Resimac Group Ltd

RMC Details

Change of Directors’ Interest: Resimac Group Ltd (ASX: RMC) is one of Australia and New Zealand’s premier non-bank lenders that provide solutions to a wide range of customers including the self-employed and contractors. On 21^st September 2021, one of the company’s Directors, Warren John McLeland, who holds an indirect interest in the company, acquired 3,827 ordinary shares in the company for a total consideration of $8,248.

FY21 Result Highlights: During FY21, the company witnessed decent growth across its prime and specialist portfolios in Australia and New Zealand. It also witnessed decent investor demand for its bonds. Key financial highlights of FY21 are as follows:

• Rise in Net Interest Income: For the year ended 30 June 2021, the company reported net interest income $242.7 million, up 29% on the previous year, driven by higher net interest margin and assets under management growth.
• Decline in Cost to Income Ratio: The company’s cost-to-income ratio decreased significantly to 32.1% in FY21, compared to 37.9% in FY20.
• Rise in Statutory NPAT: The company’s statutory NPAT stood at $107.6 million, up 92% on the previous year, driven by higher Asset Under Management (AUM) and net interest margin.
• Increase in Dividends: For FY21, the company has paid a total dividend of 6.4 cents per share, up 113% on the last year. Under the Dividend Reinvestment plan, the allocation price for the final dividend is $2.1552 per share.

NPAT Trend (Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19 Uncertainties: The economic uncertainty from COVID-19 related lockdowns could impact the growth across the company’s portfolios in Australia and New Zealand.
• Change in Monetary Policies: Any significant change in the monetary policies of Australia or New Zealand could impact the company’s operations and its results.
• Foreign Currency Risk: The company is exposed to the risks related to the fluctuations in the foreign currency rate, as it could impact its financial results.

Outlook: Looking ahead, the company is planning to launch alternative loan products focused on sustainability. The company is also focused on the development of its broker and direct-to-consumer brands in Australia and New Zealand. Over the next three years, the company expects to grow its Asset Finance division. With stable funding markets and lower cost of funds, the company seems well placed to further growth in FY22 and beyond.

Valuation Methodology: P/B 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 one month, the stock has been corrected by 19.2% and in the last three months, it has been corrected by 16.94%. The stock has a 52-week high and low of $1.255 and $2.8, respectively. The stock has been valued using the Price to Book 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 a slight discount to its peers, considering the impact of COVID-19 pandemic on brokers and customers and economic uncertainty from lockdowns. For the purpose of valuation, peers such as Genworth Mortgage Insurance Australia Ltd (ASX: GMA), Australian Finance Group Ltd (ASX: AFG), Pepper Money Ltd (PPM), etc. have been considered.  Considering the company’s improved financial performance in FY21, decent growth across its prime and specialist portfolios, modest outlook, valuation, and associated key risks, we give a “Speculative Buy” rating on the stock at the current market price of $2.01, as on 1 October 2021, 11:10 AM (GMT+10), Sydney, Eastern Australia.

RMC Daily Technical Chart, Data Source: REFINITIV

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

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above. 

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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