Category: Research

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Fixed Income Fixed Income

Suncorp’s stock is in the spotlight following the announcement of a $350 million capital round.

final margin set at 2.90%. The margin is also in line with the recent issuances from Westpac Capital Notes 8 (WBCPK) and Macquarie Capital Notes 3 (MBLPD) (MBPLD are trading largely in line with par value since listing). We note this is a new issuance and therefore has no rollover or reinvestment plan attached to it. The underlying issuer, Suncorp Group, is a strong business and a regular issuer of debt in the market. We would have liked to have seen the final margin at the upper end of the indicative range (3.1% above BBSW). However, the demand for this relatively small issuance ($375m market cap) is also likely to be high given the issuer is someone other than the big 4 banks (although the sector exposure is the same, therefore we are not fully convinced of the diversification benefits here). Our positive view on these is a relative call.

Security Description: 

SUNPI securities are fully paid, subordinated, perpetual, redeemable, convertible, unsecured, non-cumulative, subject to a capital trigger event and non-viability trigger event, listed securities. The securities are scheduled to convert into ordinary shares on 17 Dec 2030 (subject to the conversion conditions being satisfied). 

Issuer Description: 

Suncorp is an ASX-listed company and financial services provider in Australia and New Zealand, and the ultimate parent company of the Suncorp Group, with a market capitalisation of approximately $16 billion as at 27 August 2021. The Suncorp Group offers insurance and banking products and services in Australia and New Zealand. 

KEY RISKS

  • The market price of SUNPI may fluctuate due to various factors that affect financial market conditions. It is possible that SUNPI may trade at a market price below their Issue Price of $100. Interest Rate will fluctuate with changes in the market rate.
  • Significant economic shock to the Australian economy, including a severe and prolonged downturn in the Australian economy. These capital notes are not deposit liabilities or protected accounts.
  • There is a risk that Distributions will not be paid given they are discretionary.
  • Unless exchanged on or before that date, SUNPI are expected to Convert into Ordinary Shares on the Mandatory Conversion Date. However, there is a risk that Conversion will not occur on the Mandatory Conversion Date because the Scheduled Conversion Conditions are not satisfied due to a large fall in the Ordinary Share price relative to the Issue Date VWAP, or if Ordinary Shares cease to be quoted on ASX or have been suspended from trading for a certain period. Mandatory Conversion may therefore not occur when scheduled or at all. The Ordinary Share Price may be affected by transactions affecting the share capital of Suncorp Group, such as rights issues.
  • The market price of SUNPI (and the Ordinary Shares into which they are expected to Convert) may be affected by Suncorp Group’s financial performance and position.

Interest Rate: Margin of 2.9% above the 90day BBSW rate. 

Interest / Distribution Payments: Discretionary, Non-cumulative and subject to following conditions: (1) Distributions will be paid if Suncorp’s capital requirements are sufficient as required by APRA. (2) Distributions will not cause Suncorp to become insolvent. (3) APRA not objecting to distributions being paid. Distributions are expected to be fully franked but not guaranteed.

Mandatory Conversion: On 17 Dec 2030, SUNPI Holders will receive ordinary shares worth $101 per note. Conversion may not occur on 17 Dec June 2030, being the first possible Mandatory Conversion Date, or at all if the Conversion Conditions are not satisfied.  Holders have no right to request that their Notes be Converted, Redeemed or Transferred.  Holders would need to sell their Notes on ASX at the prevailing market price to realise their investment. That price may be less than the Face Value (initially $100 per Note) and there may be no liquid market in the Notes.

Non-Viability Trigger Event:  In case of the event that APRA considers Suncorp non-viable, these notes will be written off (in all or in part) or Converted into Ordinary Shares and Holders will hold Ordinary Shares and rank equally with other holders of Ordinary Shares in a subsequent Winding Up of the Bank. Following a Non-Viability Trigger Event, if Conversion does not occur within five Business Days for any reason, those Capital Notes 4 that are required to be Converted will be Written-Off and Holders will not receive any Ordinary Shares with respect to those Capital Notes 4.

Ranking: In the event of a Winding Up, if the Notes are still on issue and have not been Redeemed or Converted, they will rank ahead of Ordinary Shares, equally among themselves and with all Equal Ranking Capital Securities and behind Senior Creditors (including depositors and holders of Westpac’s senior or less subordinated debt). This means that if there is a shortfall of funds on a Winding Up to pay all amounts ranking senior to, and equally with, the Notes, Holders will lose all or some of their investment.

The above is a brief summary of the terms and risks. Investors should read the PDS for more information.

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

Wesfarmers reported solid revenue in FY 21

Global network and financial technology concept.

Investment Thesis:

  • Ongoing momentum in discretionary spending, fueled by rising property values.
  • Diversified asset base with core assets continuing to grow.
  • Expect improved performance from Target and Industrials business.
  • Continued emphasis on shareholder return, including a high yield.
  • A capable management team.
  • A strong sense of balance allows to seize opportunities as they emerge.
  • Potential  Capital management initiatives.

Key Risks:

  • Due to competitive pressures, margins are eroding.
  • Bunnings earnings have been disappointing.
  • The macro picture is deteriorating, resulting in decreasing retail sales activity and volumes.
  • Metrics on the balance sheet have deteriorated.
  • Adverse movements in AUD/USD.

Key highlights of FY21: Relative to the pcp:

  • During the year WES revenue rose by 10% to $33.9bn relative to previous year.
  • During the year 2020, WES revenue from continuing operation arises broadly from the following segment : 62% from Bunnings,19 % from kmart group, 11% from WesCEF , 6%from Office work  and 2% from Industrial and safety.
  • Bunnings delivered a 15% increase in revenue to $16,871m. Kmart Group revenue increased by 8.3% to $9,982m. Officeworks revenue increased by  8.7% to $3,029m . Wesfarmers Chemicals, Energy &Fertilisers (WesCEF) revenue increased by 2.9% to $2,146m.  Industrial and Safety saw revenue increased by 6.3% to $1,855m
  • NPAT from continuing operations increased by 16.2 % to $2.4 billion (excluding major items).
  • Operating cash flows of $3,383m were 25.6% lower over pcp as strong earnings growth businesses was offset by the normalisation in working capital positions across the retail combined with gross capex of $896m (+3.3% higher over pcp) due to increased investment in data and digital initiatives across all divisions, the conversion of Target stores to Kmart stores, as well as the ongoing development of the Mt Holland lithium project .
  • The company announced a $2.3 billion capital return in the form of a $2 per share payment on top of a final dividend of 90 cents per share, bringing the total payout for the year to $3.78 per share.
  • The Board declared a fully franked final dividend of 90cps, taking the full-year dividend to 178cps (up by 17.1% over pcp) and recommended a return of capital of 200cps, equating to total shareholder return for the year of 378cps.
  • The Company maintained significant balance sheet flexibility, ending the year with a net cash position of $109m.

Company Profile

Wesfarmers Limited (WES) operates convenience stores, home improvement stores, office supply stores, and department stores, among other businesses. Chemicals and fertilisers, industrial and safety items, and coal are all part of the industrial sector of the corporation. Wesfarmers has a workforce of about 220,000 workers.

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

IDP Education reported low earnings due to pandemic

Investment Thesis:

  • Global re-open and vaccine roll-out acts as leverage for IDP Education.
  • The company is expected to be benefitted from margin expansion (computer- based IELTS), network expansion (latest inclusion of IELTS test centres in Ireland, Poland, Chile and Peru and student placement offices in Pakistan and Canada).
  • IDP’s English Language Testing stream (IELTS) has a strong reputation as the world’s most trusted English language test for study, work and migration.  
  • Solid margin and strong earnings/revenue growth/strong cashflow generation is maintained by IDP.
  • Strong management team.
  • Growth opportunities at global level due to international student population and education industry. 
  • Introduction and planned roll out of online IELTS delivery to provide opportunities for stronger growth.
  • Strong balance sheet, with high liquidity. 
  • Substantial margin opportunity is unlocked by potential restructuring with British Council  

Key Risks:

  • Periodic growth cannot be predicted with IDP’s business model 
  • Future economic lock-downs to Covid-19
  • Risk of currency conversion
  • In order to justify the valuations, high growth rate should be met  
  • Threat of a new entrant or competition from the existing players

Key Highlights:

  • FY21 Earnings were impacted by the pandemic, with adjusted EBIT of $71.8m, which was down by 31% over the pcp (previous corresponding period).
  • IELTS volumes were up 5% despite ongoing disruptions at the operational level due to the on-going pandemic and government-imposed restrictions.
  • The placement volumes of students to countries except Australia reduced by 12% relative to FY20 in spite of the uncertainties that were associated with travel and physical learning
  • Digital Marketing revenue jumped 8% to $30m driven by institutional clients looking up to IDP’s global digital platform for marketing and data insights.
  • Strategic acquisition in a growth market in British Council’s IELTS operation in India for £130m, which is highly strategic for IDP and provides several benefits like increased exposure to the high-growth Indian IELTS market; simplified distribution arrangements providing the opportunity to simplify and improve the delivery of IELTS to test takers in India.
  • The highlights by segments are stated as below:
  • English Language Testing: Revenue of $325.6m, which was up by 8%
  • Student Placement: Revenue of $143.3, was 22% lower; for Australia, revenue was 34% weaker at $59.7m, due to border closures relating to Covid-19. For Multi-destination, revenue was -17% weaker at $83.5m.
  • English Language Teaching: Revenue of $20.2m, which is -23% lower
  • Digital Marketing and Events: Revenue of $36.4m, which is -2% lower
  • Others: Revenue of $3.2m was -20% weaker

Company Profile:

IDP Education Ltd (IEL) offers: (i) Student placement: student recruitment/placement in 93 offices across 30 countries into  approximately 600 universities, schools and colleges globally in 5 destination countries; and (ii) co-owner of IELTS, an English language proficiency test which foreigners must pass in order to obtain certain visas and permanent residency in Australia. IEL is 50% owned by Education Australia Ltd – a business in which 38 Australian universities own a 50.1% stake.

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

Despite pandemic disruptions, NIB Holdings produce strong FY21 results

85215903 - attractive businessman using mobile phone while having lunch

Investment Thesis:

  • Increased demand for health care services due to ageing population of Australia, thereby contributing increased dependence on private health care insurers. NHF offers exposure to the business model of providing a funding mechanism for the high-growth health care sector.
  • Healthcare expenditure is expected to rise by 5-10% per annum, so government cannot offer healthcare services to people without increase in tax.
  • The average premium rates increased at the rate of 5 – 6% per annum. 
  • Policyholder growth and exposure to speed up the investments, NHF is expected to offer double-digit growth in medium term.
  • Strong members in management.
  • Chalking out budget plan, which improves the company’s expense ratio. 
  • PHI (Protected Health Information) is promoted by giving incentives and benefits. 
  • Joining with Tasly Holdings (Chinese Pharmaceutical Company) in Joint Venture and making international presence through the same.

Key Risks:

  • Increase in competition among top 6 players
  • Putting policy growth targets at risk 
  • Marketing expenses are anticipated to go high, thereby straining earnings growth.
  • Unexpected decline in policyholders in spite of providing incentives 
  • Rapid increase in healthcare spending and health services demand from people have left Australian Government struggling.
  • Registered health insurance firms are unable to increase premium rates without prior approval from the Government/Minister for Health/PHIAC/APRA. Because of this, NHF’s ROE and margins would be exposed to political process and pressures if the company makes large profits.
  • Regulatory changes including tax incentives and benefits which encourage take up of PHI. 
  • Due to poor insurance policy design, aging population, and costs of new medical equipment, procedures and treatments; lapse rates and claims inflation would be higher than expected.
  • Negotiations not done rightly with healthcare providers (private hospital operators) which may result into unfavorable contractual terms;
  • Investment returns might be lower than expected.

Key Highlights:

  • nib holdings Ltd. (NHF) reported strong FY21 results in spite of Covid-19, however it was in line with management expectations
  • Revenue grew by +2.9% to $2.6bn and Group operating profit (UOP) of $204.9m, which is up by 39.5%
  • NPAT of $160.5m was mainly driven by net investment income of $51.8m.
  • Statutory EPS of 35.2 cents, which was +82.4% higher.
  • ROIC of 19.1% which was similar to pre-pandemic levels.
  • Final dividend of 14cps fully franked (up from 4 cents), which brings the full year dividend to 24cps.

Company Profile:

nib Holdings Limited (NHF) is the Australian private health insurer. NHF operates in four divisions which are private health insurance, life insurance, travel insurance and related health care activities.

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

Nanosonics achieved a strong FY21 performance

Investment Thesis

  • Ultrasound disinfection is required. To avoid cross-infection, ultrasound transducers must be disinfected between patients. Trophon EPR outperforms traditional methods (soak, spray, wipe, or other manual reprocessing/disinfection methods). Traditional soaking, for example, takes 25 minutes, whereas Trophon disinfects ultrasound probes in 7-8 minutes.
  • Potential addressable installed base of 120,000 Trophon EPR units worldwide (40,000 each in the US, Europe, and the Rest of the World).
  • Higher level disinfection required to reinforce the drive path for new guidelines and regulations. New Guidelines in Australia and New Zealand for example, establish Trophon as the gold standard in high-level disinfection.
  • Trophon become standard of care and direct sales team driven for strong adoption as its continuous growing in North America.
  • With the demand for safety inventory, GE Healthcare has retained a large and credible distribution partner.
  • In the United Kingdom, the Managed Equipment Service (MES) business model is overcoming client capital budget constraints.
  • Progress is being made in terms of geographic expansion.
  • A strong balance sheet will help to support the growth strategy.

Key Risks

  • Increased competition as new entrance entered the market. 
  • Non-receptive markets where NAN’s product is regarded as excessive when compared to traditional disinfection methods such as using sterile wipes.
  • Key customer risk, as one of NAN’s largest customers
  • Product flaws or incidents that necessitate recalls.
  • Unfavorable foreign currency movements in the AUD/USD.
  • Poor R&D execution with no progress.
  • Because of the nature of the business, it is prone to quickly reaching a natural penetration rate, where growth becomes subdued.

FY21 results highlights

  • Revenue of $103.1m, up +3.0 percent (or +12 percent in constant currency), driven by recovery in 2H21 with revenue of $60.0m, up +39 percent (or +50 percent in CC) compared to 1H21.
  • NAN’s global installed base of 26,750 units increased by +13 percent or 3,030 units (with 2H new installed base increasing by +20 percent compared to 1H21 with 1,650 units installed).
  • Revenue of $76.4m, up +9% from 1H21 revenue of $42.7m, up +27% from 1H21, driven by a recovery in ultrasound procedure volume to pre-Covid-19 levels.
  • Operating profit before tax of $11.0m was -11 percent lower than the $12.4 m pcp, driven by 2H21 profit before tax $10.8m which grew as total revenue increase +39% in 2H21 versus 1H21.
  • NAN retained a strong balance sheet position to fund growth initiative with net cash position improving $4.2 to $96.0m.
  • Revenue of $26.7 million was down -11 percent, but 2H revenue of $17.3 million was up +84 percent compared to 1H21, with installed base growth recovering and GE Healthcare capital purchases increasing.
  • EBIT of $10.8 million fell -7 percent. Operating expenses increased by 12% to $70.8 million, primarily due to $20.3 million in 4Q expenses as NAN returned to its intended investment run rate.
  • The $5.9 million in free cash flow was driven by $8.3 million in 2H free cash flow, which offset a $2.4 million net cash outflow in 2H21.

Company Profile 

Nanosonics Ltd (NAN) is an ASX-listed company which focuses on developing and commercialising infection control devices. NAN’s first device, the trophon® EPR is a proprietary automated device for low temperature, high level disinfection of ultrasound probes. The device is approved for sale across major markets including, Australia and New Zealand, US, Europe, Japan, Hong Kong, and South Korea. The trophon® EPR is sold through distributors including GE Healthcare, Philips, Samsung, Siemens Toshiba and Miele Professional.

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

Ramsay Health Care reported solid earnings in fiscal year 2021

Investment Thesis :

  • Holds a leading positions in Australia, France and Scandinavia.
  •  Earnings will begin to rise in FY22-24 as a result of pent-up demand on waiting lists.
  •   Has a well-diversified portfolio with a large scale.
  • Australia’s largest private hospital operator, with strong industry fundamentals  
  • Favourable macro-industry trends include an ageing and growing population, the spread of chronic disease, and more innovation, treatment, and technology, all of which are driving demand to private hospital.
  • Supportive government policy (tax incentive for people to get private health insurance). 
  • Ongoing brownfield program driving earnings and offshore earnings growth
  • Significant international operation paves way for the firm to grow internationally in near future.
  •  Attractive industry dynamics with high entry barriers for new firms.

Key Risks:

  • Competitive risk (new hospitals, new beds), from listed and unlisted hospital operators
  • Brownfield projects fail to deliver the earnings uplift.
  • Cost pressures (negotiating price increases with private health insurance companies).
  • Government policy on private health insurance is changing.
  • Execution risk (able to get the uplift in earnings from brownfield projects).
  • Snap economic lockdowns due to Covid-19
  • Currency risk

Key financial highlights of year2021:

In relative to the previous corresponding period i.e pcp (herein pcp is year 2020)

  • During the year 2021, RHC revenue increased by 3.9% to $12.4bn.
  • The increase in revenue was driven by strong earning growth across all of its geographical segments-i.e from Asia Pacific, UK and Europe.
  • In Asia Pacific, revenue from patients increased by 7.8% to $5.4bn reflecting strong growth in surgical admission (2) In U.K, revenue increased by 10.2% to $1,024.1m and included payments from the NHSE of $417.6m representing net cost recovery for services provided by Ramsay to the NHSE during the year (3) Europe revenue increased by 6.9% to $6,839.9m and included government grants of $428.3m and was impacted by 80m euros from the sale of a portfolio of nine German hospitals in 1H21
  • EBIT increased by 29.1% to $1.1bn and statutory profit increased by 58.1% to $449m, reflecting a strong increase in admissions.
  • The Board declared a fully franked final dividend of 103cps, bringing the FY21 dividend to 151.5cps (up by 142.4 %) and representing a payout ratio of 79 percent of statutory profit.
  • During the underlying period ROCE improved by 60bps to 9.3% and ROIC gained by 260bps to 7%.
  • Operating cash flow fell by 11.9 % to $1.5 billion, owing to changes in working capital as a result of cash loans from the French government while FCF fell by 14.8 percent to $85,
  • Financial metrics improved, with net debt (excluding lease liabilities) fallen by 15 % to $2.4 billion, lowering leverage to 3.7 times from 4.4 times. 

Company Profile:

Ramsay Health Care Ltd (RHC) is a company that provides medical services. RHC has hospitals, day surgery centres, treatment facilities, rehabilitation centres, and psychiatric units all around the world. It has about 500 sites throughout Australia, the United Kingdom, France, Sweden, Norway, Denmark, Germany, Indonesia, Malaysia, Hong Kong, Italy, and the Nordic countries.

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

Whispir’s strong FY21 results seems positive for the stock

Investment Thesis

  • Sizeable market opportunity – in the U.S. alone WSP TAM is US$4.7bn (WSP North American target markets) vs total U.S. CPaaS TAM of US$98bn.
  • Established a solid foundation to build from – the Company has over 800 customers worldwide with leading brand names.  
  • Structural tailwinds – ongoing automation and digitization. 
  • Increasing direct sales penetration.
  • Attractive recurring revenue base via subscriptions. 
  • Investment in R&D to continue developing the Company’s competitive position and enhance value proposition with customers.   

Key Risks

We see the following key risks to our investment thesis:

  • Rising competitive pressures.
  • Growth disappoints the market, given the company trades on high valuation multiples – growth in subscriptions, new customers and penetration of existing clients. 
  • Product innovation stalls and fails to resonate with customers. 
  • Emergence of new competitors and technology.
  • Key channel partnerships breakdown.

FY21 key trading metrics 

  • FY21 ARR (annualized recurring revenue) was up +28.5% to $53.6m, driven by increased spending by installed customer base and addition of new customers. Recurring revenue is now at 96.7%.
  • Customer revenue retention was 115.9%, with management noting that whilst customers may initially engage for single communication solutions, once implemented with operational processes, management find that new applications / use cases across client’s organization. 
  • Over the year, WSP added 171 net new customers (up +27% YoY), bringing total customer numbers to 801. An attractive component of WSP’s solution is the Company’s “low code-no code” platform, which easily integrates with existing inhouse client IT systems and can be deployed within hours. This is one of our key competitive advantages.
  • New customer acquisition costs were down more than 50% due to higher sales efficiency and a growing proportion of digital direct sales (self-discovering the platform). 
  • LTV / CAC (ratio of lifetime value to customer acquisition costs) improved to 26.1x (from 23.7x). 
  • Gross revenue churn (3 month average) at Jun-21 was 2.4%.

Company Description  

Whispir Ltd (WSP), founded in 2001, is a global enterprise software-as-a-service (SasS) company. WSP provides a communications workflow platform that automates interactions between businesses and people. The Company has over 800 customers, operates in 60 countries and more than 200 staff globally. WSP operates in an emerging subset of the enterprise communications SaaS market known as Workflow Communications-as-a-Service (WCaaS). WSP currently solves two communication problems: (1) Operational Messaging – engaging with employees; and (2) External Messaging – engaging with customers. WSP operates in 3 key markets – Operational messaging (size $8bn), API messaging (size $32bn) and Marketing messages (size $66bn).

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

SPDR S&P/ASX200 Fund : A well diversified fund providing exposure to Australian market at low cost

Investment Objective:

The State Street SPDR S&P/ASX200 is the first ASX-listed ETF, launched in the year 2001.The SPDR S&P/ASX 200 Fund aims to closely match with the results of the S&P/ASX 200 Index before fees and expenses.

Investment strategy:

The fund aims to give exposure to core Australian stocks. The portfolio is well-diversified, covering approximately 90% of the Australian market in terms of capitalisation. The fund aims to provide both capital growth and income by investing in ASX-listed firms that are liquid. Herein, an investor can get diversified exposure to Australian share market at a low cost and yield performance of the 200 largest and most liquid publicly listed entities in Australia.

The entity responsible for the fund is State Street Global Advisors, Australia Services Limit.

Portfolio Objective:

  • Diversified exposure to Australian share.
  • Provides capital appreciation and growth if funds are invested over long term basis.
  • Provides adequate diversification to investors by investing in a single fund.

Fundamentals:

  • The size of the fund is $4.9bn and no. of holdings  in 203 shares of Australia.
  • The total market capitalization of the fund is AUD $2,196,388.80M as on 31/8/2021.
  •   Minimum subscription or redemption of 25,000 units is available to investor.
  • The fund provide an earnings growth of 10.66% and return on equity is 11.63%.
  • The equity (dividend) yield of the fund is 3.37% and its P/E ratio is 19.34.
  • Generally, the fund make distributions to investors on  quarterly basis.
  • The  management fee of the fund is 0.13%  p.a. of NAV.

Positives:

  • Diversification with low cost
  • Fast, flexible trading
  • Transparency

Negatives:

  • Failure to meet investment objective.
  • Exposure to various risk such as regulatory, credit, market, company,industry, derivative etc.
  • During the holding period the portfolio value may go up and down due to market volatility.

Company Profile:

State Street is a global asset manager and credited for creating the world’s first ETF and being an index pioneer.  Over the past forty years the company has built a universe of active and index strategies across asset classes to help investors achieve their goals.The company has $3.59 trillion asset under management, 23 million clients across 62 countries.

ETF Performance…

Figure 1: Fund performance as at 31 July 2021

(%)FundBenchmark
1-month+1.09%+1.10%
3-months+5.78%+5.80%
1-year+28.52%+28.56%
3-year (p.a.)+9.37%+9.48%
5-year (p.a.)+9.90%+10.05%
Since Inception (p.a.)+8.23%+8.54%

Source:State Street. 

ETF Positioning…

Figure 2: Top ten holdings

Source: State Street

   Figure3: Sector Allocation                       

     Source: State Street

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

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.