humm Group Limited

HUM Details

Removal From S&P/ASX 300 Index: humm Group Limited (ASX: HUM) provides BNPL products, consumer revolving finance and cards, as well as commercial leasing and SME financing services. As per the recent quarterly rebalance of S&P/ASX Indices, humm group limited has been removed from S&P/ASX 300 Index, which became effective on 20 September 2021.

FY21 Financial Summary:

• Fall in Net Operating Income: During FY21, the company recorded a net operating income of $342.9 million as compared to $361 million in FY20; the fall was mainly led by a decline of 7% in gross income to $443.9 million. Despite the fall, the company witnessed growth in Australian commercial and numerous BNPL products.
• Cash NPAT and Volume Growth: During the year, the company witnessed a growth of 121.1% and 31.3% in cash net profit after tax and Buy Now Pay Later (BNPL) volume to $68.4 million and $1,034.9 million, respectively. The cash NPAT growth was generated by increased profitability of the Commercial and Leasing and Cards segments during the year.
• Growing Active Customers: HUM’s active customer and app downloads soared by 19.7% and 75.8% on pcp to 2.7 million and 1.2 million, respectively, in FY21.

BNPL Volume (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, the company 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.
• HUM has scheduled to conduct the 2021 Annual General Meeting on 18 November 2021.

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 company closed FY21 with a cash balance of $218.2 million against $157.5 million as on 30 June 2020, which may help the company in generating growth and potential capital returns. The stock is trading below its 52-week low-high average of $0.780 - $1.360, respectively. The stock of HUM has been corrected by ~11.82% and ~6.77% in the past three 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 disruptions, declining operating income as well as capital and funding risks. 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 upside in valuation, deleveraged balance sheet, rising cash position, 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 $0.870, as on 20 October 2021, 10:50 AM (GMT+10), Sydney, Eastern Australia.

HUM Daily Technical Chart, Data Source: REFINITIV  

VGI Partners Limited

VGI Details

FUM Update for September 2021: VGI Partners Limited (ASX: VGI) is a global equity manager, which manages capital for high-net-worth individuals, family offices and two Listed Investment Companies. As on 30 September 2021, VGI’s funds under management (FUM) stood at $2.8 billion against $3.2 billion as on 30^th June 2021; the fall in FUM was mainly due to performance of funds.

1HFY21 Financial Summary:

• Increased Clients Engagement: During the half-year ended 30 June 2021, the company witnessed increased pro-active client engagement, improvements to content creation and CRM upgrade.
• Rise in NPAT: VGI recorded a rise in statutory NPAT to $43.0 million against $3.6 million in 1H FY20, which was cemented by fair value gains.
• Steady Net Management Fees: Net management fees for the period stood at $22.2 million and was broadly steady on 1H20. This indicated both the average FUM, and the revenue margin were similar in both periods.

Statutory NPAT (Source: Analysis by kalkine Group)

Key Risks:

• Forex Headwinds: The company’s financial health could be impacted by adverse movement in foreign currency as its main activity is to invest in global markets.
• Market Risk: VGI’s funds’ performance is exposed to volatility in the equity market, wherein ups and downs of the market could impact its business growth.

Outlook:

• Looking forward, the company would continue to invest strongly in its IT systems and infrastructure by partnering with best-in-class service providers.
• The company’s investment and trading capability were also strengthened by the implementation of Enfusion. This software is likely to support full end-to-end capture of the trade cycle combined with future scalability.
• VGI is confident about its existing portfolios and would continue to reap the benefits of opportunities in future.

Stock Recommendation: On 10 September 2021, the company paid an interim dividend of 31.0 cents per share, which indicates a payout ratio of 50% on normalised Net Profit After Tax (NPAT) for 1HFY21. The company closed 1HFY21 with a cash balance of $34.6 million and nil debt. The stock of VGI is trading at par to its 52-week low level of $5.000, offering decent opportunity for accumulation. The stock has been corrected by ~16.53% and ~28.06% in the past one and three months, respectively. The stock of VGI is trading at a P/E multiple of 5.4x against the industry median (Financials) of 11.1x on a TTM basis. Thus, it can be said that the stock is undervalued at the current trading levels. Considering the valuation on a TTM basis, deleveraged balance sheet, decent liquidity position, increasing NPAT, 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 $5.000, as on 20 October 2021, 10:50 AM (GMT+10), Sydney, Eastern Australia.

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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