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Property

VCX currently trades at -15.7% discount to its NTA; management provided a strong FY23 guidance

Above view of chef engineer in shirt and tie explaining sketch to manual workers in industry

Investment Thesis

  • Ex Covid-19, stock trades on an attractive gross dividend yield.
  • The concern for VCX is that cap rates and asset valuations need to be adjusted for weak domestic economic data points around the consumer.
  • High quality property portfolio (high occupancy, stable rental growth etc.) with resilience to weakening retail sales environment through its portfolio repositioning. 
  • Decent development pipeline to power growth at decent initial yield and IRR.
  • Retail environment remains challenging and expected to remain so over the next 12 months as households remain constrained by high debt levels & lack of wage growth despite stable unemployment in the eastern states.
  • Strong specialty growth across retail categories, especially Luxury stores (+30.2% over the 12 months to 31 December 2019).

Key Risks

  • Corona virus affects consumer sentiment and retail stores, which affects VCX’s tenants
  • Increase in interest rates adversely affecting the Company’s cost of debt and consumer spending in the retail sector. 
  • Rise in unemployment, resulting in lower consumer retail spend and thereafter affecting rental growth and property valuations.
  • Inability to mitigate consequences that arise from a weak retail environment. 
  • Weaker property fundamentals than expected.
  • Tenancy risk/retailer bankruptcies resulting in higher vacancies across the asset portfolio (e.g. Dick Smith) and adverse effect on earnings.
  • Development schedule delays and project cost blowouts.
  • Any reduction in investor interest for bond-proxy stocks.

Key Highlights

  • “Vicinity expects FY23 FFO per security to be in the range of 13.0 to 13.6 cents, AFFO per security to be in the range of 10.9 to 11.5cents and full-year distribution to be within Vicinity’s target range of 95-100% of AFFO. Adjusting for waivers and provisions written back in FY22, the FFO per security guidance for FY23 represents between 10% and 15% growth, which is expected to be driven by continued growth in rental and ancillary income and strengthening cash collections, partially offset by higher net interest costs”
  • The Board declared a final distribution 5.7cps, which brings full year distribution to 10.4cps, which equates to payout ratio of 95.3% of AFFO, within Vicinity’s target payout range.
  • VCX continues to execute on its $2.9bn retail and mixed-use development pipeline of projects which are expected to complete between FY23 and FY27, with ~85% of the development spend focused on six major mixed-use opportunities including Chadstone, Box Hill Central and Victoria Gardens in Victoria, Chatswood Chase Sydney and Bankstown Central in NSW and Buranda Village in Queensland. During FY22, VCX commenced Chadstone’s new Entertainment and Leisure precinct, expected to complete by FY23-end; remixed and upgraded the retail precinct in Box Hill Central South; commenced the fresh food and mini majors’ precincts at Bankstown Central; completed upgrades at Mornington Central.

Company Description

Vicinity Centres Ltd (VCX) is an ASX listed REIT holding a quality retail portfolio and fully integrated asset management platform. VCX owns ~A$15.7 billion of retail assets. Some notable retail assets that Vicinity Centres owns or has an interest in: Chatswood Chase (NSW), Chadstone Shopping Centre (VIC), DFO South Wharf (VIC), QueensPlaza (QLD), Emporium Melbourne (VIC) and DFO Homebush (NSW). VCX is the result of the merger between Federation Centres and Novion Property Group. 

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Technology Stocks

CAR achieved strong revenue and earnings growth with double digit revenue and EBITDA growth in the US, South Korea and Brazil

Digital tablet display the stock market data

Investment Thesis:

  • Leading market position in online car classifieds. 
  • Overseas expansion provides new growth opportunities from the challenging core Australian market. 
  • Heavily reliant on two growth stories (South Korea and Brazil).
  • Diversified geographic coverage.
  • Bolt-on acquisitions provide opportunities to supplement organic growth.
  • The Company can sustain high single-digit and low double-digit revenue growth. 
  • CAR’s move into adjacent products and industries. 
  • Increasing pricing in South Korea to boost margins.
  • Looking to take more of the car buying experience online with dealers (i.e., increasing its total addressable market). 

Key Risks:

  • Rich and demanding valuation.
  • Competitive pressures, that is car dealer driven substitute platform or the No. 2 & 3 player gain ground on CAR.
  • Motor vehicle sales remain subdued.  
  • Value destructive acquisition / execution risk with international strategy.
  • Not immune from broader downturn in economy (consumer likely to delay a significant purchase in time of uncertainty). 

Key Highlights: 

  • FY22 Results Highlights. Relative to the pcp: Look-through revenue of $609m, up +36%. Look-through EBITDA of $324m, up +25%, on strong results and inclusion of Trader Interactive from September 2021.
  • Adjusted Revenue of $510m, up +16%, driven by strong domestic results in the Private and Media segments, growth in CAR’s Encar business in Korea and inclusion of revenue from tyre connect acquisition in July 2021. Adjusted EBITDA of $272m, up +7% (or excluding impact of wage subsidies in FY21, Adjusted EBITDA was up +10%). 
  • Adjusted NPAT of $195m, up +27% on strong contribution from Trader Interactive. Adjusted EPS of 69.0 cents, up +12%. 
  • On a reported basis, Revenue of $509m, up +19%, EBITDA of $270m, up +12% and NPAT of $161m, up +23% on pcp. Reported EPS of 56.9c, up 8%. 
  • CAR saw good cash flow with Reported EBITDA to operating cash flow conversion of 99%. 
  • The Board declared a fully franked final dividend of 24.5cps, up +9%.
  • Carsales Australia. Relative to the pcp and on a constant currency basis: Adjusted Revenue of $351.7m, up +10%, driven by Online Advertising revenue of $307.7m, up +11% and Data, Research and Services revenue of $44.1m, up +3%. Adjusted EBITDA of $227.2m was up +8%.
  • Dealer: 5% adjusted revenue growth to $183.8m was driven by growth in CAR’s online buying service, Carsales Select and Dealer Finance product heading into FY23, despite lockdowns in NSW and VIC in 1H22.
  • Private: +26% growth in adjusted revenue to $69.4m driven by strong uplift in private ad volume, private ad yield and Instant Offer penetration. 
  • Media: +15% uplift in adjusted revenue was driven by CAR’s strategy of diversifying into more native ad placements and non-automotive customer segments.
  • Data, Research & Services: Adjusted Revenue of $44.1m, was up +3% despite impact of lockdowns and ongoing inventory challenges for dealers.
  • Carsales International. CAR achieved strong revenue and earnings growth with double digit revenue and EBITDA growth in the US, South Korea and Brazil. Relative to the pcp and on a constant currency basis: Asia. Adjusted revenue of $95.4m, was up +17% and EBITDA of $48.1m, was up +12%, with management pointing to “strong product penetration growth across Guarantee, Dealer Direct and Encar Home. These products are expected to continue driving growth over the medium term”. 
  • Americas. Adjusted revenue of 6.0m was down -7%, whilst adjusted EBITDA was -$1.6m.

Company Description:

Carsales.com Ltd (CAR), founded in 1997, operates the largest online automotive, motorcycle and marine classifieds business in Australia. Carsales is regarded as one of Australia’s original disruptors and has expanded to include a large number of market-leading brands. The Company employs over 800 and develops world leading technology and advertising solutions in Melbourne. CAR has also expanded to numerous global markets, such as South Korea, Brazil, and other countries in Latin America.

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Property

GPT saw 1H22 FFO increase +8% yoy, despite the ongoing impacts of Covid-19 pandemic

Restaurant interior in Rome, Italia

Investment Thesis:

  • Improving underlying conditions, although some uncertainty remains. 
  • Solid portfolio across Retail, Office and Logistics but short-term risk around valuations and property fundamentals due to Covid-19.
  • Diversified with Funds Management business generating income.
  • Balance sheet strength with gearing ratio at 28.2%, well within target range of 25-35%.
  • Strong tenant demand for the GPT east coast assets. 

Key Risks:

  • Breach of debt covenants.
  • Inability to repay debt maturities as they fall due.
  • Deterioration in property fundamentals, especially delays with developments.
  • Environment of expected interest rate hikes. 
  • Downward asset revaluations.
  • Retailer bankruptcies and rising vacancies.
  • Outflow of funds in the Funds Management business reducing GPT’s income.
  • Tenant defaults as the economic landscape changes.

Key Highlights: FY22 outlook – FFO guidance upgraded to higher end of prior range. Management expects: FFO of ~32.4cps, up +12.4% y/y vs prior guidance of 31.7-32.4cps. 

  • Distribution of 25cps, up +7.8% y/y.
  • Cost of debt to increase y/y with further increase in FY23 driven by increase in cash rate from RBA. 
  • Retail sales growth to moderate, which combined with fixed rental increases and positive leasing demand should keep good momentum across the retail portfolio. 
  • Office leasing volumes to improve. 
  • Logistics portfolio to benefit from strong rental growth, partially offset by increased development costs amid escalation in construction costs.
  • Capital management. Distribution per security of 12.7 cents, down -4.5% y/y largely as a result of an increase in leasing incentives, equating to a 100% payout of operating FCF, up +10bps y/y. 
  • Ample liquidity of $1,124m, up +20.3% over 2H21, held in cash and undrawn bank facilities.
  • Strong balance sheet with gearing of 27.3%, down -90bps y/y and towards the lower end of management’s gearing range of 25-35% and investment grade credit ratings of A (negative)/A2 (stable) by S&P/Moody’s.
  • Debt profile remains 71% hedged. To address the impact of rising interest rates, management increased hedging levels substantially in late July, resulting in the Group being 71% hedged on drawn debt for the next 2.5 years at an average rate of 2.8% (fixed hedge rate for FY22 at 1.7% and increases in FY23 to 2.6% for 80% of current debt). Management expects all-in cost of debt to be in the low 3% range in FY22 and increase to the low to mid 4% range in FY23 with a high level of hedge protection in place. 
  • 1H22 results summary. Funds from Operations (FFO) increased +8% y/y to $326.5m, driven by a +3% y/y increase in Retail, +10.7% y/y increase in Office, +20.8% y/y increase in Logistics and +15.1% increase in Funds Management, partially offset by +22.1% y/y increase in finance costs amid higher debt from acquisitions and developments and +13.8% y/y increase in corporate overheads due to higher technology and reorganisation costs and FFO per security increased +9% y/y to 17.04 cents. 
  • NPAT declined -30.3% y/y to $529.7m primarily due to investment property valuation increases of $219.5m, down -53.5% y/y. 
  • Net Tangible Assets (NTA) increased +2.8% over 2H21 to $6.26 per security, driven by revaluation gains for both the Logistics and Retail portfolios primarily due to rental growth and development completions. 
  • 12-month total return was 10.8%, reflecting an FFO yield of 5.2% and a capital return of 5.6%. 
  • Operating cashflow declined -6% y/y to $271.8m and FCF declined -4.6% y/y to $243.3m, driven by a higher amount of lease incentives paid in Office. 

Company Description:

GPT Group (GPT) owns and manages a portfolio of high-quality Australian property assets, these include Office, Business Parks and Prime Shopping Centres. Whilst the core business is focused around the Retail, Office and Logistics, it also has a Funds Management (FM) business that generates income for the company through funds management, property management and development management fees. GPT’s FM business has the following funds, GPT Wholesale Office Fund (GWOF – A$6.1b) launched in July 2006, GPT Wholesale Shopping Centre Fund (GWSCF – A$3.9b) launched in March 2007 and GPT Metro Office fund (GMF – A$400m) launched in 2014.

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Property

BWP reported as expected and in line FY22 results, as usual, BWP’s total income of $153.3m, was up 0.7% on pcp

Property investment, savings money for buy new home concepts. A man hand holding coin over small residence house, stack of coins and money bag with blurred real estate. A sustainable investment.

Investment Thesis:

  • Stable and sustainable distribution yield.
  • Strong and experienced management team.
  • WES stake in BWP (24.75%) provides security against risk of non-renewal of leases by Bunnings. 
  • High quality property portfolio with long weighted average lease expiry, strong lease covenants, and high occupancy.
  • Low interest rate environment is encouraging for the housing industry and hardware sales however any sudden increase in interest rates provides risk to both revenue and debt financing costs. 
  • Solid balance sheet with low gearing levels. 
  • Risk of poor execution in redevelopment of assets vacated by Bunnings to other uses.

Key Risks:

  • Any slowdown in demand and net absorption for hardware space.
  • Persistent lower inflation (and deflation) affecting retailers.
  • Economic conditions affect property fundamentals such as values (cap rates and rental growth), vacancies, retail activity (and hence demand for space at big-box retail sites). 
  • Risk of non-renewal of leases by Bunnings Group. 

FY22 Results Highlights. Relative to the pcp: BWP declared final distribution of 9.2cpu, which brings full-year ordinary distribution to 18.29cpu, and in line with the previous year. 

  • BWP conducted 14 market rent reviews (including 10 Bunnings Warehouse properties) which saw rents broadly in line with the market. 
  • BWP saw like-for-like rental growth of 3.3% which takes into account average inflation on Consumer Price Index (“CPI”) linked leases of 3.3%.
  • Weighted average cost of debt of 3.0% for the year, 2.7% at FY22-end. 
  • Weighted average lease expiry (“WALE”) of 3.9 years at FY22-end.
  • BWP’s portfolio remains 97.5% leased.
  • BWP’s portfolio achieved net revaluation gains on the property investment portfolio of $371.9m for FY22. Net tangible assets of $3.87 per unit at 30 June 2022 (versus $3.29 per unit in FY21), up 17.6% on the previous year. 
  • Gearing (debt/total assets) is at 15.1% at FY22-end, versus 17.7% in FY21, and is below the BWP Board’s preferred range of 20 to 30%. The interest cover ratio (earnings before interest /interest expense) was 9.6x (versus 8.8x in FY21).
  • Property portfolio update. BWP’s property portfolio continues to retain solid operating metrics. Key highlights include: BWP’s entire portfolio was revalued at 31 December 2021 and again at 30 June 2022, including 24 property revaluations performed by independent valuers – The value of the portfolio increased $365.1m to $3,001.2m, post capex of $6.0m and revaluation gains of $371.9m, after adjusting for the straight-lining of rent of $1.7m and less net proceeds from divestments of $14.5m. Net revaluation gain was mainly a result of rental income growth and average decrease in capitalisation rates across the portfolio. BWP’s weighted average capitalization rate was 5.04% (versus December 2021: 5.11%; June 2021: 5.65%).
  • BWP’s portfolio was 97.5% leased.
  •  During FY22, 81 leases in the portfolio had annual fixed or CPI increases, resulting in an average increase of 3.2% in the annual rent for these tenancies.
  •  There were no properties acquired during FY22 but management did highlight that BWP made offers to purchase a number of properties. 
  •  In terms of developments: (i) Lismore, NSW: BWP committed to acquire adjoining land for $1.5m and expand its Lismore Bunnings Warehouse at a cost of $11.3m. (ii) Coburg, Victoria: BWP committed to expand its Coburg Bunnings Warehouse, Victoria at a cost of $3.5m.

Company Description:

BWP Trust (BWP) is a real estate investment trust focused on operating, owning, and divestments and acquisitions of large format retailing properties, in particular, Bunnings Warehouses, leased to Bunnings Group Ltd (‘Bunnings’). Bunnings is the leading retailer of home improvement products in Australia and New Zealand and is a major supplier to builders and trades people in the housing industry. BWP is managed by an external responsible entity, BWP Management Ltd who is paid an annual fee based on the gross assets of BWP. Both Bunnings and BWP Management Ltd are wholly-owned subsidiaries of Wesfarmers (WES), one of Australia’s largest listed companies. WES owns ~24.75% of BWP. Currently, BWP is the largest owner of Bunnings Warehouse sites, with a portfolio of ~80 stores. Eight properties have adjacent retail showrooms leases to other retailers.  BWP also owns one stand-alone showroom property. The assets have a current value of ~$2.9bn, WALE of ~4 to 5 years, 97.5% occupancy rate.

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Technology Stocks

JB Hi-Fi Ltd (JBH) delivered a very “JBH” type FY22 which highlighted solid performance in the key segments of JBH Australia and The Good Guys

Investment Thesis:

  • High quality retailer, however trading on a 2-yr forward consensus PE-multiple of ~13.2x, much of the benefits appear to be factored in (unless there’s an upgrade cycle). 
  • Being a low-cost retailer and able to provide low prices to consumers (JB Hi-Fi & The Good Guys) puts the Company in a good position to compete against rivals (e.g., Amazon). 
  • The acquisition of The Good Guys gives JBH exposure to the bulky goods market.
  • Market leading positions in key customer categories means suppliers ensure their products are available through the JBH network.  
  • Clear value proposition and market positioning (recognized as the value brand). 
  • Growing online sales channel. 
  • Solid management team – new CEO Terry Smart was previously the CEO of JBH (and did a great job and is well regarded) hence there are less concerns about the change in senior management. 

Key Risks:

  • Increase in competitive pressures (reported entry of Amazon into the Australian market). 
  • Roll-back of Covid-19 induced sales will likely see the stock de-rate. 
  • Increase in cost of doing business. 
  • Lack of new product releases to drive top line growth.
  • Store roll-out strategy stalls or new stores cannibalize existing stores. 
  • Execution risk – integration risk and synergy benefits from The Good Guys acquisition falling short of targets). 

Key Highlights:

  • Sales increased +4.0% to $6.2bn, with comparable sales up +3.4%. Sales momentum in the 2H22 was particularly strong with 3Q22 up +11.9% and 4Q22 up 11.6% YoY. Hardware and services sales were up +5%, with comparable sales up 4.3%.
  • The key growth categories were communications, driven by strong Apple iPhone 13 launch in the first half (with growth in both units and ASP), visual or TVs, small appliances (continued strength in stick vacs, robot vacs, coffee & kitchen appliances), and Smart Home. Gross profit was up +4.7% to $1,387.7m with GP margin up +15bps to 22.4% driven by strong improvements in the key categories (especially in 2H22). CODB of 11.4%, was up +21bps on the pcp. EBIT was up +4.2% to $544.9m, with margin of 8.79% essentially flat on pcp.
  • Sales were mostly flat (up +0.3%) on pcp at NZ$262.4m, however the segment had a solid 2H22 with sales up +6.3% YoY (3Q22 +4.8% & 4Q22 +7.7%). Gross Profit of NZ$45.7m was down -2.1% with GP margin down -43bps to 17.4%. CODB was 12.75%, down -36bps on pcp. Underlying EBIT (excluding impact of impairments) of NZ$4.7m was down -22.1% on pcp, with margin down -51bps to 1.77%.
  • The Good Guys. Sales increased +2.7% to $2.79bn, with comparable sales up +2.2%. Consistent with the rest of the group, the segment saw strong second half trading with sales up +5.5% in 3Q22 and +7.8% in 4Q22. Key growth categories included Laundry, Portable Appliances, Floorcare, Dishwashers and Visual. Online sales were up +53.7% to $397m (and now equates to 14.2% of total sales). Gross profit of $649.8m was up +6.8%, with GP margin up +89bps to 23.3% driven by improvement in key categories in the 2H22.

Company Description:

JB Hi-Fi Ltd (JBH) is a home appliances and consumer electronics retailer in Australia and New Zealand. JBH’s products include consumer electronics (TVs, audio, computers), software (CDs, DVDs, Blu-ray discs and games), home appliances (whitegoods, cooking products & small appliances), telecommunications products and services, musical instruments, and digital video content. JBH holds significant market-share in many of its product categories. The Group’s sales are primarily from its branded retail store network (JB Hi-Fi stores and JB Hi-Fi Home stores) and online. JBH also recently acquired The Good Guys (home appliances/consumer electronics), which has a network of 101 stores across Australia.  

Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks

TPW is well positioned to benefit from the structural tailwind behind the migration of offline to online sales in the homewares and furniture ($16bn market) category

Investment Thesis

  • Operates in a large addressable market – B2C furniture and homewares category is approx. $16bn. 
  • Structural tailwinds – ongoing migration to online in Australia in the homewares and furniture segment. At the moment less than 10% of TPW’s core market is sold online versus the U.S. market where the penetration rate is around 25%.  
  • Strong revenue growth suggests TPW can continue to win market share and become the leader in its core markets. 
  • Active customer growth remains strong, with revenue per customer also increasing at a solid rate. 
  • Successful execution in new growth pillars – Trade & Commercial (B2B) and Home Improvement. 
  • Management is very focused on reinvesting in the business to grow top line growth and capture as much market share as possible. Whilst this comes at the expense of margins in the short term, the scale benefits mean rapid margin expansion could be easily achieved. 
  • Strong balance sheet to take advantage of any in-organic (M&A) growth opportunities, however management is likely to be very disciplined. 
  • Ongoing focus on using technology to improve the customer experience – TPW has invested in merging the online with the offline experience through augmented reality (AR). 

Key Risks

  • Rising competitive pressures.
  • Any issues with the supply chain, especially because of the impact of Covid-19 on logistics, which affects earnings / expenses. 
  • Rising cost pressures eroding margins (e.g., more brand or marketing investment required due to competitive pressures).
  • Disappointing earnings updates or failing to achieve growth rates expected by the market could see the stock price significantly re-rate lower. 
  • Trading on high PE-multiples / valuations means the Company is more prone to share price volatility. 

Key Highlights

  • Group revenue was up +31 to $426m, driven by an increase in active customers (up +21% to 940k) and revenue per active customer (up +6%). Revenue per active customer growth was a function of both growth in average order values and the repeat rate. Group EBITDA of $16.2m was down -21% YoY and represented a margin of 3.8% which came in at the high end of management’s guidance range of 2-4%.
  • The Management called out that macro conditions did deteriorate during the 4Q22 and they are expecting a challenging FY23
  • TPW will be cycling strong previous trading periods which were the beneficiaries of lockdowns, especially the first half, hence expect a “bumpy start to this financial year.” Jul-22 trading was down -21% YoY and YTD Aug-22 trading is down 17%. However, management noted that the current trading YTD is ahead of their internal estimates (despite being down YoY) and expect the business to return to double digit growth in FY23 once lapping the extraordinary Covid lockdowns periods.
  • Management upgraded their FY23 EBITDA guidance from 2-4% range to 3-5% (effectively by 2% at the midpoint). This profitability range is after TPW’s investment in thebuild.com.au, which management noted highlights the increasing operating leverage in the core business

Company Description

Temple & Webster Group (TPW) is a leading online retailer in Australia, which offers consumers access to furniture, homewares, home décor, arts, gifts, and lifestyle products. 

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks Shares

IAG has reported weak but expected FY22 results

Investment Thesis

  • Trading on fair value and trading multiples (based on the numbers).
  • Strong FY23 guidance and outlook, but signs of management execution can be seen before upgrading recommendation.
  • Strong capital position with CET1 ratio of 0.97 (within benchmark range of 0.9-1.1).
  • Prospect of an uplift in margins from cost-out programmes.
  • Portfolio rationalisation potentially yields better business performance. 
  • Potentially higher returns from investment portfolio should market conditions move in favour of current positioning. 

 Key Risks

  • Any adverse catastrophe claims without warning with inadequate reinsurance results in lower          combined operating ratios.Benefits and targets from cost-out initiatives not achieved. 
  • Adverse regulatory changes impacting capital positions or dividend payout ratios. 
  • Lower return from investment portfolios. 

Key Highlights

  • Strong FY23 guidance and outlook. Management guided “strong underlying business performance expected in FY23. IAG is forecasting mid-to-high single digit GWP growth and a reported Insurance margin of 14% to 16%. The FY23 guidance aligns to the aspirational goals to achieve a 15% to 17% insurance margin and a reported ROE of 12 to 13% over the medium term.
  • These goals encompass the ambitions around increasing customer base by 1m to 9.5m by FY26, an insurance profit of at least $250m by FY24 in the Intermediated Australia business, further simplification and efficiencies to maintain the Group’s cost base at $2.5bn, $400m in value from DIA claims and supply chain cost reductions on a run rate basis from FY26, and higher customer interactions through the company’s digital channels”.
  • Gross Written Premiums (GWP) of $13,317m was up +5.7%, driven by rate increases to offset inflationary pressures in the supply chain and natural perils, and improvement in retention rates across FY22. GWP growth in the Direct Insurance Australia business was +4.6%, accelerating in 2H22 to +5.8%, while its underlying margin remained strong at 20.5%. Management noted solid performance from Intermediated Insurance Australia business with GWP growth at +6.0% (versus +5.6% in FY21) while underlying insurance margin of +5.0% was better than the +3.9% in FY21. IAG’s NZ business saw +7.0% NZ currency GWP growth, up from +2.8% in FY21 on growth across its commercial insurance and direct brands with a volume increase in commercial motor. 
  • Net Earned Premiums of $7,909m was up +5.8%.

Company Description

Insurance Australia Group (IAG) is one of the two largest general insurance underwriters in Australia   and New Zealand. IAG core insurance product categories are in Consumer (Motor, Home, Compulsory Third Party (CTP)) and Business (predominantly SME, Specialty Lines, Workers’ Compensation) across Australia, NZ, and Asia. 

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Commodities Trading Ideas & Charts

Beach Energy Ltd’s (BPT) share price underwhelmed on the day the Company reported FY22 results, presumably over lower production achieved and higher costs

Investment Thesis:

  • BPT is making progress towards the production target of 28 MMboe in FY24.
  • Despite the unknown with the Western Flank issue and the contribution to the group profile the production from this asset, management remain confident in achieving their 5-year target of 37 mmboe in FY25. 
  • 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.  
  • Favourable 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 uncontracted / 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 raising to fund operating & exploration activities should debt markets tighten up due external macro factors. 
  • Currency risk .

Key Highlights:

  • Guidance + FY23 Guidance + Market Commentary.  Production. 20.0 – 22.5 MMboe (versus FY22: 21.8 MMboe). 
  • Capex. $800 – 1,000m (versus FY22: $872m). 
  • Unit field operating costs. $12 – 13 per boe (versus FY22: $11.74 per boe). 
  • FY22 Results Highlights. Relative to the pcp:  Total revenue up +13% to $1.8bn; underlying EBITDA up +17% to $1.1bn; and underlying NPAT up +39% to $504m. The results were driven by higher demand and pricing for BPT products, offset by lower production. 
  • Operating cash flow up +61% to $1.2bn with $752m free cash flow pre-growth expenditure. 
  • BPT retains a solid balance sheet reflecting a net cash position and total liquidity of $765m at FY22-end.
  • Reserves and Resources Update- As at 30 June 2022, an independent audit of Beach’s reserves was conducted by Netherland, Sewell & Associates Inc (encompassing 62% of 2P reserves, including 79% of developed reserves and 48% of undeveloped reserves). BPT ended FY22 with 283 MMboe of 2P oil and gas reserves (down -17% versus FY21: 339 MMboe), with the decline mainly attributable to production (-22 MMboe) and Bass Basin revisions (-25 MMboe). BPT recorded 2P CO2 storage capacity of 4.4 Mt and 2C contingent storage resources of 11.6 Mt after taking a Final Investment Decision for Moomba CCS. 

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, 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 Plant). 

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Commodities Trading Ideas & Charts

ORG saw FY22 underlying profit rise +30% YoY as higher earnings in Integrated Gas were partially offset by lower earnings in Energy Markets

Investment Thesis:

  • Higher oil prices benefit ORG’s APLNG project (higher revenues).
  • Balance sheet position is being restored with management focused on getting the debt covenants back to an investment grade level.
  • Achieving milestones within the APLNG project.
  • On-going focus on operating cost and capital expenditure reduction.
  • Increasing dividend profile and with a restored balance sheet the Company can also consider other capital management initiatives. 
  • Rationalization of asset portfolio, including asset sales and the IPO of its conventional upstream business should help improve the balance sheet position.  

Key Risks:

  • Exploration and production risks.
  • Lower energy prices, particularly oil prices (for its APLNG project). 
  • Structural change in energy markets & increased competition.  
  • Not meeting cost-out targets. 
  • Highly geared balance sheet, with the company not being able to reduce debt fast enough. 

Key Highlights:

  • Outlook. Management expects (refer to figure 2 for details): For FY23 underlying earnings to be higher YoY, driven by growth in earnings from the gas business, while electricity gross profit to remain suppressed, risk of coal under-delivery remaining including due to rail and mine performance, and Australia Pacific LNG (APLNG) production of 680-710 PJ, reflecting ongoing strong field performance and allowing for the impact of recent wet weather events. 
  • For FY24 underlying earnings delivering further YoY growth with magnitude of growth dependent on fuel and energy prices and the extent to which these are reflected in customer tariffs, the outcome of a price review on ~50 PJ of gas supply, and delivery of targeted retail savings. 
  • APLNG sale completed – proceeds used to strengthen balance sheet and provide shareholder returns. The Company benefited from a record cash distribution from the sale of a 10% interest in APLNG of $1,595m, due to higher realized oil and spot LNG prices, contributing to a strong FCF of $1,062, up +3.1% YoY with management using the proceeds to reduce adjusted net debt by -38.8% to $2,838m (leverage declined to 1.9x vs target range of 2-3x), investing in growth and shareholder returns, including a $250m share buyback and a 75% franked final dividend of 16.5cps, equating to full year dividend of 29cps, up +45% YoY and representing 47% of FCF, towards top end of management’s target range of 30-50%. Management also announced the Board is considering extending the initial $250m share buyback over the course of FY23, subject to operating conditions and growth opportunities.
  • FY22 results summary. Underlying profit rose +30% YoY to $407m, as strong commodity prices drove higher earnings in Integrated Gas, partially offset by lower earnings in Energy Markets due to very challenging market conditions which led to a contracted coal supply. Statutory profit was a loss of $1,429m vs loss of $2,281m in pcp, impacted by a non-cash impairment associated with accounting for electricity and gas derivative assets. 
  • Operating cash flow declined -45% YoY, driven by lower underlying EBITDA adjusted for non-cash items partially offset by an improved working capital position.
  •  Liquidity remained strong at $3.3bn including $0.6bn of cash, enough to meet near-term debt and lease liability payment obligations of $0.3bn.
  • Results by segment. Energy Markets underlying EBITDA declined -63% YoY impacted by high commodity prices and domestic supply interruptions, combined with volatile wholesale electricity prices, higher fuel costs and wet weather. Investment in Octopus continued to exceed expectations, with the company growing to become the UK’s fifth largest energy retailer, increasing its customer base by +25% YoY to 5.5 million customer accounts. The Company achieved $170m of a targeted $200-$250m in cash cost savings by FY24.
  •  Integrated Gas underlying EBITDA increased +62% YoY, driven by high commodity prices, sustained low operating and capital costs, and stable production. 

Company Description:

Origin Energy (ORG) is an integrated energy company with operations in exploration, production, generation and the sale of energy to millions of households and businesses across Australia. The Company has extensive operations across Australia and New Zealand and is pursuing opportunities in the fast-growing energy markets of Asia and South America. The Company has two main segments: (1) Energy Markets – retail sales of electricity, gas and other customer solutions; electricity generation; and wholesale trading of electricity and gas. (2) Integrated Gas – consists of upstream exploration, development and production; the segment also holds the 37.5% ownership in Asia Pacific LNG project (APLNG).

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Commodities Trading Ideas & Charts

AGL’s FY22 underlying NPAT declined -58% YoY primarily due to coal plant outages and volatile wholesale prices

Investment Thesis:

  • Energy margins bottom out and could potentially start to improve (higher customer and volume numbers). 
  • Strong cash flow business which provided flexibility to deploy cash in growth opportunities and capital management.
  • On-going focus on costs and digitalization should support margins.
  • Potential capital management initiatives (e.g., buyback).
  • Demerger into AGL Australia and Accel may unlock shareholder value. 
  • Potential favourable changes to the regulatory environment. 
  • Potential M&A – AGL has already received a takeover bid at $7.50 per share which was rejected by the AGL Board. 

Key Risks:

  • Competitive pressures leading to margin erosion.
  • Cost pressure and fuel supply issues lead to margin erosion. 
  • Increase in supply leading to depressed prices. 
  • Regulatory risk (policy uncertainty), such recent regulation in electricity markets [ Victorian Default Offer (VDO) and Default Market Offer (DMO)]
  • Unscheduled shutdowns impacting earnings. 

Key Highlights:

  • FY22 results summary. Underlying EBITDA declined -27% YoY to $1.22bn and underlying NPAT declined -58% YoY to $225m, reflecting the expected step down in Trading and Origination Electricity earnings due to lower realised contracted and wholesale customer prices, increased costs of capacity to cover periods of peak electricity demand, absence of the Loy Yang Unit 2 insurance proceeds recognised in FY21, increased residential solar volumes and margin compression via customer switching. 
  • Net cash from operations declined -2% YoY to $1.227bn with lower underlying EBITDA partially offset by a strong working capital outcome which saw cash conversion improve +27% YoY to 123%, however, management warned of a hit to cash conversion rate in FY23.
  • Capital management. Strong balance sheet with net debt declining -11.2% to $2,662m, reducing gearing by -590bps to 29.2%, giving company significant headroom to debt covenant of gearing <50%. 
  • Board declared a final unfranked dividend of 10cps, equating to total FY22 dividends of 26cps, down -65% YoY and equating to a payout ratio of 75% vs 87% pcp.
  • Opex savings Opex savings target exceeded. The Company saw opex (excluding D&A) decline -7.6% YoY as management delivered FY22 recurring savings of ~$158m (vs target of $150m), including initial benefits from structural review and reduction in corporate costs. However, management warned that it expects a small step up in operating costs for FY23, albeit being lower than CPI after adjusting for the non-recurring benefits in FY22. 
  • Outlook. Management announced it will provide FY23 guidance in late-September in conjunction with the initial outcomes of the review of strategic direction, however, expects FY23 earnings to remain resilient amidst the current challenging in the energy industry and market conditions, underscored by the strength of AGL’s large and diversified customer base, low-cost baseload generation position supported by strong fuel supply arrangements, robust risk management, with prudent margin management ensuring retail strength and stability in a highly volatile market, with the Company largely hedged for FY23 and well positioned from FY24 to benefit from sustained higher wholesale electricity pricing (Refer to Figure 4 for forward pricing curve) as historical hedge positions progressively roll-off.  

Company Description:

AGL Energy Limited (AGL) is one of Australia’s leading integrated energy companies and the largest ASX listed owner, operator and developer of renewable energy generation in Australia. The company sells and distributes gas and electricity. Further, it also retails and wholesales energy and fuel products to customers throughout Australia. The business operates four main segments: Energy Markets, Group Operations, New Energy and Investments.

(Source: Banyantree)

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