Resimac Group Ltd

RMC Details

Resimac Group Ltd (ASX: RMC) is in the residential mortgage and asset financing business. It provides residential home loans, consumer finance, and small and medium enterprises finance covering Australia and New Zealand.

Recent Business Updates & H1FY22 Takeaways:

• Bond Issue: RMC issued $1 billion in residential mortgage-backed securities. From the proceeds, it will use $35 million to help first-time borrowers to enter the housing market with its high-value LVR product – Quickstart.
• Suspension of DRP: The company suspended its Dividend Reinvestment Plan (DRP) effective from June 30, 2022. This decision came after the payment of the interim dividend and an ongoing on-market share buyback program.
• Share Buy-back: RMC bought back ~1.90 million shares before the previous day of May 13, 2022, as part of an on-market buyback. It intends to buy back about 40.80 million shares.
• A Surge in AUM: In H1FY22, RMC witnessed a 13% uptick in Assets Under Management (AUM). It had launched a new website with respect to direct to customer home loans.
• An Uptick in Settlements: Its New Zealand portfolio showed a 68% uptick in direct settlements compared to the prior year.
• Rise of NII: Net Interest Income (NII) edged up 2%, and statutory net profit reached $53.5 million, an increase of 6% YoY.
• Interim Dividend: It had paid an interim dividend of 4 cents per share, representing an increase of 67% over the prior year.

Key Performance Highlights (Analysis by Kalkine Group)

Key Risks: Faster rate hike decision by the Reserve Bank of Australia may affect home loan volumes. Increasing inflation and higher household debt may affect the affordability of home loans. RMC generates investment income from the cash reserves it holds. Rising yields may influence the investment income.

Outlook: RMC is expecting its Asset Financing division to go live in the first quarter of FY23. Management is expecting the housing market in Australia to remain robust and can absorb immediate interest rate tightening.

Valuation Methodology: P/E 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 RMC has been corrected by ~16.36% in the past six months. The stock of RMC is approaching its 52-week low price of $1.350. The stock has been valued using a P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit growth (in % terms). The company can trade at some discount to its peers, considering the recent rate hike to impact housing volumes. For the purpose of valuation, peers such as Pinnacle Investment Management Group Ltd. (ASX: PNI), Pepper Money Ltd. (ASX: PPM), Australian Finance Group Ltd (ASX: AFG), and others have been considered. Considering the launch of Quickstart, rise in statutory net profit in H1FY22, optimistic outlook, upside as indicated by the valuation, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of AUD 1.355, down ~2.17% as of May 26, 2022. Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.  

RMC 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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