Avior Financials | Ooba mortgage stats | SA banks | Quilter | Peregrine

In this week's Avior Financials note:

ooba's (SA's second largest mortgage originator) stats for Q3 '19 show that the SA mortgage market remains highly competitive as banks sacrifice margins (average pricing at Prime, -16bps y/y) and risk metrics for asset growth. ooba's approval rate increased by 4.3% y/y to c.83%. ooba recorded a 5% y/y increase in the approval rate for 100% finance applications (c.60% of applications processed). The average LTV in ooba's data increased to 89% in Q3 '19 (the highest average level in the last 10 years).

Standard Bank's (SBK) Q3 '19 trading update reflected a disappointing earnings growth rate. A poor performance in SBK's CIB operations could imply downside risk for other SA banks' CIB revenues and earnings in H2 '19. However, SA banks remain undervalued at current levels despite downside risk to near-term earnings growth. ABSA remains our top pick in the sector.

Quilter's NCCF in Q3'19 remained depressed due to weak investor sentiment and outflows associated with lost investment managers in Quilter Cheviot 12 months ago. We expect Q4'19 flows to be equally weak but the platform migration in H1'20 could be a positive catalyst for the stock to rerate. At a c.14.5x forward P/E QLT remains deeply undervalued relative to peers STJ (c.26x forward P/E) and HL/LN (c.30x forward P/E).

Peregrine Capital's hedge funds have outperformed over the past year. However, the funds have been below their high watermarks set in Jul '19. We expect performance fees for the first three months of H1 ‘20f. We estimate H1 ‘20f net outflows of R70m relative to FY '19 outflows of R1.6bn.

Peregrine Holdings announced the sale of 50% of Stenham Asset Management (SAM) to SAM's management team. We believe the valuation is fair and the transaction should incentivise management and make the business more sustainable.