Westpac Banking Corporation

WBC Details

Growth in CET1 Ratio: Westpac Banking Corporation (ASX: WBC) provides banking, financial and related services. The market capitalisation of the bank stood at $78.72 billion as on 29^th January 2021. On 7^th December 2020, WBC announced the sales its Pacific businesses, Westpac Fiji and its 89.91% interest in Westpac Bank PNG Limited to Kina Securities Limited for consideration of up to $420 million to focus on the consumer, business and institutional banking in Australia and New Zealand. The sale is likely to be finished in 2H FY21. During FY20, the bank recorded statutory net profit amounting to $2,290 million, reflecting a fall of 66%, mainly due to higher impairment charges, increased notable items and a sharp fall in economic activity. In addition, low-interest rates and a highly competitive market resulted in the fall of net interest margin (NIM) to 2.03x in 2H FY20 against 2.13x in 1H FY20. As on 30th September 2020, the bank recorded a CET1 ratio of 11.13%, which indicates a rise of 32 basis points over 31^st March 2020.

 CET1 Movement (Source: Company Reports)

Outlook: Looking forward, the bank would be focused on its core consumer, business, and institutional segments in order to tap future growth. The bank is targeting to become a simpler and stronger bank with the focus on three priorities fix, simplify and perform.

Valuation Methodology: Price to Book Value Multiple Based Relative Valuation (Illustrative)

Price to Book Value Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As on 30 September 2020, the bank had Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) of 151% and 121.7% against 146% and 116.1% as on 30^th June 2020. In the past one and three months, the stock of WBC has provided positive returns of 8.29% and 18.87%, respectively. We have valued the stock using the price to book value multiple based illustrative relative valuation and have arrived at a target price of low double-digit (in percentage terms). On a technical front, the stock has a support level of ~$16.003 and resistance level of ~$26.031. Hence, considering the growth in CET1, decent liquidity and funding position, and focus on business growth, we give a “Buy” recommendation on the stock at the current market price of $21.130 per share, down by 1.538% on 29^th January 2021.

WBC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Origin Energy Limited

ORG Details

Growth in Production and Sales: Origin Energy Limited (ASX: ORG) is engaged in the operation of energy businesses, including exploration and production of natural gas, electricity generation. The market capitalisation of the company stood at $8.52 billion as on 29^th January 2021. For the quarter ended December 2020, the company witnessed a rise of 6% in production to 68.3 PJ against 64.2 PJ in September 2020 quarter. In addition, sales volume for the quarter increased by 12% to 64.5 PJ as compared to 57.4 PJ in September 2020 quarter. During the quarter, the company recorded commodity revenue amounting to $398.0 million, indicating a rise of 6% over the prior quarter as higher volumes offset lower realised contracted LNG prices.

Production and Sales Volumes (Source: Company Reports)

Outlook: The company expects that the global trends towards decarbonisation, decentralisation and digitisation will shape energy markets in the longer term. In addition, the company also anticipates growth in global demand for gas in power generation, industrial heating, building heating and transportation. The company is likely to release its 1H FY21 results on 18^th February 2021.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: During the quarter, the company received cash distributions of $265 million from Australia Pacific LNG. The 52-week low -high range for the stock stands at $3.750 - $8.440. We have valued the stock using the price to earnings multiple based illustrative relative valuation method and arrived at a target price with of low double-digit upside (in percentage terms). For the purpose, we have taken peers such as AGL Energy Ltd (ASX: AGL), APA Group (ASX: APA) and Woodside Petroleum Ltd (ASX: WPL), to name few. On a technical front, the stock has a support level of ~$4.007 and resistance level of ~$5.278. Thus, in light of the rising production and sales, increase in commodity revenue and decent outlook, we give a “Buy” recommendation on the stock at the current market price of $4.740 per share, down by 2.067% on 29^th January 2021.

ORG Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

IPH Limited

IPH Details

Decent Growth in Financials: IPH Limited (ASX: IPH) is engaged in the provisioning of intellectual property services. The market capitalisation of the company stood at $1.34 billion as on 29^th January 2021. In the month of October 2020, the company finished the acquisition of New Zealand intellectual property firm Baldwins Intellectual Property via the issue of 335,016 new shares at an issue price of $7.305 each to the seller. For the year ended 30^th June 2020, the company recorded revenue amounting to $370.1 million, reflecting a rise of 43% over FY19. Statutory NPAT for the year increased by 3% to $54.8 million over FY19. These results reflect the ongoing resilience of the business in spite of the challenging market conditions caused by the COVID-19 pandemic in 2H FY20.

Key Financials (Source: Company Reports)

Outlook: Looking forward, the company would continue to build on its positive momentum in leveraging its Asian network for increasing organic revenue opportunities and grow market share in high growth markets across the region.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:  The company closed FY20 with a cash balance of $83 million. The stock of IPH has corrected 2.28% and 13.70% in the last three and six months, respectively. As a result, the stock is trading towards its 52-week low level of $5.770, offering decent opportunities for accumulation. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). On a technical front, the stock has a support level of ~$5.997 and resistance level of ~$8.761. Hence, considering the increase in revenue, ongoing business resilience, and outlook, we give a “Buy” recommendation on the stock at the current market price of $6.330 per share, up by 1.605% on 29^th January 2021.

IPH Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Iress Limited

IRE Details

Decent Growth in Operating Revenue: Iress Limited (ASX: IRE) is engaged in the provisioning of IT solutions to financial market participants and wealth managers. The market capitalisation of the company stood at $1.92 billion as on 29^th January 2021. For the quarter ended 30^th September 2020 (Q3 FY20), the company recorded operating revenue amounting to $133.8 million, reflecting the growth of 3%, supported by strong performance in APAC and Mortgages. Segment profit for the quarter stood at $37.2 against $36.4 in Q3 FY19. On 6^th November 2020, the company finished the acquisition of OneVue Holdings Limited at the consideration of 43 cents cash per share. The acquisition is likely to support the company in strengthening the administration of managed funds, superannuation, and investment, along with its position in technology and data. During 1H FY20, the company witnessed a rise of over 12% in group revenue to $270.7 million and segment profit for the half-year stood at $71.9 million.

Key Metrics (Source: Company Reports)

Outlook: The company expects to report increased revenue momentum and enhanced profitability in FY20. In addition, the company would also be benefited from additional cost savings. The company is likely to release its FY20 results on 20^th February 2021.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company ended 1HFY20 with cash conversion of 134% and net debt balance of $48.7 million. During 1H FY20, the company recorded a current ratio of 1.66x, which is higher than 1.09x of 1H FY19, reflecting a decent liquidity position of the business. We have valued the stock using the price to earnings multiple based illustrative relative valuation and arrived at a target price with an upside of low double-digit (in percentage terms). On a technical analysis front, the stock has a support level of ~$9.445 and a resistance level of ~$11.997. Thus, considering the growth in topline, decent liquidity position, acquisition of OneVue, and decent outlook, we give a “Buy” recommendation on the stock at the current market price of $10.000 per share, up by 0.502% on 29^th January 2021.

IRE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

humm Group Limited

HUM Details

Decent Growth in Bottom Line: humm Group Limited (ASX: HUM) provides point of sale lease and rental finance for the IT equipment, electrical appliance and other retail markets. The market capitalisation of the company stood at ~$569.55 million as on 29^th January 2021. Recently, the company provided a trading update for unaudited financial results for 1H FY21, wherein, it stated that it expects to report cash net profit after tax of $43.4 million, reflecting a rise of 25.8% over pcp. The growth in cash NPAT was supported by its focus on decreasing underlying costs, fall of 35.3% in loan impairment expense to $25.0 million, strong profitability in the Commercial & Leasing and Cards segments and continued top line growth in Buy Now Pay Later.  For the year ended 30^th June 2020, the company reported Statutory Net Profit After Tax amounting to $21.4 million and cash NPAT of $29.2 million, which indicates COVID-19 macro-overlay provision. In addition, the company witnessed a YoY growth of 30% in active customers to 2.3 million.

Financial Summary (Source: Company Reports)

Outlook: The company is intending to make new investments in marketing and people during 2H FY21 as it enters two international markets. In addition, the company expects cash NPAT for 2H FY21 to be lower than 1H FY21. The company has scheduled to release its 1H FY21 results on 24^th February 2021.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company closed FY20 with wholesale funding facility headroom of $648 million and $145 million of undrawn corporate debt facilities and unrestricted cash representing net gearing of 29%. We have valued the stock using the price to earnings multiple based illustrative relative valuation and arrived at a target price with an upside of low double-digit (in percentage terms). For the purpose, we have taken peers like Smartgroup Corporation Ltd (ASX: SIQ), Credit Corp Group Ltd (ASX: CCP), IOOF Holdings Ltd (ASX: IFL), to name few. On a technical analysis front, the stock has a support level of ~$0.911 and a resistance level of ~$1.365. Thus, considering the growth in cash NPAT, rising active customers, and key risks associated with the business, we give a Speculative Buy” recommendation on the stock at the current market price of $1.140 per share, down by 0.870% on 29^th January 2021.

HUM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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