Commonwealth Bank of Australia (ASX: CBA) shares are one of the most popular options in the financial sector.
However, due to its premium valuation, many investors aren't comfortable buying its shares at current levels.
So, what other options are there? Let's look at one that Bell Potter rates as a buy.
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Which ASX financials stock?
Bell Potter is bullish on COG Financial Services Ltd (ASX: COG) and is recommending it to clients this week.
It operates a group of distribution businesses that provide access to credit (and related insurance) for yellow commercial goods.
In addition, the ASX financials stock has balance sheet capacity to fund direct originations, with a focus on capturing some of the overflow for non-prime chattel mortgages.
Bell Potter highlights that trading conditions have been mixed for COG Financial Services. It said:
ABS data showed equipment, plant and machinery capital expenditure grew +18%, driven by data centre investment. Excluding this, core spending demonstrated +8% growth for the three months to 31 March compared with the pcp. Looking forwards, the investment pipeline is accelerating, with consecutive +8% upgrades.
While June quarter expectations have been forced upwards, we turn more conservative, given the significant contribution from data centres, and downgrade our volume growth forecast to the current run rate (broking & aggregation). Victorian business credit demand was down -2%. This is the main exposure for the business. Although national confidence is strengthening, with overall spending targets upgraded +11% for FY27E.
In addition, the broker highlights that there is meaningful potential for a re-rating in novated leasing. It adds:
Automotive suppliers and dealers have seen large increases in order backlogs, and trading updates indicate customers have continued to favour efficient vehicles through June. However, profit expectations are down on discounting and supply constraints. We view this reinforcing the case for re-rating novated leasing.
The channel stands to gain from new market entrants and increased electric vehicle uptake (lower priced Chinese brands). We view VFACTS data, due to be released tomorrow, as a catalyst. So far, novated leasing companies have seen their revenue growth trace settlements.
Should you invest?
According to the note, Bell Potter has retained its buy rating and $2.30 price target on this ASX financials stock.
Based on its current share price of $1.51, this implies potential upside of 52% for investors over the next 12 months.
In addition, the broker is expecting an attractive fully franked 4.6% dividend yield over the period, which lifts the total potential return beyond 56%.
Commenting on its investment thesis, Bell Potter highlights the discount that the ASX 300 share trades on compared to peers. It concludes:
Our Buy rating is unchanged. COG is delivering broad growth and continues to screen at a discount to broking and fleet peers, complemented by a string of acquisitions.
