Liberty Financial Group

LFG Details

Change of Director’s Interest: Liberty Financial Group (ASX: LFG) is a diversified financial company that offers its services in the areas of speciality lending, insurance broking, services of receivable, and underwriting of consumer insurance.  On 29 September 2021, one of the company’s Directors, Sherman Ma, acquired 188,303 stapled securities of the company at an average price of $6.8749 per security via an on-market transaction.

FY21 Result Highlights:

• Rise in Top Line: For FY21, the company reported net revenue of $600.1 million, up 18% on the previous year. Total operating income increased from $852.3 million in FY20 to $853.1 million in FY21, driven by the increase in fee, commission, and other income.
• Increase in Financial Assets: The company’s average financial assets increased by 4% YoY to $12.0 billion.
• Rise in NPAT: Net Profit after tax increased by 37.6% in $50.7 million in FY21, driven by the decline in total expenses and rise in total operating income.
• Increase in Cash Balance: As at 30 June 2021, the company had cash and cash equivalent of $603.87 million, up from $498.47 million in as at 30 June 2020.

Net Operating Income Trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the risks and uncertainties caused by the COVID-19 pandemic, as it could impact its financials. The company’s financials are also exposed to fluctuations in the foreign currency exchange rates.

Outlook: Looking ahead, the company is focused on driving profitability growth by focusing on three disciplines: Customer Experience, Customer Choice and Risk-Adjusted Returns. The company believes that reducing borrowing cost should support net interest margin (NIM). Further, the company is also planning to launch expanded auto finance solutions. The company is planning to conduct its 2021 Annual General Meeting on 17 November 2021.

Valuation Methodology: P/B Multiple Based Relative Valuation (Illustrative)

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: Over the last three months, the stock has been corrected by 16.93% and is trading lower than the average 52-week price level band of $6.09 - $8.35. The stock has been valued using the P/B 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 premium to its peers, considering the company’s reduced borrowing costs, improving NIM, and modest outlook. For the purpose of valuation, peers such as Australian Finance Group Ltd (ASX: AFG), Resimac Group Ltd (ASX: RMC), Pepper Money Ltd (ASX: PPM), etc., have been considered. Considering the company’s ongoing focus on driving profitability growth, expected launch of expanded auto finance solutions, improved financial performance in FY21, current trading level, valuation and associated key risks, we give a “Speculative Buy” rating on the stock at the current market price of $6.19, as on 29 October 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia).

LFG Daily Technical Chart, Data Source: REFINITIV 

Latitude Group Holdings Limited

LFS Details

Completed Acquisition of Symple: Latitude Group Holdings Limited (ASX: LFS) is a leading digital payments and finance business operating in Australia and New Zealand. On 26 October 2021, the company announced that it has completed the acquisition of digital personal lending business Symple Loans to fast-track consumer lending growth. As per the terms of the acquisition deal, LFS has paid $100 million in cash and issued 38.46 million Latitude shares at $2.60.

H1FY21 Result Highlights:

• Decent Volume Momentum: During the half-year ended 30 June 2021 (H1FY21), the company witnessed decent growth in lending across both personal and auto loans and its total volume (excluding the significantly COVID-19 impacted travel and international category) grew by 11% on pcp.
• Increase in BNPL Customers: During H1FY21, the company’s LatitudePay (BNPL) customer base grew 73% on pcp to 458,000 open accounts.
• Rise in Statutory NPAT: For H1FY21, the company reported statutory NPAT of $89.5 million, up 524% on pcp.
• Paid Interim Dividend: For H1FY21, the company has paid a dividend of 7.85 cents per share.

Cash NPAT Trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the risks related to unforeseen significant economic shocks from COVID-19 pandemic. The company is also exposed to the risks related to the change in technology, which could impact the company’s way of doing business.

Outlook: The recent acquisition of Symple platform will allow the company to deliver a superior customer and partner experience as well as expand its product offer. Looking ahead, the company is focused on cost reductions while maintaining growth-related investments. For H2FY21, the company expects the dividend to remain in the 60-70% payout range at 7.85 cents fully franked per share.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

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: Over the last three months, the stock has been corrected by 16.39% and has recently touched its 52-week low of $2.08. The stock has been valued using an EV/EBITDA 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 premium to its peers, considering the rise in BNPL customers, decent volume momentum and modest outlook. For the valuation purpose, peers such as Eclipx Group Ltd (ASX: ECX), Humm Group Ltd (ASX: HUM), Money3 Corp Ltd (ASX: MNY), etc., have been considered. Considering the company’s decent growth in lending across both personal and auto loans, improved cash NPAT, modest outlook, current trading level, valuation, and associated key risks, we give a “Speculative Buy” rating on the stock at the current market price of $2.08, down by 1.422% as on 29 October 2021.

LFS Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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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