Author: sakshi Khamesara
Investment Thesis
- Trading on fair value relative to our valuation.
- Exposure to both developed and emerging markets’ growth.
- Near-term headwinds should be in the price.
- Revised strategy following recent strategic review.
- Bolt-on acquisitions (and associated synergies) provide opportunities to
- supplement organic growth.
- Leveraged to a falling AUD/USD.
- Potential corporate activity.
- Capital management (current on-market share buyback plus potential for
- additional initiatives).
Key Risks
- Competitive pressures leading to margin erosion.
- Input cost pressures which the company is unable to pass on to customers.
- Deterioration in economic conditions in US, EM and Australia.
- Emerging markets risk.
- Adverse movements in AUD/USD.
- Declining OCC prices.
1H22 Results Highlights
- Sales revenue increased +9.6% (+10.6% in CC).
- Underlying EBIT increased +10.4% (+11.1% in CC) driven by significantly improved performance in the North America segment.
- Operating cash flow increased +0.6% to $145.5m with cash conversion declining -400bps to 75%, with higher earnings offset by an increase in working capital.
- Net debt increased +13% over 2H21 to ~$512m, primarily reflecting the impact of increased debt arising from the on-market share buyback and increased capex partially offset by stronger earnings. ORA’s current leverage of 1.6x is below management’s targeted level of 2-2.5x EBITDA.
Company Profile
Orora Limited (ORA) provides packaging products and services. The Company offers fiber, glass and beverage can packaging materials in Australia and Asia and packaging distribution services in North America and Australia.
(Source: BanyanTree)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Investment Thesis:
- Leveraged to the oil price.
- High quality assets which offer a number of core assets within its portfolio (no single asset risk).
- On-going focus on cost reduction and positioning of the business for a lower oil price environment.
- Strong balance sheet position.
- High quality management team who are able to operate assets and extract synergistic value from the recent merger with Oil Search.
Key Risks:
- Supply and demand imbalance in global oil/gas markets.
- Lower oil / LNG prices.
- Not meeting cost-out targets (e.g. reducing breakeven oil cash price).
- Production disruptions (not meeting GLNG ramp up targets).
- Strategic investors sell down their stake or block any potential M&A activity.
Key highlights:
- Management highlighted lower unit costs, our focus on safe, low-cost and efficient operations delivered a free cash flow breakeven of $21 per barrel in 2021.
- EBITDAX was up 48% to $2.8bn driven by higher oil prices and lower unit costs. Underlying profit was up 230% to a record $946m.
- Production was up +3% to of 92.1mmboe. Sales volume of 107.1mmboe, down -3%
- Product sales revenue of US$4.71bn, up +39%
- Record free cash flow of US$1.5bn and underlying profit of US$946m, driven by higher oil and LNG prices vs pcp due to a recovery in global energy demand and supply constraints across the industry due to lower capital investment through the pandemic
- Reported NPAT of US$658m includes losses on commodity hedging and costs associated with acquisitions and one-off tax adjustments and is significantly higher relative to the pcp due to impairments included in FY20
- Reported NPAT of US$658m includes losses on commodity hedging and costs associated with acquisitions and one-off tax adjustments and is significantly higher relative to the pcp due to impairments included in FY20
Company Description:
Santos Limited (STO) explores for and produces natural gas, liquefied natural gas, crude oil, condensate, naptha and liquid petroleum gas. STO conducts major onshore and offshore petroleum exploration and production activities in Australia, Papua New Guinea, Indonesia, Vietnam. The company also transports crude oil by pipeline.
(Source: Banyantree)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Investment Thesis:
- Cloud products are growing at attractive growth rates as the Company continues to innovate.
- Exposure to the fast growing online gaming segment.
- New product release and updates to existing suite of products.
- Solid free cash flow generation and strong balance sheet.
- Strong management team.
Key Risks:
- Competitive & macro pressures in key markets – if the growth rate for Azure slows the market would view this as a negative in our view.
- New product releases or updates fail to resonate with customers leading to product switching to competitors.
- U.S. trade war with China escalates, given MSFT uses parts from China.
- Value destructive acquisition(s).
- Adverse movements in currency (USD).
- Intellectual property theft and piracy.
- There is significant optimism priced into MSFT’s share price (the stock is well owned by investors), and as such any disappointment on growth or strategic misstep could see the stock disproportionately de-rate lower.
Key highlights:
- Driven by rising digital shift by enterprises, MSFT’s cloud growth continued to exceed management’s expectations (Intelligent cloud revenues came in at $18.3bn in 2Q22, up +26% YoY
- Management also announced an extension of infrastructure to the 5G network edge. As the demand for cloud infrastructure services continues to surge in the post Covid-19 era, benefiting from organisations upgrading their legacy IT infrastructure and migrating to cloud-based workloads
- Well positioned to strengthen its market leadership in cloud computing (as of FY21 MSFT’s cloud revenues grew at a higher rate than top player AMZN, with a 3-year average of +70% compared to +39.8% for AMZN), aided by growth in on-premise amid its large enterprise partner ecosystem
- Public-cloud infrastructure, in-turn driving the overall margin expansion for the Company (large fixed costs should continue to get better diluted with the rapid increase in revenues, driving segment’s operating income at a higher rate than revenue).
- Management announced the acquisition of Activision Blizzard for $68.7bn. The acquisition remains the last piece in the puzzle for MSFT to exert dominance in Metaverse, with the Company now owning the hardware, cloud services and content to dominate gaming industry.
Company Description:
Microsoft Corp (MSFT) develops, manufactures, licences, sells and supports software products. Microsoft offers operating system software, server application software, business and consumer applications software, software development tool and Intranet / Internet software. The Company has three main segments: (1) Productivity and Business Processes; (2) Intelligent Cloud; and (3) More Personal Computing.
(Source: Banyantree)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.