Liberty Financial Group

LFG Details

Liberty Financial Group (ASX: LFG) operates as a diversified financial services company offering residential and commercial mortgages, motor vehicle finance, broking services, personal and business loans, and insurance and investment services. It caters to customers in Australia and New Zealand.

H1FY22 Performance Highlights:

• LFG showcased robust H1FY22 performance with Net Interest Margin (NIM) expanded to 3.14% as compared to 3.07% reported last year. Both commission income and lending income witnessed an uptick.
• Average assets grew 2% to $12.4 billion over last year. New asset origination stood at $2.8 billion in contrast to $2.1 billion in H1FY21.
• Loan yield dived to 4.99% in H1FY22 as compared to 5.11% in PcP due to low origination yield and discharge and amortization yield. This was partly offset by favourable asset mix towards the high yield Secured and Financial Services segment.
• Its cost-to-income ratio, a measure of operational efficiency, surged 50bps to 21.9% in H1FY22. LFG had increased its FTE staff members to 501.
• Cost of funds dropped to 1.85% (vs. 2.04% in PcP) led by a reduction in margin funding.
• On asset quality, LFG witnessed an increase in realized loss and a surge in specific provisions. Stage 3 customers making higher repayments as of December 31, 2021, stood at $1.07 as compared to $0.88 as of June 30, 2021. Overall provision coverage dropped to 63bps (from 62bps in PcP).
• LFG reported an underlying NPAT of $122.4 million, up from $117.7 million posted in the prior period.
• It had closed the period with a cash balance of $604 million and reported a leverage ratio of 13.1x as compared to 12.7x in H1FY21.
• On the dividends front, LFG declared an interim dividend of 21 cps (for a 5-month earnings period). This is in line with its distribution pay-out policy of 40-80% of NPAT.

Key Financial Snapshot (Analysis by Kalkine Group)

Key Risks: LFG witnessed an uptick in realized losses in H1FY22 due to economic uncertainty. A slowdown in industrial expansion may severely affect lending offtake. The ongoing Ukraine Russia tussle may affect investment returns and yield performance. The quantitative tightening may see falling NIMs due to an increase in the cost of funds.

Outlook: LFG is tuning its portfolio to focus on the Secured loan business. With an uptick in loan disbursements in H1FY22, the management is expecting new loan origination for FY22 is to be on track to exceed FY21. The recovery of the pandemic saw SME portfolio return to normalcy. The company continue to diversify its asset mix which had led to NIM expansion.

Stock Recommendation: The stock of LFG has been corrected by ~19.05% in the past three months. The stock is trading lower than its average of the 52-week high and low band of $8.210-$4.480. On a TTM basis, LFG is valued at a Price-to-Book Value multiple of 1.3x as compared to the industry median of 1.8x (Financials). This signals the stock is undervalued at current trading levels. Considering the NIM expansion, secured loan focus, diversified asset mix, an uptick in underlying NPAT in H1FY22, modest outlook, valuation based on TTM, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $4.650 as of 28 February 2022, 10:45 AM (GMT+10), Sydney, Eastern Australia. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

LFG 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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