humm group limited

HUM Details

Business Update: humm group limited (ASX: HUM) is a diversified financial service company that operates through four segments - Buy Now Pay Later, New Zealand Cards, Australia Cards, and Commercial Leasing in Australia, New Zealand and Ireland. The market capitalisation of the company as on 12 May 2021 stood at $440.78 million. As per a recent announcement, the company has appointed Alistair Muir as independent Non-Executive Director.

Change in Director’s Interest: On 7 May 2021, the company’s director Andrew Abercrombie and Alistair Muir have undergone a change of interest in the company and acquired 214,895 and 29,644 ordinary shares in securities, respectively, on an indirect basis.

H1FY21 Results Update: During the period, the company has reported a statutory net profit of $38.6 million. It recorded an increased EBITDA Margin (31.2% in H1FY21 vs 22.9% in H1FY20). It ended the period with a cash position of $175.1 million as of 31 December 2020. 

H1FY21 Financial Performance (Source: Company Reports)

Outlook: HUM has launched Buy Now Pay Later Code, and is proactively taking steps for consumer protection. The access to dispute resolution scheme might give a consumer hike to the company. The company significantly simplifies the system and by uplifting customer experience and building digital engagement, it will further look to increase its customer base.

Key Risks: Any technology advancement in the competitive market might impact the earning of the company. As such, it has to keep itself upgraded to the latest technological trends.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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 HUM is trading below its average 52-weeks’ levels of $0.860-$1.479. The stock of HUM gave a negative return of ~1.68% in the past one week and a negative return of ~12.06% in the past one month. On a technical analysis front, the stock of HUM has a support level of ~$0.859 and a resistance level of ~$0.95. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium to its peer average EV/Sales (NTM trading multiple), considering a decent rise in the net profit, decent cash position and an improvement in the cost to income ratio. For the purpose, we have taken peers such as Credit Corp Group Ltd (ASX: CCP), WISR Ltd (ASX: WZR), Zip Co Ltd (ASX: Z1P), to name a few. Considering the valuation and current trading levels, decent bottom-line performance in a difficult time of operation and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $ 0.875, down by 1.686% as on May 12, 2021. 

HUM Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

Openpay Group Ltd

OPY Details

Successful Closing of Share Purchase Plan: Openpay Group Ltd (ASX: OPY) provides Buy Now, Pay Later (BPNL) payment solutions and a Saas-based platform that enables companies to manage the account in one system. The market capitalisation of the company as on 12 May 2021 stood at $225.51 million. As per a recent update, the company has announced the successful closing of the Share Purchase Plan (SPP) that was oversubscribed, and it received total applications amounting to $8.7 million.

Q3FY2021 Performance Update: During the period, the company has reported an uptick in the total transaction value by 80% to ~$83 million compared to the pcp. There is an increase in the revenue yield to 7.8% in Q3 FY21 vs 7.5% in Q2 FY21 due to strong holiday retail trading in Q2 FY21. The company recorded a growth in active merchant by 70% to 3.4k during the period.    

Rise in Active Merchants & Customers (Source: Company Reports)

Outlook: The Company signed a partnership with Ford Australia as a key Auto Customer and also entered the hospital and retail segment. These collaborations might give revenue push to the company going forward. It will continue to look to disrupt the major payments market with relevant offerings for merchants and consumers.

Key Risks: OPY is a third-party service provider; any disruption or malicious attacks on data or any data leakage is a significant risk. The company has higher debt which might impact the top-line profit.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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 company has a decent pipeline of enterprise merchants for its B2B SaaS platform, OpyPro. The stock of OPY is trading below its average 52-weeks’ levels of $1.115 - $4.980. The stock of OPY gave a negative return of ~13.11% in the past one week and a negative return of ~18.37% in the past one month. On a technical analysis front, the stock of OPY has a support level of ~1.753$ and a resistance level of ~$2.147. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium to its peer median EV/Sales (NTM trading multiple), considering the robust growth in active merchants and customers, and decent increase in top-line. For the purpose, have taken peers such as Zip Co Ltd (ASX: Z1P), WISR Ltd (ASX: WZR), Humm Group Ltd (ASX: HUM), to name a few. Considering the current trading levels and valuation, impressive growth in transaction value, successful close of Share Purchase Plan and the key risks associated with the business, we recommend a ‘Speculative Buy' rating on the stock at the current market price of $1.755, down by 3.572% as on May 12, 2021.

OPY Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: 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.

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