On Wednesday, Citi adjusted its outlook on Resimac Group Ltd (RMC:AU), reducing the price target to AUD0.90 from the previous AUD1.00, while maintaining a Neutral rating on the stock. The decision came after Resimac reported its FY24 results on August 29, revealing a normalized net profit after tax (NPAT) of $43.1 million, which was slightly below Citi's estimate of $43.7 million but still within the company's forecasted range of $42-44 million.
The financial results, as mentioned by the analyst, were largely anticipated due to prior guidance. However, the composition of asset quality presented unexpected elements. There was a significant increase in provision coverage for asset finance as expected, but it also included approximately $8 million in asset finance provisions and an unexpected roughly $6 million in write-offs. These write-offs were somewhat offset by a reversal in provisions for home lending.
From a core earnings standpoint, Resimac's trends were seen as encouraging and in line with industry peers. The company experienced stabilization in its home lending books, a moderation in funding costs, and improving settlements. Despite these positive aspects, the substantial growth in asset finance assets under management (AUM) has led to a reevaluation of seasoning, increased coverage, and consequently, expedited write-offs.
In response to these outcomes, Citi has revised its earnings forecasts for Resimac downward by approximately 9-25%. The lowered price target reflects these adjustments, although the firm continues to hold a Neutral (High Risk) stance on the stock.
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