down by 13.6% from $586.4 million in FY20. The significant impact on consumer spending trends and repayment rates arose during the COVID-19 pandemic.
• The company has delivered a robust bottom-line growth with NPAT of $89.5 million, which grew by 524% in H1FY21 against a loss of $21.1 million on a pcp basis. The strong growth volume of 37% in the personal and auto lending business and lower cost has strengthened H1FY21 performance.
• It has reported a volume growth of $3,639.8 million in H1FY2, an increase of 5.4% from H1FY20, contributed by strong performance in New Zealand region.

Net Assets (Source: Analysis by Kalkine Group)

Key Risks:

• Liquidity Risk- The company requires sufficient liquidity to meet its financial obligations, operational activity, offer more lending to clients and mitigate the working capital risks.
• Impact of COVID-19 Pandemic- Low demand, economic slowdown and travel restrictions have impacted the company's operations and are still the uncertainty prevails.

Outlook:

• The company expects consumer spending to recover quickly once the lockdown restrictions are eased down.
• LFS anticipates H2FY21 dividend to be at the same level of H1FY21 at 7.85 cents per share but will be fully franked and expects its dividend payout ratio in the range of 60% to 70% of Cash NPAT.
• It focuses on international expansion in Southeast Asia and application of Payments Institution License have submitted in Singapore.
• The company is focused on expanding its growth opportunity by enhancing B2B2C partner opportunities, pursuing significant opportunities in Canada, and launching post decommission of legacy Auto Loans platform in New Zealand in the longer term.

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

Source: 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: The stock of LFS is trading below its average 52-weeks' levels of $2.130-$2.990. The stock of LFS gave a negative return of ~12.95% in the past three months and a negative return of ~5.70% in the past one month. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium to its peers, considering the ease of lockdown restrictions and increased investments. For the purpose of valuation, peers such as WISR Ltd (ASX: WZR), Plenti Group Ltd (ASX: PLT), Challenger Ltd (ASX: CGF) have been considered. Considering the current trading levels, indicative upside in valuation, robust bottom-line performance, strong growth in volumes, expanding footprint, optimistic outlook, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $2.150, as on 11 October 2021, 11:52 AM (GMT+10), Sydney, Eastern Australia.

LFS Daily Technical Chart, Data Source: REFINITIV 

Humm Group Limited 

HUM Details

Business Updates: humm Group Limited (ASX: HUM) provides financial services that offer solutions to an interest-free payment platform with repayment options and long-term interest-free finance. It operates through BNPL, cards, commercial and leasing in Australia, New Zealand, and Ireland. Recently, the company has proposed an issue of 9,448,595 ordinary fully paid shares at a price of $1.210 under an employee incentive scheme.

FY21 Financial Performance:

• The company has recorded a 1% growth in Cash NPAT to $68.4 million in FY21, compared to $30.9 million in FY20. This is due to strong BNPL volumes of 31.3%, increased customers, and rise in total transaction volume.
• The company delivered strong volume growth of $1,034.9 million in FY21, up by 31.3% from $788.4 million on a pcp basis. This reflects a strong performance in the Australian region, the increasing contribution from bundll and a raise in online volume by 184.8%.
• However, the group has reported a decline in the gross income of $443.9 million in FY21, down by 7.3% YOY, impacted by a decrease in Cards receivables, margin compression in a competitive environment, lower fee, and other income.
• The company's cash position stood at $2 million as of 30 June 2021 vs $157.5 million as of 30 June 2020.

Net Income (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 pandemic- The company has a significant effect on its earnings due to a decrease in merchant activity, particularly in travel during the COVID-19 pandemic, and still, uncertainty continues.
• Liquidity Risk- The company requires sufficient liquidity to meet its financial obligations, operational activity and mitigate the working capital risks.

Outlook: The company is focused on advancing its growth strategies that include geographical expansion, new partnerships, and product development. The company has targeted 250k customers across all partnership channels by FY22 with its strategic partnerships.

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

Source: 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: The stock of HUM is trading below its average 52-weeks' levels of $0.780-$1.360. The stock of HUM gave a positive return of ~2.92% in the past one week and a negative return of ~20.36% in the past nine months. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount to its peers, considering the uncertainty of the COVID-19 pandemic and increase in marketing expenses. For the purpose of valuation, peers such as Credit Corp Group Ltd (ASX: CCP), Money3 Corp Ltd (ASX: MNY), Zip Co Ltd (ASX: Z1P) and others have been considered. Considering the current trading levels, indicative upside in valuation, strong volume growth, economic recovery, optimistic outlook, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.873, as on 11 October 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

HUM Daily Technical Chart, Data Source: REFINITIV

VGI Partners Limited

VGI Details

Business Update: VGI Partners Limited (ASX: VGI) is an asset management company, primarily serves high-net-worth individuals, family offices, businesses by investing in public equity markets across the globe. Recently, Mr Douglas Tynan, Non-Executive Director, has resigned from the board.

H1FY21 Financial Performance:

• The company has recorded a strong normalised total revenue of $8 million in H1FY21, compared to $22.4 million in H1FY20.
• It has reported an improved trade and other receivables to $59.0 million as of 30 June 2021 vs $26.9 million as of $26.9 million as of 31 December 2020.
• In H1FY21, it has reported (normalised) EBITDA of $61.7 million, an increase from $14.6 million in H1FY20. The strong EBITDA performance is depicting due to disciplined management of cost management.
• Additionally, the company has delivered a robust NPAT (normalised) of $42.9 million in H1FY21 against $9.9 million on a pcp basis, driven by strategic investment across the globe.
• At the end of the period, the company's cash position stood at $34.6 million as of 30 June 2021 vs $7 million as of 31 December 2020.

Statutory NPAT Performance (Source: Analysis by Kalkine Group)

Key Risks:

• Foreign Currency Risk- The company’s operation is to invest in the global equity market and exchange rate due to it could face the foreign currency risk.
• Impact of COVID-19 pandemic- The investing capacity has significantly impacted during the pandemic, which directly affects the company's operations and is still uncertain in the future.

Outlook:

• The company focuses on long-term strategic investment with short selling and continues growing AUM by compounding existing assets.
• The company target is to control the cost that includes research, communications, IT and continues with Disciplined management of operating costs.
• The management focuses on deep research and target to achieve a return between 10-15% p.a. and further strategize the long-term investment horizon.

Stock Recommendation:

The stock of VGI is trading below its average 52-weeks' levels of $5.310-$8.770. The stock of VGI gave a negative return of ~20.85% in the past three months and a negative return of ~34.91% in the past nine months. On a TTM basis, the stock of VGI is trading at an EV/Sales multiple of 3.5x, lower than the industry median (Investment Banking & Investment Services) of 11.5x, thus seems undervalued. Considering the current trading levels, decent balance sheet, disciplined cot management, strong financial performance, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $5.340 as on 11 October 2021, 11:53 AM (GMT+10), Sydney, Eastern Australia.

VGI 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 on 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 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 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.

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