Stocks’ Details

AMP Limited

Approval for AMP Life Sale: AMP Limited (ASX: AMP) provides life insurance, superannuation, pensions and other financial services in Australia and New Zealand. The market capitalisation of the company stood at $6.36 Bn as on 25^th June 2020. Recently, the company announced that it has received all regulatory approvals for the sale of AMP Life business to Resolution Life. The company anticipates the sale to finish on 30^th June 2020. In another update, the company announced that it had ceased its plans to divest its New Zealand wealth management business, following the economic and financial markets disruption caused by the COVID-19 pandemic. The company added that the New Zealand wealth management would be retained by AMP and will now focus on plans to develop and grow the business in its existing markets.

During Q1 FY20, total assets under management of AMP capital stood at $192.4 billion. AMP Capital net external cashflows amounted to $1.3 billion from net cash outflows of $20 million in Q1 FY19. During the quarter, AMP Bank’s total loan book went up by $162 million to $20.8 billion, and deposits grew by $773 million to $15.2 billion.


AUM (Source: Company Reports)

Focus for Future: For FY20, the company is focused on the execution and delivery of its strategic priorities. However, the company has suspended its guidance for FY20 due to the impact of coronavirus.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Key Risks: The company’s business is sensitive to operational risk, which arises due to losses resulting from inadequate or failed internal processes, people and systems or from external events. AMP is also exposed to Cyber risk, which continues to be a threat in a rapidly changing technological environment. The company is undergoing a three-year transformational program and the current economic environment can be a hurdle in the smooth occurrence of the process.

Stock Recommendation: The company stated that markets during Q1 were extremely volatile mainly in March 2020, with significant falls in equities, fixed income and key commodities impacting its assets under management. The stock of AMP has moved up by 18.59% and 66.67% within the time span of one and three months, respectively. As a result, the stock is inclined towards its 52-week high levels of $2.200. We have valued the stock using the P/E multiple based illustrative relative valuation method andarrived at a target price with limited upside (in percentage terms). Therefore, considering the aforesaid facts, current trading levels and valuation, we have a wait and watch stance on the stock at the current market price of $1.775 per share, down by 4.054% on 25^th June 2020.

Fiducian Group Limited

FID Outperformed All Ordinaries Accumulative Index: Fiducian Group Limited (ASX: FID) provides financial services to financial advisers and retail and wholesale clients across Australia. The market capitalisation of the company stood at ~$154.38 Mn as on 25^th June 2020. Recently, the company announced that its financial planning subsidiary “Fiducian Financial Services” has facilitated the acquisition of a regional financial planning business for its franchise office, which added a further $56 million in Funds under Advice. The company operates a profit-generating sustainable business model with $2.72 Billion in Funds under Management in its fund’s management business. Since June 2012, the company has outperformed the All Ordinaries Accumulative Index by ~548% (including dividend).


FID vs All Ordinaries Growth (Source: Company Reports)

Focus for Growth: The company is focused on sustainable business growth, increasing shareholders’ value and business profitability instead of chasing market share with limited benefit to the organisation. With respect to the financial planning segment, the company continues to attract high-quality planners and expand via value accretive acquisitions.

Key Risks: Fiducian Group Limited is exposed to financial risks such as market risk (including interest rate risk), credit risk and liquidity risk. To manage these risks, the group is focused on the unpredictability of financial markets and seeks to minimise potential adverse effects.

Stock Recommendation: The company is considering a pipeline of growth opportunities in the acquisition, franchised planners, white label / badged platform clients and funds distribution. Current ratio of the company stood at 1.87x in 1H FY20 as compared to the industry median of 1.38x, reflecting a decent position of the company to address its short-term obligations against the broader industry. Debt to equity multiple of the company stood at 0.21x against the industry median of 0.56x. FID has an EV/sales multiple of 2.9x as compared to the industry median (Investment Banking & Investment Services) of 4.9x on TTM basis. The stock of FID is trading at a price to cash flow multiple of 12.5x against the industry average (Financials) of 21.2x on TTM basis. Hence, in light of the current trading levels, decent liquidity position, deleveraged balance sheet, and focus on sustainable growth, we give a “Hold” recommendation on the stock at the current market price of $4.960 per share, up by 1.018% on 25^th June 2020.

Steadfast Group Limited

A Look at May 2020 Trading Update: Steadfast Group Limited (ASX: SDF) provides insurance broking and underwriting services. The market capitalisation of the company stood at ~$2.99 Bn as on 25^th June 2020. Recently, the company updated the market with trading for May 2020 and stated that FY20 EBITA for the eleven months ended May 2020 was in-line with pre-COVID-19 expectations. In the month of May 2020, the company witnessed an increased premium rate from insurers as well as some small volume reductions in its broker network, offset by expense savings. Steadfast Underwriting Agencies continued to outperform with strong organic and EBITA growth.  The company added that the working capital continues to strengthen, with c$180 million of the corporate debt facility remaining unutilised. The company will release its FY20 results on 26^th August 2020.  The below picture gives an overview of financial performance for 1H FY20:


Key Financials (Source: Company Reports)

Suspension of Guidance:Previously, the company had suspended its guidance for FY20, considering the events that have unfolded during the month of March 2020 as well as the implications for numerous businesses and employees.

Key Risks: The company is sensitive to numerous risks such as investment and acquisition risk and investment impairment risk. Investment and acquisition risk arise from the insufficient funding to capitalise on opportunities while Investment impairment risk is associated with those investments that are subject to a permanent decrease in value. Loss of network brokers can result in a reduction in professional fees for the company. The company has a number of revenue sources linked to the size and growth of Gross Written Premium (GWP) in the Australian and New Zealand markets, which is prone to risks, including pricing decisions by strategic partners and level of demand for general insurance products.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
Stock Recommendation: The company ended 1H FY20 with net assets of $1.2 billion, reflecting a rise of $119.3 million since 30^th June 2019. We have valued the stock using the P/E multiple based illustrative relative valuation method andarrived at a price correction of low-single-digit (in percentage terms). For the purpose, we have taken peers such as AUB Group Ltd (ASX: AUB), Suncorp Group Ltd (ASX: SUN), Insurance Australia Group Ltd (ASX: IAG), etc. The stock of SDF is inclined towards its 52-week high level of $4.100. Hence, considering the current trading levels and valuations, we have a watch stance on the stock at the current market price of $3.360 per share, down by 2.89% on 25^th June 2020.

 
Comparative Price Chart (Source: Refinitiv, 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 do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.