A new report from the team at Bell Potter has tipped big upside for ASX financials stock COG Financial Services Ltd (ASX: COG).
COG Financial Services is a collection of distribution businesses focused in Australia.
It provides access to credit (and related insurance) for commercial assets through a broker network and maintains the balance sheet capacity to fund direct originations, capturing some overflow on non-prime chattel mortgages.
The acquisition of Paywise in 2023 marked a shift in the expansion and capital recycling approach, with greater strategic focus on novated leasing.
Year to date, its share price has fallen 30%, however Bell Potter is tipping a strong rebound in the next 12 months.
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Novated leasing
Bell Potter highlighted that June was a record month for novated lease vehicle sales.
Private buyers were up 11%, and business buyers were up 6%, even despite interest rates staying high.
Some of this comes from normal seasonal price cuts, but carmakers also ran extra discounts through specific sales channels.
Bell Potter expects this ASX financials company to sound upbeat about this part of the business, since electric vehicles' share of sales jumped from 10% to 24%, marketing campaigns are working well, and BYD is running fresh cashback deals for specific orders placed in July and delivered by August.
In short, the company's car-leasing business (novated) looks strong going into the results, driven by EV demand and discounts.
Broking
The report from Bell Potter said ABS data on business investment won't be released before COG reports its results.
Therefore Bell Potter is basing its view on the broader weak economy and high interest rates, which are expected to weigh on the broking side of the business.
Small business confidence is poor, having dropped sharply in March with little recovery since. Business investment plans hit a record low in April.
On top of that, profit margins on loans keep shrinking, while loan volumes are actually rising. This pushes up the cost of running this part of the business.
Big upside in tact for this ASX financials stock
Despite the mixed outlook, recent share price weakness makes this ASX financials stock an attractive proposition.
Bell Potter has retained its buy recommendation and has an updated price target of $2.10.
From yesterday's closing price of $1.425, this indicates an upside potential of 47%.
Recent commitment from government has extended the adjustment on electric vehicles and made this measure permanent. We see this as a multi-year-outcome, enhanced through successful tendering.
