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Currencies Trading Ideas & Charts

Recent flash crash urges Bitcoin whales to buy it at a discount

 nearly 15% less than the previous day and reflecting a loss of more than $410 billion. A selling spree among the investors drove the prices of nearly every single coin, erasing the gains of the retail traders amidst the news of El Salvador’s first day accepting bitcoin as legal tender. This move resulted from the $4 billion cascading liquidations from the over-leveraged Bitcoin and Ethereum futures.

In the middle of the flash crash, El Salvadoran President Nayib Bukele remarked that the country took advantage of crashing prices to purchase 150 bitcoins in addition, boosting its total to 550 coins, which amounts to about $25 million. The correction in the Bitcoin market highlighted the need to book profits consistently along the rally. 

The Bitcoin fear and greed index, which is considered as an indicator of the overall sentiment of traders in the market, recently indicated ‘fear’. Analysts expect a potentially volatile period ahead for Bitcoin, as nearly 336,000 traders positions were liquidated in the crash. However, post Tuesday’s downfall, BTC is now on its road to recovery. Spent output ratios that look at profitability and losses taken over a particular time frame shows that the long-term holders have largely maintained their positions indicating the larger wallet moves were on-balance active short-term traders. On the contrary, it is observed by the analysts that the whales have been significantly buying BTC, increasing their holdings. Historically, whenever large wallet investors have increased their holdings and accumulated BTC, a price rally has followed. The proponents have claimed that if new buyers constantly inject capital in Bitcoin, it could break key resistance and set an all-time new record, further in 2021. Analysts expect Bitcoin to continue upwards climb and target the $57,000 level next.

About Bitcoin:

Bitcoin is the world’s first decentralized cryptocurrency- a type of digital asset that uses public-key cryptography to record, sign and send transactions over the Bitcoin blockchain.

Launched in 2009, bitcoin is the world’s largest cryptocurrency by market capitalization. Unlike fiat currency, bitcoin is created, distributed, traded, and stored with the use of a decentralized ledger system, known as a blockchain. Bitcoin’s history as a store of value has been turbulent; it has gone through several cycles of boom and bust over its relatively short lifespan. As the earliest virtual currency to meet widespread popularity and success, bitcoin has inspired a host of other cryptocurrencies in its wake.

(Source: FXStreet, Investopedia, Forbes)

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

APA’s Medium-Term Outlook Is Supported by Accretive Expansion Opportunities

Limited regulation, scale, and a superior skills base help it capitalise on gas demand growth and generate competitive advantages that warrant a narrow economic moat. However, gas market reform will weaken its competitive advantages. Fair value uncertainty is medium, as secure revenue is balanced by high gearing and limited transparency over customer contracts.

Infrastructure, primarily gas transmission and distribution, is the core business, generating more than 90% of group EBITDA. The rest comes from part-owned investments and asset management. The investments division owns stakes in smaller gas infrastructure companies, providing solid returns and giving some influence. The asset management division provides management, operating, and maintenance services to most part-owned companies, leveraging APA Group’s skills base to generate good returns outside the regulatory framework.

APA Group’s core strategy during the past decade has been to create an integrated east-coast gas transmission grid connecting multiple gas sources to multiple markets. This is now complete following numerous acquisitions and the firm is progressing a similar strategy in Western Australia, connecting to remote mine sites and towns. Expansion creates economies of scale and synergies from linking pipes together into a network with one manager.

Financial Strength

APA Group is in sound financial health. It carries a lot of debt, but this should be manageable given highly secure revenue. Net debt/EBITDA to fall to 5.5 times in fiscal 2023 as development projects complete and earnings start to flow. The firm’s average interest rate is around 4.8%, down substantially in recent years following the issue of the cheap debt to fund the WGP acquisition and expensive hedges rolling off on other debt. The recent refinancing of medium-term debt should reduce average interest rate to about 4.8% in fiscal 2022. Average debt maturity is long at more than seven years, and 100% of interest rates are fixed or hedged.

Our fair value estimate for APA Group is AUD 9.80 per security. Our valuation implies a forward fiscal 2022 enterprise value/EBITDA multiple of 12.5 times, with a distribution yield of about 5.4%. Expansion projects drive solid EBITDA growth of 4.8% on average for the next five years in our discounted cash flow model, while revenue growth for some existing assets is likely to be soft because of regulatory headwinds, gas market reform and some demand shifts.

Bulls Say’s

  • APA Group owns and operates an excellent portfolio of gas infrastructure assets. Its large footprint ensures it is at least partially exposed to growth anywhere in the country.
  • The east-coast gas grid provides improved reliability, greater flexibility, a wider range of services, and economies of scale over single pipelines.
  • Limited regulation allows stronger returns on investment than regulated peers, particularly from organic expansion. However, gas market reform will reduce its advantage.
  • Strong returns are possible from organic growth.

Company Profile 

APA Group is Australia’s largest gas infrastructure company with an extensive portfolio of transmission pipelines, distribution networks, and storage facilities. It is internally managed and has direct operational control over all assets. It owns minority stakes in a few smaller gas infrastructure companies and manages operations for most of these. The stapled securities comprise a unit in Australian Pipeline Trust and in APT Investment Trust.

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 Shares

Qube reported solid FY 20 result and also made progress in the property monetisation process

Investment Thesis:

  •  The assets are attractive as well as strategically located.
  • Leveraged to improving economic growth (e.g. commodity markets, new passenger vehicle sales).
  • Improved margins on account of additional project work in future years.
  • Moorebank Logistics Park was successfully ramped up and offered logistics services at incremental margins.
  • Better cost outcomes and improved margins on account of technological advances (and automations) at its ports and operations.
  •  In order to supplement organic growth potential bolt-on acquisitions is done 
  •  The balance sheet position of Qube is sound enough.

Key Risks:

  • Excess capacity and pricing pressure because of Downturn in the domestic economy (or key end markets such as agriculture, retail)
  • Margin pressure due to cost pressures. 
  • Coronavirus outbreak leading to potential direct and indirect impacts.
  • Value destructive acquisition (dilutive to earnings and a distraction for management). 
  • Margin erosion because of competitive pressure. 
  • High competition in the logistics industry.
  • Market expectations are not met by QUB in achieving capacity utilization at Moorebank Logistics Park.

Key Highlights: Relative to the pcp:

  • QUB reported solid FY20 results reflecting record underlying earnings.
  • The firm majorly has four division-operating, property and patrick
  • Revenue increased by 7.9% to $2,032.4.
  • The increase in revenue was majorly driven by its operating and Patrick division.
  • The Operating Division experienced high volumes across most parts of the business with container, grain, forestry, motor vehicles and bulk volumes particularly strong, and the result also benefited from earnings from growth capex undertaken in the current and prior periods.
  • The operating division saw underlying revenue growth of by 12.5% to $2.0bn driven by Logistics, up by 8.5% to $860.3m and Ports & Bulk, up by 8.0% to $1,148.2m.
  • Property underlying revenue of $23.7m. The division made a loss of $2.1m
  •  In Patrick, underlying contribution from Qube’s 50% interest in Patrick of $41.3m
  • EBITA increased by 14.1 percent to $182.9 million.
  • The net profit after tax (NPAT) increased by 36.8% to $142.5. 
  •  NPATA was up 31.7 percent to $159.6.  
  • EPS was up by 16.7 percent at 8.4cps. 
  •  The Board declared a final dividend of 3.5cps (full-year dividend of 6.0cps, up 14.4%). 
  • The leverage ratio (ND/ND+E) of 29.2% is substantially below the goal range of 30-40% set by management.

Moorebank monetisation: 

QUB entered non-binding commercial terms to sell 100% of its interest in warehousing and property components of the Moorebank project (MLP project) to LOGOS for a total consideration of $1.67bn before tax, transaction costs and other adjustments. QUB will retain ownership of IMEX terminal and interstate terminal. Management noted “subject to the completion of the monetisation process, the Board will assess the appropriate use of the monetisation proceeds which is expected to include debt reduction, investment in accretive growth opportunities and potential capital management initiatives”.

Company Profile:

Qube Holdings Limited (QUB) is a diversified logistics and infrastructure firm that serves clients in both the import and export cargo supply chains. Ports & Bulk (integrated services, bulk material handling, and bulk haulage), Logistics (Australia’s largest integrated third-party container logistics provider), and Strategic Assets are the company’s three primary segments (investing and developing future infrastructure).

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

Woodside Petroleum operating revenue increases by 31% buoyed by demand for LNG and oil

Investment Thesis:

  • Superior free cash flow breakeven price relative to peers have been generated by quality assets (NWS, Pluto, Australia Oil, Browse, Wheatstone) 
  • Focus on cost reduction and positioning of the business for lower oil price environment
  • Earnings improvement through improving oil and gas prices 
  • WPL well positioned to fulfil increasing LNG demand 
  • Strong balance sheet position
  • Good with free cash flow generation
  • Potential exploration success in Myanmar, Senegal, Gabon. 
  • Change in CEO could either result in some uncertainty around future strategy or it could also be an opportunity to refresh the strategy with a “fresh” set of eyes 

Key Risks:

  • Imbalance in supply and demand in global oil/gas markets
  • Low oil / LNG prices
  • Not meeting cost-out targets (e.g. reducing breakeven oil cash price)
  • Disruptions in production

Key Highlights:

  • WPL reported 31% increase in operating revenue, buoyed by higher realised prices mainly driven by the recovery in demand for LNG and oil
  • Underlying NPAT was up +17% 
  • Board declared an interim dividend of US 30cps (up +15% over pcp), representing a payout ratio of ~80% of underlying NPAT
  • Announcement of merger with BHP’s oil and gas business, which is expected to deliver cost synergies north of US$400m p.a. by leveraging combined capabilities and capital efficiency, creating a higher margin oil portfolio
  • Improvement in balance sheet with gearing declining -110bps over 2H20 to 23.3%, remaining within target range of 15-35% and free cash flow (FCF) was up +18% to $311m.
  • Appointment of Meg O’Neill as the new permanent CEO and managing director
  • Revenue generated by WPL segments are; Pluto contributes 47% of the total revenue, NSW contributes 26%, Australia Oil contributes 14% and Wheatstone contributes 13%.
  • EBITDA generated by WPL segment are; Pluto contributes 49% of the total EBITDA, NSW contributes 24%, Wheatstone contributes 15% and Australia Oil contributes 12%.

Company Description:

Woodside Petroleum Ltd (WPL) explores for and produces natural gas, liquefied natural gas, crude oil, condensate, naptha and liquid petroleum gas. WPL owns producing assets in the North-West Shelf (NWS) project, Pluto LNG and Australian Oil. WPL is currently developing Browse, Sunrise, Wheatstone, Grassy Point and Kitimat LNG. WPL is currently undertaking exploration activities in Myanmar, Senegal, Morocco, Gabon, Ireland, NZ and Peru.

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

Ampol Ltd. reports 85% rise in EBIT during 1H21

Investment Thesis:

  • Short term challenges being cyclical in nature when coupled with the impacts of the Covid-19 brings muted outlook for the company in terms of the earnings 
  • ALD operates in the market which offers very high market entry barrier restricting the number of players
  • Replication of the infrastructure and supply chain process is difficult
  • Refinery capacity is set to be exceeded by the regional product growth over the duration of next five years, thereby putting the Lytton refinery business in top notch position
  • Acquisitions would further lead the way towards market expansion
  • Refining to be provided less exposure
  • Significant growth is expected to be delivered during the medium to long term duration by revamping retail/convenience model
  • Management of capital in an efficient manner

Key Risks:

  • Lytton refinery facing operational and incident risks
  • Impact of Coronavirus on refinery margins
  • Continuation of drop in refinery margins
  • Refinery and retail facing competitive pressures
  • Currency movements in adverse directions (USD and AUD)
  • Longer term disruption from Electronic Vehicles (EV).
  • Regulatory risk.
  • Class actions by franchisees or employees (e.g. employee underpayments by franchisees). 

Key Highlights:

  • ALD reported 70.8% increase in 1H21 RCOP NPAT to $205m mainly driven by Fuels & Infrastructure business, which delivered an +85% increase in EBIT largely due to the improvement in profitability of the Lytton refinery and the receipt of the Federal Government’s Temporary Refining Production Payment of $40m
  • Strong balance sheet with high amount of liquidity and proforma leverage of 1.6 times
  • Net borrowings were $735m, i.e. up by 69% over 2H20, reflecting the $300m off-market buy-back during the period
  • Shareholder returns continued with the Company completing $300m off-market buy-back
  • Declaration of a fully franked interim dividend of 52 cps, representing a 61% payout ratio of 1H21 RCOP NPAT
  • A non-binding indicative proposal to acquire Z Energy (a Wellington headquartered fuel distribution and retailing company that owns and manages 330 fuel stations and truck shops in NZ) funded through new debt facilities, proceeds from any divestments and an equity issuance in the order of ~A$600m
  • The segment of Fuels & Infrastructure (ex-Lytton) RCOP EBIT declined 7% to $159m primarily due to a reduction in earnings from Trading and Shipping as the elevated imported volumes in 2020 were replaced by Lytton refinery production in 1H21.
  • Total Convenience Retail segment fuel sales volumes were 2.05bl, +3% higher over pcp (+5% on a like-for-like basis), however, earnings from fuel sales declined due to diesel margins lagging movement in crude prices

Company Description:

Ampol Limited (ALD) purchases, refines, distributes and markets petroleum products in Australia. The company’s products include petroleum, motor oil, lubricants, diesel fuel and jet fuel. Caltex also operates convenience stores, fast food stores and service stations throughout Australia. ALD operates one refinery (Lytton, QLD), 25 terminals, 107 depots and about 2,000 service stations and diesel/truck stops.  The Caltex infrastructure network is a key competitive advantage

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
Technology Stocks

Link Administration Holdings announced $150 million on-market buyback

Investment Thesis

  • Leveraged on ongoing administration outsourcing by retail super funds.
  • LNK is still vulnerable to any further increase in PEXA’s valuation.
  • Fund Administration contract wins and increased market activity
  • Delivering on its offshore expansion storey successfully.
  • The cost out programme improves efficiency.
  • Uncertainty about Brexit will be removed, as will the potential discount assumed in current valuation / share price.
  • Bolt-on acquisitions that add value.
  • Currency movements that are favourable.
  • Capital management – As part of the FY21 results, a $150 million on-market buyback was announced.

Key Risks

  • Lower market activity and business / investor confidence.
  • Fund administration lost major client contracts.
  • Adverse changes in super regulatory environment e.g – super account consolidation.
  • Lack of product development.
  • Fluctuation in currency movement.
  • Discontinuation of the current share buyback to conduct a large-scale acquisition. 

FY21 Results Highlights 

  • Revenue of $1,160m was a -6% decline, “due to the impact of Covid-19 on the European business and regulatory changes in retirement and superannuation solutions resulting in lower following the transfer of many low balance inactive accounts to the ATO”.
  • Operating EBIT of $141m was a -21% decline.
  • Operating NPATA of $113m was -18% lower PEXA’s positive $32.7m contribution.
  • Statutory NPAT of -$163m, was a worst result that the -$103m in FY20, due to non-cash impairment charge of $183m for the Banking & Credit Management business which continues to see low levels of new activity because of Covid-19 and high levels of government intervention reducing portfolio sales in this market.
  • LNK saw net operating cash flow of $293m, down -8%. Net operating cash flow conversion was 114%.
  • LNK retained a strong balance sheet with net debt was down $296m to $455m and leverage ratio (Net Debt/EBITDA) down from 2.7x to 1.8x (below the bottom of guidance leverage ratio).
  • LNK received $180m of net proceeds received from the PEXA IPO.
  • Company announced an on-market buyback of up to $150m.

Company Profile 

Link Administration Holding Ltd (LNK) is the largest provider of superannuation fund administration services to super fund in Australia. Further, the Company is also a leading provider of shareholder management and analytics, share registry and other services to corporates in Australia and globally. The Company has 5 main divisions:(1)Retirement & Super Solutions (RSS), (2) Corporate Markets (CM), (3) Technology &Operations (T&O), (4)Fund Solutions (FS) and (5) Banking & Credit Management (BCM). LNK was listed on the ASX in October 2015. 

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

Treasury Wines reported solid earnings in spite of challenges faced during the year

Investment Thesis

  • China’s investigation outcomes are better than expected.
  • There is a significant opportunity to expand its Asian business (reallocation opportunities).
  • Premiumization and good cost control provide opportunities for group margin expansion.
  • The recovery in America’s business could result in significantly higher margins.
  • Currency movements in favour (due to a falling AUD/USD).
  • Additional capital-management initiatives.

Key Risks

  • Further deterioration (or worst than expected) outcome from china tariff / investigation.
  • United States turnaround disappoints.
  • Consumptions of wine decreases in the key market.
  • Unfavorable condition in demand and supply of wine’s global market.
  • Increase competition in key market.
  • Currency fluctuations that are unfavorable (negative translation effect).
  • Changes in Chinese policy and/or demand have an impact on volume growth.

FY21 Results Highlights

  • EBITS of $510.3 Million, was in line with the pcp, on EBITS margin 0.6ppts higher to 19.9%. On an organic basis, EBITS was up +3%, reflecting top-line growth driven by $10-30 Premium portfolio and improved CODB, partially offset by ongoing impacts from the pandemic, significantly reduced shipments to Mainland China (due to import duties) and higher COGS on Australian sourced wine.
  • Strong operating cash flow reflects a lower Californian vintage intake and adjusted Australian vintage, in addition to shift in regional sales mix in Asia. Cash conversion of 100.8% (or 96.9% excluding the changes in non-current luxury and premium inventory) was in line with TWE’s target of 90% or above.
  • Net debt declined $376.5m to $1,057.7m as a net debt to EBITDAS of 1.6x improved from 2.1x at year end. TWE has total available liquidity of $1.2billion at year ended versus $1.4billion at FY20 end.
  • Return on Capital Employed improves 0.6ppts to 10.8%.
  • The board declared a final dividend of 13.0cps, up and resulted in the full year dividend of 28.0cps (equating to payout of 65% of NPAT, consistent with TWE’s long term dividend policy). 

Company Profile 

Treasury Wine Estates (TWE) is one of the world’s largest wine companies listed on the ASX. As a vertically integrated business, TWE is focused on three key activities: grape growing and sourcing, winemaking and brand-led marketing. Grape Growing & Sourcing – TWE access quality grapes from a range of sources including company-owned and leased vineyards, grower vineyards and the bulk wine market. Winemaking – in Australia, TWE’s winemaking and packaging facilities are primarily located in South Australia, NSW and Victoria. The Company also has facilities in NZ and the US.  Brand-led Marketing – TWE builds their brands through marketing and distributes its products across the world.

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

Growth in Aurizon’s Bulk Business to Offset Stagnant Coal

Growth in Aurizon bulk business to offset stagnant coal. Coal prices have recovered but downward pressure is likely to remain on haulage rates and volumes due to intense competition. The coal-haulage market is highly concentrated, with few competitors and a few large customers. Commercial contracts, which are typically five to 12 years in length, underpin defensive revenue with customer commitment to take-or-pay (around 70%), pass-through of rail network access fees, and annual consumer price index increases. These contracts have helped insulate the firm from volatility in coal demand and supply factors to date.

 Aurizon’s non-coal bulk-haulage operations are typically low-margin and extremely variable, with customers based in the volatile agricultural, manufacturing and mining sectors. Aurizon’s iron ore customers are typically higher-cost juniors. The long-term outlook remains challenging for these firms, despite recent iron ore strength, as low-cost majors continue to bring on new supply, despite China slowing. Aurizon’s earnings from iron ore haulage could disappear over the medium term.

Aurizon’s Central Queensland Coal Network, or CQCN, provides essential transport infrastructure for the main metallurgical-coal-mining region in Australia. The CQCN is leased from the Queensland government until June 2109, with competitor access and access charges strictly regulated by the Queensland Competition Authority. Despite being highly regulated and needing large capital investment, the CQCN is a monopolistic rail system that provides Aurizon with highly predictable long-term revenue. Typically, regulated tariffs are the main source of Aurizon’s revenue from the CQCN, with the access undertaking set every three to five years. However, until 2027 network tariffs are set under an agreement with customers.

Financial Strength

Aurizon’s financial health is sound. As of June 2021, gearing stood at 45.6%, up from 37% in 2016 and 30% in 2015.Net debt/EBITDA of 2.4 times in fiscal 2021 is reasonable, and should fall modestly in the medium term in the absence of acquisitions or share buybacks. The firm pays out up to 100% of underlying NPAT as dividends. Further share buybacks are also possible, funded by proceeds from asset sales and debt. Cash flows are relatively reliable thanks to long-term take-or-pay coal-haulage contracts and the regulated rail network business. Capital expenditure has been fairly flat since fiscal 2017 at roughly AUD 500 million each year, mainly comprising stay-in-business capital expenditure. Aurizon has completed large-scale rail network extensions and is focused on cost-cutting. Investment in the bulk division is increasing but free cash flows should remain strong.

Bulls Say

  • Restructuring initiatives should substantially decrease operating costs. 
  • Improving efficiency, essential transport infrastructure, and reasonable level of debt should ensure steady earnings, except in the most difficult circumstances. 
  • Aurizon is reducing overhead costs and improving network efficiency to generate economic returns.
  • The bulk division has good growth prospects, though it is dwarfed by coal-exposed divisions.

Company Profile

Aurizon operates rail haulage of coal, iron ore, and freight, and owns a regulated rail network in Queensland. Bulk export coal haulage from mine to port contributes 40% of earnings. The freight and iron ore segment contributes 10% of earnings and undertakes the rail haulage of bulk agricultural, mining, and industrial products. The rail network, composed of 2,670 kilometres of coal rail network under a 99-year lease from the Queensland government, contributes around half of earnings.

 (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
Commodities Trading Ideas & Charts

South32 continue to provide solid returns for the near term

Investment Thesis:

  • Prices of S32’s key commodities are expected to be in moderate to relatively flat range in comparison to FY21 realised prices
  • The company is expected to produce significant free cash flow over the next three years, which would be adequate to support growth and capital management
  • Substantial cash balance would provide flexibility and capital management 
  • Board to expand S32’s capital management program by $120m to $2bn, excluding $252m to be distributed to shareholders  
  • Regular dividends are being paid inspite of uncertainty and volatility   
  • Both Standard and Poor’s and Moody’s reaffirmed their respective BBB+ and Baa1 credit ratings

Key Risks:

  • Key commodity prices decrease
  • Global growth experiencing significant shock
  • Inflationary pressures leading to cost blowouts and production disruptions 
  • Capital management initiatives are not handled by company adequately 
  • Currencies witnessing adverse movements 
  • Acquisition which may negatively impact the value of the organisation

Key Highlights:

  • Despite ongoing challenges put forth by pandemic, record production has been observed in Worsley Alumina, Brazil Alumina and Australia Manganese 
  • Divestment of South Africa Energy Coal, the TEMCO manganese alloy smelter, and a portfolio of no-core precious metals royalties with the aim to reduce capital intensity and improve underlying operating margin
  • Declaration of 2H21 dividend of 3.5cps, fully franked, at a payout ratio of 46% of underlying earnings. An addition of special dividend of 2.0cps was also declared, bringing the total dividend to 6.4cps versus 3.2cps in FY20.
  • Strong operating performance and higher commodity prices drove a +153% increase in underlying earnings to $489m
  • Underlying EBITDA of $1,564m was up +32%
  • Margin of 26.4% up from 21.9% in FY20
  • Underlying EBIT of $844m was up +89% from $446m in FY20, driven mainly by higher prices in aluminium, silver, zinc, nickel partially offset by the lower prices of coal, manganese ore and alumina
  • Higher sales volume of $115m
  • Controllable costs of $238m; offset by change in exchanges which reduced earnings by $185m, and higher electricity costs of ($103m)
  • Allocation of $346m for an on-market share buy-back

Company Profile:

South32 (S32) is a globally diversified metals and mining company. S32’s strategy is to invest in high quality metals and mining operations where their distinctive capabilities and regional model enables them to extract sustainable performance. The regional model means their businesses are run by people from within the region. The company’s African operations are supported by a regional office in Johannesburg South Africa and Australian and South American operations by an office in Perth.

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

Treasury Wines Estates long-term dividend policy

Investment Thesis

  • Chinas investigation outcomes are better than expected.
  • There is a significant opportunity to expand its Asian business (reallocation opportunities).
  • Premiumization and good cost control provide opportunities for group margin expansion.
  • The recovery in America’s business could result in significantly higher margins.
  • Currency movements in favour (due to a falling AUD/USD).
  • Additional capital-management initiatives.

Key Risks

  • Further deterioration (or worst than expected) outcome from china tariff / investigation.
  • United States turnaround disappoints.
  • Consumptions of wine decreases in the key market.
  • Unfavorable condition in demand and supply of wine’s global market.
  • Increase competition in key market.
  • Currency fluctuations that are unfavorable (negative translation effect).
  • Changes in Chinese policy and/or demand have an impact on volume growth.

FY21 Results Highlights

  • EBITS of $510.3 Million, was in line with the pcp, on EBITS margin 0.6ppts higher to 19.9%. On an organic basis, EBITS was up +3%, reflecting top-line growth driven by $10-30 Premium portfolio and improved CODB, partially offset by ongoing impacts from the pandemic, significantly reduced shipments to Mainland China (due to import duties) and higher COGS on Australian sourced wine.
  • Strong operating cash flow reflects a lower Californian vintage intake and adjusted Australian vintage, in addition to shift in regional sales mix in Asia. Cash conversion of 100.8% (or 96.9% excluding the changes in non-current luxury and premium inventory) was in line with TWE’s target of 90% or above.
  • Net debt declined $376.5m to $1,057.7m as a net debt to EBITDAS of 1.6x improved from 2.1x at year end. TWE has total available liquidity of $1.2billion at year ended versus $1.4billion at FY20 end.
  • Return on Capital Employed improves 0.6ppts to 10.8%.
  • The board declared a final dividend of 13.0cps, up and resulted in the full year dividend of 28.0cps (equating to payout of 65% of NPAT, consistent with TWE’s long term dividend policy). 

Company Profile 

Treasury Wine Estates (TWE) is one of the world’s largest wine companies listed on the ASX. As a vertically integrated business, TWE is focused on three key activities: grape growing and sourcing, winemaking and brand-led marketing. Grape Growing & Sourcing – TWE access quality grapes from a range of sources including company-owned and leased vineyards, grower vineyards and the bulk wine market. Winemaking – in Australia, TWE’s winemaking and packaging facilities are primarily located in South Australia, NSW and Victoria. The Company also has facilities in NZ and the US.  Brand-led Marketing – TWE builds their brands through marketing and distributes its products across the world.

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.