Resimac Group Limited

RMC Details

Share Buy-Back Update: Resimac Group Limited (ASX: RMC) offers home loans, and asset financing services to commercial borrowers (small and medium enterprises) and consumers in Australia and New Zealand. RMC is undertaking a share buy-back program since 29 December 2021. As per the latest buy-back update, the company has redeemed ~973,518 shares and plans to buy-back ~39.82 million shares by 28 December 2022.

DRP Allocation Price: On 14 March 2022, RMC declared ~$1.5881 per share as the allocation price for the shares to be allotted as per the DRP (Dividend Reinvestment Plan) for the interim dividend payable on 24 March 2022.

Financial Highlights of 1HFY22 (31 December 2021):

• RMC posted a ~5% revenue increase due to a rise in net interest income (by ~2% YoY) led by growth of assets under management (up ~13% Y-o-Y) and home loan settlements (up ~63% Y-o-Y).
• The home loans and advances to customers increased by ~6% from 30 June 2021 to ~$14.6 billion as of 31 December 2021.
• RMC held ~$963.78 million cash and cash equivalents as of 31 December 2021 compared to ~$619.80 million as of 31 December 2020.

Growth Trend in NPAT; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of changes in government policies and financial regulations from regulatory bodies, competition in the home loan market. Interest rate changes, COVID-19 disruptions, and market volatility also add to business risk.  

Outlook:

• RMC foresees further growth avenues across all segments for its asset finance division and is on track to achieve $1 billion in asset finance settlements till FY24.
• RMC continues to invest consistently in technology to drive operational efficiencies and enhance customers’ and brokers’ digital experience. It plans to launch the new core banking system for customers in Australia post its roll out in New Zealand to achieve scalable and sustainable growth.

Valuation Methodology: Price to 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 RMC gave a negative return of ~4.84% in the past three months and a negative return of ~24.09% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $1.525 - $2.580. The stock has been valued using the Price to Book Value multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium than its peers’ mean P/BV multiple, considering growth in the assets finance division and home loans, enhanced digital platform for core banking, and expectations of a robust home loan market. For this purpose of valuation, a few peers like Australian Finance Group Ltd (ASX: AFG), Pepper Money Ltd (ASX: PPM), Australia and New Zealand Banking Group Ltd (ASX: ANZ) have been considered. Considering the current trading levels, growth in home loans and asset finance settlements, a robust home loan market in Australia, technological upgradation in core banking, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $1.600, as of 17 March 2022, 10:35 AM (GMT+10), Sydney, Eastern Australia. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

RMC Daily Technical Chart, Data Source: REFINITIV 

Euroz Hartleys Group Limited

EZL Details

Proposed Acquisition of the Investee Companies: Euroz Hartleys Group Limited (ASX: EZL) offers advisory, stockbroking, wealth management, funds management, and investment services to institutional, corporate, and private individual clients. It operates retail, wholesale, and funds management segments. Recently, Westoz Investment Company Limited (ASX: WIC) and Ozgrowth Limited (ASX: OZG) released the scheme booklets and opinions of independent experts concerning their proposed acquisition by WAM Capital Limited (ASX: WAM). EZL holds a ~26.346% equity stake in WIC and ~41.578% equity in OZG.

Robust 1HFY22 (31 December 2021) Performance:

• The Group revenue increased by ~18.7% Y-o-Y to ~$55.06 million in 1HFY22 due to robust ECM (equity capital market) listings and brokerage revenues (~44.9% Y-o-Y).
• 1HFY22 results have been positively influenced by economic recovery in the Western Australian market, robust commodity prices resulting in ~$12.6 million profit share from equity accounted investments in WIC and OZG.
• EZL reported an underlying cash profit of ~$9.4 million, an unaudited amount calculated after adjusting one-time items.

Growth Trend in FUM; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of a decline in commodity prices, a slowdown in resources, energy, and industrial sector, and expansion of financial adviser network.  

Outlook: The company focuses on growing FUM to leverage synergies from an increased scale and avail acquisition opportunities. With solid ECM listings, a rebounding Western Australian economy, improving client offering, and profitable investments, EZL believes to be well positioned to capitalise on growth opportunities.

Stock Recommendation: The stock of EZL gave a negative return of ~8.23% in the past three months and a positive return of ~1.29% in the past six months. The stock is currently trading below its 52-weeks’ average price level band of $1.420 - $2.000. On a TTM basis, the stock of EZL is trading at a Price to Earnings value multiple of ~6.1x lower than the industry (Financials) median 9.0x, thus seeming undervalued. Considering the current trading levels, low debt levels, rise in brokerage income and FUM, consistent dividend pay-outs, valuation on a TTM basis, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $1.500, 17 March 2022, 10:35 AM (GMT+10), Sydney, Eastern Australia. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

EZL Daily Technical Chart, Data Source: REFINITIV 

VGI Partners Limited

VGI Details

Term Extension: VGI Partners Limited (ASX: VGI) functions as the equity investment manager for VGI Partners Global Investments Limited (VG1), VGI Partners Asian Investments Limited (VG8), VGI Partners Master Fund, and VGI Partners Offshore Fund. VGI and Regal Funds Management Pty Limited (“Regal”) have consented to extend the period of exclusivity on customer binding terms to 28 March 2022 starting from 31 January 2022 as per the latest update on the ongoing proposed merger.

 FY21 Result Highlights:

• VGI distributed ~41.17 million in dividends during FY21 compared to ~$9.97 million in FY20. It paid ~59.0 cents per share (cps) of the total dividends in FY21 versus ~14.3 cps in FY20.
• The company exited FY21 with robust ~$39.57 million of cash and lease liabilities of ~953,000 as of 31 December 2021.

Comparative Growth in Key Metrics; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of actual synergies from the proposed merger, regulatory changes, interest rate changes, liquidity crunch, and other financial risks emerging from investing in equities. 

Future Ahead:

Stock Recommendation: The stock of VGI gave a negative return of ~14.44% in the past three months and a negative return of ~35.83% in the past six months. The stock is currently trading near its 52-weeks’ low level of $3.850. On a TTM basis, the stock of VGI is trading at an EV/Sales value multiple of 3.1x, lower than the industry (Financials) average of ~7.6x, thus seems undervalued. Considering the current trading levels, growth in financial results of FY21, low debt levels, the prospect of becoming a bigger (~$6 billion) hedge fund manager with the proposed merger with VGI, valuation on a TTM basis, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $3.850, as of 17 March 2022, 12:53 AM (GMT+10), Sydney, Eastern Australia. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

VGI 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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