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IPO Watch

Sapphire Foods IPO: Another KFC, Pizza Hut operator files draft papers with SEBI to raise funds

Sapphire Foods’ initial public offering (IPO) consists of 1,75,69,941 equity shares and is a full offer for sale by shareholders. QSR Management Trust (QMT) owns 8.5 lakh equity shares, Sapphire Foods Mauritius owns 55,69,533 equity shares, and WWD RUBY owns 48,46,706 equity shares, Amethyst has 39,61,737 equity shares, AAJV Investment Trust has 80,169 equity shares, Edelweiss Crossover Opportunities Fund has 16,15,569 equity shares, and Edelweiss Crossover Opportunities Fund – Series II has 6,46,227 equity shares.

Sapphire Foods’ potential IPO was initially reported by Moneycontrol on December 17. Sapphire Foods, which is backed by Samara Capital, raised Rs 1,150 crore from private equity investors Creador, NewQuest Capital Partners, and TR Capital earlier this week. As of March 2021, Sapphire Foods runs 437 restaurants in India, Sri Lanka, and the Maldives under the KFC, Pizza Hut, and Taco Bell brands. Investors such as Samara Capital affiliates, Goldman Sachs, CX Partners, Creador, and Edelweiss are backing an omnichannel restaurant operator.

Due to the increased demand for delivery and takeaway services as a result of the Covid-19 outbreak, and depending on market dynamics and adjacent catchments, the company is contemplating smaller formats for new restaurants in order to cut down on one of the company’s biggest expenses – rent. 

Colonel Harland D Sanders started KFC in Corbin, Kentucky, in 1939; the first Pizza Hut restaurant opened in Wichita, Kansas, in 1958; and the first Taco Bell restaurant opened in Downey, California, in 1962. YUM! and its franchisees operated more than 50,000 locations worldwide as of December 31, 2020.

The book running lead managers for Sapphire Foods’ IPO are JM Financial, BofA Securities India, ICICI Securities, and IIFL Securities. Devyani International, another KFC, Pizza Hut, and Costa Coffee quick service restaurant operator, recently collected Rs 1,838 crore through a public offering that was oversubscribed 116.7 times.

Company Profile 

SAPPHIRE FOODS INDIA PRIVATE LIMITED COMPANY, is an entity incorporated on 10 November 2009 under Ministry of Corporate Affairs (MCA). SAPPHIRE FOODS INDIA PRIVATE LIMITED COMPANY is also an entity listed under Class as a Private organization having Registration Number for the Company or Limited Liability Partnership as 197005. SAPPHIRE FOODS INDIA PRIVATE LIMITED COMPANY is a Non-govt company and further SAPPHIRE FOODS INDIA PRIVATE LIMITED COMPANY is Classified as a Company limited by Shares. The concerned entity is incorporated and registered under its relevant statute by the Registrar of Companies (i.e. R.O.C), RoC-Mumbai. The official address for the Registered office of the organization in question i.e. SAPPHIRE FOODS INDIA PRIVATE LIMITED COMPANY is 131, 13th Floor Free Press House Building Mumbai Mumbai City MH 400021 IN.

(Source: Fact Set)

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

Charter Hall Long WALE REIT(CLW) updates

  • Strong history of delivering continuing shareholder return and dividends.
  • Solid balance sheet position.
  • Strong property portfolio metrics.
  • Selective asset acquisitions.
  • Expiry risk is relatively low in the near-term. 
  • Attractive yield in the current low interest rate environment.

Key Risks

We see the following key risks to our investment thesis:

  • Regulatory risks.
  • Deteriorating property fundamentals, including negative rent revisions. 
  • Deterioration in economic fundamentals leading rent deferrals etc. 
  • Sentiment towards REITs as bond proxy stocks impacted by expected cash rate hikes.
  • Deterioration in funding costs.

Portfolio highlights.

 $5.6bn property portfolio, up from $3.6bn, driven by $1.4bn of property acquisitions and $523m net property revaluation uplift. NTA of $5.22 per security, is a +16.8% increase from FY20. The acquisitions are broken down as follows:

  • $638m of Retail: 50% interest in David Jones, Sydney CBD flagship store with a 20-year triple net lease to David Jones; bp NZ Portfolio of 70 convenience retail properties on triple net leases to bp Oil New Zealand for 20-year WALE; 33.3% interest in Myer Bourke Street Mall, Melbourne flagship store with a 10-year net lease to Myer; Bunnings property to be developed in Caboolture, Brisbane and established Bunnings property in Baldivis Perth; 50% interest in The Parap Tavern, Darwin and Terrey Hills Tavern, Sydney, leased to Endeavour Group on initial 15-year triple net leases and 100% interest in Ampol travel centre in Redbank Plains, Brisbane.   
  • ( ii) $361m of Social Infrastructure: Telco Exchange property at 76-78 Pitt Street, Sydney with 10-year triple net lease to Telstra and 50% interest in life sciences property leased to Australian Red Cross in Sydney, with 9.6-year lease remaining. 
  • $311m of Office: 50% interests in Commonwealth Government properties, comprising A-grade office building in Tuggeranong, Canberra, leased to Services Australia and two A-grade office towers in Box Hill and Albury, Victoria majority leased to Australian Tax Office.
  • $83m of Industrial & Logistics: 100% interest in prime industrial property in Carole Park, Brisbane leased to Simon National Carriers on a 15-year net lease.

Company Description  

Charter Hall Long WALE REIT (ASX: CLW) is an Australian REIT listed on the ASX and investing in high quality Australasian real estate assets (across office, industrial, retail, agri-logistics and telco exchange) that are predominantly leased to corporate and government tenants on long term leases. CLW is managed by Charter Hall Group (ASX: CHC).

General Advice Warning

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

Categories
Property

Goodman Group (GMG) Updates

  • Strong property fundamentals which should see valuation uplifts. 
  • With more than 50% of earnings derived offshore we expect GMG to benefit from FX translation and a prolonged period of lower rates.
  • Transitioning to longer and larger projects in development
  • Strong performances in Partnerships such as Cornerstone.
  • GMG’s solid balance sheet providing firepower and access to expertise to move on opportunities in key gateway cities with demand for logistics space (and supply constraints) and diversify risk by partnering (i.e. growth in funding its development pipeline) or co-investment in its funds and or make accretive acquisition opportunities. 
  • Expectations of continual and prolonged lower interest rate environment globally (albeit potential rate hikes in the US) should benefit GMG’s three key segments in Investments, Development and Management.

Key Risks

We see the following key risks to our investment thesis:

  • Any negative changes to cap rates, net property income.
  • Any changes to interest rates/credit markets.
  • Any development issues such as delays.
  • Adverse movements in multiple currencies for GMG such as BRL, USD, EUR, JPY, NZD, HKD and GBP.
  • Any downward revaluations.
  • Poor execution of M&A or development pipeline.
  • Key man risk in CEO Greg Goodman.

By segments

 (1) Property investment: – GMG’s portfolio retained strong property fundamentals driven by “the prolonged impacts of the global pandemic [which] continue to accelerate consumers’ propensity to shift to online shopping. Logistics and warehousing has provided critical infrastructure to enable distribution of essential goods to time-sensitive consumers through this period”. GMG’s portfolio had high occupancy at 98.1%, weighted average lease expiry of 4.5 years, and like-for-like NPI growth at 3.2%. 3.9m sqm of leasing equated to $517.1m of annual rental property income. 

(2) Development: – GMG was able to grow WIP to $10.6bn, up +63% on FY20 (across 73 projects with a forecast yield on cost of 6.7%). According to management, 81% of current WIP is being undertaken within Partnerships and GMG commenced $6.6bn in new developments with 57% committed. Management noted “metrics across the workbook remain robust as we maintain our focus on infill target markets, resulting in high levels of pre-commitment at 70% with a 14-year WALE”. 

(3) Management: – GMG saw strong uplift in revaluations of $5.8bn driving growth in total AUM to $57.9bn (up +12%). GMG expects development WIP will organically grow AUM (which management expects to exceed $65bn in FY22). Weighted average cap rate (WACR) compressed 55bps to 4.3% during FY21. Average Partnership gearing is 17.5%. Average total return in the Partnerships of 17.7% driven by strong development performance. 

Company Description  

Goodman Group Ltd (GMG) own, manage, develop industrial, warehouse and business park property in Australia, Europe, Asia and Americas. GMG actively seeks to recycle capital with development properties providing stock for ownership by either the trust or third party managed funds, with fees generated at each stage of the process.

General Advice Warning

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

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Global stocks Shares

GrainCorp’s Fortunes Rely on a Normalized Crop Growing Year over the Long Term

handling, and port elevation services along the eastern seaboard of Australia. Earnings are heavily affected by seasonal conditions, but the diversification into oilseed crushing and refining reduces earnings volatility and provides growth opportunities. However, the firm has carved an economic moat, and forecast returns on invested capital to trail the firm’s cost of capital over the long run.

GrainCorp’s core Australian grain storage and logistics business is heavily reliant on favorable weather patterns. Beyond storage and logistics, the grain marketing segment competes domestically and internationally against other major commodities trading houses such as Cargill and Glencore. 

Outside of the agribusiness segment, it is forecasted roughly 2% organic annual growth in the processing segment top line after adjusting for a planned sale of Australian bulk liquid storage assets, combined with slight profitability expansion following recently completed restructuring. As such, project overall group revenue growing at a low-single-digit average annual pace past fiscal 2020, while EBIT margins rise to roughly 3.3%. We use a 9.5% weighted average cost of capital to discount future cash flows.

Financial Strength

Graincorp Ltd (ASX: GNC) capital structure is reasonable. It comprises debt and equity, with noncore debt associated with the funding of grain marketing inventory. As a result of swings in crop prices, GrainCorp’s cash flow and working capital requirements can be volatile, so the company will need to drawdown on debt on demand. The primary metrics are its net debt/capital gearing ratio and EBITDA/interest ratio. Gearing ratios can be volatile, given the swings in inventory levels.  Management doesn’t disclose the minimum EBITDA/interest ratio. In fiscal 2020, this ratio was about 4 times on an adjusted basis. We expect improvement to an average of around 19 times over the next five years, as EBITDA rebounds and interest expense remains low.

Bull Says

  • With strategic processing, storage, and transportation assets, GrainCorp’s size gives the company scale advantages over regional competitors.
  • Global thematic, such as increased food demand, particularly in Asia, should benefit agribusinesses such as GrainCorp. 
  • Despite divesting the malt business, GrainCorp has entered into a new grains derivative contract which assists with smoothing out earnings through the cycle.

Company Profile

Graincorp Ltd (ASX: GNC) is an agribusiness with an integrated business model operating across three divisions. The company operates the largest grain storage and logistics network in eastern Australia. GrainCorp provides grain marketing services to all major grain-producing regions in Australia, as well as to Canadian and U.K. growers. The company has also diversified

(Source: Morningstar)

General Advice Warning

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

Categories
Funds Funds

Lazard Global Small Cap Fund Updates

Well-resourced team

The Lazard Global Small Cap Fund is managed by an experienced team of 7 Portfolio Managers (most with >20 years industry experience) working as regional generalists led by Edward Rosenfield. The Portfolio Management team has been working together for 13 years on average with the lead PM having worked on the strategy for ~20 years. This makes the team one of the largest, well-credentialed and experienced teams managing FUM in the asset class. Further, the team is supported by the broader Lazard family of analysts (categorized as Global Sector Specialists). This team comprises of more than 100 investment professionals and is considered one of the largest teams. The back and middle office support provided by the wider Lazard group is a positive in our view, as it leaves the PMs to focus on investing rather than other activities.

Disciplined investment process rooted in fundamentals analysis

The Fund uses a rigorous investment process with the Managers employing an active investment style, characterised by incorporating bottom-up investment research, which is underpinned by extensive visitations and meetings with Companies and experts, in assessing fundamentals and valuations of individual securities. In our view, this should lead to the team being able to garner informational advantages and insights over their peers. Indeed, the team’s focus on companies in emerging markets, with capitalisations of between US$300m and US$5bn, or in the range of companies included in the MSCI World Small Cap Accumulation Index, is under researched and a less efficient part of the market (i.e. where mispricing of asset valuations are more prevalent), makes sense in our view.

Solid absolute performance but relative underperformance

Although past performance is not an indicator for future performance, it is an indicator of whether the Fund’s strategy has worked in the past. Although the Fund has performed well on an absolute basis, the Fund has now underperformed relative to its benchmark by ~3.6% p.a. (5 years performance numbers) and a marginal -0.8%, since inception.

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

Disney’s Strong Q3 Results, Subscriber Growth at Disney+ Driven by Hotstar

third quarter as revenue and EBITDA came in well ahead of expectations. Disney+ added 12.4 million customers to end the quarter at 116 million subscribers due in part to the return of cricket, still below the 21 million added in the fiscal first quarter but well ahead the 8 million in the second quarter.

The FVE is raised to $170 from $154 due to the lower-than expected streaming losses and stronger subscriber growth. Revenue for quarter has increased by 45% over years to $17 billion. While the ongoing pandemic creates near-term uncertainty, relatively strong consumer demand and the continued growth in bookings remain encouraging signs for a return to long-term growth.

Revenue for the media and entertainment distribution division improved by 18% to $12.7 billion as the growth at direct-to-consumer services and linear networks more than offset the continued declines at the content sales/licensing segment.

Financial Strengths

Revenue for the media and entertainment distribution division improved by 18% to $12.7 billion as the growth at direct-to-consumer services and linear networks more than offset the continued declines at the content sales/licensing segment. Revenue at the DTC segment jumped up by 57% to $4.3 billion. Disney+ ended the quarter with 116 million paid subscribers, up from 103.6 million at the end of last quarter. Subscriber growth was driven by additional country launches and continued growth for Disney+ Hotstar. Hotstar subscribers now represent a little fewer than 40% of the Disney+ subscriber base, versus one third last quarter, which implies that most of the new subscribers came from the Asian platform.

Company Profile

The Walt Disney Company (NYSE: DIS) owns the rights to some of the most globally recognized characters, from Mickey Mouse to Luke Skywalker. These characters and others are featured in several Disney theme parks around the world. Disney makes live-action and animated films under studios such as Pixar, Marvel, and Lucasfilms and also operates media networks including ESPN and several TV production studios. Disney recently reorganized into four segments with one new segment: direct-to-consumer and international. The new segment includes the two announced OTT offerings, ESPN+ and the Disney SVOD service. The plan also combines two segments, parks and resorts and consumer products, into one. The media networks group contains the U.S. cable channels and ABC. The studio segment holds the movie production assets.

(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

GTA Continues to Deliver For Take-Two; Raising FVE to $200

the larger third-party video game publishers and owns one of the largest most well-known video game franchises in Grand Theft Auto (GTA). The firm is well positioned not only to capitalize on the success of Grand Theft Auto, but also to continue diversifying its revenue beyond its signature franchise. It is expected Take-Two to continue to benefit from the high demand for consoles, the ongoing revitalization of PC gaming, and the growth of mobile gaming.

Take-Two generally focuses on the higher end, using both its capital to fund the higher-budget blockbusters and its marketing advantage over independents in terms of both budget and established networks to support its titles. The new fair value estimate of $200 per share implies a fiscal 2022 price/earnings of 42, enterprise value/adjusted EBITDA multiple of approximately 27, and free cash flow yield of approximately 3%.

Take-Two introduced a separate multiplayer mode, GTA Online, with the launch of GTA V in 2013. The mode has helped this installment sell over 145 million units by expanding its life cycle and monetization. As a result, GTA V will be launched onto its third generation of consoles in November 2021, likely pushing the potential launch of GTA VI even further out.

Financial Strength

Take-Two is in very good financial health. As of March 2020, Take-Two had over $1.3 billion of cash on hand and carried approximately no debt, a conservative capital structure for a company that generated over $540 million in free cash flow in fiscal 2020. The more consistent free cash flow generation is due in part to management’s efforts to diversify and expand its release slate as well as “GTA Online” expanding the lifecycle and monetization of “Grand Theft Auto V” with free DLC and micro transactions. It is expected that the firm will continue to reinvest its cash into developing new franchises and into R&D for video game engines and video game specific technologies. We also project that the firm will continue to make acquisitions, specifically within mobile and PC game development. 

Bull Says

  • Take-Two has established newer large franchises, such as “Borderlands,” while revitalizing older ones, such as “Xcom.”
  • “Grand Theft Auto” is one of the largest and best known video game franchises, with more than 345 million units sold over its life.
  • The introduction of “GTA Online” in “Grand Theft Auto V” enabled the firm to monetize the game beyond the initial sale.

Company Profile

Found in 1993, Take-Two Interactive Software Inc (NASDAQ: TTWO) consists of two wholly owned labels, Rockstar Games and 2K. The firm is one of the world’s largest independent video game publishers on consoles, PCs, smart phones, and tablets. Take-Two’s franchise portfolio is headlined by “Grand Theft Auto” (GTA) (345 million units sold) and contains other well-known titles such as “NBA 2K,” “Civilization,” “Borderlands,” “Bios hock,” and “Xcom.”

 (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
Funds Funds

Perpetual Pure Equity Alpha Fund Updates

Highly rated PM backed by a strong team

The Portfolio Manager of the Fund, Mr. Paul Skamvougeras has extensive experience and track record as an analyst and fund manager, with 25 years industry experience and 15 years with Perpetual. Further, Mr. Skamvougeras is well supported by Mr. Anthony Aboud and the wider Perpetual team of analysts and PMs. Whilst we think highly of Mr. Skamvougeras, we are concerned about his ever-increasing responsibilities (as he is also PM of the Concentrated Equity, Pure Equity Alpha and Pure Value strategies, and Head of Research) and the time he has available for the Fund. Likewise, in our view, Mr. Aboud has significant other responsibilities as he is also PM of Perpetual’s other funds (Industrial Shares, SHARE-PLUS Long-Short) and is also an analyst.

Solid investment process backed by bottom-up research

The investment process is a bottom-up selection approach focused on quality and valuation for both long and short positions. In our view, the Fund is able to take advantage of rising and falling markets and provides useful protection for investors against falling markets.

A note on fees and benchmark

In our view, investors should be comfortable with the Fund’s fees, which are higher than its wider peer group. Furthermore, in our view, we note that the Fund’s performance is measured against the RBA cash rate (which is currently a low hurdle in our view); and in our view, a ‘more appropriate’ benchmark would be an equity benchmark, such as the ASX200 or ASX300, especially when charging performance fees.

General Advice Warning

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

Categories
Property

Charter Hall Social Infrastructure REIT Updates

Minature houses resting on pound coin stacks concept for property ladder, mortgage and real estate investment
  • Majority of leases are triple-net leases.
  • CQE is a play on (1) population growth; (2) increasing awareness of early childhood education; (3) increasing number of families with both parents working and hence demand for childcare services. CQE has increased its portfolio weighting towards social infrastructure assets.
  • CQE’s tenants possess strong financials 
  • Strong history of delivering continuing shareholder return and dividends.
  • Solid balance sheet position.
  • Strong tailwinds for childcare assets and social infrastructure assets.

Key Risks

We see the following key risks to our investment thesis:

  • Regulatory risks.
  • Deteriorating property fundamentals.
  • Concentrated tenancy risk, especially around Goodstart Early Learning.
  • Sentiment towards REITs as bond proxy stocks impacted by expected cash rate hikes.
  • Broader reintroduction of stringent lockdowns across Australia due to Covid-19.

Property Portfolio Highlights

During FY21, CQE increased its portfolio weighting to social infrastructure assets, diversifying from a pure childcare focus. Key highlights (relative to FY20): 

(1) CQE saw revaluation uplift of $119.4m, up +11.1% net of capex and on a passing yield of 5.6%. 

(2) Portfolio WALE of 15.2 years, increased from 12.7 years. The portfolio was 100% occupied and lease expiries within the next five years are at 3.4% of rental income. 

(3) The majority of leases (73.2%) are now on fixed rent reviews up from 53.6% at FY20, resulting in a forecast WARR of 2.9%. 

(4) Social Infrastructure Acquisitions: CQE acquired 

  • Mater Health corporate headquarters and training facilities for $122.5m (passing yield of 4.84%, underpinned by a new 10-year lease to Mater and fixed annual rental increases of 3.0%). Mater, Queensland’s largest Catholic, not-for-profit health provider, with net assets of over $1bn; and 
  • South Australian Emergency Services Command Centre and adjacent car park (in construction), for $80m (passing yield of 4.8%). On completion, the asset will be leased to the South Australian Government (85% of property’s total income) and occupied by four Government emergency services agencies on a 15-year lease, with fixed 2.5% annual rent escalations and two 5-year options.

 (5) Childcare Portfolio: CQE acquired three new childcare properties for $12.6m (purchase yield of 6.4%; all leased to ASX-listed tenants on average lease expiries of 20 years). CQE divested “non-core assets to recycle capital into properties with more favourable property fundamentals to improve the quality of the portfolio”; divesting 44 properties for $85.3m (including remaining 20 NZ assets), on average yield of 5.9% resulting in a 5.7% premium to book value. These divestments encompass smaller centres (average of 67 places), short WALE (average 6.6 years) and lower socio-economic locations. CQE also completed ten developments with $69.7m completion value and a yield on cost of 6.1%. CQE’s childcare development pipeline: 14 projects, of which 9 are expected to be completed during FY22.

Company Description  

Charter Hall Social Infrastructure REIT (formerly Charterhall Education Trust) (ASX: CQE) is an ASX listed Real Estate Investment Trust (REIT). It is the largest Australian property trust investing in early learning properties within Australia and New Zealand but recently widen its mandate to also invests in social infrastructure properties.

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

Shares of Pilgrim’s Go Hog Wild on Takeout Proposal from JBS but Still Offers Upside

 José Batista Sobrinho (JBS) seeks to simplify its corporate structure by delisting Pilgrim’s as a public company, allowing for a reduction in administrative expenses and an increase in operational flexibility. The proposal equates to an $8.4 billion enterprise value, 6.3 times our 2022 EBITDA estimate and 6.5 times. However, it is a light offer, particularly when compared against the 9.1 times Sanderson Farms agreed to be purchased earlier this week by Cargill and Continental Grain Company. 

Shares of Pilgrim’s popped more than 20% on the news to above $27, suggesting investors also think there could be upside to the offering. The proposal now stands to be reviewed by a special committee of Pilgrim’s board of directors and, if approved, would need to be supported by a majority of Pilgrim’s shareholders excluding JBS, which should take several months to conclude.

There are three potential outcomes, 1) Pilgrim’s board could negotiate a higher price (we see this as the most likely scenario as our $32 intrinsic value suggests 17% upside), 2) the $26.50 deal could be accepted (causing the stock to move 3% lower), or 3) a deal cannot be reached, putting the stock at risk of gravitating towards its pre-offer price of $22.68 (17% lower). 

Although shares of Pilgrim still trade at a mid-teens discount to our fair value estimate, we also continue to view no-moat Conagra and wide-moat Kellogg as attractive investment options, trading 20% below our assessments of intrinsic value.

Company Profile 

Pilgrim’s Pride Corp (NASDAQ: PPC) is the second-largest poultry producer in the U.S. (62% of 2020 sales), Europe (27%), and Mexico (11%). The 2019 purchase of Tulip, the U.K.’s largest hog producer, marks the firm’s entrance into the pork market, which represented 11% of 2020 sales. Pilgrim’s sells its protein to chain restaurants, food processors, and retail chains under brand names Pilgrim’s, Country Pride, Gold’n Plump, and Just Bare. Channel exposure is split evenly between retail and food service, with the majority of food-service revenue coming from quick-service restaurants. JBS owns 80% of Pilgrim’s outstanding shares.

 (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.