Resimac Group Ltd

RMC Details

Trading Update for 1HFY22: Resimac Group Ltd (ASX: RMC) is an originator and manufacturer of mortgage management to homeowners. As per the recent 1HFY22 trading updates, the company posted record home loan settlements of $2.5 billion for July to October 2021, reflecting a rise of 72% on the pcp.

• As on 31 October 2021, the home loan portfolio rose to $14.5 billion, reflecting annualised growth of 15%. In addition, October applications were 70% higher than the monthly average of Q1FY22.
• In the month October 2021, RAF settled at $34 million, which indicates an annualised settlements run rate of around $400 million. The said growth in conjunction with its investment in technology, continues to set the foundation to match target of $1 billion in asset finance settlements for FY24.
• The company increased its geographical expansion, evident by successful new loan origination system in NZ and is likely to launch in Australia during mid-December 2021. This is likely to generate the required growth in its origination process to support the aim of $8 billion of home loan settlements in FY24.

FY21 Financial Highlights:

• Growth in Net Interest Income: For the year ended 30 June 2021, the company recorded a rise of 29% in net interest income (NII) to $242.7 million as compared to $188.6 million in FY20
• Increase in Bottom Line: Normalised NPAT for the year amounted to $104.0 million, reflecting a growth of 87% over pcp, backed by home loan assets under management which has risen by 11% on the prior year to $13.8 billion.
• Decent Momentum in Business: These robust results represent momentum of its business, backed by growth in prime and specialist portfolios in Australia and New Zealand, development of its broker and direct-to-consumer brands, strong investor demand for its bonds, and ongoing investments into its digital transformation.

NII & NPAT (Source: Analysis by Kalkine Group)

Key Risks:

• Credit Risk: The company is exposed to credit risk arising from the failure by counterparties in fulfilling contractual obligations.
• Capital and liquidity requirements: The company is required to maintain sufficient liquidity levels under Australian Financial Services Licence requirements as it operates in the lending business.

Outlook:

• For 1HFY22, the company anticipates home loan settlements to be around $3.3 billion. In addition, RMC anticipates 1HFY22 normalised NPAT to be in line with or higher than 1H21 by assuming financial markets remain stable for the remainder of 1HFY22.
• The company expect to launch new digital core banking system in New Zealand in mid-December 2021, with the Australian go-live on track for late FY22.
• RMC believes that the stable funding markets and lower cost of funds may provide the business with a runway to aggressively target further growth in FY22 and beyond.

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 company closed FY21 with a cash balance of $619.8 million as compared to $366.0 million as on 30 June 2020. The stock of RMC has been corrected by ~10.26% and ~26.19% in the past one and three months, respectively. The stock is trading at par to its 52-week low level of $1.665, offering a decent opportunity for accumulation. The stock has been valued using a 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 premium to its peers’ average P/B multiple, considering the strong momentum in the business and stable funding markets, etc. For the purpose of valuation, peers such as Genworth Mortgage Insurance Australia Ltd (ASX: GMA), Australian Finance Group Ltd (ASX: AFG), and Pepper Money Ltd (ASX: PPM) have been considered. Considering the expected upside in valuation, rising home loan settlements, decent momentum in the business, growing NPAT, stable funding markets, decent outlook, current trading level, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $1.665, down by ~4.035% as on 18 November 2021.

RMC Daily Technical Chart, Data Source: REFINITIV  

Kina Securities Limited

KSL Details

Update on Acquisition on Westpac’s Pacific Business:  Kina Securities Limited (ASX: KSL) is a provider of diversified financial services in Papua New Guinea. As announced on 22 September 2021, the company and Westpac Banking Corporation had mutually decided to terminate the agreements for the acquisition of Westpac’s Pacific businesses, comprising Westpac Fiji and Westpac's 89.91% stake in Westpac Bank PNG Limited by Kina. This follows the decision to deny the authorisation for Kina’s proposed acquisition of Westpac PNG by Papua New Guinea's Independent Consumer and Competition Commission (ICCC).

1HFY21 Financial and Operational Highlights:

• Growth in NII and Revenue: For the half-year ended 30 June 2021, the company recorded a rise of 6% in net interest income (NII) to PGK 85.4 million over pcp. Revenue for the period amounted to PGK 155.7 million, reflecting a rise of 4% over pcp.
• Rising NPAT: Kina recorded growth in the bottom line (NPAT) to PGK 39.8 million, indicating a growth of 36% over pcp. The growth in financials was backed by its delivery on its commitment to increase transactional volumes through its digital platforms, which contributed to the overall rise in fees and commissions income by 10% against 1HFY20.
• Prudent Cost Control: During the half-year, the company maintained prudent cost control measures, evident by an improved cost to income ratio of 60.9% against 64.9% in 1HFY20.

Net Interest Income (Source: Analysis by Kalkine Group)

Key Risks:

• Competition from Peers: The company’s operational and financial performance could be impacted by the rising market share of peers in the industry in which it operates.
• Regulatory Risk: KSL is exposed to a more complex regulatory environment; any non-compliance could lead the business to fines, penalties etc.

Outlook:

• With respect to its 2021 strategic initiatives, the company continued to reshape the customer experience with digital upgrades and developments to mobile and online retail banking.
• To drive growth and business outcomes, the company has developed and commenced the launch of comprehensive banking package for SMEs, including transaction services, lending, digital banking, and digital partnerships.

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 company’s overall performance in 1HFY21 was backed by the continued stable foreign exchange (FX) trading income, an increase in the loan book, investment in high yielding government securities, and a lower cost of funds. The stock of KSL has been corrected by ~5.61% and ~11.11% in the past one and three months, respectively. The stock is trading below its 52-week low-high average of $0.785 - $1.200, respectively. The stock has been valued using a 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 premium to its peers’ average EV/Sales multiple, considering the strategic initiatives in 2021 and the launch of commercial banking packages, etc. For the purpose of valuation, peers such as Virgin Money UK PLC (ASX: VUK), Australia and New Zealand Banking Group Ltd (ASX: ANZ), Westpac Banking Corp (ASX: WBC), and others have been considered. Considering the expected upside in valuation, rising NII and Revenue, growing NPAT, prudent cost control, decent outlook, and current trading level, we recommend a ‘Buy’ rating on the stock at the current market price of $0.835, as on 18 November 2021, 2:27 PM (GMT+10), Sydney, Eastern Australia.

KSL 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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