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Global stocks Shares

Perpetual Ltd. Asset under Management increases by 246% over pcp to $98.3 bn

Investment Thesis:

  • PPT is a business having vast diversification, with earnings obtained from trustee services, financial advice and funds management.
  • PPT has a chance to increase FUM (Funds Under Management) through its Global Share Fund, which has a strong performance track record over 1, 3 and 5-years and significant capacity. 
  • PPT maintains FUM in Australian equities, which is of maximum amount. This equates to levelled earnings growth unless PPT can attract FUM into international equities, credit and multi-asset strategies (and other incubated funds).
  • Inflow of funds from retail and institutional investors are expected to be high especially from positive compulsory superannuation trend and Perpetual Private. 
  • Perpetual Private’s high potential to ramp up growth in funds under management and funds under advice.
  • Process of cost improvements in Perpetual Private and Corporate Trust.

Key Risks:

  • Probability of any significant underperformance across funds.
  • Key man risk surrounding key management or investment management personnel.
  • Probability of change in regulation (superannuation) with major interest on retirement income (annuities) than creation of wealth.
  • The average base management fee (bps) annually (excluding performance fee) continues to be stable at ~70bps but there are risks caused due to drawbacks from pressures on fees.
  • The provision of financial advice and Perpetual Private adjoins more regulation and compliance costs.
  • Industry funds, which are building in-house capabilities (~15-20% of total PPT funds under management), have good exposure.

Key Highlights:

  • The operating revenue increased +31% and underlying profit after tax was up +26% post the acquisition of Trillium and Barrow Hanley.
  • Statutory NPAT decreased -9% because of the significant one-off costs.
  • PPT’s assets under management increased by +246% over pcp (previous corresponding period) to $98.3bn, wherein significant amount of funds outperformed their respective benchmarks over the year.
  • Fully franked final ordinary dividend of A$0.96 per share was declared, thereby amounting the total FY21 dividend to A$1.80 per share, which is up +16% over pcp.
  • Perpetual Asset Management Australia delivered total revenue of A$165.7m, which was down -5% over pcp.
  • Perpetual Asset Management International (new international division comprising the Trillium and Barrow Hanley businesses), had total revenue of A$139.2m and underlying profit before tax was A$40.7m.
  • Perpetual Private delivered total revenue of $183.8m, relatively unchanged over pcp and underlying profit before tax of A$35m.
  • Perpetual Corporate Trust delivered total revenue of $134.9m, up +7% over pcp and underlying profit before tax of A$63.8m, which was +9% higher over pcp.

Company Profile:

Perpetual Ltd (PPT) is an ASX-listed independent wealth manager with three core divisions in Perpetual Investments (one of Australia’s largest investment managers); Perpetual Private (one of Australia’s premier high net worth advice business); and Perpetual Corporate Trust (which provides trustee services). PPT looks after ~$98.3 billion in funds under management, ~$17.0 billion in funds under advice and ~$922.8 billion in funds under administration (as on 30 June 2021).

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
Philosophy Technical Picks Technology Stocks

Super Retail’s strong balance sheet with plenty of room to invest

Investment Thesis

  • Trading at a discount to our valuation, with attractive trading multiples and dividend yield.
  • SUL’s four core segments have strong tailwinds/fundamentals. For example, vehicle aftermarket sales continue to be strong (with an increase in secondhand vehicles sold (Supercheap); travellers seeking social distancing and thus moving away from public transportation (Supercheap); with Covid lockdown measures in force, more people would spend their holidays domestically (BCF; macpac), utilising their vehicles (Supercheap); increasing awareness of fit and healthy living (Supercheap); (rebel).
  • A strong capital position.
  • Strong brands in BCF, Macppac, Rebel, and Supercheap, as well as solid industry positions in oligopolies and a solid store network.
  • With over 8 million members, this is an appealing loyalty programme.
  • Making the switch to an omni-channel business. Previously, the business was modelled on like-to-like store numbers; however, management now thinks of business metrics in terms of club members and has been capable of growing active club membership much faster than store numbers (store numbers in the last 5 years have grown +2 percent CAGR vs active club members at +10 percent CAGR), supplying an opportunity to expand customer base and thus (most of the customers are omni channel). Management continues to push for increased online sales (Covid-19 added to this tailwind), with online sales currently accounting for 13-15 percent of total sales and expected to rise to 20-25 percent over the next five years.

Key Risk

  • Increasing competitive pressures.
  • Any supply chain issues, particularly as a result of the impact of Covid-19 on logistics, that have an impact on earnings.
  • Increasing cost pressures are eroding margins (e.g. more brand or marketing investment required due to competitive pressures).
  • A disappointing income update or failure to achieve the market’s expected growth rates could cause the stock price to re-rate significantly lower.

SUL’s Strong Balance Sheet

  • Net cash position of $242.3 million, resulting from a July 2020 equity raise and strong trading throughout the period.
  • Fixed charge cover is 3.1x (based on commonplace EBITDAL) and is anticipated to stabilise in the low to mid 2x range.
  • SUL has $600 million in undrawn committed debt facilities.
  • “While Covid-19-related trading restrictions and lockdowns continue, the Group intends to preserve a very commercially produced position,” said management. 
  • Once trading conditions have normalised, the Group intends to aim for a long-term net debt/EBITDA position (pre AASB 16) of 0 to 0.5x.”

Company Profile 

Super Retail Group (SUL) is one of Australasia’s Top 10 retailers. SUL comprises four core segments. BCF: Australia’s largest outdoor retailer focused on selling Boating, Camping and Fishing products. Macpac: retailer of apparel and equipment with their own designs focused on outdoor adventurers.  Rebel: Retailer of branded sporting and leisure goods and equipment for casual and serious fitness enthusiast. Supercheap Auto: specialty retail business which specialises in automotive parts and accessories.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Shares Small Cap

Improvements in occupancy to be the major driver for driving up G8 revenues

Investment Thesis

  • Trading at a discount to our valuation.
  • With a growing population, the long-term outlook for childcare demand remains positive (organic and net immigration).
  • Increased emphasis on both organic and acquired growth.
  • Increasing exposure to international markets (Asia).
  • Strategic investor China First Capital Group (12.45% stake in GEM) may see a collaborative expansion into the Chinese market.
  • The Company’s national footprint enables it to scale more effectively than competitors and mom and pop shops.
  • A global operator could be interested in acquiring the company.
  • Improve occupancy levels by leveraging – (rough estimates) A 1% increase in occupancy equates to $10-11 million in revenue and a $3 million EBIT benefit.

Key Risks 

  • The company faces execution risk in meeting its FY19 earnings per share (EPS) target.
  • Pricing pressure is being exerted as a result of increased competition.
  • Increased supply in some areas has resulted in lower occupancy rates.
  • Acquisition with a negative impact on value (s).
  • Execution risk associated with offshore expansion.
  • Childcare funding cuts or adverse regulatory changes
  • Australia is experiencing a recession.
  • Dividend reduction

FY21 Result Highlights

  • Revenue of $421.5 million (vs. $308.2 million in CY20 H1 and $429.9 million in CY19 H1) reflects occupancy recovery and the effects of greenfield growth, Victorian Government Covid-19 payments, and the February fee review, offset by divestments.
  • GEM saw an increase in national Core average occupancy to 68.0 percent (from 65.1 percent in CY20 H1), but it remains below pre-Covid levels of 70.4 percent in CY19 H1.
  • Operating EBIT (after lease interest) of $38.9m was up from $19.7m in CY20 H1 (restated) and in line with $38.8m in CY19 H1 (restated), owing to the “benefits of the Improvement Process, February fee review, and greenfield growth being invested in increasing system support and quality.” 
  • The statutory NPAT of $25.1 million was an improvement over the net loss after tax of $244 million.
  • GEM’s balance sheet remains strong, with a net cash position.
  • GEM did not pay an interim dividend, but the Board “expects dividend payments to resume with a full-year CY21 dividend to be paid in CY22.”
  • GEM’s employee remediation programme is well-advanced, with a provision of $80 million pre-tax ($57 million after tax), less costs incurred to date.

Company Profile 

G8 Education Limited (GEM) owns and operates care and education services in Australia and Singapore through a range of brands. The Company initially listed on the ASX in December 2007 under the name of Early Learning Services, but later merged with Payce Child Care to become G8 Education.

(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
Technology Stocks

WiseTech FVE Under Review Following Stronger Than Expected Fiscal 2021 Result and Outlook

The firm reported revenue of AUD 508 million which was in line with our AUD 510 million forecast. However, fiscal 2021 EBITDA of AUD 207 million was 22% above our AUD 170 million forecast. Underlying NPAT of 108 million was 19% above our forecast. Management’s comments indicate this margin improvement is unlikely to be lost as the pandemic subsides, as will be the case for some other ASX listed technology companies.

For fiscal 2022, the revenue expected to be between AUD 600 and 635 million as per management provided earnings guidance which is only 5% above our forecasts. However, the EBITDA guidance range of AUD 260 to 285 million is 32% above our forecast. 

Prior to the result, our forecasts assumed a 21% underlying EPS CAGR over the next decade and a terminal P/E multiple of 19. However, over the past seven years, WiseTech’s revenue has grown at a CAGR of 34% and the shares have traded on a P/E multiple of around 100. However, we can achieve a fair value equal to the current market price of AUD 46.50 if we assume an EPS CAGR of 27% over the next decade and a terminal P/E ratio of 27. We will consider the feasibility of such a scenario while the stock is under review.

The company also has a very high customer retention rate and a high and growing proportion of revenue is recurring. These attributes, combined with the very large addressable market and scalable and cash generative business model, means WiseTech has a very strong earnings growth outlook and an incredibly strong balance sheet.

The WiseTech share price initially rose by 58% on the day of the result before falling back to a 28% gain by the close of trading. We expect the share price jump reflects the market’s surprise at the strength of the result and outlook, in addition to the relatively low free float. The intraday volatility also reflects the uncertainty associated with the high-growth earnings outlook, whereby small differences in investor assumptions can have a large impact on the intrinsic value.

Company Profile

WiseTech is a leading global provider of logistics software, and 19 of the largest 20 third-party logistics companies are customers of the firm. The company has a very strong customer retention rate of over 99% per year, and is growing quickly as its global SaaS platform replaces legacy software. The company reinvests around 30% of revenue into research and development, but around 50% of this cost is capitalised, leading to poor cash conversion. Founder Richard White remains CEO and the largest shareholders.

 (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
Property

Pexa’s Fiscal 2021 Result in Line With Expectations

Backs of men in uniform looking at new building

As expected, Pexa’s revenue grew by 42% in fiscal 2021, reflecting the increase in usage of Pexa’s platform and the strong growth in property transactions. Property transactions have been boosted by coronavirus-related interest rate cuts in 2020, and subsequent mortgage refinancing activity, and the deferral of property sales from fiscal 2020 due to COVID-19 restrictions. Pexa’s strong revenue growth combined with operating leverage to drive a 114% increase in EBITDA and an expansion in the EBITDA margin to 46% from 29% in the prior year. 

We believe that Pexa’s key growth opportunity will come from international expansion, with the United Kingdom most attractive to Pexa. We expect Pexa’s Australian business to be a “cash cow” on account of its wide economic moat, effective monopoly, low capital intensity, and relatively high margins. This should generate cash for sustainable dividends and enable deleveraging of the balance sheet. Although the net debt/ EBITDA ratio of around 4 is relatively high in comparison with other ASX-listed technology companies, we think it’s reasonable and sustainable considering the infrastructure like nature of the company.

Company Profile

Pexa is the first electronic conveyancing platform for real estate in Australia and derives revenues by charging fees to facilitate real estate transactions over its network. The emergence of electronic conveyancing creates a number of efficiencies and replaces the historical labour-intensive process which was vulnerable to errors. Having achieved dominance of the Australian electronic conveyancing market, Pexa is looking to expand overseas and replicate its success in international locations. The company was founded in 2010 by a group of Australian state governments with Australia’s “big four” banks beginning to transact on the platform shortly after.

 (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
Expert Insights Shares Small Cap

Ampol the Latest to Join the Energy M&A Frenzy with Bid for No-Moat Z Energy

Word equity under magnifying glass --- Image by © Image Source/Corbis

in line with the Ampol’s bid. The decline in value is in accord with the terms of a proposed merger and our prior standalone fair value estimates. Merger and acquisition activity continues at a frenetic pace in the Australasian fossil fuel space, coronavirus fragility and carbon concerns marking some as prey. Ampol is proposing an NZD 3.78 per share cash offer for Z Energy via scheme of arrangement. Australia’s largest refined fuel retailer has been granted a four week-exclusivity period in which to undertake due diligence prior to formalising the offer for its smaller New Zealand counterpart.

The equity issuance may take the form of partial share consideration to Z shareholders. Or Ampol may simply conducting a pro rata entitlement offer to its own shareholders, which would be done following regulatory approval and nearer the date of completion. Ampol may have to sell-down some NZ assets to meet NZ competition guidelines. This could include its Gull network. With Ampol shares falling on the bid news, and Z Energy shares rising but not meeting the bid price, the implication is the market on balance thinks Ampol is paying too much, or at least that the bid won’t succeed. The natural question is how do we reconcile this with our much higher standalone valuation for Z.

Company’s Future Outlook 

Despite there being no certainty that discussions will result in a binding agreement, we think the chance of success is high. The latest is apparently the fourth in a series of nonbinding offers from Ampol, including at NZD 3.35, NZD 3.50, and NZD 3.60 along the way. And there is logic to a merger– Ampol and Z have very similar business models. Z Energy’s board wouldn’t have opened the books if the chance of a deal proceeding was low. At NZD 3.78 Ampol will be getting Z Energy at a material 33% discount to our NZD 5.60 standalone fair value. 

Our formal recommendation for Z shareholders is don’t accept, based solely upon the offer’s material discount to our NZD 5.60 standalone fair value. However, we suspect that advice is likely to prove academic. Z shares rose just over 14% on the day to NZD 3.48, though still 8% below the proposed bid level. They have moved just into 4-star territory from 3-star prior. Z Energy shares have been in the doldrums for over two years given intense retail fuel competition in New Zealand, more recently exacerbated by COVID-19 disruption.

The shares have fallen from a peak of NZD 8.65 and have only recently show signs of life from NZD 2.56 lows. Ampol’s most recent offer price represents a 24% premium to the last NZD 3.04 close. We suspect there is Z Energy shareholder fatigue that might help Ampol’s offer along. However, if Ampol’s bid were to fall over, our stand-alone Z Energy fair value estimate is unchanged at NZD 5.60.

Company Profile 

Z Energy was born of the purchase of Shell New Zealand’s downstream operations by Infratil and the New Zealand Superannuation Fund in 2010. It has since transitioned to New Zealand’s largest stand-alone retailer of refined petroleum products and meets close to half of the nation’s transport fuel requirements, serving both retail and commercial customers. The principal activities of Z Energy are importing, distributing and selling transport fuel and related products. The business has scale and sells a full range of transport fuels.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Global stocks Shares

Morgan Stanley: Increasing Capital Allocation to Exemplary and FVE to $85

fintech icon on abstract financial technology background represent Blockchain and Fintech Investment Financial Internet Technology Concept.

James Gorman and Morgan Stanley’s management team have deftly positioned the firm to key financial sector trends through acquisitions. They inked a transformative deal with the acquisition of Citigroup’s Smith Barney that increased Morgan Stanley’s proportion of stable, balance-sheet-light earnings after the enactment of higher regulatory capital requirements. 

Recent acquisitions of E-Trade and Eaton Vance further extend Morgan Stanley’s capabilities and deepen its competitive advantages. E-Trade is a technology firm that offers a leading self-directed brokerage, digital bank, and workplace services business. Eaton Vance is an asset manager that will benefit from Morgan Stanley’s international relationships, while Morgan Stanley’s investment management business can leverage Eaton Vance’s financial intermediary distribution channel and capabilities in environment, social, and governance investing and mass customization of financial products.

Morgan Stanley’s thoughtful acquisitions provide it the scale and scope to effectively compete with the largest financial sector players that are increasingly moving beyond their traditional industry silos. Given synergies and exposure to industry tailwinds, we expect Morgan Stanley’s returns on tangible common equity will increase over time and support the company’s valuation.

Company’s Future outlook

It is estimated that Morgan Stanley’s acquisitions and strategy have led to the increase in its valuation, management’s path to increasing the firm’s valuation to over 2 times tangible book value from 0.5 times in just a decade.” Morgan Stanley plans upgrading capital allocation rating to Exemplary from Standard and increasing fair value estimate to $85 from $70.

Company Profile

Morgan Stanley is a global investment bank whose history, through its legacy firms, can be traced back to 1924. The company has institutional securities, wealth management, and investment management segments. The company had about $4 trillion of client assets as well as nearly 70,000 employees at the end of 2020. Approximately 40% of the company’s net revenue is from its institutional securities business, with the remainder coming from wealth and investment management. The company derives about 30% of its total revenue outside the Americas.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Global stocks Shares

CWY’s FY22 Quantitative earnings guidance are expected to have negative monthly impact

Investment Thesis 

  • CWY trades at fair value based on our infused valuation.
  • Earnings are fairly defensive (as the Company has long term rubbish collection contracts with local government).
  • The solids segment is growing at a slightly higher-than-average GDP rate, with the potential to benefit as CWY’s sales team concentrates more on price increases.
  • Liquids and Industrial Services are expected to recover and benefit from high oil prices.
  • A strong balance sheet that allows for bolt-on acquisitions or capital management initiatives.
  • High entry barriers – difficult to replicate assets & solid margin business

Key Risks

  • Its Solids segment performed worse than expected.
  • There will be no or only minor price increases.
  • Liquids and Industrial Services performed poorly.
  • Oil prices are recovering slowly or not at all.
  • China’s National Sword policy imposes additional cost surcharges.
  • Management fails to meet their key segment margin targets.
  • While earnings are largely defensive, there is some exposure to cyclical economic activity, which may be a drag on earnings.

FY21 Result Highlights

  • Net revenue increased by 7.5% to $1,476.3 million; EBITDA increased by 4.4% to $405.3 million; and EBIT increased by $0.3 million to $213.0 million. “FY22 D&A is expected to be higher reflecting full year contributions from acquisitions and municipal contracts that partially contributed in FY21, new municipal contracts that start in FY22 (Logan, Hornsby), the start of operations at the rebuilt Perth MRF, and higher landfill depreciation,” management stated.
  • The reported EBITDA of $48.0m was +4.6% higher. EBITDA margin was 110 basis points higher than in FY20, owing to the successful implementation of the strategy of exiting low-value workstreams. EBIT increased by $1.2 million to $22.6 million, and the EBIT margin increased by 60 basis points to 7.4 percent.
  • EBITDA increased by 3.5 percent to $110.0 million, while margins increased by 80 basis points to 21.5 percent. EBIT increased by 5.1% to $67.6 million, and EBIT margins increased by 70 basis points to 13.2 percent.
  • Covid-19 lockdowns on lower East coast oil collection volumes had an impact on hydrocarbons. Covid-19-related activity at aged care facilities, hotel quarantine, and mass testing and vaccination centres resulted in higher earnings for Health Services.
  • Despite lower volumes from visitor states, hospitality (grease trap), cruise ships, and automobile industries as a result of Covid-19, liquids and technical services earned more than the pcp.

Company Profile 

Cleanaway Waste Management Ltd (CWY) is Australia’s leading total waste management services company. CWY has a nation-wide footprint in solid, liquid, hydrocarbon and industrial services (with ~200 solid, liquid, hydrocarbon and industrial services depots and processing facilities across the country servicing well over 100,000 customers.

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

Cochlear’s Reported Strong FY21 Results

Investment Thesis

  • Benefits from an Australian tax incentive are possible. The patent box tax regime for medical technology and biotechnology, if legislation is successfully passed, should encourage the development of advancement in Australia by taxing corporate income derived from patents at a concessional effective corporate tax rate of 17 percent, with the concession applicable from income years beginning on or after 1 July 2022.
  • Attractive market dynamics – growing population requiring hearing aids, improved health in EM allowing for greater access to devices such as hearing aids, and a relatively emerging real estate market. There is still a significant, unmet, and configurable clinical need for cochlear and acoustic implants, which is expected to underpin COH’s longterm sustainable growth.
  • Positions of global market leadership.
  • Direct-to-consumer marketing is anticipated to accelerate market growth.
  • Best-in-class R&D programme (significant monetary investment), resulting in the continuous development of new products and upgrades to the existing suite of products.
  • New product launches are fueling ongoing demand across all segments.
  • Attractive exposure to Chinese, Indian, and, more recently, Japanese growth.
  • A strong balance sheet position.

Key Risks 

  • Recall of a product
  • In China, a persistent coronavirus outbreak is delaying the resumption of hospital operations.
  • The R&D programme fails to produce innovative products.
  • Intensification of competitive pressures.
  • Modifications to the government’s reimbursement policy.
  • The AUD/USD has experienced negative movement.
  • The emerging market does not recover – this has a significant negative impact on earnings.

Key Results FY21 Highlights

  • Sales revenue of $1,493 million was up 10%, or 19% in constant currency (CC), driven by market share gains, market growth, and rescheduled surgeries following Covid lockdowns. Sales revenue increased by 6% (CC) over the previous fiscal year, which was unaffected by the pandemic.
  • Implant units increased by 15% to 36,456 (up 20% in developed markets and 10% in emerging markets). Implant units increased by 7% over the previous fiscal year.
  • The underlying net profit increased by 54% to $237 million, falling within the $225-$245 million range.
  • The underlying net profit margin of 16 percent was higher than the 11 percent margin achieved in FY20, but it fell short of COH’s longerterm target of 18 percent.
  • Statutory NPAT of $327 million (includes $59 million in patent litigationrelated tax and other benefits and $31 million in aftertax innovation fund gains).
  • The Board declared a final dividend of $1.40 per share, bringing full-year dividends to $2.55 per share, an increase of +59 percent, and a payout ratio of 71 percent of underlying net profit, in line with COH’s target payout of 70 percent.
  • COH’s balance sheet position persists, with net cash of $564.6 million at year end, up from $457 million in FY20.

Company Profile 

Cochlear Ltd (COH) researches, develops and markets cochlear implant systems for hearing impaired people. COH’s hearing implant systems include Nucleus and Baha and are sold globally. COH has direct operations in 20 countries and 2,800 employees.   

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

Edison remains in Top Utilities Sector & Win Regulatory Support

and operating challenges for utilities like Edison International. But California’s aggressive clean energy goals also offer Edison more growth opportunities than most utilities. Edison’s plans for $5 billion of annual capital investment and good regulatory support will generate 6% annual earnings growth beyond 2021. But this growth trajectory could be lumpy as regulatory delays, wildfire issues, and California energy policy changes lead to shifts in spending and cost recovery. 

New equity issuances in 2019 and 2020 in part to fund its $2.4 billion contribution to the state wildfire insurance fund and a higher allowed equity structure in rates weighed on earnings the last two years. But Edison now has most of its financing in place to execute its large growth plan, which ultimately will drive earnings and dividend growth.

Growth opportunities at Southern California Edison address grid safety, renewable energy, electric vehicles, distributed generation, and energy storage. Wildfire safety investments alone could reach $4 billion during the next four years. In August, regulators approved nearly all of Edison’s 2021-23 investment plans. Ongoing regulatory proceedings will address wildfire-specific investments and Edison’s 2024 investment plan. 

Financial Strength

Edison’s credit metrics are well within investment-grade range. California wildfire legislation and recent regulatory rulings have removed the overhang that threatened Edison’s investment-grade ratings in early 2019. Edison has kept its balance sheet strong with substantial equity issuances since 2019. Edison issued $2.4 billion of new equity throughout 2019 at prices in line with our fair value estimate. This financing supported both its growth investments and half of its $2.4 billion contribution to the California wildfire insurance fund. The new equity in 2019 also allowed Southern California Edison to adjust its allowed capital structure to 52% equity from 48% equity for ratemaking purposes, leading to higher revenues and partially offsetting the earnings dilution. The board approved a $0.10 per share annualized increase, or 4%, for 2021, the same increase as it approved for 2020. 

Bull Says

  • With some $5 billion of planned annual investment during the next four years, it is projected 6% average annual average earnings growth in 2021-24.
  • Edison has raised its dividend from $1.35 annualized in 2013 to $2.65 in 2021, demonstrating management’s commitment to meeting and maintaining a 45%-55% target payout ratio on utility earnings.
  • California’s focus on renewable energy, energy storage, and distributed generation should bolster Edison’s investment opportunities in transmission and distribution upgrades for many years.

Company Profile

Edison International is the parent company of Southern California Edison, an electric utility that supplies power to 5 million customers in a 50,000-square-mile area of Southern California, excluding Los Angeles. Edison Energy owns interests in nonutility businesses that deal in energy-related products and services. In 2014, Edison International sold its wholesale generation subsidiary Edison Mission Energy out of bankruptcy to NRG Energy.

(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.