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Global stocks Shares

Baby Bunting Group (ASX: BBN)

  • BBN has the largest presence in Australia amongst specialty baby goods retailers.
  • Low risk that online sales threaten high service business model of brick-and- mortar stores to showcase goods and in-store advice.
  • Solid growth story via new store openings (targeting 100+ stores network).
  • Strong market shares (currently sits at 30% in a highly fragmented market).
  • NZ’s $450m addressable market represents another opportunity.

Key Risks

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

FY21 result highlights

Sales of $468.4m were up +15.6%, with same-store comparable sales up +11.3%. Online sales grew by +54.2% and now make up 19.4% of total sales (vs. 14.5% in PCP). Gross profit of $173.7m was up +18.3% on PCP, with GP margin up +83bps to 37.1%. Cost of doing business (CODB) as a percentage of sales improved 14bps to 27.8%, aided by store expense leverage and warehouse volume leverage (cost fractionalization). Operating earnings (EBITDA) were up +29.2% to $43.5m (with EBITDA margin up +100bps to 9.3%) and NPAT was up +34.8% to $26.0m.Operating cash flow was weaker versus pcp, driven by higher working capital – driven by an increase in inventories and also cycling particularly low levels in the pcp. 

 The Company declared a final dividend of 8.3cps, taking the full year dividend to 14.1cps (up +34.1% on PCP). The Board continues to target a payout ratio in the range of 70-100% pro forma NPAT. Private label sales were up +31.1% vs pcp and now make up 41.4% of group sales (vs. 36.5% in FY20). The Company remains on target to achieve 50%of sales from private sales. Outlook guidance: Similar to last year, no earnings guidance was provided for FY22 due to Covid-19 related uncertainty. However, year-to-date trading update suggest the Company is feeling the impacts of the current lockdowns – comparable store sales are down -6.4% YTD (impacted by stay at home orders), online sales are up a healthy +32.6% however much lower than pcp and excluding the most impacted state (NSW) comparable sales are up a subdued +1.0%.

Company Description

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

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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Property

Arena REIT (ASX: ARF)

  • Potential positive regulatory changes to childcare subsidies (i.e. increase in subsidies for childcare services from 28hours (or 3 days) to 4 days) and incentives for parents to work.
  • Increasing macro trends of increased female labour participation rates as a key driver for ELC demand.
  • Potential upside from its development pipeline in childcare centres.
  • Solid balance sheet with low gearing.  
  • Strong and experienced management team.
  • Strong tenant profile.

Key Risks

  • Property portfolio fundamentals risks. Assets in the portfolio are subject to risks from deterioration in the property fundamentals such as cap rates, rents received from tenants and rental growth, expense risks, net asset values, occupancy rates, tenancy risk and costs, weighted average lease expiry. Deteriorating economic and demographic trends (such as lower population growth or lower GDP growth) will impact assets.
  • Development risks. Poor execution or delays of development or redevelopment of existing properties may affect the rental income and value of assets of the Company.
  • Adverse interest rate movements affect bond-proxy stocks. Deterioration in credit markets may result in changes to the availability of borrowings, impact gearing levels and debt covenants and the interest rates charged by lenders resulting in the Company borrowing at higher interest rates, thereby affecting distributions.
  • Management performance risks. The Company relies on the expertise of managers to manage assets, asset recycling (acquisitions and divestments), and to execute the strategy.

FY21 Results Highlights

Statutory net profit $165.4m, up 116%. Net operating profit (distributable income) of $51.9m, up 18.5%. Earnings per security of 15.2 cents, up 4.5%.  Distributions per security of 14.8 cents, up +6%. Total Assets of $1,151.5m, up +14%. Net Asset Value (NAV) per security of $2.56, up +15%. Gearing 19.9%, increased from 14.8% at FY20.  100% of contracted rent was collected in FY21. ARF guided to FY22 DPS guidance of 15.8 cents per security, which implies growth of +6.8% on FY21.

Company Description  

Arena REIT (ARF) owns develops and manages a portfolio of childcare properties and healthcare facilities. 

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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Commodities Trading Ideas & Charts

Steel and Scrap Metal Markets: a Sunny F.Y. 22 Outlook for Sims

Steel prices remain elevated as a result of robust demand from the automotive and construction sectors amid the global economic recovery from the corona virus shock of 2020. 

Both ferrous and non-ferrous scrap metal prices have improved substantially from their COVID-19-induced lows of April 2020. In turn, rising scrap prices drove continued improvement in Sims’ scrap volumes in the second half of fiscal 2021. The initial outbreak of the pandemic also weighed on scrap market volumes and prices in early fiscal 2021. 

Sims’ balance sheet remains well positioned amid the rough and tumble of scrap metal markets. Rising scrap prices and intake volumes drove working capital to its highest level in a decade. Nonetheless, Sims finished the year with an AUD8 million net cash position.

Company’s Future Outlook

With the conductive conditions expected to hold in steel and scrap metal markets into fiscal 2022, the company raise fiscal 2022 EBIT estimate by a sizable 145% to AUD 625 million. However, with appreciably lower scrap prices, and correspondingly lower operating margins anticipated longer-term, no change to AUD 11.50 per share FVE. It is expected that the scrap volumes to grow at a robust 20% in fiscal 2022 amid the current cyclical upswing. It is anticipated that Sims’ working capital balance to increase further during fiscal 2022—as a result of rising scrap volumes and buoyant scrap prices.

Company Profile

Sims Limited (ASX: SGM) was created from the 2008 merger of two leading metal-recycling companies: Australia’s Sims Group and America’s Metal Management. The company is the world’s largest publicly traded metal and electronics recycler, with roughly half of its revenue generated in North America and the balance split between Australasia and Europe.

 (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

Applied Materials Inc poised for Remarkable Growth in Fiscal 2021

 It has been observed that Applied Materials and its peers have all called for strong growth in 2021, driven by record capital expenditure levels at TSMC (Taiwan Semiconductor Manufacturing Company) and Intel as well as solid memory spending.

Third-quarter sales rose 41% year over year to $6.2 billion, led by a 53% increase in the semiconductor systems group (SSG) revenue. Within SSG, equipment sales to logic and foundry customers grew 75% year over year. This strength has been attributed to investments supporting leading-edge process technologies at the likes of TSMC as well as lagging-edge processes that support end markets such as automotive and Internet of Things. Memory equipment sales also grew 26% year over year. Foundry and logic are expected to be the biggest growth drivers for Applied’s SSG sales in 2021.

Financial Strength:

The last price for Applied Materials Inc. was USD 129.20, whereas its fair value has been estimated to be USD 131. Besides, PE ratio of Applied during 2020 was 14.2, making it undervalued with reference to its sector. This suggests that there is room for growth of the Applied Materials Inc. 

Management expects Applied’s fourth-quarter revenue to be up by 34% year over year at the midpoint, with momentum persisting into 2022. Also, the sales of Applied are expected to be $6.3 billion at the midpoint, with SSG at $4.6 billion, services at $1.3 billion, and display at $400 million.

Quarterly services revenue was nearly $1.3 billion and was up 24% year over year. In recent years, services and part sales from long-term service agreements have grown from 40% to 87% of total service revenue. 

Company Profile:

Applied Materials is one of the world’s largest suppliers of semiconductor manufacturing equipment, providing materials engineering solutions to help make nearly every chip in the world. The firm’s systems are used in nearly every major process step with the exception of lithography. Key tools include those for chemical and physical vapor deposition, etching, chemical mechanical polishing, wafer- and reticle-inspection, critical dimension measurement, and defect-inspection scanning electron microscopes.

(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

Increase in Winnebago Industries’ dividend by 50%

 customized specialty vehicles, and parts and services. Winnebago Industries’ strong brand equity in recreational vehicles and its balance sheet would allow the firm to persevere through economic turmoil. 

The top three motor home manufacturers (Thor, Forest River, and Winnebago) make up about 80% of the North American motor home market. Winnebago has reinvented itself under CEO Mike Happe with the November 2016 acquisition of high-end towable maker Grand Design and sees itself as a leading outdoor lifestyle firm rather than just a maker of RVs. Acquisitions in the $700 billion-plus outdoor activity market also play a role. Over 60% of U.S. households’ camp at least occasionally and 12% camp more than three times a year. Millennial and Gen X campers are 81% of new U.S. campers, and 82% of new campers since the pandemic have children, so Winnebago has plenty of runway with younger consumers if it executes right.

Financial Strength:

The balance sheet lacks the massive legacy costs that burden some other manufacturers because Winnebago’s workforce is not unionized. Winnebago’s untapped $192.5 million credit line coupled with $405.8 million of cash at the end of the third quarter of fiscal 2021 would get the firm through nearly any challenge. 

A 9% increase in the dividend in summer 2020, despite the pandemic at the time, is a good sign of financial health, as is a 50% increase announced in August 2021.Winnebago’s balance sheet had been free of long-term debt since the mid-1990s. Net debt/adjusted EBITDA was 1.7 times at the end of fiscal 2020. Winnebago has no significant pension obligations and stopped paying retiree healthcare in 2017. Revenue was about $2.35 billion in fiscal 2020.

Bulls Say:

The Grand Design acquisition materially raised Winnebago’s operating margin, and Newmar could do

the same.

The company’s strong balance sheet provides financial strength and flexibility to withstand cyclical downturns.

Because RV consumers are relatively affluent, rising gas prices would probably not hinder a consumer’s ability to purchase a motor home. A 2016 study by travel consulting firm PKF Consulting found that for a family of four, gas prices would have to exceed $12 a gallon to make RV travel more expensive than other forms of travel.

Company Profile:

Winnebago Industries manufactures Class A, B, and C motor homes along with towables, customized specialty vehicles, and parts and services. With headquarters in Eden Prairie, Minnesota, Winnebago has been producing recreational vehicles since 1958. Class A motor homes account for 31% of motorized unit sales, Class B about 41%, and Class C the rest.

(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

Walmart’s Second Quarter Suggests Continued Strength Despite Normalization

 to last year’s pandemic-sparked sales surge (5.2% comparable growth for U.S. namesake stores, 14.5% two-year stack). While Walmart beat our expectations, we attribute the outperformance to pandemic-related volatility, so our long-term targets of lowsingle- digit percentage top-line growth and mid-single-digit adjusted operating margins are intact. The top-line outperformance extended across Walmart’s segments (5.2% and 7.7% comparable growth, excluding fuel, at Walmart U.S. and Sam’s Club, versus our respective 2.6% and 4.3% forecasts, and $23.0 billion in international revenue against our $22.3 billion mark). 

Recovery in pandemic-affected categories like auto care and party augmented another strong quarter in grocery, where Walmart gained share domestically on mid-single-digit comparable growth. Cost leverage contributed to a 5.3% adjusted operating margin, up nearly 80 basis points. Management lifted full-year guidance, now calling for $6.20 to $6.35 in adjusted diluted EPS, up from around $6.03 (which was near our prior estimate, which should rise toward the top of the new range).

Walmart’s advertising business (Walmart Connect) was particularly strong, with U.S. sales nearly doubling and the

number of active advertisers up more than 170%. Although e-commerce sales consolidated gains (up 6% in the U.S. for the quarter, and 103% on a two-year stacked basis), we believe Walmart is still in the earlier stages of capitalizing on its ancillary online revenue potential

Company Profile 

America’s largest retailer by sales, Walmart operated over 11,400 stores under 54 banners at the end of fiscal 2021, selling a variety of general merchandise and grocery items. Its home market accounted for 78% of sales in fiscal 2021, with Mexico and Central America (6%) and Canada (4%) its largest external markets. In the United States, around 56% of sales come from grocery, 32% from general merchandise, and 10% from health and wellness items. The company operates several e-commerce properties apart from its eponymous site, including Flipkart and shoes.com (it also owns a roughly 10% stake in Chinese online retailer JD.com). Combined, e-commerce accounted for about 12% of fiscal 2021 sales.

(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

Anthony’s Strong Sales Demand to Unwind as Restrictions Ease

 driven by the competitively advantaged Australian business which benefits from industry tailwinds. ARB provides automotive accessories for four-wheel-drive, or 4WD, vehicles–namely, 4WD utility vehicles, and medium and large sport utility vehicles, or SUVs. The vast majority of earnings are generated in Australia, where sales of 4WD vehicles have grown strongly in recent years. While headline new vehicle sales in Australia have remained stagnant over the five years to fiscal 2019, sales for vehicles in ARB’s niche target market have increased at a CAGR of around 6% over the same time period. 

We estimate this subsegment eclipsed 50% of new vehicles sales in fiscal 2020, up from around 35% of new vehicle sales in fiscal 2014.The firm’s network of store fronts defends ARB’s premium positioning, ensuring end-to-end reliability from manufacturing to fitting. We expect ARB will also need to continue to invest heavily in its brands and its narrow moat by maintaining a high level of expenditure on marketing, research and development. This expenditure is necessary to maintain the firm’s brand equity, and differentiate its products from lower-end competitors, allowing ARB to remain at the forefront of product innovation and quality, improving brand awareness and ensuring a healthy pipeline of new product releases. 

Financial Strength 

ARB’s balance sheet is in pristine condition. At June 30, 2021, the company had no debt and a net cash position of AUD 85 million. This is despite major investment in the Thailand and Victoria warehouses and continued new store rollouts. The firm’s major funding requirements are store rollouts, international expansion, and working capital in line with growing sales. We anticipate the firm will maintain expenditure on marketing and R&D at around 5% for the foreseeable future. We are confident the firm can maintain a dividend payout ratio of around 50% without stretching its balance sheet or compromising its expansion plans.

Profit before tax near-doubled to AUD 150 million as restrictions on international travel and government stimulus increased domestic driving holidays–both in Australia and in overseas markets, boosting demand for ARB products. After falling 14% in fiscal 2020, Australian new car sales have bounced back quickly, up 10% in fiscal 2021. The rebound is more pronounced for 4WD utilities and SUVs (ARB’s primary target market), which grew by 11% in fiscal 2021 after falling just 7% in fiscal 2020. The company declared a final dividend of AUD 39 cents per share, bringing full-year dividends to AUD 68 cents per share, fully franked. ARB maintains a dividend payout ratio of about 50%, and with no debt, we anticipate the firm can maintain this payout ratio without stretching its pristine balance sheet or compromising expansion plans.

Bulls Say’s 

  • Online competition is not a significant threat to ARB’s business. Products usually require professional fitting (often in ARB stores), and the often heavy and bulky accessories can make delivery cost prohibitive.
  • The 4WD accessories industry has few barriers to entry, and with products such as bull bars essentially just fabricated steel, ARB’s products are somewhat replicable.
  • ARB’s range of vehicle accessories have established significant brand strength, underpinning its narrow economic moat, allowing the firm to enjoy pricing power and high returns on invested capital.

Company Profile 

ARB Corporation designs, manufactures, and distributes four-wheel-drive and light commercial vehicle accessories. The firm has carved a niche with aftermarket accessories including bull bars, suspension systems, differentials, and lighting. ARB operates manufacturing plants in Australia and Thailand; sales and distribution centres across several countries. The Australian division, which generates the vast majority of group earnings, distributes through the ARB store network, ARB stockists, new vehicle dealers, and fleet operators.

(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

Santos Limited (ASX: STO)

  • Offers a number of core assets within its portfolio (no single asset risk).
  • On-going focus on cost reduction and positioning of the business for lower oil price environment.
  • Potential M&A activity – the Company has been the subject of several takeover offers.
  • Ramp up to GLNG.
  • Strong balance sheet position.
  • Strategic shareholders (potential corporate activity).

Key Risks

  • Supply and demand imbalance in global oil/gas markets.
  • Lower oil / LNG prices.
  • Not meeting cost-out targets (e.g. reducing breakeven oil cash price).
  • Production disruptions (not meeting GLNG ramp up targets).
  • Strategic investors sell down their stake or block any potential M& A activity.

1H21 Results Highlights

Relative to the pcp and in US$: Production of 47.3mmboe was up +23%. Sales volume of 53.8mmboe was up +15%. Product sales revenue of $2,040m was up +22%. EBITDAX of $1,231 was up +24%. Underlying profit of $317m is up +50%. STO achieved a net profit of $354m versus a loss of -$289m in FY20. Free cash flow of $572m was up +33%. The Board declared an interim dividend of 5.5cps (versus 2.1 in FY20) and equates to 20% of first half free cash flow, in-line with STO’s sustainable dividend policy which targets a range of 10% to 30% payout of free cash flow. Reported NPAT of $354m includes net gains on asset sales and is significantly higher than the PCP due to impairments included in the previous half-year result.

Company Description  

Santos Limited (STO) explores for and produces natural gas, liquefied natural gas, crude oil, condensate, naptha and liquid petroleum gas. STO conducts major onshore and offshore petroleum exploration and production activities in Australia, Papua New Guinea, Indonesia, and Vietnam. The company also transports crude oil by pipeline.  

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

Bendigo & Adelaide Bank (ASX: BEN) Updates

  • Strong franchise model with funding predominately by way of deposits.
  • Expected low levels of impairment charges (especially as a low interest rate environment helps customers and arrears).
  • Continued strong cost discipline, improving efficiency and boosting performance. 
  • Advanced accreditation in progress (which may improve ROE).
  • Potential pressure on net interest margins as competition intensifies, with major banks in a low interest rate environment.
  • Leading in terms of customer satisfaction and net promoter metrics, which are increasingly key in a period where trust is paramount.

Key Risks

  • Intense competition for loan growth, combined with further discounting.
  • Volatility in Home safe earnings.
  • Increase in bad and doubtful debts or increase in provisioning. We continue to monitor the asset quality of Rural Bank and Great Southern portfolios.
  • Funding pressure for deposits and wholesale funding.

FY21 Results Summary

Relative to the PCP: Statutory net profit of $524.0m was up +172%.  Cash earnings after tax of $457.2m, was up +51.5%.  Net interest margin of 2.26%, was down 7 bps. Total income on a cash basis of $1,702.5m, was up +4.5%, with BEN exceeding system lending growth. Bad and doubtful debts were $18.0m, which equates to 2bps of gross loans. 

Excluding the provision release of $19.4m announced on 5 August 2021, bad and doubtful debts equate to 5bps of gross loans. Operating expenses of $1,027.4m were up +0.6% over the PCP, on increased investment in transformation. Excluding transformation, operating costs were -2.5% lower. BEN’s cost to income ratio of 60.3% was down 240bps relative to the PCP, but remains above BEN’s medium target of a sustainable cost to income ratio 50%. CET 1 of 9.57% was up 32 bps, and remains above APRA’s ‘unquestionably strong’ benchmark.  Cash earnings per share were 85.6 cents per share (cps), up +43.4%.

 The Board declared a final dividend of 26.5cps which brings the total fully franked dividend of 50.0 cps for the full year, with DRP discount of 1.5%. The dividend payment equates to 58.4% of cash earnings.  BEN saw growth in market share in lending (up to 2.41% from 2.24% in FY20) and deposits with total lending of $72.2bn, up +10.6%, driven by residential lending (at a rate of 2.8x system or up +14.8%), and total deposits of $78.0bn, up +15.2%, with customer deposits up +14.2%

Company Description

Bendigo and Adelaide Bank Ltd (BEN) offers a variety of banking and other financial services including internet banking, housing finance, retail and business banking, commercial finance, funds management, treasury and foreign exchange services, superannuation and trustee 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
Commodities Trading Ideas & Charts

Beach Energy Ltd (ASX: BPT) Updates

solar power panels in clean energy generating station
  • The share price has de-rated from a recent high by ~18% (which is valid), provides a buying opportunity in our view. 
  • The acquisition of Lattice Energy provides a stable mix of producing assets. 
  • The Company is currently on a 5-year capital expenditure program. The execution and delivery of this program could see upside risks to consensus estimates. 
  • Favorable industry conditions on the east coast gas market over the long-term –i.e. tight supply could lead to higher gas prices.
  • Strong balance sheet 
  • Potential M&A activity. 

Key Risks

  • Execution risk – Drilling and exploration risk. Unable to resolve the issue at Western Flank, leading to long-term downgrades to key estimates for the project.
  • Commodity price risk – movement in oil & gas price will impact unconstructed / re-contracting volumes. 
  • Regulatory risk – such as changes in tax regimes which adversely impact profitability. 
  • M&A risk – value destructive acquisition in order to add growth assets.
  • Financial risk – potentially deeply discounted equity rising to fund operating & exploration activities should debt markets tighten up due external macro factors. 
  • Currency risk 

FY21 Results Highlights

NPAT of $317m impacted by $117m non-cash, pre-tax impairment Underlying NPAT of $363m. Underlying EBITDAX of $1,010m and underlying EBITDA of $953m, underpinned by favourable arbitral outcome for the carbon liability associated with a Kupe GSA. BPT retained a strong balance sheet with net debt of $48m, net gearing of 1.5% and liquidity of $402m at 30 June 2021. Management highlighted BPT is in net cash position as of 13 August 2021. The Board declared a final dividend of 1.0 cps, fully franked

Company Description

Beach Energy Ltd (BPT) is an oil & natural gas exploration and production company. BPT has both onshore and offshore operations in five basins (Perth, Cooper, Victoria, and Tasmania & NZ) across Australia and New Zealand. The Company is a key supplier of gas into the Australian east coast gas market. The Company also owns strategic oil and gas infrastructure (Moomba processing facility & Otway Gas Plan

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.