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SBI Mutual Fund has launched Balanced Advantage Fund

The SBI balanced Advantage fund’s investment objective is to deliver long-term capital appreciation and income through a dynamic mix of equity and debt investments. The CRISIL Hybrid 50+50 – Moderate Index TRI would be tracked by SBI Balanced Advantage Fund.

The Balanced Advantage Fund would invest in equities and fixed income securities based on a number of factors, including valuations, earnings drivers, and sentiment indicators.

The SBI Balanced Advantage fund will work in the following manner

  1. Asset Allocation: The Fund Manager will decide on the asset allocation between equity and debt based on a variety of factors including sentiment indicators, valuations, and earning drivers.
  1. Quantitative Framework: Our investment strategy is based on a quantitative framework that determines how we invest based on market capitalization, investing style (value, growth, or quality) and sector preference.
  1. Stock/Security Selection: The equity portfolios are managed under the discretion of fund managers and portfolios are based on the analyst team’s high conviction views and the discretion of the Fund Manager. There is duration management to generate alpha across the yield curve. The portfolio is built in such a way that alpha is generated through equity while stability is sought through debt.

The scheme would invest in equities and equity-related products for a minimum of 0% and up to a maximum of 100% and the risk profile for the same would be high. It will also invest in debt securities (including securitized debt) and money market instruments, with a minimum of 0% and a maximum of 100% and the risk profile for the same would be low to medium and 0% to 10% in units issued by REITs and InvITs –the risk profile for the same is medium to high  

During the NFO period, the minimum application amount is Rs 5,000, with subsequent amounts in multiples of Rs 1. Dinesh Balachandran and Gaurav Mehta will handle the equity element of the SBI Balanced Advantage Fund, Dinesh Ahuja will manage the debt portion and Mohit Jain will manage the international investments.

The SBI Balanced mutual fund is suited for the following investor:

  • Investors looking for long-term Wealth Creation 
  • Investors looking for a Dynamic solution for the right mix of Debt & Equity
  •  Risk-averse Equity Investors with minimum 3 years+ of Investment Horizon

 (Source: www.sbimf.com)

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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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IPO Watch

Strong Market Debut of Devyani International at 57% premium over issue price

At the issue price, the company commanded a market capitalisation of Rs 10,823 crore and was valued at an EV/ EBITDA of 62.39.

It was subscribed 116.71 times, with qualified institutional buyer (QIB) category being subscribed 95.27 times, non-institutional investors 213.06 times, and retail individual investors 39.51 times. 

On 16th August 2021, Monday, the shares of Devyani International got listed on BSE at Rs. 141 at 56.66 per cent premium and on NSE, it got debuted at Rs. 140.90, up by 56.55 per cent.

In FY21, Devyani’s business from the core brands (India & Internationally) contributed 94.19 per cent to its revenues from operations. Delivery sales represented 70.20 per cent of revenues in FY21 in comparison to 51.15 per cent in FY20.

The company opened 40-50 stores across its brands in the last 2-3 quarters and expects to sustain this momentum. It also opened 43 stores in June quarter and 109 stores across core brands in the second half of FY21.

Company Profile

Devyani International is an associate company of RJ Corp, which is the largest bottling partner of food and beverages (F&B) major PepsiCo. It has interests in the Indian retail F&B sector. The company is the largest franchisee of Yum Brands, operating core brands such as Pizza Hut, KFC, Costa Coffee. The company operates 284 KFC stores, 317 Pizza Hut stores, and 44 Costa Coffee stores in India as of June 30, 2021. The company also owns brands such as Vaango, Food Street, Masala Twist, Ile Bar, Amreli and Ckrussh Juice Bar and has operations in Nigeria and Nepal.

(Source: Economic Times, Financial Express)

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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 Shares

Post Plans Reduce its Stake in BellRing Brands as It Emerges from the Pandemic

As the cereal category has come under pressure, the firm diversified its revenue base by entering categories that were driving the legacy business’ deterioration, such as eggs and protein-based nutritional products. While these actions have stabilized the top line, it is believed a competitive edge remains elusive.

The cereal business (42% of fiscal 2020 revenue) has been declining (outside of the pandemic) as consumers have shifted away from processed, high-sugar, high-carbohydrate fare. Post’s cereal business is very profitable, with EBITDA margins around mid-20% and low-30% for the U.S. and European businesses, respectively. The refrigerated segments (41%, with 24% food service and 17% retail) consist primarily of egg and potato products. As a result, this business is relatively low margin (10%-12%) and does not offer the firm a competitive advantage, in our view. While 2020 was challenging for food service, the segment should recover in 2021 with the dissemination of vaccines.

Post holds a majority stake in BellRing Brands (17%), which makes protein shakes, bars, and powders. The business has realized low-double-digit growth and attractive operating margins (17%-18%). Post recently announced plans to reduce its stake in BellRing from 71% to no more than 20% in the first half of calendar 2022, which will undoubtedly result in slower sales growth for Post. 

Financial Strength

Post has a unique capital allocation strategy, preferring to carry a heavier debt load than most packaged food peers. Post’s legacy domestic cereal business generates significant free cash flow (about 12% of revenue, above the 10% peer average), although after acquiring the refrigerated foods, BellRing, and private brands businesses, this metric fell to just over a 6% average between 2013 and 2018. Post has no intention to initiate a dividend. It is increasing FVE for Post to $114 per share from $110 to account for better than expected third-quarter sales, partially offset by a higher U.S. tax rate beginning in 2022. The company’s valuation implies a 2022 price/adjusted earnings of 21 times.

Bull Says

  • Post’s Premier Protein brand is well positioned in the protein shake category, an attractive, high-growth market with outsize margins.
  • The refrigerated foods segment, nearly half of Post’s business, is benefiting from consumers’ evolving preference for fresh, unprocessed high-protein eggs, and fresh and convenient side dish options.
  • Although growth in the cereal business has been stagnant, it reports attractive profits and cash flows and has a lucrative opportunity with Premier Protein co-branded cereal

Company Profile

Post Holdings Inc (NYSE: POST) is a packaged food company that primarily operates in North America and Europe. For fiscal 2020, 42% of the company’s revenue came from cereal, with brands such as Honeycomb, Grape-Nuts, Shredded Wheat, Pebbles, Honey Bunches of Oats, Malt-O-Meal, Weetabix, and Alpen. Refrigerated food made up 41% of 2020 revenue and services the retail (17% of company sales) and food-service channels (24%), providing value-added egg and potato products, prepared side dishes, cheese, and sausage under brands Bob Evans and Simply Potatoes. The stake in BellRing Brands makes up the remaining 17% of revenue, with protein-based shakes, powders, and bars that sell under the Premier Protein, Power Bar, and Dymatize brands, but Post is reducing this holding to a minority position in calendar 2022.

 (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

Tesla Shares Crash as NHTSA Opens Autopilot Investigation; Shares are Slightly Overvalued

Electronic digital interface at a stock exchange or bourse showing the fluctuating prices of stocks and shares on the markets charting their performance

an investigation into Tesla Inc’s (NASDAQ: TSLA) autopilot software following 11 crashes from January 2018 through July 2021 where the software was engaged. Having reviewed the NHTSA report, the incidents highlight the need for Tesla to continue to improve its autonomous software before the company is likely to see a large revenue increase from its subscription-based full self-driving software. This is in line with our view that Tesla’s autonomous software will not contribute a large portion of revenue in the near term. While the outcome of the investigation is uncertain, the agency is investigating the software, rather than any hardware on a Tesla. 

Tesla shares were down around 5% at the time of writing. At current prices, Tesla shares are slightly overvalued with the stock trading in 3-star territory but roughly 20% above our fair value estimate. Accordingly, we reiterate our very high uncertainty rating for Tesla.

In all 11 crashes, a Tesla vehicle struck one or more vehicles at a first-responder scene. Most of the incidents took place after dark, where the crash scenes included typical control measures such as first-responder vehicle lights, flares, an illuminated arrow board, and road cones. While the software can take over many parts of driving features for more normal highway conditions, first-responder scenes represent a situation where drivers should likely disengage the software when approaching the scene and resume full manual control of the vehicle.

Company’s Future Outlook

As a result, the most likely outcome will include an over-the air software update, which Tesla already regularly does, and additional warnings about the limitations of driving with autopilot. The company’s Outlook intact at $570 per share fair value estimate and narrow moat rating for Tesla.

Company Profile

Tesla Inc’s (NASDAQ: TSLA) founded in 2003 and based in Palo Alto, California, is a vertically integrated sustainable energy company that also aims to transition the world to electric mobility by making electric vehicles. The company sells solar panels and solar roofs for energy generation plus batteries for stationary storage for residential and commercial properties including utilities. Tesla has multiple vehicles in its fleet, which include luxury and mid-size sedans and crossover SUVs. The company also plans to begin selling more affordable sedans and small SUVs, a light-truck, semi-truck, and a sports car. Global deliveries in 2020 were roughly 500,000 units.

(Source: Morningstar)

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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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Dividend Stocks Philosophy Technical Picks

U.S. Foods Experiencing Strong Recovery From the Pandemic, but Moat Remains Out of Reach

will emerge from the pandemic in a stronger position that it was prior to the crisis, given the $1 billion in new business secured over the past year and the permanent elimination of $130 million in operating expenses. We expect the increasing availability of COVID-19 vaccines in 2021 will return US Foods’ organic sales to pre-pandemic levels by 2022, with long-term opportunities remaining intact. But as US Foods has not demonstrated a cost advantage, organic market share gains , consistent economic returns, or superior profits, we do not grant the firm a moat.

US Foods has improved profits the past few years, as gross margins increased from 16.8% in 2014 to 17.8% in 2019 (pre-pandemic), operating margins from 2.0% to 3.2%, and ROICs .We attribute this to positive customer mix (both to more profitable segments and more selective customer contracts within segments), more effective data-driven pricing, the centralization of purchasing and administrative functions, and a reduction of the sales force, facilitated by productivity-enhancing tools. But despite the added profits, we believe the reduction in the sales force hampered organic market share gains, a move with nontrivial consequences, as we view scale as the path to a competitive edge.

The lack of organic share gains impairs the firm’s ability to leverage its scale and progress toward a scale-based cost advantage. But we are encouraged by the firm’s recent decision to invest $50 million in growth opportunities, including expanding the sales force. We expect the firm will continue to grow inorganically, and we have a favourable view of its $1.8 billion tie-up with SGA Food Group and the $970 million acquisition of Smart Foodservice Warehouse, but we hold these deals fall short of providing a scale-based competitive edge.

Financial Strength

 US Foods has the financial strength to weather the pandemic. Given the firm’s acquisitive strategy, leverage runs high, with net debt/adjusted EBITDA at 5.4 times as of June. US Foods secured a $300 million term loan, issued $1 billion in long-term notes, and $500 million in convertible preferred stock since the onset of the pandemic. We expect leverage to return to a comfortable 2.6 times by 2023 as the market recovers from the pandemic and US Foods lightens up on share repurchases to prioritize debt reduction, which we think is prudent. We expect US Foods will resume repurchasing shares in 2025 (to the tune of 4%-5% of shares outstanding annually). We view this as a prudent use of cash when shares trade below our assessment of its intrinsic value. Furthermore, we have no concerns in the firm’s ability to service its debt (even during the pandemic), as interest coverage (EBITDA/interest expense) should average 6.5 times over the next five years, better than the 4.4 times average over the past three years. The firm’s priorities for cash use are capital expenditures, which we expect to amount to 1% of revenue annually over the next decade) and acquisitions (we expect about $140 million to $220 million annually, contributing a 1% bump to revenue each year). Further, the firm paid a $3.94 per share special dividend in 2016, but management has no plans to initiate an ongoing dividend as they view share repurchase as a more flexible way to return capital to shareholders. 

Bull Says

  • Continued acquisitions could modestly enhance US Foods’ scale, and the addition of its e-commerce platform should help increase share of wallet and loyalty with acquired firms’ customers.
  • US Foods is emerging from the pandemic as a stronger player, having secured over $1 billion in new business and eliminated $130 million in fixed costs.
  • US Foods benefits from secular tailwinds, such as Americans’ tendency to consume more food outside the home and industry share shifts to independent restaurants.

Company Profile

US Foods is the second-largest U.S. food-service distributor behind Sysco, holding 10% market share of the highly fragmented food-service distribution industry. US Foods distributes more than 400,000 food and non-food products to the healthcare and hospitality industries (each about 16.5% of sales), independent restaurants (33%), national restaurant chains (22%), education and government facilities (8%), and grocers (4%). In addition to its delivery business, the firm has 80 cash and carry stores under the Chef’Store banner .After Sysco’s attempt to purchase US Foods failed to gain federal approval in 2015, US Foods entered the public market via an initial public offering.

(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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Shares Technology Stocks

Mirvac Group Ltd (ASX: MGR) Updates

20025825 - closeup image of businessman drawing 3d graphics
  • High quality portfolio composition with stronger weighting towards Melbourne and Sydney urban areas minimizing risk from submarket weakness from Brisbane. 
  • MGR has secured 90% of expected Residential EBIT for FY22.
  • Strong pipeline of residential projects to come, delivering earnings growth by FY22. 
  • Solid balance sheet. Gearing at 22.8% (at lower end of target range of 20%-30%).
  • Continuing recovery in weak retail sales especially for supermarkets.
  • Strong management team.

Key Risks

  • Deterioration in property fundamentals for Office, Industrial and Retail portfolio, such as delays with developments or lower than expected rental growth causing downward asset revaluations.
  • Tenant defaults as the economic landscape changes (increasingly competitive retail sector especially from online retailers such as Amazon). For instance, retailer bankruptcies causing rising vacancies in the retail portfolio.
  • Generally softening outlook on the broader retail market. 
  • Residential settlement risk and defaults. 
  • Higher interest rates impacting debt margins. 
  • Consumer sentiment towards impact of higher interest rates and effect on retail and residential businesses. 

FY21 Results Summary

Operating profit of $550m was down -9% over pcp and operating EBIT of $704m declined -12% over pcp, negatively impacted by lower development profit and higher unallocated overheads, partially offset by growth in NOI (especially growth in Integrated Investment Portfolio NOI following newly completed office asset developments).However, statutory profit was up +61% to $901m and EPS of 14cpss exceeded management’s earnings guidance of greater than 13.7cpss. 

AFFO declined -23% over PCP, reflecting the lower operating earnings together with increased tenant incentives and normalization of maintenance capex. Total distribution was $390m, representing a DPS of 9.9cpss, an increase of +9%, funded from operating cash flows which increased +41% over pcp to $635m, driven by final fund through receipts following capitalization of Older fleet, lower development spend and stronger cash collection from the investment portfolio. Net tangible assets (NTA) per stapled security increased +5% over PCP to $2.67.

The Company extended its development pipeline, ending the year with $28bn across mixed use, office, industrial, residential and build to rent. Balance sheet remained strong with cash and undrawn debt facilities of $867m, investment grade credit ratings of A3/A- by Moody’s/Fitch, gearing of 22.8% (lower end of target range of 20-30%). The Company saw cost of debt decline -60bps over PCP to 3.4%, with management expecting further reduction in FY22.

Company Description  

Mirvac Group Ltd (ASX: MGR) is a real estate investment and development company. The company operates in Residential and Commercial & Mixed Use space within the real Estate sector. Mirvac Group Ltd is headquartered in Sydney, Australia.

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

AGL’s Earnings Falling as Expected but Light at the End of the Tunnel

in line with our expectations and in the middle of the guidance range. Earnings are expected to fall again in fiscal 2022 as management has been flagging for some time. Guidance is for underlying NPAT of AUD 220 million to AUD 340 million, with the midpoint down 48% in 2021. AGL’s cheap coal supply underpins its competitive advantage.

Competitors with shorter dated coal supply contracts should start to be hurt by high coal prices in coming years, potentially forcing them out of the market and pushing electricity prices higher. EBITDA fell 21% to AUD 1.6 billion in fiscal 2021 on lower electricity prices and higher gas supply costs. Headwinds from low electricity prices continue into fiscal 2022, and management is focused on reducing operating costs and maintenance capital expenditure through efficiency initiatives.

EBITDA rose 16% to AUD 337 million on cost savings and higher retail gas prices. The retail business has made a few interesting acquisitions recently to expand its geographic footprint to the West Coast, widen its service offering to include telecommunications and solar installations, and benefit from economies of scale. This should generate good returns.

Company’s Future Outlook

It is estimated that NPAT bottoms in fiscal 2023 at AUD 231 million before recovering back to AUD 442 million by 2026. The stock materially undervalued on a long-term view. Based on the current share price, it is forecasted to have a PE ratio of about 10 by 2026. Far more important is the expected recovery in electricity prices, given AGL is a huge producer of electricity through its three coal-fired power stations. It is expected that AGL’s financial position is sound; though there is modest risk given, banks are making life difficult by trying to reduce lending to coal power stations.

Company Profile

AGL Energy Ltd (ASX: AGL) is one of Australia’s largest retailers of electricity and gas. It services 3.7 million retail electricity and gas accounts in the eastern and southern Australian states, or about one third of the market. Profit is dominated by energy generation, underpinned by its low-cost coal-fired generation fleet. Founded in 1837, it is the oldest company on the ASX. Generation capacity comprises a portfolio of peaking, intermediate, and base-load electricity generation plants, with a combined capacity of 10,500 megawatts.

(Source: Morningstar)

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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

Telstra Corporation updates

  • Solid dividend yield in a low interest rate environment. 
  • On market buyback of $1.35bn (post sale of part of Towers business) should support its share price.
  • Additional cost measures announced to support earnings.
  • InfraCo provides optionality in the long-term. 
  • Despite intense competition, subscriber growth numbers remain solid. 
  • Company looking to monetize $2.0bn of assets. 
  • In the long-term, the introduction of 5G provides potential growth, however we continue to monitor the ROIC from the capex spend. 
  • TLS still commands a strong market position and has the ability to invest in growth technologies and areas (e.g. Telstra Ventures) which could provide room for growth.
  • Industry consolidation leading to improved pricing behavior by competitors.

Key Risks

We see the following key risks to our investment thesis:

  • Further cuts to dividends.
  • Further deterioration in the core mobile and fixed business.  
  • Management fail to deliver of cost-out targets and asset monetisation. 
  • Any increase in churn, particularly in its Mobile segment – worse than expected decrease in average revenue per users (or any price war with competitors).
  • Any network disruptions/outages.
  • More competition in its Mobile segment. Merger of TPG Telecom and Vodafone Australia creates a better positioned (financially and resource wise) competitor
  • Quicker than expected deterioration in margins for its Fixed segment.
  • Risk of cost blowout in upgrade network and infrastructure to 5G.

FY21 Results Highlights

Relative to the pcp: 

  • On a reported basis, total income fell -11.6% to $23.1bn (within FY21 guidance of $22.6bn to $23.2bn); EBITDA declined -14.2% to $7.6bn; NPAT increased +3.4% to $1.9bn. 
  • Underlying EBITDA of $6.7bn was within FY21 guidance of $6.6bn to $6.9bn. Underlying EBITDA, which includes an estimated $380m Covid impact fell -9.7% on a guidance basis including an in-year nbn headwind of $650m. Excluding the in-year nbn headwind, underlying EBITDA declined by ~$70m. (3) TLS FY21 underlying earnings were $1,191m while net one-off nbn receipts were $561m versus underlying earnings of $1,224m and net one-off nbn receipts of $1,075m in FY20. 
  • Capex of $3,020, was -6.6% lower, but within FY21 guidance of $2.8bn to $3.2bn. 
  • Free cashflow of $4,887m, was up +21.1%. Free cashflow after operating lease payments of $3.8bn beat FY21 guidance of $3.3bn to $3.7bn. (6) Basic EPS of 15.6 cents, was up +2%.

Company Description  

Telstra Corporation (TLS) provides telecommunications and information products and services. The company’s key services are the provision of telephone lines, national local and long distance, and international telephone calls, mobile telecommunications, data, internet and on-line. Its key segments are Mobile, Fixed, Data & IP, Foxtel, Network applications and services and Media.

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 Philosophy Technical Picks

Narrow-Moat Sysco’s Recipe for Growth Is Cooking up Improved Performance

the food-service market has nearly fully recovered, with sales at 95% of prepandemic levels as of the summer of 2021, and Sysco has emerged as a stronger player, with $2 billion in new national account contracts (3% of prepandemic sales) and 13,000 new independent restaurant customers. The plan should allow Sysco to grow 1.5 times faster than the overall food-service market by fiscal 2024. Sysco is investing to eliminate customer pain points by removing customer minimum order sizes while maintaining delivery frequency and lengthening payment terms. It improved its CRM tool, which now uses data analytics to enhance prospecting, rolled out new sales incentives and sales leadership, and is launching an automated pricing tool, which should sharpen its competitive pricing while freeing up time for sales reps to pursue more value-added activities, such as securing new business.

Further, Sysco has switched to a team-based sales approach, with product specialists that should help drive increased adoption of Sysco’s specialized product categories such as produce, fresh meats, and seafood. Lastly, Sysco is launching teams that specialize in various cuisines (Italian, Asian, Mexican) that should drive market share gains in ethnic restaurants. Looking abroad, Sysco has a new leadership team in place for its international operations, increasing our confidence that execution will improve.

Financial Strength 

Sysco’s solid balance sheet, with $5 billion of cash and available liquidity (as of June) relative to $11 billion in total debt, positions the firm well to endure the pandemic. Sysco has a consistent track record of annual dividend increases (even during the 2008-09 recession), and in May 2021 it announced an increase in its dividend, taking the annual rate to $1.88. Sysco has historically operated with low leverage, generally reporting net debt/adjusted EBITDA of less than 2 times. Leverage increased to 2.3 times after the fiscal 2017 $3.1 billion Brakes acquisition, and to 3.7 times in fiscal 2021, given the pandemic. But we expect leverage will fall back below 2 by fiscal 2023, given debt paydown and recovering EBITDA.

In May 2021, Sysco shifted its priorities for cash in order to support its new Recipe for Growth strategy. It’s new priorities are capital expenditures, acquisitions, debt reduction when leverage is above 2 times, dividends, and opportunistic share repurchase. Its previous priorities were capital expenditures, dividend growth, acquisitions, debt reduction, and share repurchases. In fiscal 2022-2024, as it invests to support accelerated growth, Sysco should spend 1.3%-1.4% of revenue on capital expenditures (falling to 1.1% thereafter). 

Bulls Say’s 

  • As Sysco’s competitive advantage centers on its position as the low-cost leader, we think Sysco should be able to increase market share in its home turf over time.
  • Sysco has gained material market share during the pandemic, allowing it to emerge a stronger competitor.
  • Sysco’s overhead reduction programs should make it more efficient, enabling it to price business more competitively, helping it to win new business, and further leverage its scale.

Company Profile 

Sysco is the largest U.S. food-service distributor, boasting 16% market share of the highly fragmented food-service distribution industry. Sysco distributes over 400,000 food and nonfood products to restaurants (62% of revenue), healthcare facilities (9%), travel and leisure (7%), retail (5%), education and government buildings (8%), and other locations (9%) where individuals consume away-from-home meals. In fiscal 2020, 81% of the firm’s revenue was U.S.-based, with 8% from Canada, 5% from the U.K., 2% from France, and 4% other.

(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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Uncategorized

Broadridge Is Benefiting From Retail Investor Boom

Broadridge’s regulated proxy and interim business is its crown jewel, and a disproportionate amount of the firm’s net income comes from its fiscal third and fourth quarter during proxy season. In addition, Broadridge generates about 30% of its fee revenue and profit from its global technology and operations or GTO segment, which provides securities processing solutions. Operationally, Broadridge entered into an IT-services agreement with IBM in 2010 to increase efficiency. Expanding on its mailing, data security, and processing capabilities, Broadridge has completed numerous acquisitions.

Since 2010, Broadridge has completed at least 25 acquisitions. Notable acquisitions include DST’s North American customer communications business for $410 million in 2016 and RPM Technologies for $300 million in 2019. The NACC business provides print and digital communication solutions, content management, postal optimization, and fulfillment to a variety of sectors, including financial-services firms, utilities, and healthcare firms.

RPM Technologies provides enterprise wealth management software solutions and services. In March 2021, Broadridge announced it would acquire Itiviti, a provider of order and execution management trading software and order routingnetworking and connectivity solutions, for $2.5 billion. During its December 2020 investor day, Broadridge laid out its three-year per year goals including recurring revenue growth of 7%-9% (organic: 5%-7%), adjusted operating margin expansion of 50 basis points, and adjusted EPS growth of 8%-12%.

Financial Strength

Broadridge’s financial health is sound, in our view. As of June 30, 2020, Broadridge had long-term debt of approximately $1.8 billion. Broadridge’s adjused net leverage ratio was 1.6 times EBITDAR and its gross leverage ratio was 2.0 times EBITDAR. Of the $3.2 billion in fee revenue that Broadridge generated in fiscal 2020, over 90% was classified as recurring. Also, during the last financial crisis, equity proxy position count was flat to slightly negative and mutual fund/ETF positions grew.

Given the stability of Broadridge’s business and the modest leverage, we believe Broadridge’s debt load is very manageable and that it could increase its debt for M&A if it wanted to, like it will for its acquisition of Itiviti. The acquisition is expected to add about $2.55 billion in a term credit facility. Broadridge expects a gross leverage ratio of about 3.6 times at closing, and then expects to deleverage to its updated 2.5 times target over the following two years.

Bulls Say’s

Broadridge has a dominant market share position on delivering proxies and interims to beneficial shareholders.
During the financial crisis, Broadridge’s equity position count was down only 2% in 2009, indicating that its business model is close to recession-proof.
Broadridge’s investor communication solutions and global technology and operations businesses are sticky, with retention rates near 98%.

Company Profile

Broadridge, which was spun off from ADP in 2007, is a leading provider of investor communications and technology-driven solutions to banks, broker/dealers, asset managers, wealth managers, and corporate issuers. Broadridge is composed of two segments: investor communication solutions and global technology and operations.

(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.