We came across a bullish thesis on the old Bank of Internet, re-christened Axos Financial (AX), on Valueinvestorsclub posted by Huqui. Valueinvestorsclub is one of our favorite sites to follow because the ideas are usually posted by aspiring analysts who are trying to find holes in their own thinking. We find the ideas presented on the site well thought out and definitely worth checking. You can read the full article here. Here is a brief summary:
As a diversified financial services company, AX provides online banking and lending services to personal and business banking clients in the USA. AX is a low-cost lender with very attractive valuations. Analysts estimate it could generate a CAGR in the mid-teens for the foreseeable future. AX seems to be well-positioned to achieve this from organic growth alone. Thus, AX can be a candidate for the title of high growth stock.
AX is attractively valued at ~1.2x BV and 8x FY20 earnings and 9.5x FY 20 pro forma earnings (after tax, June year-end). The RoE of 15%, one of the highest among the peers, and efficiency ratio of 30-40% is a testament of the management’s strong capabilities in risk control and efficient capital allocation. In fact, it was due to their strong risk control management during the global financial crisis that in FY2010 its net charge off ratio was limited to 0.7% of its total loans. AX’s conservative lending policies (mortgage loans are at 55-60% of LTV) helped it limit the NPL ratio to total loans at 1.5%.
AX’s management has been creatively utilizing its technology in building up the infrastructure to attract deposits at the minimum cost to fund its lending business. Optimized incorporation of its software technology in managing the recently acquired Nationwide, and Epiq are two examples of AX’s successful strategy in deposit acquisition and consolidation. AX’s software infrastructure is definitely instrumental in clocking a very high efficiency ratio. The superior technology platform will allow AX to further expand its existing $10 billion asset base.
AX has a very strong loan book. Its liabilities are extremely well-managed. Its in-house technology development continues to enhance its capabilities to broaden its product platter. Free trading on an online brokerage platform is one of several such value-creation ventures AX has undertaken. In spite of a running on a fintech model, AX, for now, wants to retain the software development for captive use to protect its competitive advantage. And, wants to be known as an online bank.
AX shares gained around 60% since the publication of this thesis of VIC.
Follow us on Twitter: https://twitter.com/insidermonkey