Westpac Banking Corporation  

WBC Details

Retaining Westpac NZ Business: Westpac Banking Corporation (ASX: WBC) provides a range of banking and financial services in these markets, including consumer, business and institutional banking and wealth management services. The company’s operation consists of various divisions, including Consumer, Business, Westpac Institutional Bank (WIB) and Westpac New Zealand. WBC has announced regarding retention of its 100% ownership in Westpac New Zealand Limited (WNZL). WBC has announced on 24 June 2021 that they will not proceed with the demerger of its WNZL business.  

Revised Credit Rating: S&P Global Ratings has revised the rating for WBC to “Stable” from “Negative” on 8 June 2021 due to economic recovery from COVID-19. S&P has confirmed WBC’s current issuer credit rating of AA- long term, and A-1+ short term with “Stable” rating. 

1HFY21 Financial Highlights: WBC has reported a decline in its net interest income (NII) to $8,348mn in 1HFY21 against $9,000mn in 1HFY20. Despite a decline in NII, the company has reported an increase in net profits to $3,443mn in 1HFY21 against $1,190mn in 1HFY20 due to significant turnaround in impairment charges. WBC has reported a decline in its cash balance to $33,877mn as on 31 March 2021 against $45,815mn as on 31 March 2020.

Net Interest Income trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to liquidity risks. The company is mandated to maintain liquidity ratios above the regulatory threshold. In addition, the company requires regulatory approvals to carry out its business efficiently. Any delay in regulatory approval may result in financial losses for the bank.  

Outlook:  WBC is looking to simplify its operations by entering into agreements to sell its general insurance and lenders mortgage business in 2HFY21. WBC has announced geographical simplification as well by the sale of Westpac Pacific. The company is reducing its five branches in Asia to a single hub in Singapore. Moreover, the company consolidates its business in Australia and NZ by closing 49 branches and ATM network by a further 3%. 

Valuation Methodology: P/BV based Relative Valuation Method (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 WBC gave a return of ~-1.41% in the last one month and a return of ~7.08% in the last three months. The current market capitalisation of WBC stands at ~$95.67bn as of 24 June 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$16.0-~$27.12. On the technical analysis front, the stock has a support level of ~$24.0 and a resistance of ~$27.95. We have valued the stock using the P/BV multiple-based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in % terms). We believe that the company can trade at a slight premium as compared to its peer average, considering the company has posted an increase in NPAT in 1HFY21 and S&P’s revised rating to “Stable” on 8 June 2021 from “Negative” rating earlier. For this purpose, we have taken peers Bendigo and Adelaide Bank Ltd (ASX: BEN), Australia and New Zealand Banking Group Ltd (ASX: ANZ), National Australia Bank Ltd (ASX: NAB) to name a few. Considering the company has registered a decline in NII in 1HFY21, decline in cash balance as on 31 March 2021, decent stock price movement in the past few months, current trading levels, and valuation, we suggest investors to book profit and recommend a “Sell” rating on the stock at the current market price of $25.93, as on Jun 24, 2021, 10:43 AM (GMT+10), Sydney, Eastern Australia.

WBC Daily Technical Chart, Data Source: REFINITIV 

MA Financial Group Limited 

MAF Details

Change in Director’s Interest: MA Financial Group Limited (ASX: MAF) formerly known as Moelis Australia Ltd, is a diversified financial service company in Australia. The company operates in two divisions: MA Asset Management and MA Moelis Australia. MAF has announced issuing Loan Funded Share Plan (LFSP) to its director on 11 June 2021. As a result, Andrew Pridham has acquired 100k ordinary shares under the LFSP option. Similarly, Christopher Wyke, director of the company, has acquired 250k ordinary shares under the LFSP option. 

Latest Operational Update: MAF has reported a solid start to FY21 with an increase in net funds inflows by $115mn to $340mn during the first four months of FY21. The company has reported an increase in its AUM by 7% to $5.8bn in the same period. MAF has been granted with retail AFSL and launched two retail credit funds at the same time. 

FY20 Financial Highlights: MAF has reported an increase in statutory revenue to $161.1mn in FY20 against $153.7mn in FY19 due to increased Assets Under Management (AUM) and revenue through asset management. The company has registered an increase in statutory NPAT to $26.5mn in FY20 against $23.5mn in FY19. In addition, the company has reported a decline in its cash balance to $112.2mn as on 31 December 2020 against $126.1mn as on 31 December 2019.

Revenue trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to changes in foreign exchange prices. In addition, the company is required regulatory approvals constantly. Therefore, any delay in regulatory approvals may impact the business. 

Outlook:  MAF expects growth in its earnings with underlying eps to increase in a range of 10%-20% for FY21. The company expects a base management fee of $60mn per annum at the end of FY21. In addition, MAF expects its lending business activities to grow in FY21. 

Valuation Methodology: P/BV based Relative Valuation Method (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 MAF gave a return of ~-1.09% in the last one month and a return of ~12.26% in the last six months. The current market capitalisation of MAF stands at ~$834.63mn as of 24 June 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$2.89-~$5.85. On the technical analysis front, the stock has a support level of ~$5.0 and a resistance of ~$5.90. We have valued the stock using the P/BV multiple-based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in % terms). We believe that the company can trade at a slight premium as compared to its peer median, considering the company has registered an increase in revenue and NPAT in FY20 and an increase in AUM in the first four months of FY21. For this purpose, we have taken peers Macquarie Group Ltd (ASX: MQG), Pendal Group Ltd (ASX: PDL), IOOF Holdings Ltd (ASX: IFL). Considering the company has seen lower net margins in FY20 against industry median, increase in debt-to-equity ratio, decent stock price movement in the past few months, positives being factored in the current prices, current trading levels, and valuation, we suggest investors to book profits and recommend a “Sell” rating on the stock at the current market price of $5.44, as on Jun 24, 2021, 01:03 PM (GMT+10), Sydney, Eastern Australia.

MAF 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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