Author: Aayushi Swami
Investment Thesis:
- Global leader in invasive and non-invasive inhalation, nasal high flow therapy and during surgery.
- Strong global market position in a significantly under-penetrated treatment of sleep apnea market and chronic obstructive pulmonary disease.
- Increasing uptake of Nasal high-flow (NHF) therapy and consumables growth on the back of this.
- High barriers to entry in establishing global distribution channels.
- Strong R&D program ensuring FPH remains ahead of competitors.
- New product releases
- Bolt-on acquisitions to supplement organic growth.
Key Risks:
- Consolidation / normalization of sales post the COVID-19 driven demand.
- Disruptive technology leading to better patient compliance.
- Product recall leading to reputational damage.
- Competitive threats leading to market share loss.
- Disappointing growth (company and industry specific).
- Adverse currency movements.
- FPH needs to grow to maintain its high PE trading multiple. Therefore, any impact on growth may put pressure on FPH’s valuation.
Key highlights:
- Fisher & Paykel Healthcare Corp (FPH) reported very strong FY21 results, with operating revenue of $1.97bn up+56% (or +61% in constant currency (CC)) and earnings (NPAT) of $524m up +82% (or+94% in CC) over the previous corresponding period (pcp).
- FPH saw an increase of +49% (constant currency) in revenue for new applications consumables; i.e. products used in non-invasive ventilation, Optiflow nasal high flow therapy and surgical applications, accounting for 66% of Hospital consumables revenue.
- The Board declared a final dividend to 22.0cps up +42% on pcp. Total dividend for FY21 of 38.0cps was up +38%.
- Balance sheet remains strong with FY21 net cash of $303m, up from $42m in FY20.
- COVID-19 has aggressively accelerated FPH’s global devices installed base and changing clinical practices. FPH achieved +337% growth in hospital hardware in FY21 vs pcp.
Company Description:
Fisher & Paykel Healthcare (FPH) is a designer, manufacturer and marketer of products for use in respiratory care, acute care, surgery and treatment of obstructive sleep apnea. The Company sells its products in over 120 countries. FPH’s products are used in the treatment of more than 12 million patients. In the hospital setting, FPH products are used in invasive inhalation, non-invasive inhalation, nasal high flow therapy, and during surgery. In long-term care facilities and home settings, FPH technologies assist in the treatment of obstructive sleep apnea (OSA) and chronic obstructive pulmonary disease (COPD), and other chronic respiratory conditions.
(Source: Banyantree)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Investment Thesis:
- Undemanding valuation relative to the market.
- Current share price is factoring in several negative sentiments already.
- Higher (and stabilizing) commodity prices should translate into improving volumes.
- Better than expected performance on the cost out.
- Attractive dividend yield
- Mostly defensive earnings backed by contracts, providing stability in shareholder returns.
- The Company does have long-term plans to reduce exposure to coal.
Key Risks:
- Significant decline in commodity prices leading to mine closures or reduce volumes from customers. Any potential declines in iron ore prices.
- Structural decline in some commodities (e.g. coal).
- High costs impacting margins.
- Contract repricing resulting in longer term revenue loss.
- Pricing pressure to increase.
- Potential cuts to dividends given the elevated payout ratio.
- Weather related impacts.
Key highlights:
- Management noted that they have identified growth opportunities. Near-term earnings appear to be more stable.
- Group revenue of $3,019m was down -1%, EBITDA of $1,482m was up +1% (with operating costs down -4%), and NPAT of $533m mostly unchanged
- The flat earnings outcome for the year were driven by a decline in Coal volume being offset by higher earnings in Bulk and Network, primarily due to the commencement of WIRP fee billing.
- Cost improvements came on the back of lower access and lower fuel expenses, with cost pressure from volume growth in Bulk being offset by transformation benefits
- AZJ maintained its 100% dividend payout ratio with a final dividend of 14.4cps (up +5% YoY + 70% franked), taking FY21 dividend to 28.8cps.
- The segment wise contribution of Aurizon is as follows:
- Network: FY21 revenue was up +4% YoY (Track Access +4%, Services & Other -19%) and EBITDA was up +6% to $849m. Segment earnings were driven by revenue growth and supported by lower operating costs (down -3%) and Energy & Fuel expenses (down -5%).
- Coal: FY21 revenue was down -9% YoY (Above Rail -8%, Track Access -13%) and EBITDA down -13% to $533m, with earnings supported by lower operating costs (down -4%) and access costs (down -11%). Top line growth was impacted by a decline in haulage volumes over the year.
- Bulk: FY21 revenue was up +4% YoY (net of access, revenue was up +10%), driven by new contract and services growth. EBITDA was up +27% to $140m, with earnings driven higher by lower operating costs (down -6%) and access costs (down -23%)
Company Description:
Aurizon Holdings Ltd (AZJ) operates an integrated heavy haul freight railway in Australia. It transports various commodities, such as mining, agricultural, industrial and retail products; and retail goods and groceries across small and big towns and cities, as well as coal and iron ore. The Company also operates and manages the Central Queensland Coal Network that consists of approximately 2,670 kilometres of track network; and provides various specialist services in rail design, engineering, construction, management, and maintenance, as well as offers supply chain solutions. In addition, it transports bulk freight for customers in the resources, manufacturing, and primary industries sectors. The Company was formerly known as QR National Limited and changed its name to Aurizon Holdings Limited in December 2012. AZJ is headquartered in Brisbane, Australia.
(Source: Banyantree)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Investment Objective
The Fund seeks to track the performance of a benchmark index that measures the investment return of stocks issued by companies located in developed and emerging markets, excluding the United States.
Approach
Vanguard’s portfolio managers use full replication to track the FTSE Global All Cap ex U.S. Index. This benchmark starts with all stocks listed outside of the United States and sorts them by their free-float adjusted market cap. It targets firms that land in the top 98% of each country’s market capitalization. The index uses buffer rules around the cutoff point to keep turnover low, and it applies some additional liquidity requirements to ensure that its holdings are investable. The index weights its final constituents by market cap, which helps further mitigate turnover and trading costs. It reconstitutes semiannually in March and September.
Portfolio
This fund captures the entire foreign stock market. Its comprehensive portfolio effectively diversifies stockspecific risk, with only 9% of assets in its 10 largest holdings. . Sector weightings are comparable, with financial and industrial stocks collectively representing almost one third of the portfolio. Eurozone stocks represent the largest regional allocation, at 20% of the portfolio, while Japan and the United Kingdom make up an additional 16% and 9.4%, respectively. The fund does not hedge its currency risk, so its exposure to currencies like the euro, yen, and pound can add to its volatility. Stocks listed on emerging-markets exchanges account for a little more than 28% of this fund. Allocating to these companies improves the fund’s reach and shouldn’t materially impact its risk or performance. The fund includes small caps but weights its holdings by market cap. So, it leans toward large-cap multinationals, with companies like Taiwan Semiconductor, Nestle, and Samsung among its biggest names.
People
The portfolio managers on this fund are part of Vanguard’s Equity Index Group. Christine Franquin and Michael Perre share responsibility for this fund. They are both principals at Vanguard and captain some of Vanguard’s largest index-tracking funds listed in North America. This duo not only oversees the portfolio but also executes trades on a day-to-day basis
Performance
This fund’s category-relative performance has not stood out from its competitors in the foreign large-blend category. The Admiral share class managed to slightly edge out the average of its peers by 18 basis points annualized over the 10 years through November 2021. The fund’s larger-than-average stake in emerging- markets stocks was a drag during the first few years of that period and partially explains its mediocre showing. The fund’s composition looks a lot like the category average, and it remains fully invested in order to tightly track its target index. That means it tends to post average performance during volatile periods like the coronavirusdriven sell-off in the first quarter of 2020. The fund’s 24% decline was comparable to the loss incurred by the category norm over those three months.
Recent category-relative performance has been stronger. The portfolio led the category average by 67 basis points per year over the trailing three years through November 2021, landing just outside the top third of the category. Poor stock selection in the financials and information technology sectors on the part of some active managers hurt their category-relative performance and boosted the fund’s standing.
Top holdings of the fund
About the fund
The fund tracks the FTSE Global All Cap ex U.S. Index, which includes stocks of all sizes from foreign developed and emerging markets. It weights them by market cap, an approach that benefits investors by capturing the market’s collective opinion of each stock’s value while keeping turnover low. This is one of the broadest portfolios in the foreign large-blend category. Its exceptional diversification mitigates the impact of holding the worst-performing names. It holds more than 7,000 stocks and has only 9% of assets in its 10 largest positions. Its regional composition looks modestly different from a typical fund in the category because it has a larger dose of emerging-markets stocks. But their weight in the portfolio isn’t large enough to materially increase the fund’s risk or compromise its category relative performance.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
