Author: lvc-admin

Categories
Global stocks

Morrisons’ Strong Balance Sheet and Store Estate Attracts Private Equity Interest

Although operating margins in the grocery industry are similar among the Big Four, we reckon Morrisons has a more efficient operating cost structure than Tesco and Sainsbury’s. It also has a stronger balance sheet than its Big Four peers.Morison It has large-store exposure, with no convenience-store presence and an online channel growing through third-party partnerships (Ocado and Amazon). Its strategy is centred on driving traffic in stores through the provision of additional services such as hand car washes, tyre change concessions, and parcel pickup services on top of a stronger core food offering. The company targets higher exposure in growth channels through capital-light partnerships in wholesale (Amazon, McColl’s, LuLu), online (Ocado), and convenience (Rontec forecourts). Although we believe management’s plan makes sense in the current market environment, it highlights the company’s limited channel exposure in an increasingly multichannel world. We view the company’s channel positioning as problematic despite the new initiatives, especially in a period of balance sheet deleveraging and tighter capital expenditure budgets (making it hard for the firm to develop its own convenience-store network)

On Aug. 19 Morrisons reached an agreement for a recommended cash offer of GBX 285.00 per share by Clayton, Dubilier & Rice Funds, or CD&R, a private equity fund, which implies a premium of about 60% to the closing price on June 18 (last business day before possible offer by CD&R) and an enterprise value multiple of 9 times the grocer’s underlying EBITDA or about 20.7 times Morrisons’ underlying EPS. The offer is equivalent to a cash consideration of approximately GBP 7.00 billion on a fully diluted basis. Morrisons’ board intends to recommend unanimously that shareholders vote in favour of the takeover, to be proposed at the general meeting in the week commencing Oct. 4.We intend to increase our GBX 252.00 fair value estimate to reflect the most recent offer. 

We think the current offer is very generous for Morrisons’ shareholders. In our estimates, the value the new owner can successfully extract from a potential monetization of the grocer’s vast store estate could be about GBX 70.00 per share. We believe, at these levels, the new owner could still achieve good returns on invested capital but only by realizing significant structural cost savings and leveraging up the balance sheet (Morrisons exhibits high capacity to leverage: net debt/EBITDAR ratio of about 2.4 times versus 3.4 times for Tesco and Sainsbury’s, excluding the banks).

Bulls Say

  • Morrisons is a well-managed company with one of the most efficient operating cost structures relative to peers.
  • The firm has good balance sheet and cash flow management. Working capital has been squeezed, selective store property sold off, and capital spending held in check.
  • Morrisons has a large freehold store estate.

Financial Strength

Morrisons is in reasonably good financial health, with low levels of net debt, a pension surplus, and modest levels of free cash generation. At the beginning of February 2020, net debt had been reduced to around GBP 1 billion which implies a net debt/adjusted EBITDA ratio of 2.4.Financial leverage has also been reduced through sales of freehold stores and disposals, which have generated close to GBP 1,000 million in proceeds in recent years..Capital spending remains moderate, and like other U.K. grocers, Morrisons is no longer in strong store-expansion mode. 

Company Profile

Founded by William Morrison in 1899, Wm Morrison Supermarkets is the U.K.’s fourth-largest grocery chain, with a market share of around 10%. The 2004 takeover of rival Safeway transformed the firm in terms of scale and gave it a significant presence outside its base in Northern England. The company operates about 500 stores, entirely in the United Kingdom. Morrisons has an online presence via a partnership with Ocado and Amazon and has lately been trying to expand its wholesale channel with new agreements (McColl’s).

(Source: Morning Star)

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

Streamlined Portfolio Should Continue to See Solid Demand as Apartments Recover

The company invests in metropolitan markets with solid demographic trends that allow the company to maintain high occupancies and pass along consistent rent increases. Demand for apartments depends on economic conditions in their markets like job growth, income growth, decreasing homeownership rates, high relative cost of single-family housing, and attractive urban centers. Apartment Income has significantly simplified and streamlined its portfolio and strategy over the past decade. 

While the company has decreased its portfolio from over 300 properties at the end of 2008 to 96 properties in the current portfolio, the company owns approximately the same number of assets over that time frame in the 8 markets it currently considers to be its core markets. The company’s exit from markets with lower growth prospects has increased the portfolio’s expected average growth. In 2020, Apartment Income spun off its development pipeline and lease-up portfolio into its own company so that the remaining company could focus on the highest-quality assets.

Financial Strength 

Apartment Income is in decent financial shape from a liquidity and a solvency perspective. Debt maturities in the near term should be manageable through a combination of refinancing, asset sale proceeds, and free cash flow. The company should be able to access the capital markets when acquisition and development opportunities arise. As a REIT, Apartment Income is required to pay out 90% of its income as dividends to shareholders, which limits its ability to retain its cash flow. However, the company’s current run-rate dividend is easily covered by the company’s cash flow from operating activities, providing Apartment Income plenty of flexibility to make capital allocation and investment decisions. 

Fair value estimate to $47.50 per share from $44 after incorporating second-quarter results and adjusting our near-term forecasts to account for a better-than-anticipated recovery from the pandemic. Our fair value estimate implies a 4.3% cap rate on our forward four-quarter net operating income forecast, 23 times multiple on our forward four-quarter funds from operations estimate, and 3.5% dividend yield based on a $1.64 annualized payout. Currently project $200 million of dispositions a year at an average cap rate of 5.75% and $100 million-$200 million of acquisitions at 5.25% cap rates as the company looks to recycle lower-quality assets to fund the acquisition of higher-quality assets. Apartment Income’s net asset value to be approximately $39 per share.

Bulls Say’s

  • Apartment Income’s diversified portfolio of mainly suburban and infill assets should see less impact from supply, which is more concentrated in urban, luxury markets.
  • Positive demographic and economic trends will fuel strong demand for apartment rentals, including the millennial generation, which is beginning to move to the suburbs but still lack the necessary capital to purchase a home.
  • While supply growth may be near a peak now, rising construction prices and higher lending standards will reduce construction starts and reduce supply growth in the future.

Company Profile 

Apartment Investment and Management Co. owns a portfolio of 96 apartment communities with over 26,000 units. The company focuses on owning large, high-quality properties in the urban and suburban submarkets of Boston, Denver, Los Angeles, Miami, Philadelphia, San Diego, San Francisco, and Washington, D.C.

(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

Cochlear’s FVE Up 9% Driven by a Stronger U.S. Dollar and Lower Expenses

Cochlear implants became the standard of care many years ago for children in developed markets with profound hearing loss or deafness. Large price differentials in the lower range of products result in 80% of revenue being earned in developed markets and 20% in tender-oriented emerging markets. Currently, penetration is still estimated to be under 5%, and Cochlear is at a pivot point as it invests to be adopted more widely by seniors with profound hearing loss. Prevalence of profound hearing loss increases over 65 years and has a steep increase from over 80 years of age. However, hearing aids, not cochlear implants, are the standard of care. Cochlear is investing significantly to grow awareness as well as funding research to support pay or reimbursement.

Financial Strength

The company has typically enjoyed low capital intensity and high cash conversion, affording it to pay out 70% of earnings as a dividend. However, with the confluence of operational weakness due to deferred elective surgeries as a result of the coronavirus, a peak in the capital cycle, and a patent infringement penalty becoming payable, the company faced a liquidity crunch. Consequently, it completed an AUD 850 million equity raise in fiscal 2020, adding an additional 10% to shares on issue and we forecast the company to carry no net debt for the foreseeable future. The company is not acquisitive and organic growth is driven by R&D spending of roughly 12% of revenue per year.

Wide-moat Cochlear’s fiscal 2021 underlying NPAT rebounded 54% to AUD 237 million following the resumption of elective surgeries. As vaccination rates increase, the firm anticipates a continued recovery and provided fiscal 2022 NPAT guidance of AUD 265 million-285 million. The guidance is based on a USD/AUD exchange rate of 0.74 and doesn’t factor in material disruption from COVID-19. Our fair value increases by 9% to AUD 175, driven by our forecast 0.72 USD/AUD exchange rate from 0.77 prior. We also decreased our long-term assumptions for the tax rate and R&D investment as a percentage of sales to 25% and 12%, respectively, from 27% and 13% prior. 

Fiscal 2021 implant sales grew 19% constant-currency on 15% growth in unit sales. Despite a much stronger USD, our revised fiscal 2022 revenue forecast of AUD 1,627 million implies just 9% growth on fiscal 2021. Shares still screen as overvalued with our forecast five-year revenue growth of 9% unchanged. Cochlear declared a final dividend of AUD 1.40 per share with full-year dividends representing a 71% dividend payout on underlying NPAT but unfranked as a result of fiscal 2020 losses.

Bulls Say’s 

  • Continued strong top-line growth is likely to be more challenging and dependent on growing penetration in emerging markets and adults in developed markets.
  • The more reliable annuitylike revenue stream from sound processor upgrades is forecast to contribute an increasingly larger proportion of group earnings as it is driven by a growing installed base.
  • The company enjoys low capital intensity and high gross margins and cash conversion, enabling Cochlear to afford a 70% dividend payout ratio in a typical year.

Company Profile 

Cochlear is the leading cochlear implant device manufacturer with around 60% global market share. Developed markets contribute 80% of group revenue where cochlear implants are the standard of care for children with severe to profound hearing loss. The company also actively targets the growing cohort of seniors in developed markets. Tender-oriented emerging markets contribute the remaining 20% of group revenue. Main products include cochlear implants, bone-anchored hearing aids, or BAHA, and associated sound processors. In fiscal 2020, 49% of revenue came from the Americas, 35% from EMEA, and 16% from the Asia-Pacific segment.

(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
Shares Small Cap

Oversupply Issues Are Behind Inghams, but Mix Shift to Drag in the Near Term

competition in poultry is intense. Poultry is largely commoditised, and Inghams possesses limited opportunity to differentiate its products, leading to our view that the firm lacks a sustainable competitive advantage required to award an economic moat. Further, Inghams’ customer base is highly concentrated, with the majority of its total sales comprising five customers, including supermarket giants Woolworths and Coles, and quick-service restaurant KFC. Population growth, relative affordability, and changes in consumer preferences have driven chicken consumption to all-time highs in Australia and New Zealand. 

Per capita chicken meat consumption in both Australia and New Zealand has steadily grown at a low-single-digit CAGR over the last decade. Chicken remains the cheapest meat by a significant margin, with the per-kilo retail price of chicken less than half that of pork, lamb, and beef. This price advantage is supported by favourable production dynamics, notably chicken’s superior food conversion ratio, or FCR. The chicken industry remains highly efficient in translating feed into live weight for production, with producers able to convert feed at a rate that is about 1.5 times more efficient than pork and 4 times more efficient than beef. The chicken FCR, measured by kilograms of feed required to produce one kilogram of meat, has fallen from over 2.5 in 1975 to less than 1.8 today.

Financial Strength 

Given relatively high lease-adjusted leverage, and slim operating margins, we rate Inghams’ balance sheet as weak–stronger than poor as we do not see risk of a dilutive capital raising. Net debt/EBITDA improved in fiscal 2020 to 1.2 at June 30, 2021, due principally to earnings recovery and tighter capital expenditure amid COVID-19 uncertainty over the year. This is down from 1.8 in fiscal 2020 and 1.3 in fiscal 2019 following the capital return and share buyback over fiscal 2019. Given heavy investment into automation and operational efficiency, capital expenditure requirements have been elevated, peaking at AUD 106 million during fiscal 2019 at 4% of revenue. 

Our fair value estimate for Inghams to AUD 3.70 from AUD 3.60 due to the time value of money boost to our financial model. Inghams’ fiscal 2021 underlying net profit of AUD 87 million matched our estimates and was at the top end of management’s guidance range. Inghams declared a fully franked final dividend of AUD 9 cents, bringing the full-year distribution to AUD 16.5 cents per share, implying a payout ratio of 71% of underlying EPS. Government-imposed shutdowns shift poultry demand from restaurants to retail, creating inefficiencies as Inghams is forced to adjust production lines. 

Poultry producers struggled to keep up with pantry-stocking and panic buying in March and April 2020, but this sales momentum was not maintained, and the poultry industry entered fiscal 2021 in oversupply. The chicken industry remains highly efficient in translating feed into live weight for production, with producers able to convert feed at a rate that is about 1.5 times more efficient than pork and 4 times more efficient than beef–leading to cost-efficient processing and a smaller environmental footprint. We expect low-single-digit growth in annual per capita chicken meat consumption to 53kg by fiscal 2026, before moderating as chicken consumption approaches saturation.

Bulls Say’s 

  • Inghams benefits from a consumer trend toward protein-rich, fresh, easy-to-prepare meals.
  • Per-capita chicken meat consumption continues to rise as chicken enjoys a relative affordability advantage compared with other meats, such as beef.
  • A shift in Inghams’ sales mix to value-added products could enhance margins.

Company Profile 

Inghams is the largest vertically integrated poultry producer in Australia and New Zealand. The firm enjoys a number-one position in Australia with approximately 40% market share and a number-two position in New Zealand with around 35% share. Inghams supplies poultry products, notably to major Australian supermarkets Woolworths and Coles, and quick-service restaurants McDonalds and KFC. Sales are heavily skewed toward poultry, which includes the production and sale of chicken and turkey products.

(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
Dividend Stocks Expert Insights

Sydney Airport Flight Delayed to Fiscal 2022; FVE Maintained

Long distances between major cities in Australasia means flying is a preferred mode of travel. Despite a rival airport scheduled to open in 2026, we expect Sydney Airport to remain the favoured terminal for business and long-haul leisure travellers for the next decade. Revenue is about evenly sourced from aeronautical and other operations. Aeronautical fees are mostly on a per-passenger basis, with base charges negotiated with airlines every five years. Retail is the largest non-aeronautical contributor, accounting for about 23% of pre-COVID-19 revenue.

Duty-free and luxury shopping has threats, given the ability for e-commerce sites to offer lower prices than duty-free, and ESG risks given the reliance on tobacco and alcohol sales. However, in the long run, risks materialising in any particular sub-category should be offset by passenger growth boosting defensive categories such as food, car-rental, parking, souvenirs, and holiday items. Population and passenger growth should aid Sydney Airport as it can increasingly allocate slots away from domestic and toward international flights. International flights account for about 40% of passengers, but about 70% of passenger revenue. 

Financial Strength

Sydney Airport’s financial health is fair, with relatively defensive income offset by high debt. Net debt/EBITDA was a high 14 times in fiscal 2021, up from 7.2 in 2019. Our base case is that by fiscal 2023 debt/EBITDA will be back to a more sustainable level below 8 times, and declining, but under our bear scenario this would not occur until 2025 and would remain elevated over our 10-year discrete forecast period. Management acknowledged the high debt and took appropriate actions to reduce leverage, including cancelling distributions in 2020, delaying capital expenditure, securing additional bank facilities, and raising AUD 2 billion in equity in the September quarter of 2020.

Narrow-moat Sydney Airport’s half-year result showed potential, with domestic traffic recovering to 65% of April 2019 levels. This is negligible for our unchanged fair value estimate of AUD 7.85 per share. The key driver is our unchanged post-virus recovery and passenger growth estimates. An acquisition proposal from IFM was this week increased to AUD 8.45, up from 8.25, but was immediately rejected by Sydney Airport. The consortium’s valuation assumptions are unknown. Bulls on Sydney Airport appear to expect Chinese travellers, about 8% of Australia’s arrivals in 2019, will resume rapid growth as borders reopen.

While the long term is the key driver, the near term is relevant given Sydney Airport’s high debt load. Domestic travel volumes through Sydney Airport in the first half of fiscal 2021 improved on the coronavirus-impacted volumes of the second half of fiscal 2020, but domestic border restrictions have resulted in volumes falling significantly in July. A net debt to EBITDA ratio of 14 times is extreme and will be problematic if Australian international borders remain closed for years into the future. Further, the weighted average maturity of Sydney Airport’s portfolio of debt is about five years, and the group has AUD 500 million in cash and AUD 2.4 billion in undrawn banking facilities, more than enough to cover debt expiries in the next two years.

Bulls Say’s 

  • Sydney Airport’s convenience to the business district and coastal suburbs of Australia’s largest city makes it near impossible to replicate. Rising incomes in nearby nations, and Australia’s growing population bodes well for long-term passenger numbers.
  • A light regulatory regime is unlikely to become significantly more onerous.
  • Sydney Airport has spare landing slots, plus the ability to reallocate slots away from domestic and toward more lucrative long-haul international flights, as passenger traffic grows.

Company Profile 

Sydney Airport has a lease to operate the facility until 2097. As Australia’s busiest airport, it connects close to 100 international and domestic destinations, and handled more than 40 million passenger movements annually until COVID-19 border restrictions in 2020. Regulation is light, with airports setting charges and terms with airlines, and the regulator monitoring the aeronautical and car park operations to ensure reasonable pricing and service. Retail and property operations are free from regulatory oversight, though political and commercial pressure limits Sydney Airport from overly flexing its pricing muscle, particularly as the government owns the rival Western Sydney Airport, set to open in 2026.

(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

Raising Tesla’s FVE to $600 on Improved Long-Term Outlook for AV Software

the company went from a startup to a globally recognized luxury automaker with its Model S and Model X vehicles. In addition to luxury autos, the company also competes in the mid-size car and crossover SUV market with its platform that is used for Model 3 and Model Y vehicles. Tesla’s strategy is to maintain its market leader status as EVs grow from a niche auto market to reaching mass consumer adoption. Tesla also invests around 6% of its sales into R&D, focusing on improving its market-leading technology and reducing its manufacturing costs. The company will also move upstream into battery production, with a goal to reduce costs by over 50%. 

Tesla’s extended range EVs are already at range parity with ICE vehicles, which should improve further with plans for its batteries to improve energy density. Tesla also continues to increase its supercharging network, which consists of fast chargers built along highways and in cities throughout the U.S., EU, and China. Tesla also sells solar panels and batteries used for energy storage to consumers and utilities. As the solar generation and battery storage market expands, Tesla is well positioned to grow in this market. 

Financial Strength 

Tesla is in solid financial health as cash and cash equivalents exceeded total debt as of June 30, 2021. Total debt was roughly $9.4 billion, however, total debt excluding vehicle and energy product financing (non-recourse debt) was around $4 billion. Cash and cash equivalents stood at $16.2 billion as of June 30, 2021.To fund its growth plans, Tesla has used credit lines, convertible debt financing as well as equity offerings and credit lines to raise capital. In 2020, the company raised $12.3 billion in three equity issuances. 

We are raising our fair value estimate to $600 per share from $570 for narrow-moat Tesla following AI day. Our largest key takeaway from Tesla’s AI day was the progress that the company is making on its Level 3 autonomous vehicle software known as full self driving. The biggest change to our forecast is our long-term outlook for Tesla’s Level 3 autonomous vehicle software. The software, which is currently still in beta testing mode, appears to be closer to a rollout than we had expected. 

Dojo is the supercomputer that Tesla is using to train its AV software. However, over the next several years, the company plans to begin selling AI training to other companies using extra processing space. This should generate operating profits in line with software companies. Finally, Tesla plans to develop humanoid robots that can be used to perform dangerous or repetitive tasks, by creating a repurposed version of the same camera-based autonomous software that it is developing for cars in the humanoid robots, which will be programmed to perform simple tasks.

Bulls Say’s 

  • Tesla has the potential to disrupt the automotive and power generation industries with its technology for EVs, AVs, batteries, and solar generation systems.
  • Tesla will see higher profit margins as the company achieves its plan to reduce battery costs by 56% over the next several years.
  • Through the combination of its industry-leading technology and unique Supercharger network, Tesla offers the best function of any EV on the market, which will result in the company maintaining its market leader status as EV adoption increases.

Company Profile 

Founded in 2003 and based in Palo Alto, California, Tesla 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)

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

Outstripped coal prices yields a promising Fiscal 2022 for New Hope

The near-term outlook for New Hope is bright, with the global economic recovery and tight supply conditions providing support to the spot price for seaborne thermal coal (ex-Newcastle). The full-year fiscal 2022 EBITDA was expected to be AUD 676 million despite the ramp-down of production at the New Acland mine. With approval of Stage 3 of the New Acland mine yet to be secured, minimal contribution to coal sales is expected from New Acland in fiscal 2022 as Stage 2 production ramps down. Necessary Stage 3 approvals from the Queensland Government remain delayed by a legal challenge mounted by the Oakey Coal Action Alliance (OCAA) who oppose the ongoing mining at the site.

Financial Strength:

The last traded price of New Hope was 1.92 AUD. The PE ratio of New Hope during 2020 was 13.1, which makes it an undervalued stock. Moreover, it is trading 28% lower than its expected fair value (2.70 AUD). During 2020, EV/ EBITDA of 4.9 shows that the company is in good financial health. 

With realised coal prices exceeding the market expectations in New Hope’s final quarter of fiscal 2021, New Hope’s full-year fiscal 2021 result announcement eclipsed the analyst’s forecast by 6%. The late fiscal 2021 rally in thermal coal price witnessed the full-year fiscal 2021 EBITDA of New Hope rise 26% year on year to AUD 372 million.

Company Profile:

New Hope Corporation is an Australian pure-play thermal coal miner. Its two operating assets–the 100%-owned New Acland coal mine and its 80% interest in the Bengalla coal mine–produce a cumulative 12 million metric tons of salable thermal coal annually. The vast majority of New Hope’s production is sold into seaborne thermal coal export markets. Reserves at New Acland and Bengalla are sufficient to support multi-decade mine lives. New Hope’s undeveloped coal resources are extensive and include exploration status coal resources in excess of 1 billion metric tons in Queensland’s Surat basin.

(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
Philosophy Technical Picks Technology Stocks

Super Retail’s FVE Increases to an Expected Sales Uplift from Network Optimisation

The company’s fiscal 2021 sales of AUD 3,453 million and underlying earnings of AUD 307 million were broadly in line with our estimates. The trading update provided for the first seven weeks of fiscal 2022 is broadly tracking with full fiscal year estimate. Trading conditions in fiscal 2022 are likely to be more challenging than we anticipated just a few months ago with lockdowns heavily impacting retailing businesses in affected states. While the near-term trading outlook is similarly opaque as during Australia’s first COVID wave, we base our longer-term sales levels on historical growth trends. 

EBIT margins sharply increased in fiscal 2021, mostly due to less discounting because of greater consumer demand and relatively inelastic supply, as well as remarkable sales growth of 22% driving just as exceptional operating leverage. EBIT margins expanded some 450 basis points to almost 13%, after adjusting for lease accounting Standard AASB 16. In the five years to fiscal 2020, adjusted EBIT margins averaged just over 8%. Super Retail’s online sales increased by 43% in fiscal 2021, similar to the 44% achieved in fiscal 2020. E-commerce accounted for 12% of group sales in fiscal 2021, with outdoor specialist Macpac and sporting goods retailer Rebel leading with online penetration of 21% and 16%, respectively. The board declared a fully franked dividend of AUD 88 cents per share for fiscal 2021.    

Company’s Future Outlook 

We continue to expect consumer spending on auto parts, sporting goods, and outdoor gear to normalize by fiscal 2023 and with it currently elevated profit margins. In contrast, to match our intrinsic valuation with current share prices, we would have to assume increased spending levels on discretionary goods and higher profit margins to persist for much longer. We expect operating margins to weaken against a backdrop of replenished inventories, more discounting, and declining sales. we estimate a 9% drop in group revenue for fiscal 2022. The dividend was ahead of our AUD 84 cents forecast on a slightly higher than expected 65% payout ratio. While we maintain our 65% payout ratio forecast, we expect declining earnings to result in a lower dividend of AUD 64 cents in fiscal 2022, representing a 5% yield at current share prices

Company Profile 

Super Retail operates in Australia and New Zealand selling auto parts, sporting goods, and camping, fishing, and boating equipment. The group generates revenue of about AUD 2.5 billion. There are generally two to four larger players in each category in which the firm operates, with Super Retail the market leader in all three categories. The firm has been corporately active historically, adding to the sporting goods category in fiscal 2012 and acquiring Macpac of New Zealand in 2018.

(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
Dividend Stocks

Tapestry Closed F.Y.21 on Good Note with Attractive Shares

Handbags and some types of apparel have been selling well as economies in the U.S. and greater China have recovered. Tapestry has good momentum as it enters fiscal 2022, so it is expected to lift share fair value estimate of $43.50 by a mid-single-digit percentage. Tapestry is one of the few firms in the apparel and accessories space that is currently undervalued, especially after its share price slid 3% after the earnings report.

Against an easy comparison, Tapestry reported constant currency sales growth of 122% in the quarter, eclipsing 118% estimate. More importantly, its sales rose 7% as compared with 2019, with most of the growth attributable to Coach. As targeted by the Acceleration Program, the firm achieved the $200 million in gross expense savings in fiscal 2021 and expects to achieve $300 million in additional savings this year. 

Tapestry has reinstated its dividend as its business has rebounded nicely from the pandemic, and plans to resume share repurchases. It intends to pay a dividend of $1 per share in fiscal 2022. Capital allocation rating on Tapestry is Standard.

Company’s Future Outlook

Tapestry’s quarterly adjusted operating margin of 16.9% came in 40 basis points above 16.5% forecast. Tapestry guided to fiscal 2022 EPS of $3.30-$3.35 on $6.4 billion in sales. Tapestry’s outlook is achievable based on current momentum in the business. It is believed that Coach has the brand strength to hold recent pricing gains; this may be more difficult for Kate Spade and Stuart Weitzman. It also guided to $500 million in repurchases in fiscal 2022, which would be its most since before the 2017 Kate Spade deal. Tapestry may look for another large acquisition in the future. The firm’s new CEO, Scott Roe, has considerable experience with acquisitions. 

Company Profile

Coach, Kate Spade, and Stuart Weitzman are the fashion and accessory brands that comprise Tapestry INC (NYSE:TPR). The firm’s products are sold through about 1,500 company-operated stores, wholesale channels, and e-commerce in North America (62% of fiscal 2020 sales), Europe, Asia (32% of fiscal 2020 sales), and elsewhere. Coach (71% of fiscal 2020 sales) is best known for affordable luxury leather products. Kate Spade (23% of fiscal 2020 sales) is known for colorful patterns and graphics. Women’s handbags and accessories produced 68% of Tapestry’s sales in fiscal 2020. Stuart Weitzman, Tapestry’s smallest brand, generates nearly all (98%) of its revenue from women’s footwear.

 (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

Estee Lauder’s Currency Sales Grew to $16.2 Billion

missing $16.5 billion estimate, as an increasing number of COVID-19 cases resulted in another round of store closures across Europe, Latin America, and Asia (excluding China). Even so, fiscal 2021 sales are 6% above fiscal 2019 revenue (adjusted for acquisitions), supported by Estee’s ability to pivot to ecommerce, which increased to 28% of fiscal 2021 sales, compared with 15% in 2019.

 The travel retail channel has remained surprisingly resilient, which increased to 29% of fiscal 2021 sales, versus 23% in 2019. While international travel is largely curtailed, domestic trips have been strong, particularly in China’s Hainan province. 

Other factors that helped the firm return to prepandemic sales levels despite continued store closures are Estee’s strong brands (which underpins its wide moat rating) and the firm’s expertise in developing compelling new products, with innovations representing 30% of fiscal 2021 sales, well above the 15% targeted by many consumer products companies. Skin care is well above prepandemic levels, but makeup continues to lag, as mask mandates curb demand. But the firm has promising innovations and marketing programs lined up that it will rollout as mandates relax.

Company’s Future Outlook

Fiscal 2021’s adjusted operating margin increased 420 basis points to 18.9%, given tight expense controls. This margin upside should continue into fiscal 2022, as management’s guidance for adjusted earnings per share of $7.23-$7.38 is above our $7.06 estimate, although sales growth guidance of 13%-16% brackets 15% estimate. No change is expected in $249 fair value estimate, as modestly higher operating margins should be offset by a higher tax rate, 

Company Profile

Estee Lauder Inc (NYSE: EL) is the world leader in the global prestige beauty market, participating across skincare (52% of 2020 sales), makeup (33%), fragrance (11%), and hair care (4%) categories, with popular brands such as Estee Lauder, Clinique, MAC, La Mer, Jo Malone, Aveda, Bobbi Brown, Too Faced, and Origins. The firm operates in 150 countries, with 26% of revenue stemming from the Americas, 44% from Europe, the Middle East and Africa, and 30% from Asia-Pacific. The company sells its products through department stores, travel retail, multi brand specialty beauty stores, brand-dedicated freestanding stores, e-commerce, salons/spas, and perfumeries.

(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.