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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.

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
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.

Categories
Property

UBS CBRE Property Securities Fund: Aims to provide investors with growing and reliable income

Mortgage, investment, real estate and property concept. Dollar money and house keys

Fund Objective

The Fund aims to provide investors with a growing and reliable income, plus capital growth, from a portfolio of mainly Australian Real Estate Investment Trusts. The Fund aims to outperform (after management costs) the S&P/ASX 300 Property Accumulation Index over rolling three-year periods.

Fund Description

The Fund is an actively managed fund investing in a portfolio of 15 – 25 mainly Australian property and property related equity securities across a range of geographic and economic sectors.

Investment Strategy

The Fund uses a multi-step investment process for constructing the Fund’s investment portfolio that combines top-down sector allocation with bottom-up individual stock selection. Top-down sector allocation is determined through a systematic evaluation of listed and direct property market trends and conditions. Bottom-up stock selection is driven by proprietary analytical techniques to conduct fundamental company analysis, which provides a framework for security selection through an analysis of individual securities independently and relative to each other.

Portfolio Performance

The Fund delivered a -8.0% return during May, outperforming the S&P/ASX 300 AREIT Index by +0.6%. During the month, the main contributor to relative performance was the Fund’s overweight position in Rural Funds Group, which benefits from its uncorrelated asset returns versus traditional equities and its inflation hedge characteristics. The Fund’s overweight position in SCA Property Group was again a top contributor to relative performance, with supermarket inflation capturing turnover rent and increased institutional interest driving valuation support in the convenience retail sector. Detractors to performance included the Fund’s underweight position in Vicinity Centres, which reported a positive quarterly update highlighting a continued recovery across visitation, sales and rent collections. The Fund’s overweight position in Charter Hall also detracted from relative performance, due to market concerns over the Group’s outlook for transactional activity and investor fund flows. 

About Fund:

The UBS Property Securities Fund (portfolio managed by CBRE while Distributed by UBS) is a portfolio of mainly Australian Real Estate Investment Trusts that the investment team believes are being undervalued by the market, based on the in-house assessment of the company’s future cash flows. The Fund aims to outperform (after management costs) the S&P/ASX 300 Property Accumulation Index over rolling five-year periods.

(Source: Banyantree, investmentcentre)

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

China is BHP’s largest customer, accounting for more than 65% of total sales in fiscal 2021

Business Strategy and Outlook 

BHP Group is the world’s largest publicly traded mining conglomerate and positioned at the centre of the China boom. The company correctly values a strong balance sheet to provide some stability through the inevitable cycles and derives some modest benefit from commodity and geographic diversification, relative to its mining peers. BHP produces a range of commodities and is a major producer of iron ore, copper, and metallurgical coal. Exposure to conventional oil and gas ended with the spinoff and subsequent merger with Woodside in 2022. The onshore U.S. shale assets were divested in 2018. Much of the company’s operations are in Australia, particularly the low-cost iron ore business. Many of BHP’s assets are located close to key Asian markets, particularly iron ore and metallurgical coal, which provides a modest freight cost advantage relative to peers. 

Commodity demand is tied to global economic growth, China in particular. China is BHP’s largest customer, accounting for more than 65% of total sales in fiscal 2021. With demand for most products likely to soften with the end of the China boom, and BHP’s fiscal 2021-22 earnings back near the fiscal 2011-12 peak, the outlook is for earnings to materially decline, with iron ore the likely key driver. The good times saw significant capital expenditure, notably on iron ore and onshore U.S. shale gas and oil. Overinvestment in the boom diluted returns to the point where long-term excess returns are unlikely. Structurally lower earnings with the demise of the China boom peaks means it is expected that midcycle returns on adjusted invested capital, after adding back the impairments and write-downs, to be close to the cost of capital. Ignoring the cumulative impairments and write-downs, returns to modestly excess the cost of capital by mid cycle.

Financial Strength

BHP is in a strong financial position. With ongoing debt repayment, modest near-term capital requirements and the fortuitous bounce in commodity prices since 2016, BHP’s financial position is strong. For the five years ended fiscal 2026, the net debt/EBITDA remains to be below 0.5 and EBIT/net interest to average more than 30. Net debt at end-June 2021 was about USD 4 billion, below BHP’s net debt target range of USD 12 billion to USD 17 billion. Given the limited capital expenditure requirements, with only modest commitments to new expenditure in the lower demand growth environment, BHP’s balance sheet remains strong with excess cash flow to be returned to shareholders. Share buybacks and special dividends are possible, depending on the level of commodity prices, given the relatively modest outlook for capital expenditure. The likelihood of special dividends and buybacks would decline if BHP chose to pursue acquisitions.

Bulls Say’s

  • BHP is a beneficiary of continued global economic growth and demand for the commodities it produces. 
  • The company’s cash flow base is diversified and is less susceptible to the vagaries of the market than single-commodity producers. 
  • BHP’s iron ore assets are industry-leading. The company remains well placed to continue low-cost production and increase output with minimal expenditure and an efficiency focus.

Company Profile 

BHP is a leading global diversified miner supplying iron ore, copper, oil, gas, and metallurgical. The merger of BHP Limited (now BHP Ltd.) and Billiton PLC (now BHP PLC) created the present-day BHP. Shareholders in each company have equivalent economic and voting rights in BHP as a whole and in 2022 voted to reunify the dual listed structure. Major assets include Pilbara iron ore, Queensland coking coal, Escondida copper and conventional petroleum assets, principally in Australia and the Gulf of Mexico. Onshore U.S. oil and gas assets were sold in 2018 and the remaining Petroleum assets are likely to be spun off and merged with Woodside.

(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
Dividend Stocks

Metcash Ltd: Earnings And Positioning Has Significantly Improved Over Recent Years

Investment Thesis:

  • Trades below the blended valuation. 
  • MFuture benefits to help margins and customer value which in turn will drive sales growth. 
  • Food inflation in core categories (Food, Liquor and Hardware).
  • Acquisition synergies have already been achieved and in line with expectations.
  • Competitive pressures remain however the market to remain more rational at this stage, despite meaningful players such as Coles, Bunnings (Wesfarmers), Woolworths, Aldi, Costco, and potentially in Amazon.
  • Hardware is becoming a much larger part of the overall business, and this may warrant a higher valuation multiple. 
  • MTS has the second largest liquor business in Australia, which exhibits defensive earnings quality. 

Key Risks:

  • Further margin pressure in the core business segments with deflation being unhelpful to topline revenue.
  • Any deterioration in balance sheet metrics due to earnings/cash flow pressure/decline.
  • Adverse movements in AUD/USD (international sourcing).

Key Highlights:

  • FY22 group results. Group revenue was up +6.4% YoY to $17.4bn, operating earnings (EBIT) up +17.7% to $472.3m, underlying NPAT up +18.6% to $299.6m and underlying EPS up +23.5% to 30.5cps, driven by earnings growth and the off-market share buy-back of $200m. On the back of strong operating performance, dividends also increased +22.9% YoY to 21.5cps, fully franked. Management continues to target a pay-out ratio of 70% underlying NPAT. Balance sheet is in a healthy position with gearing ratio of 14.8% and underlying EBITDA coverage ratio of 4.8x. 
  • Easing house prices not impacting Hardware yet. MTS’ group earnings now have 39% coming from the attractive Hardware sector (up from 33% in FY21). Management noted that they haven’t seen any impact of easing house prices in Australia appear in the demand so far. According to industry data (HIA), there remains a solid pipeline of renovation in new home builds.
  • Return of the value-driven consumer. Economic conditions are likely to remain subdued and could deteriorate further. the value-driven consumer will become more driven to shop around and cross shop for products to lower family cost pressures. Management believes their ongoing focus on competitive offering on a wider range of products, programs such as price-match and the newer programs around low prices every day (LPED) should assist MTS maintain competitiveness.
  • Group sales up +8.6% across all segments.
  • Food sales up +5.0%, with Supermarkets up +4.5%, driven by demand and higher wholesale inflation.
  • Hardware sales are up +19.8%, with demand remaining strong and persisting global supply chain challenges.
  • Liquor sales are up +8.6%, with recovery in on-premise sales and higher wholesale inflation.

Company Description:

Metcash Ltd (MTS) is an ASX listed consumer staple company which operates three internal divisions (“business pillars”) covering food, liquor and hardware: Metcash Food & Grocery (MF&G): MF&G is comprised of Supermarket and Convenience divisions supplying to independent stores across Australia including ~1,434 IGA branded stores and ~250 Friendly Grocer / Eziway stores. Australian Liquor Marketers (ALM): Australian Liquor Marketers (ALM), has two divisions, ALM and Independent Brands Australia (IBA). ALM serves as a broad range liquor wholesaler supplying over 12,000 hotels, liquor stores, restaurants and other licensed premises throughout Australia. IBA’s 4 national independent retail brands are Collaborations, IGA Liquor (formerly IGA Plus Liquor), Bottle-O and Bottle-O Neighborhood. Independent Hardware Group (IHG): Independent Hardware Group (IHG), is the combined entity of Mitre 10 and Home Timber & Hardware Group networks. Mitre 10 is an independent, national retail network of over ~370 bannered Mitre 10 and True Value Hardware stores. Home Timber & Hardware has a network of ~380 bannered stores including the Home Timber & Hardware, Thrifty-Link Hardware, Harding, Hardware and Hudson Building Supplies brands.

(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
Dividend Stocks

JHX – Segment Revenue Up +22% To A$777.7m, Driven by Volume Growth of +17% and Price/Mix Up +10%

Investment Thesis:

  • Trading on attractive multiples and below the blended valuation. 
  • Largest producer of non-asbestos fibre cement
  • Opportunity to hit and exceed management’s financial targets for the European business. 
  • Fibre cement taking market share from vinyl and other siding products.
  • Strong R&D program to stay ahead of competition and product innovation. 
  • Leveraged to a falling AUD/USD.
  • New CEO may bring a fresh perspective on existing strategy. 
  • Productivity gains.
  • Investment plans over the next 4 years should deliver solid earnings growth. 

Key Risks:

  • Competitive pressures leading to margin decline.
  • Input cost pressures which the company is unable to pass on to customers.
  • Deterioration in housing starts (U.S., Australia), significant decline in house prices or deep recession.
  • Unable to achieve its growth and market share target, which likely see a de-rating of the stock. 
  • Adverse movements in asbestos claims.
  • Disappointing primary demand growth (PDG) relative to market expectations. 
  • Manufacturing / operational issues impacting earnings. 

Key Highlights:

  • Net sales increased +24% over pcp to US$3,614.7m, driven by volume growth of +14% and price/mix growth of +10% (increasing penetration of high value product mix).
  • Group adjusted operating earnings (EBIT) were up +30% to US$815.6m, delivering an adjusted EBIT margin of 22.6%. Earnings were driven by top line growth (product mix shift to high value product) and ongoing operational improvement (e.g., LEAN which allowed the Company to absorb higher input costs and increase investment in marketing to drive top line growth).
  • North America Fibre Cement. Segment revenue was up +25% to US$2,551.3m, driven by exterior volume growth of +17% and price/mix up +10%. Adjusted EBIT of US$741.2m was up +27% on pcp, with margin improving +30bps at 29.1% due to higher average net sales price and lower restructuring expenses.
  • Asia Pacific Fibre Cement (Aus. / NZ / Philippines). Segment revenue was up +22% to A$777.7m, driven by volume growth of +17% and Price/Mix growth of +5%. All regions saw strong growth over the period, although Price/Mix growth was much higher in Australia / New Zealand (up +10%). Adjusted EBIT was up +23% to A$217.4m, with margin unchanged at 28%.
  • Europe Building Products. Segment revenue was up +19% to US$488.5m, driven by fibre cement and fibre gypsum net sales growth of +38% and +16%, respectively. Adjusted EBIT of US$62.9m was up +47% on pcp with EBIT margin up +250bps to 12.9% driven by higher gross profit, lower SG&A expenses (as % of sales) and lower restructuring costs. 
  • Balance sheet. Leverage as of 31 Mar-22 was at 0.8x versus target of maintaining leverage ratio of less than 2x.
  • Management has committed to investing between US$1.6 – 1.8 bn over the next 4 years in capacity expansion (brownfield and greenfield in all regions).      
  • The Company noted that the search for the new CEO remains ongoing and that they have held meetings with “some excellent candidates”. As previously guided, the Company believes a new CEO will be in place by later this year. This is likely to be an overhang on the Company, however a new CEO might significantly alter the strategy already on foot at JHX.

Company Description:

James Hardie Industries Plc (JHX) manufactures building products for new home construction and remodeling. JHX’s products include fibre cement siding, backer board, and pipe. The company operates in the US, Australia, Europe and New Zealand.

(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.