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IPO Watch

SEBI has put the IPOs of GoAir and Aditya Birla MF on hold.

According to Sebi’s most recent reports on the status of offer documents filed for public fund-raising, its observations on Aditya Birla MF’s offer document were “held in suspension.” Sebi cited the same grounds for rejecting GoAir’s IPO. If a firm or its group companies are the subject of a regulatory enquiry, Sebi normally holds off on giving its approval to a fund-raising strategy.

Sebi is reviewing GoAir’s group firm Bombay Dyeing for financial irregularities and fraud linked to a contract between Bombay Dyeing and SCAL Services, according to the IPO paperwork. An investigation began when one of Bombay Dyeing’s shareholders filed a complaint. GoAir filed a draught prospectus with the Sebi in May to fundraise Rs 3,600 crore.

Two of Aditya Birla MF’s sponsors, Aditya Birla Capital and the Indian branch of Sun Life Group of Canada, planned to offer 3.9 crore shares of the business to cut their joint interest by around 13.5 percent.

Sebi is apparently looking into a series of transactions between Aditya Birla Finance, a fund house’s group firm that has filed for an IPO, and CG Power’s backers, the Thapar family. The agreements were made in 2016.

Source: economictimes

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

TJX’s Long-Term Strength Remains, but International Exposure Elongates it’s Recovery

Near-term sales face headwinds outside the United States, with ongoing store closures in Europe and Canada (roughly 300 units as of May 1). However, we still believe TJX and its peers benefit from durable advantages over full-price apparel and home décor sellers, with strong brands, store experiences, and scale working to keep returns on invested capital high (high-20s average over the next decade).

TJX’s value proposition should resonate even as retail competition intensifies. While digital retailers are a factor (particularly if the pandemic durably increases e-commerce adoption), we see the off-price channel as relatively well protected, as the low-frills buying experience and 20%-60% discounts relative to the full-price channel result in competitive prices and superior economics after considering shipping and return costs. Vendors’ desire for discretion also favors physical stores that can discreetly sell merchandise without diluting top brands’ cachet.

With a global presence, TJX leverages an extensive merchandising operation and proprietary inventory management system to maintain a fast-changing assortment at significant discounts. We believe TJX’s ability to deliver a high-value lineup while maintaining strong returns is driven by its difficult-to-replicate sourcing and distribution agility. By accepting incomplete assortments without return privileges, paying promptly, and stocking brands discreetly (preserving labels’ conventional-channel pricing power by avoiding the stigma of a consistent discount presence), TJX is a valued partner for its more than 21,000 vendors, in our view. As a result, TJX can opportunistically offer a fast-changing, high-value assortment in a treasure-hunt format that is hard to replicate digitally.         

Financial Strength

TJX’s financial health is sound, and we expect it to weather the COVID-19 crisis. The firm drew $1 billion from its revolver and subsequently issued $4 billion in long-dated notes to bridge the crisis, and, with the worst of the pandemic seemingly passed, has since repaid the revolver and nearly $3 billion of other indebtedness. The firm has a historically conservative approach to debt that we do not expect to change. Management states that its maximum store count potential is 3,000 units at Marmaxx (from 2,450 at the end of fiscal 2021), 1,500 at HomeGoods (from 855), 650 in Canada (from 525), and 1,125 in its existing other international markets (from 742).

Bulls Say

  • With an agile merchandising and distribution network, TJX keeps store inventory fresh, spurring traffic while minimizing risks associated with fashion trends and freeing capital.
  • We believe digital retailers will have a more difficult time in encroaching on the off-price channel, particularly given the sector’s already-low prices and vendors’ demand for discretion.
  • TJX’s international operations should offer ample runway for growth and associated incremental cost leverage, with the store banners and off-price concept translating well abroad.

Company Profile

TJX is a leading off-price retailer of apparel, home fashions, and other merchandise. It sells a variety of branded goods, opportunistically buying inventory from a network of over 21,000 vendors worldwide. TJX targets undercutting conventional retailers’ regular prices by 20%-60%, capitalizing on a flexible merchandising network, relatively low-frills stores, and a treasure-hunt shopping experience to drive margins and inventory turnover. TJX derived 79% of fiscal 2021 revenue from the United States, with 11% from Europe (mostly the United Kingdom and Germany), 9% from Canada, and the remainder from Australia. The company operated 4,572 stores at the end of fiscal 2021 under the T.J. Maxx, T.K. Maxx, Marshalls, HomeGoods, Winners, Homesense, Winners, and Sierra banners.

(Source: Morningstar)

General Advice Warning

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

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Property

Qube Holdings Will Be Cashed Up After Selling Moorebank Warehouses

However, Qube’s strategy to consolidate a fragmented industry should deliver above-market rates of growth and scale benefits. Qube is developing the Moorebank intermodal terminal, located on the Southern Sydney Freight Line, to help alleviate congestion at Port Botany and drive efficiencies in the distribution supply chain. Moorebank, on full completion and ramp-up, should materially contribute to group earnings and deliver a strong competitive advantage for the group’s logistics operations.

Qube’s strategy is to consolidate the fragmented logistics chain surrounding the export and import of containers, bulk products, automobiles, and general cargo, to create a more efficient and cost-effective supply chain. The business has enjoyed some successes to date, though significant scope for industry consolidation remains. Qube to generate robust earnings growth over the long term on acquisitions, developments and organic growth. The domestic port logistics industry has traditionally been very fragmented, highly competitive, and inefficient. Currently, there are more than 250 operators providing port logistics services in one segment of the market.

Qube’s strategy is to provide a broad range of services nationwide, touching multiple segments of the import/export supply chain. Successfully developing its strategic land holdings into inland intermodal terminals should add materially to Qube’s future earnings and support cost advantages to less efficient peers. Qube aims to develop inland rail terminals as an alternative to moving container volumes from port via road. The bulk and general segments are highly fragmented and competitive but Qube is one of the largest players, with operations at 28 city and regional ports. The automotive stevedoring business operates in a duopoly market structure, holding long-term off-ship transportation, processing and storage contracts with major foreign vehicle manufacturers.

Financial Strength

The sale of Moorebank warehouses, Qube will be in strong financial health. Gearing (net debt/net debt plus equity) was 27% in December 2020, slightly up from from 26% in June but below Qube’s 30%-40% long-term target range. It should be in a net cash position after receiving Moorebank sale proceeds, providing ample headroom to fund developments and bolt-on acquisitions. We forecast net debt/EBITDA to fall from 3.8 at June 2020 to be at or below 1 over the medium term assuming the sale of the warehouses goes ahead as planned. Qube’s businesses have delivered steadily increasing operating cash flow in recent years, though operations remain cyclical. Recent growth initiatives should generate strong future cash flow, though a large-scale acquisition or development project may require new equity funding. Qube has significant capital expenditure requirements including Moorebank development. Qube is committed to paying 50%-60% of net operating profit after tax as dividends.

Qube Holding’s Port Logistics Services

  • There is significant potential to increase efficiency through vertical integration of port logistics services. Qube will attempt to deliver on this strategy through consolidation and integration.
  • The Moorebank Intermodal Terminal should become a key piece of Sydney’s transport infrastructure, driving strong returns for Qube.
  • Senior management has a proven track record in the port logistics segment and has demonstrated an ability to generate strong returns for shareholders.

Company Profile

Qube has three main divisions: operating; infrastructure and property; and Patrick. Operating undertakes road/rail transportation of containers to and from port, operation of container parks, customs/quarantine services, warehousing, intermodal terminals, international freight forwarding, domestic stevedoring, and bulk transport. Patrick is the container terminals business acquired from Asciano, and the infrastructure and property division includes tactical land holdings in Sydney.

(Source: Morningstar)

General Advice Warning

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

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Global stocks

Nestle’s Stellar Performance During Coronavirus Pandemic Is a Reflection of Its Wide Moat

With sales from premium products across categories estimated at around 26% of group sales and accounting for more than 50% of Nestle’s organic growth in fiscal 2019 in our calculations, we see heightened downside risks from recession-driven downtrading to cheaper private-label alternatives. The emergence of hard discounters selling private-label products and the threat of the online channel lowering barriers to entry for smaller, nimbler manufacturers that have proved to be more adept at identifying the niche opportunities are headwinds for large-scale consumer packaged goods firms.

Aside from structural cost-cutting efforts, the management team has put a lot of weight on reinvigorating growth through active portfolio management, resetting legacy businesses, and further investment in high-growth categories (coffee, pet care, water, and nutrition). Further, population growth, urbanisation, and economic growth are secular drivers in emerging markets, where the company sources a sizable and growing share of its sales, which should support medium-term volumes, though at a lower level than historical averages.

Financial Strength

Nestle has one of the strongest balance sheets in packaged food, and we regard it as having a low liquidity and refinancing risk profile. Nestle’s net debt/EBITDA of 1.4 times at the end of 2019 is well below its peer group average of around 3.0 times, and EBITDA covered interest expense by a very comfortable 16 times in 2019. Nestle faces maturities of around CHF 2 billion in 2020, CHF 4 billion in 2021, and CHF 2.7 billion in 2022, which we see as manageable, given the firm’s prodigious cash generation (10% average free cash flow to the firm as a percentage of sales over the past decade) and access to refinancing debt.

Leveraging the balance sheet to a level in line with peers could raise more than CHF 20 billion in additional capital. Further, Nestle owns 23% of wide-moat L’Oreal, a stake that could raise close to CHF 20 billion at our fair value estimate. With approximately CHF 2 billion more in excess cash on the balance sheet, Nestle has a potential pool of capital of more than CHF 40 billion, which would allow it to execute a transformative acquisition of a large-cap name. Nestle has historically spent CHF 1 billion-3 billion of its roughly CHF 10 billion in annual free cash flow on bolt-on deals. Nestle generates around CHF 4 billion per year in free cash flow after the dividend has been paid. Nestle could still deleverage to less than 1 time net debt/EBITDA by fiscal 2024 due to its improved profitability, leaving ample room for large acquisitions.

Nestle’s Geographic Reach

  • The breadth and diversity of Nestle’s portfolio and its geographic reach allow for easier absorption of brand and operational shocks.
  • Nestle’s global distribution network and entrenched supply chain relationships render the company one of the most effective platforms to develop and expand brands on a global scale (as seen in its latest partnership deal with Starbucks).
  • With margins lagging some of its large-cap peers, there should be plenty of low-hanging fruit with which Nestle could improve its financial performance.

Company Profile

With a 150-year-plus history, Nestle is the largest food and beverage manufacturer in the world by sales, generating more than CHF 90 billion in annual revenue. Its diverse product portfolio includes brands such as Nestle, Nescafe, Perrier, Pure Life, and Purina. Nestle also owns just over 23% of French cosmetics firm L’Oreal. The company has a vast portfolio of global products, with 34 brands each achieving more than CHF 1 billion in sales annually and a geographic presence that spans 189 countries.

(Source: Morningstar)

General Advice Warning

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

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Technology Stocks

Veeva Is a Leading Supplier of Healthcare Information Technology

Veeva’s effective technology and dominant position enables it to generate excess returns commensurate with a wide-moat company. The company’s strong retention, continued development of new applications, increasing penetration within existing customers, addition of new customers, and expansion into industries outside of life sciences should allow the company to extend its market leadership.

The company operates in two categories: Veeva Commercial Cloud, which entails vertically integrated customer relationship management (CRM) services and end-market data and analytics solutions; and Veeva Vault, a horizontally integrated content and data manager. Veeva’s CRM application supports real-time collaboration and regulatory oversight, and enables incremental add-on solutions. The incremental functionality is critical to improving marketing programs while remaining in compliance with mandated anti-kickback laws and statutes. This service has been well received by the life sciences industry and has propelled Veeva to become the leading solution with the lion share (approximately 80% market share) of this niche market. As a follow-on to the initial introduction of CRM, management introduced the Veeva Vault platform to broaden the portfolio that addresses the largely unmet needs of the life sciences industry outside of CRM. Each module offers features and functionality targeting four key areas within life sciences: clinical (R&D); regulatory (compliance); quality of manufacturing; and safety.

Financial Strength

Veeva enjoys a position of financial strength arising from its strong balance sheet (no debt) and leading position in a growing market. As of fiscal 2021 Veeva had over $1.6 billion in cash and short-term investments and no debt. The company will continue to use the cash it generates from operations to fund future growth opportunities. From our perspective, management has been disciplined about M&A and taking on debt. The 2019 acquisition of Crossix was the firm’s largest to date, at approximately $430 million.

Bulls Says

  • Veeva’s best-of-breed vertical addressing unmet needs provides opportunities to further penetrate a highly fragmented market.
  • The rapid adoption of the company’s new modules continues to entrench Veeva into mission-critical operations of customers, making it increasingly challenging for competitors to gain a foothold.
  • Veeva’s institutional knowledge and co-development partnerships with customers enable the company to develop robust offerings addressing market needs.

Company Profile

Veeva is a leading supplier of software solutions for the life sciences industry. The company’s best-of-breed offering addresses operating and regulatory requirements for customers ranging from small, emerging biotechnology companies to departments of global pharmaceutical manufacturers. The company leverages its domain expertise and cloud-based platform to improve the efficiency and compliance of the underserved life sciences industry, displacing large, highly customized and dated enterprise resource planning, or ERP, systems that have limited flexibility. As the vertical leader, Veeva innovates, increases wallet share at existing customers, and expands into other industries with similar regulations, protocols, and procedures, such as consumer goods, chemicals, and cosmetics.

(Source: Morningstar)

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

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Technology Stocks

Recuperation of Paychex in the Fiscal Fourth Quarter

investment stockbroker risk analysis. Financial analysis using phone app and laptop. Market trading profit.

Total revenue during the company’s fiscal fourth quarter was up 12% year over year. The management solutions segment was up 14% compared with the prior-year period, led by increased cross-selling of services outside payroll and an increase in payroll checks per client as businesses started to recover from pandemic lows. The professional employer organization and insurance solutions segment was up 13% as well, due to an increase in worksite employees.

The recovery in Paychex’s top line aided profitability, with operating margins improving to 34.4% from 32.7% last year. The positive effect was partially offset by expenses that were up 10% year over year, mainly due to an increase in performance-based compensation.

Company’s Future Outlook

Management’s current guidance suggests a solid rebound this fiscal year. Paycheck expects total revenue to grow 7% and operating margins to come in at 38%, with both of those levels roughly in line with our long-term expectations for the firm.

Company Profile

Paychex competes in the payroll outsourcing industry. It is the second-largest player in terms of revenue and focuses on providing this service to small and midsize businesses. Paychex was created from the consolidation of 17 payroll processors in 1979 and services about 590,000 clients. The firm has almost 13,000 employees and is based in Rochester, New York.

(Source: Morningstar)

General Advice Warning

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

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Global stocks Shares

Endeavour’s Leadership: Encouragement in Sustainable Cost Advantages of liquor market

Woolworths’ divestment of Endeavour separated the ESG risk of alcohol retailing and gaming machine operation from the broader supermarkets business and provided investors with the ability to tailor their risk exposures to each business. The impetus for divestment had risen in the years leading up to the separation of Endeavour as a standalone company along with the emergence of social oriented investment.

Endeavour’s business is divided into two segments. Its retail segment is Australia’s leading vertically integrated omnichannel liquor retailer, while Endeavour’s hotels segment provides hospitality services and gambling operations.

Company’s Future Outlook

We expect consumer demand for alcohol to be relatively steady through the economic cycle, exhibiting attributes of consumer defensives. For instance, like in food, liquor spending grew at around or above the 30-year average growth rate of 7% in fiscal years 2008 and 2009, respectively. However, data stretching back to the last Australian recession suggests liquor demand isn’t always recession-proof. According to the Australian Bureau of Statistics, Australian consumers significantly cut back on drinking in fiscal 1991 and liquor retailing took over two years to recover to its fiscal 1990 levels.

We estimate the Australian hotels market will predominantly be driven by the same factors as the off premises retail liquor market, namely population growth and inflation. We estimate a total market size at AUD 15 billion in fiscal 2020 and anticipate this to grow at a CAGR of 6% from lockdown-affected calendar 2020 to AUD 27 billion by fiscal 2030

Bulls Say

– Endeavour’s dominant retail market share of 47% is multiples of its closest competitors and provides a source of long-term sustainable cost advantage.

– Endeavour’s partnership agreements with Woolworths allow the business to leverage the scale and capabilities of Australia’s largest supermarket.

– Endeavour’s wide economic moat, strong competitive positioning and strong balance sheet will underpin a sustainable and steadily growing dividend.

Company Profile

Endeavour Group Ltd is an Australian drinks retailer of products such as liquor and operator of various licensed hospitality venues. Its portfolio of brands include Dan Murphy’s, BWS, Pinnacle Drinks, ALH Hotels, Jimmy Brings, Langton’s, among others.

(Source: Morningstar)

General Advice Warning

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

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Shares Technology Stocks

ARB Is an Attractive Business, but the Price Needs to Improve

Shares in ARB trade at a material premium to our unchanged fair value estimate of AUD 19.50. Granted, ARB is a high quality company. The firm’s ranges of vehicle accessories have established significant brand strength in Australia, underpinning our narrow economic moat rating for the firm.

The firms is extremely well-run and assign ARB an Exemplary capital allocation rating based on our assessment of balance sheet risk, investment efficacy, and shareholder distribution. We expect ARB to enjoy some operating leverage as its store network expands and its international businesses, most notably in the U.S., improve scale. But we do not believe the firm’s international foray will replicate the success enjoyed domestically.

The firm has been unable to enjoy this pricing premium offshore, as demonstrated by lower segment margins. In our view, ARB’s current lofty share price indicates domestic success is being extrapolated by investors to the firm’s international business.

Financial Strength

ARB’s balance sheet is in pristine condition. At Dec. 31, 2020, the company had no debt and a net cash position of AUD 84 million. This is despite major investment in the Thailand and Victoria warehouses and continued new store rollouts. We forecast the firm remaining in a net cash position through fiscal 2021, with short-term financing facilities providing further headroom in the balance sheet to meet cash flow requirements. The firm’s major funding requirements are store rollouts, international expansion, and working capital in line with growing sales.

Bulls Say

  • 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.
  • 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.
  • ARB has opportunities for growth with store roll-outs in Australia and continued overseas expansion.

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 centers across several countries. The Australian division, which generates the vast majority of group earnings, distributes through the ARB store network, ARB stockiest, 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.

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IPO Watch

Since its IPO, shares of Aussie Broadband (ASX:ABB) have increased by about 50%.

The corporation is likely to outperform its FY21 prospectus prediction. In its brochure, Aussie Broadband indicated that its standardised EBITDA for FY21 would be $12.3 million. The costs associated with the company’s first public offering are excluded from normalised EBITDA (IPO).

Aussie Broadband now estimates standardised EBITDA for the entire year to be between $17 million and $20 million, following two upgrades — one in the half-year report and the other in late May. This might put you 63 percent ahead of the prospectus.

Significantly higher rates of growth in the retail and business areas, as well as good cost control and marketing rebates, are credited with the improvements. One potential flaw in that estimate is that it only thinks Victoria’s May snap lockout will last one week, when it was later extended for a second week. Due to increased broadband consumption, Aussie Broadband’s costs tend to rise during certain times. It’s unclear how much of an impact this will have on the company’s full-year EBITDA.

About Aussie Broadband

Aussie Broadband Ltd is a telecommunications company. It provides NBN subscription plans and bundles to residential homes, small businesses, not-for-profits, corporate/enterprise and managed service providers. The company services all states and territories in Australia.

Source: MSN

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
IPO Watch

ASX welcomed three new IPOs

“With a total identifiable 1.1 million ounce JORC Mineral Wealth platform and 100% ownership of the area’s only gold mill, our goals are to illustrate the actual capabilities of this property package and maximise lengthy business value,” stated managing director Alexander Scanlon.

Wilson Asset Management Strategic Value (ASX:WAR)

This is the eighth LIC handled by Wilson and the second to list since COVID-19, following Salter Brothers’ listing earlier this month. It will, according to Wilson, benefit from the ability that the market has mispriced.

WAM Strategic Value seeks to produce exceptional risk-adjusted returns from a portfolio predominantly comprised of discounted asset opportunities identified utilising the established market-driven investment process we have created over the last two decades,” the company said in a statement to shareholders on Friday.

Camplify (ASX:CHL)

Campervan and motorhome renting community focused on the Australia and UK markets, completed the trio of new ASX IPOs that debuted today. Camplify went public after raising $11.5 million and reporting that its initial public offering (IPO) was almost four times oversubscribed, with customers being urged to acquire shares in the IPO and strongly supporting it. It is also supported by Apollo Tourism and Leisure (ASX:ATL), one of the ASX’s few other caravan specialists, who invested in the company in 2017 and now has a 17.8% share.

Source: MSN

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.