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Commodities Trading Ideas & Charts

Newcrest focus on cost efficiency, capital discipline and optimisation

Business Strategy and Outlook

Newcrest accounts for less than 3% of global mine production and is a price taker. Returns have improved post the expensive acquisition of Lihir, but are likely to remain below the company’s cost of capital for the foreseeable future.

Operations are focused on the Asia-Pacific region, with production split roughly evenly between Australia and Papua New Guinea, or PNG, with a smaller contribution from the Americas. The company is a long-established low-cost producer, save a cost spike in 2013, which subsequently abated.

Current management was installed in 2014 and brought a focus on cost efficiency, capital discipline and optimisation. Under Sandeep Biswas,Newcrest has been a much more reliable producer and has delivered incremental improvements at its operations, boosting throughput and lowering unit costs, particularly at Lihir and Cadia. Newcrest has a solid exploration record. Excluding acquired Lihir ounces, gold equivalent reserves increased from 3.4 million ounces in 1992 to 78 million ounces in December 2017, while resources increased from 8.5 million ounces to 144 million ounces. Gold equivalent resources were added at less than AUD 20 per ounce. Reserves at the end of 2020 were 49 million ounces of gold and 6.8 million metric tons of copper.

Financial Strength 

The company’s balance sheet is sound. The company ended June 2021 with modest net cash of USD 0.2 billion. We expect net debt to grow to end fiscal 2022 to about USD 1.5 billion with the acquisition of Pretium Resources and elevated capital expenditure at Cadia, Lihir and with the development of Havieron and Red Chris. However, despite the increase, we think the balance sheet is still sound. We forecast debt/EBITDA to peak slightly to around 0.7 in fiscal 2022 before declining gradually through the remainder of our forecast period.Newcrest has long-dated corporate bonds totaling USD 1.65 billion. The bonds mature in fiscal 2030, 2042, and 2050 with maturities of USD 650 million, USD 500 million, and USD 500 million, respectively. At the end of fiscal 2021, the company had USD 1.8 billion of cash and USD 1.6 billion of undrawn debt.

Bulls Say 

  • Gold companies can behave countercyclically. They provide a hedge to inflation risk and tend to offer some benefit in times of market uncertainty. Gold can gain from continued money printing and/or if there is a flight to safety. 
  • Newcrest’s reserves are massive and mine life is long, offering leverage to upwards movements in the gold price. 
  • Newcrest owns several world-scale deposits in Cadia, Telfer, Lihir, and Wafi-Golpu. Large deposits typically bring significant exploration upside and expansion options.

Company Profile

Newcrest is an Australia-based gold and, to a lesser extent, copper miner. Operations are predominantly in Australia and Papua New Guinea, with a smaller mine in Canada. Cash costs are below the industry average, underpinned by improvements at Lihir and Cadia. Newcrest is one of the larger global gold producers but accounts for less than 3% of total supply. Gold mining is relatively fragmented.

 (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.

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Funds Funds

HDFC Corporate Bond Growth: A fund focused to generate optimise return by investing in high credit rated instruments

Approach 

The investment philosophy is to optimise returns without taking excessive duration or credit risk. with most performance is driven by selecting securities offering attractive yields within the AAA rated segment. Expectedly, the investment approach relies on fundamental research. It entails combining qualitative aspects with quantitative analysis. This in turn helps the managers to determine issuer exposure they can take, thereby acting as a risk-management tool for the individual portfolio and the fund company. The investment team lays more emphasis on risk control, thereby focusing on balancing safety, liquidity, and return.

Portfolio 

The fund’s investment mandate is to invest at least 80% of assets in corporate bonds having a rating of AA+ and above. Anupam Joshi’s emphasis on liquidity and risk control is borne out by the fund’s portfolio, where almost 100% of assets are invested in AAA or equivalent rated securities. Papers issued by public-sector undertakings such as NABARD, PFC, and REC continue to find a place in the portfolio. From the private sector, established names such as HDFC and Tata Sons, in which the manager has confidence, feature in the portfolio. On the duration front, the team believes interest rates will move up from where they are currently, but it will be a more gradual increase. In line with the same, the modified duration of the fund has been reduced in the past year to 2.72 years in November 2021 from 3.35 years in October 2020. Finally, Joshi will build cash when there aren’t attractive investment opportunities and to ride out periods of volatility and uncertainty.

People

Anupam Joshi joined HDFC Mutual Fund in October 2015 and has been managing this fund since then. Earlier, he was associated with IDFC Mutual fund as portfolio manager from 2008 till his exit from the fund house.

Performance

Under Anupam Joshi (October 2015-November 2021) the fund’s direct share class has clocked an annualised return of 8.45%, outperforming the category average (6.51%) and featuring in the top performance quartile. Under the difficult environment of 2020, the fund clocked a return of 12.09%, outperforming the category average of 9.10%. In 2021, too, the fund’s direct share class has delivered a top-quartile performance. The fund is also a top-quartile performer over the trailing one-, three- and five-year periods.

About the fund  

The scheme seeks to generate income/capital appreciation through investments predominantly in AA+ and above rated corporate bonds. Its benchmark against NIFTY Corporate Bond Index. The investment strategy is well-defined for this fund, which also paves way for its effective and predictable execution. It’s a low-risk, short- to medium-duration strategy that works on the philosophy of optimising returns for investors without exposing them to excessive duration or credit risk. Therefore, investments are made only in AAA rated securities and the duration is maintained within a range of 1.0 to 4.0 years.

Joshi brings in his own style of investing while managing this fund. For instance, earlier the fund was managed with an approach of holding majority of investments till maturity, thus allowing a linear roll-down in its average maturity. Joshi prefers managing the fund more actively. The strategy has its limitations: In times when credit markets are buoyant, the fund may find it hard to match peers that, within the defined mandate of the category, can go down the credit curve. The fund may also struggle against peers that follow a more dynamic approach to duration management, compared with Joshi’s measured approach, during fast changing interest-rate scenarios.

 (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.

Categories
IPO Watch

Supriya Lifescience displays healthy listing with 55% premium

Money bag with the word IPO (Initial public offering; stock market launch) and a calculator. The first public sale of shares of a joint stock company. Business and finance concept

The Rs 700 crore- IPO by the API manufacturer, Supriya Lifescience was issued from December 16 to 20, 2021. The issue price was in the range of INR 265-274 per equity share. The Book Running Lead Managers were Axis Capital Limited and ICICI Securities Limited.

Overall, the issue received bids for 1,03,89,57,138 shares against 1,45,28,299 shares on offer, according to NSE data. The IPO comprised a fresh issue of up to Rs 200 crore and an offer for sale of up to Rs 500 crore.

The subscription by QIBs was 31.83 times, NII category was subscribed 161.22 times, Retail investors subscribed 56.01 times, thereby making the entire subscription 71.51 times.

The pre-issue holding of promoters was 99.98%, which after issue is 68.24%.  The scrip was listed on secondary market at INR 425 on BSE with premium of 55.11% and on NSE it was listed at INR 421.

Proceeds of the issue would be utilized for funding capital expenditure requirements of the company, repayment and/ or pre-payment, in full or part, of certain borrowings availed by the company and general corporate purposes.

Supriya Lifescience looks forward to achieve continuous growth in coming years on account of strong fundamentals. Since past three to four years it has bee growing at the CAGR of 18%. The company has managed to maintain 40% EBITDA margin, which is due to their focus on penetrating into more regulated markets where we are able to get a much better average selling price for the existing products. They look forward to add more APIs into existing therapeutic categories apart from adding new therapeutic categories in their basket, like decongestants, anti-gout, xanthine derivatives and more vitamin derivatives. They wish to focus more on anti-anxiety therapies.

Supriya Lifescience envisages to expand across newer geographies and focus more on regulated markets like North America, Japan and China. Currently, twelve of the existing products are backward integrated and contribute about 65% of the total revenue and it continues to be their strategy for further capacity expansion and product developments as well. About Rs 92 crore of the amount that will be raised would be utilised for capacity enhancements by adding a new production block which would add further capacity.

About the company:

Supriya Lifescience is a manufacturer and supplier of active pharmaceutical ingredients (APIs) with a focus on research and development. As of October 31, it had niche product offerings of 38 APIs focused on diverse therapeutic segments such as antihistamine, analgesic, anaesthetic, vitamin, anti-asthmatic and antiallergic. The API maker has consistently been the largest exporter of Chlorpheniramine Maleate and Ketamine Hydrochloride from India, contributing to 45-50 per cent and 60-65 per cent, respectively, of the API exports from India, between fiscal 2017 and 2021.

(Source: economictimes.com)

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.

Categories
Dividend Stocks

Strong Growth Returns for MSC Industrial but Operating Environment Remains Challenging

Business Strategy and Outlook

MSC has become one of the largest industrial distributors in U.S., and it is especially well known in the metalworking industry, wherein the firm enjoys approximately 10% market share.While MSC’s sales declined in 2020 (negative 5%) and sales growth was anemic in 2021 (2%) amid the global pandemic, over the longer term, but as per Morningstar analyst perspective it is expected that mid-single-digit growth prospects for the company driven by a return to healthier end-market demand and market share gains from smaller local and regional distributors.

Because MSC has national scale and a robust portfolio of products and value-added inventory management services, it is well positioned to capitalize on the growing trend of manufacturers consolidating spending with large distributors. Although national accounts can generate lower gross profit margins, they can also generate higher volume, which MSC can leverage to improve operating margins. MSC’s focus on providing inventory management solutions has helped the firm expand customer wallet share over the years, and we expect that trend to continue.

MSC has proved to be a consistent free cash flow generator throughout the business cycle, and in our view, it has allocated its free cash flow in a balanced, shareholder-friendly manner. We expect MSC to continue to use its excess cash to increase its regular dividend and repurchase shares. The company also occasionally pays special dividends, most recently in fiscal 2021 ($3.50 per share) and 2020 ($5.00 per share).

Strong Growth Returns for MSC Industrial but Operating Environment Remains Challenging

MSC Industrial Direct enjoyed strong year-over-year revenue growth during its fiscal first quarter ended Nov. 27. Sales increased nearly 10% as the company executed on its growth initiatives and end market demand improved (industrial production has expanded at a steady pace for much of 2021). In terms of the growth initiatives, MSC saw notable growth during the quarter from its industrial vending and in-plant initiatives as well as from its e-commerce platform (MSCDirect.com). 

While MSC’s first-quarter revenue growth was encouraging (and caused us to increase our full-year fiscal 2022 revenue growth projection to 8% from 6.5% previously), supply chain challenges and inflationary headwinds persist. CEO Erik Gershwind said the company is seeing little evidence of easing supply chain bottlenecks, labor shortages are severe, and inflation is the most extreme he can recall. Yet, despite these challenges, MSC managed to expand adjusted operating margin 30 basis points year over year 11.3%. Management was disappointed with its gross margin, which contracted 30 basis points year over year (to 41.6%) as the firm’s price/cost dynamic had not been as favorable as management would have liked (price/cost was slightly positive during the quarter). However, MSC realized nice leverage on its operating expenses (7.5% growth compared with 10% top-line growth). MSC intends to increase prices by more than 2% in fiscal 2022 to improve gross margin, and management is still targeting about a 42% gross margin (unchanged year over year), which we think is achievable.

Morningstar analyst have increased fair value estimate about 2% to $87 per share due to our stronger revenue growth outlook and the time value of money.

Financial Strength 

MSC has historically operated with a very conservative balance sheet, and it has only significantly flexed its balance sheet for large acquisitions (2006 and 2013) and large share buybacks (MSC spent $384 million to repurchase 5.3 million shares in 2016) a handful of times. At the end of its fiscal first-quarter 2022, MSC had an outstanding debt balance of $763 million. MSC’s earnings provide the firm with substantial headroom to service its debt obligations. During fiscal 2021, MSC incurred about $15 million of interest expense and generated $441 million of adjusted EBITDA, which equates to a comfortable interest coverage ratio of about 30 times. MSC has a proven ability to generate free cash flow throughout the cycle. It has generated positive free cash flow every year since 2001, and the firm’s free cash flow generation tends to spike during downturns due to reduced working capital requirements. This dynamic played out in 2020 with free cash flow increasing 26% despite sales declining 5%. Given the firm’s relatively conservative balance sheet and consistent free cash flow generation, it is believed that MSC’s financial health is satisfactory.

Bulls Say  

  • As end-market demand improves, MSC could return to mid- to high-single-digit sales growth and highteens return on invested capital. 
  • MSC’s national scale and focus on value-added inventory management services should help the firm take market share from smaller regional and local distributors. 
  • MSC generates consistent free cash flow and runs a shareholder-friendly capital-allocation strategy. The company should continue to utilize its free cash flow to increase its regular dividend, repurchase shares, and occasionally pay special dividends.

Company Profile

MSC Industrial Direct is a value-added industrial distributor with a focus on metalworking and maintenance, repair, and operations products and services. The company offers 1.9 million products through its distribution network which has 11 fulfillment centers. Although MSC has a presence in Canada, Mexico, and the United Kingdom, it primarily operates in the United States. In fiscal 2021, 94% of the firm’s $3.2 billion of sales was generated in the U.S.

(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.

Categories
Global stocks

Status Quo Likely to Be Maintained on U.S. Health Insurance and Tax Rates

Business Strategy and Outlook:

Centene aims to be the top provider of government- sponsored health plans. Although it has grown at a solid clip organically, Centene also has made significant acquisitions- most notably the 2020 WellCare merger–to meet that goal. Technology investments to boost efficiency have helped Centene prosper in this relatively low-margin managed care sector, as well.

Centene leads the Medicaid managed-care business; those plans accounted for about two thirds of its medical membership. The Medicaid program is jointly funded by federal and state governments and primarily serves low-income individuals of any age and people with disabilities. The Affordable Care Act expanded the Medicaid population starting in 2014, and we think this program may be used in the future to expand insured rates further.

Through the acquisition of WellCare in early 2020, Centene added to its Medicare-related capabilities, particularly in the fast-growing Medicare Advantage program. With positive demographic trends and increasing popularity relative to traditional Medicare plans, we see the Medicare Advantage program as one of the most attractive growth opportunities in health insurance in the long run. This opportunity largely explains the appeal of the WellCare deal, although WellCare also added to Centene’s Medicaid footprint, too.

Financial Strength:

The fair value estimate of the stock is USD 91.00, which reflects 17 times price/earnings multiple on 2022 expected earnings.

Centene’s balance sheet remains in fine financial shape even after the WellCare merger in early 2020. With total debt around $19 billion at the end of September 2021 (including $2 billion issued for the pending Magellan Health acquisition) and the potential to deleverage in the near term primarily through profit growth, we project that the company’s gross leverage could decline to roughly 3 times in the next couple of years. Debt/capital appears likely to return to its target of the mid- to high-30s in the near future, too. The company’s maturity schedule appears easily manageable, as well, with the company facing limited maturities during the next five years, which includes its $2 billion term loan facility, borrowings on its revolver ($150 million), a construction loan ($188 million), and finance leases ($495 million).

Bulls Say:

  • Centene represents a countercyclical investment opportunity in managed care, as it can benefit from economic downturns through increasing enrollment in its Medicaid and individual exchange products. 
  • With a focus on government-sponsored programs, Centene could benefit from potential U.S. policy changes to reach universal, affordable coverage in the long run. 
  • Centene’s midteens annualized earnings growth goal through 2024 puts its near the top of its MCO peers in that metric.

Company Profile:

Centene is a managed-care organization focused on government-sponsored healthcare plans, including Medicaid, Medicare, and the individual exchanges. Centene served 22 million medical members as of September 2021, mostly in Medicaid (68% of membership), the individual exchanges (10%), Medicare Advantage (6%), and the balance in Tricare (West region), correctional facility, and international plans. The company also serves 4 million users through the Medicare Part D pharmaceutical program.

(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.

Categories
Fixed Income Fixed Income

PIMCO ESG Global Bond Fund: A Fund providing exposure to core bond holding with ESG bias

The Fund provides exposure to investment grade securities from around the globe while incorporating PIMCO’s ESG screening framework. The strategy can be used as a core bond holding in client portfolios who have an ESG bias. The PIMCO Global Bond Fund is in attraction due to the well-resourced / experienced investment team and PIMCO’s well established investment process. PIMCO’s ESG framework involves three stages: (1) Exclude (restrictions on certain sectors). (2) Evaluate (best in class ESG issuers + prime engagement candidates). (3) Engage (engage issuers to improve ESG related business practices).

Downside Risk

  • Interest rate risk (bond prices and yields are inversely related). 
  • Credit risk (the risk of downgrades or even default) & inflation risk. 
  •  Personnel risk – significant turnover among the 3 lead PMs.

Fund Performance (As at Aug, 2021)

C:\Users\Akhila\Downloads\Screenshot 2021-12-29 144804.png

Investment Process

PIMCO applies a wide range of strategies including Duration analysis, Credit analysis, Relative Value analysis, Sector Allocation and Rotation and individual security selection. The Manger looks to make active decisions with a long-term focus and avoid extreme swings in duration or maturity with a view to creating a steady stream of returns. The Manager has designed and structured a global investment process that includes both top-down and bottom-up decision-making. The first and most important step in the firm’s process is to get the long-term view correct. The figure below provides a summary of the key elements in the investment process.

C:\Users\Akhila\Downloads\Screenshot 2021-12-29 145011.png

Secular analysis: The Manager considers its secular analysis as critical to the investment process, with the firm devoting three days every year to a “Secular Forum”. At this forum, the firm formulates PIMCO’s outlook for global bond markets over the next three to five years. Selected members of the investment staff are assigned secular topics to monitor, including monetary and fiscal policy, inflation, demographics, technology, productivity trends, and global trade. Secular researchers tackle their subjects on a global basis and approach them over a multi-year horizon. At the forum the researchers present their findings to all of the firm’s investment professionals. 

Decision making: Post Secular and Economic Forums, the Investment Committee (senior portfolio managers) develop major strategies that serve as a model for all portfolios using a consensus-based approach. The IC utilises top-down analysis provided by the forums as well as bottom-up input from specialists who focus on various fixed income sectors and the regional portfolio committees. The Investment Committee sets targets for portfolio characteristics such as duration, yield curve exposure, convexity, sector concentration and credit quality and ensures themes are consistently applied across all portfolios. The portfolio management group including the PIMCO Global Strategy team, through the incorporation of the Investment Committee’s model portfolio characteristics, will then construct the Fund.

About the fund

 The ESG Global Bond Fund is an actively managed portfolio of global fixed interest investment which incorporates PIMCO’s ESG screening. The portfolio predominantly invests in governments, corporate, mortgage and other global fixed interest securities.

(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.

Categories
Global stocks

Cintas Corp Posts Solid Second-Quarter Results

Business Strategy and Outlook:

Cintas is the dominant provider in the $16 billion U.S. uniform rental/sales and related ancillary-services industry. It enjoys a roughly 43% market share, and no singular end market comprises a significant portion of total revenue. Despite its already impressive position, Cintas is expected to grow over the next 10 years. The firm constantly considers new product lines while emphasizing cross-selling to its existing customers. About 60% of its annual sales growth derives from new client wins, and at $4 billion-$5 billion, the remaining unvended market remains sizable, and the G&K acquisition added 170,000 uniform rental clients to Cintas’ book of business.

Cintas is a highly cyclical business; its uniform rental segment moves closely with U.S. employment trends, and given the current market environment, revenues will increase in fiscal 2022 after marginal growth in fiscal 2021. The firm recovered quickly after the 2009 recession, with revenue exceeding pre-recession levels by fiscal 2012, and Cintas still generated economic profits despite sustaining revenue losses for five straight quarters. Management has navigated this tough economic environment well over the last year, and cost management has been impressive.

Financial Strength:

The fair value estimate of the stock has been increased due to raised revenue guidance and time value of money.

Cintas’ balance sheet is considered to be healthy. At the end of the fiscal 2021 (ended May 31, 2021), the firm posted $494 million in cash and equivalents and about $1.6 billion of total long-term debt. Long-term debt was down significantly from the $2.5 billion posted at the end of fiscal 2020. Solid free cash generation will enable the firm to continue reducing leverage as desired in the years ahead. Cintas’ debt/EBITDA was near 1.4 times at the end of fiscal-year 2021, versus 1.6 times at the end of fiscal-year 2020–$1 billion dollars of debt will mature in fiscal 2022, followed by about $350 million of debt maturing in 2023 and about $50 million in 2025. Beyond that, no more debt will mature until 2027 and beyond.

Bulls Say:

  • Cintas’ industry-leading operating efficiency stems from its significant scale-based cost advantages, achieved through superior route density. 
  • The firm’s impressive sales execution is supporting robust new business wins and greater penetration among existing customers. It’s also helping Cintas to realize material cross-selling opportunities with the former G&K operations. 
  • There is still ample opportunity for expansion, as companies in the sizable unvended market look to outsource their uniform programs and facilities services.

Company Profile:

In its core uniform and facility services unit (80% of sales), Cintas provides uniform rental programs to businesses across the size spectrum, mostly in North America. The firm is by far the largest provider in the industry. Facilities products generally include the rental and sale of entrance mat, mops, shop towels, hand sanitizers, and restroom supplies. Cintas also runs a first aid and safety services business (11% of sales), a fire protection services business (6% of sales), and a uniform direct sales business (3% of sales).

(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.

Categories
Shares Small Cap

Bega Cheese economic moat required to sustainably generate economic profits

Business Strategy and Outlook

Bega has transformed from a dairy processor with a focus on business to business operations to a branded consumer food company with a more diversified earnings base and less exposure to volatile milk prices. While dairy will remain a key category for Bega Cheese, the focus will be on high value products such as cream cheese and infant formula. In January 2021, Bega finalised the acquisition of Lion Dairy and Drinks from Kirin Group for AUD 534 million. As part of the acquisition, Bega acquired leading brands in milk-based beverages and yoghurt, white milk, and plant-based beverages, in addition to 13 manufacturing sites and Australia’s largest national cold chain distribution network. 

Revenue from the branded segment, which includes spreads, grocery products and Lion’s Dairy and Drinks portfolio, to expand at a CAGR of 18% to fiscal 2026, underpinned by new product innovation and bolt-on acquisitions. Bega Cheese has made limited investment in its brands, particularly in Australia where Fonterra is the licensee of the Bega brand, however since acquiring the spreads and grocery business in 2018, marketing spend as proportion of revenue has increased to 3% from 1% and it is anticipated to remain the higher level.

Financial Strength

Our fair value estimate is AUD 5.20 per share. Bega’s balance sheet is sound. Leverage, measured as net debt/EBITDA improved to 2.3 at June 30, 2021, from 2.4 at the prior period and comfortably below covenants. This is a pleasing position post the major acquisition of Lion Dairy and Drinks in fiscal 2021 which was funded through AUD 267 million of new and extended debt facilities and a AUD 401 million equity raising. It is expected that further deleveraging in coming years as acquisition synergies are achieved, earnings improve and noncore assets are divested, with net debt/EBITDA falling below 2.0 by 2023. Bega has the capacity to pursue smaller acquisitions while maintaining a dividend payout ratio of 50% normalised EPS. The group’s fiscal 2022 EBITDA guidance of AUD 195 million to AUD 215 million has necessitated an 11% downgrade to our fiscal 2022 EBITDA forecast to AUD 215 million.

Bulls Say’s 

  • Bega is shifting investment to the spreads and grocery business, which we view as less commoditised and higher margin than dairy, with strong niche positions in Vegemite and peanut butter 
  • External factors outside of Bega’s control, such as the weather, can adversely impact supply and demand dynamics. This can impact commodity prices, inputs costs and the firm’s supply chain and lead to volatile earnings 
  • Changing consumer trends toward dairy-free and vegan diets could lead to declines in per-capita dairy and cheese consumption, weighing on the majority of Bega’s earnings

Company Profile 

Bega Cheese is an Australian based dairy processor and food manufacturer of well-known brands including Bega Cheese and Vegemite. Bega Cheese operates two segments: the branded segment which produces consumer packaged goods primarily sold through the supermarket and foodservice channels and the bulk segment which produces commodity dairy ingredients primarily sold through the business-to-business channel.

(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.

Categories
ipo IPO Watch

CMS Info Systems Limited IPO subscribed 1.95 times

The company is engaged in installing, maintaining, and managing assets and technology solutions on an end-to-end outsourced basis for banks, financial institutions, organized retail and e-commerce companies in India.

The IPO comprises of offer for sale of equity share amounting to Rs. 1,100 crore. The CMS Info Systems IPO open date is Dec 21, 2021, and the close date is Dec 23, 2021. The issue may list on Dec 31, 2021. The mininimum lot size comprises of 69 shares at a price band of Rs.205-216 per equity share.  A retail-individual investor can apply for up to 13 lots (897 shares or ₹193,752).The IPO will be listed both on NSE as well as BSE .

The IPO aims to raise funds for the following objectives;

  • To carry out an offer for sale of equity shares by promotors aggregating upto Rs. 11,000 million.
  • To achieve the benefits of listing the equity shares on the stock exchanges.

CMS Info System Limited  IPO has got 50 per cent reserved for qualified institutional buyers (QIBs), 35% reserved for retail investor and 15 per cent reserved for non-institutional investors (NIIs). 

CMS Info Systems IPO Subscription Status (Bidding Detail)

The offering received 7,32,71,721 applications versus 3,75,60,975 shares on offer, resulting in a 1.95-to-1 subscription ratio. The part earmarked for retail bidders was subscribed 2.15 times, according to BSE data, while the institutional quota garnered 1.45 times offers. So far, the HNI section has been subscribed to 1.98 times.

Company Profile

As of March 31, 2021, CMS Info Systems Limited was India’s largest cash management firm in terms of ATM and retail pick-up points. The company instals, maintains, and manages assets and technological solutions for banks, financial institutions, organised retail, and e-commerce companies in India on an end-to-end outsourced basis.

The company is divided into three segments: 1. cash management services, 2. managed services (such as banking automation product sales, common control systems, and software solutions, and so on), and 3. others (such as financial card issuance for banks and card personalisation services). It has a network of 3,965 cash vans and 238 branches and offices covering all of India’s states and union territories as of August 31, 2021.

(Source: CMS Info Systems IPO DRHP)

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.

Categories
Commodities Trading Ideas & Charts

Higher Copper Price and Futures a Tailwind for Oz Minerals, but Shares Remain Overvalued

Business Strategy and Outlook

Oz Minerals is a midtier Australian miner, primarily exposed to copper and, to a lesser extent, gold. Prominent Hill and Carrapateena mine is fully owned by Oz Minerals Ltd.

Expected fiscal 2021 annual production at Prominent Hill of less than 70,000 tonnes of copper and 120,000 ounces of gold is globally small-scale. Barring a significant new discovery, life at Prominent Hill is likely to extend only incrementally with exploration. Cash costs have consistently been at competitive levels below USD 1.00 per pound since 2015, below the industry average. Prominent Hill output is likely to fall as the company processes stockpiles where grades are set to decline and eventually as those stockpiles exhaust around 2023-24. Regional exploration acreage around Prominent Hill is extensive and the company has focused on near mine areas with some success.

The Carrapateena mine, also in South Australia, produces about 70,000 tonnes of copper a year and is likely to expand to just over 110,000 a year from around 2028. Carrapateena comes with an approximate 20 year reserve life and a similar competitive position to Prominent Hill. 

Oz Minerals has targeted acquisition of advanced-stage exploration plays, development projects, or operatingmines. The company has built an encouraging pipeline of projects. Management developed Carrapateena to deliver a vastly more attractive project than initially planned. The acquisition of Brazil-based Avanco is a modest addition. Longer-term output hinges on successful acquisitions and/or exploration and development.

Higher Copper Price and Futures a Tailwind for Oz Minerals, but Shares Remain Overvalued

The fair value estimate as per Morningstar analyst remains at AUD 16.60 and the current near-record high copper price means the shares remain substantially overvalued.

We expect Oz Minerals to continue to benefit from near term strength in copper prices. This augments an already strong balance sheet with net cash. It is expected that copper prices will remain elevated at an average of USD 3.70 per pound to the end of 2024 and  prices to wane longer-term to USD 2.50 per pound from 2025 as the strong economic growth and post COVID-19 stimulus abate.

Financial Strength 

The balance sheet is sound with modest net cash at the end of March 2021. Single-commodity miners should have a conservative balance sheet and is considered as appropriate as per the viewpoint of Morningstar analyst. Longer-term, Oz Minerals could again start to generate significant excess cash flow, though if the company decides to push ahead with some of the potential development projects it has, this cash could largely be put to work and the firm could carry modest net debt at some points through our 10-year forecast period. The company is likely to further invest in Carrapateena, potentially develop the West Musgrave nickel/copper mine and some of the copper/gold assets acquired with Avanco Resources, as well to build and advance the company’s project pipeline. If an acquisition is made, the balance sheet might temporarily be more highly geared, but it seems unlikely Oz Minerals would buy a large new mine while it has so many internal development options.

Bulls Say 

  • Oz Minerals brings leverage to copper, a key metal for the emerging economies of China and India. 
  • Carrapateena extends Oz Minerals’ production of copper at a low operating cost. Successful development increases the likelihood nearby deposits could become economically viable. 
  • Oz Minerals holds significant exploration acreage around Prominent Hill and Carrapateena, with potential for life extensions and new discoveries. Management has done a creditable job of building a large and diverse pipeline of development options at different stages of maturity.

Company Profile

Oz Minerals is a midtier copper/gold producer. Prominent Hill produced about 100,000 tonnes of copper in 2020 with cash costs well below the industry average. The mine is a very small contributor to total global refined output of about 24 million tonnes in 2020. Finite reserves are a challenge, but management has extended life at Prominent Hill, albeit at a lower production rate. Life extension comes with development of the nearby Carrapateena mine, which started in 2020. Carrapateena should initially ramp up to produce at about 70,000 tonnes a year before expanding to just over 110,000 a year from around 2028. The acquisition of Brazil-based Avanco Resources adds volumes but the scale is smaller than the Australian assets, costs are higher and growth is likely to be incremental.

(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.