Category: Philosophy

An investment philosophy is a coherent way of thinking about markets, how they work to put into practice. It’s a set of core beliefs that you can go back in order to generate new strategies to make it work. The investment philosophy of Investor Desk begins from the perspective that our clients are seeking a relationship which focuses on their short- and long-term goals via the provision of a strategic wealth management plan, coupled with a transparent, flexible and nimble investment solution. Investor Desk embraces a holistic view of a client’s business and personal circumstances and seeks to meet their goals and objectives through best of breed technology and financial products, delivered via a client centric relationshipand service. In the absence of a well-considered strategic wealth management plan, we believe there is less capacity to define an appropriate level of portfolio risk. We believe that asset allocation, and genuine portfolio diversifications are the key drivers of portfolio risk, and that high transparency and liquidity are important for navigating volatile market conditions.

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Dividend Stocks Philosophy Technical Picks

Despite wobbles at the top, Bapcor’s core is expected to be positive

Business Strategy and Outlook:

Bapcor’s narrow economic moat is contingent not on the CEO, but rather its scale. Bapcor’s scale allows not only additional buying power, but also the ability to source an extensive range of inventory (over 500,000 SKUs, many of these slow-moving, for over 20,000 different vehicle types) and the flexibility to efficiently allocate inventory between stores. Smaller players, lacking this scale, will be unable to replicate Bapcor’s low cost position. 

Bapcor’s trade network’s extensive reach also means Bapcor is able to provide parts to more customers in a timelier manner than smaller competitors, often within the hour, even for slow-moving SKUs. Bapcor’s trade customers consist of principally chain and independent mechanic workshops. These businesses are relatively price inelastic, as costs are passed through to the end consumer, and these businesses instead value parts availability and convenience, allowing service bays to turn over quickly. The number of registered vehicles in Australia will grow at low single digits over the next decade, marginally outpacing population growth. There are currently more than 19 million passenger vehicles in Australia, with an average age of over 10 years, and more than 14 million older than five years– squarely in Bapcor’s target market.

Financial Strength:

While it is expected that the near-term earnings momentum may slow down, analysts anchor on the firm’s long-term fundamentals and defensive earnings. The dividend yield generated by the firm is also substantial.

The financial outlook for the firm remains unchanged. Bapcor has benefitted from elevated government stimulus and pent-up demand, boosting fiscal 2021 sales as consumers opt to maintain and improve their existing cars rather than upgrade to newer vehicles. Australian retail sales were the standout in fiscal 2021, with sales from the Autobarn and Autopro network up 26% compared with fiscal 2020. It is expected that much of the growth was discretionary, rather than maintenance expenditure–retail sales outperformed 16% sales growth in Bapcor’s maintenance focussed trade business.

Company Profile:

Bapcor is one of the largest automotive spare parts and accessories businesses in Australia and New Zealand. The firm principally distributes automotive spare parts and accessories to independent and chain mechanic workshops in Australia and New Zealand through Burson-branded stores. Bapcor also operates a retail automotive spare parts and accessories business in Australia, catering to the DIY customer, under the AutoPro and Autobarn brands. The specialist wholesale business is a brand owner and wholesaler of specialised parts.

(Source: Morningstar)

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.

Categories
Dividend Stocks Philosophy Technical Picks

AUB Group Ltd. visions to boost EPS growth with acquisition strategies

Business Strategy and Outlook

AUB operates the second-largest general insurance broker network in Australia and New Zealand. AUB brokers derive revenue from commissions paid by insurers, based on gross written premiums. AUB owns or has equity stakes in each broking business within the network. Post the exit of rehabilitation services in 2021, around 85% of group EBITA is delivered by the broker network, while the underwriting agencies generate about 15%.

A key value proposition over smaller brokers is AUB’s ability to negotiate more favourable policy wording and pricing. Scale also provides the capacity to spend more on technology, which helps facilitate greater analytical and processing capabilities, and marketing to help attract and retain customers. Other services such as claims support and premium funding support the value proposition.

AUB’s underwriting agencies distribute insurance products but take no underwriting risk. Underwriting agencies act on behalf of insurers to design, develop, and provide specialised insurance products and services.

The earnings outlook is positive. It is expected further insurance price rises over the medium term as insurers seek to cover claims inflation and weak investment income. This follows a weak pricing environment due to excess global reinsurance capacity, soft economic conditions, and elevated competition.

Financial Strength

AUB is in sound financial health. It has strong cash flow generation with a high conversion of earnings to operating cash flow and a relatively high dividend pay-out ratio. Gearing as reported by the company (corporate, subsidiary and look through share of associate debt/debt plus equity) ratio is reasonable, at 28.5% and below the firm’s maximum 45% ratio. Excluding customer cash for premium held by AUB but payable to insurers, AUB holds AUD 90 million in cash, which when included lowers gearing further. The current debt load looks manageable, with EBITDA interest cover of over 16 times and the nature of its businesses being relatively low risk. It is assumed AUB will use operating cash flows to fund increased positions in existing broker partners, with headroom to fund small acquisitions from cash on hand.

Bulls Say’s

  • AUB’s scale and expertise in insurance products and services leave it well placed to benefit from higher insurance pricing. 
  • BizCover and the Kelly+Partners partnership see AUB placed to take market share in the smaller end of the SME market. 
  • The firm’s acquisition strategy, both new investments and increased equity stakes, likely boosts EPS growth.

Company Profile 

AUB Group is the second-largest general insurance broker network in Australia and New Zealand. It has an ownership in 55 brokerage businesses, which collectively write over AUD 3 billion in premiums. It also owns equity stakes in 27 underwriting agencies. AUB derives revenue from commissions (from insurers, ultimately paid for by AUB’s customers) based on gross written premium, or GWP, from agencies it owns, and a share of profits from associates and joint ventures. GWP is split between personal (6%), small to medium enterprises (68%), and corporates (26%).

(Source: MorningStar)

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.