AMP Limited

AMP Details

Divestment of Infrastructure Debt Platform: AMP Limited (ASX: AMP) provides life insurance, superannuation, pensions and other financial services in Australia and New Zealand. As announced on 24 December 2021, the PrivateMarketsCo (Private Markets Business of AMP) has inked a binding agreement to sell its Infrastructure Debt platform to Ares Holdings LP for a total cash consideration of A$428 million.

• The sale follows the strategic decision to focus on its key strength of managing equity investments in real estate and infrastructure.
• The said transaction will result in the ceasing of the future capital requirements for PrivateMarketsCo for the Infrastructure Debt platform.

1HFY21 Financial and Operational Highlights:

• The company witnessed improved performance on 1HFY21, supported by a recovery in economic and market conditions and transformation strategy delivery. This was evident by the growth of ~57% in underlying NPAT to $181 million.
• AMP’s cost reduction has delivered in line with its targets and left the company with surplus capital of $452 million.

Underlying NPAT Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Market Volatility: The company’s performance could be impacted by the extreme volatility in the equity markets.
• Regulatory Risk: AMP is exposed to a more complex regulatory environment; any failure in the compliances could lead the business to fines, penalties, etc.

 Outlook:

• For FY21, the company anticipates additional impairment charges of approximately A$325 million, which follows a review of its balance sheet.
• Looking forward, the company is focused on the completion of the planned demerger of AMP Limited and AMP Capital’s Private Markets business in 1HFY22.

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 is trading below its 52-week low-high average of $0.885 - $1.635, respectively. The stock has been corrected by ~6.63% and ~12.05% in the past three months and six months, respectively. The stock has been valued using the P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ median P/E multiple, considering the COVID-19 uncertainties and business divestments. For this purpose of valuation, peers such as Challenger Ltd (ASX: CGF), Pendal Group Ltd (ASX: PDL), Platinum Asset Management Ltd (ASX: PTM), and others have been considered. Considering the expected upside in valuation, growing earnings, rising ROE, decent outlook, current trading levels and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $0.980, down by ~2.971% as on 06 January 2022.

AMP Daily Technical Chart, Data Source: REFINITIV  

Latitude Group Holdings Limited

LFS Details

Proposal to Acquire Consumer Business: Latitude Group Holdings Limited (ASX: LFS) operates a consumer finance, business including services such as instalments and lending. Recently, the company has given a proposal to acquire the consumer business of Humm Group Limited (comprising BNPL, Instalments and Cards) for the consideration of ~$335 million comprising 150 million Latitude shares and $35 million cash.

• Both parties have entered a non-binding head of agreement, which includes an exclusivity undertaking (subject to standard fiduciary carve-outs) until 31 January 2022.
• LFS anticipates annualised combined synergies and cash earnings to surpass $100 million pre-tax in full-year 2023, and the transaction is expected to be double-digit EPS accretive for Latitude by assuming full run-rate synergies.
• The proposed Transaction is likely to strengthen its position as the leading instalments and consumer lending business in Australia and New Zealand.

1HFY21 Highlights: For the half-year ended 30 June 2021, the company recorded a rise of 524% in statutory NPAT to $89.5 million. LFS witnessed strong growth in lending throughout personal and auto loans. Total personal and auto loan volumes soared by 37% on PCP, including 35% in Australia and 46% in New Zealand.

Statutory NPAT (Source: Analysis by Kalkine Group)

Key Risks: LFS is exposed to credit risk, which arises from the default of the counterparties in fulfilling their obligations. In addition, the business is also exposed to regulatory risk, as it deals in the public monies.

Outlook: The company expects the dividend for 2HFY21 to remain at the same level of 1HFY21 at 7.85 cents per share but will be fully franked. LFS is also optimistic about a rise in spending by consumers once COVID-19 restrictions are eased.

Valuation Methodology: P/BV 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 is trading below its 52-week low-high average of $1.880 - $2.990, respectively. The stock has been corrected by ~7.37% in the past three months. The stock has been valued using the P/BV multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ average P/BV multiple, considering the COVID-19 led disruptions and falling operating income, etc. For this purpose of valuation, peers such as Humm Group Ltd (ASX: HUM), Money3 Corp Ltd (ASX: MNY), WISR Ltd (ASX: WZR), and others have been considered. Considering the expected upside in valuation, growing earnings, decent outlook, current trading levels and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.970, as on 06 January 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

LFS Daily Technical Chart, Data Source: REFINITIV 

humm Group Limited

HUM Details

Entered into Binding Agreement: humm Group Limited (ASX: HUM) provides BNPL products, consumer revolving finance and cards, as well as commercial leasing and SME financing services. Following a proposal from Latitude Group Holdings Limited to acquire its Humm Consumer Finance (HCF) business for ~ $335 million, HUM has entered a non-binding head of agreement.

• The completion of the acquisition will leave HUM as a pure-play Commercial business. The market position of HUM in Australia and New Zealand would be aided by robust standalone operational and technology platforms and an appropriate capital base.
• The completion of the said transaction is subject to the Australian Tax Office (ATO) review, regulatory approvals, and HUM shareholder approvals. In addition, there is no certainty that any binding agreement will be reached or that a transaction will occur.
• The shareholders have been advised not to take any action in response to the said transaction.

Changes in Management:  As announced on 20 December 2021, Andrew Abercrombie has resigned from the role of Chair of the company, and Christine Christian AO has been appointed as independent Chair.

Q1FY22 Operational and Financial Highlights:

• HUM’s witnessed overall volume growth of 39.6% to $763.3 million in Q1FY22, indicating the advantages of its diversified portfolio offering products able to finance smaller and larger items seamlessly for both consumers and SMEs.
• BNPL segment volumes stood at $308.8 million, reflecting a rise of 44.5% over pcp. As on 30 September 2021, the company’s total customer stood at 2.7 million, with an increase of 6.1% over Q1FY21, which include an increase of 16.0% in BNPL customers.

Volume Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Capital and Funding Risk: The company operates in a highly competitive and rapidly changing sector, and thus, it requires a regular flow of funding to operate its business smoothly. Hence, any non-access to the capital and funding required to support growth may impact its business.
• Technology Risk: HUM is exposed to a risk arising from changing technology, which may change the way of doing business.

Outlook:

• Looking forward, HUM would work on growth initiatives, which include international expansion, new product growth and new partnerships.
• The company’s growth strategy primarily revolves around enhancing the reach of instalment payments and driving customer engagement and transaction frequency.

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 is trading above its 52-week low-high average of $0.715 - $1.360, respectively. The stock of HUM has provided returns of ~21.33 and ~5.81% in the past one month and three months, respectively. The stock has been valued using the P/E multiple-based illustrative relative valuation and arrived at a target price with a correction of high-single-digit (in % terms). The company can trade at a slight discount to its peers’ average P/E multiple, considering the COVID-19 disruptions, and declining operating income, etc. For this purpose of valuation, peers such as Eclipx Group Ltd (ASX: ECX), Money3 Corp Ltd (ASX: MNY), and Latitude Group Holdings Ltd (ASX: LFS) have been considered. Considering the expected correction, solid rally in the past few months, current trading levels, and key risks associated with the business, we give a ‘Sell’ rating on the stock at the current market price of $0.965 as on 06 January 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

HUM Daily Technical Chart, Data Source: REFINITIV 

Note: The purple line reflects the RSI (14-day period)

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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