MyState Limited

MYS Details

MyState Limited (ASX: MYS) is a non-operating holding company of the diversified financial services Group comprising MyState Bank and TPT Wealth.

Result Performance (H1FY21 Ended 31 December 2020)

Strong Financial Performance:  The company delivered a resilient financial performance with core earnings growth of 18.8% YoY to $26.4 million.  NPAT of the company for the period grew by 12.6% YoY to $17 million.  The improvement in results was  aided by  a strong growth in lending, better cost of funding, and efficiency gains from investments in technology. Operational efficiency led to a 12 bps improvement in net interest margin to 1.94% over the same period last year. The higher interest margin was supported by increased customer deposit, lower funding costs and repricing of deposits as interest rates have fallen. Increased net interest margin helped the company to record a 65 bps improvement in its ROE to 9.94% for the period.

Interim Dividend: In line with the company’s policy of rewarding shareholders with dividends, the Board declared an interim dividend of 12.5 cents per share which is equivalent to a 67.6% pay-out ratio of PAT, and is in line with the dividend guidance range.

Key Metrics (Source: Company Reports)

Outlook: 

As per MYS, there has been a  strong rebound in the Australian economy and an increase in business and consumer confidence as the economy emerges from the pandemic. The company expects growth momentum built to continue despite there remains uncertainty on delta variant which could slow the pace of recovery. However, with a culture of continuous improvement and capacity to adapt, the company is in a position to meet its customers’ evolving needs. It would remain focused on digitization of operations, adding to its capability, and generating momentum to drive further activity and investment in attracting new customers. 

Key Risks: 

The company’s line of business exposes it to credit risk, which arises from the loans and advances on its balance sheet. In order to mitigate the risk, the company holds collateral against the loans in the form of a mortgage charge over the property.

Valuation Methodology: Price/EPS Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: The purple color line in the chart depicts RSI (14-period), while the yellow color line represents the trend line. The green and red color lines show 21-Period SMA and 50-Period SMA respectively.

MYS' prices witnessed a decent upside movement in the recent past and now hovering around a downward sloping trend line resistance level, indicating the possibility of a downside correction. On the daily chart, the leading indicator RSI (14-period) is trading near an overbought zone at ~69.04 levels, further supporting a downside stance. However, the trend-following indicators 21-period SMA and 50-period SMA are sustaining below the CMP and supporting the stock at the lower levels. Now, an immediate resistance level for the stock appears at AU$5.35 while support is at AU$4.80 level.

Stock Recommendation:

The company’s Tier-1 risk-adjusted capital ratio declined to 11.24% in H1FY21 from 11.38% in H1FY20 which, though suggests that the company is well-capitalized, but deterioration in the said ratio is a cause of concern that should be taken into consideration while investing in the stock.

We have valued the stock using Price/EPS multiple-based illustrative relative valuation and have arrived at a target price that reflects a decline of low double-digit (in % terms). We have applied a slight discount to Price/EPS Multiple (NTM) (Peer Average) considering fall in the dividend payout ratio.

Thus, we recommend a ‘Sell’ rating on the stock at the current market price of $5.100 per share, up by 0.393% on 10^th August 2021.

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

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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.

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