Liberty Financial Group

LFG Details

AGM Highlights: Liberty Financial Group Limited (ASX: LFG) is a diversified financial services firm engaged in residential and commercial mortgages, business and personal loans, insurance broking, motor vehicle finance, etc. in New Zealand and Australia. LFG has secured finance, residential finance, and financial services segments. The company held its AGM (annual general meeting) on 17 November 2021 and passed all resolutions in the meeting.

In a recent address at the AGM by the Chairman & CEO, LFG covered the business highlights of Q1FY22, which are as follows:

• The company reported growth in loan originations from ~$948 million in Q1FY21 to ~$1,389 million in Q1FY22, driven by robust credit demand for new residential loans and recovery of SME businesses from COVID-19. The financial services segment was impacted by intense competition for new personal loan origination.
• The Group’s loan portfolio grew from ~$11,854 million in Q1FY21 to ~$12,393 million in Q1FY22. It experienced a continued increase in the personal and secured loan portfolio with consistent amortisation and discharges. LFG plans to continue diversifying its portfolio mix.
• In Q1FY22, LFG raised ~$1.6 billion capital via issuance of two (2) new Asset-Backed Securities (ABS) with a corporate rating of BBB minus (-) and a positive outlook.
  

Loan Originations & Loan Portfolio Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces interest rate changes, lower demand from borrowers, stiff peer competition, and the risk of the launch of new products.

Outlook:

• LFG Board plans to add a new independent director and complete the medium- and long-term remuneration incentive plans as indicated at the time of the IPO.
• The company expects to surpass its new loan originations book for FY21 with ~$1.38 billion of loans originated in ~Q1FY22.
• LFG is carefully optimistic in its outlook for FY22. Funding costs are supportive of net interest margin growth and other economic parameters indicate credit growth. However, fierce competition for customers causes higher discharges.
• The Group plans to roll out the expanded auto finance solutions facilitating a diversified portfolio mix approach.
• LFG plans to invest in enhancing customer experience via online and digital technologies. It expects to maintain the dividend payout to ~40%-80% of NPAT.

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 LFG gave a negative return of ~20.68% in the past three months and a negative return of ~19.99% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $5.470-$8.350. 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 discount than its peers’ mean P/BV multiple, considering the decline in interest income in FY21, fierce peer competition risk, and impact on the residential loan portfolio growth due to elevated loan discharges and amortisation in Q1FY22. For this purpose of valuation, few peers like Resimac Group Limited (ASX: RMC), Australian Finance Group Limited (ASX: AFG), Pepper Money Limited (ASX: PPM) have been considered. Considering the current trading levels, growth in secured and residential loan originations, plans to launch expanded auto finance solutions, enhanced liquidity position in Q1FY22, supportive economic indicators, valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $5.560, as of 19 November 2021, 1:26 PM (GMT+10), Sydney Eastern Australia.

LFG Daily Technical Chart, Data Source: REFINITIV  

Tesserent Limited

TNT Details

YTD2021 Market Update: Tesserent Limited (ASX: TNT) offers company-grade cyber security and networking solutions to corporate, mid-market, and government clients. It operates Pure Security Group, North, and IT Security Managed Services segments.

• TNT posted turnover growth of ~67% YoY and divisional EBITDA increase of ~150% YoY for the first four months ended in October 2021 (YTD2021).
• The divisional EBITDA growth comprises ~41% organic growth and ~109% growth driven by acquisitions both on a pcp basis.
• Board Changes: The company appointed Geoff Lord as the Executive Chairman, Kurt Hansen as the CEO to focus on realising group synergies and optimising organic growth. James Jones, the CFO will now also take care of M&A and investor relations

 Q1FY22 Highlights:

• The company completed the integration of Brand and Business Units during FY20 and FY21. It is actively engaging with its customers across divisions to explore cross-sell avenues. The government business units and GRC practices of TNT continue to witness high demand and growth.
• During Q1FY22, TNT recorded ~78% YoY growth in the turnover to ~$26.9 million.

Turnover Trend from Q1FY21-Q1FY22; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of accrual of acquisition synergies, adverse interest rate, and forex rate changes. COVID-19 and other geopolitical upheavals also pose risk to eth business.

Outlook:

• The company is progressing well on talks for the two ongoing acquisitions and is well capitalised with the recent ~$25 million raised to fund these acquisitions to fulfil its short-term goals.
• TNT plans to hold investor roadshows in December 2021 for detailed updates.
• TNT is implementing strategies to strengthen its Cyber360 capabilities, expanding product offerings to clients, and acquiring companies to drive incremental EPS growth.

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 TNT gave a negative return of ~28.30% in the past three months and a negative return of ~4.99% in the past six months. The stock is currently trading close to its 52-weeks’ low level of $0.185. The stock has been valued using the Enterprise Value to Sales 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 discount than its peers’ average EV/Sales multiple, considering its continuing trend of net losses, negative ROE, integration risk, and forex rate changes. For this purpose of valuation, few peers like Integrated Research Limited (ASX: IRI), Adacel Technologies Limited (ASX: ADA), Rightcrowd Limited (ASX: RCW), and others have been considered. Considering the current trading levels, increase in YTD21 turnover & divisional EBITDA, plans to acquire two more businesses, avenues to cross-sell to an expanded customer base, valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.190, down by 5.001%, as of 19 November 2021.

TNT Daily Technical Chart, Data Source: REFINITIV  

Harvest Technology Group Limited

HTG Details

Issue of Shares: Harvest Technology Group Limited (ASX: HTG) is a Perth-based provider of real-time remote control, automation, communication, and monitoring capabilities for the resources, energy, and renewables industries. On 15 November 2021, HTG issued ~500,000 shares due to the exercise of options as per the terms of issue and without disclosure under the Section 708A(5)(e) of the Corporations Act 2001.

Q1FY22 Key Takeaways:

• HTG expanded the innovation capacity and security with relocation to the central innovation centre at Technology Park in Bentley.
• In October 2021, HTG signed a global reseller agreement with Speedcast to provide its remote communications services to Speedcast’s customers across mining, maritime, and telecommunications.
• The company appointed Mr. Stuart Carmichael as the Non-Executive Director to the Board of Directors in July 2021.
• On 4 October 2021, HTG reported the delivery of offshore support vessel VOS Shine to Singapore post completion of two-year (2) hiring of the vessel.
• During Q1FY22, HTG acquired the US-based SnapSupport Inc. and commenced its business integration to provide support to the U.S. product team and regional revenue.
• HTG also initiated a rebranding exercise to launch its US subsidiary, HTG Inc. as Opsivity Inc. and the new SnapSupport SaaS product identity as Opsivity™.
• The company reported ~$1.52 million net operating cash outflows during the quarter. It held cash and cash equivalents of ~$4.001 million as of 30 September 2021.

Key Financials from FY17-End to FY21-End; (Analysis by Kalkine Group)

Key Risks: the company faced the impact on revenue due to COVI-19 related impact on its clients, delay and cancellation in projects, and significant travel restrictions.

Outlook:

• HTG will conduct an Annual General Meeting (AGM) on 30 November 2021.
• The company has fulfilled the conditions to move from Phase 1 to Phase 2 of its Three-Phase strategic plan towards revenue diversification. It aims to strike an equal balance to source income from Infinity products and from energy and resources sectors.
• The company plans to scale up resources for innovation, customers in the US for expansion with the launch of Opsivity™.
• It aims to rapidly develop the existing Infinity product suite to build a sustained level of Annual Recurring Revenue (ARR). HTG will undertake the compliance of the new range of Infinity Nodestream hardware in Q1CY22 and release it post compliance shortly.
• HTG also plans to establish relationships with the industrial wearable manufacturers and industry solutions and services providers.

Stock Recommendation: The stock of HTG gave a negative return of ~7.14% in the past three months and a negative return of ~16.12% in the past six months. The stock is currently trading near its 52-weeks’ low level of ~$0.250 - $0.500. Considering the current trading levels, expansion with the US subsidiary and launch of Opsivity™, plans to diversify revenue, innovate the Infinity product line including the release of Nodestream hardware in FY22, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.260, as of 19 November 2021, 11:12 AM (GMT+10), Sydney, Eastern Australia.

HTG 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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