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LICs LICs

Wilson Asset Management Reports Record Operating Profit and Maintains Final Dividend

Currently, last traded price is $2.345. Till June 2021 net profit is 266.62 Million while Revenue is 379.57 Million.

Till 31 July 2021, Pre – tax net tangible asset is $1.89 while post – tax net tangible asset is $1.93 and Annualised dividend yield is 7 percent.

Gross asset of Wilson Asset Management Capital Limited is 1,682.2 Million.

WAM Capital’s Investment portfolio has returned 16.6 percent p.a and their overall 22 years outperforming the market by 7.9 percent p.a.

WAM Capital Limited ((WAM)) reported a record operating profit before tax of $343.3 million for fiscal year 21 due to strong portfolio performance. In FY21, WAM’s investment portfolio increased 37.5 percent (before expenses, fees, and taxes). 

The final dividend was maintained at 7.75cps, fully franked, bringing the full year dividend to 15.5cps, fully franked. This is consistent with the full-year dividend for fiscal year 2020.

WAM offered the most appealing dividend yield for domestic equity LICs as of 31 July 2021, with a dividend yield of 7.01 percent despite trading at an 11.6 percent premium.

Company Profile 

WAM Capital Limited (WAM) is an Australia-based investment company, which is primarily an investor in equities listed on the Australian Securities Exchange. The Company’s investment objectives are to deliver a stream of fully franked dividends, provide capital growth and preserve capital. The Company engages in investing activities, including cash, term deposits and equity investments. The Company’s trading opportunities are derived from initial public offerings, placements, block trades, rights issues, corporate transactions (such as takeovers, mergers, schemes of arrangement, corporate spinoffs and restructures), arbitrage opportunities, listed investment companies (LIC) discount arbitrages, short selling and trading market themes and trends. Wilson Asset Management (International) Pty Limited is the Company’s investment manager.

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

Qube reported solid FY 20 result and also made progress in the property monetisation process

Investment Thesis:

  •  The assets are attractive as well as strategically located.
  • Leveraged to improving economic growth (e.g. commodity markets, new passenger vehicle sales).
  • Improved margins on account of additional project work in future years.
  • Moorebank Logistics Park was successfully ramped up and offered logistics services at incremental margins.
  • Better cost outcomes and improved margins on account of technological advances (and automations) at its ports and operations.
  •  In order to supplement organic growth potential bolt-on acquisitions is done 
  •  The balance sheet position of Qube is sound enough.

Key Risks:

  • Excess capacity and pricing pressure because of Downturn in the domestic economy (or key end markets such as agriculture, retail)
  • Margin pressure due to cost pressures. 
  • Coronavirus outbreak leading to potential direct and indirect impacts.
  • Value destructive acquisition (dilutive to earnings and a distraction for management). 
  • Margin erosion because of competitive pressure. 
  • High competition in the logistics industry.
  • Market expectations are not met by QUB in achieving capacity utilization at Moorebank Logistics Park.

Key Highlights: Relative to the pcp:

  • QUB reported solid FY20 results reflecting record underlying earnings.
  • The firm majorly has four division-operating, property and patrick
  • Revenue increased by 7.9% to $2,032.4.
  • The increase in revenue was majorly driven by its operating and Patrick division.
  • The Operating Division experienced high volumes across most parts of the business with container, grain, forestry, motor vehicles and bulk volumes particularly strong, and the result also benefited from earnings from growth capex undertaken in the current and prior periods.
  • The operating division saw underlying revenue growth of by 12.5% to $2.0bn driven by Logistics, up by 8.5% to $860.3m and Ports & Bulk, up by 8.0% to $1,148.2m.
  • Property underlying revenue of $23.7m. The division made a loss of $2.1m
  •  In Patrick, underlying contribution from Qube’s 50% interest in Patrick of $41.3m
  • EBITA increased by 14.1 percent to $182.9 million.
  • The net profit after tax (NPAT) increased by 36.8% to $142.5. 
  •  NPATA was up 31.7 percent to $159.6.  
  • EPS was up by 16.7 percent at 8.4cps. 
  •  The Board declared a final dividend of 3.5cps (full-year dividend of 6.0cps, up 14.4%). 
  • The leverage ratio (ND/ND+E) of 29.2% is substantially below the goal range of 30-40% set by management.

Moorebank monetisation: 

QUB entered non-binding commercial terms to sell 100% of its interest in warehousing and property components of the Moorebank project (MLP project) to LOGOS for a total consideration of $1.67bn before tax, transaction costs and other adjustments. QUB will retain ownership of IMEX terminal and interstate terminal. Management noted “subject to the completion of the monetisation process, the Board will assess the appropriate use of the monetisation proceeds which is expected to include debt reduction, investment in accretive growth opportunities and potential capital management initiatives”.

Company Profile:

Qube Holdings Limited (QUB) is a diversified logistics and infrastructure firm that serves clients in both the import and export cargo supply chains. Ports & Bulk (integrated services, bulk material handling, and bulk haulage), Logistics (Australia’s largest integrated third-party container logistics provider), and Strategic Assets are the company’s three primary segments (investing and developing future infrastructure).

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

Sims Ltd. reports strong results driven by significant turnaround in EBIT

Global network and financial technology concept.

Investment Thesis:

  • Scrap volumes have been improved  
  • Scrap prices across key regions have been improved
  • Significant earnings could be obtained from cloud recycling over the long run
  • Investment in improving scrap quality should improve SGM’s competitive position
  • Undemanding valuation relative to its own historical average and ASX200 Industrials Index
  • Earnings could be supported by self-help initiatives 
  • Return on Capital (ROC) of >10% in comparison to 8.6% in FY19 is targeted by the management
  • On-market share buyback of $150m

Key Risks:

  • Global economy facing substantial downside  
  • Escalation of trade war between China and the U.S.  
  • Key areas experiencing weaker scrap prices
  • Decrease in volumes
  • Changes in regulatory affairs – especially China’s anti-pollution policies. 
  • Group margins impacted by cost pressures

Key Highlights:

  • Strong FY21 results by Sims Ltd., which were ahead of market estimates 
  • Revenue of $5,916.3m, which is up +20.5%
  • Underlying EBIT of $386.6m, which was a significant turnaround from -$57.9m in FY20, affected by volume growth, margin expansion year on year, and material improvement in market prices
  • Achievement of fixed cost savings of $75m 
  • Final dividend declaration of 30.0cps, 50% franked, which brings FY21 total dividends to 42.0cps reflects a significant improvement from 6.0cps in FY20 but at a lower payout ratio 
  • SGM entered a JV with 50% ownership interest (at a $4.8m cost) with acquisition of assets from JED renewable landfill gas to energy facility near Orlando, Florida.
  • The ongoing or announced stimulus spending, particularly in the USA and China, would increase demand for steel-intensive infrastructure spending and drive additional retail consumption. Additional retail consumption will thereby increase post-consumption scrap. These drivers are positive for both ferrous and non-ferrous metal recycling.
  • Company will conduct a $150m on-market share buyback

Company Profile:

Sims Ltd (SGM) collects, sorts and processes scrap metal materials which are recycled for resale. SGM’s segments include ferrous recycling, non-ferrous recycling, secondary processing of non-ferrous metals and plastics, international trading of metal commodities and the merchandising of steel semi-fabricated products. 

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

Mayne Pharma with a strong financial position set to launch 11 dermatology products across FY22 targeting markets of $500m.

Investment Thesis

  • Any stabilisation in the generic category (competition or pricing) will be considered as a positive.
  • New product releases and a solid development pipeline are on the horizon.
  • While generic brands are currently experiencing a difficult business environment, the long-term picture remains favourable, as consumers and regulators alike rely on a vibrant generics market to keep drug prices low.
  • Positioning the product portfolio to include higher-margin items.
  • Potential industry consolidation on lower growth outlook.
  • Leveraged to a falling AUD/USD. 

Key Risk

  • There is a lot of competition from new products.
  • A decrease in demand.
  • New product releases do not meet market expectations for growth.
  • Changes in the law.
  • Litigation.
  •  Currency fluctuation that is unfavourable.

Key financial highlights of 21

  • During the underlying period the firm reported revenues of $400.8m, declined by12% over the previous year, impacted by the Covid-19 pandemic and on-going challenges in the U.S. retail generic sector.
  • The firm mainly has four divisions namely – Generic Products Division (GPD), Specialty Products Division (SPD), Metrics Contract Services (MCS) and Mayne Pharma International (MPI).
  • During the year Generic Products Division (GPD) operating revenue was US$152.8m declined by 10% over pcp, Specialty Products Division (SPD) revenue increased by 1% over pcp to US$53.3m, Metrics Contract Services (MCS) revenues increased by 10% over pcp to US$61.3m and Mayne Pharma International (MPI) revenue were $42.8m up by 1% over pcp.
  • All segments other than the Generic Products segment contributed to growth, with reported EBITDA of $66.1 million down by 18 % over pcp ( by 5 % in CC) and underlying EBITDA of $86.5 million (excluding NEXTSTELLIS set-up expenses) down by 10  % in cc.
  •  The non-cash intangible asset impairments of the generic portfolio in 1H21 resulted in a net loss after tax of $208.4 million (vs $92.8 million in pcp).
  • The Company achieved positive net operating cash flow of $58.9m (down by 48% over pcp) and free cash flow of $9.6m (down by 83% over pcp). Excluding the movement in working capital and tax, net operating cash flow was $61.7m, down by 5% over pcp.
  • The Board scrapped the final dividend.
  • Possess strong financial position with net debt fell by 4.4 % to $248.8 million, and the company is in compliance with all bank covenants, with a leverage ratio of 2.6x (covenant 3.75x) and an interest cover of 7.9x.

Significant opex reduction: Through supply chain optimization, reconfiguration of the dermatology sales force, and discontinuance of non-viable generic medicines, management continued to streamline operations and decrease spend, delivering an opex savings of 13 percent /$18 million over pcp in CC.

Management entered into four new supply agreements with leading pharma companies to launch up to 11 dermatology products across FY22 targeting addressable markets of $500m. 

NEXTSTELLIS successfully launched: The Company launched NEXTSTELLIS in June 2021 in the US and Australia and reached more than 60% of priority prescriber targets within 6 weeks of launch. Furthermore, over 37,000 NEXTSTELLIS samples have been provided to physician offices. Around  5,000 women are currently undergoing NEXTSTELLIS trials. The management is  seeking a 2% market share (by volume) of the CHC market with peak net sales potential of more than US$200 million per year.The CHC market is valued at US$3.5 billion, with more than 60 million prescriptions written each year.

Company Profile

Mayne Pharma Group (MYX) is a specialist pharmaceutical firm focusing on commercialising branded and generic medications using its drug delivery capabilities. Mayne Pharma works with over 100 clients throughout the world to provide contract development and manufacturing services. Mayne Pharma has a diverse portfolio of branded and generic medications in areas such as women’s health, oncology, dermatology, and cardiology.

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

Brambles on-market share buyback and attractive valuation makes it a strong stock

Stock exchange market concept, stock broker looking at graph working and analyzing with display screen, pointing on the data presented and deal on a exchange, Businessman trading stocks online.

Investment Thesis:

  • Brambles serve as a market leader in its own segment, thereby making high barriers to entry for new participants. 
  • Conversion of white-wood users as well as the palletisation of emerging markets would offer a huge opportunity.
  • The share price of Brambles would be supported by on-going on-market share buyback.
  • Management of cost margins amidst cost pressures through strategic business efficiencies
  • Strong management team  
  • Increase in volume in the US Pallet business and improving outlook for margin.   
  • Prominent position of Brambles is ensured by its scale, existing customer base and balance sheet 

Key Risks:

  • Margin erosion due to competitive pressures and inflation in prices, particularly in the North American market. 
  • The operations of the company are intensively driven by capital. 
  • Loss of large contracts may significantly reduce revenue and earnings.
  • Lesser use of pallets may result from low consumption of FMCG products which may arise from weak economic conditions.
  • Whitewood prices remain volatile.
  • Large amount of currency and political risk exposure to the company. 
  • Widespread lockdowns to be repeated in key regions.

Key Highlights:

  • Level of support for the share price is offered by an attractive valuation of BXB and the current on-market shares buyback (currently ~74% of A$2.4bn complete). 
  • Revenue of $5,209.8m was up 7% which was driven by 4% price growth and 3% volume. 
  • The revenue by segment are; CHEP Asia Pacific contributed 10% to the total revenue, CHEP Americas contributed 50% and that contributed by CHEP EMEA is 40%. 
  • Profit of $879.3m was up +8% driven by pricing, surcharge income, cost efficiencies and return on supply chain investments, partially offset by input-cost inflation, and other increases in costs driven by changes in network dynamics and demand patterns which are affected by both Covid-19 and Brexit. 
  • Profit split by segment are as follows; CHEP Asia-Pacific contributes 15% to the total profit, CHEP Americas contributes 39% whereas HEP EMEA contributes 46%.
  • Profit after tax from continuing operations of $535.0m, up 5% driven by operating profit growth partially offset by 15% uplift in tax costs
  • Final dividend of US10.5cps has been declared, which brings total dividends to US20.5cps, equating to payout ratio of 54%, in line with pcp and consistent with BXB’s dividend policy (of between 45% to 60%). 
  • Continued strong investment-grade credit ratings by agencies (Standard & Poor’s BBB+ and Moody’s Baa1).
  • BXB’s financial ratios remain well within <2.0x financial policy and Net Debt / EBITDA is ~1.6x.

Company Profile:

Brambles Limited (ASX: BXB) is a supply-chain logistics company operating in more than 60 countries, primarily through the CHEP brands. Its headquarters are located in Sydney. Their largest operations are in North America and Western Europe. The company’s main segments are: pallets, reusable produce crate (RPCs) and containers. It provides services to customers in the fast-moving consumer goods industries space and also operates specialist container logistics businesses serving the automotive, aerospace, and oil and gas sectors. It employs more than 14,500 people and owns more than 550 million pallets, crates and containers through a network of more than 850 service centres.

(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
Shares Small Cap

Costa Group completes 2PH citrus acquisition after successful offering of $190m fund

Investment Thesis

  • Positive thematic play on food supply for a growing global and domestic population.
  • Berries, Mushrooms, Citrus, Tomato and Avocado are five major categories who leads market Positions via the recent acquisition.
  • Near term challenges could persist a little while longer (e.g extreme weather and drought).
  • Balance sheet risk has been removed with the recent capital raising. 
  • Continuation of execution of domestic berry growth program while china berry expansion is gaining momentum.
  • Given the number of downgrades, management will likely need to rebuild trust with its guidance and execution.

Key Risks

  • Weather conditions continue to deteriorate, putting pressure on earnings.
  • Earnings could deteriorate further, putting the balance risk at risk once more.
  • Weather-related crop damage or any significant increase in insurance costs. This risk is mitigated by CGC’s crop insurance (hail, wind, and fire) and structure insurance.
  • Any power outage resulting in crop destruction per incident.
  • Any significant increase in power costs, affecting earnings.
  • Any operational disruption caused by health and safety issues.
  • Any disruptions or problems with water, irrigation, or water recycling.
  • Negotiations with supermarkets giants cole (wesfarmers), Woolworths and independent grocers results in erosion of margins.
  • Increased costs due to lower water allocations.
  • Pricing pressures arising from either competitors or insufficient demand. 

1H21 Results Highlights

  • Revenue of $612.4m was in line with the pcp (or up +1.7 percent in constant currency), driven by International sales, which were up +25 percent due to improved pricing and yield in both regions, offset by Produce revenue, which was down -6.9 percent due to negative impacts in Citrus (Colignan hailstorm damage) and lower Mushroom and Tomato production.
  • EBITDA-S of $124.4 million increased by +4.3 percent. EBITDA-S increased by 9.7 percent in constant currency. Domestic berries outperformed the pcp, but this was offset by poor performance in Citrus, Tomato, and Mushroom, which was hampered by weather/production issues. Avocado performance fell short of expectations due to weak pricing following strong industry volumes.
  • RNPAT-S of $44.4m increased by 3.0% (or 13% in constant currency). Interest costs fell by 13% due to lower base rates and average debt, but were offset by higher D&A (up 2%). CGC also recognised $2.5 million in direct Covid-19 costs.
  • NPAT-S of $44.4m increased by 3.0% (or 13.0% in constant currency). Interest costs fell by 13% due to lower base rates and average debt, but were offset by higher D&A (up 2%). CGC also recognised $2.5 million in direct Covid-19 costs.
  • Declared interim dividend of 4.0cps. Statutory NPAT of $37.5 million.

Company Profile 

Costa Group Holdings Ltd (CGC) grows and markets fruit and vegetables and supplies them to supermarket chains and independent grocers globally. CGC has leading market positions in five core categories of Berries (Blueberries, strawberries and raspberries), Mushrooms, Citrus, Tomato and Avocado via the recent acquisition.

(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
Shares Small Cap

AUB Group Earnings remain resilient as ever despite uncertainty

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.

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. Further insurance price rise is expected by the analysts 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 payout ratio. Gearing ratio is reasonable, at 28.5% and below the firm’s maximum 45% ratio. AUB holds AUD 90 million in cash, which when included lowers gearing further. This is excluding customer cash for premium held by AUB but payable to insurers. EBITDA interest covers of over 16 times and the nature of its businesses being relatively low-risk. As per the analysts, AUB would be using operating cash flows to fund increased positions in existing broker partners, with provision to fund small acquisitions from cash on hand.

Bulls Say:
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, would boost 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.

Categories
Global stocks Shares

Woolworths Ltd (WOW) posted solid FY21 results along with off-market buy-back

Investment Thesis :

  • Leading market positions with strategic locations in areas with strong population growth.
  • Positively correlated with population growth throughout time.
  • Increasing digitalization to save costs and improve the supply chain’s efficiency.
  • For the core Australian Food segment, key leading indicators (such as basket size / goods per basket) are improving.
  • Customer metrics and transaction growth are both improving. 
  • The momentum of BIG W is expected to continue.
  • Capital management post Endeavour deal.

Key Risks:

  • The Food & Petrol business is seeing more margin pressure.
  •  Changing consumer preferences and purchasing trends, as well as increased retail competition.
  • Deterioration in balance sheet as a result of lower earnings.
  • Unfavourable fluctuation in AUD/USD (international sourcing).

Key highlights of FY 2021: 

Following the demerger of Endeavour Drinks, Woolworths Ltd (WOW) posted solid FY21 results and a $2 billion off-market buy-back. Relative to pcp:

  •  During the year Woolworth reported sales of $67,278 million were up 5.7 percent (online sales of $5,602 million were up 58.1 percent).
  • The  revenue of Woolworth  is from following segment (1)  Australian Food (2) ) New Zealand Food (3) ) New Zealand Food (4)  Discontinued operations.
  • In the year 2021 , 80%of  sales revenue of Woolworths (continuing operation )was from Australia amounting to $44,441m , 12% of sales revenue was from  new zealand zone amounting to $6,652,8% of revenue from BIG W amounting to $4,583 and  sales from discontinued operation “Endeavour Drinks” amounted $10167.
  • During the year, the firms EBIT was $3,663m, up by 13.7% EBIT from continuing operations  was $2,764m, up by 11.1% driven by a 9% increase from Australian Food and an increase of over 300% from BIG W.
  • Group EBIT margin was 5%, up by 28bps.
  • Cost of doing business increased 16bps due to higher CODB in NZ and higher contribution from Big, which operates on a higher CODB.
  • NPAT of $1,972m, up by 22.9%.
  • The Board declared a final dividend of 55cps which brings FY21 dividend to 108cps, up by 14.9%. Shareholders on the record date of 3 September 2021 are eligible for the final dividend of $0.55

$2bn off-market buy-back: WOW announced $2bn capital return via an off-market buy-back. The Buy-Back will be handled through a tender process. . Eligible Shareholders who choose to participate can offer to sell some or all of their Shares to WOW at:  (1) a discount to the Market Price of 10% to 14% (inclusive) at 1% intervals; or (2) the Buy-Back Price established by WOW after the tender process is completed (as a Final Price Offer). (1) a discount to the Market Price of 10% to 14% (inclusive) at 1% intervals; or (2) the Buy-Back Price (1) a discount to the Market Price of 10% to 14% (inclusive) at 1% intervals; or (2) the Buy-Back Price, established by WOW. The Buy-Back Price will be determined as the lowest price at which WOW can buy back the targeted amount of capital.

The buyback period begins on September 13 and ends on October 15, 2021. On October 21, 2021, the Buy-Back Price will be paid to successful Eligible Shareholders.

Shareholders benefits from buyback: The Buy-Back Price paid for each share purchased back will be $4.31, with the remaining being a fully franked dividend. The Buy-Back Price may be lower than the price at which one might sell their shares on ASX, but  after-tax return may be greater because of personal tax status and the tax treatment of the Capital Component, dividend Component, and franking credits.

Company Profile:

Woolworths Limited (WOW) is an Australian retailer that operates supermarkets, speciality and discount department shops, as well as liquor and electronics stores. Woolworths also produces processed foods, exports and wholesales food, and sells gasoline. The corporation also owns and runs hotels that feature pubs, restaurants, lodging, and gambling.

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

Despite a rise in earnings, the share price of Nine Entertainment has dropped.

20025825 - closeup image of businessman drawing 3d graphics

Investment Thesis

  • Upside potential to NEC’s share price from investors ascribing a higher value for Stan, NEC’s subscription video of demand (SVOD). Stan is now cash flow positive and profitable, with margins having the potential to surprise on the upside. 
  • Relatively attractive dividend yield of ~4%. 
  • NEC is a now a much more diversified business, with revenue not dominated by traditional FTA TV but also attractive digital platforms and assets. 
  • Cost out strategy – looking to remove $230m in structural costs.  
  • Corporate activity given NEC’s strategic assets.
  • Trading below our valuation.

Key Risks

We see the following key risks to our investment thesis:

  • Competitive pressure in Free to Air (FTA) TV and SVOD. 
  • Stan growth (subscriber numbers or breakeven point) disappoints market expectations. 
  • Structural decline in TV audiences continues to impact sentiment towards the stock. 
  • Deterioration in advertising markets.
  • Cost blowouts in obtaining new programming/content.
  • Increased competition from Netflix and Disney.

FY21 Results Highlights. Relative to the pcp: 

  • Revenue of $2,331.5, up +8%. 
  • Group EBITDA of $564.7m, was up +43%. 
  • NPAT of $277.5m, was up +76%, which translates to fully diluted EPS of 15.3%, up +83%.
  • The Board declared a final dividend per share of 5.5cps which brings full year total dividends to 10.5cps, up +50%, and equates to a payout ratio of ~69% (in line with management’s policy of paying ~60-80% through the cycle).

Current trading environment and outlook

NEC did not provide specific quantitative FY22 earnings guidance but did provide significant colour: 

  • “Nine started the new financial year strongly, well supported across our platforms by advertisers from all categories. In the current quarter, Nine’s metro FTA ad revenue is expected to be up almost 20% on the same quarter last year. Forward bookings remain ahead of same day last year, with positive market momentum continuing into Q2, notwithstanding more difficult comparables, including timing of the NRL. The FTA ad market has recovered more quickly and convincingly than previously expected. FY22 will see the return of some cyclical costs – Nine currently expects FTA costs in FY22 to be ~3% higher than FY21”. 
  • 9Now: “continues its strong growth trajectory, with around 70% revenue growth in July (on pcp). Nine expects positive momentum to continue through the rest of FY22, as 9Now establishes its place in the broader digital video market”.
  • Nine Radio: “Notwithstanding the short-term impact of the lockdown on the radio market, Nine Radio’s Q1 ad revenues are expected to grow in the double-digits (%), with further share improvement across both agency and local ad sales. Coupled with Nine Radio’s restructured cost base, this is expected to underpin strong profit leverage as the ad market recovers”. 
  • Stan: “Total costs for Stan Sport in FY22 are now expected to be at the lower end of the $70-90m range previously cited. Whilst this investment will reduce Stan’s overall EBITDA in the short term (in FY22 combined EBITDA for Stan Entertainment and Stan Sport is expected to be in the low double-digit millions of dollars), over the medium and longer term, it is expected to significantly grow earnings”. 
  • Publishing: “As previously announced, Nine expects growth of $30-40m in Publishing EBITDA in FY22 on FY21”.

Company Description  

Nine Entertainment Co (NEC), through its subsidiaries, broadcast news and current affairs, sporting events, comedy, entertainment and lifestyle programs. Nine Entertainment serves customers throughout Australia. NEC has repositioned itself from a linear free-to-air broadcaster, to a creator and distributor of cross-platform, premium content. While the channel Nine Network remains core, it is now complemented by subscription video on demand (SVOD) provider Stan, a live streaming and catch-up service 9Now, digital network nine.com.au and array of digital content.

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

The share price of Pointsbet has dropped as a result of the FY21 performance.

Investment Thesis

  • U.S. growth opportunity – the U.S. online sports betting market continues to open following the 2018 supreme court ruling which legalise the industry. Market growth estimates forecast the industry to grow to US$51bn by 2033.  
  • Strong management team with a solid track record – the ability to grow market share in a competitive and mature market of Australia gives us some confidence the management team have the right strategy in place to build share in the U.S. 
  • Proprietary technology stack – The speed and useability are key differentiating factors. PBH operates proprietary technology, which it developed inhouse. This means new modifications and updates are easier to implement (i.e., more control) with inhouse tech versus outsourced (i.e., having to go to an external provider each time with an update). 
  • Cross sell opportunities with iGaming – PBH’s recently launched iGaming product (online casino) is already highlighting cross-sell opportunities to its customers.

Key Risks

We see the following key risks to our investment thesis:

  • Rising competitive pressures.
  • Adverse regulatory change in key operating jurisdictions (Australia / U.S.). 
  • Loss of market share in key regions or growth rate fails to meet market expectations. 
  • Higher than expected costs – especially around investment in sales & marketing to drive market share. 
  • Trading on high PE-multiples / valuations means the Company is more prone to share price volatility. 
  • Cyber-attack on PBH’s platform. 

FY21 headline results. 

  • PBH group revenue of $194.7m was up +159% YoY. 
  • Gross profit of $87.6m was up +129% YoY. 
  • PBH made heavy investment in sales and marketing over the year, with S&M expense of $170.7m significantly above the $38.2m in pcp. The Australian segment accounted for $51.4m (higher due to brand campaign with Shaquille O’Neal). However, the U.S. accounted for most of the uplift in marketing spend (total $119.2m) given the increased number of operating jurisdictions. As the footprint in the U.S. continues to expand, management noted the market spend will continue to increase. 
  • At the end of the period, Australia has 196,585 cash active clients (vs. 90,422 in pcp) and the U.S had 159.321 cash active clients (vs 20,939 in pcp). 
  • Group normalised EBITDA for the year was a loss of $156.1m vs loss of $37.6m in the pcp, as PBH continues to invest in the business to scale the U.S. business and invests in its technology stack.
  • Australian Trading segment reported revenue of $150.7m (vs $68.2m in pcp) and EBITDA of $9.2m (vs $6.9m in the pcp). A solid result given the significant increase in marketing spend over the year. 
  • USA segment reported revenue of $42.3m (vs $7.0m in pcp) and EBITDA loss of $149.6m (vs loss of $38.2m in pcp). During the year, PBH operational in six U.S. states: New Jersey, Iowa, Indiana, Illinois, Colorado, and Michigan. 
  • Balance sheet is in a good position to support investment in growth, with pro forma cash balance of $665.2m (post the July 21 capital raising).

Company Description  

PointsBet Holdings Ltd (PBH), founded in 2015, is a corporate bookmaker with operations in Australia and the United States (New Jersey, Iowa, Illinois and Indiana). PointsBet has developed a scalable cloud-based wagering platform which offers customers sports and racing wagering products. PBH’s key products include fixed odds sports, fixed odds racing and PointsBetting.

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