Category: Research

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Shares Technology Stocks

Another Strong Quarter for Zoom with Steeper Q4 Deceleration in Guidance

However, third-quarter guidance was mixed but largely in line and implied fourth-quarter guidance shows a steeper deceleration in top line growth than anticipated as a result of increasing churn and lower customer’s additions in the online channel that focuses on smaller customers. 

Zoom has been guiding to deceleration as the year progresses, even as it has been beating expectations and raising full year expectations over the last three quarters. There is a long runway for growth as the company gains traction with Zoom Phone and evolves its main application to a communication platform. Along these lines, management will focus on expanding its platform to feature a wider array of revenue generating products as hyper growth normalizes.

Current remaining performance obligations, or cRPO, grew 58% year over year in the quarter, compared with 54% revenue growth. While this is generally a positive indicator for revenue over the next year, management was careful to point out that billings cycles are growing increasingly concentrated in the April quarter and that therefore both cRPO and deferred revenue are to decrease sequentially in the third quarter.

Company’s Future outlook

Zoom Vedio Communication’s last traded price was 347.50 USD, whereas its fair value estimate is 252.00 USD, which makes it a highly overvalued stock.  Revenue grew 54% year over year to $1.021 billion, which topped the high end of guidance of $990 million. Direct and channel business was strong, with enterprise customers doing larger deals but taking more time to evaluate the solution and being more strategic in their approach. Up sells of Zoom Phone and a pickup in Zoom Rooms helped drive larger deals. New customers accounted for 74% of revenue, which is unusually high for a software company of Zoom’s size. Zoom Phone momentum continued during the quarter, with the company reaching 2 million seats. Net dollar expansion remains strong at 130%,

Company Profile

Zoom Video Communications provides a communications platform that connects people through video, voice, chat, and content sharing. The company’s cloud-native platform enables face-to-face video and connects users across various devices and locations in a single meeting. Zoom, which was founded in 2011 and is headquartered in San Jose, California, serves companies of all sizes from all industries around the world.

(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
Shares Small Cap

InvoCare Headwinds with the Return of Funeral Restrictions Immaterial to FVE

The company boasts well-known, highly respected brands and cost advantages over the long tail of smaller players in the highly fragmented death care industry, underpinning our wide economic moat rating. Death is one of few certainties in life, supporting steady demand for InvoCare’s services. Death rates can fluctuate from year to year. For instance, social distancing and increased hygiene focus in the wake of the COVID-19 pandemic led to a virtually non-existent flu season and significantly lower mortality rates in calendar 2020. However, death rates are very consistent over the long run.

While the program created some near-term disruption as venues closed or were otherwise impaired while undergoing refurbishments, InvoCare to capture an increasingly large portion of market share, given its dominant position, brand strength, and refreshed service offering following the venue refurbishments. Customers, typically the family of the deceased, are relatively price-insensitive, given the highly emotional context surrounding death care. 

Financial Strength 

InvoCare’s balance sheet is in a strong position following the AUD 274 million equity raising in calendar 2020. Leverage, measured as net debt/adjusted EBITDA, improved to 1.3 at fiscal year-end 2020, from 2.4 in fiscal 2019, comfortably below covenant levels of around 3.5. As earnings improve, net debt to fall below 1.0 times EBITDA by fiscal 2022. Underlying operating income lifted 46% on the coronavirus-ravaged prior corresponding period, or PCP, to AUD 39 million, still around 10% below the first half of fiscal 2019. Pricing bounced back during the period as restrictions on funeral attendances eased and pricing recovered—a demonstration of the strength of the underlying business.

Australia’s hardline approach to minimising COVID-19 cases with social distancing, lockdowns, and an increased focus on hygiene is leading to the second consecutive year of virtually no flu. InvoCare’s Australian funeral volumes in the first half were flat on the prior corresponding period and down approximately 3% on the prepandemic first half of fiscal 2019. The number of deaths to grow at an average CAGR of around 3% per year for the next decade, accelerating beyond 2030 due to demographics. The last traded price of Invocare Ltd was 12.15 AUD while it’s Fair Value Estimate 15.30 AUD which shows that InvoCare has potential to Grow.

Bulls Say’s

  • InvoCare consistently generates return on invested capital above its weighted average cost of capital, reflective of its pricing power due to its market position, reputation, and strong brand equity.
  • Industry volumes are immune to economic factors and will steadily grow as the population increases.
  • Prepaid funerals effectively lock in future sales and provide InvoCare with a low-cost source of funding.

Company Profile 

InvoCare is the largest funeral, cemetery, and crematorium operator in Australia and New Zealand. We estimate InvoCare enjoys over a third of revenue share in Australia, and around a fifth in New Zealand, and is the number one player in both countries. Australia contributes the vast majority of consolidated earnings. InvoCare owns a portfolio of over 60 brands, including three flagship national Australian brands: White Lady, Simplicity Funerals, and Value Cremations, and owns and operates 290 funeral homes, along with 16 cemeteries and crematoria. 

(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
Fixed Income Fixed Income

Westpac Banking Corp to issue Convertible perpetual notes

Investment Thesis:

  • For WBCPK, the final distribution margin has been decided at 2.9%, which is more than BBSW (Bank Bill Swap Rate) in comparison to pre-book build range of 2.9- 3.1%.
  • The WBCPK securities are similar to the value declared by the recently offered MBLPD (Macquarie Bank Ltd.) securities but offer a healthy premium margin to other major banks’ AT1 securities.
  • WBCPK offers a gross running yield of 2.0% and yield-to-first call maturity of 4.1%.
  • Westpac Bank has a powerful business and is a regular issuer of debt- instrument in the market.
  • Westpac is also offering an opportunity to reinvest (“Reinvestment Offer”) into the new WBCPK securities to all current WBCPG (Westpac Capital Notes 4) holders since the first call date (20 Dec-21) of WBCPG is approaching. 
  • WBCPG investors have been given the option of reinvesting some or all of their holdings into WBCPK. If WBCPG investors hold it until 20 Dec-21, Westpac has disclosed that the Company plans to redeem any outstanding notes for face value of $100 per security.

Key Risks:

  • The current market price of WBCPK would be volatile on account of different factors that may impact the financial and economic conditions. Interest Rate is likely to fluctuate along with the change in the market rate.
  • Economic distress to the Australian economy, including an extended declining phase in the Australian economy. 
  • Risk of dividends not being paid, given that they are discretionary.
  • WBCPK are anticipated to be converted into ordinary shares on the Scheduled Conversion Date, unless mentioned otherwise on or before that date. 
  • Risk of non-occurrence of conversion on the scheduled conversion date because of the inability of fulfilment of the scheduled conversion conditions due to a large fall in the Ordinary Share price relative to the Issue Date VWAP (Volume Weighted Average Price), or if ordinary shares stop from being quoted on ASX or have been limited from trading for a specific period.
  • The price of the Ordinary Shares may be impacted by transactions affecting the Westpac Bank share capital, such as rights issues.
  • Westpac Bank’s financial performance and position may affect the market price of WBCPK (and the ordinary shares into which they are expected to be converted).

Security Description:

WBCPK securities are fully paid, non-cumulative, convertible, redeemable, perpetual, and unsecured, which is subject to a capital trigger event and non-viability trigger event, subordinated, listed securities. Its current price is $100 and the coupon rate that it would be offering would be 2.90%. Its issue date is 15th September, 2021. The securities have been scheduled to be converted into ordinary shares on 21 June 2032 (only on account of conversion conditions being fulfilled). 

Company Profile:

Westpac is one of Australia and New Zealand’s leading financial services provider, operating under multiple brands, with a low presence in Europe, North America and Asia.  As on 31st March 2021, Westpac and its controlled entities had total assets of approximately $889 billion. 

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

Vanguard Australian Shares Index ETF offers potential long-term capital growth with dividend income

Investment Objective

Vanguard Australian Shares Index ETF seeks to track the return of the S&P/ASX 300 Index before taking into account fees, expenses and tax.

Investment Strategy

The fund provides low cost and efficient exposure to the broad Australian share market.  The fund offers diversification by being exposed to all market sectors including the AREITs. The fund seeks to generate capital growth over the long term while producing dividend income along the way attached with franking credits.  

Portfolio Objective

  • Competitive long-term returns while less exposed to volatility in the price of any one security.
  • Deliver long term returns at low cost. 
  • The fund seeks long term capital growth, tax effective income while being tolerant to share market volatility.  

Positives

  • Diversification.
  • Low cost exposure to a broad and diverse range of listed securities. 
  • Quarterly distributions. 

Negatives 

  • Share market volatility could cause the portfolio value to go up and down during the holding period.  
  • The index tracking capability of the fund may fail to meet the objectives of the fund.
  • The fees and costs of the fund may change.

Company Description 

The Vanguard Group has been in Australia since 1996 and currently has $140 billion of assets under management. The Group manages some 82 funds with head office in Melbourne, Australia. The Vanguard Group, globally, has been operating since 1975 with $1.6 trillion of asset under management. The global group manages 400 funds with 30 million investors worldwide.

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

Vanguard focus on increasing dividends while also delivering some capital growth

Investment Objective 

Vanguard Australian Shares High Dividend Yield seeks to replicate the performance of the FTSE Australia high Dividend yield index before taking into account fees, expenses and taxes.

Investment Strategies

  • The Funds seeks low cost exposure to ASX Listed Companies that are expected to deliver higher Dividend as compared to other ASX Listed Companies.
  • Funds Achieves diversification by limiting the amount of securities holds of maximum 10% of portfolio.
  • Fund does not invest more than 40% of its assets in single industry. AREIT Investing does not excludes particular funds.  

Portfolio Objective 

  • Long term returns are competitive in nature.
  • Provides long term returns at low cost. 
  • The fund seeks long-term capital growth and tax-efficient income while being risk-averse in the stock market.

Positives 

  • Diversification 
  • Low Cost exposure to dividend paying ASX Listed Securities
  • Distributions are made on quarterly basis

Negatives 

  • Dividend-paying stocks underperform the market as a whole.
  • Share market volatility may cause the portfolio value to fluctuate.
  • The fund’s index tracking capability may fail to meet the fund’s objectives.
  • The fund’s fees and costs are subject to change.

Company Profile 

The Vanguard Group has been in Australia since 1996 and currently has $140billion of assets under management. The Group manages some 82 funds with head office in Melbourne, Australia. The Vanguard Group, globally, has been operating since 1975 with $1.6 trillion of asset under management. The global group manages 400 funds with 30 million investors worldwide.

ETF Performance…

Figure 1: Fund performance as at30June 2021

(%)FundBenchmark
1-month+1.39%+0.1.39%
3-months+6.03%+6.03%
6- months+16.33%+16.34%
1-year +34.89%+34.86%
3-year (p.a.)+10.46%+10.38%
Since Inception (p.a.)+9.50%+9.45%

Source: Vanguard. Inception date: 26 May2011.

ETF Positioning…

Figure 2: Top ten holdings

Source: Vanguard

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

BETASHARES AUSTRALIAN SUSTAINABILITY LEADERS ETF is true-to-label and cost effective

Investment Objective:
The main goal of Betashares Australian Sustainability Leaders ETF is to track the index (before fees and expenses) that involves Australian companies, which have passed through screens so as to eliminate companies with direct or sufficient exposure to fossil fuels or those that are involved in activities which are supposed to be inconsistent when compared to responsible investment requirement.

Investment Strategy:
This fund offers a chance to investors to align their investments with their ethical standards. FAIR’s investment methodology includes strict screening criteria, which provide investors a true to label ethical investment option. FAIR does not consider investing in any of the big 4 banks or large Australian mining companies.

Portfolio Objective:
Diversified exposure is provided to ethical Australian shares
High preference towards companies that are classified as “Sustainability Leaders”
Ethical investment methodology that are true to label

Positives:
Shares diversification
Australian shares options that are available at low cost
Distributions made semi-annually

Negatives:
Fluctuations in Share market can make the portfolio value go up and down during the holding period.
Concentrated market in relation to others
Exclusion of major market sectors experiencing strong returns
Change in fees and costs of the fund might be possible

Company Profile:
BetaShares is a renowned manager of ETFs and other funds that are traded on the ASX. The inception of the company was in 2009 and it now consists of over 60 products in its portfolio, all of which can be bought and sold on the ASX. The company aims to offer investors simple, liquid, and cost-effective solution to Australian and global shares, cash and fixed income, currencies, commodities, and active and alternative strategies.

ETF Performance:

(%)FundBenchmark
1-month+0.29%+0.34%
3-months+5.53%+5.66%
6-months+11.28%+11.46%
1-year+19.30%+19.76%
5-year (p.a.)–+9.80%
Since Inception (p.a.)+10.54%+11.07%

(Source: BetaShares)

Fig. 1: Fund performance as at 31 July 2021

ETF Positioning:

(Source: BetaShares)

Fig. 2: Top 10 Exposures

(Source: BetaShares)

Fig. 3: Sector Allocation

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

BetaShares ETF to allow investors to invest in Companies identified as Climate Leaders

Investment Objective

ETHI aims to track index performance (before fees and expenses), which includes a range of large global stocks that have also passed screens to exclude firms with direct or significant exposure to fossil fuels or which have been engaged in activities that are considered inconsistent with responsible investment considerations. ETHI is responsible for the monitoring of the index.

Investment Strategy

  • The fund offers investors the chance to link their ethical values with their interests. 
  • ETHI integrates a wide range of ESG criteria with positive climate leadership screens, providing an authentic ethical investment approach.
  • ETHI holds a diversified portfolio from a range of worldwide locations of major, sustainable, ethical enterprises.

Portfolio Objective

  • Provide diversified exposure to globally listed ethical shares.
  • Prefer companies classified as “climate leaders”.
  • True to designate the methodology of ethical investment.

Positives 

  • Shares, currencies, and markets are all used to diversify.
  • Exposure to international ethical shares at a low cost
  • Distributions are made on a semi-annual basis.

Negatives 

  • Share market volatility may cause the portfolio value to fluctuate during the holding period. 
  • It is more concentrated in comparison and it excludes major market sector that may experience strong returns. 
  • Fund may changes their cost and fees. 

Company Profile 

BetaShares is a well-known manager of ETFs and other funds traded on the ASX.  The company was founded in 2009 and now has over 60 products available, all of which can be bought and sold on the ASX.  The company seeks to offer investors simple, liquid, and cost-effective access to Australian and global shares, cash and fixed income, currencies, commodities, and active and alternative strategies. 

ETF Performance…

Figure 1: Fund performance as at 31 July 2021

(%)FundBenchmark
1-month+3.74 %+3.79%
3-months+11.26%+11.44%
6-months+21.98%+22.25%
1-year +35.34%+35.89%
3-year (p.a.)+25.60%+26.21%
Since Inception (p.a.)+23.43%+23.92%

Source:BetaShares

ETF Positioning…

Figure 2: Top ten holdings

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

Vanguard MSCI ETF gives exposure to companies to deliver long term growth

Investment Objective

Vanguard MSCI Index International Shares ETF seeks to track the return of the MSCI World ex-Australia (with net dividends reinvested), in Australian dollars Index, before taking into account fees, expenses and tax.

Investment Strategy

The fund provides exposure to many of the world’s largest companies in major developed markets and countries. The fund seeks to deliver this exposure efficiently by keeping the costs low. There fund offers diversification through number of securities, sectors, and markets and gives exposure to companies with the potential to deliver long term capital growth. The fund offers investors exposure to economies other than just Australia’s. The fund is also exposed to various currencies and their fluctuating prices, though the fund will not hedge foreign currency volatility against Australian dollar.  

Portfolio Objective

  • Provide diversified exposure to internationally diversified global shares.
  • Capital growth over the long term.
  • Currency exposures and diversification away from Australia.

Positives

  • Diversification by sectors, securities, regions, and currencies.
  • Low cost exposure to globally diversified portfolio.
  • Quarterly distributions. 

Negatives 

  • Share market and currency volatility could cause the portfolio value to go up and down during the holding period.  
  • The index tracking capability of the fund may fail to meet the objectives of the fund.
  • The fees and costs of the fund may change.

About the Company

The Vanguard Group has been in Australia since 1996 and currently has $140billion of assets under management.  The Group manages some 82 funds with head office in Melbourne, Australia. The Vanguard Group, globally, has been operating since 1975 with $1.6 trillion of asset under management. The global group manages 400 funds with 30 million investors worldwide.

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

oOh! Media Ltd reported solid first half year results in 2021

Investment Thesis:

  • Out of Home advertising has a strong market share .(47 % in Australia and New Zealand) 
  •  Due to the current uncertainty around lockdown restrictions, the share price are traded at a meaningful discount in comparison to its valuation in terms of DCF / PE-multiple; EV/EBITDA multiple.
  • Dividends have been temporarily suspended, with the Board expecting to reconsider when market conditions improve and the Company’s lenders agree.
  • OML operates in a highly concentrated market which makes it difficult for new players to enter in.
  • The top line of the company is still well-diversified, with no single contract having a large impact on revenue.
  • Management did not disclose an earnings guidance for FY22, but did say that “revenue for Q3 is now pacing 38 percent higher than the corresponding period in 2020,” and also stated that audiences and associated revenues will see a strong recovery when the current lockdowns end.
  • Unproven Cathy O’Connor having vast media experience and a track record of leading profitable media firms joined as OML CEO in January 2021.

Key Risk:

  • Threats from competitors lead to loss in market share.
  • Unsatisfactory growth (company and industry specific).
  • The pandemic has lasted longer than anticipated.
  • Market cyclicity in advertising.
  • Updates on contract renewals have been disappointing.

 Highlights of key FY21 results:

  • OML reported solid 1H21(first half of year 2021) results, reflecting improvement in earnings. During the underlying period OML reported revenue of $251.6m which is 23% up  compared to 1H20(first half of year2020).
  • The increase in revenue was driven by revenue recovery across its key products namely commute, road ,retail , fly , locate and other junkee media and Cactus Imaging .
  • During the underlying period, the gross margin was 42.5% which is 8.8 points up in comparisons to 1H20, indicating a return to pre covid levels.
  • EBIDTA for the underlying period was $33.3 million, which is 209% above from 1H20, ton account of margin improvement leveraging revenue growth.
  • With the help of its property partners, OML was able to secure $19 million in net rent abatements.
  • Underlying NPATA was $2.4m versus a loss of $16.9m in 1H20.
  • The balance sheet of OML improved, with the gearing ratio (Net Debt / Underlying EBITDA) falling to 1.1x (from 1.8x) and net debt falling to $94 million, down by 16 percent from the previous first half year result.
  • The total capital investment for the year will be about $25 million, with the focus remaining on revenue growth and concession renewals.
  • The Board has put a stop to dividends for the time being, with the purpose of reviewing the decision if market conditions improve and the Company’s lenders agree.

Company Profile:

oOh!media Ltd (OML) is one of Australia’s largest operators of out-of-home advertising products, including all major advertising formats such as billboards, shops, street furniture, airports, and office towers (largest scale with footprint in all major regions in Australia and New Zealand). The company employs 800 individuals, with 150 working in sales, 250 in operations (cleaning, maintaining street furniture, and so on), and the remainder in shared services, technology, and so on.

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
Shares Technology Stocks

oOh!Media Ltd a buy given the Company’s leverage to ad spend pick up once restrictions ease.

Investment thesis

  • Strong market share (~47% in Australia / New Zealand) in a growing advertising medium Out Of Home (OOH).
  • The share price trades below our blended valuation (DCF / PE-multiple / EV/EBITDA multiple).
  • Dividend temporarily suspended, with the Board intending to revisit this decision when prevailing market conditions improve and with consent of the Company’s lenders.
  • Management did not provide quantitative FY22 earnings guidance but did provide “revenue for Q3 is currently pacing 38% higher than the corresponding period in 2020 and 74% of Q3 2019”. Further, management noted, “forward visibility remains uncertain given the ongoing effects of Covid-19 lockdowns and associated movement restrictions, however we expect that when the current lockdowns end there will be a strong recovery in audiences and associated revenues as has been the case previously”. 
  • The market that OML competes in is concentrated (majority share with three very well financed competitors), which poses a challenge for international players wanting to come in (need to have a network established to be an out-of-home player). 
  • Unproven CEO Cathy O’Connor became CEO of OML in January 2021, however she brings extensive experience in media and history of running profitable media companies. 
  • OML utilises audience analytics to stay ahead of the curve, with its association with Quantium (Quantium is 50% held by Woolworths and the other 50% is private equity, with its data set currently covering all the Woolworths loyalty data, NAB credit card data, real estate core logic etc to capture more than 75% of Australians spend). OML believes Quantium gives it an edge over its competitors, especially given it has exclusive rights and the contract was only recently renewed.

Key Risks

  • The following are the key challenges to the investment thesis:
  • Competitive threats leading to market share loss.
  • Disappointing growth (company and industry specific).
  • Pandemic is prolonged longer than expected.
  • Cyclicality in advertising markets 
  • Disappointing updates on contract renewals.

Highlights of key FY21 results

Relative to the pcp: (1) Revenue of $251.6m was up +23% driven by revenue recovery across key formats in Australia (Road, Retail and Street Furniture) and NZ. OML maintained the number one market position in both the Australian and New Zealand markets. (2) Gross margin of 42.5% was up 8.8 points reflecting recovery towards pre-Covid levels. (3) Underlying EBITDA of $33.3m was up +209% driven by margin expansion leveraging revenue uplift. (4) OML was able to negotiate with property partners for net rent abatements of $19m. (5) Underlying NPATA was $2.4m versus a loss of $16.9m in 1H20. Reported Net Loss after tax of $9.3m (post AASB16) was an improvement from a -$28.0m loss in 1H20. (6) OML’s balance sheet strengthened with gearing ratio (Net Debt / Underlying EBITDA) down to 1.1x (from 1.8x) and net debt declined to $94m, down -16% relative to the pcp. (7) The Board has temporarily suspended dividends (as per OML’s announcement during its March 2020 equity raising) with the Board intending to revisit this decision when prevailing market conditions improve and with consent of the Company’s lenders.

Company Description 

oOh!media Ltd (OML) is one of Australia’s largest operators of out of home advertising products (largest scale with footprint in all major regions in Australia & New Zealand) covering all the major advertising formats including – billboards, retail, street furniture, airports and office towers (~95% market share in office tower marketing). The Company has a workforce of 800 people, with ~150 people sales facing, ~250 people on operations (cleaning maintaining street furniture etc) and rest in shared services, technology, etc.

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.