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Global stocks Shares

CSL was able to grow plasma collections significantly, albeit at a higher cost, with collections up by 24%

Investment Thesis

  • The DCF valuation of CSL is >10% above the current share price. 
  • Strong FY23 earnings guidance momentum as CSL continues to see strong demand. 
  • Seqirus flu business which recorded its first year of positive earnings (EBIT) in FY18 and continues to perform well.
  • Strong demand for their portfolio of products.
  • High barriers to entry in establishing expertise + global channels + operations/facilities/assets.
  • Strong management team and operational capabilities. 
  • Leveraged to a falling dollar. 

Key Risks

  • Competitive pressures.
  • Product recall / core Behring business disappoints.
  • Growth disappoints (underperform company guidance).
  • Turnaround in Seqirus flu business stalls or deteriorates.
  • Adverse currency movements (AUD, EUR, USD)

Key Highlights: Relative to the pcp and on a constant currency basis: 

  • Revenue was up +3% to $10,242m, driven by strong growth in haemophilia B product IDELVION® and key specialty product KCENTRA®, up +20% and 18% respectively, and strong performance in its influenza vaccines business, CSL Seqirus, which saw revenue up +13%. HPV royalties were up 55% rebounding strongly to now exceed pre-Covid levels following strong demand and increased supply. 
  • NPAT of $2,236m, down -6% was at the top end of guidance, despite a difficult global environment, and immunoglobulin sales limited by constrained plasma collections in FY21, which however, improved 2H22 which saw growth in plasma collected. 
  • Earnings per share of $4.81, was down -8%. 
  •  Acquisition of Vifor Pharma completed on 9 August 2022.
  • By key segments. CSL Behring: Revenue was up +2% to $8,598m driven by Haemophila, up 8% to $1,166m, and Specialty, up +3% to $1,792m, offsetting Immunoglobulins, down -3% to $4,024m and Albumin, down -1% to $1,072m. The segment was driven by IDELVION, up +20%; KCENTRA, up +18%; HAEGARDA, up +5%; HPV royalties, up +55%; whilst Immunoglobulin declined -3%. Plasma collected was up +24%. Gross profit of $4,580m was down -4%, whilst gross profit margin fell to 53.3% from 56.5%. 
  • CSL Seqirus: Revenue of $1,964m was up +13%. Seasonal influenza vaccines sales were up +16% driven by US sales which were greater than $1bn for the first time and FLUAD® was up +41%. The segment saw record volume of ~135 million doses distributed in FY22. On a further positive note, the US Centers for Disease Control and Prevention adopted the Advisory Committee on Immunisation Practices recommendation that FLUAD® be a preferentially recommended seasonal vaccine option for adults aged 65+ years. Gross profit of $1,152m was up +16%, whilst gross profit margin improved to 58.7% from 57.3%.

Company Description

CSL Limited (CSL) develops, manufactures and markets human pharmaceutical and diagnostic products from human plasma. The company’s products include pediatric and adult vaccines, infection, pain medicine, skin disorder remedies, anti-venoms, anticoagulants and immunoglobulins. These products are non-discretionary life-saving 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
Property

Charter Hall Social Infrastructure REIT (CQE) reported as expected FY22 earnings results

Stock market information

Investment Thesis:

  • CQE trades on a ~6.7% discount current NTA, which is not justified.
  • Solid dividend yield.
  • Quality assets with strong property fundamentals such as 100% occupancy and WALE of 14.3 years.
  • Majority of leases are triple-net leases.
  • CQE is a play on (1) population growth; (2) increasing awareness of early childhood education; (3) increasing the number of families with both parents working and hence demand for childcare services. CQE has increased its portfolio weighting towards social infrastructure assets.
  • CQE’s tenants possess strong financials 
  • Strong history of delivering continuing shareholder return and dividends.
  • Solid balance sheet position.
  • Strong tailwinds for childcare assets and social infrastructure assets.

Key Risks:

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

Key Highlights: FY22 Results Highlights. Relative to the pcp:  Statutory profit of $358.5m, up $184.4m relative to the pcp. 

  • Operating earnings of $62.9m, was up +8.4%. Operating earnings of 17.3cpu, up +8.1%. 
  • The REIT declared distribution of 17.2 cpu, up +9.6%. 
  • Gross assets of $2.1bn, up 35.0% since June 2021. Net Tangible Assets of $4.08 per unit up +25.5% since June 2021. 
  • CQE has a weighted average debt maturity of 3.9 years and no debt maturity until January 2025. As at 30 June 2022, including contractual commitments, CQE’s balance sheet gearing is 29.8% and look-through gearing is 30.7%. CQE’s available investment capacity is $160m, comprising undrawn debt facilities. 
  • Property Portfolio Highlights. CQE’s property portfolio saw a valuation uplift of $269.43m or +19.4%. This resulted in the passing yield across the property portfolio firming to 4.7%. Overall, CQE property portfolio was up +38.8% to $1.97bn via both acquisition and valuation activities during FY22.
  •  CQE made $232.7m of social infrastructure assets acquisitions including 234 childcare assets, 25 healthcare assets and a 50% interest in a recently completed TAFE Queensland education campus. 
  • CQE completed 6 childcare development assets with a total value of $42.3m. 
  • CQE’s property portfolio retained a long WALE of 14.3 years, 100% occupancy, and solid lease expiry profile with less than 5% of leases expiring within the next five years. According to management, 75% of leases are on fixed rent reviews (average 3.0%) and the balance CPI-linked; and 44% of rental income subject to market rent reviews within the next 5 years. CQE retained strong tenant customers including Goodstart Early Learning, G8 Education, Only About Children, Mater Misericordiae, Busy Bees, Healius and both state and local Governments.
  • Property Portfolio 

Company Description:

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

(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

WSP provides a communications workflow platform that automates interactions between businesses and people

Investment Thesis:

  • Sizeable market opportunity – in the U.S. alone WSP TAM is US$4.7bn (WSP North American target markets) vs total U.S. CPaaS TAM of US$98bn.
  • Established a solid foundation to build from – the Company has over 800 customers worldwide with leading brand names.  
  • Structural tailwinds – ongoing automation and digitization. 
  • Increasing direct sales penetration.
  • Attractive recurring revenue base via subscriptions. 
  • Investment in R&D to continue developing the Company’s competitive position and enhance value proposition with customers.   

Key Risks:

  • Rising competitive pressures.
  • Growth disappoints the market, given the company trades on high valuation multiples – growth in subscriptions, new customers and penetration of existing clients. 
  • Product innovation stalls and fails to resonate with customers. 
  • Emergence of new competitors and technology.
  • Key channel partnerships breakdown. 

Key Highlights: Headline FY22 results. Group revenue of $70.6m was up +48% YoY and ahead of management’s guidance range of $64-68m. Management noted the Company is seeing growing interest in the Whispir platform from governments and government agencies, as highlighted by the recent high-profile launch by Victoria Police of the public transport initiative “STOPIT”, which is built on the Whispir platform. 

  • Regional performance – ANZ region was up $22m (or +56%) to $62m revenue for FY22, which was driven by the pandemic response (Covid-19 vaccine rollout programs). North America revenue was up +38% to $1.8m, with management highlighting growth opportunities in this market and WSP’s investment in digital marketing campaigns to drive revenue growth. Asia revenue of $6.7m was mostly flat YoY due to the region still being impacted by Covid-19 related disruptions and lockdowns (e.g., fresh China lockdowns in July). However, WSP recently signed contract with telco Singtel should drive growth in the region.
  • Customer churn of 2.1% was +30bps better than 2.4% in pcp. 
  • Group gross margin (GM) was down -130bps to 58.5%, due to change in revenue mix – that is, a higher revenue contribution from transaction revenue which has lower GM than platform and services. On a positive note, GM on transaction revenue also improved +250bps over the year (with further improvement expected), whilst GM on platform and services was unchanged YoY.
  • Group operating earnings (EBITDA) for the year was a loss of $10.6m, which was ahead of the guidance which was looking for a loss of $11.2 – 13.2m for FY22. EBITDA building blocks: ANZ $16.1m + Asia loss $2.5m + North America loss $4.7m + R&D cost $16.2m + Corporate costs $11.9m. Management is “firmly” focused on becoming EBITDA positive by 2H23. Operating expenses in 4Q22 were -11% below 3Q22, driven by efficiencies program.
  • Balance sheet remains well placed with $26.1m in cash and no debt, which should take the company to profitability in FY23 and cash flow positive by FY24.

Company Description:

Whispir Ltd (WSP), founded in 2001, is a global enterprise software-as-a-service (SasS) company. WSP provides a communications workflow platform that automates interactions between businesses and people. The Company has over 800 customers, operates in 60 countries and more than 200 staff globally. WSP operates in an emerging subset of the enterprise communications SaaS market known as Workflow Communications-as-a-Service (WCaaS). WSP currently solves two communication problems: (1) Operational Messaging – engaging with employees; and (2) External Messaging – engaging with customers. WSP operates in 3 key markets – Operational messaging (size $8bn), API messaging (size $32bn) and Marketing messages (size $66bn). 

(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

Chevron expects the combination of new higher-margin projects along with ongoing cost reductions and operational improvements

Business Strategy & Outlook

Chevron is to deliver higher returns and margin expansion thanks to an oil-leveraged portfolio as well as the next phase of growth, which is focused on developing its large, advantaged Permian Basin position. Its latest capital plan maintains its focus on capital discipline without sacrificing growth. Thanks to improved cost efficiencies and the acquisition of Noble Energy, Chevron plans to grow production to over 3.5 million barrels of oil equivalent per day by 2026 from 3.1 mmboe/d in 2022. New volumes will largely come from new production from its differentiated Permian Basin position (size, quality, and lack of royalties), where it expects to grow volumes to over 1 mmboe/d by 2025 from 608 mboe/d in 2020 while delivering returns in excess of 30% and over $4 billion of free cash flow by 2026.

Chevron’s Permian growth will be supplemented by expansion projects at Tengiz in Kazakhstan, due to begin producing in mid-2023, new developments in the Gulf of Mexico, and potential new discoveries in Mexico and Brazil. Chevron also now has growth options with offshore gas fields in the Eastern Mediterranean with the Noble acquisition. Oil and gas prices will dictate Chevron’s earnings and cash flow for the foreseeable future. However, the company is investing in low-carbon businesses to adapt to the energy transition. It recently tripled its investment to $10 billion cumulatively by 2028, with this

capital flowing to emerging low-carbon areas that fit with Chevron’s existing value chains and experience. Greenhouse gas reduction projects and carbon capture and offset will enable Chevron to achieve its emission targets while investments in hydrogen and renewable fuels will give it a toehold in emerging businesses that could expand in the future.

Financial Strengths

Chevron carries relatively little debt, with a net debt/capital ratio below 10%, one of the lowest among its peer group. It is targeting a debt/capital ratio of 20%-25% through the cycle and estimates that in a low-price oil scenario of $50/bbl, the ratio will remain within that range. The company makes maintaining and increasing the dividend a priority; as such, there’s steady growth during the next few years as free cash flow rises. Chevron has reduced its break-even level so that free cash flow allows for dividend growth and repurchases at $50/bbl, implying that it has ample cushion if oil prices fall below that level. If need be, Chevron could always take on debt to defend the dividend, given its low leverage levels. At higher oil prices, Chevron can generate excess cash flow that would go toward repurchases. With debt at desired levels, Chevron introduced an annual repurchase of $2 billion-$3 billion in the second quarter of 2021, which management later increased the upper end of the range to $5 billion and then $10 billion. Its most recent guidance and quarterly run rate is for $15 billion of repurchases annually, which it aims to maintain through the cycle, even relying on debt if necessary. In a $75 price environment through 2026, Chevron estimates it can generate enough free cash flow to repurchase 25% of its outstanding shares. Capital spending is expected to be below $15.3 billion in 2022 while remaining between $15 billion and $17 billion per year through 2026.

Bulls Say

  • Free cash flow growth is expected to accelerate beyond 2021 as capital spending remains capped while Permian production could nearly double and expansion at Tengiz adds volumes.
  • Chevron’s large Permian position is mostly composed of legacy acreage, meaning the firm did not overpay to enter the play; 75% has no or a low royalty rate, giving it a cost advantage.
  • Chevron should realize improved downstream earnings and returns as conditions in its California refineries improve and new chemical production capacity is added via its CPChem joint venture.

Company Description

Chevron is an integrated energy company with exploration, production, and refining operations worldwide. It is the second-largest oil company in the United States with production of 3.1 million of barrels of oil equivalent a day, including 7.7 million cubic feet a day of natural gas and 1.8 million of

barrels of liquids a day. Production activities take place in North America, South America, Europe, Africa, Asia, and Australia. Its refineries are in the U.S. and Asia for a total refining capacity of 1.8 million barrels of oil a day. Proven reserves at year-end 2021 stood at 11.3 billion barrels of oil equivalent, including 6.1 billion barrels of liquids and 30.9 trillion cubic feet of natural gas.

(Source: Morningstar)

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

Deere has exposure to end markets with attractive tailwinds

Business Strategy & Outlook

Deere offers customers an extensive portfolio of agriculture and construction products. It will continue to be the leader in the agriculture industry and one of the top players in construction. For over a century, the company has been the pre-eminent manufacturer of mission-critical agricultural equipment, which has  led to its place as one of the world’s most valuable brands. Deere’s strong brand is underpinned by its high-quality, extremely durable, and efficient products. Customers in developed markets also value Deere’s ability to reduce the total cost of ownership. The company’s strategy focuses on delivering a comprehensive solution for farmers. Deere’s innovative products target each phase of the production process, which includes field preparation, planting and seeding, applying chemicals, and harvesting. The company also embeds technology in its products, from guidance systems to seed placement and spacing and customized spraying applications. Deere is committed to expanding customer offerings and providing value-added services. Additionally, the management team will look to reduce the company’s cost structure as some markets have matured, providing an opportunity to rethink its footprint and create a leaner organization.

Over the past decade, the company has continually released new products and upgraded existing product models to drive greater machine efficiency. Customers also rely on the services that Deere provides, for example, machine maintenance and access to its proprietary aftermarket parts. Furthermore, its digital applications help customers interact with dealers, manage their fleet, and track machine performance to determine when maintenance is needed. Deere has exposure to end markets with attractive tailwinds. In agriculture, demand for corn and soybeans will be strong in the near term, largely due to robust demand from China and tight global supplies. On the construction side, the company will benefit from the $1.2 trillion infrastructure deal in the U.S. The country’s roads are in poor condition, which has led to pent-up road construction demand.

Financial Strengths

Deere maintains a sound balance sheet. On the industrial side, the net debt/adjusted EBITDA ratio was relatively low at the end of fiscal 2021, coming in at 0.4. Total outstanding debt, including both short- and long-term debt, was $10.4 billion. Deere’s strong balance sheet gives management the financial flexibility to run a balanced capital allocation strategy going forward that mostly favours organic growth and also returns cash to shareholders. In terms of liquidity, the company can meet its near-term debt obligations given its strong cash balance. The company’s cash position as of fiscal year-end 2021 stood at $7.2 billion on its industrial balance sheet. Deere has access to $5.7 billion in credit facilities. Deere can generate solid free cash flow throughout the economic cycle. The company can generate over $6 billion in free cash flow in the midcycle year, supporting its ability to return nearly all of its free cash flow to shareholders through dividends and share repurchases. Additionally, management is determined to rationalize its footprint by reducing the number of facilities in mature markets. If successful, this will put Deere on much better footing from a cost perspective, further supporting its ability to return cash to shareholders. The captive finance arm holds considerably more debt than the industrial business, but this is reasonable, given its status as a lender to both customers and dealers. Total debt stood at $38 billion in fiscal 2021, along with $38 billion in finance receivables and $829 million in cash. Deere enjoys a strong financial position supported by a clean balance sheet and strong free cash flow prospects.

Bulls Say

  • Higher crop prices encourage farmers to grow more crops and will lead to more farming equipment purchases, substantially boosting Deere’s revenue growth.
  • Deere will benefit from strong replacement demand, as uncertainty around trade, weather, and agriculture commodity demand has eased, encouraging farmers to refresh their machine fleet.
  • Increased infrastructure spending in the U.S. and emerging markets will lead to more construction equipment purchases, benefiting Deere.

Company Description

Deere is the world’s leading manufacturer of agricultural equipment, producing some of the most recognizable machines in the heavy machinery industry. The company is divided into four reportable segments: production and precision agriculture, small agriculture and turf, construction and forestry, and John Deere Capital. Its products are available through an extensive dealer network, which includes over 1,900 dealer locations in North America and approximately 3,700 locations globally. John Deere Capital provides retail financing for machinery to its customers, in addition to wholesale financing for dealers, which increases the likelihood of Deere product sales.

(Source: Morningstar)

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

REA Group Ltd (REA) reported strong FY22 results reflecting revenue growth of +26% to $1,170m, an increase in EBITDA

Investment Thesis:

  • Clear 1 market position in online property classifieds, with consumers spending over more time on realestate.com.au app than the number two website. 
  • Growth opportunities via expansion into Asia and North America.
  • Recent strategic partnerships with National Australia Bank (property finance) could potentially be positive in the long term. 
  • Upside in key markets – particular in areas where REA is under-penetrated and could potentially win market share from competitors. 
  • New product developments to increase customer experience. 
  • Regular price increases help offset listing pressure. 

Key Risks:

  • Competitive pressures lead to a further de-rating of the PE-multiple.
  • Volume (listings) outlook remains subdued in the near term. 
  • Execution risk with Asia/North America strategy.
  • Failing to get an adequate return on the recent acquisition of iProperty.
  • Value/EPS destructive acquisitions. 
  • Decline in Australian property market.
  • Given REA trades on a very high PE-multiple, underperforming to market estimates can exacerbate a share price de-rating.
  • Recent tightening of lending practices by banks would affect the Financial services business.

FY22 Results Highlights: Relative to the pcp: Revenue of $1,170m, up +26%. 

  • EBITDA (including associates) of $674m, up +19%. Core operating costs jumped +34%, mainly due to Mortgage Choice and REA India acquisitions. Excluding acquisitions, core operating costs increased +11%, reflecting a tight labour market driving higher remuneration costs, an increase in revenue-related variable costs, and investment in brand and marketing. 
  • Net profit of $408m, up +25%. EPS of 308 cents, up 25%. 
  • The Board declared a fully franked final dividend of 89cps which brings the full year dividend to 164cps, up 25%. 
  • REA retains a solid balance sheet. As at 30 June 2022, REA’s total drawn debt was $414m, with a cash balance of $248m. Free cash flow generation remains strong at $394m in FY22, up +55%.
  • Performance by segments. Relative to the pcp: Australia. In Australia, REA operates realestate.com.au and realcommercial.com.au, data and insights business, PropTrack, and mortgage broking business, Mortgage Choice. Core revenue of $1,116m was up 23%, or 18% excluding the impact of the Mortgage Choice acquisition, driven by Residential revenue up +24% to $776m, Commercial and Developer revenue up +3% to $134m, Media, Data and Other revenue up +9% to $97m, and Financial Services core operating revenue jumping +12%, on a pro forma basis to $79m (assuming REA owned Mortgage Choice in the prior period). India. REA India achieved strong results with revenue growth of 92% to $54m on a pro forma basis (assuming it was owned for the full prior period), largely driven by Housing.com’s property advertising business, which saw strong customer growth. 
  • Equity accounted investments. REA has a 20% investment in Move, Inc. (Move) which operates realtor.com®, a property portal in North America. Move revenue increased 11% on traditional lead generation and referral model growth. However, Move also saw higher employee and marketing costs as the business continues to reinvest. This resulted in a $2m decline in Move’s equity accounted contribution to $14m. REA also holds a 17.5% stake in PropertyGuru Group Ltd, which contributed an equity accounted loss of $6m in FY22 to core EBITDA. 
  • FY22 Results 

Company Description:

REA Group (REA) provides online property listings, web management, financial services and data analytics to the real estate industry via advertising services. For consumers, REA offers the largest online real estate search engine in Australia. The Company also has operations and a growing presence in Asia and other parts of the world.

(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

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)

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