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Dollar’s Climb Stalls Amid Mixed Economic Signals

Post author By lvc-admin
Post date June 9, 2022
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The WSJ Dollar Index, which measures the greenback in opposition to a basket of sixteen currencies, is round 2% off its May height and fell 1.1% closing month. That decline broke a regular march that added the greenback to multidecade highs.

The index rose 0.6% closing week, breaking a two-week dropping streak. Behind the slip has been a diffused shift withinside the financial landscape.

According to latest financial reports, American purchasers are nevertheless spending cash at a speedy tempo, whilst employers preserve including jobs, extending the developments that had helped elevate the greenback over the last one year or so. Yet there were symptoms and symptoms of weak spot elsewhere.

Wage boom has moderated from closing year, and purchasers were Dollar’s Climb Stalls Amid Mixed Economic Signals

capable of preserve their spending simplest with the aid of using dipping into savings.

The U.S. carrier sector, which incorporates eating place eating and travel, slowed its tempo of enlargement in May, and income of latest houses in April published their largest drop in 9 years.

Overall, the facts has clouded a few asset managers` outlook of the U.S. economic system. They are actually cautious that the Federal Reserve would possibly should gradual the tempo of predicted hobby-fee will increase. That is probably welcomed with the aid of using inventory traders, who’re acutely privy to the dangers that growing charges pose for tremendously valued shares, however its which means could be murkier in foreign money markets.

Investors usually purchase currencies connected to international locations in which valuable banks are elevating hobby charges to rein in a warm economic system. Investors assume the Fed to raise charges with the aid of using a complete of a percent factor in June and July, however what’s going to observe is tougher to determine. As a result, buyers now contend that the greenback is extra touchy than typical to financial releases at the horizon.

The muddied outlook represents a shift in markets, after traders’ wager that a speedy tempo of fee will increase could pressure the greenback better at some point of the year.

Many predicted a sturdy greenback to harm U.S. multinationals, with the aid of using making their merchandise extra highly-priced for foreigners, with groups inclusive of Microsoft Corp. noting a sturdy greenback`s hit on sales in latest reports.

JPMorgan analysts say the greenback`s upward push is hurting the U.S. production sector, that’s slowing hiring to catch up on fewer exports.

In the coming week, investors will scrutinize data on the American consumer and Friday`s inflation numbers for clues regarding the state of the economy and the trajectory of the stock market. Lower inflation numbers could ease pressure on stocks and hit the dollar more, presaging a more gradual approach from the Fed.

The Bank of England sparked sharp declines in the pound by signaling caution when it raised rates in May. Investors are now watching U.S. data for signs of similar slowing. Last week, the Labor Department reported that the economy added 390,000 jobs in May—above the 328,000 expected by economists. Still, the unemployment rate did not drop to 3.5% as expected, but remained at 3.6%. The average hourly wage increased by 0.3% month-on-month, below the consensus forecast of 0.4%. The foreign exchange market was the most volatile in more than a decade after the $ 4,444 appreciation depreciated other currencies and central banks around the world curbed inflation. Due to the recent decline in the WSJ dollar index, this year’s profits have fallen to about 6%.

In particular, investors are looking to monitor the housing market and assess the impact of more severe credit conditions. There are signs that the US market is chilling as rising mortgage rates increase the cost of owning a home.

According to Freddie Mac, the average interest rate on fixed-rate mortgages for 30 years was 5.09% last week, up from 3.1% at the beginning of the year. Stock market volatility affected investment accounts. Higher energy costs can curb personal consumption, hinder growth and hurt the dollar. Andrzej Skiba, Head of BlueBay U.S. The RBC Global Asset Management fixed income team is short of dollars and expects to fall against other currencies. But he believes that recent concerns about the recession are overkill and will buy a downturn.

(Source: https: //www.wsj.com/)

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.

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Since fiscal 2016, Cleanaway has invested in excess of AUD 100 million in greenfield materials recovery, waste treatment, and EfW projects

Business Strategy and Outlook

It is a favourable Cleanaway’s strategy, which seeks to maintain its leading position in commercial and industrial, or C&I, and municipal waste collections and to continue to improve its moat profile by investing in midstream materials recovery assets and, where possible, in downstream disposal assets. Cleanaway’s is the leading player in C&I and municipal waste with around 140,000 C&I customers and some 90 municipal council waste collection contracts. The economics of the waste management industry are overwhelmingly local in nature. Cleanaway’s strong presence in all of Australia’s state capital cities is aimed at local market dominance. This local market dominance in turn delivers route density that better spreads fixed costs–an imperative for profit generation in waste collection.

Cleanaway is a relative latecomer to disposal, biological treatment, and midstream materials recovery with global players waste management competitors Veolia and Suez possessing high-quality disposal assets Cleanaway cannot replicate. An exit from the Australian market by either player would be the only route to materially increasing disposal earnings. As such, the sale of the Lucas Heights Landfill by Suez to Cleanaway–the result of the Veolia-Suez merger–is a rare windfall. It is hopeful about Cleanaway’s growth into materials recovery which feature more favourable economics than waste collection. Under its “BluePrint 2030” capital allocation strategy, the group will continue to focus investment in materials recovery and energy from waste, or EfW. Since fiscal 2016, Cleanaway has invested in excess of AUD 100 million in greenfield materials recovery, waste treatment, and EfW projects. The recent purchase of the materials recovery assets of SKM Recycling represents a further step toward Cleanaway’s goal of moving further into the industries midstream.

Further diversifying Cleanaway away from waste collection is the acquisition of Toxfree in late fiscal 2018, skewing Cleanaway’s earnings stream away from collections, the most competitive segment of the waste management value chain.

Financial Strength

Cleanaway debt-funded its acquisition of key Australian post-collection assets from Suez. Leverage–defined as net debt/EBITDA excluding IFRS-16 lease liabilities–sits at 2.24 times at the end of the first half of fiscal 2022, up from 1.0 times at fiscal 2021 year-end. Nonetheless, significant headroom to Cleanaway’s leverage covenant on existing debt facilities–calibrated at 3.0 times–exists. Therefore, balance sheet flexibility exists should further acquisition opportunities arise. It is comforting with Cleanaway’s balance sheet amid COVID-19 induced turbulence. Specifically, Cleanaway’s liquidity position is more than ample to secure the business’ operations without external financing through the medium-term. With minimal debt maturities over the fiscal 2021–fiscal 2024 period, Cleanaway’s sources of cash— those being cash at bank, undrawn debt and operating cash flow–are more than sufficient to fund Cleanaway’s ongoing operations over said period. Cleanaway’s earnings exhibit little volatility through the economic cycle. As a result, its conservatively positioned balance sheet provides ample flexibility for further capital allocation to materials recovery and waste disposal assets —whether bolt-on or greenfield–under Cleanaway’s BluePrint 2030 strategy. Return of capital to shareholders could be considered in the absence of suitable mid- or downstream waste asset investment opportunities.

Bulls Say’s

Cleanaway is benefiting from industry consolidation.
Municipal waste contracts provide relatively stable cash flows through the economic cycle.
Capital allocation improved markedly under outgoing CEO Vik Bansal’s guidance.

Company Profile

Cleanaway Waste Management is Australia’s largest waste management business with a national footprint spanning collection, midstream waste processing, treatment, and valorisation, and downstream waste disposal. Cleanaway is active in municipal and commercial and industrial, or C&I, waste stream segments and in nonhazardous and hazardous liquid waste and medical waste streams following the acquisition of Toxfree in fiscal 2018. While Cleanaway is allocating greater capital to midstream waste processing and treatment, earnings remain skewed toward waste collection. Cleanaway is particularly strong in C&I and municipal waste collection with strong market share in all large Australian metro waste collection 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.

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.

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Reserve Bank of Australia hikes Cash Rate by a jumbo 50 basis point to 0.85 per cent

Post author By lvc-admin
Post date June 9, 2022
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Governor Philip Lowe announced a second major hike in five weeks as the RBA continues to pull the country away from the suspension of emergency lending that has nurtured the economy during the pandemic on Tuesday.

The RBA was widely expected to announce its first consecutive rise in 12 years to ease inflationary pressures pushing up food, fuel and electricity costs.

The only question left was how hard the Governor Dr Lowe and his board were ready, and economists’ expectations fluctuated primarily between 25 or 40 basis point rises.

Some had expected a 50 basis point increase, but the largest single interest rate increase since 2000 was still a surprise.

The Australian stock market fell 1.7% in the news, but the Australian dollar temporarily soared to US $ 72.20.

In his monthly statement, Dr. Lowe acknowledged inflation concerns as a factor behind the rate hike, but also cited a strong Australian economy, a strong labor market and a recovery in business investment as positive reasons.

“Resilience of the economy and higher inflation mean that this special support is no longer needed.”

He acknowledged that rising electricity and gas prices and recent rising gasoline prices mean that inflation could be higher in the short term than expected a month ago.

“But today’s rise in interest rates will help inflation return to its target over time.” He said it shows that he is planning with a focus on returning to the goal. The extent and content of the employment market recovery to maintain higher interest rates.

“They have identified slower growth in household consumption due to faster inflation and higher interest rates as the main risk of the outlook.

Faster rate hikes contribute to this downside risk,” Langcake said.

The RBA Board is in a delicate balance and needs to act fast enough to curb inflation without choking the economy.

Last month, during the federal campaign, it rose from 0.1% to 0.35% and implemented its first-rate hike in more than 11 years. The shift was stronger than expected and Martin Place stepped on the gas again.

The move on Tuesday will continue what is expected to be a long cycle of rate hikes in the coming months, pushing up consumer prices while also pushing up mortgage costs.

Many also expect borrowers to pass on some of this stress to their tenants.

“The monthly repayment increase this month is relatively modest, but homeowners need to prepare for a significant increase in the coming months,” said Sally, Research Director at RateCity.com.au.

Tindal says. “These rate hikes will not magically cure Australia’s inflation problem.

The RBA will probably need to rise again next month, from which the RBA will continue to be tight and tight to curb inflation. It could rise sharply.

Improvements in living expenses have been at the heart of Australia’s political situation for months, and Finance Secretary Jim Chalmers warned on Tuesday that the situation was “deteriorating before it got better.” did.

“It doesn’t make sense to chop up words about it,” Chalmers said.

“Our work as a government will be replaced by responsible long-term and sustainable living expenses relief in areas such as health care and childcare after some of this short-term living expenses have expired. Dr. Rowe says that the cause of uncertainty about the economic outlook is household spending and how it is maintained.

The decline in recent months has been declining, but remains more than 25% higher than pre-pandemic levels, supporting household wealth and spending. Dr. Lowe.

“The central scenario is strong household growth, but for this year’s old consumption, the Board pays close attention to these various implications for consumption when assessing the direction of appropriate monetary policy.

Uncertainty continues with Covid 19 as well, especially in China.

(Source: https://www.news.com.au/)

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.

Tags Australian Market, Currencies

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Sky Conducts Due Diligence on Mediaworks Advertising Businesses

Post author By lvc-admin
Post date June 9, 2022
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Businesswoman pointing at diagram in her hands when explaining marketing trends to her team during online meeting

Business Strategy & Outlook:

Sky is the monopoly set-top-box based pay-TV services provider in New Zealand, with a satellite distribution platform covering the whole country. It has a grip on key content (particularly sports), and its big subscriber base was relatively sticky until fiscal 2015, given limited home entertainment options. However, Sky’s core content aggregation, bundled-channel distribution, and recurring-subscription-revenue business model is now coming under enormous pressure. Internet-facilitated over-the-top distribution technology is spawning various new players offering subscription on demand streaming services.

Importantly, emerging competition will continue to affect Sky Network Television’s high-margin, high free cash flow business model. Competition for content from players such as telecommunications companies, Netflix, Amazon, Apple, Google, HBO, and ESPN is likely to put pressure on content costs, while marketing expenses may also increase in response. This is the reason Sky is in the midst of a transition to a multiplatform subscription entertainment provider, with the rejuvenated management especially focused on investing in content and its subscription video on demand business. To make matters worse, the mayhem caused by COVID-19 is directly affecting sporting events, over which Sky has substantial broadcast rights. With these events severely disrupted by the virus, inventory of live sports on Sky will increasingly be compromised, albeit there is corresponding cost relief. Despite these challenges, with a declining capital expenditure profile (another benefit of pivoting to a streaming-centric model) and the May 2020 capital raising, Sky has a sound financial footing to execute the transformation program.

Financial Strengths:

As at the end of December 2021, Sky had a cash holding of NZD 74 million on the balance sheet and effectively no debt. There is also an undrawn NZD 200 million facility (maturing July 2023). This provides ample firepower for Sky to continue its transformation from a set-top-box, legacy pay TV company to a hybrid satellite-streaming entity.

Bulls Say:

Sky Network Television is a monopoly provider in the New Zealand pay-TV market, with a substantial subscriber base and scale.
The company currently has a stranglehold on all the key content with consumer appeal, especially in the sports genre and on an exclusive basis.
It enjoys a strong financial position augmented by solid free cash generation, allowing management to good dividends while reinvesting in content, new services, and technology.

Company Description:

Sky Network Television is the only satellite pay-TV provider in New Zealand, and distributes local and overseas content to its customers through a digital satellite network. It generates subscription and content revenue from these customers. This business is augmented by a free-to-air television channel (Prime) and defensive forays into other distribution channels such as online video-on-demand and online access to live sports.

(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.

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Dividend Stocks

Engie is well Positioned to Benefit from the Power Prices Rally

Post author By lvc-admin
Post date June 9, 2022
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Business Strategy & Outlook:

Engie is one of the three largest integrated international European utilities, along with Enel and Iberdrola. Under the tenure of previous CEO Isabelle Kocher, the firm sold EUR 16.5 billion of mostly commodity-exposed assets– E&P, LNG, and coal plants–to focus on regulated, renewables, and client-facing businesses. This strategy lowered the weight of activities that typically have volatile cash flows and no economic moats. However, Kocher was blamed for the lack of visibility of the client-facing businesses. After she was ousted by the board in early 2020, the firm shifted its strategy to reduce the weight of these activities and sell stakes in noncore businesses. That drove the sale of Engie’s 32.05% stake in Suez to Veolia at an attractive price and of its multi-technical subsidiary Equans to Bouygues for EUR 7.1 billion. The latter is part of an EUR 11 billion disposal plan by 2023.

Engie will increase annual investments in renewables from 3 GW to 4 GW between 2022 and 2025 and 6 GW beyond. Regulated gas networks, mostly in France, account for around one third of the group’s EBIT. Contracted assets comprise thermal power plants in emerging markets, especially the Middle East and Latin America, with purchased power agreements, or PPAs, securing returns on capital. Remaining merchant exposure is made up of gas plants across Europe, Belgian nuclear plants and French hydropower assets. Gas plants are well positioned as the share of intermittent renewables increase. Nuclear and hydropower provide exposure to European power prices although Belgian nuclear plants will be shut by 2025. Taking that into account, the valuation sensitivity to EUR 1 change in power prices is EUR 0.16 per share, 1% of the fair value estimate. With net debt/EBITDA of 2.4 times, Engie has one of the lowest leverages in the sector. Still, the 2019 dividend of EUR 0.8 was canceled because of pressure from the French government, which has 34% of the voting rights, and the coronavirus impact. Still, the dividend was reinstated in 2020 and the 2021 dividend of EUR 0.85 is above the precut level. A projected 2021-26 dividend CAGR of 5% based on a 69% average payout ratio.

Financial Strengths:

Net debt/EBITDA will average 2 times through 2026. Economic net debt including pension and nuclear provisions amounted to EUR 38.3 billion at end-2021, implying a leverage ratio of 3.6. The economic net debt to decrease to EUR 37.1 billion through 2026. Thanks to the EBITDA increase, economic net debt/EBITDA will decrease to 3.2 in 2026, averaging 3.1 between 2021 and 2026, comfortably below the company’s upper ceiling of 4. After the COVID-19-driven cancellation of the 2019 dividend of EUR 0.80 per share, Engie paid a EUR 0.53 dividend on its 2020 earnings implying a 75% payout. For 2021 results, the company will pay a dividend of EUR 0.85, implying a 70% payout in line with the 65%-75% guidance range over 2021-23. Between 2022 and 2026, the adjusted payout ratio to get a progressive dividend. All in all, the forecasts point to a 2026 dividend of EUR 1.08 involving a 5% CAGR by then. Ninety-one percent of debt was fixed-rate at the end of 2021. Meanwhile, 83% of the company’s debt was denominated in euros, 11% in U.S. dollars, and the balance in Brazilian real.

Bulls Say:

Engie’s strategic shift announced in July 2020 should be value-accretive as evidenced by the sale of its stake in Suez and of Equans.
In the long run, the group could convert its gas assets into hydrogen assets.
The group is well positioned to benefit from rising power prices in Europe thanks to its French hydro dams.

Company Description:

Engie is a global energy firm formed by the 2008 merger of Gaz de France and Suez and the acquisition of International Power in 2012. It changed its name to Engie from GDF Suez in 2015. The company operates Europe’s largest gas pipeline network, including the French system, and a global fleet of power plants with 63 net GW of capacity. Engie also operates a diverse suite of other energy businesses.

(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.

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Narrow-Moat Nordstrom’s Brand Advantage Provides Stability in a Tumultuous Market

Post author By lvc-admin
Post date June 8, 2022
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Business Strategy & Outlook

Nordstrom continues to be a top operator in the competitive U.S. apparel market. The firm has cultivated a loyal customer base on its reputation for differentiated products and service and has built a narrow moat based on an intangible brand asset. While the company was unprofitable in 2020 because of the COVID-19 crisis, its profitability returned in 2021, and its brand intangible asset is intact. Despite a rocky couple of years, the Nordstrom’s full-price and Rack off-price stores have competitive advantages over other apparel retailers. The Nordstrom is responding well to changes in its market. The company has about 100 full-price stores, with nearly all of them in desirable Class A malls (sales per square foot above $500) or major urban centers. This as an advantage, as some lower-tier malls are unlikely to survive. Moreover, Nordstrom has a presence in discount retail with Rack (about 250 stores) and significant e-commerce (42% of its sales in 2021). Still, the firm’s full-price business is vulnerable to weakening physical retail, and Rack competes with firms like no-moat Poshmark and narrow-moats TJX and Ross.

Nordstrom unveiled a new strategic plan, Closer to You, in early 2021 that emphasizes e-commerce, growth in key cities (through Local and other initiatives), and a broader off-price offering. Among the merchandising changes, Nordstrom intends to increase its private-label sales (to 20% of sales from 10% now) and greatly expand the number of items offered through partnerships (to 30% from 5% now). The firm set medium-term targets of annual revenue of $16 billion-$18 billion, operating margins above 6%, annual operating cash flow of more than $1 billion, and returns on invested capital in the low teens. As per forecast Nordstrom will consistently generate more than $1 billion in operating cash flow, achieve ROICs in the teens, and reach $16 billion in annual revenue in 2023. However, while they will trend higher, the operating margins will fall marginally shy of 6% in the long run due to intense competition, but this could change if some of the new initiatives are more successful than expected.

Financial Strengths

The Nordstrom is in good financial shape and will overcome the virus-related downturn in its business. The firm closed April 2022 with nearly $500 million in cash and $800 million available on its revolving credit facility. Although it also had $2.9 billion in long-term debt, most of this debt does not mature until after 2025. Nordstrom’s net debt/EBITDA was a reasonable 2.5 times at the end of 2021. Nordstrom generated $200 million in free cash flow to equity in 2021, but this amount to rise through reductions in operating expenses, working capital management, and moderate capital expenditures. The annual average of about $830 million in free cash flow to equity over the next decade. As Nordstrom’s results have improved, it has resumed cash returns to shareholders through dividends and share repurchases (after suspending them during the pandemic). Over the next decade, buybacks of about $350 million per year and an average dividend payout ratio of 22%. Nordstrom’s capital expenditures were quite elevated prior to 2020. Its store count has increased from 292 at the end of 2014 to nearly 360 today as more than 60 Rack stores have opened since 2014 and the company has expanded into Canada and New York City. Nordstrom has estimated its total investment in Canada and New York at $1.1 billion for 2014-19. The Nordstrom’s yearly capital expenditures will average about $660 million (4% of revenue) over the next decade, well below 2019’s $935 million (6% of revenue).

Bulls Say

Nordstrom’s online sales exceeded $6 billion in 2021, making it one of the largest e-commerce firms in the U.S.

As an operator of both an upscale department store and a discount chain, Nordstrom can reach a broader customer base than many competitors. Moreover, the availability of upscale brands at Rack provides an advantage over other discounters.

Nordstrom serves an affluent customer base in its full line stores, which separates it from the many midlevel retailers in malls, and may allow it to overcome the effects of inflation on consumer spending.

Company Description

Nordstrom is a fashion retailer that operates approximately 100 department stores in the U.S. and Canada and approximately 250 off-price Nordstrom Rack stores. The company also operates both full- and off-price e-commerce sites. Nordstrom’s largest merchandise categories are women’s apparel (28% of 2021 sales), shoes (25% of 2021 sales), men’s apparel (14% of 2021 sales) and women’s accessories (14% of 2021 sales). Nordstrom, which traces its history to a shoe store opened in Seattle in 1901, continues to be partially owned and managed by members of the Nordstrom family.

(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.

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Bouygues Raises Dividend to EUR 1.80 After Stable 2021

Post author By lvc-admin
Post date June 8, 2022
No Comments on Bouygues Raises Dividend to EUR 1.80 After Stable 2021

Business Strategy & Outlook:

Bouygues is a conglomerate with a disparate number of businesses. In its construction segment Bouygues develops big infrastructure projects such as motorways, rails, power plants, and tunnels, among other things. Despite having small margins, the construction business is usually more resilient to the cycle as infrastructure spending tends to be less affected by recessions than residential construction. Bouygues’ cost structure is highly variable so when difficult times come it can adjust its cost base rapidly (although this also prevents it from benefiting from operating leverage in times of high demand). Both Bouygues Construction and Inmobilier (residential construction) have high exposure to France, as a significant portion of their business comes from there. olas, which provides raw materials like asphalt and concrete for road construction, is also relatively stable during the cycle as it is exposed infrastructure investment. In 2018 Colas increased its exposure to North America by acquiring Miller McAsphalt, engaged in road construction and bitumen distribution in Canada.

Bouygues is also the owner of TF1 and Bouygues Telecom. TF1 is one of the main media groups in France and owns several TV channels. As traditional TV advertising is in continuous decline, TF1 set up Unify in 2016, which encompasses several web pages in France that earn money through advertising. Bouygues Telecom is one of the main four telecom operators in France, with traditionally a larger presence in the mobile market, though it has been catching up in broadband in recent years. Bouygues Telecom’s business struggled in the first half of the 2010s as competitor Iliad launched Free, its mobile service. Bouygues saw its telecom EBITDA margins decline sharply as its main exposure was in the mobile segment. Since 2015, Bouygues Telecom turned around by expanding its presence and gaining market share in the fixed market, which has increased its margins, making it a more resilient player.

Financial Strengths:

As of December 2021 Bouygues had around EUR 600 million in net debt, which represents a 0.2 times net debt (excluding leases) to trailing EBITDA ratio.Bouygues keeps low levels of leverage given its cyclical nature and small profit margins in many divisions. Bouygues has approximately EUR 3.7 billion in gross debt maturing in the next five years, however, maturities are evenly spread and it is not expected that the company will have any problem in repaying or refinancing its obligations. After the acquisition of Equans, which is expected to be completed in the second half of 2022, it is estimated that net debt/EBITDA could increase from around 0.2 times to the 1.0-1.5 times range. Although net debt should still be in a manageable range going forward, Bouygues’ conservatively managed balance sheet given & the cyclical nature of the business, shows some deleveraging is likely after the deal completion, which is expected in the second half of 2022

Bulls Say:

Bouygues Telecom’s turnaround is an example of the company’s ability to deliver on its promises. This business should win some market share in the years to come.
The construction business enjoys a good reputation worldwide, which will keep the backlog at a good level and big projects coming in.
Bouygues has low financial leverage, which makes the company resilient during cycle troughs and allows it to maintain a stable dividend payment.

Company Description:

Bouygues is a French conglomerate made up of a disparate range of assets: a construction business, a TV business, and a telecom business. It is one of the biggest construction companies in France and Europe with construction sales of around EUR 25 billion-EUR 30 billion and one of the four telecom operators in France, with both mobile and fixed operations and EUR 6 billion in revenue. It is also the owner of TF1, one of the main media and TV companies in France.

(Source: Morning Star)

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.

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SL Green’s $3 billion megaproject One Vanderbilt was completed amidst the pandemic and has already achieved high occupancy rates

Business Strategy & Outlook:

SL Green Realty is a real estate investment trust engaged in the acquisition, development, repositioning, ownership, and management of commercial real estate properties, principally office properties. Most of the companies’ properties are in the Manhattan area. The company held interests in approximately 35 million SF, which includes ownership interests in 26.7 million SF in Manhattan buildings and 7.2 million SF securing debt and preferred equity investments. The strategy of the company is to maintain a high-quality portfolio of buildings in desirable locations and focus on creating value through new developments, capital recycling, and joint venture investments. As an instance, SL Green’s $3 billion megaproject One Vanderbilt was completed amidst the pandemic and has already achieved high occupancy rates. The economic uncertainty emanating from pandemic recovery and the remote work dynamic have created a challenging environment for office owners. Employees are still hesitant in returning to the office as office utilization remains around 45% of the pre-pandemic level. The vacancy rate for office spaces in Manhattan was recorded at 21% in first-quarter 2022, which is roughly 1000 basis points higher than pre-pandemic levels. On the supply side, approximately 17 million SF of office space, which amounts to around 4% of the total inventory is currently under construction in Manhattan and would be added to the market in upcoming years. It is expected this additional supply to further pressure fundamentals in the market. The Manhattan net absorption rate remains negative as of first-quarter 2022 and rental growth figures are disappointing especially given the highly inflationary environment.

Having said this, it is seen that an increasing number of companies requiring their employees to return to the office. In the long run, it is believed that remote work and hybrid remote work solutions will gain increasing acceptance, but offices will continue to be the centerpiece of workplace strategy and will play an essential role in facilitating collaboration, harnessing innovation, and maintaining the company culture

Financial Strengths:
SL Green has relatively more debt compared with other office REITs especially after considering its share of debt in unconsolidated joint ventures. The firm owns a majority of its properties through unconsolidated JVs and these properties are significantly more leveraged than the firm’s balance sheet. However, the unconsolidated JV debt is secured by the portfolio assets and have limited recourse to the parent company. The company’s share of debt which also includes its share of unconsolidated JV debt was $9.9 billion as of the end of first-quarter 2022, resulting in a debt/EBITDA ratio of 13.1 times. The current debt/EBITDA ratio is also high because of a lower base in the current challenging environment. The figure should come down slightly over the next few years as fundamentals recover and EBITDA sees healthy growth. Having said this, it is believed that SL Green’s higher leverage implies a higher financial risk for the firm. The weighted average interest rate on the company’s debt was 3.11% and the debt maturity schedule shows that the maturities are adequately spread. Approximately 77% of the total debt is fixed-rate debt with the other 23% being floating rate debt. The debt service coverage ratio which is a ratio of EBITDA divided by interest and principal payments was 2.2 times as of the end of first-quarter 2022. The fixed-charge coverage ratio which is a ratio of EBITDA are divided by all fixed expenses (including interest) was 1.9 times as of the end of first-quarter 2022. The debt and fixed-charge coverage ratios are 3.8 times and 2.9 times, respectively, if considering only the consolidated figures. As a REIT, SL Green is required to pay out at least 90% of its income as dividends to shareholders. The FAD payout ratio which is a ratio of dividends to funds available for distribution was reported at 70% for the year 2021. This shows the firm is generating sufficient cash to cover its fixed expenses and payout dividend.

Bulls Say:

SL Green’s midtown focus allows it to access one of the most vibrant business districts in the world. In addition to this, the company’s high-quality office buildings with good amenities should benefit from the flight to quality trend.
The development pipeline of the company is poised to drive significant net operating income growth for SL Green
SL Green attracts the highest-quality tenants with the deepest pockets, greatly reducing risk across its portfolio.

Company Description:
SL Green is one of the largest Manhattan property owner and landlord, with interest in around 35 million square feet of wholly owned and joint venture office space. The company has additional property exposure through its limited portfolio of well-located retail space. It operates as a real estate investment trust.

(Source: Morning Star)

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.

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Technology Stocks

Millicom Shares Now Trading Without Subscription Rights; Fair Value Estimate to $34

Post author By lvc-admin
Post date June 8, 2022
No Comments on Millicom Shares Now Trading Without Subscription Rights; Fair Value Estimate to $34

Business Strategy & Outlook

After several years of restructuring, Millicom is now best thought of as a collection of investments in Latin American telecom businesses. The firm will spend the next couple years primarily operating its businesses rather than reshaping its portfolio, allowing the firm to more clearly demonstrate its ability to generate cash flow. Millicom’s subsidiaries have provided wireless service in Guatemala, El Salvador, Honduras, Bolivia, and Paraguay since the early 1990s, giving it the largest market share in most of these countries. In addition to the wireless business, Millicom has invested heavily, both organically and through M&A, to build cable infrastructure, carving out solid market share in the fixed-line market as well—it is the internet access leader in Guatemala, Panama, Bolivia, Honduras, and Paraguay and the second largest in Colombia and El Salvador. Millicom can offer converged fixed-line and wireless services to nearly 13 million homes and businesses across a footprint that encompasses a population of about 120 million people.

Favorable market structures following recent consolidation should also benefit Millicom. In Guatemala, which is now the firm’s most important market following the buyout of minority investors, it is the clear market leader and competes almost exclusively against America Movil. Other markets with only one substantial competitor include Panama, Honduras, Nicaragua, and Bolivia. Only Colombia, where Millicom is a distant third in the wireless market, presents an especially difficult competitive situation, but the firm has made progress gaining scale recently. Wireless penetration in these markets is already high, but data services still provide significant growth opportunities. Less than 55% of Millicom customers have a 4G LTE smartphone today, but this figure is up from 30% three years ago. Broadband penetration is also low in the countries Millicom serves at around 30%. As demand for high-quality connectivity grows, the Millicom’s financial performance will improve nicely in the coming years.

Financial Strengths

Millicom historically carried below-average leverage, with a net debt around 1.0-2.0 times EBITDA. However, acquisitions and the buyout of minority investors in Guatemala has caused the debt load to swell. Net debt, including lease obligations, stood at $7.8 billion-, or 3.4-times EBITDA, at the end of 2021. The firm expects to complete a $750 million equity rights offering during 2022 to fund a portion of the Guatemala transaction that will bring net leverage down to 3.0 times. Management has had a net leverage target of 2.0 times EBITDA since its portfolio reshuffling began in 2018 but hasn’t come close to that mark yet. Millicom cut its dividend to $1 per share from $2.64 in early 2020 and then eliminated the payout entirely later in the year, saving about $265 million annually. While the 2.0 target remains a long-term goal, management expects leverage to decline to only about 2.5 times EBITDA by the end of 2025, with share repurchases resuming in 2023. By the calculation, this target implies the firm could repurchase $1.5 billion of its shares over the next four years, or about 60% of its current market capitalization. The firm take a more aggressive approach to reducing leverage given the volatility of the markets in which it operates. About 55% of the consolidated debt load and lease obligations sits at the individual operating subsidiaries, with Millicom guaranteeing less than 5% of these obligations. Most subsidiaries carry modest debt loads, most below 2 times net leverage. The businesses in Paraguay and Costa Rico are exceptions, with more than 3 times net leverage. Leverage in Panama is also elevated at 2.7 times EBITDA. At the parent level, Millicom had $3.8 billion in net debt outstanding at the end of 2021. The Guatemalan business subsequently issued $900 million of debt to fund part of the minority investor buyout, freeing up cash to repay parent-company obligations. The Guatemalan operation now carries net leverage of about 1.8 times.

Bulls Say

Millicom holds strong wireless market share across nine Latin American countries with a combined population of nearly 120 million people and owns high quality cable networks that can provide broadband to 13 million homes and businesses in the region.

Broadband penetration remains low across the region and only about half the population owns a 4G smartphone, providing a long runway for growth.

Millicom should be able to improve its margins and cash flow as it grows its converged customer base.

Company Description

Millicom offers wireless and fixed-line telecom services primarily in smaller, less congested markets or in less developed countries in Latin America. Countries served include Bolivia (100% owned), Honduras (67%), Nicaragua (100%), Panama (80%), El Salvador (100%), Guatemala (100% following the buyout of minority partners in 2021), Paraguay (100%), Colombia (50%), and Costa Rica (100%). The firm’s fixed-line networks reach nearly 13 million homes and businesses while its wireless networks cover about 120 million people. Increasingly, Millicom offers a converged package that may include fixed-line phone, broadband, and pay television in conjunction with wireless services. The firm hopes to spin off portions of its tower business and mobile payments operation over the next couple years.

(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.

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Dividend Stocks

WBC is on track towards its target of an $8bn cost base by FY24

Post author By lvc-admin
Post date June 7, 2022
No Comments on WBC is on track towards its target of an $8bn cost base by FY24

Investment Thesis:

WBC is trading on an undemanding valuation, with 1.2x Price to Book (P/B) and dividend yield of 5.1%.
All else being equal, WBC is offering an attractive dividend yield on a 2-yr (5.6%) and 3-Yr (6.2%) view.
Strong oligopoly position in Australia (along with three other major banks in CBA, ANZ, NAB).
Strong management team and Board.
Macro environment to be both a tailwind and headwind – We expect a rising interest rates environment to be both positive and negative in that while it will enable banks to charge more for loans, it also could result in deterioration in asset quality, slower loan growth, as well as higher inflation and wage growth to be detrimental to costs expense.
Strong franchise model with management pushing towards lowering the bank’s cost to income ratio.
Improving loan growth profile and potential to grow above system growth.
Better than expected outcome on net interest margin (NIM).
Excess capital presents the potential for additional capital management (buybacks).
Strong provisioning coverage.
A well-diversified loan book.

Key Risks:

Intense competition for loan growth.
Margin pressure.
Ongoing remediation expenses.
Housing market stress.
Increase in bad and doubtful debts or increase in provisioning.
Funding pressure for deposits and wholesale funding (increased funding costs).
Any legal fees, settlements, loss or penalties.

Key Highlights:

Statutory net profit of $3,280m, down -5%.

Cash earnings of $3,095m, down -12%. Cash EPS of 85.4cps, down -12%. According to management, the decline in cash earnings over the year was mostly due to competitive pressures on net interest margins and returning to an impairment charge after having benefits last year. Further, WBC noted asset quality has improved, and most credit quality metrics are back to pre-COVID levels, however increased overlays in provisions for supply chain issues, inflation, expectations of higher interest rates and recent floods.

Revenue down 8% to $10,230m.

Costs (excluding notable items) were down 10% to $5,373m, driven by a reduction in headcount of more than 4000. WBC is on track towards its target of an $8bn cost base by FY24.

Net interest margin down 15 basis points to 1.91%.

WBC’s balance sheet remains sound and allowed WBC to complete its off-market share buy-back, reset capital range and increase dividend per share.

The Board declared a fully franked interim dividend of 61cps.

Cash earnings of $132m was up +13, however excluding notable items cash earnings were -41% lower. This decline was due to businesses sold, lower life insurance income and a lower impairment benefit. Costs declined -6% excluding sold businesses.
Cash earnings of $1,646m was down -15% due to lower net interest margin (25bps lower due to competition and portfolio mix change), and reduced credit impairment benefits. Operating expenses were lower due to higher use of digital and a reduction in network costs.

The Board declared a 1”.

Company Description:

Westpac Banking Corp (WBC) is one of the major Australian Banks. The bank services individuals and businesses such as SMEs, corporations, and institutional clients. The bank’s core segments include Retail Banking, Business Banking, Institutional Banking, Consumer Banking and its wealth management business, BT Financial Group (Australia).

(Source: Banyantree)

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

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

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