Author: lvc-admin

Dominion has accelerated its capital expenditure growth program

Post author By lvc-admin
Post date January 14, 2023
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investment stockbroker risk analysis using multiple devices. Financial analysis using phone app and laptop. Market trading profit.

Business Strategy & Outlook

After exiting its oil and gas exploration and production business, selling and retiring its no-moat merchant generation, and selling its Questar assets, Dominion’s investors are left with a predominantly regulated utility, which has been in the best interests of investors. Like its peers, Dominion has accelerated its capital expenditure growth program. Over the next five years, management plans to invest $37 billion of growth capital, with nearly 90% focused on decarbonization. Favorable regulatory mechanisms mean that over 75% of Dominion’s investments are eligible for timely cost recovery from customers, reducing regulatory lag and improving free cash flow. In Virginia, the company’s most important jurisdiction, over 90% of its planned investments are eligible for rate riders at higher allowed returns on equity.

Over the next 15 years, Dominion forecasts $73 billion of capital investment opportunities, including up to $21 billion for offshore wind farms in the U.S. Unlike other offshore wind projects, Dominion’s will be rate-regulated, mitigating investor risk for a project with greater execution risk than onshore renewable energy development. Investors must carefully watch for cost increases at its offshore project. While costs will rise for the project, there remains significant headroom for the $125 per megawatt hour allowed regulated cost cap. Costs over the cap would require regulatory approval. A recent settlement with key counterparties should help resolve a proposed capacity factor guarantee, if approved. Roughly 90% of earnings will be from regulated electric and gas utilities with constructive state regulation in Virginia, Utah, Ohio, and the Carolinas. The balance of earnings will come from contracted assets with long-term agreements with mostly investment-grade counterparties that provide steady, regulated-like returns. In November, management unexpectedly announced a strategic review of the company’s current business mix and capital allocation. Management did not indicate a potential outcome or direction of the review, creating what is unnecessary investor uncertainty.

Financial Strengths

Even with its large capital expenditure program, Dominion maintains a strong balance sheet and an investment grade credit rating. Dominion is to maintain a capital structure in line with regulatory requirements at its utility subsidiaries. Total debt/capital was 58% at year-end 2021, and it expects to remain below 60%. With $37 billion in expected growth capital expenditures over the next five years, Dominion will be a frequent debt issuer. Exclude $3 billion of growth capital from the estimate as management will look to mitigate customer bill impacts while potentially lengthening the trajectory of its capital investment program. Dominion’s debt maturity schedule is manageable, and Dominion will be able to refinance its debt as it comes due. Dominion surprised investors with a 33% dividend cut in late 2020 after the company abandoned the Atlantic Coast Pipeline and decided to exit its gas pipeline business. Its current 65% payout ratio is in line with peers, and 6% dividend is to grow.

Bulls Say

Dominion’s dividend yield and earnings growth could deliver high-single-digit total annual returns for conservative investors for the foreseeable future.
Growth capital investments focused on renewable energy and carbon reduction are estimated to be $73 billion over the next 15 years and should provide solid earnings and dividend growth for the foreseeable future.
Public support for renewable energy and Virginia legislation has resulted in Dominion planning to build the largest wind farm in the U.S.

Company Description

Based in Richmond, Virginia, Dominion Energy is an integrated energy company with over 30 gigawatts of electric generation capacity and more than 90,000 miles of electric transmission and distribution lines. Dominion owns a liquefied natural gas export facility in Maryland and is constructing a 5.2 GW wind farm off the Virginia Beach coast.

(Source: Morningstar)

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

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. 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 Laverne 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, Laverne 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.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne 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 Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne 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 Laverne 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. Laverne 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 Laverne and Banyan Tree.

Tags Commodities, Energy

Commodities Trading Ideas & Charts

ConocoPhillips stands to benefit from Concho’s expertise in the Permian while deriving $1 billion in synergies

Post author By lvc-admin
Post date January 14, 2023
No Comments on ConocoPhillips stands to benefit from Concho’s expertise in the Permian while deriving $1 billion in synergies

Business Strategy & Outlook

Differentiating itself from peers big and small, ConocoPhillips has laid out a 10-year plan for restrained investment, steady growth, improving returns, and, importantly, returning cash to shareholders. Its strategy makes Conoco a compelling option in the energy sector, given its commitment to capital restraint and clear policy on return of cash to shareholders. Its low-cost portfolio gives it high return investment options to grow in a rising price environment while its strong financial position keeps the dividend safe in a downcycle. Central to its plan is a commitment to maintain capital spending at $8 billion on average annually while returning 30% of operating cash flow to shareholders per year through a three-tier capital return program consisting of buybacks, an ordinary annual dividend, and a variable component. Through high-grading and cost improvements, the company has reduced the oil price necessary to earn a 10% return on produced resources in its plan to $28/ barrel.

Its growth plan rests largely on its unconventional assets, specifically its Permian position, which became the company’s largest position with the acquisition of Concho Resources. Permian resources constitute over half of the planned produced resources in the 10-year plan. ConocoPhillips stands to benefit from Concho’s expertise in the Permian while deriving $1 billion in synergies. Conoco further tilted its portfolio to U.S. unconventional by acquiring Shell’s Permian shale assets in a highly accretive deal. While the company holds acreage in the Bakken and Eagle Ford, production growth in both these regions will likely be limited. Outside of the U.S. unconventional portfolio, volumes will remain flat with growth in Alaska and Canada offsetting declines internationally. Growth in Canada will come from the Montney, where Conoco plans to leverage its unconventional experience. New volumes in Alaska will come from the Willow project, dependent on a clarified regulatory environment.

Financial Strengths

During the last year, debt has fallen from the peak levels realized after the oil price decline in 2020 and the Concho acquisition. Total debt amounted to $17.0 billion in the third quarter of 2022, implying a net debt/capital ratio of 26%. Management will likely continue to reduce gross debt during the next five years and may refinance high-coupon debt as part of debt restructuring, depending on cost, as it aims to maintain an A rated balance sheet. The debt/EBITDA is to remain at or below 1.0 throughout the remainder of the forecast. ConocoPhillips maintains its plans to differentiate itself by focusing on shareholder returns. While it still aims to return 30% of operating cash flow to shareholders, management instated a three-tier capital return program to preserve flexibility in anticipation of oil price volatility. The first tier consists of an ordinary dividend that Conoco plans to increase annually in line with the broader market. The second tier is share repurchases, while the third tier is a variable dividend that is staggered, resulting in eight cash distributions per year when declared. In, 2022, Conoco expects to return $15 billion to shareholders. Capital spending in 2022 is expected to be $8.1 billion. Guidance is for capital spending to remain at about $8 billion through 2024 and over $8 billion by 2031.

Bulls Say

Large positions in the Permian, Eagle Ford, and Bakken offer low-cost liquids growth with wider margins, lower risk, and higher returns than international operations.
ConocoPhillips has reduced its capital requirements so it can maintain its production and pay its dividend at less than $40/barrel oil. U
Over the long term, management does not plan to increase activity with oil prices, instead directing excess cash flow toward repurchases with a payout target of 30% of cash flow.

Company Description

ConocoPhillips is a U.S.-based independent exploration and production firm. In 2021, it produced 1.0 million barrels per day of oil and natural gas liquids and 3.2 billion cubic feet per day of natural gas, primarily from Alaska and the Lower 48 in the United States and Norway in Europe and several countries in Asia-Pacific and the Middle East. Proven reserves at year-end 2021 were 6.1 billion barrels of oil equivalent.

(Source: Morningstar)

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

Tags Commodities, OIL

Commodities Trading Ideas & Charts

ConocoPhillips stands to benefit from Concho’s expertise in the Permian while deriving $1 billion in synergies

Post author By lvc-admin
Post date January 14, 2023
No Comments on ConocoPhillips stands to benefit from Concho’s expertise in the Permian while deriving $1 billion in synergies

Business Strategy & Outlook

Financial Strengths

Bulls Say

Large positions in the Permian, Eagle Ford, and Bakken offer low-cost liquids growth with wider margins, lower risk, and higher returns than international operations.
ConocoPhillips has reduced its capital requirements so it can maintain its production and pay its dividend at less than $40/barrel oil. U
Over the long term, management does not plan to increase activity with oil prices, instead directing excess cash flow toward repurchases with a payout target of 30% of cash flow.

Company Description

(Source: Morningstar)

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

Tags Commodities, Energy

Dividend Stocks

PTM continued to struggle with outflows primarily due to weak absolute investment returns

Post author By lvc-admin
Post date January 14, 2023
No Comments on PTM continued to struggle with outflows primarily due to weak absolute investment returns

Investment Thesis

Trades on an attractive dividend yield.
PTM is in a position to attract net inflows as value-oriented strategies may make a sustained comeback.
Further pressure can be seen on the funds management industry and fees (as a result of industry and super funds building inhouse capabilities and passive investing with significantly lower fees/asset allocators becomes more of the norm).
Change in management or investment management team.
Industry consolidation could benefit PTM (potential M&A target).

Key Risks

Any significant outperformance across funds.
Kerr Neilson’s departure from the Board could be disruptive.
Potential change in regulation (superannuation) with more focus on retirement income (annuities) than wealth creation.
There are earnings risks to the downside from pressures on fees.
Emergence of industry funds who are building in-house capabilities.
PTM’s investment style becomes out of favour.

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

Total revenue declined -26.4% y/y to $232.8m, as fee revenue decreased -6.1% y/y to $252.7m, with -7.2% y/y decline in management fees (excluding performance fees) amid -8.5% y/y decline in average FUM to $21.4bn, partially offset by +67.5% y/y increase in performance fees to $6.7m, primarily from absolute return mandates and Asia strategy driven largely by the benefit of downside protection provided by short positions, and the company incurred $20.4m unrealised losses on seed investments vs $46.7m profit in pcp.
Expenses increased +4.7% y/y to $86.1m, primarily driven by +3.9% y/y increase in staff costs reflecting increase in share-based payment expenses due to additional deferred equity granted to employees, and +16.7% increase in business development expenses which included the launch of the Platinum Investment Bond product (and its direct to-market proposition) and associated new campaigns, the growth in social media advertising, and third-party distribution costs.
Underlying NPAT, which excludes gains and losses on seed investments (net of tax), declined -10.9% y/y to $118.2m.
FUM declined -22.6% y/y to $18.2bn, driven by negative investment performance of $2.2bn, net fund outflows of $2.2bn and the net distribution paid to investors of $0.9bn.
The Board declared a fully franked final dividend of 7cps, down -42% y/y, equating to ~9.8% annualized yield, taking the full year dividend to fully franked 17cps, down -29% y/y.
The Board extended its on-market share buyback for upto 10% of issued share capital for further period of upto 12-months, commencing from 4th October 2022, intending to buy shares should the Board determine that PTM’s share price is trading at a significant discount to its underlying value.
International Fund delivered absolute performance of -5.9% during the year, outperforming the MSCI AC World Net Index ($A) by +210 bps, as negative impact by contrarian view on inflation/loss making tech/EM/commodities was more than offset by benefit of downside protection provided by short positions. However, the fund continues to underperform the benchmark by -380bps and -200bps on a 5-year and 10-year basis, respectively, while delivering outperformance of +440 bps (p.a.) since inception.
Asia Fund delivered 1-year absolute return of -14.5%, however, outperformed benchmark by +360 bps, returning to outperformance of +230 bps, +200 bps and +410 bps (p.a.) over 5-year, 10-year and since inception basis.

Company Description

Platinum Asset Management (PTM) is an ASX-listed, Australian based fund manager which specializes in investing in international equities. PTM currently manages ~A$18.2bn.

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

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. 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 Laverne 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, Laverne 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. Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne 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 Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne 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 Laverne 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. Laverne 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.

Tags Top Stocks

Global stocks Shares

Medibank Private (MPL) reported mixed 1H22 results – while group operating profit up +12.3% to $286.5m driven by growth

Post author By lvc-admin
Post date January 13, 2023
No Comments on Medibank Private (MPL) reported mixed 1H22 results – while group operating profit up +12.3% to $286.5m driven by growth

Investment Thesis

On valuation grounds relative to the current share price, MPL trades fair value.
MPL is a quality business with a high-quality management team.
Given Australia’s growing and ageing population, there will be increased demand for health care services. This will add additional pressure on Australia’s public health care system and the Federal budget and an increased dependence on private health care insurers. NHF offers exposure to the business model of providing a funding mechanism for the high-growth health care sector. Healthcare spending is expected to grow at 5-10% per annum, so without significant tax hikes, the government cannot afford for people to shift back to the public healthcare system.
Given underlying increases in average premium rates of around 5 – 6% p.a., some policyholder growth (especially at the 30-34-year-old segment), estimates that MPL offers close to low double-digit underlying growth in the medium term.
Potential to improve the company’s expense ratio.
Room for industry-wide benefits such as losses from risk equalization funds as nonprofitable players are consolidated.
Incentives and benefits encourage PHI take-up. They include 1. Tax benefits and penalties for Australian residents (via Lifetime Health Cover, Medicare Levy Surcharge and means tested rebate); and 2. Shorter wait times, a choice of specialist doctor/hospital and coverage of ancillary health services support.

Key Risks

Intensifying competition between top 6 players, putting policy growth targets at risk and any increases in expected marketing spend going forward will no doubt add further strain on earnings growth.
Policyholders declined unexpectedly, despite the incentives and Australian Government struggling with the rapid increase in healthcare spending and health services demand.
Registered health insurers cannot increase premium rates without approval from the Government/Minister for Health/PHIAC/APRA. This leaves NHF’s ROE and margins exposed to a political process and pressures if the company is deemed too profitable.
Regulatory changes especially relating to any changes to tax incentives and benefits which encourage take up of PHI.
Higher than expected lapse rates and claims inflation as a result of poor insurance policy design, aging population, and costs of new medical equipment, procedures and treatments.
Poor negotiations with healthcare providers such as private hospital operators leading to unfavourable contractual terms.
Lower than expected investment returns.

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

Group operating profit up +12.3% to $286.5m driven by growth in both MPL’s segments – Health Insurance and Medibank Health.
NPAT was down -2.7% to $220.2m, on lower net investment income relative to the pcp. Underlying NPAT, which normalises for investment market returns, was up +4.4%. Net investment income of $30.9m, was down from $71.8m in 1H21, with income from the growth and defensive portfolios down $14.8m and $24.6m, respectively. Gross margin of 15.4% and operating margin of 8.1%, was a 20bps and 40 bps improvement over the pcp, respectively.
The Board declared a fully franked interim dividend of 6.1cps, which equates to a 79.1% payout ratio of underlying NPAT which normalises for investment market returns, and within the target payout ratio range of between 75-85% of underlying NPAT. MPL expects the payout ratio to be towards the top end of the target range for the full year.
Retains a strong capital position with health Insurance capital of $960.8m as at 31 December 2021, which equates to 13.0% of premium revenue after the allowance for the dividend declared with this result and is at the top end of the Board’s stated target range of 11.0-13.0%.
Health Insurance: Operating profit was up +10.3% to $280.9m driven by growth in premium revenue up +3.8% to $3,452.0m, and a benign claims environment. The segment saw strong resident policyholder growth of +1.5% in the 6 months to 31 December 2021, with policyholder growth of 28,100 comprising 12,100 for Medibank and 16,000 for ahm. Management expense ratio was down 30 bps to 7.2% due to lower management expenses and increasing revenue.
Medibank Health: Segment profit was up +36.7% to $25.7m driven by strong revenue growth up +6.9% to $155.7m with strong demand in telehealth and health and wellbeing, partially offset by MPL’s travel insurance business (which was impacted by closed borders due to the Covid pandemic).
Management noted MPL’s healthcare investments including Myhealth Medical Group, East Sydney Private Hospital and JV with Calvary contributed $2.3m to this result.

Company Description

Medibank (MPL) is Australia’s largest private health insurer with ~30% market share. Medibank’s health insurance business (Health Insurance) underwrites private health insurance and the insurer generates revenue from a number of complementary services.

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

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

Tags Australian Market

Technology Stocks

NXT retains a strong medium-term earnings growth outlook from ongoing cloud adoption

Post author By lvc-admin
Post date January 13, 2023
No Comments on NXT retains a strong medium-term earnings growth outlook from ongoing cloud adoption

Young woman trading stock market by touching.

Investment Thesis

Australia is still in the early stages of cloud adoption. More efficient and cheaper broadband following the NBN’s implementation will drive demand from cloud providers for NXT’s assets.
Extremely high-quality collection of sites.
Focus on the premium end where pricing is more stable – Tier 4 gold centres.
NXT has the balance sheet capacity to handle more debt and self-fund expansion through operating cash flow from the base buildings.
Capital intensive nature of the sector provides a high barrier to entry.
Government adoption of cloud and the subsequent need to outsource presents an opportunity.
Strong customer ecosystem creates a ‘sticky’ customer base who are unlikely to churn.
National footprint allows Company to scale better than competitors.
Margin expansions highlighting strong operating leverage.
Additional capacity announced.
M&A activity given the global demand for data.

Key Risks

No product diversification (NXT only operates data centres).
Significant new supply of data centres by NXT and competitors.
Delays in data centre build or ramp up, impacting earnings growth profile.
Competitive pressures (price discounting by NXT or competitors).
Higher power densities as a result of increasing average rack power utilization in Australia.
Insufficient customer demand to achieve a satisfactory return on investments.
Failure to obtain sufficient capital on favourable terms may hinder NXT’s ability to expand and pursue growth opportunities.
Lease risk (NXT does not own the land or building where its data centres are situated).

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

Data centre services revenue of $144.5m was up +19%.
Underlying EBITDA of $85.0m, up +29%.
Operating cash flow increased +9% to $69.5m.
NPAT of $10.3m was a significant improvement from the $17.8m net loss in the pcp.
NXT retained a strong liquidity position of $2.1bn, including undrawn debt facilities of $1.4bn at 1H22-end. Gearing (Net debt / (net debt + equity) increased to 16.6% from 7.3%.
Contracted utilisation increased 10.0MW, or +14% to 81.0MW.
Customer numbers grew by 144, or +10% to 1,569.
Interconnections was up 1,968, or +14% to 15,879, and now equates to 7.3% of recurring revenue.

Company Description

NEXTDC Limited (NXT) is a Data-Center-as-a-Service (DCaaS) provider offering a range of services to corporate, government and IT services companies. NXT has a total of five data centers located in major commerce hubs in Australia, with three more due to be completed within the next 2 years. These facilities are network-neutral, meaning they operate independently of telecommunication and IT service providers. Currently NXT has a total of 34.7 MW built for data and serving housing, with a target to reach 104.1MW by the end of 1H18.

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

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

Tags Street Talks

Property

LLC saw 1H22 core operating profit after tax decline -86% over pcp to $28m

Post author By lvc-admin
Post date January 13, 2023
No Comments on LLC saw 1H22 core operating profit after tax decline -86% over pcp to $28m

Elderly woman holding a small house in her hands

Investment Thesis:

Engineering and Services Business sale process is underway – this removes one downside risk to the stock.
Balance sheet remains in solid position and even with the latest provision the Company has headroom available and is within its banking covenants. However, gearing is expected to rise to ~20% as development ramps up to FY23.
Robust development outlook with demand for both commercial and residential especially with strong level of apartment pre-sales.
Outlook for new infrastructure projects to be tendered in Australia in the next 2 years remains attractive.
New management team will likely bring a fresh perspective and strategy.
Proposed cost out program of $160m should be supported by earnings in a tough trading environment.
Valuation appears undemanding.

Key Risks:

Further provisions to the existing problem projects.
New projects are mispriced from a risk perspective.
Cut to dividends.
Sudden increases in interest rates.
Increase in apartments default rate.
Any delays or execution problems in development and construction that sees margin being affected.
Any net outflows from its investment management business.

Key Highlights:

Core operating earnings to improve from 2H22.
FY22 returns for core operating segments revised with Investments ROIC of 7.5-8.5% (vs previous estimate of 5- 8%), Development ROIC of 2-4% (vs previous estimate of 2-5%), driven by $2bn of completions including significantly improved settlement volumes in Australian Communities and more than $4bn of commencements, and Construction EBITDA margin of 2-3% (unchanged from previous estimate) amid improved productivity as Covid-19 restrictions ease.
Group ROE target of 8-11% to be achieved by FY24.
FUM to grow >66.7% to >$70bn by FY26 as investments platform is upscaled via the launch of new funds.
Core operating earnings to improve from 2H22.
FY22 returns for core operating segments revised with Investments ROIC of 7.5-8.5% (vs previous estimate of 5- 8%), Development ROIC of 2-4% (vs previous estimate of 2-5%), driven by $2bn of completions including significantly improved settlement volumes in Australian Communities and more than $4bn of commencements, and Construction EBITDA margin of 2-3% (unchanged from previous estimate) amid improved productivity as Covid-19 restrictions ease.
Group ROE target of 8-11% to be achieved by FY24.
FUM to grow >66.7% to >$70bn by FY26 as investments platform is upscaled via the launch of new funds.
Development completion target of >$8bn p.a., along with the ROIC of 10-13% by FY24.
Financial position. Liquidity position remained strong with $842m of cash and cash equivalents (down -49% over 2H21 primarily due to underlying operating cash outflow of $388m, reflecting the challenging operating conditions in conjunction with reduced new business activity) and $2.2bn in available undrawn debt, to support $112bn development pipeline.
Net debt increased +144% over pcp to $1.7bn, leading to gearing increasing +700bps to 12%, remaining within the target range of 10-20%.
Investment grade credit rating of Baa3/BBB- and stable outlook by Moody/Fitch.
Continues to assess redeployment opportunities in the Investment segment. The Company sold 28% stake in the future asset management income stream from the US Military Housing portfolio for $170m on a multiple of 26x FY23 estimated NPAT, which is expected to contribute ~$110m to NPAT in 2H22, leading to management upgrading FY22 Investment ROIC outlook. Management continues to further assess redeployment opportunities within the Investments segment and is considering the divestment of a further 25% interest in the Retirement Living business.

Company Description:

Lend Lease Corporation (LLC) is a global property developer with three key segments in (1) Development: involves development of communities, inner city mixed use developments, apartments, retirement, retail, commercial assets and social infrastructure (with earnings derived from development margins, development management fees received from external co-investors and origination fees for infrastructure PPPs) (2) Construction: involves project management, design, and construction service, predominately in infrastructure, defence, mixed use, commercial and residential sectors (with earnings derived from project and construction management fees and construction margin); and (3) Investments: involves wholesale investment management platform, LLC’s interests in property and infrastructure co-investments, Retirement and US military housing (with earnings derived from funds management fees as well as capital growth and yield from co-investments and returns from LLC’s retirement portfolio and US military housing business). LLC operates predominately in Australia, but also in the UK and US and with a smaller contribution to earnings derived from the Asia Pacific.

(Source: Banyantree)

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

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

The material in this document has been obtained from sources believed to be true but neither Laverne 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, Laverne 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.

Technology Stocks

For PBH the Australian business performance was solid, whilst the U.S. business was awarded provisional license for Kansas

Post author By lvc-admin
Post date January 11, 2023
No Comments on For PBH the Australian business performance was solid, whilst the U.S. business was awarded provisional license for Kansas

Investment Thesis

U.S. growth opportunity – the U.S. online sports betting market continues to open following the 2018 supreme court ruling which legalizes the industry. Market growth estimates forecast the industry to grow to US$51bn by 2033.
Strong management team with a solid track record – the ability to grow market share in a competitive and mature market of Australia gives us some confidence the management team has the right strategy in place to build share in the U.S.
Proprietary technology stack – The speed and usability are key differentiating factors. PBH operates proprietary technology, which it developed inhouse. This means new modifications and updates are easier to implement (i.e., more control) with inhouse tech versus outsourced (i.e., having to go to an external provider each time with an update).
Cross sell opportunities with iGaming – PBH’s recently launched iGaming product (online casino) is already highlighting cross-sell opportunities to its customers.

Key Risks

Rising competitive pressures.
Adverse regulatory change in key operating jurisdictions (Australia / U.S.).
Loss of market share in key regions or growth rate fails to meet market expectations.
Higher than expected costs – especially around investment in sales & marketing to drive market share.
Trading on high PE-multiples / valuations means the Company is more prone to share price volatility.
Cyber-attack on PBH’s platform.
Deeply discounted capital raising.

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

The Group’s net win for the year was $309.4m and net revenue of $296.5m, which was up +52% YoY.
Group gross profit of $121.6m was up +39% YoY, however gross profit margin was down to 41% from 45% due to a lower gross profit margin in the Australian trading business due to higher taxes and product fees, including an increase in the point of consumption tax in Victoria from 1st of July 2021. Also impacting margin was product mix with a higher contribution of revenue from betting events which attract higher product fees.
Group sales and marketing expenses were up +38.7% YoY to $236.8m, with U.S. marketing up +36% to $162.6m, Australia up +20% to $61.5m and $12.8m for Canada. Management highlighted that they saw an aggressive uplift in competitor marketing spend in the US. In FY23, management does not expect U.S. marketing expense to exceed FY22 levels in the U.S. and will look to regionalize marketing expense and reduce spend in some of the less targeted acquisition channels. In Australia, FY23 marketing expense is expected to be slightly higher than FY22 levels. In Canada, FY23 marketing expense is expected to run annually at a quarterly rate similar to the Q422 marketing expense of C$7m.
The Australian trading business reported net revenue of $195.2m, up +30% YoY and EBITDA of $7.7m was down -16.3% due to lower gross profit margins and higher marketing expense.
U.S. trading business reported net revenue of $98.7m, up +133% YoY, and an EBITDA loss of $197.4m versus loss of $149.6m in the pcp, which was primarily driven by the U.S. marketing expense as PBH expanded operations across 10 U.S. states and grow U.S. based team. Management noted the progress they made during the year.
Corporate costs of $25.6m were significantly higher than $12.4m in the pcp due to higher employee benefits, listing costs, capital raising costs and start-up costs for Canada.
Group normalized EBITDA loss over FY22 was $243.6m versus a loss of $156.1m in the pcp – that is down – 56% YoY. Loss for the year was $266.9m versus $164.9m in the pcp.
Balance sheet – the Company raised $400m via equity raising and a strategic placement of $94.2m to SIG Sports Investment Corp in Jun-22. The Company is adequately funded to execute on its strategy in the near term with a cash balance as at 30 Jun-22 of $473m.

Company Description

PointsBet Holdings Ltd (PBH), founded in 2015, is a corporate bookmaker with operations in Australia and the United States (New Jersey, Iowa, Illinois and Indiana). PointsBet has developed a scalable cloud-based wagering platform which offers customers sports and racing wagering products. PBH’s key products include fixed odds sports, fixed odds racing and Points Betting.

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

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

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Technology Stocks

Pact Group reported disappointing FY22 results, despite the Company seeing increasing demand for recycled content

Post author By lvc-admin
Post date January 11, 2023
No Comments on Pact Group reported disappointing FY22 results, despite the Company seeing increasing demand for recycled content

Investment Thesis

Solid market share in Australia and growing presence in Asia. Hence provides attractive exposure to both developed and emerging markets’ growth.
Valuation is fair on the forward estimates.
Management appears to be less focused on acquired growth going forward, which means there is a less of a chance for the Company to make a value destructive acquisition.
Reinstatement of the dividend is positive and highlights management’s confidence in future earnings growth.
Focusing on sustainable packaging in an environmentally friendly market.

Key Risks

Competitive pressures leading to further margin erosion.
Input cost pressures which the company is unable to pass on to customers.
Deterioration in economic conditions in Australia and Asia.
Emerging markets risk.
Poor acquisitions or not achieving synergy targets as PGH moves to reduce its dependency on packaging for food, diary, and beverage clients to more high growth sectors such as healthcare.
Adverse currency movements (purchased raw materials in U.S. dollars)

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

Revenue of $1,838m was up +4%, driven by solid demand for sustainable packaging and recycled products.
FY22 underlying EBIT was in line with guidance provided at 1H22. However, underlying EBIT of $156m, was down -15%, with EBIT from Packaging & Sustainability of $110m, up +5% more than offset by declines in Material Handling & Pooling underlying EBIT of $50m, down -8%, and Contract Manufacturing underlying EBIT, which saw a loss of -$4m (versus $24m in the pcp).
Underlying NPAT of $70m was down -25% largely due to the absence of one-off revenue in the Contract Manufacturing segment recorded in FY21. Reporting NPAT of $12m was significantly down – 86%.
The Board declared a final dividend of 1.5cps, franked to 65%, which brings FY22 total dividend to 5cps, down -55% and equates to a payout ratio of 25% of underlying NPAT.
PGH acquired Synergy Packaging for ~$20m which adds to sustainable health and beauty packaging.
PGH began operations at Circular Plastics Australia (PET) recycling facility in Albury-Wodonga with international food grade certification in place and producing recycled resin for joint venture partners.
PGH maintained gearing of 2.7x, within its target range, with net debt at $561m, $24m lower than pcp, and operating cash conversion of $253m.
Packaging and Sustainability. The segment achieved reported revenue of $1.209 billion, up +7% and underlying EBIT of $110m, up +5%, despite tough trading conditions, driven by strong results in the New Zealand dairy and fresh food businesses, large format industrial packaging in Australia, and contract wins in the Asian closures business.
Materials Handling and Pooling. The segment saw reported revenue of $354m, up +3% but a decline in underlying EBIT of -8% to $50m. A strong performance in Pooling which saw volume growth against the backdrop of supply chain challenges, and growth in Infrastructure business was offset by a slowdown in activity in Sulo mobile garbage bin business as local councils delayed tenders for bin contracts.
Contract Manufacturing. As previously advised in 1H22 by management, the segment reported a decline in revenue of -5% to $306m and underlying EBIT loss of $4m, with the segment impacted negatively in 2H22 by elevated raw material pricing, supply chain costs, and lower volumes.

Company Description

Pact Group Holdings Ltd (PGH) was established by Raphael Geminder in 2002 (Mr. Geminder remains a major shareholder with ~44% and is the brother-in-law of Anthony Pratt, Chairman of competitor Visy). Pact has operations throughout Australia, New Zealand and Asia and conceives, designs, and manufactures packaging (plastic resin and steel) for many products in the food (especially dairy and beverage), chemical, agricultural, industrial and other sectors.

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

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

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Global stocks

Nufarm Ltd (NUF) delivered strong profit growth during 1H22, with underlying EBITDA up +41% y/y to $330m

Post author By lvc-admin
Post date January 11, 2023
No Comments on Nufarm Ltd (NUF) delivered strong profit growth during 1H22, with underlying EBITDA up +41% y/y to $330m

Investment Thesis

Upside to the blended valuation.
Current earnings headwinds are seasonal rather than structural.
Recent acquisitions of European products provide growth options.
Ongoing focus on operational efficiency to support earnings.
Undemanding valuation relative to domestic chemicals’ peer group and international players.
Launch of Omega-3 canola business.
Sale of its South American crop protection and seed treatment businesses to simplify business model and reduce working capital volatility.
Sector consolidation could see NUF potentially engaged in corporate activity.

Key Risks

Integration risk associated with recent acquisitions.
Adverse movements in commodities prices.
Unfavourable seasonal impacts.
Competitive pressures.
Adverse currency movements.
Regulatory / litigation risks.
South America transaction fails to proceed.

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

Revenue increased +31% to $2.2bn, as seasonal conditions and strong commodity prices boosted demand across all product groups and regions with tight supply and low channel inventories stimulating early demand.
Underlying EBITDA increased +41% to $330m, driven by passing-on of higher costs to customers, increase in higher margin portfolio mix and benefits from strategic and performance improvement initiatives.
Underlying NPAT increased +112% to $133m.
Net operating cash flow was a $65m outflow (vs $63m inflow in pcp) with the improvement in underlying earnings more than offset by the seasonal outflow in working capital, resulting in FCF outflow of $137m vs inflow of $9m in pcp.
Balance sheet strengthened with net debt declining -6% equating to leverage (net debt/uEBITDA) of 1.1x, down 0.3x, and management completing high yield bond refinancing which delivers annualised interest savings of US$9.8m from lower fixed rate coupon and reduced face value.
The Board declared an unfranked interim dividend of 4cps, the first interim dividend since 2018.
APAC revenue increased +34% to $581m, which combined with previously implemented manufacturing footprint rationalisation, cost reductions and performance improvement initiatives and introduction of new higher margin products, delivered uEBITDA of $99m, up +45%.
Europe revenue increased +6% to €316m, due to targeted campaigns, strong customer relationships and reliable supply under challenging logistic conditions, partially offset by €26m impact of product de-registrations, however, uEBITDA was flat at €75 m, as price increases offset inflation in raw materials and logistics costs.
North America revenue improved +49% to US$581m, as improved seasonal conditions and higher grain prices drove increased demand, and uEBITDA increased +167% to US$67m, driven by product mix and volume growth in key segments, higher end-user prices and improved efficiencies amid investment in supply chain.
Seed Technologies delivered revenue growth of +28% to $185m and uEBITDA increased +24% to $46m.

Company Description

Nufarm Ltd (NUF) is one of the world’s leading crop protection and specialist seeds companies. The Company produces products to assist farmers in protecting their crops against damage caused by weeds, pests and disease. The Company has manufacturing and marketing operations in Australia, New Zealand, Asia, Europe and the Americas.

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

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

Tags Australian Market