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Global stocks

Increase in Winnebago Industries’ dividend by 50%

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

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

Financial Strength:

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

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

Bulls Say:

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

the same.

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

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

Company Profile:

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

(Source: Morningstar)

General Advice Warning

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

Categories
Technology Stocks

Walmart’s Second Quarter Suggests Continued Strength Despite Normalization

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

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

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

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

Company Profile 

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

(Source: Morningstar)

General Advice Warning

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

Categories
Technology Stocks

Anthony’s Strong Sales Demand to Unwind as Restrictions Ease

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

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

Financial Strength 

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

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

Bulls Say’s 

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

Company Profile 

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

(Source: Morningstar)

General Advice Warning

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

Categories
Commodities Trading Ideas & Charts

Santos Limited (ASX: STO)

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

Key Risks

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

1H21 Results Highlights

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

Company Description  

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

General Advice Warning

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

Categories
Dividend Stocks

Bendigo & Adelaide Bank (ASX: BEN) Updates

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

Key Risks

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

FY21 Results Summary

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

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

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

Company Description

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

General Advice Warning

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

Categories
Commodities Trading Ideas & Charts

Beach Energy Ltd (ASX: BPT) Updates

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

Key Risks

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

FY21 Results Highlights

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

Company Description

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

General Advice Warning

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

Categories
Global stocks Shares

Steadfast Puts a Strong Shareprice to Work; Recommend Passing on This SPP

Insurers putting up rates to improve their own margins provides a nice tailwind for the resilient insurance broking industry. Steadfast will pay AUD 411.5 million for Coverforce, an EBITA multiple of 11 times after cost synergies. While the multiple is higher than the 9-10 times often paid for broker businesses, given Steadfast is funding the purchase with expensive shares, the deal is still attractive. Coverforce is the largest privately owned broker business in the network, overseeing AUD 530 million of GWP in fiscal 2021. Losing this group would not have been a good look for Steadfast.

The acquisition is straight from the playbook that has served Steadfast well. Owners often look to sell all or part of their broking business to release equity or as part of a succession plan. A share purchase plan to raise an additional AUD 20 million will also be offered. The SPP price will be set at the lower of the institutional placement price or 1% discount to the VWAP of Steadfast shares over the five trading days to September 13, 2021. Around 60% of Steadfast’s EBITA growth was organic, both volume and price increases. The remainder, from acquisitions and increased equity holdings in brokers within its network. The growth strategy reinforces the businesses competitive advantages and strengthens customer switching costs.

With insurers generating poor returns on capital, we expect premium rate increases to continue at around 5% per annum in fiscal 2022, but moderate to 2-3% per annum longer-term. The acquisition of Coverforce lifts Steadfast’s equity ownership in brokers within the network to 37% from 32%, leaving a long tail of investment opportunities over the long-term. Our forecasts assume annual NPAT growth of 14% per annum over the five-years to fiscal 2026.

Steadfast’s Future Outlook 

Our forecast sits above the range, with NPAT of AUD 174 million. We think management guidance is conservative given the price increases insurers are pushing to improve their own returns. We increase our fair value estimate 8% to AUD 4.00 per share as we incorporate the acquisition of Coverforce. We assume a 12% increase in shares on issue to fund the acquisition. We think the acquisition is likely to be a success. We do not recommend participating in the share purchase plan given the issue price is set at a floor of AUD 4.35 per share, a 9% premium to our fair value estimate. Steadfast is a good business, but expensive.

Back on the result, one aspect that missed our expectations was GWP on the Steadfast Client Trading Platform, or SCTP. Premiums on the platform increased 24% in fiscal 2021, but still make up less than 8% of broker GWP. Being more profitable for Steadfast, success here will provide an additional tailwind to earnings. e assume around 40% of GWP is written on the platform by fiscal 2026, down from our prior forecast of 50%, as it is taking longer than expected for insurers to integrate products onto the new platform.

Company Profile 

Steadfast Group is the largest general insurance broker network in Australia and New Zealand, with over 450 brokers and 2,000 offices in Australia, New Zealand, Singapore, and London. Steadfast operates as both a broker and a consolidator via equity interests in insurance broker businesses, generating close to AUD 10 billion of network broker gross written premium annually. Steadfast also co-owns and consolidates underwriting agencies and other complementary businesses.

(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
Property

General Property Trust Group Well Placed to Benefit from Economic Recovery

Mortgage concept, house and money with free space for text. Saving loan banking.

GPT has some major developments in the pipeline, particularly in the office and industrial space, and as these complete, we expect rental income to become a larger portion of revenue over time. Its office portfolio includes stakes in Sydney’s Australia Square and Governor Phillip Tower, Brisbane’s One One One Eagle St and the neighbouring Riverside Centre, and numerous properties in and around Collins St in Melbourne’s CBD. Retail property remains a large exposure, making up about 40% of GPT’s directly held property and one third of its funds management assets. 

GPT has not been acquiring retail properties lately, limiting investments to refurbishments or redevelopments. The group has several development opportunities, with the most significant being an as yet uncommitted redevelopment of Darling Park and Cockle Bay, which we expect will create an entirely new precinct above Sydney’s western distributor. GPT has moderate exposure to industrial property, and launched its first industrial property funds management vehicle in 2020. Ownership of industrial property has been an increased focus.

Financial Strength 

GPT is in solid financial health, with gearing (net debt to assets) of 24.5%, as at June 30, 2021. This is slightly below the group’s targeted range of 25%-35%. We expected gearing would rise based on further acquisitions and development, however, its a possibility that GPT will save its ammunition until the outlook improves further. Gearing is also likely to rise due to further devaluations in the office and retail portfolio. GPT is likely to be able to rollover the debt, given its interest cover ratio was roughly eight times, based on the June 2021 accounts. The weighted average debt maturity is 7.4 years, and two thirds of debt is hedged, reducing interest-rate risk. The weighted average cost of debt of 2.7% which fell from 3.1% in December 2020. 

GPT Group made a decent comeback in the first half of fiscal 2021, driven by a recovery in rental collections, leasing activity, and retail sales. Funds from operations per security grew 25% on pcp, to AUD 15.6 cents, in line with our expectations. GPT announced an interim dividend of AUD 13.3 cents per share which is on track to meet our full year estimate of AUD 25 cents per share. GPT bought back 32 million securities at an average price of AUD 4.54, which was moderately below the market price, and well below our fair value estimate. 

Our cost of capital assumptions for GPT are unchanged but we factor in savings from a remarkably low average cost of debt of 2.7% that is locked in for more than seven years. Our long-term thesis remains intact with expectations that GPT will recover to prepandemic levels in fiscal 2022, delivering an FFO per security of AUD 32 cents per share. GPT’s prime office portfolio is well placed to capture employers looking to make upgrades to prime-grade offices better accommodated to flexible working. 

Bulls Say’s

  • GPT has several development plans that are near shovel-ready. Unlike rivals, GPT’s strong balance sheet means it has the flexibility to proceed with these projects when it chooses to.
  • GPT’s office, industrial and funds management businesses diversify income sources, meaning it should see the benefits of an eventual post-COVID-19 recovery.
  • Demand for quality real estate remains from the likes of pension funds, sovereign wealth funds and other offshore investors, which should drive buying in the direct property market and limit valuation falls.

Company Profile 

GPT Group was listed in 1971 and is Australia’s oldest listed property trust. The business strategy is not particularly differentiated from peers, other than through its particularly conservative gearing and modest emphasis on development activity. The portfolio weighting to industrial is a major growth area for the firm, but is still minor at about 20% of total revenue. GPT remains dominated by retail malls that generate about a third of its revenue, and another quarter from office.

(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

Charter Hall Retail REIT Looks Defensive; Shares Fairly Valued

But we maintain our long-term assumptions and AUD 3.85 fair value estimate, which sees the stock screen as fairly valued. The REIT announced a final distribution of AUD 12.70 cents per security, taking full year distributions to AUD 23.40 cps. As a result of recent restrictions, the New South Wales and Victorian governments have reimplemented a landlord code of conduct similar to that enforced in 2020. The scheme forces landlords to provide rent waivers and deferrals for small to medium enterprises where turnover has been curtailed due to restrictions. This is likely to push more consumers to online shopping channels, fuelling the ecommerce trend.

While the near-term impact hurts especially with lockdowns potentially lasting late into calendar 2021 in line with the current vaccine rollout pace, the overall impact on Charter Hall Retail should be contained, relative to the impact in 2020. Its portfolio is increasingly dominated by major longleased tenants that are not eligible to defer rents under the government schemes. Also, the REIT has made significant efforts to increase omnichannel capabilities for tenants including click and collect facilities. This should reduce the financial impact on stores and thus reduce the need to waive or defer rent.

Company’s Future Outlook 

We forecast operating earnings per share to increase by 5% to AUD 28.60 per security in fiscal 2022, underpinned by a 2% increase in rental growth. We don’t expect there to be another equity raising, even in an extended lockdown, after one in 2020. Overall Balance sheet gearing looks modest at 33%, which sits at the midpoint of the target range of 30% to 40%. We view 55% of the REIT’s tenants as defensive (unlikely to miss a rent payment), which include the likes of Woolworths, Coles, bp, Wesfarmers, and Aldi. Supermarkets and service stations are also less likely to be impacted by COVID-19 restrictions. The proportion of portfolio income that these major tenants contribute to has steadily increased over the years, with the top five listed above representative of 54% of the portfolio income, up from 51% in fiscal 2020.

Company Profile 

Charter Hall Retail REIT, or CQR, owns and manages a portfolio of convenience focused retail properties, including neighbourhood and subregional shopping centres, service stations, and some retail logistics properties. The REIT is managed by Charter Hall, a listed, diversified fund manager and developer, which owns a minority stake in CQR, and frequently partners with it on acquisitions and developments. More than half of rental income comes from major tenants Woolworths, Coles, Wesfarmers, Aldi and BP (the latter occupies service station assets). The portfolio is more seasoned than some convenience rivals, with approximately two thirds of supermarket tenants at or near thresholds for paying turnover-linked rent.

(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.