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Dividend Stocks

Victrex is a Global Leader in High-Performance Plastics

Business Strategy & Outlook:    

U.K.-based Victrex is the creator of and dominant market leader in polyetheretherketone, or PEEK, a lightweight ultra-high-performance plastic that suits the most demanding applications in transportation, oil and gas, and electronics. It serves these industrial markets through its industrials segment, which accounts for around 80% of sales. The company has broadened applications of PEEK to healthcare, notably implantable spinal fusion cages. Healthcare sales are housed in the medical segment, which contributes the other 20% of sales, but has higher margins than the industrial business. Total market demand for PEEK is small, currently around 6,000 metric tons per year. Victrex has succeeded in its efforts to expand the market for PEEK, as evidenced by mid-single-digit volume growth at the company over the past decade. The market for PEEK has plenty of room to grow by capturing increasing demand for metal-replacement products. Indeed, Victrex believes annual demand for PEEK could ultimately grow to 80,000 metric tons, a reasonable view given that the market size for many specialty polymers is 2-3 times larger. 

While PEEK has been off-patent for many years, competition has been benign with only a handful of suppliers entering the market. Competitive dynamics are evolving slowly. Solvay made a significant capacity expansion a few years ago, but this is the only company that has made real inroads into the market. There is room for both Victrex and Solvay to be major players without serious price competition. The company’s strategy is shifting to prioritize moving downstream into semi finished and finished products and specialty applications, in order to capture a larger portion of profits in the value chain. Currently, these products account for about 30% of sales. Victrex’s pipeline of downstream products under development could easily double current sales, but a material impact on group profit is probably several years away.

Financial Strengths: 

Victrex is in excellent financial health. The balance sheet is managed very conservatively–possibly too conservatively—with no debt and significant working capital. However, this is a strategic decision to ensure customers have strong faith in the security of PEEK supply, because Victrex has historically been the only major producer. At fiscal end-2021, Victrex had a GBP 96 million net cash position. In addition, the pension deficit is modest. Liquidity is enhanced by a GBP 40 million committed bank facility, which was unused at fiscal end-2021.

Bulls Say: 

  • Victrex is making progress moving downstream in the PEEK value chain, which should help protect margins as the upstream business becomes more competitive.
  • The company has several GBP 50 million sales opportunities in its medical development pipeline, which should invigorate segment growth in the long term.
  • Given the company’s significant free cash flow and shareholder-friendly capital-allocation policies, investors have the potential to realize extra returns through special dividends.

Company Description:  

Victrex is a British specialty chemicals company whose business is based predominantly on manufacturing and creating solutions using polyetheretherketone, or PEEK, an ultra-high-performance lightweight plastic. Around 40% of sales are generated in Europe, with Asia and the Americas contributing 30% each. The business has two segments. The industrial segment targets transportation, energy, electronics, and manufacturing, while the medical segment provides healthcare solutions for the implantable device markets.

(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

Musk Parting from Twitter Purchase, but Twitter Remains Attractive; FVE Downs to $47

Young woman trading stock market by touching.

Business Strategy & Outlook:   

Twitter has captured the attention of nearly 200 million daily active users, including prominent celebrities and public figures worldwide. Its access to, and interactions around, real-time information and content create value for its users and for advertisers. While Twitter user growth has accelerated since 2018, a potential slowdown remains a concern. Slower user growth could make higher user monetization more difficult as advertisers may allocate a bit more toward other platforms such as Snap, which has a faster-growing user base. Twitter might have carved out an economic moat. Twitter is an open distribution platform for (and a conversational one around) short-form text, image, and video content. Its users can access real-time information regarding a wide array of topics or news events. They can also share information and content, interact with content, and express their reactions to other Twitter users. These types of interactions allow Twitter to compile more data about its users, which is then licensed and/or utilized by Twitter and advertisers to launch online brands and targeted ads. 

While Twitter remains one of the main real-time online content distribution platforms, its user base is smaller than other social networks such as Facebook (including Instagram) and Snap’s Snapchat. As such, Twitter is not benefiting from increased spending on mobile and online video advertising as much as its peers. Product enhancements such as the Explore tab may have helped increase initial user engagement and improve user retention, but the firm’s potential network effect is weakening as its user base shrinks in size relative to rivals, which could lead to generating less data and drive advertisers to spend more on other platforms. However, Twitter has introduced some subscription products which could lessen dependence on ad revenue.

Financial Strengths:  

Twitter has a strong balance sheet with net cash of $5.9 billion. The firm generates cash from operations, and expects it to generate free cash flow going forward. Twitter’s free cash flow to equity/revenue ratio averaged 18% over the past three years, and they projected this ratio to improve to over 26% in 2025.

Bulls Say: 

  • Growth in ad revenue per user remains strong at Twitter, more than offsetting the deceleration in user growth. 
  • Agreements with various professional sports leagues provide a platform for interaction and conversation about the games, which may attract more premium content providers to use the Twitter platform. 
  • Investments in product enhancements and video content could return the monthly active user growth rate to the double digits.

Company Description:  

Twitter is an open distribution platform for and a conversational platform around short-form text (a maximum of 280 characters), image, and video content. Its users can create different social networks based on their interests, thereby creating an interest graph. Many prominent celebrities and public figures have Twitter accounts. Twitter generates revenue from advertising (90%) and licensing the user data that it compiles (10%). (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
Commodities Trading Ideas & Charts

OGE Energy completed its long transition to a fully regulated utility in 2021

Business Strategy & Outlook

OGE Energy completed its long transition to a fully regulated utility in 2021 when it divested its midstream energy business through a swap transaction with Energy Transfer. Typical utilities investors should be more comfortable with OGE now that it has no direct exposure to energy commodity markets. OGE’s elimination of its midstream energy exposure along with improving regulation at its core Oklahoma operations puts it on track to produce more stable, growing earnings in 2022 and beyond than it has in many years. OGE management has said it plans on selling the 95 million limited partner units of Energy Transfer worth some $950 million acquired as part of the deal for OGE’s Enable. OGE had formed Enable with two other firms in 2013, contributing all its interstate pipelines and field services business. The OGE will realize after-tax proceeds exceeding $500 million that it can use to fund its planned growth investments at the electric utility.

Improving rate regulation in Oklahoma is a key part of OGE’s growth plan. In 2020, subsidiary Oklahoma Gas & Electric proposed an $810 million grid modernization plan that includes a rate tracker cost recovery mechanism. A settlement established a partial rate tracker with the remainder of the investments recovered in a general rate case. The modified framework reduces regulatory lag and will improve cash flow available for dividends and growth. In 2019, the Oklahoma Corporation Commission approved a settlement for environmental upgrades at the Sooner coal-fired plant and natural gas conversions of coal units at the Muskogee coal plant. OG&E had been seeking approval for these investments for a decade. Exiting the midstream business will reduce earnings and will increase the payout ratio on OGE’s common dividend to over 85% by as per estimates. Even though the earnings grow 6% annually, the dividend likely will grow around 2% during the next four years until OGE’s payout ratio reaches the mid-70% range.

Financial Strengths

Between 2022 and 2025, the OGE will invest nearly $4 billion in its utility. The company should be able to finance these investments with cash flow from utility operations, proceeds from the sale of its Energy Transfer units, and roughly $600 million of additional debt. One cannot foresee any material equity issuances in the next five years. The company has maintained a conservative capital structure, and one doesn’t expect a sizable shift in that strategy once it exits its Energy Transfer position and issues securitized debt to cover its excess fuel costs related to Winter Storm Uri in February 2021. The OGE’s dividend growth slowed after losing the earnings and cash distributions from Enable following the Energy Transfer transaction. Cash distributions from Enable helped OGE average 10% annual dividend growth since forming Enable in 2013. However, a large drop in energy prices and the economic impact of COVID-19 led Enable to cut its distribution by 50% in 2020. Less cash flow from Enable required OGE’s board to slow dividend increases to 6.2% in 2019, 3.9% in 2020, and 2% in 2021. Without the Enable earnings expected OGE’s payout ratio will climb above 80% for several years. The dividend increases will average 2% annually for the next few years until the payout ratio falls to within management’s 65%-70% target.

Bulls Say

  • OGE is making progress improving Oklahoma regulation so that it can execute its growth investment plan without creating a drag on its return on equity. 
  • Although the expected dividend increases too slow to about 2% annually, investors still should benefit from growing earnings and minimal equity needs. 
  • The economy in OG&E’s service territory is healthy and annual customer growth is again exceeding 2%, higher than most electric utilities.

Company Description

OGE Energy is a holding company for Oklahoma Gas & Electric, a regulated utility offering electricity generation, transmission, and distribution to more than 800,000 customers in Oklahoma and western Arkansas. In December 2021, OGE closed a merger between Enable Midstream Partners and Energy Transfer. This resulted in OGE acquiring 95.4 million limited partner units of Energy Transfer in return for its 25.5% limited partner interest in Enable, a midstream services company it created in 2013.

(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
Dividend Stocks

Fair market value laws in several states support Essential’s water business acquisition strategy.

Business Strategy & Outlook

For more than 50 years, Essential Utilities–formerly Aqua America–was one of the few pure-play water utilities in the United States. But its $4.3 billion acquisition of Peoples Gas in March 2020 made the company nearly 50% larger and diversified its earnings mix. The gas business contributes about one third of earnings on a normalized basis. Essential’s gas and water utility earnings are mostly rate regulated. The management prioritizes infrastructure investments and paying a robust dividend, like most other utilities. The Essential’s earnings to grow 8% annually during the next five years due to its water system acquisition opportunities. This is among the highest growth rates in the U.S. utilities sector. Although efficiency savings have reduced retail water use for several decades, Essential has been able to grow earnings and the dividend by replacing and upgrading infrastructure that is decades old. The Essential to grow by acquiring small, typically municipal-owned water systems. In the U.S., 85% of the population is served by a municipal water utility, offering a long runway of acquisition growth opportunities.

Similarly, they expect little natural gas usage growth at Peoples Gas, which had been owned by a private equity group. But the gas business still should produce steady earnings growth as Essential replaces and upgrades the system infrastructure. Fair market value laws in several states support Essential’s water business acquisition strategy. These laws require Essential to pay municipalities at least the assessed value of the system it acquires and allow Essential to add these assets to rate base at the assessed value rather than historical cost. The municipalities benefit by ensuring they get fair prices, and Essential shareholders benefit by ensuring the company doesn’t overpay for growth. In many cases, these deals are immediately value-accretive. Recent FMV legislation in Kentucky and West Virginia opens acquisition opportunities near areas Essential already serves.

Financial Strengths

Essential maintains a capital structure in line with its regulatory allowed capital structure for ratemaking purposes and leverage metrics in line with high investment-grade credit ratings. One cannot expect that to change. The Essential to issue new debt to fund growth investments and acquisitions in the coming years. One cannot expect any material new equity needs after the company raised $300 million in 2021. With constructive regulation, The Essential will be able to use its cash flow to fund most of its equity investment needs during the next five years. Essential has paid an annual dividend since 1945 and increased it at least 5% for each of the last 25 years. The Essential will be able to continue growing the dividend at this rate or higher for the foreseeable future while staying below management’s 65% maximum payout ratio threshold.

Bulls Say

  • Constructive regulation allows Essential to raise rates through surcharges or rate cases to reduce regulatory lag and enhance cash flow available to pay the dividend and invest in growth projects. 
  • Fair market valuation state laws allow Essential to make municipal water utility acquisitions immediately value-accretive for shareholders. 
  • Essential has raised its dividend 31 times in the last 30 years, including 29 consecutive increases of more than 5%.

Company Description

Essential Utilities is a Pennsylvania-based holding company for U.S. water, wastewater, and natural gas distribution utilities. The company’s water business serves 3 million people in eight states. Nearly three fourths of its water earnings come from Pennsylvania, primarily suburban Philadelphia. It also has a small market-based water business that provides water and water services to third parties, notably natural gas producers. Its $4.3 billion Peoples Gas acquisition that closed in March 2020 adds 750,000 gas distribution customers in Pennsylvania, West Virginia, and Kentucky.

(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
Dividend Stocks

Wide-Moat Masco Is Mostly Exposed to the Less-Cyclical Repair and Remold Market

Business Strategy & Outlook:   

Company thinks Masco’s financial performance over the past eight years has been as much of a self-help story as a story of improving end markets. Masco almost entirely refreshed its senior executive management team in 2014. Since then, it has taken significant measures to build a stronger and more consistent business model. The firm divested its most cyclical and least profitable businesses (it spun off its installation business, now named TopBuild, to shareholders in 2015 and sold its windows and cabinetry businesses in 2019 and 2020, respectively). Management also executed significant cost-reduction initiatives and shored up the firm’s balance sheet. According to the company, Masco’s sale of its windows and cabinetry businesses was a positive development for the firm because it had long viewed its plumbing and decorative architectural businesses as the firm’s crown jewels and key drivers of the company’s valuation, while Masco’s cabinetry and windows businesses were often laggards that had been a drag on margins and returns on invested capital. 

Repair and remodel, or R&R, spending, and to a much lesser extent, new residential construction, are major drivers of Masco’s financial performance. After divesting its installation, windows, and cabinetry businesses, the firm’s overall exposure to the R&R market is 88% of sales. R&R spending surged during the pandemic, but the company doesn’t expect a dramatic downturn in home improvement projects, although the amount spent per project could moderate over the near term resulting in flattening growth over the next couple years. Historically, project incidence has been relatively stable, but average project expenditure is more sensitive to macroeconomic conditions. Nevertheless, it will continue to see a 4%-5% long-term growth trajectory for R&R spending. The company expects the repair and remodel market will benefit from several long-term secular tailwinds related to aging housing stock, favorable demographics, and increased acceptance of smart home and energy-efficient products and solutions.

Financial Strengths:  

Company thinks Masco has a sound capital structure, and its consistent free cash flow generation should easily support its debt-service requirements and future capital-allocation decisions. Masco’s balance sheet has improved significantly over the past five years; based on calculations, net debt/EBITDA peaked at over 4 in 2011 but is now 1.7. Masco plans to maintain a similar leverage ratio to support an investment-grade debt rating. Masco has approximately $3 billion of outstanding debt with maturities staggered through 2051, but the next maturity isn’t until 2028 when $600 million is due. Masco has ample liquidity, with roughly $500 million of cash on hand and over $700 million available on its credit facility. By calculations, 2021 marked the 31st consecutive year Masco has generated positive free cash flow since financials were publicly available via the Securities and Exchange Commission website (1991). This ability to generate consistent free cash flow, even in a downturn, demonstrates the durability of Masco’s business model.

Bulls Say: 

  • The R&R market is poised for long-term growth, driven by several secular tailwinds, including the aging housing stock and favorable demographics. 
  • Masco has attainable growth plans for its plumbing and decorative architectural segments. These strategies could drive meaningful above-market growth over the next several years. 
  • Masco’s brand portfolio enjoys pricing power, which supports margin stability.

Company Description:  

Masco manufactures a variety of home improvement and building products. The company’s $5.1 billion plumbing segment, led by the Delta and Hansgrohe brands, sells faucets, showerheads, and other related plumbing fixtures and components. The $3.2 billion decorative architectural segment primarily sells paints and other coatings under the Behr and Kilz brands, but it also sells builder hardware and lighting products. 

(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
Dividend Stocks

Initiating on Glanbia With No-Moat Rating, EUR 12 Fair Value Estimate; Share Slightly Undervalued

Business Strategy & Outlook:   

Despite its positioning in fast-growing segments, benefiting from secular trends around healthy lifestyle and wellness, the company believes Glanbia’s products are largely commoditized and it assigns the company a no-moat rating. From its humble beginnings as an Irish dairy cooperative, Glanbia has transformed over the past few decades into a global manufacturer of ingredients and sports nutrition, primarily by using whey, a byproduct of milk processing and cheese manufacturing. Acquisitions have served to further diversify the portfolio away from whey-based ingredients and products, with Glanbia also building a sizable position in vitamins and mineral premix, which has contributed to the accelerated growth of the segment. Its cheese operations, however, either wholly owned or as joint ventures, still account for a large share of revenue and it is believed to have constituted a distraction for management from the higher-value-added parts of the portfolio.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            The performance nutrition segment, which includes brands such as Optimum Nutrition, BSN, and SlimFast, has been struggling over the past five years, with diminishing pricing power and organic growth rates that have significantly lagged the market, translating into share loss to new and nimble players. Company believes the acquisition in late 2018 of the SlimFast brand has done little to rejuvenate the portfolio and improve its growth prospects, and it surmises that the brand’s deteriorating equity has added more pressure to already increasing customer acquisition costs. Company believes the nutritional solutions segment to be the most valuable for Glanbia, delivering above-average growth rates and margin. The company’s leading portfolio of protein and vitamin and mineral premix ingredients and solutions creates a compelling proposition for customers in the food, beverage, and supplements space. Although the management don’t believe the products to be differentiated—Glanbia’s research and development spend of below 1% is among the lowest in the ingredients peer group— do reckon that Glanbia’s credentials in the space are likely to continue to lead to outperformance for the segment versus the market over the midterm                                                                                                                                                                                                                                                                                                                                                                     

Financial Strengths:  

Glanbia is in good financial health. Net debt levels are manageable, with a net debt/adjusted 2021 EBITDA ratio of 1.8 times, in line with previous years, and available banking facilities totaling EUR 1.2 billion. Company forecasts acquisition spending of around EUR 100 million per year for the next five years, in line with historical averages and keeping with the company’s strategy of expanding its footprint in the ingredients market. The company expects these acquisitions to be largely financed from free cash flow generation, which will enable Glanbia to maintain its solid financial position. In the five years leading up to 2021, capital spending averaged only 2% of sales, making Glanbia one of the most capital-light companies in the ingredients industry. The company employs a progressive dividend policy, targeting a dividend payout ratio of 25%-35% of adjusted earnings per share, which are viewed as manageable.

Bulls Say: 

  • In the nutritional solutions segment, Glanbia is well positioned to benefit from growing consumer trends regarding healthier lifestyles, wellbeing, and increased immunity. 
  • The sale of its 40% holding in the Glanbia Ireland joint venture further enables Glanbia to focus and reinvest in its higher-value-added segments. 
  • Glanbia’s portfolio expansion into vitamin and mineral premix has enabled the company to create a compelling proposition for supplement and on-the-go snacking manufacturers, and expects these applications to continue to drive the above-average growth of the segment.

Company Description:  

Meaning “pure food” in Irish, Glanbia is a global ingredient and branded performance nutrition manufacturer present in 32 countries with sales in 130 countries and over 7,500 employees. Originating in Ireland in the 1960s in the dairy processing industry, predecessor companies were initially listed in 1988 before Glanbia came into being in 1999. Production facilities are concentrated in Ireland, the U.K., Germany, the U.S., and China. Glanbia processes over 6 billion liters of milk annually and is also a major producer of U.S. cheddar cheese. Glanbia generates more than 80% of its revenue in the U.S.

(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
Dividend Stocks

Goldman Sachs is significantly leveraged to rising interest rates

Business Strategy & Outlook

Goldman Sachs has made progress on the strategic plan that it laid out at the beginning of 2020 and set even more ambitious goals in 2022. The company is now targeting a medium-term return on tangible equity of 15% to 17% compared with a previous goal of over 14%. In addition to the ROTE target, management also set an expense ratio goal of about 60% and growth targets for its asset management and consumer banking businesses. While one cannot be sure the company will hit all of those goals over the next three years, the company will exceed a 15% ROTE in the long run after its consumer business has reached a more profitable scale. Goldman Sachs’ trading business also remains a large swing factor, as it requires more capital and tends to have lower operating margins than the other business segments. COVID-19 boosted revenue in 2020 and 2021 with high trading caused by economic uncertainty and companies issuing debt and equity to initially bolster capital and then later issuing debt and equity to take advantage of low interest rates and a strong stock market. Net revenue should retrace somewhat in 2022 and 2023 from the unusually strong 2021 level, and as per forecast 2023 revenue to be about $45 to $50 billion compared with nearly $60 billion in 2021.

As per given forecast, the firm should trade at 1.5 to 1.6 times tangible book value. Its investment management business has become a priority. Assets under supervision exceeded $2.4 trillion at the end of 2021, while related investment management fees have been around 15%-20% of net revenue compared with 11%-12% before 2008. Investment management is a relatively stable, high-return-on-capital business that is well suited to the current regulatory environment. Goldman has also built out a large virtual bank and had deposits of $350 billion at the end of 2021 compared with $39 billion in 2009. The deposit base and related net interest income will add more stability to the company’s revenue stream and balance sheet in the medium term. Goldman Sachs is significantly leveraged to rising interest rates, so its valuation shouldn’t be as affected as peers by the current uncertainty over inflation and interest rates.

Financial Strengths

The long-run gross leverage of 11-13 times. This is below pre-credit-crisis levels of above 25 times. Although Goldman remains highly leveraged, it has restructured as a bank holding company, and its access to government borrowing facilities decreases its short-term funding concerns. The balance sheet is also much cleaner now than before the recession and has a high amount of excess liquid securities. Recently, level 3 assets that are valued using inputs that are significant and unobservable were about 20%-25% of common equity compared with over 100% in 2008. Although you don’t have any immediate concerns in terms of solvency or liquidity, an investment bank’s financial health can turn rapidly for the worse if counterparties experience a crisis of confidence. Goldman Sachs’ regulatory capital ratios are healthy. At the end of 2021, the company had a 14.2% common equity Tier 1 capital ratio. The company targets a common equity Tier 1 ratio of 50 to 100 basis points above its requirements. This would currently equate to a common equity Tier 1 ratio of slightly over 14%, but a longer-term target of 13.50%-14.00%. All of Goldman’s capital ratios are well in excess of regulatory minimums. The company’s ability to return capital is determined by the Federal Reserve Board’s annual Comprehensive Capital Analysis and Review.

Bulls Say

  • More-stable investment management and net interest income could cause investors to reassess Goldman’s earnings quality and increase their willingness to pay a premium for it. 
  • The company’s trading operations can potentially do well in recessions and periods of economic uncertainty, which can buffer earnings. 
  • Several of the company’s primary U.S. and European competitors have been forced to restructure, which could give Goldman an opportunity to gain market share.

Company Description

Goldman Sachs is a leading global investment banking firm whose activities are organized into investment banking (20% of net revenue), global markets (45%), asset management (20%), and consumer and wealth management (15%) segments. Approximately 60% of the company’s net revenue is generated in the Americas, 15% in Asia, and 25% in Europe, the Middle East, and Africa. In 2008, Goldman reorganized itself as a financial holding company regulated by the Federal Reserve System.

(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

Zendesk can be successful by simply providing robust software for a reasonable price and offering a credible alternative to those offered by its peers

Business Strategy and Outlook 

Zendesk is a leader in customer service and engagement software. It has a long runway for growth within its existing roster of clients as it continues to improve the feature set and add new solutions to the portfolio. The company is in the process of being acquired by two private equity firms for $77.50 per share. Zendesk was founded with a focus on simplicity and a desire to bring robust customer service functionality more quickly and more cheaply than existing solutions. The software was initially available only online and included free trials. This self-service approach, combined with a rich feature set, drove early traction in the SMB community. Over time, Zendesk began to employ a direct salesforce to attack the enterprise market, which is going towards the small end of enterprise customers. Larger customers drive about 40% of annual recurring revenue, or ARR. Enterprise buyers of software are stickier than SMB customers. That said, Zendesk already enjoys very high dollar retention in the 110%-120% range, which can be considered as very good.

Zendesk is successfully pursuing the typical land and expand approach to growth in that the firm lands at a new customer with one solution or a limited number of seats and increases the seat count or number of solutions over time. At its inception, Zendesk sold only its Support product, whereas today it has branched out to CRM, marketing automation, and others. Support remains the single largest solution, and even today approximately 80% of revenue is derived from existing customers. The market opportunity is substantial. Management believes its total addressable market, or TAM, is near $85 billion, and this market is still growing rapidly and could be up to three times larger in the long run. While the competition includes Salesforce.com, Microsoft, Oracle, and others, hence Zendesk doesn’t have to “beat” any of them. Their competitive overlap remains relatively small for now, and Zendesk can be successful by simply providing robust software for a reasonable price and offering a credible alternative to those offered by some of the larger peers.

Financial Strength

Zendesk is a financially sound company with a solid balance sheet, improving margins, and rapidly growing margins. Capital is generally allocated to growth efforts and acquisitions, with no dividends or buybacks on the horizon. As of December 2021, Zendesk had $1.0 billion in cash and marketable securities compared with $979 million in long-term debt. The company generated non-GAAP EBITDA of $220 million in 2021, representing leverage of 4.5 times. The company’s free cash flow to grow rapidly over the next several years. The debt is due in 2023 and is convertible into common shares, which will be the outcome. Zendesk does not pay a dividend and has not repurchased shares, nor is it expected for the company to do so within the next several years. The company makes small acquisitions from time to time, with a handful of deals totalling approximately a couple hundred million dollars over the last five years. These are feature additions or product expansion that supplements the company’s research and development efforts. While the size and frequency of deals may vary from year to year, the company is not going to change its acquisition strategy.

Bulls Say’s

  • The free trial, easier implementation, and rapid return on investment for Zendesk customers make for a compelling sales pitch. The company is also enjoying success moving upstream to larger customers. 
  • Zendesk does not have to beat out Salesforce.com or Microsoft, it just has to offer a viable alternative for larger SMB customers, which is already true. 
  • Zendesk’s track record of introducing new solutions in adjacent areas and upselling existing customers has driven strong revenue growth thus far, which will continue.

Company Profile 

Founded in 2007, Zendesk provides a portfolio of customer engagement software solutions via single applications or the Sunshine suite. Its software unifies customer communication and data across various channels and business units, and simplifies customer service and engagement across self-service, phone, chat, messaging, and email.

(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 is 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

HCA’s strategies have generally yielded positive results over the long run

Business Strategy and Outlook 

HCA operates the largest network of hospitals in the United States, focusing on attractive geographic locations where it has the potential for leading and increasing market share. While it has locations in nearly 20 states and headquarters in Nashville, its facilities are particularly concentrated in Texas and Florida, which represent over half of its bed count. In those states, urban areas of focus include Dallas, Austin, Tampa, and Miami, and those geographic areas provide a good sense of the positive demographic factors that the firm aims to benefit from across the country.

Within its target markets, HCA aims to expand market share through a variety of strategies to attract patients, physicians, and third-party payers. The company provides wide networks of facilities within its chosen geographic markets with key hospital anchors supported by ambulatory surgical centers, urgent care centers, and physician clinics at convenient access points. HCA aims to be the facility of choice for physicians who are typically free agents with practicing rights to other hospitals in the area. For example, HCA has spent the past decade or so investing in its surgical suites to improve efficiency, nursing, and technology offerings to appeal to surgeons scheduling those procedures and positively influence patient satisfaction, which builds on the reputation of HCA’s facilities. From a payer standpoint, HCA continues to contract with health insurers in three-year cycles, which is typically manageable but is causing some concerns due to spiking labor costs. Overall though, HCA’s strategies have generally yielded positive results over the long run. For example, the company continues to grind out market share gains in its local markets with market share standing at roughly 27% at the end of 2020, up from 23% in 2011, according to HCA management. Once HCA works through current labor challenges, the firm is to grow its top line in the mid single digits and its adjusted earnings per share to grow in the low double digits.

Financial Strength

At the end of 2021, the company owed about $35 billion in debt, or gross leverage of less than 3 times, or below its new leverage target of 3.0 to 4.0 times, which is down from 3.5 and 4.5 times previously. At the end of 2021, HCA held just under $2 billion in cash after returning the government aid that it was originally granted during the COVID-19 health crisis of 2020. With those liquid resources at its disposal and free cash flows expected to range between roughly $5 billion and $7 billion annually during the next five years, HCA should be able to manage its debt maturities during the next five years through internal means. Those maturities include $0.2 billion due in 2022, $2.9 billion due in 2023, $2.4 billion due in 2024, $4.6 billion due in 2025, and $5.3 billion in 2026. However, the company plans to return significant cash to stakeholders going forward. As of February 2022, the company was authorized to repurchase about $9 billion in shares, which the firm expects to use in the next couple of years. Also, HCA just reinstated its dividend ($0.6 billion annual run rate), which was temporarily suspended during the pandemic. The company also distributed about $0.7 billion in cash to noncontrolling interests in 2021, and those outflows might grow mildly going forward. Overall, HCA’s planned distributions to stakeholders may lead to more debt issuance to refinance maturities or even to finance some of these outflows to stakeholders, going forward.


Bulls Say’s

  • Beyond administrative function efficiency, HCA’s large scale gives it an opportunity to test and expand best practices throughout its network of facilities to improve service quality and efficiency. 
  • HCA’s focus on attractive geographic locations gives it a volume tailwind that should positively affect its top line. 
  • The company’s financial leverage should be easily manageable, giving HCA flexibility for U.S. healthcare policy changes or other shocks to the system that could constrain demand for the more elective, and highly profitable, parts of its business.

Company Profile 

HCA Healthcare is a Nashville-based healthcare provider organization operating the largest collection of acute-care hospitals in the U.S. As of December 2021, the firm owned and operated 182 hospitals, 125 freestanding outpatient surgery centers, and a broad network of physician offices, urgent care clinics, and freestanding emergency rooms across nearly 20 states and a small foothold in England.

(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.

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Dividend Stocks

ABN Amro cannot pass on negative interest rates to smaller depositors without damaging client goodwill

Business Strategy & Outlook

After emerging from outright government ownership ABN Amro is one of the simpler banks in Europe. It is essentially a retail and commercial bank with limited capital markets activities. Its strong retail deposit base supported above-average profitability until negative interest rates started to bite. Having a lending book dominated by fixed-rate mortgages does not help either. The long-duration lending book forces ABN Amro to use more expensive long-term funding in order to manage liquidity risk, which then compounds margin pressure in a declining interest-rate environment. ABN Amro offers investors exposure to the oligopolistic Dutch banking system where ABN Amro and its two main rivals hold more than 90% of all Dutch current accounts. This is in sharp contrast to the fragmented banking markets that are the norm in much of the eurozone. Historically this concentration supported higher levels of profitability for ABN Amro and its Dutch peers.

ABN Amro has a solid competitive position in Dutch retail banking with a 20% market share in Dutch personal current accounts and a 25% share of business current accounts. This provides ABN Amro with cheap, sticky funding and forms the base from which ABN Amro can cross-sell other products. In a negative interest-rate environment what should be a major competitive advantage has turned into a major headache. In a negative interest-rate environment banks earn negative interest on their surplus liquidity and with essentially a zero interest-rate floor on some of their deposits this leads to a margin squeeze. The injection of liquidity via monetary and fiscal interventions from central banks and governments following the coronavirus pandemic has just amplified this problem as banks are faced with even more deposits from clients flush with cash. ABN Amro cannot pass on negative interest rates to smaller depositors without damaging client goodwill. It is increasingly passing on higher costs to larger clients. Interest-rate hedges only provide protection against interest-rate volatility, not to a long-term decline in interest rates, especially not when rates go negative.

Financial Strengths

Even after taking into considerations the more onerous capital guidelines under Basel IV ABN Amro is one of the best-capitalized banks in Europe that were covered. At the end of 2020 ABN Amro indicated that on a Basel IV basis it has a common equity Tier 1 ratio of over 15%, compared with its internal target of 13%.

Bulls Say

  • ABN Amro is one of the three leading banks in the oligopolistic Dutch banking sector. 
  • It has an attractive funding mix with low reliance on wholesale funding. 
  • It has a simple, clear, and focused business model and strategy.

Company Description

ABN Amro Bank is a Dutch bank, and the Netherlands accounts for around 90% of its operating profit. Operationally, retail and commercial banking contributes the bulk of its operating profit, while ABN Amro continues to reduce its exposure to corporate and investment banking. It views private banking as one of its key growth areas.

(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.