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Shares Small Cap

Baby Bunting FY21 results show group revenue surged by 15.6%

Stock exchange market concept, stock broker looking at graph working and analyzing with display screen, pointing on the data presented and deal on a exchange, Businessman trading stocks online.

Investment Thesis

  • Mandatory product safety standards for baby goods in Australia limit supply sources and provide barriers to entry to international competitors.
  • BBN has the largest presence in Australia amongst specialty baby goods retailers.
  • Low risk that online sales threaten high service business model of brick-and- mortar stores to showcase goods and in-store advice.
  • Solid growth story via new store openings (targeting 100+ stores network).
  • Strong market shares (currently sits at 30% in a highly fragmented market).

Key Risks

  • Retail environment and general economic conditions in addressable markets may deteriorate.
  • Competition may intensify especially from online retailers such as Amazon, specialty retailers, department stores, and discounted department stores.
  • Customer buying habits/trends may change. Rapid changes in customer buying habits and preferences may make it difficult for the Company to keep up with and respond to customer demands.
  • Higher operating and occupancy costs. Any increase in operating costs especially labour costs will affect the Company’s profitability.
  • Poor inventory control and product sourcing may be disrupted.
  • Management performance risks such as poor execution of store rollout especially into ex-metro areas.

FY21 Results Highlights 

  • Sales of $468.4m were up +15.6%, with same-store comparable sales up +11.3%. Online sales grew by +54.2% and now make up 19.4% of total sales (vs 14.5% in pcp).
  • Gross profit of $173.7m was up +18.3% on pcp, with GP margin up +83bps to 37.1%. Cost of doing business (CODB) as a percentage of sales improved 14bps to 27.8%, aided by store expense leverage and warehouse volume leverage (cost fractionalization).
  • Operating earnings (EBITDA) were up +29.2% to $43.5m (with EBITDA margin up +100bps to 9.3%) and NPAT was up +34.8% to $26.0m.
  • Operating cash flow was weaker versus previous corresponding period (pcp), driven by higher working capital – driven by an increase in inventories and also cycling particularly low levels in the pcp.
  • The Company declared a final dividend of 8.3cps, taking the full year dividend to 14.1cps (up +34.1% on pcp). The Board continues to target a payout ratio in the range of 70-100% pro forma NPAT.
  • Private label sales were up +31.1% vs pcp and now make up 41.4% of group sales (vs 36.5% in FY20). The Company remains on target to achieve 50% of sales from private sales.

Company Profile 

Baby Bunting Group Limited (BBN) is Australia’s largest nursery retailer and one-stop-baby shop with 42 stores across Australia. The company is aspecialist retailer catering to parents with children from newborn to 3 years of age. Products include Prams, Car Seats, Carriers, Furniture, Nursery, Safety, Babywear, Manchester, Changing, Toys, Feedingand others.

(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
Property

Goodman Group reports strong FY21 results with high operating EPS

Mortgage, investment, real estate and property concept. Dollar money and house keys

Investment Thesis:

  • GMG’s high-quality investment portfolio which is globally diversified and gives exposure to developed and emerging markets
  • Strong property fundamentals enabling valuation uplifts 
  • With more than 50% of earnings derived offshore GMG is expected to benefit from FX translation and a prolonged period of lower rates
  • Transitioning to longer and larger projects in development
  • Strong performances in Partnerships such as with Cornerstone
  • GMG’s solid balance sheet provide firepower and access to expertise to move on opportunities in key gateway cities with demand for logistics space (and supply constraints) and diversify risk by partnering (i.e. growth in funding its development pipeline) or co-investment in its funds and or make accretive acquisition opportunities
  • Expectations of continual and prolonged lower interest rate environment globally (albeit potential rate hikes in the US) should benefit GMG’s three key segments in Investments, Development and Management

Key Risks:

  • Any negative changes to cap rates, net property income
  • Any changes to interest rates/credit markets
  • Any development issues such as delays
  • Adverse movements in multiple currencies for GMG such as BRL, USD, EUR, JPY, NZD, HKD and GBP
  • Any downward revaluations
  • Poor execution of M&A or development pipeline
  • Key man risk in CEO Greg Goodman

Key highlights:

  • GMG delivered operating profit $1,219.4m, up +15.0% over the pcp, and operating EPS of 65.6 cents, up +14.1%. DPS of 30.0cps was in line with expectations.
  • Management provided solid FY22 earnings guidance stating: “FY22 forecast operating EPS is 72.2cps, up +10% on FY21. Forecast full year distribution for the coming year is 30cps”.
  • The Group is well positioned to maintain WIP of around $10bn throughout FY22, with multi-storey developments remaining a meaningful contributor.
  • Customer demand in our markets is also translating into high occupancy, rental growth and strong investment returns which should see AUM grow to in excess $65bn and support the performance of our management business.
  • GMG saw strong uplift in revaluations of $5.8bn driving growth in total AUM to $57.9bn (up +12%). GMG expects development WIP will organically grow AUM (which management expects to exceed $65bn in FY22).
  • GMG’s portfolio had high occupancy at 98.1%, weighted average lease expiry of 4.5 years, and like-for-like NPI growth at 3.2%. 3.9m sqm of leasing equated to $517.1m of annual rental property income. 

Company Description: 

Goodman Group Ltd (GMG) own, manage, develop industrial, warehouse and business park property in Australia, Europe, Asia and Americas. GMG actively seeks to recycle capital with development properties providing stock for ownership by either the trust or third-party managed funds, with fees generated at each stage of the process.

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 Technology Stocks

Netflix faces increase in competition in the U.S and around the world

Netflix has morphed into a pioneer in subscription video on demand and the largest online video provider in the U.S. and likely the world. Our economic moat rating of narrow is based on intangibles resulting from the use of Big Data stemming from the firm’s massive worldwide subscriber base. Already the largest provider in the U.S., Netflix expanded rapidly into markets abroad as the service now has more subscribers outside of the U.S. than inside. 

The firm has used its scale to construct a massive data set that tracks every customer interaction. It then leverages this customer data to better purchase content as well as finance and produce original material such as “Stranger Things.” Media firms will continue to reap the benefits of both an additional window for existing content and another platform for new content. Larger firms like Disney+ and WarnerMedia have launched their own SVOD platforms to compete against Netflix. 

Financial Strength 

Netflix’s financial health is poor due to its weak free cash flow generation, large number of content investments that require outside funding (primarily debt), and content obligations. Debt has been taken on to fund additional content investments and international expansion. The net cash burn was over $2 billion in 2017, over $3 billion in 2018, and $3.5 billion in 2019. As of June 2021, Netflix has $14.9 billion in senior unsecured notes that do not have borrowing restrictions, but a relatively small amount due in the near term ($500 million due 2021, $700 million due 2022, $400 million due 2024, and $800 million due 2025), as the firm generally issues debt with a 10-year maturity. Netflix also has a material quantity of noncurrent content liabilities ($2.7 billion recognized on the balance sheet and over $15 billion not yet reflected on the balance sheet).

Bulls Say’s 

  • Netflix’s internal recommendation software and large subscriber base give the company an edge when deciding which content to acquire in future years.
  • Netflix has built a substantial content library that will benefit the firm over the long term.
  • International expansion offers attractive markets for adding subscribers.

Company Profile 

Netflix’s primary business is a streaming video on demand service now available in almost every country worldwide except China. Netflix delivers original and third-party digital video content to PCs, Internet-connected TVs, and consumer electronic devices, including tablets, video game consoles, Apple TV, Roku, and Chromecast. In 2011, Netflix introduced DVD-only plans and separated the combined streaming and DVD plans, making it necessary for subscribers who want both to have separate plans.

(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

Fidelity Government Income Fund: An appealing Government-focused offering

A blended benchmark of the Bloomberg U.S Government Bond Index (75% weighting) and the Bloomberg U.S Mortgage Backed Securities Index (25%), sticks primarily to government-backed fare (Outside of an occasional in the student loan-backed debt that carries a federal guarantee for atleast 97% of principal and interest) and doesn’t make big interest-rate bets. It plays to its strength in the mortgage portion of the portfolio, which typically accounts for 40% to 60% of assets, drawing on significant investments in proprietary analytics to identify mortgages with more attractive cash flow projections than their prices suggest. As of June 2021, the strategy’s market exposure stood roughly 107% of net assets.

Portfolio

The high-quality, government-focused portfolio tends to hold an overweighting in mortgages relative to its blended benchmark (75% Bloomberg U.S Government Bond Index and 25% Bloomberg U.S Mortgage backed Securities Index), with the team actively adjusting this mix based on valuations. Meanwhile, its allocation to U.S Treasuries accounted for 67% of assets in June 2021, up from 50% at the beginning of 2020. Here, the team favors 30-year fixed rate mortgage with repayment-resistant characteristics. The team has found agency collateralized mortgage obligations to be less attractive recently, trimming its stake to 9% of assets as of June 2021 from 14% at the start of 2020. These securities can be volatile and suffer from bouts of illiquidity, although they typically account for 3% or less of the portfolio and stood at less than 1% as of June 2021.

People

This strategy benefits from experienced leadership and a well-resourced securitized team, supporting a people pillar rating of above average. Sean Corcoran was named as a comanger when lrving left the team. Corcoran, a 19 – year fidelity veteran, previously analyzed commercial MBS and other non-agency fare as an analyst. Corcoran and castagliuolo draw on considerable resources, including eight dedicated structured-products analysts and five macro analysts. Five traders across agency, non-agency and rates markets support the team. In mid-2020, the team hired John Torregrossa, an experienced agency MBS trader with over 15 years experience, to replace veteran trader Steve Langan, who retired in late 2020.

Performance 

Well time adjustments have aided recent performance. In 2019, an increase in its Treasuries allocation helped it to a 6.5% return which bested 75% of category peers. In 2020, the team increased its exposure to mortgages amid the first quarter sell-off, helping the strategy to a 6.9% return, which bested over two thirds of peers.

FGOVX Performance.png

About the Fund

Fidelity Government Income Benefits from a well-resourced team and risk-conscious approach backed by the firms’s deep mortgage analytics. Fidelity’s significant investment in analytics, including a proprietary mortgage model that allows the team to quickly model changes in assumptions regarding borrower repayment behavior to identify mispricings in the mortgage market. 

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

Incitec Pivot’s Fiscal Second Half Enjoys Surge in Fertiliser Price AUD 3.00 FVE Unchanged

Business Strategy and Outlook

Incitec Pivot aims to expand its business around its strong global market share in explosives. This provides an increasingly stable earnings stream relative to volatile earnings from its fertiliser business. Competitive advantages include a duopoly Australian explosives business and global explosives operations. Incitec Pivot is also a dominant player in the Australian domestic fertilizer market and enjoys a degree of domestic fertiliser pricing power from its dominant market share in eastern states, but it is too small to influence global prices.

Explosives earnings are leveraged to mining volumes as much as price and should benefit from long-term global growth in demand for minerals and metals. Additionally, mining strip ratios are expected to increase over time, with more explosives required to mine the same amount of ore. Incitec Pivot is consequently focused on ensuring all new projects meet strict financial criteria. There will likely be an oversupply of ammonium nitrate in Western Australia to 2020 and in Eastern Australia to 2021. 

Financial Strength

IncitecPivot raised AUD 645 million in new equity at AUD 2.00 per share in the second half of fiscal 2020. In conjunction with positive free cash flows, net debt fell to AUD 1.3 billion at end September, down 45% from AUD 1.9 billion at end March 2020. As at end March 2021, net debt worsened slightly to AUD 1.48 billion, for comparatively modest leverage ND/(ND+E) of 22%, but somewhat elevated net debt/EBITDA just over 2.0. It is pleasing therefore that management has expressed an investment bias to capital-light and faster cash returning projects aligned to the strategy.The equity capital raised in fiscal 2020 increased the company’s liquidity and supports a continued investment-grade credit rating.

Our fiscal 2021 EPS forecast is little changed at AUD 0.10 with full-year results to be released on Nov. 15. The global explosives provider deliberately brought down its Waggaman ammonia plant in late August 2021 in anticipation of Hurricane Ida, with an NPAT impact of USD 21 million. Post-hurricane inspections did not identify any material damage to the Waggaman plant. Incitec Pivot ended March 2021 with net debt of AUD 1.48 billion, for comparatively modest leverage ND/(ND+E) of 22%, but somewhat elevated net debt/EBITDA just over 2.0.

Bulls Say’s

  • Investors enjoy bumper dividends at peak cycle times.
  • Continued growth of the explosives business will reduce earnings volatility.
  • Over the longer term, explosives earnings are favourably leveraged to mining volumes rather than prices, and mine strip ratios are expected to increase over time.

Company Profile 

Incitec Pivot is a leading global explosives company with operations in Australia, Asia, and the Americas. We estimate its share of the global commercial explosives market at about 15%. Explosives contributes 80% of EBIT. Incitec Pivot is also a major Australian fertiliser producer and distributor and is the only Australian manufacturer of ammonium phosphates and urea. Ammonium phosphates are sold in the domestic market and exported.

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
LICs LICs

Metrics Income Seeks to Raise up to $152m through Institutional Placement and Unit Purchase Plan

Currently, their Annual Yield is 6.98 percent and their dividend amount is 0.009. Metrics Income’s P/E Ratio is 13.8 percent. 

Metrics Income Opportunities Trust’s Revenue is 30.70 million till June 2021. Their last traded price is $2.05. The trust targets a cash yield of 7 percent p.a. which is intended to be paid monthly with a total target return of 8 percent p.a to 10 percent p.a in each case net of fees and expenses.

Their Net Asset Value is $407,156,629. Metrics Income Opportunities Trust ((MOT)) announced on August 26, 2021, that they intend to raise $52.86 million by issuing 26.04 million new fully paid ordinary MOT units to wholesale investors at a price of $2.03 per unit. 

Furthermore, the Trust announced a Unit Purchase Plan (UPP) for existing eligible unit holders to purchase up to $30,000 in new units at a price of $2.03. The Trust hopes to raise up to $100 million through the UPP. Excessive applications may be scaled back on a pro rata basis. The UPP is set to open on September 6, 2021, and close on September 30, 2021.

The offer price of $2.03 corresponds to the NAV at the time of the announcement, with the UPP allowing unit holders to acquire units at a 1.9 percent discount to the unit price at the close of the trading day preceding the announcement (25 August 2021).

The proceeds from the institutional placement and the UPP will be invested in accordance with MOT’s investment mandate and target return.

Company Profile 

Metrics Income Opportunities Trust seeks to provide investors exposure to a portfolio of private credit investments. The Investment Objective of the Trust is to provide monthly cash income, preserve investor capital and manage investment risks, while seeking to provide potential for upside gains through investments in private credit and other assets such as Warrants, Options, Preference Shares and Equity.

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
ETFs ETFs

Vanguard Diversified Growth Index ETF: A Diversified fund at low cost

Investment Objective

Vanguard Diversified Growth Index ETF seeks to track the weighted average return of the various indices of the underlying funds in which it invests, in proportion to the Strategic Asset Allocation, before taking into account fees, expenses and tax.

Process

The Vanguard Diversified Index ETF series follows the investment process of the unlisted funds, but with some additional trade-offs of the listed structure, including brokerage costs and variable bid-ask spreads. The methodology starts by defining reasonable investment horizons for each portfolio and allocates to broad asset-class exposures such as equities and fixed interest based on the defensive/growth split. Then, sub asset allocation within classes follows a market-cap weighting approach, while allowing for behavioural biases and regulatory factors specific to each local market. The SAA determination is aided by the Vanguard Capital Markets Model, which forecasts asset-class returns through scenario analysis. An annual review may identify major structural shifts that can lead to a revised SAA.Underlying sector exposures are realised through in-house index-tracking funds. 

Portfolio

Vanguard’s straightforward approach applies a strategic asset allocation that is updated periodically and broadly mirrors its equivalent unlisted fund range. Dynamic and tactical asset allocation are not used. Vanguard sticks to the traditional asset classes of equities, fixed interest, and cash, while avoiding alternatives and unlisted assets. The four diversified options are designed to suit different investor objectives and risk profiles. Vanguard Conservative has a defensive/growth split of 70/30, Balanced is 50/50, Growth is 30/70, and High Growth is 10/90. 

Performance

 In comparison to unlisted peers, all ETFs sit in the top quartile over a trailing three-year time period as at June 2021.

Performance return (%)

Source: Fact Sheet

Asset Allocation(%)

Source: Fact sheet

About the fund

The ETF gives investors low-cost access to a variety of sector funds, allowing them to diversify across several asset classes. The Growth ETF is a growth-oriented exchange-traded fund (ETF) created for investors seeking long-term capital growth. A 30% allocation to income asset classes and a 70% allocation to growth asset classes are the goals of the ETF and suitable to buy and hold investors seeking long term capital growth, but requiring some diversification benefits of fixed income to reduce volatility.

 (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
Funds Funds

Pendal Sustainable Conservative Fund: An effective asset allocated fund with ESG overlay

It is noted that the investors would be comfortable as the ESG considerations mirror with those of the Manager’s approach- the strategy does not invest in tobacco or weapons manufacturing as well as the Fund has negative screens (alcohol, gaming, pornography) with activities materiality caveat. The fund utilises internal as well as external fund managers in order to make effective decisions while allocating its assets. The fund size is $345m.            

Downside Risks:

  • ESG breaches by investments in the portfolio.
  • Underlying managers fail to deliver performance or breach mandates.  
  • Personnel change – turnover in the team or portfolio managers. 
  • Broader market risk.

Fund Performance & Current Positioning:

(%)FundBenchmarkOut-performance
1-month 1.07%0.74%+0.33%
3-months 3.62%3.09%+0.53%
6-months8.17%5.89%+2.28%
1-year 9.46%7.40%+2.06%
3-year (p.a.)4.82%5.28%-0.46%
5-year (p.a.)4.10%4.76%-0.66%
Since Inception (p.a.)+7.15%+3.86%+3.29%

(Source: Pendal; Past performance is not an indicator of future performance)

Fund Positioning:

 % of Portfolio
Australian shares9.0%
International shares13.0%
Australian fixed interest17.2%
International fixed interest16.2%
Australian property securities3.4%
International property securities 3.1%
Alternative investments15.9%

(Source: Pendal)

Key Highlights:

  • Investment Team:

The Pendal Multi-Asset team is headed by the very experienced Michael Blayney. The team is made up of 4 members- 3 Portfolio Managers and 1 Analyst. The team is also supported by Edwina Matthews who is Pendal’s Head of Responsible Investments.

  • Investment Philosophy and Process:

The Fund’s core belief is that markets are inefficient, and that active management can improve risk and return. The process basically consists of three approaches namely; Strategic Asset Allocation Approach (SAA), Environmental, Social and Governance (ESG) integration and construction of benchmark using neutral’s asset allocation position and index returns.

About the Fund:

The Fund is an actively managed multi-asset portfolio across a range of asset classes and incorporates a range of sustainable, ethical and financial considerations. The strategy aims to provide real return over inflation over the medium term. The strategy’s neutral target asset allocation is 75% defensive assets and 25% growth assets, which is suitable for ESG focused conservative investors.

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
Funds Funds

Janus Henderson Australian Fixed Interest Fund: A solid core fixed interest offering

over rolling three-year periods. The fund invests in a range of securities including government, semi-government, corporate and asset backed securities.              

Downside Risks:

  • Investment strategy selection fails to yield alpha.
  • Lead PM departs or significant turnover in the broader investment team. 
  • Credit / interest rates risk.  

Fund Performance & Current Positioning:

(%)FundBenchmarkOut-performance
1-mths0.05%0.09%-0.09%
3-mths2.78%2.55%+0.23%
6-mths4.77%4.23%+0.54%
1-year (p.a.)1.92%1.05%+0.89%
3-year (p.a.)4.90%4.52%+0.38%
5-year (p.a.)3.62%3.33%+0.29%
Inception6.74%6.51%+0.23%

(Source: Janus Henderson)

Sector Allocation:

(Source: Janus Henderson)

Key Highlights:

  • Investment Team:

The Janus Henderson Australian fixed interest team, headed by Jay Sivapalan, is highly experienced and well resourced. The investment team consists of highly qualified people having adequate work experience in investment, portfolio management and credit analysis.

  • Investment Philosophy and Process:

The investment philosophy of this fund focuses on investing in compelling opportunities, diversified strategies, capital preservation and strategic view. The Fund’s investment and portfolio construction process consists of Fundamental Research, Strategy Formulation and Portfolio Construction. 

  • Credit Process:

ESG is integrated into the credit process. Since the manager believes in ‘quality before price’ philosophy, ESG considerations are fundamental to their four-pillar bottom-up credit analysis, which are: business risk, financial risk, management profile and ESG risk.

About the Company:

Janus Henderson is a global asset manager with more than 340 investment professionals and expertise across all major asset classes. Its individual, intermediary and institutional clients span the globe and entrust it with more than $500bn of their assets. Janus Henderson’s commitment to active management offers clients the opportunity to outperform passive strategies over the course of market cycles. Through times of both market calm and growing uncertainty, its managers apply their experience weighing risk versus reward potential – seeking to ensure clients are on the right side of change.

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
LICs LICs

Sandon Capital Declares Special Dividend and Further Aligns Interest with Shareholders

Market Capitalisation of Sandon Capital Investments Limited $111.99 Million. Their last trade was 1.01 on 22nd September 2021.

Net profit is 37.3 Million. Their Annual Revenue is 56.5 Million. 

Sandon Capital Investments Limited (SCN) has declared a fully franked special dividend of 1cps in addition to the full franked FY21 final dividend of 2.75cps. 

The Board anticipates paying an interim FY22 dividend of 2.75cps, fully franked, subject to the Company having sufficient profit reserves, franking credits and it is within prudent business practices. 

This would represent a 10% increase on the FY21 interim dividend. SNC currently has 32.1cps in profits reserves and more than 9cps in franking credits.

In addition to this, the Manager announced that from FY22 onwards, the Manager intends to invest at least 50% of the after-tax proceeds of performance fees earned from SNC in SNC shares. 

Shares will be purchased on-market and will be acquired after the payment of the relevant performance fee where SNC’s share price is trading at a discount to its after-tax NTA. 

The Manager and entities associated with its directors and shareholders currently have in excess of $7.3m invested in funds managed by Sandon Capital Pty Ltd, including 2.1m SNC shares.

Company Profile 

Sandon Capital Investments Limited is an investment company. The Company is engaged in investing activities, including tangible assets, marketable securities or cash. The Company will seek to invest in securities, which Sandon Capital Pty Ltd (the Manager) considers to be under-valued and where the Manager considers there to be opportunity to encourage changes to unlock what the Manager has identified as intrinsic value. The Manager may also invest, from time to time, in market-based investment opportunities, such as placements, merger arbitrage and other investments it considers appropriate. Sandon Capital Pty Ltd is the investment manager of the Company.

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.