Category: Research

Categories
Shares Small Cap

Bega Cheese economic moat required to sustainably generate economic profits

Business Strategy and Outlook

Bega has transformed from a dairy processor with a focus on business to business operations to a branded consumer food company with a more diversified earnings base and less exposure to volatile milk prices. While dairy will remain a key category for Bega Cheese, the focus will be on high value products such as cream cheese and infant formula. In January 2021, Bega finalised the acquisition of Lion Dairy and Drinks from Kirin Group for AUD 534 million. As part of the acquisition, Bega acquired leading brands in milk-based beverages and yoghurt, white milk, and plant-based beverages, in addition to 13 manufacturing sites and Australia’s largest national cold chain distribution network. 

Revenue from the branded segment, which includes spreads, grocery products and Lion’s Dairy and Drinks portfolio, to expand at a CAGR of 18% to fiscal 2026, underpinned by new product innovation and bolt-on acquisitions. Bega Cheese has made limited investment in its brands, particularly in Australia where Fonterra is the licensee of the Bega brand, however since acquiring the spreads and grocery business in 2018, marketing spend as proportion of revenue has increased to 3% from 1% and it is anticipated to remain the higher level.

Financial Strength

Our fair value estimate is AUD 5.20 per share. Bega’s balance sheet is sound. Leverage, measured as net debt/EBITDA improved to 2.3 at June 30, 2021, from 2.4 at the prior period and comfortably below covenants. This is a pleasing position post the major acquisition of Lion Dairy and Drinks in fiscal 2021 which was funded through AUD 267 million of new and extended debt facilities and a AUD 401 million equity raising. It is expected that further deleveraging in coming years as acquisition synergies are achieved, earnings improve and noncore assets are divested, with net debt/EBITDA falling below 2.0 by 2023. Bega has the capacity to pursue smaller acquisitions while maintaining a dividend payout ratio of 50% normalised EPS. The group’s fiscal 2022 EBITDA guidance of AUD 195 million to AUD 215 million has necessitated an 11% downgrade to our fiscal 2022 EBITDA forecast to AUD 215 million.

Bulls Say’s 

  • Bega is shifting investment to the spreads and grocery business, which we view as less commoditised and higher margin than dairy, with strong niche positions in Vegemite and peanut butter 
  • External factors outside of Bega’s control, such as the weather, can adversely impact supply and demand dynamics. This can impact commodity prices, inputs costs and the firm’s supply chain and lead to volatile earnings 
  • Changing consumer trends toward dairy-free and vegan diets could lead to declines in per-capita dairy and cheese consumption, weighing on the majority of Bega’s earnings

Company Profile 

Bega Cheese is an Australian based dairy processor and food manufacturer of well-known brands including Bega Cheese and Vegemite. Bega Cheese operates two segments: the branded segment which produces consumer packaged goods primarily sold through the supermarket and foodservice channels and the bulk segment which produces commodity dairy ingredients primarily sold through the business-to-business channel.

(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
ipo IPO Watch

CMS Info Systems Limited IPO subscribed 1.95 times

The company is engaged in installing, maintaining, and managing assets and technology solutions on an end-to-end outsourced basis for banks, financial institutions, organized retail and e-commerce companies in India.

The IPO comprises of offer for sale of equity share amounting to Rs. 1,100 crore. The CMS Info Systems IPO open date is Dec 21, 2021, and the close date is Dec 23, 2021. The issue may list on Dec 31, 2021. The mininimum lot size comprises of 69 shares at a price band of Rs.205-216 per equity share.  A retail-individual investor can apply for up to 13 lots (897 shares or ₹193,752).The IPO will be listed both on NSE as well as BSE .

The IPO aims to raise funds for the following objectives;

  • To carry out an offer for sale of equity shares by promotors aggregating upto Rs. 11,000 million.
  • To achieve the benefits of listing the equity shares on the stock exchanges.

CMS Info System Limited  IPO has got 50 per cent reserved for qualified institutional buyers (QIBs), 35% reserved for retail investor and 15 per cent reserved for non-institutional investors (NIIs). 

CMS Info Systems IPO Subscription Status (Bidding Detail)

The offering received 7,32,71,721 applications versus 3,75,60,975 shares on offer, resulting in a 1.95-to-1 subscription ratio. The part earmarked for retail bidders was subscribed 2.15 times, according to BSE data, while the institutional quota garnered 1.45 times offers. So far, the HNI section has been subscribed to 1.98 times.

Company Profile

As of March 31, 2021, CMS Info Systems Limited was India’s largest cash management firm in terms of ATM and retail pick-up points. The company instals, maintains, and manages assets and technological solutions for banks, financial institutions, organised retail, and e-commerce companies in India on an end-to-end outsourced basis.

The company is divided into three segments: 1. cash management services, 2. managed services (such as banking automation product sales, common control systems, and software solutions, and so on), and 3. others (such as financial card issuance for banks and card personalisation services). It has a network of 3,965 cash vans and 238 branches and offices covering all of India’s states and union territories as of August 31, 2021.

(Source: CMS Info Systems IPO DRHP)

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
Funds Funds Research Sectors

UBS Property Securities Fund: The fund which aims to outperform the S&P/ASX 300 Property Accumulation Index

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. Investment return objective The Fund aims to outperform (after management costs) the S&P/ASX 300 Property Accumulation Index over rolling three year periods.

Investment return objective 

The Fund aims to outperform (after management costs) the S&P/ASX 300 Property Accumulation Index over rolling three year periods.

 Downside Risks

  • Deterioration in the Australian economy especially the property market (fundamentals deteriorate). Rising bond yields negatively impacting pricing. 
  • The Portfolio Manager/analysts miss-calculate their bottom-up valuation 
  • Key person risks in Mr. Pica (however, the CBRE investment team is relatively large and capable of succession planning). 

Fund Performance (as at 31 May 2021)

C:\Users\Akhila\Downloads\Screenshot 2021-12-23 163325.png

(Source: UBS)

Fund Positioning: Top 5 Holdings – Overweights & Underweights (as at 31 May 2021)

C:\Users\Akhila\Downloads\Screenshot 2021-12-23 164000.png

(Source: UBS)

Investment Process

The Fund uses an investment process that combines in-depth top-down and bottom- up fundamental market research with a disciplined and systematic approach to portfolio construction and risk management. The Portfolio Manager’s bottom-up approach integrates both quantitative and qualitative research to identify individual securities where the real estate is undervalued and represents the most compelling investment opportunities. The securities research process incorporates several factors including: 

  • Property visits – the Portfolio Manager utilises its local presence to gauge the quality and location of the real estate, assessing properties and capital expenditure needs at the property level. 
  • Management meetings – the Portfolio Manager assesses the management team’s alignment with shareholders; determines the depth and experience of the team; and judges their ability to articulate and execute their strategy. 
  •  Modelling – the Portfolio Manager generates cash flow earnings projections; performs net asset value analysis; and analyses the capital structure. 

About the 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 cashflows. The Fund aims to outperform (after management costs) the S&P/ASX 300 Property Accumulation Index over rolling five-year periods 

(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.

Categories
LICs LICs

Metrics Master Income Trust Seeking to Raise $440m through Unit Purchase Plan

On 28 October 2021, MXT announced a Unit Purchase Plan (UPP) proposing to issue 220.8m new units at a price of $2.00 per unit. The Trust is targeting to raise ~$441.6m. While the Trust maintains the flexibility to accept applications in excess of the target raise amount, applications in excess of this amount may also be scaled back.

The Offer closed on 30 November 2021 with an Issue Date of 3 December 2021. New units are expected to commence trading on 6 December 2021.

Capital raised will be invested in accordance with the investment mandate and target return of the Trust.

MXT targets a return of the RBA cash rate plus 3.25% p.a. (currently 3.35% p.a. net of fees) through the economic cycle, with income distributions intended to be paid monthly. Since listing on the ASX in October 2017, MXT has delivered a net return of 5.15% pa.

Net Asset Value of metrics Master Income Trust is $1,573,565,708. Current Unit Price is $2.07. 

Performance 

Performance.png

Company Profile

The Investment Objective of the Metrics Master Income Trust is to provide monthly cash income, low risk of capital loss and portfolio diversification by actively managing diversified loan portfolios and participating in Australia’s bank‐dominated corporate loan market. The Manager seeks to implement active strategies designed to balance delivery of the Target Return, while seeking to preserve investor.

(Source: FN Arena, Bloomberg, MXT)

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
Funds Funds

UBS Property Securities Fund: The fund which aims to outperform the S&P/ASX 300 Property Accumulation Index

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. Investment return objective The Fund aims to outperform (after management costs) the S&P/ASX 300 Property Accumulation Index over rolling three year periods.

Investment return objective 

The Fund aims to outperform (after management costs) the S&P/ASX 300 Property Accumulation Index over rolling three year periods.

 Downside Risks

  • Deterioration in the Australian economy especially the property market (fundamentals deteriorate). Rising bond yields negatively impacting pricing. 
  • The Portfolio Manager/analysts miss-calculate their bottom-up valuation 
  • Key person risks in Mr. Pica (however, the CBRE investment team is relatively large and capable of succession planning). 

Fund Performance (as at 31 May 2021)

C:\Users\Akhila\Downloads\Screenshot 2021-12-23 163325.png

(Source: UBS)

Fund Positioning: Top 5 Holdings – Overweights & Underweights (as at 31 May 2021)

C:\Users\Akhila\Downloads\Screenshot 2021-12-23 164000.png

(Source: UBS)

Investment Process

The Fund uses an investment process that combines in-depth top-down and bottom- up fundamental market research with a disciplined and systematic approach to portfolio construction and risk management. The Portfolio Manager’s bottom-up approach integrates both quantitative and qualitative research to identify individual securities where the real estate is undervalued and represents the most compelling investment opportunities. The securities research process incorporates several factors including: 

  • Property visits – the Portfolio Manager utilises its local presence to gauge the quality and location of the real estate, assessing properties and capital expenditure needs at the property level. 
  • Management meetings – the Portfolio Manager assesses the management team’s alignment with shareholders; determines the depth and experience of the team; and judges their ability to articulate and execute their strategy. 
  •  Modelling – the Portfolio Manager generates cash flow earnings projections; performs net asset value analysis; and analyses the capital structure. 

About the 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 cashflows. The Fund aims to outperform (after management costs) the S&P/ASX 300 Property Accumulation Index over rolling five-year periods 

(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.

Categories
Funds Funds

Pendal Horizon Fund: An actively managed portfolio of Australian shares

 The Fund is led by Crispin Murray, who has over 27 years’ industry experience and is currently the Head of Equity Strategies at Pendal. Mr. Murray is supported by a research team of nineteen, including Mr. Rajinder Singh who has over 17 years’ experience in Australian equities and manages a range of sustainability and ethical funds for Pendal.

The benchmark index is S&P/ ASX300 Accumulation Index.

Downside Risks: 

  • Market & security specific risk including Australian economic conditions deteriorate. 
  • The Portfolio Manager/analysts miss-calculate their bottom-up valuation. 
  • Stock selection fails to yield alpha against the benchmark – Companies which are screened out, such as in materials, energy, gambling, outperform. 
  • Key man risks with Crispin Murray, Andrew Waddington and Jim Taylor.

Investment Team:

Pendal’s nineteen-member Equity team is one of the largest in the industry. The Fund is managed by Crispin Murray, who is also the Head of Equity and is assisted by Rajinder Singh, who has a combined 44 year’s industry experience.

Fund Performance:

Fund Positioning:

Sector Allocation:

Investment Philosophy & Process:

Investment Philosophy: The Fund’s investment philosophy is based on the belief that good corporate governance and sustainability is a central factor to a company’s longterm success. 

Investment Process: The investment process is driven by bottom-up, fundamental research of stocks listed on the Australian Stock Exchange (both large and small cap). The key features of the process are best described in the diagram below. The Manager also utilises a proprietary system as part of its investment process, which includes Analyst Analyser which is a database that captures analyst financial models, valuations and recommendations

About the Fund:

The Pendal Ethical Share Fund is an actively managed portfolio of Australian shares which seeks to ensure that funds are invested in an ethical and socially responsible manner. The Fund invests in companies whose practices and impacts are aligned with an investor’s own social, environmental and ethical preferences and aims to provide a return (before fees, costs and taxes) that exceeds the S&P/ASX 300 Accumulation Index over a 5-year period.

(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.

Categories
ETFs ETFs Research Sectors

iShares S&P-ASX200- an attractive cost effective exposure to the top 200 Australian companies of ASX

Investment Objective: 

The Fund aims to provide investors with the performance of an index, before fees and expenses, composed of the 200 largest Australian securities listed on the ASX.

Portfolio Objective: 

Can be used as a core Australian equities exposure. 

Low cost access (relative to fund managers managing domestic portfolios) to the 200 largest companies on the ASX in a single fund.

Positives:

• Low cost exposure to broader market, without having to pick individual stocks. 

• Given the concentration in the Australian market, investors can use this ETF as a core holding whilst selecting lesser known stocks to drive portfolio alpha. 

Negatives: 

• Deterioration in Australian economy. 

• Aggressive increase in global bonds yields, leading to equity risk repricing. 

• Parent company experiences financial stress or negative corporate governance event.

ETF Performance:

ETF Positioning:

About the Company:

BlackRock is a global asset manager listed on the New York Stock Exchange. BlackRock has a comprehensive range of products and services across asset classes, geographies and investment strategies with 135.

(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.

Categories
Funds Funds

CFS Index Australian Bond: Simple and reasonably priced choice for diversified Australian bond exposure

Approach

FSI matches the risk factors of the benchmark, including duration, sector exposures, and credit quality by employing a full replication method. The strategy can hold securities that have been or are expected to be included in the index, and it can exclude those likely to drop in or out. On average, the cash holding would be in the vicinity of 0.5% because of the impact of daily flows and liquidity needs. The larger asset base gives the firm the benefit of scale and helps to keep a lid on overall transaction costs. FSI uses the BlackRock Aladdin portfolio management tool to manage the index-tracking process end to end, including trading and risk assessment and monitoring.

Portfolio

CFS Index Australian Bond replicates the Bloomberg AusBond Composite 0+ Year Index fully. As of 30 September 2021, the fund is composed mainly of Treasury (56.6%) and government-related (semigovernment and supranational) debt (36.4%). Corporate credit constitutes most of the remaining portion of the fund. A major portion of the credits in the index are issued by banks, followed by diversified financials and real estate trusts. . The concentrated credit exposure to banks and financials means Australian property fundamentals play a role in the portfolio’s performance in the long run.

People

FSI has a long history of managing passive strategies. FSI’s institutional passive funds under management is substantial. As of August 2021, FSI had around $5.1 billion in active funds and $12.2 billion in passive strategies. The Australian fixed-income team headed by Stephen Cooper within FSI is responsible for the CFS Index Australia Bond Fund. Cooper is an industry veteran. He is supported by four portfolio managers in the team, with Darja Milosevic and Alex Nikolovski dedicated to passive vehicles.

Performance 

As a core bond holding, CFS Index Australia Bond has served investors well over time by bringing broader portfolio volatility down and protecting capital when equity market slides. On the other hand, it has lagged when yields rose and when credit markets have been strong. This was evident in 2013 when the fund’s 1.7% gain trailed over half of its category peers or when yields rose toward the second half of 2020 through the end of the first quarter of 2021 (November 2020–March 2021). Encouragingly, the fund had done well when equity markets were weak. Its relatively long duration and high-quality exposure have been a boon during such occasions. 

CFS Performance.png

About the Fund

CFS Wholesale Indexed Australian Bond Fund is a unit trust incorporated in Australia. The objective of the Fund is to closely track the UBS Warburg Australian Composite Bond Index, All Maturities. The Fund invests in securities issued or guaranteed by governments, statutory authorities, banks, and corporations of a high credit standing, with some cash for liquidity.

(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
Global stocks Shares

Deere’s Prospects for Fiscal 2022 Look Bright to Us, Given Strong End Market Demand

Business Strategy and Outlook

Deere’s strong brand is underpinned by its high-quality, extremely durable, and efficient products. Customers in developed markets also value Deere’s ability to reduce the total cost of ownership. The company’s strategy focuses on delivering a comprehensive solution for farmers. Deere’s innovative products target each phase of the farming process, which includes field preparation, planting and seeding, applying chemicals, and harvesting. The company also embeds technology in its products, from guidance systems to seed placement and spacing and customized spraying applications. Deere is committed to expanding customer offerings and providing value-added services. Additionally, we believe the management team will look to reduce the company’s cost structure as some markets have matured, providing an opportunity to rethink its footprint and create a leaner organization.

Financial Strength 

Deere maintains a sound balance sheet. On the industrial side, the net debt/adjusted EBITDA ratio was relatively low at the end of fiscal 2021, coming in at 0.4. Total outstanding debt, including both short- and long-term debt, was $10.4 billion. Deere’s strong balance sheet gives management the financial flexibility to run a balanced capital allocation strategy going forward that mostly favors organic growth and also returns cash to shareholders. The company’s cash position as of fiscal year-end 2021 stood at $7.2 billion on its industrial balance sheet. We also find comfort in Deere’s ability to tap into available lines of credit to meet any short-term needs. Deere has access to $5.7 billion in credit facilities.

Additionally, management is determined to rationalize its footprint by reducing the number of facilities in mature markets. If successful, this will put Deere on much better footing from a cost perspective, further supporting its ability to return cash to shareholders. The captive finance arm holds considerably more debt than the industrial business, but this is reasonable, given its status as a lender to both customers and dealers. Total debt stood at $38 billion in fiscal 2021, along with $38 billion in finance receivables and $829 million in cash. In our view, Deere enjoys a strong financial position supported by a clean balance sheet and strong free cash flow prospects.

Bulls Say’s

  • Higher crop prices encourage farmers to grow more crops and will lead to more farming equipment purchases, substantially boosting Deere’s revenue growth. 
  • Deere will benefit from strong replacement demand, as uncertainty around trade, weather, and agriculture commodity demand has eased, encouraging farmers to refresh their machine fleet. 
  • Increased infrastructure spending in the U.S. and emerging markets will lead to more construction equipment purchases, benefiting Deere.

Company Profile 

Deere is the world’s leading manufacturer of agricultural equipment, producing some of the most recognizable machines in the heavy machinery industry. The company is divided into four reportable segments: production and precision agriculture, small agriculture and turf, construction and forestry, and John Deere Capital. Its products are available through a robust dealer network, which includes over 1,900 dealer locations in North America and approximately 3,700 locations globally. John Deere Capital provides retail financing for machinery to its customers, in addition to wholesale financing for dealers, which increases the likelihood of Deere product sales.

(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
LICs LICs

Plato Income Maximiser Limited raises $139.5m

Plato Income is Financial Industry with sub- industry is Asset Management. Market Capitalization is 657.126m. Their 5 years Monthly Beta is 0.78. 

Plato Income’s NTA values shows below are before the dividend of $0.005 per share payable on 31 December 2021. The ex-date of the dividend is 16th December 2021. 

Plato Income Maximiser limited Pre – Tax NTA $1.101 while Post – tax NTA is 1.105. Per – tax NTA Includes tax on realised gains/losses and other earnings but excludes any provision from tax on unrealised gains/losses. Post – Tax NTA includes tax on realised and unrealised gains/losses and other earnings. 

During November, PL8 raised $139.5m in total through a Placement to wholesale investors and a Share Purchase Plan (SPP). The Placement to wholesale investors raised $71.3m with the issue of 64.3m fully paid ordinary shares at $1.11 per share. 

The SPP raised $68.2m through the issue of 62m new shares at $1.10 per share. The SPP was oversubscribed with the Company targeting $50m, however the Company decided not to scale back any applications.

The proceeds from the Placement and the SPP will be invested via the Plato Australian Shares Income Fund in accordance with the Company’s structure and investment strategy.

PL8 took the opportunity to raise capital when the Company was trading at a premium. The share price closed at $1.285 on 2 November, the day prior to the capital raising announcement, an 11.7% premium to the pre-tax NTA and a 15% premium to the post-tax NTA. 

The issue of new shares through the Placement and SPP has seen the share price decline to be trading closer to the pre-tax NTA at November-end.

Portfolio Performance as at 30th November 2021

PORTFOLIO PERFORMANCE¹1M%3M%1YR% P.A.3YRS% P.A.INCEPTION% P.A.
Total return²-0.7-2.114.813.59.6
Income³0.61.66.08.37.4
Bench. total return²-0.4-2.017.014.010.1
Excess total return²-0.3-0.1-2.2-0.5-0.5
Excess Income³0.0-0.11.13.42.2
Excess franking³0.00.00.51.20.9

Company Profile 

Plato Income Maximiser Limited is a listed investment company incorporated in Australia. The Company has been established to provide investors with the opportunity to benefit from an investment in an actively managed, well-diversified portfolio of Australian listed equities by investing in an the unlisted scheme Plato Australian Shares Income Fund.

(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.