VGI Partners Global Investments Limited

VG1 Details

On-Market Share Buy-Back Update: VGI Partners Global Investments Limited (ASX: VG1) is involved in providing investment management services. The market capitalisation of VG1 on 17 June 2021, stood at ~$962.35 million. On 16 June 2021, VG1 purchased 387,000 shares in a share buy-back transaction. On an aggregate basis, till now VG1 has purchased 19.97 million shares in an on-market share buy-back.

NTA Update: On 11 June 2021, VG1 reported the estimated NTA (net tangible asset) value of $2.70, supporting its per ordinary share post applicable charges and fees. The company had 100% AUD net currency exposure and 90% net equity exposure.

Business Update: VG1 announced the purchase of 14.3 million shares as of May 31, 2021, thereby providing accretion to its shareholders. The company recently announced its decision to target a fully franked dividend yield of 4% starting from June 2021 due to its underlying investment portfolio’s robust performance. The company has installed a customer relationship management system to facilitate engagement with shareholders. On May 31, 2021, at a $2.34 share price, the discount to the NTA was ~11%. The discount to the NTA last touched a peak in August 2020. For the same period, VG1 reported a total return of 33% to the shareholders.

Key Financials from FY18-FY20 (Data Source: Analysis by Kalkine Group)

Key Risks: The company faces financial risks on its portfolio investments, increased market volatility due to the COVID-19 situation. It bears the risk of interest rate changes, the low yield on investments and regulatory changes in the monetary and fiscal policy.

Outlook: The Board will continue to evaluate more options for reducing the discount to NTA over time. The dividend announced will be payable in September 2021. The new dividend policy is also expected to increase the on-market number of share purchase to meet future Dividend Reinvestment Plans (DRPs).

Stock Recommendation: The stock of VG1 gave a positive return of 15.56% in the past six months and a positive return of 30.31% in the past nine months. The stock is currently trading higher than the 52-weeks’ average price level band of $1.760 - $2.450. The stock of VG1 has a support level of ~$2.391 and a resistance level of ~$2.524. Considering the high trading levels, fall in total income and loss in FY20, increase in total liabilities in 1HFY21, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $2.450, up by 0.409% on 17 June 2021.

VG1 Daily Technical Chart, Data Source: REFINITIV

Prospa Group Limited

PGL Details

Growth in Lending: Prospa Group Limited (ASX: PGL) is financial technology firm utilising its cloud-based interface-enabled (API) technologies. It offers small business loan (term loan) payable on instalment. The market capitalisation of PGL stood at ~$134.87 million on 17 June 2021. On 19 May 2021, PGL announced lending close to over $2 billion via its lending platform to small business in Australia and New Zealand due to growth in the demand for originations. The total originations of the group increased to $41.5 million in April 2021, up by 133% YoY. PGL reported originations exceeding $100 million for its Line of Credit product.

Recovery in Origination Volume: PGL reported $121 million of total originations in Q3FY21, up by 20% on a QoQ basis due to earlier than expected recovery in loan originations to pre-COVID-19 levels. Its NZ business reported an increase of 11% on a QoQ basis in Q3FY21 and recorded the highest originations for March 2021. PGL’s average gross loans recorded 32% of annualised yield for FY21. It held a cash and cash equivalents balance of $93.2 million as of 31 March 2021.     

Growth in Total Revenue before Transaction Costs from FY17-FY20; (Analysis by Kalkine Group)

Key Risks: The company is exposed to changes in the interest rate and uncertain macro environment due to the COVID-19 pandemic. It also bears the risk of changes in technology and economic policy regulations by the authorities.  

Outlook: Given the momentum in originations and demand from small & medium enterprises, PGL plans to ramp up investment in R&D, workforce, sales, and marketing. Due to the increased investment, it expects an increase in the following quarter costs. It will invest in technology capabilities to build and introduce new payments solutions and enhance customer engagement.    

Stock Recommendation: PGL has recorded a 3-year CAGR of 36.1% in revenue from FY17-FY20. Its FY20 net profits were affected due to COVID-19 pandemic. The stock of PGL gave a negative return of 8.88% in the past six months and a positive return of 17.14% in the past nine months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.670-$1.180. The stock of PGL has a support level of ~$0.673 and a resistance level of ~$1.025. On a TTM basis, the stock of PGL is trading at an EV/Sales value multiple of 1.1x lower than the industry (Financials) median of 4.5x, thus seems undervalued. Considering the current trading levels, growth in loan originations in April 2021 in both markets and increased average gross loans in Q3FY21, plans to increase investment in R&D and new payment solutions’ trials, valuation on a TTM basis, associated risks of COVID-19 pandemic, market volatility, and demand of loan originations, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.820 on 17 June 2021.

PGL 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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