SG Fleet Group Limited

SGF Details

SG Fleet Group Limited (ASX: SGF) provides leasing and fleet management services catering to corporates and government customers in Australia, New Zealand, and the UK.

Update on FY21 Results:

SGF announced FY21 results on August 17, 2021. Below are the takeaways on the performance:

• Improved orders in H2 FY21 and stood above pre-COVID levels. But the supply of new vehicles was impacted by logistics and supply chain disruptions.
• On-boarded 124 new customers in FY21. Witnessed retention rates at 99% across the Corporate and Novated segments. Experienced strong pull from the energy sector.
• Overall revenue improved by 6.4% to reach $482.1 million in FY21. Achieved operating EBITDA growth of 27.3% to stood at $94.7 million. Improved tender rates, surge in pricing for used vehicles, and strong growth across segments are contributing factors.
• SGF closed the period with a fleet size of 138,797, down from 143,278. This was due to order terminations exceeding fleet deliveries. But overall, orders touched 24,835, and new deliveries stood at 21,696.
• Net debt continues to be negative at $96.3 million as of 30 June 2021.
• SGF announced fully franked final dividends of 5.393 cps, and total dividends for the year reached 12.585 cps, up by 25.9% over PcP.

Revenue Trend; (Analysis by Kalkine Group)

Key Risks: The lockdown disruptions may cause a delay in deliveries of vehicles. The company is exposed to foreign currency fluctuations. Increasing fleet inventory and rise in second-hand vehicles may result in asset overhang and impact profitability.

Outlook: SGF continues to increase electric vehicle penetration. It had witnessed a 47% increase in low-emission vehicles in its ANZ fleet. The company aims to roll its first hydrogen fleet. It plans to ramp up investment in Mobility-as-a-Service capabilities. It had witnessed overwhelming growth in its BookingIntelligence platform. The completion of the LeasePlan acquisition is going as per the schedule. It had announced the acquisition on March 31, 2021.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (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 SGF gave a negative return of ~6.67% in the past three months and a positive return of ~2.81% in the past six months. The stock is currently trading higher than the 52-weeks’ average price level of $1.346-$3.290. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and has arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight premium than its peers’ median, considering an accelerated investment in electric vehicles and low-emission vehicles. For the purpose of valuation, few peers like BSA Ltd. (ASX: BSA), Mader Group Ltd. (ASX: MAD), Eclipx Group Ltd. (ASX: ECX) have been considered. Considering the positive FY21 results with strong traction across segments, negative net debt, growth focus, valuation, and associated key risk in the business, we give a ‘Buy’ rating on the stock at the market price of $2.760 as on 27 August 2021, 11.20PM (GMT+10), Sydney, Eastern Australia.

SGF Daily Technical Chart, Data Source: REFINITIV

Kina Securities Limited

KSL Details

Kina Securities Limited (ASX: KSL) operates as a diversified financial services company. KSL is based out of Papua New Guinea and provides share brokerage, fund administration, investment management services, and other services.

Update on H1 FY21 Results:

• Revenue through digital channels surged 66% over last year aided by acquisitive strategies. Loans and advances posted a healthy growth of 9% QoQ to reach PGK 1.8 billion as of June 2021.
• Net Interest Margin fell slightly from 7.5% in H2 FY20 to 7.0% in H1 FY21 but remained in line with the previous year period.
• The company had streamlined account opening and customer self-service with free-in branch internet banking. Merchant relationship management continued to be the key focal area.
• Following the ANZ PNG acquisition, KSL reduced its cost of operations, with the cost-to-income ratio dropping to 60.9% in H1 FY21 as compared to 64.9% in PcP.
• NPAT witnessed an increase of 36% to reach PGK 39.8 million compared to PcP, aided by an increase in fees and commission income and growth through digital expansion.

Update on the Acquisition:

• KSL intended to acquire an 89.91% stake in Westpac Bank PNG Limited. The acquisition helps to strengthen its position in Papua New Guinea.
• KSL will retain the Westpac corporate structure, banking licence and technology. It will simply rebrand it as ‘East West Commercial Bank’.
  

Total Assets Trend; (Analysis by Kalkine Group)

Key Risks: KSL is exposed to foreign currency fluctuations as it derives revenues from FX transactions. Change in interest rates by the Reserve Bank of Australia will impact Net Interest Margin and loan growth.

Outlook: KSL to roll out a comprehensive banking package tailored for SMEs for transaction services, lending, digital banking, and digital partnerships. It also intended to start business advisory services for SMEs. It continues to strengthen digital investments through the launch of new products such as Pei Beta and X-Change. KSL is committed to invests PGK 25 million in technology and digitalization.

Valuation Methodology: Price/Book Value Multiple Based Relative Valuation (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 KSL gave a negative return of ~8.41% in the past three months and a negative return of ~19.56% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level of $0.715-$1.200. The stock has been valued using the Price-to-Book Value multiple-based illustrative relative valuation method and has arrived at a target price of low double-digit upside (in % terms). The company can trade at some discount than its peers’ average, considering the sensitivity of its profits to interest rates and operations are highly susceptible to economic swings. For the purpose of valuation, few peers like Virgin Money UK PLC (ASX: VUK), Genworth Mortgage Insurance Australia Ltd. (ASX: GMA), Humm Group Ltd. (ASX: HUM) have been considered. Considering the healthy growth in loan books, progression in digitalization, possible synergies from Westpac Bank PNG Limited acquisition, valuation, and current trading levels, we give a ‘Buy’ rating on the stock at the market price of $0.920 as on 27 August 2021, 2.52 PM (GMT+10), Sydney, Eastern Australia.

KSL 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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