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Technology Stocks

ABC delivered 1H23 revenue growth of +8.4% y/y to $1.7bn

Investment Thesis

On valuation grounds relative to the current share price, ABC trades fair value. 

  • Trading on 2-Yr PE-multiple of 10.2x and dividend yield of 5.1% represents good value at these levels.
  • Macro conditions remain uncertain in key regions.
  • Strong pipeline of infrastructure projects over the next 2 years is a positive but timing and execution is a risk.
  • Solid balance sheet position provides some flexibility to the Company to pursue growth.
  •  Leading positions as a lime producer, concrete products producer and cement and clinker supplier.
  • Outlook for lime looks relatively positive with higher infrastructure projects and resource sector activity.

Key Risks

  • Softer sales volume than expected. 
  • Loss of market share to competitors or imports and pressure on pricing. 
  • Softer than expected pricing increases. 
  • Higher than expected energy prices. 
  • Execution risk in relation to Company’s cost-out and vertical integration strategies. 
  • Deterioration of A$ relative to other currencies. 
  • Unfavorable weather impacts.

Key Highlights: Relative to the pcp and on a constant currency basis: 

  • Revenue increased +8.4% to $1.7bn, driven by price increases and volume growth across most product lines. 
  • Underlying EBITDA (including property profits of $57.6m) increased +7.7% to $295.3m with margin down -10bps to 17.4%, negatively impacted by increased costs and wet weather which impacted ability to deliver products efficiently, thus more than offsetting price and volume increases across some product lines. 
  • Underlying NPAT decreased -0.9% to $118m and statutory NPAT declined -12.1% to $102.6m, impacted by higher operating costs as a result of inflation, particularly energy costs, and wet weather events. 
  • Operating cashflow declined -14.8% to $166.4m, largely due to lower earnings and an increase in working capital associated with higher receivable and inventory levels. 
  • Capex increased +81.6% to $255.1m, largely due to the spend on the Kwinana Upgrade project, with total capex split between stay-in-business capital of $123.9m, up +16.9% and development capital of $131.2m, up +280.3%. 
  • Net debt increased +31.8% y/y to $576.4m due to the Zanows acquisition and Kwinana Upgrade project, partially offset by surplus land sales, resulting in a leverage ratio increasing +0.4x y/y to 2x and gearing increasing +980bps y/y to 44.3%, with both remain well within banking covenants (though at higher end).
  •  Underlying ROFE of 9.5%, declined -110bps y/y, reflecting investments in Kwinana Upgrade project and the Zanows acquisition.
  •  The Board scrapped the final dividend to preserve capital required for the completion of Kwinana Upgrade project, resulting in a total FY22 dividend of 5cps, down -60% y/y.

Company Description

Adbri Ltd (ABC) is an Australia listed construction materials and liming producing company. ABC is Australia’s leading (1) lime producer in the minerals processing industry; (2) concrete products producer; and (3) cement and clinker importer. ABC is Australia’s number two cement and clinker supplier to the Australian construction industry and number four concrete and aggregates producer.

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Investor Desk. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Investor Desk and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Investor Desk and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Investor Desk and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Investor Desk and Banyan Tree do and seek to do, business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Investor Desk and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Investor Desk and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Investor Desk and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Investor Desk and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and is not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Investor Desk and Banyan Tree.

Categories
Shares Small Cap

Zip Shares Still Cheap After Walking Away from Sezzle, But Its Fundamentals Are Getting Murkier

Business Strategy & Outlook:    

Zip’s focus is on maximizing its addressable market. Its business is more diversified than single-product buy now, pay later, or BNPL, players, with varieties in financing options, transaction limits, and repayment schedules. Customers enjoy simple sign-up and checkouts, high acceptance by retailers and flexible financing solutions to help better manage their cash flows. Merchant partners may benefit from increased conversion rates, basket sizes, and transaction frequencies. Zip has a revolving credit business in Australia. ZipPay finances up to AUD 1,000, and ZipMoney AUD 1,000 and above. It also boasts a broader merchant base including retail, home, electronics, health, auto, and travel. Around 70% of revenue is derived from customers, mainly from account fees and interest. Meanwhile, Zip Business provides unsecured loans of up to AUD 500,000 to small and midsize enterprises. 

Zip adopts an installment financing model overseas, helping it scale up faster and keep up with competition in the underpenetrated global BNPL landscape. The acquisition of U.S. based Quad Pay materially boosts its growth prospects. It also operates in the U.K., Canada, Europe, Mexico, and the Middle East. Zip enhances customer stickiness via ongoing product add-ons. It has a Pay Anywhere function that lets users transact at a wide variety of avenues without being confined to merchant partners. Users also benefit from promotional offers, cash-back deals, or free credits. Newer features include crypto trading, credit reporting, and savings accounts. For merchant partners, Zip invests in co-marketing to help them acquire new customers. Zip has strong earnings prospects, but its margins will be increasingly under pressure and it will not achieve the same penetration and transaction frequency overseas as it had domestically. While it benefits from the growth of e-commerce and increasing preference for more convenient/cheaper forms of financing, anticipated heightened competition to its products. The capital-intensive domestic business cannot scale up as quickly, its fee structure potentially creates friction for customers, and its product offering in the U.S lacks clear differentiation.

Financial Strengths:  

While credit stress is creeping up, Zip remains overall in reasonable financial health. As of March 2022, the net bad debt ratio for its core ANZ business sits at 3.40% of receivables, while arrears are at 2.29%. But as a reprieve, Zip’s current financial position would be bolstered by: 1) its March equity raise; and 2) avoiding absorbing Sezzle’s net losses. Its debt/capital ratio is 56%, while the ratio of equity/receivables has improved to 52% in fiscal 2021 from 8.1% in fiscal 2017. Zip’s bad debts should stay manageable in a major credit event. Unlike some peers, Zip conducts a greater degree of background check before onboarding customers, such as collecting bank statements and pulling in information from a credit bureau. Soft credit checks are similarly performed when onboarding new customers overseas. This helps compensate for the fact that its receivables are higher-risk due to them having longer repayment periods and higher transaction value (notably for Zip Money) or it having a Pay Anywhere model. Its installment businesses have shorter turnover periods and lower transaction values, meaning it can know much earlier (relative to credit cards) if customers have trouble making payments and can therefore amend its risk controls accordingly. Most its Australian receivables are funded by its asset-based securitization program, with undrawn facilities totaling AUD 401.9 million as of March 2022. It also has USD 168.1 million and AUD 119.5 million of undrawn facilities to fund U.S and Zip Business’ receivables, respectively.

Bulls Say:  

  • Zip is well placed to continue growing its transaction volume, given its variety in financing options and retailer base, as well as its Pay Anywhere model which provides a greater avenue to spend using its products.
  • Zip benefits from an accelerated shift to e-commerce, increased adoption of cashless payments, and a growing need among merchants for effective marketing amid a challenging retail backdrop.
  • Zip faces lower regulatory risks than its BNPL rivals, as it already conducts a greater degree of background checks and ZipMoney is already regulated by the National Credit Act.

Company Description: 

Zip is a diversified finance provider, offering consumer financing via a line of credit (via ZipPay and ZipMoney) and installment-based finance (via Quad Pay, Spotii, Twisto, and PayFlex); as well as lending to small to midsize enterprises (via Zip Business). Zip’s fortunes are largely tied to the buy now, pay later, or BNPL, industry. Most of its products–ZipPay, Quad Pay (Zip U.S.), and PayFlex–do not charge interest based on outstanding balances. Around 60%-70% of Zip Pay’s/Zip Money’s revenue is derived from customers, mainly via account fees and interest. Meanwhile, its installment businesses primarily generate revenue by receiving a margin from merchants, which compensates it for accepting all nonpayment risk and for encouraging consumers to transact more frequently.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Investor Desk. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Investor Desk and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Investor Desk and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Investor Desk and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Investor Desk and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Investor Desk and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Investor Desk and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Investor Desk and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Investor Desk and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and is not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Investor Desk and Banyan Tree.

Categories
Fixed Income

JPMorgan Climate Change Solutions Fund – Class A Units An investment style with a thematic focus on a UN Sustainable Development Goal

This product is likely to be appropriate for a consumer seeking capital growth to be used as a small allocation within a portfolio where the consumer has a high risk/return profile and needs daily access to capital. The minimum suggested holding period is 5 years.  To achieve a return through investing in equity securities of companies with exposure to the theme of climate change solutions.

Key Risk

The risk management function of JPMAM provides oversight, coordination, support and a consolidated view of risks and controls to senior management and executive management of the Manager. The function harnesses the support of the various risk management groups of JPMAM, with assistance from regional JPMAM risk personnel, which supervises credit risk arising from counterparty activities conducted on behalf of clients. All investments carry risk. Different strategies may carry different levels of risk, depending on the assets that make up the strategy. The value of the investment may fall for a number of reasons, including the risks set out below, which means that you may lose some or all of the investment. Before making an investment decision, it is important to understand the risks that may affect the value of the investment. While it is not possible to identify every risk relevant to investing in the Fund, that is detailed in the following table significant risks that may affect the investment. Assets with the highest long-term returns may also carry the highest level of short-term risk due to their generally larger fluctuations in returns. The level of risk for each person will vary depending on a range of factors including age, investment timeframe, other investments and risk tolerance. The financial adviser may assist you in determining whether the Fund is suited to the objectives, financial situation and needs including the level of diversification you need. The following table outlines the key risks of the Fund. Investment in the Fund is subject to investment risk, including possible delays in repayment and loss of income and capital invested.

Type of key risk:

  • Concentration Risk
  • Counterparty Risk
  • Thematic Risk
  • Hedging Risk

Fund Performance:

ESG integration process 

The ESG Data and Research Working Group vets and reviews the ESG integration approach of each investment group. The Working Group is chaired by the Global Head of Sustainable Investing, Jennifer Wu, and its members are senior portfolio managers, research analysts and investment stewardship specialists. The Working Group’s review is used to form recommendations that the Sustainable Investing team submit to the Sustainable Investing Oversight Committee (SIOC), which is responsible for approving or rejecting the ESG-integrated status of each investment group. This committee was established in 2021 as part of a comprehensive review of the sustainable investing governance practices, with a particular emphasis on structures for oversight of investment stewardship and ESG integration. Voting members of SIOC include the Chief Investment Officers (CIOs) of all applicable asset classes, thereby gaining oversight and assuming responsibility for the integration of sustainability risk related to the investment decision process. The ESG Data and Research Working Group, alongside the Sustainable Investing team, has developed a 10-metric framework to evaluate ESG integration progress at each critical step of a typical investment process. Investment groups are required to present their ESG integration approach to the Working Group. The process for determining which investment groups are ESG integrated has continued to evolve and improve with the development of the framework (see next page). To receive ESG-integrated status under the current methodology, the investment groups must receive an aggregate score of at least 30 points out of a total of 50 and, for each metric, receive at least a 2 on a scale of 1 to 5. If the investment group does not meet this threshold, the Working Group will discuss the improvements required before it can reapply at a later stage. For those that are successful, the score and feedback are used to form a recommendation that the Sustainable Investing team submits to SIOC for formal approval of the ESG-integrated status.

About the fund

Climate change is one of the biggest challenges that are faced as a society. But companies around the globe are rising to the challenge. Climate Change Solutions Fund invests in a high-conviction portfolio of the forward-thinking companies developing and scaling solutions to address the drivers of climate change, tapping into a wave of innovation across sectors and across the market cap spectrum, while supporting a sustainable future for us all.

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Investor Desk. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Investor Desk and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Investor Desk and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Investor Desk and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Investor Desk and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Investor Desk and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Investor Desk and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Investor Desk and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Investor Desk and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Investor Desk and Banyan Tree.