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Commodities Trading Ideas & Charts

Despite higher costs, Oz Minerals’ prominent Hill Shaft Expansion was approved

was more than triple the AUD 80 million profit from first-half 2020. Adjusted net profit was AUD 256 million versus AUD 56 million a year ago, modestly below our AUD 267 million forecast.

 The first-half profit benefited from an AUD 18 million pretax impairment reversal relating to the value of the company’s ore stockpiles at Prominent Hill. Adjusted EBITDA nearly doubled to AUD 561 million. Operating cash flow generation of AUD 460 million in the half was strong and allowed the company to fund all of its capital initiatives, as well as repay all debt. 

Shares remain overvalued, a function of the elevated copper price, in turn a function of both supply challenges and transitory stimulus. Of late, the copper price has started to retreat and has fallen to around USD 4 per pound from record levels of nearly USD 5 per pound in May 2021. Oz Minerals remains very busy on the development front. 

Company’s Future Outlook

It lowers fair value estimate for Oz Minerals by 5% to AUD 15.70 per share. The reduction primarily reflects an approximate one-third increase in the expected capital expenditure to develop the Prominent Hill shaft to around AUD 600 million. The capital cost inflation reflects inflation in commodities and service costs, as well as some scope changes. In the rest of the year, the company expects to update development studies for the West Musgrave nickel/copper project–including an updated estimate of reserves and resources–and the Carajas East, Carajas West, and Centro Gold projects in Brazil. The pipeline remains rich, continues to build and advance, and Oz Minerals is in a strong financial position to execute. At the end of June 2021, the company had no debt and AUD 134 million cash.

Company’s Future Outlook

We also think the company should be able to fund annual dividends averaging over AUD 0.50 per share per year. Dividends are not the main game for Oz Minerals and the company is clearly focused on growth, but we think it’s positive that excess cash is being returned to shareholders. To this end, the company declared an AUD 0.08 per share interim and AUD 0.08 per share special dividend in the half, double last year’s interim dividend.

Company Profile

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

 (Source: Morningstar)

General Advice Warning

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

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Global stocks

Persistent Sydney Lockdowns Will Weigh on Star’s Core Casino

the ramp-up of Queens Wharf and Gold Coast growth projects, and solid performance from its Sydney property, despite increased competition. The Star casino in Sydney is the company’s core asset, which has historically generated approximately 70% of group earnings as the city’s only casino. The New South Wales government only issued the second licence because The Star’s performance significantly lagged Crown Melbourne in both revenue and EBITDA, depriving the state of taxation revenue. 

The Star Sydney’s EBITDA is roughly 60% of Crown Melbourne’s, despite Sydney being Australia’s largest city and the international gateway into Australia. The AUD 2.6 billion Queen’s Wharf joint venture development in Brisbane has been rewarded with a new 99-year lease and 25-year exclusivity period when it opens in 2022 (to replace the current Brisbane licence). 

Financial Strength

The Star Entertainment’s balance sheet has improved over fiscal 2021 following asset sales, a halt to the dividend, and relatively low levels of capital expenditure. Leverage, measured as net debt/adjusted EBITDA, moderated to 2.7 in fiscal 2021, from over 3 in fiscal 2020. Additional asset sales are slated for fiscal 2022 to further strengthen the balance sheet. With an improved balance sheet, we forecast the resumption of dividends in the second half of fiscal 2022 at around 75% of underlying earnings. The company has flagged it will not start paying dividends until the firm’s net debt/EBITDA improves to below 2.5. 

Our fair value estimate for shares in no-moat Star Entertainment to AUD 4.10 from AUD 4.00 previously, as lower near-term earnings forecasts are more than offset by time value of money. The firm’s fiscal 2021 results broadly tracked our expectations, with underlying EBITDA of AUD 430 million flat on the previous corresponding period, or pcp, and 1% higher than our prior forecast. Star is beginning the year with some familiar challenges. Persistent lockdowns are weighing on the core Star Sydney property, which has remained closed since late June 2021. our outlook for both table gaming and VIP gaming in Star Sydney, and lower our fiscal 2022 full-year EBITDA forecast by 6% to AUD 449 million. But our longer-term view of Star remains intact.

Bulls Say’s 

  • Despite competition, The Star’s core Sydney casino provides an opportunity to turn around operations and grow in Australia’s most populous market.
  • The Star is well-positioned to benefit from the emerging middle and upper class in China.
  • Long-dated licences to operate the only casino in Brisbane and the Gold Coast, including licensed exclusivity in Brisbane, provide The Star an opportunity to generate strong returns in a regulated environment.

Company Profile 

The Star Entertainment Group operates three hotel and casino complexes in Australia: The Star in Sydney (licence expiring in 2093, with electronic gaming machine exclusivity expiring in 2041), The Star Gold Coast (a perpetual licence), and Treasury Casino and Hotel in Brisbane (licence expiring in 2070). The Queen’s Wharf development in Brisbane will have a 99-year licence on completion in 2022 (with a 25-year exclusivity period), replacing the Treasury Casino and Hotel, which will be repurposed into a hotel and retail site.

(Source: Morningstar)

General Advice Warning

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

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Technology Stocks

TPG Telecom Fiscal 2021 First Half Broadly in Line

or NBN, and take-up of high-traffic products such as Internet protocol television and video streaming, will increase the demand for broadband and backhaul capacity. TPG Telecom’s price-leader strategy still sees the company delivering solid subscriber and market share performance. Product bundling has also become a key segment in the market, with all players using broadband as a lead-in product and cross-selling voice, mobile, pay-TV, and digital streaming services. 

The ownership of submarine cable between Australia and Guam offers the group broader cost advantages. Pricing is mainly a function of demand and supply, available capacity, and the length of cable. Economies of scale play a large part in pricing where costs are measured on per unit of volume. Contracts are structured in typical 15-year

leases, providing some certainty in revenue. Clients are allocated a fixed bandwidth and have the right to on-sell capacity. Maintenance fees of 3%-4% of the lease are also levied.

Financial Strength 

TPG Telecom’s financial health is solid. Historically, management has used debt to finance acquisitions and demonstrated a capacity to pay it down in due course. As of June 2021, net debt/EBITDA was 2.8 times, well below the covenant limit of 3.5 times. Highlights from the 2021 first-half result support the key planks of our positive investment thesis for TPG Telecom. The NBN-inflicted EBITDA damage in the broadband unit is on track to fall less than management’s prior AUD 60 million projection for the full year (AUD 25 million in the first half), down from AUD 83 million in 2020. 

Moderating fall in subscribers (128,000 in June half 2021 versus 361,000 in December half of 2020), and ARPU (underlying post-paid down 1.6% in first half versus an estimated 2.3% in 2020) are signs of likely improvements to come. While shares in narrow-moat-rated TPG have climbed 30% since the May 2021 lows, they remain 13% below our unchanged AUD 7.40 fair value estimate. 

The 4% decline in corporate EBITDA to AUD 236 million was especially disappointing. It was mainly due to a fall in lowmargin legacy services, as underlying EBITDA margin was up to 53.2%, from 52.3% a year ago. Nevertheless, the shortfall in this division, coupled with continuing likely impact from COVID-19 (AUD 11 million in the first half) has led to 2% decline in our 2021 group EBITDA forecast to AUD 1,779 million. TPG’s broadband business will also benefit from management’s concerted push into fixed wireless, to bypass the National Broadband Network, or NBN. Indeed, 17,000 fixed wireless customers were signed up in the current second half to date, just a month after launch of the TPG-branded fixed wireless product. 

Bulls Say’s 

  • Cross-selling opportunities remain for both consumer and corporate markets.
  • The merger with Vodafone Australia increases the scale of the combined entity and allow it to better compete against Telstra and Optus in the Australian market.
  • Further rollout of its fibre network also boosts growth, while incremental cost from an additional user is small.

Company Profile 

TPG Telecom is Australia’s third-largest integrated telecom services provider. It offers broadband, telephony, mobile and networking solutions catering to all market segments (consumer, small business, corporate and wholesale, government). The company has grown significantly since 2008, both via organic growth and via acquisitions, and in July 2020 merged with Vodafone Australia. It owns an extensive stable of infrastructure assets. TPG is also a very nimble competitor in the telecom space, with an aggressive operating culture unencumbered by any legacy issues facing incumbents.

(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

CSL Limited (ASX: CSL)

The Seqirus flu business, which achieved positive earnings (EBIT) for the first time in FY18, continues to perform strongly.
There is a lot of interest in their product line.
High entry barriers in terms of knowledge, worldwide channels, and operations/facilities/assets.
The executive team is strong, as are the operational capabilities.
Leveraged against a weakening dollar.
Key Risks
Pressures from competitors.
Behring’s core business, product recalls, disappoints.
Growth is underwhelming (underperform company guidance).
The Seqirus flu business is stalling or deteriorating.
Unfavourable currency fluctuations (AUD, EUR, USD).

FY21 Results Highlights
CSL’s influenza vaccines business, Seqirus, reported NPAT of $2,375 million, up 10%, and revenue of $10,026 million, up 10%, thanks to strong performance in leading subcutaneous Ig product HIZENTRA and leading HAE product HAEGARDA, as well as exceptionally strong performance in CSL’s influenza vaccines business. EBIT increased by 11% to $3,025, while margins remained at 30.2 percent. Earnings per share increased from 10% to $5.22.
The final payout of US$1.18 per share (A$1.61 franked at 10%) brings the total dividend for the year to US$2.22 per share, up 10%. Highlights from each segment: (1) CSL Behring, relative to the pcp and in constant currency. Albumin (+61%), HIZENTRA (+15%), HAEGARDA (+14%), and KCENTRA (+7%) all contributed to an increase in total revenue of 6%. (2) Seqirus is a character in the game Seqirus.
Seasonal influenza vaccine sales increased from 41% on a record volume of 130 million doses, driving total revenue up 30%. FLUAD® QIV was released in the United States in FY21, while FLUCELVAX was marketed in Australia.

Company Description
The Commonwealth Serum Laboratories Limited (CSL) is a company that develops, manufactures, and sells pharmaceutical and diagnostic products made from human plasma. Paediatrics and adult vaccines, infection, pain medicine, skin problem treatments, anti-venoms, anticoagulants, and immunoglobulins are among the company’s goods. These are life-saving products that are not optional.

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

Computershare Ltd (ASX: CPU)

  • Two main organic growth engines in mortgage servicing and employee share plans should lead to organic EPS growth.
  • Expectations of margin improvement via cost reductions program.
  • Leveraged to rising interest rates on client balances, corporate action and equity market activity.
  • Potential for earnings derived from non-share registry opportunities due to higher compliance and IT requirements.
  • Solid free cash flow and deleveraging balance sheet.

Key Risks

  • Increased competition from competitors such as recently listed Link and Equiniti which affect margins.
  • Cost cuts are not delivered in accordance with market expectations.
  • Sub-par performance in any of its segments, especially mortgage servicing (Business Services) as a result of higher regulatory and litigation risks; Register and Employee Share Plans as a result of subdued activity.
  • Exchanges such as ASX are exploring block chain solution to upgrade its clearing and settlement system (CHESS). This distributed ledger technology can bring registry businesses in-house and disrupt CPU.

FY21 results by segments

Compared to pcp and in CC(constant currency): Issuer Services delivered revenue growth of +9% to $975.1m, with Register Maintenance up +3.2% amid a recovery in shareholder paid fees, new client wins and increased market share, Corporate Actions up +35.3% with volumes increasing in all major regions as a result of clients raising capital, improved IPO markets, especially in Hong Kong, and strong M&A activity, Stakeholder Relationship Management up +45.7%, Governance Service up +90.7% and Margin income down -44.3%. Management EBITDA gained +5.1% to $273.9m (with margin down -100bps to 28.1%), however, Management EBIT ex Margin Income was up +26.3% to $227.1m with margin expansion of +240bps to 24.4%, with management anticipating organic revenue ex MI growth of 0-3% p.a. and EBIT ex MI growth of 0-5% p.a. in medium term. Employee Share Plans saw revenue increase +6.3% to $308.5m, driven by Fee revenue (+4%), Transactional revenue (+15.8%) as equity markets rallied and units under administration grew +13% over pcp to $27bn as more companies issued equity deeper into their organisations, Margin Income (-4.8%) and Other revenue (-64.3%). Management EBITDA of $78.1m was up +40% (margins up +610bps to 25.3%), with Management EBIT ex MI of $69m up +68.3% (margins up +790bps to 22.6%), with management anticipating revenue ex MI growth of +3-6% p.a. and EBIT ex MI growth of +4-8% p.a. in medium term.  Mortgage Services saw revenue fall -9.5% to $574.8m driven by UK Mortgage Services (-36.6%) and Margin income (-84.7%), partially offset by US Mortgage Services (+7.7%). Management EBITDA of $103.3m was down -18.9% (margins down -200bps to 18%), with Management EBIT ex Margin Income a loss of $4.2m, with management expecting recovery in FY22 anticipating revenue ex MI and EBIT ex MI growth of 5-10% p.a. in medium term. Business Services delivered revenue decline of -15% to $207.1m, driven by Corporate Trust (-0.5%), Class Action (-30.6%) and Margin income (-48.8%), partially offset by Bankruptcy (+36.6%), Management EBITDA of $51m was down -42.2% (margins down -1160bps to 24.6%) and Management EBIT ex Margin loss of $20.4m decreased -34.4% with margin decline of -510bps to 11.5%, however, management anticipating revenue ex MI growth of 3-5% and EBIT ex MI growth of 2-5% in medium term.

Company Description  

Computershare Ltd (CPU) is a global market leader in transfer agency and share registration, employee equity plans, mortgage servicing, proxy solicitation and stakeholder communications. CPU also operates in corporate trust, bankruptcy, class action and a range of other diversified financial and governance services. 

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

Fidelity Asia Fund

and draws on the research capabilities of Fidelity’s analysts based on the ground in Asia.The Fund aims to achieve returns in excess of the MSCI AC Asia ex-Japan Index NR over the suggested minimum investment time period of five to seven years.

Our Opinion

Our rating is based on the following key drivers:

Capable PM/team:

The Fund’s star portfolio manager, Anthony Srom, and his supporting cast of analysts in high regard. Mr. Srom is well-supported by 50 on-the-groundanalysts in Asia and Fidelity’s global researchteam of 180 analysts and 400 investmentprofessionals worldwide. This makes the team one of the largest buyside firms. Nevertheless, we question the extent at which ongoing and deep research can be maintained in order to beat the index –in our view, it is increasingly difficult no matter how large an investment team is,to beat a benchmark of an efficient, liquid and well researched market.

Well-resourced and access to Company management

Relative to peers, the investment team is well resourced with additional access to third party research and consultants to conduct deep investment research as well as a thorough company visitation schedule (as a result of the investment firm’s reputation). Fidelity conducts more than 15,000company meetings a year, in order togain better insights andknowledge, to make investment decisions.

Sensible investment process rooted in bottom-up research, high conviction, highly concentrated and low turnover

The Fund conducts fundamentals bottom-up stock selection to build a high conviction and highly concentrated portfolio of 20–35 stocks based in the Asia Pacific ex Japan region. There is no deliberate portfolio management style bias, although new positions typically exhibit a contrarian/value bias. Mr. Srom is willing to take a long-term view on a stock, resulting in a low turnover strategy (40%–70%). This translates to a holding period of 18–24 months, but there are stocks that have been held for more than three years.

Downside Risk

Asian economic conditions deteriorate, leading to earnings downgrades at the company level. High quality companies underperform especially in stocks where the Fund has a relative overweight position.
Key-man risk should Portfolio Manager, Mr. Anthony Sromdepart.
The Fund invests in emerging markets which can be more volatile than other more developed markets.
The Fund invests in a relatively small number of companies and so may carry more risk than fundsthat are more diversified.

(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

Megaport Ltd (ASX: MP1)

  • to the rapidly growth of global cloud and data centres and is in a strong position to benefit from the rollout to new cloud and data centre regions. Key macro tailwinds behind MP1’s sector: (1) adoption of cloud by new enterprises; (2) increased level of investment and expenditure by existing customers; and (3) more and more enterprises looking to use multiple cloud products/providers, which works well with MP1’s business model.
  • MP1 has a scale advantage over competitors. MP1 is over 600 locations around the globe. MP1 has significant scale advantage over competitors and whilst replicating this scale is not necessarily the difficult task, it will take a number of years to do so during which time MP1 will continue to add locations and customers using the scale advantage.
  • Strong R&D program ensuring MP1 remains ahead of competitors
  • Strong cash balance of $136.3m at year end and a reducing cash burn profile puts the Company in a strong position.
  • Strong relationship with data centres (DC). MP1 has equipment installed in 400 data centres, so MP1 is a customer of data centres. MP1 also drives DCs interconnection revenue. Whilst several data centres like NEXTDC, Equinix provide SDN (Software Defined Network) services, it is unlikely data centres will look to change their relationship with (or restrict) MP1 given they are designed to be neutral providers to network operators. Further, given MP1’s existing customer base and connections with cloud service providers, it would be very difficult for data centres (without significant disruption to customers/cloud service providers) to change the rules for MP1.

      Key Risks

  • High level of execution risk (especially with respect to development).
  • Revenue, cost and product synergies fail to eventuate from the InnovoEdge acquisition.
  • Heavy reliance on third party partners (especially data centre providers and cloud service providers).
  • Data centres like NEXTDC, Equinix provide SDN services and decide to restrict MP1 in providing their services.
  • Disappointing growth (in terms of expanding data centre footprint, customers, ports, Megaport Cloud Router).

FY21 Results Highlights

Relative to the pcp: (1) Revenue of $78.28m, up +35%. EBITDA breakeven. Net loss for FY21 was $55.0m. (2) MRR of $7.5m, was an increase of $1.8m, or +32% (annualises to $90m). (3) Customers grew to 2,285, or up 443 or +24%. (4) Installed Data Centres increased by 39, or +11% to 405. (5) Enabled Data Centres increased by 92, or +14% to 761. (6) Ports increased 1,922, or 33% to 7,689. (7) Average revenue per port was down $2 to $978. (8) At year-end, MP1’s cash position was $136.

Company Description 

Megaport Ltd (MP1) is a software-based elastic connectivity provider – that is, it is a global Network as a Service (NaaS) provider. MP1 develops an elastic connectivity platform providing customers interconnectivity and flexibility between other networks and cloud providers connected to the platform.

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

JB Hi-Fi Ltd (ASX: JPH) Updates

  • Being a low-cost retailer and able to provide low prices to consumers (JB Hi-Fi & The Good Guys) puts the Company in a good position to compete against rivals (e.g. Amazon). 
  • The acquisition of The Good Guys gives JBH exposure to the bulky goods market.
  • Market leading positions in key customer categories means suppliers ensure their products are available through the JBH network.  
  • Clear value proposition and market positioning (recognized as the value brand). 
  • Growing online sales channel. 
  • Solid management team – new CEO Terry Smart was previously the CEO of JBH (and did a great job and is well regarded) hence we are less concerned about the change in senior management. 

Key Risks

  • Increase in competitive pressures (reported entry of Amazon into the Australian market). 
  • Roll-back of Covid-19 induced sales will likely see the stock de-rate. 
  • Increase in cost of doing business. 
  • Lack of new product releases to drive top line growth.
  • Store roll-out strategy stalls or new stores cannibalize existing stores. 
  • Execution risk – integration risk and synergy benefits from The Good Guys acquisition falling short of targets). 

FY21 group Summary

Group sales were up +12.6% to $8.9bn, consisting of JB Hi-Fi Australia up +12.0%, JB Hi-Fi NZ up +17.4% (NZD) and The Good Guys up +13.7%. The Company saw strong demand for consumer electronics and home appliances during the period. Operating earnings (EBIT) followed strong top line growth, with group EBIT up +53.8% to $743m – driven by JB Hi-Fi Australia up +33.6% and The Good Guys up +90.2%. Group EBIT margin expanded +233bps to 8.33%, highlighting the strong operating leverage in the business. The Company declared a final dividend of 107cps (up +18.9% YoY), taking the full year dividend to 287cps (up +51.9% YoY).

Company Description  

JB Hi-Fi Ltd (JBH) is a home appliances and consumer electronics retailer in Australia and New Zealand. JBH’s products include consumer electronics (TVs, audio, computers), software (CDs, DVDs, Blu-ray discs and games), home appliances (white goods, cooking products & small appliances), telecommunications products and services, musical instruments, and digital video content. JBH holds significant market-share in many of its product categories. The Group’s sales are primarily from its branded retail store network (JB Hi-Fi stores and JB Hi-Fi Home stores) and online.

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

GPT Group (ASX: GPT)

Close up young business woman holding house model on hands with free copy space. Real estate loan banking concept. Building and construction.
  • Diversified with Funds Management business generating income.
  • Balance sheet strength with gearing ratio at 24.5%, well below target range of 25-35%.
  • Strong tenant demand for the GPT east coast assets.
  • Conducting a buyback of up 5% of issued capital.

Key Risks

  • Breach of debt covenants.
  • Inability to repay debt maturities as they fall due.
  • Deterioration in property fundamentals, especially delays with developments.
  • Environment of expected interest rate hikes.
  • Downward asset revaluations.
  • Retailer bankruptcies and rising vacancies.
  • Outflow of funds in the Funds Management business reducing GPT’s income.
  • Tenant defaults as economic landscape changes.

1H21 results summary

NPAT of $760.5mvsnet loss of $520.4m in pcp million), with investment property valuation increases of +3.3% ($471.7m) with portfolio WACR firmed +10bps to 4.85%. FFO of $302.3m (+23.6%) resulting in FFO per security of 15.64 cents, an increase of +24.6%, reflecting the improved performance and the reduction in securities from the on-market buy-back. Total 12-monthreturn was 10.2%vs-0.1% in pcp amid investment property revaluation gains driving an increase in NTA per stapled security of +29% to $5.86. Operating cash flow increased +41.6% over PCP to $289m and FCF increased +40.2% to $255.1m. Completed 32 Smith and Queen & Collins Office developments valued at $ 780m, and 4 Logistics developments on track to complete in 2 H21 with a combined expected end value of $170m.

Company Description  

GPT Group (GPT) owns and manages a portfolio of high-quality Australian property assets; these include Office, Business Parks and Prime Shopping Centres. Whilst the core business is focused around the Retail, Office and Logistics, it also has a Funds Management (FM) business that generates income for the company through funds management, property management and development management fees. GPT’s FM business has the following funds, GPT Wholesale Office Fund (GWOF – A$6.1b) launched in July 2006, GPT Wholesale Shopping Centre Fund (GWSCF – A$3.9b) launched in March 2007 and GPT Metro Office fund (GMF – A$400m) launched in 2014.

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

Carsales.com Ltd (ASX: CAR)

  • Heavily reliant on two growth stories (South Korea and Brazil).
  • Diversified geographic coverage.
  • Bolt-on acquisitions provide opportunity to supplement organic growth.
  • The Company can sustain high single-digit and low double-digit revenue growth. 
  • CAR’s move into adjacent products and industries. 
  • Increasing pricing in South Korea to boost margins.
  • Looking to take more of the car buying experience online with dealers (i.e. increasing its total addressable market).

Key Risks

 We see the following key risks to our investment thesis:

  • Rich and demanding valuation.
  • Competitive pressures, that is car dealer driven substitute platform or the No. 2 & 3 player gain ground on CAR.
  • Motor vehicle sales remain subdued.  
  • Value destructive acquisition / execution risk with international strategy.
  • Not immune from broader downturn in economy (consumer likely to delay a significant purchase in time of uncertainty).

FY22 Earnings Guidance:- 

CAR provided no quantitative guidance but provided outlook commentary (which excluded the impact of acquiring Trader Interactive). 

  • Consolidated Outlook: “in FY21… While current lockdowns and retail closures are having an impact on leads and private ad volumes, if our experience is consistent with prior lockdowns, the business is well placed to recover all or most of the declines once retail re-opens. On this basis we would expect to deliver solid growth in Group Adjusted revenue, Adjusted EBITDA and Adjusted NPAT1 in FY22. Depending on the duration and frequency of lockdowns in the first half, financial performance is likely to be more heavily weighted to the second half than usual”. 
  • Australia. Dealer: “Outside the states impacted by lockdowns, underlying market conditions remain solid”. Private: “Private listing volumes are growing strongly on pcp excluding NSW; tyresales has operated at lower volume levels in July 2021 due to the lockdowns in NSW and Victoria”. Media and new car market: “The new car market continues to demonstrate signs of improvement as evidenced by the solid performance in new car sales volumes over the last six months. This has resulted in an improvement in media revenue run rate, providing confidence that we can deliver growth in this segment in FY22”. Domestic Core expenses: “Anticipating core expenses to be higher in FY22 compared to FY21 largely reflecting the absence of wage subsidies”. 
  • International. (i) Korea: “In FY22 we expect strong growth in revenue and strong growth in EBITDA excluding the potential for continued marketing investment in Dealer Direct”. (ii) Brazil: “We expect strong growth in revenue and EBITDA in FY22”. (iii) U.S: “In July 2021, financial performance continues to be strong. We will provide guidance on Trader Interactive at the AGM in October-21”.

Company Description  

Carsales.com Ltd (ASX:CAR), founded in 1997, operates the largest online automotive, motorcycle and marine classifieds business in Australia. Carsales is regarded as one of Australia’s original disruptors and has expanded to include a large number of market-leading brands. The Company employs over 800 and develops world leading technology and advertising solutions in Melbourne. CAR has also expanded to numerous global markets, such as South Korea, Brazil, and other countries in Latin America.

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.