Author: lvc-admin

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)

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

Rolls Royce Holdings plc (RR) manufactures aero, marine and industrial gas turbines for civil and military aircraft

Investment Thesis:

  • Very high barriers to entry and Covid-19 are likely to improve industry structure (consolidation)
  • Consumer pent up demand for travel will return with a vaccine. 
  • Liquidity concerns have been addressed with the GBP5bn recapitalization program.  
  • Ongoing focus on R&D and innovation, which will drive further efficiencies.
  • Cost efficiency program to drive savings to support earnings. 

Key Risks:

  • Covid-19 impacts are deeper and more protracted than expected.
  • The Company fails to hit its near-term guidance. 
  • Défense and Power Systems fails to deliver organic growth. 
  • Economic downturn leading to reduced demand from airlines.  
  • Brexit uncertainty. 
  • Adverse currency movements outside hedging strategies. 
  • Regulatory / litigation risks. 

Key Highlights:

  • FY22 outlook remains unchanged. Despite a more uncertain environment, management confirmed FY22 guidance with revenue growth of low-to-mid single-digit driven by improvements in Civil Aerospace driven by higher large engine sales and increases in shop visits, operating profit margin remaining broadly unchanged y/y and FCF being modestly positive. (Refer to Figure 1 for detailed guidance)
  • Managing external inflation/supply chain challenges successfully. Though RR isn’t immune to the impact of global supply chain challenges and cost inflation, management continues to successfully manage these by making innovative changes to manufacturing processes to manage rising costs and supply chain bottlenecks (e.g., repairing and reusing spare parts, de-risking customer deliveries by temporarily increasing inventories) and by partnering with key suppliers to ensure contractual pricing protection in place through long-term contracts.
  • Sale of ITP Aero to close soon. The Company received all the required regulatory approvals for the sale of ITP Aero, with the transaction expected to complete in the coming weeks and proceeds to be used to reduce debt by repaying early the £2bn loan, which is supported by an 80% guarantee from UK Export Finance and remains only drawn debt exposed to interest rate movements.
  • Capital management. Balance sheet remained strong with liquidity of £7.3bn including £2.8bn in cash, equating to netdebt of £5.1bn including £1.9bn leases with no significant debt maturities before 2024. Shareholder returns remain scrapped with no interim dividend for FY22.
  • Cashflow profile – management warns of headwinds in FY23. FCF was an outflow of £68m vs an outflow of £1.2bn in pcp, driven by higher Civil Aerospace EFH receipts and increase in payables, with the company experiencing limited impact from concession payments amid further delays in 787 deliveries and the associated concession payments. However, management warned of a larger headwind in FY23, by continued low receipts from Trent 1000 new engine deliveries as Boeing continues to manage its own inventory.

Company Description:

Rolls Royce Holdings plc (RR) manufactures aero, marine and industrial gas turbines for civil and military aircraft. The Company designs, constructs, and installs power generation, transmission and distribution systems and equipment for the marine propulsion, oil and gas pumping and defence markets. The Company operates three main segments: (1) Civil Aerospace; (2) Defence Aerospace; and (3) Power Systems.

(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

Amazon.com Inc (AMZN) is a multinational technology company focusing on e-commerce, cloud computing and artificial intelligence

 Investment Thesis:

  • Well positioned as a market leader in e-commerce and cloud computing.
  • Strong operating cash flow profile provides the Company with a significant amount of flexibility. 
  • Large base of loyal customers.
  • Strong senior executive team.
  • Entry into new regions (e.g. India) – although this is not without risk.
  • Re-accelerating investment expenditure should be positive for future revenue and earnings growth. 

Key Risks:

  • It is a complex business with a lot of moving parts, thus forecasting future earnings can be difficult. 
  • Further de-acceleration in advertising revenue.
  • Increased investments fail to yield adequate returns to justify AMZN’s trading multiples. 
  • Increased e-commerce competition domestically and internationally.
  • Decrease in operating margins of AWS due to increased competition and price cuts.
  • Increased regulatory scrutiny (India being a good example).
  • Increase in overheads like free shipping and higher labour cost leading to margin contraction.  

Key Highlights: 

  • Strong growth in AWS – leading the $200bn cloud market. Having established itself as an early leader in the market for cloud infrastructure, AWS continued to lead the pack in 2Q22 (according to estimates from Synergy Research Group, AWS’s market share in the worldwide cloud infrastructure market amounted to 34%, exceeding the combined market share of its two largest competitors, Microsoft Azure and Google Cloud with shares of 21% and 10%, respectively) and saw remaining cloud contract commitments jumping +65% to $100.1bn, with an average deal life of 3.9 years, as global cloud infrastructure service spending climbed to $55bn, bringing the industry total for the trailing twelve months to more than $200bn. Though AWS should face near-term headwinds from high inflation (energy costs + wage pressures), strengthening $US and a decline in IT budgets if a recession hit (especially by start-ups and newer tech companies as VC funding comes under pressure), the underlying growth in cloud usage to continue to grow at truly impressive rates with AWS’ leading market position helping it remain a major beneficiary. Additionally, margin expansion should come from scale and as higher-value services (PaaS products like databases, machine learning, security etc) become a bigger portion of revenue (according to IDC ~77% of AWS revenue in FY21 was generated from IaaS products, which are commoditized offerings and continue to face pricing pressure in the industry).
  • Focusing on the bottom line. Management continued to work on improving margins, noting “one have moved to adjust the staffing levels and improve the efficiency of significantly expanded operations network and have slowed 2022 and 2023 operations expansion plans to better align with expected customer demand…on the transportation side, to improve delivery route density and improved package deliveries per hour and see opportunity to further improvement in 2H22…one can expect fixed cost leverage to improve in the 2H22, as to grow into the capacity and have also taken steps to slow future network capacity additions.”
  • 3Q22 outlook. Management expects; Net sales of $125-130bn, up +13-17% y/y, including an unfavourable impact of ~390bps from FX. 
  • Operating income of $0-3.5bn vs $4.9bn in pcp and $3.3bn in 2Q22, with $1.5bn q/q sequential cost improvement in fulfilment network operations largely offset by investments in AWS (higher infrastructure investments to support continued strong customer growth and increased energy costs) and additional digital content for Prime members.

Company Description:

Amazon.com Inc. (AMZN) is a multinational technology company focusing on e-commerce, cloud computing and artificial intelligence. It is the largest e-commerce marketplace and cloud computing platform in the world as measured by revenue and market capitalization. The company operates through three segments; North America, International and Amazon Web Services (AWS).

(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

Nib holdings Ltd (NHF) reported a solid set of FY22 results despite the ongoing Covid-19 pandemic

Investment Thesis:

  • Given Australia’s growing and ageing population, there will be increased demand for health care services. This will add additional pressure on Australia’s public health care system and the Federal budget and an increased dependence on private health care insurers. NHF offers exposure to the business model of providing a funding mechanism for the high-growth health care sector. Healthcare spending is expected to grow at 5-10% per annum, so without significant tax hikes, the government cannot afford for people to shift back to the public healthcare system.
  • Given underlying increases in average premium rates of around 5 – 6% p.a., some policyholder growth (especially at the 30-34-year-old segment), and exposure to upstart investments, the NHF offers close to double-digit underlying growth in the medium term.
  • Solid management team.
  • Cost-out strategy which improves the company’s expense ratio. 
  • Incentives and benefits encourage PHI take-up. They include 1. Tax benefits and penalties for Australian residents (via Lifetime Health Cover, Medicare Levy Surcharge and means tested rebate); and 2. Shorter wait times, a choice of specialist doctor/hospital and coverage of ancillary health services support.
  • Growth runways through the JV with Tasly Holdings Group, and also international expansion, through product offerings like NISS.

Key Risks:

  • Intensifying competition between top 6 players, putting policy growth targets at risk and any Increases in expected marketing spend going forward will no doubt add further strain on earnings growth.
  • Policyholders decline unexpectedly despite the encouraging incentives and the Australian Government struggling with the rapid increase in healthcare spending and health services demand.
  • Registered health insurers cannot increase premium rates without approval from the Government/Minister for Health/PHIAC/APRA. This leaves NHF’s ROE and margins exposed to a political process and pressures if the company is deemed too profitable.
  • Regulatory changes especially relating to any changes to tax incentives and benefits which encourage take up of PHI. 
  • Higher than expected lapse rates and claims inflation as a result of poor insurance policy design, aging population, and costs of new medical equipment, procedures and treatments.
  • Poor negotiations with healthcare providers such as private hospital operators leading to unfavourable contractual terms.
  • Lower than expected investment returns.

Key Highlights:

  • Outlook. On the conference call with analysts, management did not provide specific quantitative earnings guidance. However, the Company did provide the following commentary: Australian Residents Health Insurance (arhi). “Net policyholder growth 3-4%; Claims experience expected to remain subdued for 1H23; Gradual movement towards net margin target of 6-7% over time”.
  •  International Inbound Health Insurance (iihi). “Worker’s outlook positive with continued demand for skilled migration; Strong return of student market expected, although margins will take time to recover; Continued improving profitability outlook”. 
  •  nib Travel. “Continuing improvement in profitability in FY23; Return to pre COVID conditions by FY24, but on recent demand trends this may occur in FY23”. 
  •  NZ. “Net policyholder growth 34% for core health book; Return to net margin target 8-10% over time, although unlikely in FY23 due to systems investment”.
  • FY22 Results Highlights. Relative to the pcp: Group underlying revenue $2.8bn, up +7.2%, driven by arhi membership which grew +3.2% with over 20,000 additional members, and International inbound health insurance and nib travel which both returned to profitability in 2H22. Group claims expense of $2.1bn, was up +4.0%. Group underlying operating profit of $235.3m, was up +14.8%. 
  • NPAT of $133.8m, down -16.6%, mainly due to investment losses.
  •  Statutory earnings per share 29.6 cents, down 15.9%.
  •  The Board declared a final dividend of 11.0 cents per share fully franked, which came in below FY21 final of 14.0 cps. The total dividend of 22.0cps for FY22 was down -8.3% YoY.
  • Performance Highlights by Segments. Relative to the pcp: arhi. Premium revenue of $2,286.2m, was up +5.2% despite premium deferrals. Risk equalisation payments of $206.1m, fell -7.1% due to reduced industry claiming. Claims fell -3.1% to $1,525.8m as NHF observed that Covid-19 lockdowns affected both members’ willingness and ability to access surgery and healthcare, and clinical providers’ capacity to accommodate treatment.
  •  iihi. Premium revenue was up +7.1% to $123.7m, on growth in international worker members and premium increases. Despite reporting a full year loss (UOP) of $1.1m, it was an improvement on a loss of $5.9m in FY21. The Company noted that 2H22 results were solid, posting a UOP of $6.3m against a loss of -$7.4m in 1H22.
  •  NZ. The segment saw strong premium growth of +12.8% to $291.8m. Policyholder numbers grew strongly to 156,275 from 120,148 in FY21, including life and living insurance.
  •  Nib Travel. Management noted a strong recovery in 4Q22, reducing the full year underlying operating loss to $7.4m compared to a loss of -$13.6m in FY21. 

Company Description:

Nib Holdings Limited (NHF) is the Australian private health insurer. NHF operates in four divisions which are private health insurance, life insurance, travel insurance and related health care activities.

(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

CGI Has an Embedded Competitive Position in North American and European Government Agencies

Business Strategy & Outlook

CGI is a leading global IT services firm, catering a bit more to governmental agencies than its peers, while providing managed IT, consulting, and IP solutions. The CGI benefits from strong switching costs and intangible assets, the combination of which leads to assign the firm a narrow economic moat rating. Despite the economic headwinds brought on by COVID-19, CGI has posted steady revenues due to its long-term contracts with many of its clients, and such stability will continue with the help of a stable trend for both CGI’s switching costs and intangible assets, which both work to create stickiness amongst existing customers. CGI has long operated differently from many of its peers, focusing more on a proximity-based operating model that places CGI offices near its clients. While the firm’s offshore leverage is lower than many of its peers, it still provides global delivery centers. Nonetheless, the proximity model is important for the firm’s government vertical as governments often require data to remain within their sovereign borders to better ensure data security. There are trade-offs to CGI’s government focus. On one hand, it creates even greater stickiness as The government vertical has marginally stronger switching costs than enterprises. Yet, CGI’s growth potential is more limited than its peers due to the greater resources the enterprises have to invest in themselves. On top of the switching costs, CGI also possesses intangible assets in the form of expertise the company has and continues to acquire. With an eye on the future, the CGI to benefit from vendor consolidation through its ‘build and buy’ strategy as it continues to acquire smaller IT firms, with their own niche expertise, to gain access to localized markets across the globe.

Financial Strengths

The CGI’s financial health is in good shape. CGI had CAD 1.7 billion in cash and equivalents at the end of fiscal 2021, with debt of around CAD 3.6 billion. This leveraged position, especially in comparison with its Indian IT Services counterparts which tend to have low debt levels, is a result of CGI’s more recent European acquisitions that have been funded, in part, by debt. Whereas a net debt to net capital ratio of 21% may appear to be high within this industry, the firm’s ability to generate free cash flow over a billion dollars on an annual basis should enable it to pay down its debt without the debt posing any material risk to the firm’s operations. The firm also has access to an unsecured committed $1.5 billion credit revolver set to expire in December 2024.

Bulls Say

  • CGI has an outsize presence in the government vertical, which could lead to further growth if government agencies place increasing importance on total investment in IT needs. 
  • Increased vendor consolidation could allow bigger IT services players such as CGI to expand their client base at the cost of smaller, more local players 
  • CGI’s recent European acquisitions may benefit the firm in making inroads into the European market, resulting in material margin expansion.

Company Description

CGI Inc. is a Canada-based IT-services provider with an embedded position in North America and Europe. The company generates more than CAD 12 billion in annual revenue, employs over 88,000 personnel, and operates across 400 offices in 40 countries. CGI offers a broad portfolio of services such as consulting, systems integration, application maintenance, and business process services, or BPS. The company’s largest vertical market is government, which contributes more than a third of group revenue.

(Source: Morningstar)

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