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Shares Small Cap Technical Picks

Vornado Should Benefit From New York’s Office Recovery

The company now generates about 90% of its net operating income from New York City. While the focus is certainly on premier office properties, Vornado continues to invest in high-quality retail. Around 60% of companywide NOI comes from New York office properties, with New York retail generating around one fifth of total NOI.

In contrast with its New York office REIT peers, Vornado has made a concentrated bet on developments in the Penn District submarket just east of the Hudson Yards megaproject. The new development should have positive knock-on effects by increasing foot traffic and rents, as the project adds activity to a once-drab slice of Manhattan. Despite investor concern about oversupply in the region and the spectre of a massive rise in remote work due to the coronavirus pandemic, New York will remain a hub for global talent in the long run. With its enviable roster of blue-chip office and retail tenants, Vornado should benefit from healthy rent collections despite the coronavirus crisis.

Vornado only owns two non-New York properties in well-located central business districts in Chicago and San Francisco. In San Francisco, 555 California Street has benefited from healthy tech office demand in a supply-constrained region. In Chicago, the Merchandise Mart has likewise performed well, emerging as a hub for tech office users in the Midwest. With the completion of the Art on the Mart digital exhibition in 2018, the building is set to continue to benefit from its great location and iconic status within the Chicago office market.

Financial Strength

We view Vornado’s balance sheet as a slight concern, with the firm carrying more debt than many of its already bloated office REIT peers. We forecast 2021 debt/adjusted EBITDA to be around 11 times, with adjusted EBITDA/interest of 3.4 times. We forecast debt/EBITDA to decline gradually over the next 10 years. As a real estate investment trust, Vornado Realty is required to pay out at least 90% of its income as dividends to shareholders. Vornado’s 2020 dividend payout represented an elevated 110% of its funds from operations figure, although this is slightly obscured by acute COVID-related cyclicality.

Company’s Megaproject

Vornado’s well-located portfolio of office and retail assets attracts the highest-quality tenants. Developments near the Hudson Yards megaproject should pay off as the company benefits from increased property values in that region. Vornado’s Chicago and San Francisco properties represent some of the best assets in those markets.

Company Profile

Vornado owns and has ownership interest in Class A office and retail properties highly concentrated in Manhattan, with additional properties in San Francisco and Chicago. It operates as a real estate investment trust.

(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

Burlington Should benefit by apparel Sales as Pandemic Ebbs and American Life Normalizes

). Although the present environment poses unique challenges, the off-price sector has performed well in such situations historically (Ross and TJX saw low- to mid-single-digit percentage comparable growth in 2008-09), and we expect Burlington to exit the crisis in better shape than full-price retailers.

Burlington’s strong inventory management operations hold inventory turnover above that of full-price stores, driving traffic with a fast-changing assortment. We believe off-price chains are valuable to manufacturers looking to sell excess product, as they offer flexibility, prompt payment, and discretion by avoiding advertising the brands they carry (important to producers looking to protect conventional channel pricing power). Product availability should stay high, as vendors’ production forecasting is complicated by factors such as mercurial customer preferences, channel diffusion, and unpredictable weather.

We believe off-price retailers such as Burlington are better positioned than other physical sellers to fend off digital rivals. The treasure hunt experience and low-frills environment enable steep discounts relative to the full-price channel (up to 60% for Burlington), limiting price gaps. Shipping and return costs (in addition to vendors’ restrictions) also limit the discounts digital sellers can offer.

Financial Strength

Burlington had reduced leverage meaningfully since its 2013 initial public offering (fiscal 2013 net debt was around 3.3 times EBITDA, versus a 0.7 mark in fiscal 2019, before the pandemic), and we expect growth and ample cash flows to keep the balance sheet strong despite ambitious expansion plans. We expect Burlington will take more than a decade to reach its 2,000-unit footprint target, in addition to relocations of existing stores. Considering Burlington’s store network is mostly leased and its payback period averages less than three years, we expect the firm to dedicate around 4% of sales to capital expenditures over the next decade (roughly $500 million on average annually). We expect the firm will continue to return excess capital to shareholders via buybacks after a pandemic-related pause; however, we expect this to eventually be augmented by a dividend approaching 40% of earnings (which we forecast the firm to initiate in fiscal 2023). We assume roughly 45% of long-term annual operating cash flow is returned to shareholders via repurchases. Burlington could pursue acquisitions of regional chains or other concepts (including operations outside the United States) to accelerate its growth, though we do not incorporate any such purchases into our forecasts because of the uncertain timing and nature of any deal.

Bulls Say

-With low prices spurred by efficiency, relatively high inventory turnover, and a differentiated value proposition to customers, Burlington should be relatively well protected from digital rivals.

– As Burlington’s assortment shifts toward more advantaged categories for the off-price channel (such as ladies’ apparel and home), performance should continue to improve.

– Burlington should be able to downsize its locations’ average square footage as it adds new, smaller stores and relocates existing inefficient units, boosting margins and the customer experience.

Company profile

The third-largest American off-price apparel and home fashion retail firm, with 761 stores as of the end of fiscal 2020, Burlington Stores offers an assortment of products from over 5,000 brands through an everyday low price approach that undercuts conventional retailers’ regular prices by up to 60%. The company focuses on providing a treasure hunt experience, with a quickly changing array of merchandise in a relatively low-frills shopping environment. In fiscal 2020, 21% of sales came from women’s ready-to-wear apparel, 21% from accessories and footwear, 19% from menswear, 19% from home décor, 15% from youth apparel and baby, and 5% from coats. All sales come from the United States.

(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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Debt

Dealing with Debt and financial freedom

Determine how much debt you owe

For many people, the most important step is to figure out how much debt they have. Knowing how much you owe is a crucial aspect of dealing with the problem. You’ll need the most recent statements from all of your creditors to total up your debts (e.g. bank, mortgage provider, store cards, etc).

Make a budget

Budgeting is an effective strategy for taking control of your financial destiny. It assists you in budgeting so that you can cover the necessities while still having money left over to save. It can assist you in determining where your money goes, what you can afford, and ensuring debt repayment.

Recognize interest rates

Whether it’s a credit card, a personal loan, or a home loan, there are a variety of interest rates to choose from. Understanding how interest rates operate is critical to determining how much your repayments will be and if you will be able to afford them if they rise in the future.

When it comes to loans, there are several options to consider, such as fixed vs. variable interest rates, balance transfers, and overdrafts. It can be difficult to decipher the meanings of all of these varied phrases. Small variances in interest rates can add up to a lot of money over time, so shopping around for the best price will help you obtains the best deal.

Consolidation of debt

Debt consolidation is the process of combining all of your current debts into a single new debt. It can help you decrease the amount of interest and fees you spend on various loans while also making repayments easier. If you’re having trouble managing your obligations, paying someone to consolidate them all into one loan may seem like a good idea. However, there are a lot of things to be cautious of when it comes to debt consolidation, so be sure you know what you’re getting into before signing anything.

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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Debt

Household debt in Australian market

Several reasons have contributed to the rapid increase in housing debt in recent years, the most significant of which being that lower interest rates in Australia allow consumers to borrow more when taking out a home loan. This raises the average size of new loans, as well as the average amount of outstanding loans, over time.

 An rise in the availability of housing finance has exacerbated the effect of increased household borrowing capacity. These new lenders actively battled for market share by undercutting traditional lenders’ mortgage rates and offering innovative mortgage products such home equity loans, interest-only loans, and loans with minimal documentation. Between 1990 and 2003, strong demand for property from retail investors contributed significantly to the rise in home debt. The constant rapid growth in house values, mediocre returns in alternative asset classes such as shares, and advances in the financing and tax treatment of residential property lured retail investors to residential property.

The turmoil in global capital markets has had a major influence on Australia’s house finance industry. This is because deposits provide for just around half of total funding for Australian financial institutions, with the rest coming from domestic and international capital markets.

While the overall availability of housing finance appears to be unaffected, market share has shifted and mortgage rates have risen.

The turmoil in the financial markets has raised the cost of various sources of capital market borrowing and limited the availability of others, but it has had the greatest impact on securitisation markets.

Deregulation and financial innovation have considerably improved loan availability in the household sector. Furthermore, the economy’s continued robust performance has given households additional confidence in taking on debt. Household debt has increased dramatically, but household balance sheets remain in good health, with a strong growth in asset value offsetting the increase in debt.

Furthermore, the majority of the new debt is held by households that are well positioned to service it.

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
Debt

‘Don’t borrow your way out of a recession,’ say young people who are drowning in debt

According to the most recent OECD data, the ratio of Australian household debt to net disposable income is 217 percent, implying that the average household owes twice as much as it earns in a year. The Bank of International Settlements estimates Australian household debt to be 119 percent of GDP, second only to the Swiss. While the housing market is responsible for much of this debt, the situation for young people is more complicated. Many will be burdened by a constellation of personal credit arrangements — credit cards, overdrafts, payday loans, overdue bills, fines, and Afterpay-style agreements – since they are less likely to possess assets.

According to the Consumer Policy Research Centre, one out of every ten young people took out a personal loan in October, up from one out of every fifty in May, while one out of every five used more informal lines of credit, such as borrowing from family members.

Borrow only what you need

“I think this will have a major influence on people’s mental health, living with this financial insecurity over their heads,” says Gerard Brody of the Consumer Action Law Centre. As a result, a young person’s ability to hold down a job, see friends, and maintain their mental health is impacted. It influences all they do. “If we truly intended to achieve financial security, the first principle, the simple advice is: don’t borrow for necessities.”

“As a result, you have more young people struggling to make ends meet on a jobseeker stipend that is once again below the poverty line. Those who do not find work will face a worsening of the crisis.”

Since the global financial crisis of 2008, Australians have seen their earnings fall by 2% and have been forced to work in increasingly precarious and insecure occupations. The process of young people becoming self-sufficient adults has become more difficult over time. This has been going on for a long time, but some people also have access to their parents’ bank accounts.

When that person is finished, they may still require funds, so they seek out another loan. This has the potential to create a self-fulfilling cycle that makes life increasingly unfair for young people without financial resources.

 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
Debt

Manage your debts by improving your debt-management skills

1. Calculate how much money you owe on your bills.

Making a list of how much you owe and to which providers, as well as how much you spend in fees and interest to each, is a smart place to start when trying to figure out how to manage your obligations. While this may be a jarring wake-up call, it will provide you with a clear picture of where you are and how varying interest rates and fees may alter the amount you owe.

2. Compare how much money you make, how much money you owe, and how much money you spend

Apart from figuring out how much money you owe, it’s also a good idea to keep track of how much money you have coming in, how much money you’ll need for necessities, and where the remainder of your money will go. This will allow you to see where there is opportunity for improvement and where you may contribute a little extra to your repayments.

3. Check to see if you may combine your debts into a single loan.

Multiple loans can result in a slew of fees and interest charges, which are why consolidating your debts into a single loan with a cheaper interest rate and costs could save you money. If you consolidate your loans into one, you may find it easier to handle because you’ll only have to make one payment rather than numerous.

4. Make timely payments on your bills.

Time management and debt management typically go hand in hand, because paying bills on time can help you avoid things like late penalties and interest costs. Consider setting up alerts to remind you when your payments are due, or see if paying via direct debit may be more convenient.

 5. Rather than paying the minimum amount owed, try to pay the entire amount owed.

When it comes to paying payments, you usually have two options: pay the full amount owed or pay the minimal amount owed.

While it may be tempting to pay only the least amount due, bear in mind that you may still be charged interest on the remaining balance, resulting in you owing more money.

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
Super

Australian Companies Making Workers Pay for Super Rise

“This increase in your superannuation payments will entail a difference in your take home pay of about $4 to $8 per week for most of you,” the email stated. Telstra’s enterprise agreement includes all non-senior management employees in Australia, and the 10% superannuation has been incorporated since 2015, he noted.

“In accordance with the new legislation, our top managers and executives who are not covered by the EA will have their 9.5 percent super contribution increase to 10% on July 1,” he added.

According to an AGL spokesperson, the firm constantly analyses market trends, economic conditions, and corporate performance to decide how the increased superannuation guarantee contribution would be utilised.

“AGL workers will be affected differently by the latest increase, depending on their compensation provisions and kind of superannuation fund.” The great majority of Australian businesses have been cautioned that forcing workers to fund superannuation increases out of their own pockets by cutting their wages is unlawful. ANZ bank was another company that sent letters to staff informing them that their take home pay could be “reduced slightly”.

“An employee earning $100,000 per year will experience a $10 per week cut in their after-tax pay. This money will be sent to their selected superannuation at a 15% tax rate, resulting in a $13.60 after-tax increase.”

He also said that the ANZ has a 30 September year end, which differentiates the timing of the superannuation guarantee rise from their own salary review cycle.

“Any external factors, such as changes to the superannuation guarantee,” he said, will be included into the annual performance and remuneration process later in the year.

“A commitment to ensuring that our pay structure is fair and equitable for our worldwide workforce, which is dispersed across more than 30 countries, is also a key element of our remuneration strategy.”

General Advice WarningAny 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
Super

Superannuation balance is suddenly soaring in Australia

In September, Australia officially declared a recession, halting the country’s record streak of 28 years of economic expansion. Both the Australian share market and Wall Street in the United States – where our local bourse gets much of its direction from investors watching how it moves while we snooze – have shown to be incredibly durable.

What factors have contributed to it reaching an all-time high? Last year, the “Growth” tech sector was thriving, with Australian buy-now-pay-later firms like Afterpay – popular among younger generations who avoid traditional, high-interest credit cards – generating astounding profits for those who got in early.

Recent international stimulus packages aimed at bringing economies out of the doldrums have fueled demand for commodities, putting Australia’s backbone, the resources industry, back in the backseat.

Bank stocks are among the “Blue chip” stocks that form the backbone of many diversified super fund portfolios, so their strength is particularly excellent news for superannuation returns.

Given the recent excellent performance of the stock market, many Australians anticipate a better super balance at the conclusion of this financial year.

Of course, China is a huge wildcard for the Australian economy as a whole, having slapped harsh tariffs and restrictions on our imports in a nasty trade war that shows no signs of abating anytime soon.

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
Super

Most super funds are accumulation funds for investment return

Accumulation funds

In an accumulation fund, your money grows or ‘accumulates’ over time. The value of your super depends on the money that you and your employers put in (known as super contributions), and on the investment return generated by the fund.

Defined benefit funds

In a defined benefit fund, your retirement benefit is determined by a formula instead of being based on investment return.

Most defined benefit funds are corporate or public sector funds. Many are now closed to new members.

Typically, your benefit is calculated using:

  • the money put in by you and your employer
  • your average salary over the last few years before you retire
  • the number of years you worked for your employer

MySuper accounts

MySuper is a type of account you can have with a super fund. It’s the default account that your employer will pay your super into, unless you choose a different option.

MySuper accounts typically offer:

  • lower fees
  • simple features — so you don’t pay for services you don’t need
  • either a ‘single diversified’ or a ‘lifecycle’ investment option

Even if you’ve already chosen a super investment option within your existing fund, you can choose to move to a MySuper option.

Super fund categories

Most super funds fall into one of the following categories: retail, industry, public sector or corporate.

Retail super funds

Retail funds are usually run by banks or investment companies. Anyone can join.

Main features:

  • They often have a wide range of investment options.
  • They may be recommended by financial advisers who may charge a fee for their advice.
  • Most range from medium to high cost, but many offer a low-cost or MySuper alternative.
  • The company that owns the fund aims to keep some profit.

Industry super funds

Anyone can join the bigger industry funds. Smaller funds may only be open to people working in a certain industry, for example, health.

Main features:

  • Most industry funds are accumulation funds. A few older funds still have defined benefit members.
  • They generally range from low to medium cost, and most offer MySuper accounts.
  • They are not-for-profit funds, which means profits are put back into the fund.

Public sector super funds

Public sector funds are for government employees.

Main features:

  • Some employers contribute more than the 9.5% minimum.
  • They usually have a modest range of investment choices.
  • Newer members are usually in an accumulation fund. Many long-term members have defined benefits.
  • They generally have very low fees and some offer MySuper accounts.
  • Profits are put back into the fund.

Corporate super funds

A corporate fund is arranged by an employer for their employees.

Some large companies operate a corporate fund under a board of trustees who they appoint. Other corporate funds are operated by a retail or industry fund, but are only available to that company’s employees.

Main features:

  • Those managed by a bigger fund may offer a wider range of investment options.
  • Some older corporate funds have defined benefit members, but most others are accumulation funds.
  • They are generally low to medium cost funds for large employers, but may be high cost for small employers.
  • Corporate funds run by the employer or an industry fund will usually return all profits to members. Those run by retail funds will keep some profits.

Self-managed super funds

A self-managed super fund (SMSF) is a private super fund that you manage yourself. SMSFs are different to industry and retail super funds. When you manage your own super, you put the money you would normally put in a retail or industry super fund into your own SMSF. You choose the investments and the insurance.

Your SMSF can have up to four members, who are friends or family. Most SMSFs have two or more. As a member, you are a trustee of the fund — or you can get a corporate trustee. In either case, you are responsible for the fund. While having control over your own super can be appealing, it’s a lot of work and comes with risk.

Only set up your own super fund if you’re 100% committed and understand what’s involved.

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
Super

The Australian Superannuation System’s Dynamics

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The Australian superannuation industry has continued to thrive despite persistent market volatility and historically low inflation and cash rates. The value of total superannuation assets increased from $2 trillion at the end of 2015 to $2.7 trillion at the end of 2018. These forecasts reflect legislative increases in the Superannuation Guarantee, which will rise from 9.5 percent to 12 percent by July 2025, with the following increase to 10 percent set to begin on July 1, 2021.”

A key caveat to the anticipated 275 percent increase in total superannuation assets to $10.2 trillion is that the current low interest rate environment, which has persisted for more than five years in Australia and globally, is expected to remain the ‘new normal.’

“Superfund returns have been solid despite the low interest rate environment. Despite short-term volatility, funds have regularly achieved strong returns over the long term, ensuring that average retirement balances have grown. Add in the fact that many members have contributed to superannuation for a major amount of their working lives.”

Despite members drawing down their accumulated superannuation funds over time, post-retirement assets are likely to expand.

However, because there are no upper limits on how rapidly members can withdraw their benefits in retirement, if pensioners are obliged to withdraw their retirement assets at a faster rate than planned in a low-return environment, the estimated asset will expand.

Retirees must ensure that they don’t draw down too rapidly and outlive their savings, while also ensuring that they don’t draw down too slowly and lose a major chunk of their superannuation when they die, implying that they lived more frugally than necessary.”

At an increasing pace, funds are providing limited guidance and robo-advice to their members. In the next years, superannuation funds and others will have to develop retirement solutions tailored to different groups of retirees at different phases of life.

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.