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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.

Categories
Global stocks Shares

Sims Ltd. reports strong results driven by significant turnaround in EBIT

Global network and financial technology concept.

Investment Thesis:

  • Scrap volumes have been improved  
  • Scrap prices across key regions have been improved
  • Significant earnings could be obtained from cloud recycling over the long run
  • Investment in improving scrap quality should improve SGM’s competitive position
  • Undemanding valuation relative to its own historical average and ASX200 Industrials Index
  • Earnings could be supported by self-help initiatives 
  • Return on Capital (ROC) of >10% in comparison to 8.6% in FY19 is targeted by the management
  • On-market share buyback of $150m

Key Risks:

  • Global economy facing substantial downside  
  • Escalation of trade war between China and the U.S.  
  • Key areas experiencing weaker scrap prices
  • Decrease in volumes
  • Changes in regulatory affairs – especially China’s anti-pollution policies. 
  • Group margins impacted by cost pressures

Key Highlights:

  • Strong FY21 results by Sims Ltd., which were ahead of market estimates 
  • Revenue of $5,916.3m, which is up +20.5%
  • Underlying EBIT of $386.6m, which was a significant turnaround from -$57.9m in FY20, affected by volume growth, margin expansion year on year, and material improvement in market prices
  • Achievement of fixed cost savings of $75m 
  • Final dividend declaration of 30.0cps, 50% franked, which brings FY21 total dividends to 42.0cps reflects a significant improvement from 6.0cps in FY20 but at a lower payout ratio 
  • SGM entered a JV with 50% ownership interest (at a $4.8m cost) with acquisition of assets from JED renewable landfill gas to energy facility near Orlando, Florida.
  • The ongoing or announced stimulus spending, particularly in the USA and China, would increase demand for steel-intensive infrastructure spending and drive additional retail consumption. Additional retail consumption will thereby increase post-consumption scrap. These drivers are positive for both ferrous and non-ferrous metal recycling.
  • Company will conduct a $150m on-market share buyback

Company Profile:

Sims Ltd (SGM) collects, sorts and processes scrap metal materials which are recycled for resale. SGM’s segments include ferrous recycling, non-ferrous recycling, secondary processing of non-ferrous metals and plastics, international trading of metal commodities and the merchandising of steel semi-fabricated products. 

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

Waypoint REIT offers a potential capital return in the fourth quarter

Investment Thesis

  • WPR currently trade in line with its NTA and our valuations.
  • Solid distribution yield
  • A quality $2.94 billion asset portfolio (427 properties, 74% metro, 26% regional) with a Weighted Average Lease Expiry (WALE) of 10.5 years and two lease expiries before 2026 (0.6 percent of income) and annual increases of 3.0 percent bodes well for valuation uplift.
  • Due to high barrier to entry it becomes difficult to replicate assets portfolio.
  • Solid capital management with gearing that allows for future acquisitions.
  • Potential property network expansion through earnings accretive acquisitions.
  • Waypoint REIT leases to Viva Energy, which has an Alliance Agreement/Site Agreement with Coles Express and a Shell brand Licence Agreement.
  • Majority of assets on triple net leases, where tenant is responsible for all property outgoings.

Key Risks

  • Tenant concentration risk.
  • The alliance agreement with Coles Express has been terminated.
  • Other branded service stations compete.
  • The rising cost of fuel is putting a strain on tenants.
  • The portfolio’s rental income has been reduced due to the sale of properties.
  • Excess supply of service stations has the potential to affect portfolio valuations and other property metrics.

1H21 Results Highlights 

  • Statutory net profit of $251.9 million, up +83.9 percent.
  • Distributable earnings of $61.3m up 6.1 percent. The Translate to distributable earnings per security 7.81 percent, up +5.4%.
  • Net tangible assets security as of June 2021 was $2.75, up $10.4% since December 2020.
  • WPR saw a $189.8 million increase in gross revaluation in 1H21, with the portfolio weighted average capitalisation rate falling 19 basis points to 5.37 percent. WPR has sold 37 non-core assets for a total of $132.0 million, representing a +10.8 percent premium over WPR’s current carrying value.
  • WPR’s gearing at 1H21 end was +27.3% (or pro forma gearing of 28.7%) and remains at the bottom end of WPR’s 30-40% target range.

Company Profile 

Waypoint REIT Ltd (WPR) is an Australian listed REIT that owns a portfolio of service stations across all of Australia’s states and territories. It currently owns 469 service stations in its portfolio. Its service stations are leased on a long term basis to Viva Energy Australia who has licence and brand agreements with Shell and Coles Express. Average value by property is ~ A$2.94bn.

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

Cooper gas portfolio strategy aims to maximise long-term value while mitigating risks

Investment Thesis

  • Management provides strong FY22 guidance.
  • Sole will result in significant increases in production and free cash flow.
  • Sole’s volumes are mostly contracted out, providing greater certainty at a lower risk of price fluctuations. Sixty-one percent of COE’s 2P reserves (Proved and probable reserves) are undertake-or-pay contracts, with uncontracted gas primarily beginning in 2024.
  • Upside from CEO’s exploration activity Gippsland and Otway Basin.
  • Over 25 years Industry/Developing LNG Project with companies such as BG Group, Woodside petroleum and Santos Ltd which leads by CEO/MD David Maxwell with strong management team.
  • Favorable industry on the east coast gas market – with tight supply could lead to higher gas prices.
  • Recent De- Rating Considered as a Potential Merger & Acquisition activity.

Key Risks

  • Execution Risk – Drilling and exploration risk.
  • Commodity Price Risk – movement in oil & gas price will impact uncontracted volumes.
  • Regulatory Risk – such as changes in tax regimes will adversely impact profitability.
  • M&A Risk – value destructive acquisitions in order to add growth assets.
  • Financial Risk – potentially deeply discounted equity raising to fund operating & exploration activities should debt market tighten up due external macro factors.

FY21 Results Highlights

  • COE achieved record sales and revenue sales volume up +69 percent to 3.01 MMboe and revenue up to +69 percent to $132 million.
  • COE achieved record production of 2.63 MMboe up to +69 percent.
  • COE’s sole gas sales agreement was a significant milestone driving, 2H21 revenue and earnings.
  • Sound balanced sheet maintained with debt adjustments finalized.

Company Profile 

Cooper Energy Ltd (COE) is an oil & gas exploration company focusing on its activities in the Cooper Basin of South Australia. The Company’s exploration portfolio includes six tenements located throughout the Basin. Gas accounts for the major share of the Company’s sale revenue, production and reserves. COE’s portfolio includes: (1) gas production of approximately 7PJ p.a. from the Otway Basin, most of which comes from the Casino Henry gas project which it operates. (2) COE is developing the Sole gas field to supply 24 PJ of gas p.a. from 2019. (3) Oil production of approximately of 0.3 million barrels p.a. from low cost operations in the Cooper Basin. 

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

Mayne Pharma with a strong financial position set to launch 11 dermatology products across FY22 targeting markets of $500m.

Investment Thesis

  • Any stabilisation in the generic category (competition or pricing) will be considered as a positive.
  • New product releases and a solid development pipeline are on the horizon.
  • While generic brands are currently experiencing a difficult business environment, the long-term picture remains favourable, as consumers and regulators alike rely on a vibrant generics market to keep drug prices low.
  • Positioning the product portfolio to include higher-margin items.
  • Potential industry consolidation on lower growth outlook.
  • Leveraged to a falling AUD/USD. 

Key Risk

  • There is a lot of competition from new products.
  • A decrease in demand.
  • New product releases do not meet market expectations for growth.
  • Changes in the law.
  • Litigation.
  •  Currency fluctuation that is unfavourable.

Key financial highlights of 21

  • During the underlying period the firm reported revenues of $400.8m, declined by12% over the previous year, impacted by the Covid-19 pandemic and on-going challenges in the U.S. retail generic sector.
  • The firm mainly has four divisions namely – Generic Products Division (GPD), Specialty Products Division (SPD), Metrics Contract Services (MCS) and Mayne Pharma International (MPI).
  • During the year Generic Products Division (GPD) operating revenue was US$152.8m declined by 10% over pcp, Specialty Products Division (SPD) revenue increased by 1% over pcp to US$53.3m, Metrics Contract Services (MCS) revenues increased by 10% over pcp to US$61.3m and Mayne Pharma International (MPI) revenue were $42.8m up by 1% over pcp.
  • All segments other than the Generic Products segment contributed to growth, with reported EBITDA of $66.1 million down by 18 % over pcp ( by 5 % in CC) and underlying EBITDA of $86.5 million (excluding NEXTSTELLIS set-up expenses) down by 10  % in cc.
  •  The non-cash intangible asset impairments of the generic portfolio in 1H21 resulted in a net loss after tax of $208.4 million (vs $92.8 million in pcp).
  • The Company achieved positive net operating cash flow of $58.9m (down by 48% over pcp) and free cash flow of $9.6m (down by 83% over pcp). Excluding the movement in working capital and tax, net operating cash flow was $61.7m, down by 5% over pcp.
  • The Board scrapped the final dividend.
  • Possess strong financial position with net debt fell by 4.4 % to $248.8 million, and the company is in compliance with all bank covenants, with a leverage ratio of 2.6x (covenant 3.75x) and an interest cover of 7.9x.

Significant opex reduction: Through supply chain optimization, reconfiguration of the dermatology sales force, and discontinuance of non-viable generic medicines, management continued to streamline operations and decrease spend, delivering an opex savings of 13 percent /$18 million over pcp in CC.

Management entered into four new supply agreements with leading pharma companies to launch up to 11 dermatology products across FY22 targeting addressable markets of $500m. 

NEXTSTELLIS successfully launched: The Company launched NEXTSTELLIS in June 2021 in the US and Australia and reached more than 60% of priority prescriber targets within 6 weeks of launch. Furthermore, over 37,000 NEXTSTELLIS samples have been provided to physician offices. Around  5,000 women are currently undergoing NEXTSTELLIS trials. The management is  seeking a 2% market share (by volume) of the CHC market with peak net sales potential of more than US$200 million per year.The CHC market is valued at US$3.5 billion, with more than 60 million prescriptions written each year.

Company Profile

Mayne Pharma Group (MYX) is a specialist pharmaceutical firm focusing on commercialising branded and generic medications using its drug delivery capabilities. Mayne Pharma works with over 100 clients throughout the world to provide contract development and manufacturing services. Mayne Pharma has a diverse portfolio of branded and generic medications in areas such as women’s health, oncology, dermatology, and cardiology.

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.