Category: Shares

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Shares Small Cap

Airbnb Limiting Pebblebrook To Push Its Rates

Business Strategy and Outlook

Pebblebrook Hotel Trust is the largest U.S. lodging REIT focused on owning independent and boutique hotels. After Pebblebrook merged with LaSalle Hotel Properties in December 2018, the company owns 53 upper-upscale hotels, with more than 13,000 rooms located in urban, gateway markets. Pebblebrook’s combined portfolio has a higher revenue per available room price point and EBITDA margin than its hotel REIT peers. 

The recent merger with LaSalle provides Pebblebrook some new avenues to create value for shareholders. The company doubled in size while taking on only a portion of the general and administrative costs, making the combined company more efficient. Pebblebrook’s CEO, Jon Bortz, previously ran LaSalle and acquired many of the hotels in that portfolio. His knowledge of those hotels combined with management’s demonstrated ability to maximize margins should allow him to implement cost-saving initiatives that drive up margins. Additionally, management has begun an extensive renovation program across both the LaSalle portfolio and the legacy portfolio that will drive EBITDA gains over time. 

In the short term, the coronavirus outbreak significantly affected the operating results for Pebblebrook’s hotels, with high-double-digit revPAR declines and negative hotel EBITDA in 2020. However, the rapid rollout of vaccinations allowed leisure travel to quickly return, driving high growth in 2021. It is held the company should continue to see strong growth in 2022 and beyond as business and group travel eventually returns to 2019 levels by 2024 in analysts base-case scenario. However, there are several factors that will remain headwinds for hotels over the long term. Supply has been elevated in many of the biggest markets, and that is likely to continue for a few more years. Online travel agencies and online hotel reviews create immediate price discovery for consumers, preventing hotels from pushing rate increases even though it is nearing full occupancy on many nights. Finally, while the shadow supply created by Airbnb doesn’t directly compete most nights, it does limit Pebblebrook’s ability to push rates on nights when it would have typically generated its highest profits.

Financial Strength

Pebblebrook is in solid financial shape from a liquidity and a solvency perspective after the merger with LaSalle, but it is alleged that additional assets sales will put the company in great financial shape. The company seeks to maintain a solid but flexible balance sheet, which is anticipated will serve stakeholders well. Pebblebrook does not currently have an unsecured debt rating. Instead, it uses secured debt on its high-quality portfolio and takes out unsecured term loans. Debt maturities in the near term should be manageable through a combination of refinancing and the company’s free cash flow. Additionally, the company should be able to access the capital markets when acquisition opportunities arise. It is projected 2024, the year it is likely operations will fully return to normal, net debt/EBITDA and EBITDA/interest will be roughly 7.4 and 4.2 times, respectively, both of which are slightly outside of the long-term range for the company but should continue to improve over time.As a REIT, Pebblebrook is required to pay out 90% of its income as dividends to shareholders, which limits its ability to retain its cash flow. However, the company’s current run-rate dividend is easily covered by the company’s cash flow from operating activities, providing plenty of flexibility for capital allocation and investment decisions. It is held Pebblebrook will continue to be able to access the capital markets given its current solid balance sheet and its large, higher-quality, unencumbered asset base.

Bulls Say’s

  • Potentially accelerating economic growth may prolong a robust hotel cycle and benefit Pebblebrook’s portfolio and performance. 
  • The acquisition of the LaSalle Hotel Trust portfolio provides management many renovation opportunities to drive revenue and margin growth. 
  • After the merger, Pebblebrook’s larger size could increase the company’s negotiating power with online travel agencies.

Company Profile 

Pebblebrook Hotel Trust currently owns upper-upscale and luxury hotels with 13,247 rooms across 53 hotels in the United States. Pebblebrook acquired LaSalle Hotel Properties, which owned 10,451 rooms across 41 U.S. hotels, in December 2018, the company current Pebblebrook CEO founded in 1998, though management has sold many of those hotels over the past few years. Pebblebrook’s portfolio consists mostly of independent hotels with no brand affiliations, though the combined company does own and operate some hotels under Marriott, Starwood, InterContinental, Hilton, and Hyatt brands. 

(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

Qantas Airways – Omicron impact on 2H22 underlying EBITDA of ~$650m

Investment Thesis:

  • Attractive way to play the Covid reopen trade for investors.  
  • Aiming for all segments to deliver return on invested capital > weighted average cost of capital.
  • Strong position in the domestic market (Qantas Domestic and Jetstar continue to remain the two highest margin earning airlines in the domestic market).
  • Jetstar is well positioned for growth and rising demand in Asia. 
  • Partnership with Woolworths for Loyalty bodes well for membership and earnings.
  • Oil price hedging in FY22 could contribute to performance.
  • Increased competition in the international segment.
  • Relative to peers, strong balance sheet strength; investment grade credit rating.

Key Risks:

  • Disasters that could hurt the QAN brand.
  • Earnings recovery gets pushed out again due to travel restrictions or return of another Covid-19 variant. 
  • Ongoing price led competition forcing QAN to cut prices affecting margins.
  • Leveraged to the price of oil. 
  • Adverse currency movements result in less travel.
  • Labor strikes. 
  • Depressed economic conditions leading to less discretionary income to spend on travel. 

Key Highlights:

  • Omicron impact on 2H22 underlying EBITDA of ~$650m (after mitigations) with operating expenses for 2H22 to include ~$180m of inefficiencies and ramp up costs.
  • Domestic capacity to be 68% of pre-Covid levels in 3Q22, increasing to 90-100% in 4Q22, equating to total FY22 capacity of ~60%.
  • International capacity to be 22% of pre-Covid levels in 3Q22, increasing to 44% in 4Q22, equating to FY22 capacity of 18%.
  • Loyalty on track to deliver more than $1bn gross cash receipts in FY22 and remains committed to its target of $500-600m underlying EBIT by FY24 after returning to double-digit growth by end of CY22.
  • Net capex (excluding land proceeds) in FY22 of $850m and in FY23 of $2.3-2.4bn.
  • Underlying D&A in FY22 of $1.8bn.
  • Net debt within the $4.4-5.5bn target range by end of FY22 and at the bottom half of range from FY23 onwards.
  • The Recovery Plan delivered $840m in savings since the start of the program and remains on track to deliver greater than $900m by the end of FY22.
  • Balance Sheet repair continued with net debt reduction of -9.8% over pcp to $5.5bn (now within target range), refinancing A$300m bond maturing in May 2022.
  • Total liquidity of $4.3bn including $2.7bn cash and committed undrawn facilities of $1.6bn maturing in FY23 and FY24.
  • Investment grade credit rating of Baa2 from Moody’s maintained. 
  • Shareholder distributions remain on hold. 
  • 1H22 fuel cost declined -75% compared to pre-Covid-19 to $0.5bn, primarily due to a -74% reduction in fuel consumption. 

Company Description:

Qantas Airways Ltd (QAN) provides passenger and freight air transportation services in Australia and internationally. QAN also operates a frequent flyer loyalty program. QAN was founded in 1920 and is headquartered in Mascot, Australia.

(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

Norwegian liberally accessing the debt and equity markets since the start of the pandemic

Business Strategy and Outlook

Changes to consumer behavior surrounding travel–cruising in particular–as a result of the coronavirus could alter the economic performance of Norwegian Cruise Line Holdings over an extended horizon. As consumers resume cruising after the 15-month sailing halt that began in March 2020, cruise operators have had to add COVID-19-related protocols to reassure passengers of the safety of cruising in addition to the value proposition the holiday provides. On the yield side, it is anticipated Norwegian could intermittently see pricing competition to entice cruisers back onto the product once operators are back at full deployment. Further, there could be some pressure from the redemption of future cruise credits through 2022. On the cost side, higher spending to implement cleanliness and health protocols and oil prices could keep spending inflated. And the entire fleet will not be deployed until the second quarter of 2022, crimping near-term profits and ceding some scale benefits.

These concerns lead to average returns on invested capital, including goodwill, that is viewed, are set to fall below analysts’ 10.4% weighted average cost of capital estimate over a multiyear period, supporting analysts no-moat rating. While it is alleged Norwegian has carved out a compelling position in cruising thanks to its freestyle offering, the product still has to compete with other land-based vacations and discretionary spending for wallet share. It is resisted that it could be harder to capture the same percentage of spending over the near term, given the perceived risk of cruising, heightened by previous media attention. 

While liquidity issues remain concerning for cruise operators, Norwegian has liberally accessed the debt and equity markets since the beginning of the pandemic. Such capital market efforts signal Norwegian’s dedication to weathering a return to normalcy for demand. Given that the firm indicated cash burn is set to escalate to $390 million per month as it restarts the fleet, the $1.5 billion in cash of Norwegian’s balance sheet at year-end buys it sometime (even if there is no associated revenue) to facilitate a tactical full deployment strategy.

Financial Strength

Norwegian has accessed significant liquidity since the beginning of the pandemic, raising around $8 billion in debt and equity. In analysts’ opinion, these efforts signal Norwegian’s dedication to attempt to weather the duration of COVID-19. Given that the firm indicated cash burn should rise to around $390 million per month as it digests higher costs to restart the fleet, cash available to the firm should allow Norwegian time to successfully execute a tactical re-entry to sailing the seas, offering liquidity even in a tempered revenue scenario in 2022.With Norwegian’s 28 ships at the end of 2021, it is likely solid capacity expansion once cruising resumes, although it is likely some growth could be reconfigured, given shipyard closures. However, including recent debt and equity raises, Norwegian is likely to remain above its 2.5-2.75 times net debt/adjusted EBITDA target it had previously sought to achieve.  It is not seen Norwegian reaching around this range until 2028. The firm surpassed its debt/capital covenant of less than 70%, ending 2021 at around 84% (with restrictive covenants waived into 2022). The company is set to remain cash flow negative in 2022, but it is alleged could achieve positive EBITDA performance in the second half of 2022 (delayed a bit by omicron’s impact).Longer term, it is still held  that management will continue to order ships for delivery approximately every 18 months (and at least one per year in 2022-27) at its namesake brand and will opportunistically finance new ships through either compelling pricing in the debt markets or low-cost export credit agency guaranteed loans.

Bulls Say’s

  • As Norwegian is smaller than its North American cruise peers, it has the ability to deploy its assets nimbly as cruising demand rises, allowing for strategic pricing tactics. 
  • The rescission of restrictive COVID-related policies could allow cruises to appeal to a wider cohort of consumers, leading to near-term demand growth faster than is currently anticipated. 
  • Norwegian has capitalized on leisure industry knowledge from its prior sponsors as well as the addition of high-end Regent Seven Seas and Oceania brands, gathering best practices and leverage with vendors.

Company Profile 

Norwegian Cruise Line is the world’s third-largest cruise company by berths (at nearly 60,000), operating 28 ships across three brands (Norwegian, Oceania, and Regent Seven Seas), offering both freestyle and luxury cruising. The company is set to have its entire fleet back in the water in the second quarter of 2022. With nine passenger vessels on order among its brands through 2027 (representing 24,000 incremental berths), Norwegian is increasing capacity faster than its peers, expanding its brand globally. Norwegian sailed to around 500 global destinations before the pandemic. 

(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

InterContinental Hotels Group PLC with over 100 million loyalty members

Business Strategy and Outlook

It is alleged InterContinental to retain its brand intangible asset (a source of its narrow moat rating) and expand room share in the hotel industry in the next decade. Renovated and newer brands supporting a favorable next-generation traveler position as well as its industry-leading loyalty program will drive this growth. The company currently has a mid-single-digit percentage share of global hotel rooms and 11% share of all industry pipeline rooms. It is seen its total room growth averaging 3%-4% over the next decade, above the 1.8% supply increase is projected for the U.S. industry. 

With 99% of rooms managed or franchised, InterContinental has an attractive recurring-fee business model with high returns on invested capital and significant switching costs (a second moat source) for property owners, as managed and franchised hotels have low fixed costs and capital requirements, and contracts lasting 20-30 years have meaningful cancellation costs for owners. 

It is anticipated InterContinental’s brand and switching cost advantage to strengthen, driven by new hotel brands, renovation of existing properties, technology integration, and a leading loyalty program, which all drive developer and traveler demand for the company. InterContinental has added six brands since 2016; it now has 16 in total. InterContinental announced in August 2021 a new luxury brand, with details to be provided soon. Additionally, the company announced a midscale concept in June 2017, Avid, which the company sees as addressing an underserved $20 billion market with 14 million guests, under a normal demand environment. Also, InterContinental has recently renovated its Crowne Plaza (13% of total room base) and Holiday Inn/Holiday Inn Express (62%) properties, which will support its brand advantage. Beyond this, the firm has over 100 million loyalty members, providing an immediate demand channel for third-party hotel owners joining its brand.

Financial Strength

InterContinental’s financial health remains good, despite COVID-19 challenges. InterContinental entered 2020 with net debt/EBITDA of 2.5 times, and its asset-light business model allows the company to operate with low fixed costs and stable unit growth, which led to $584 million in cash flow generation in 2021. During 2020, InterContinental took action to increase its liquidity profile, including suspending dividends and deferring discretionary capital expenditures. Also, the company tapped $425 million of its $1.3 billion credit facility, which has since been repaid. As a result, InterContinental has enough liquidity to operate at near zero revenue into 2023. It is likely banking partners would work to provide InterContinental liquidity as needed, given that the company holds a brand advantage, which will drive healthy cash flow as travel demand returns. InterContinental’s EBIT/interest coverage ratio of 5.4 times for 2019 was healthy, and it is held for it to average 9.1 times over the next five years after temporarily dipping to 3.4 times in 2021. It is projected the company generates about $2.3 billion in free cash flow (operating cash flow minus capital expenditures) during 2022-26, which it uses to pay down debt, distribute dividends, and repurchase shares (with the last two starting in 2022).

Bulls Say’s

  • InterContinental’s current mid-single-digit percentage of hotel industry room share is set to increase as the company controls 11% of the rooms in the global hotel industry pipeline. 
  • InterContinental is well positioned to benefit from the increasing presence of the next-generation traveler though emerging lifestyle brands Kimpton, Avid, Even, Hotel Indigo, Hualuxe, and Voco. 
  • InterContinental has a high exposure to recurring managed and franchised fees (around 95% of total operating income), which have high switching costs and generate strong ROIC.

Company Profile 

InterContinental Hotels Group operates 880,000 rooms across 16 brands addressing the midscale through luxury segments. Holiday Inn and Holiday Inn Express constitute the largest brand, while Hotel Indigo, Even, Hualuxe, Kimpton, and Voco are newer lifestyle brands experiencing strong demand. The company launched a midscale brand, Avid, in summer 2017 and closed on a 51% stake in Regent Hotels in July 2018. It acquired Six Senses in February 2019. Managed and franchised represent 99% of total rooms. As of Dec. 31, 2021, the Americas represents 57% of total rooms, with Greater China accounting for 18%; Europe, Asia, the Middle East, and Africa make up 25%. 

(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

ARB Corporation Ltd reported strong 1H22 results, reflecting strong sales and earnings growth

Stock market digital graph chart on LED display concept. A large display of daily stock market price and quotation. Indicator financial forex trade education background.

Investment Thesis

  • Experienced management team and senior staff with a track record of delivering earnings growth.  
  • Strong balance sheet with little leverage.
  • Strong presence and brands in the Australian aftermarket segment.
  • Growing presence in Europe and Middle East and potential to grow Exports.
  • Growth via acquisitions
  • Current trading multiples adequately price in the near-term growth opportunities.

Key Risks

  • Higher than expected sales growth rates. 
  • Any delays or interruptions in production, especially in Thailand which happens on an annual basis.
  • Increased competition in the Australian Aftermarket especially with competitors’ tendency to replicate ARB products.
  • Slowing down of demand from OEMs. 
  • Poor execution of R&D.
  • Currency exposure

1H22 result highlights

Relative to the pcp: 

  • Sales of $359m, up +26.5%, underpinned by solid customer demand across all segments. Sales Margin was maintained. 
  •  Profit after tax of $68.9m, and NPAT of $92.0m, were both up +27.6% relative to the pcp. 
  • The Board declared an interim fully franked dividend of 39.0cps compared with 29.0cps fully franked last year. Dividend payout ratio of 46% was higher than the 43% ratio in the pcp. 
  • Net cash provided by operating activities of $28.6m in 1H22, was driven by the profit after tax of $68.9m, offset by higher inventory holdings of $40.5m, as ARB sought to increase inventories in a challenging supply chain environment to facilitate continued sales growth. 
  • ARB retained a cash balance of $58.3m, a decrease of $26.4m from the June 2021 financial year end mainly due to expansionary capital purchases of PP&E for $27.0m and dividends paid to shareholders in October 2021 of $25.4m.

Company Profile

ARB Corporation Ltd (ARB) designs, manufactures, distributes, and sells 4-wheel drive vehicle accessories and light metal engineering works. It is predominantly based in Australia but also has presence in the US, Thailand, Middle East, and Europe. There are currently 61 ARB stores across Australia for aftermarket sales.

(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
Global stocks Shares

MetLife’s Elevated 2021 Variable Investment Income Not Likely to Last

Young woman trading stock market by touching.

Business Strategy & Outlook:

MetLife, like other life insurers, has its financial results tied to interest rates. It’s unlikely that interest rates will return to pre-financial-crisis levels, and MetLife has forecasted to face this headwind for the future. The returns of equity just shy of 10% over the next five years. MetLife has taken steps to simplify its business. In 2017, it spun off Brighthouse, its retail arm focused on variable annuities. MetLife also is divesting its property and casualty insurance (auto) business, which makes sense as there is minimal strategic benefit to having a small auto insurance business in its portfolio.

MetLife’s business is relatively undifferentiated. Whether sold individually or to employers, the pricing is the primary driver for MetLife’s customers. Given the relatively low fixed costs of an insurer’s income statement, this does not lend itself to MetLife having a competitive advantage. Some of MetLife’s entries into new markets (such as pet insurance and health savings accounts) are potentially more differentiated, but these are unlikely to be material in the near to medium term. In 2012, MetLife launched MetLife Investment Management, which currently manages $181 billion of institutional third-party client assets, a fraction of the $669 billion managed through the general account and a fraction of what some of its peers manage. Asset management is viewed as potentially moaty, but given the size of MetLife’s third-party asset management, it is viewed as material to the firm’s overall financial results.

Financial Strength:

The life insurance business model typically entails significant leverage and potentially exposes the industry to outlier capital market events and unanticipated actuarial changes. MetLife is not immune to these risks, and during the financial crisis, its returns on equity decreased. Overall, MetLife has generally been prudent, but the risks inherent to the industry should not be ignored. 

Equity/assets (excluding separate accounts) was 11.6% at the end of 2021, higher than the 11.1% average since 2010. In Japan, MetLife’s solvency margin ratio was 911% (as of Sept. 30, 2021), well above the 200% threshold before corrective action would be required. The solvency margin ratio measures an insurer’s ability to pay out claims in unfavorable conditions.

Bulls Says:

  • MetLife’s international operations, particularly Asia and Latin America, provide opportunities for growth.
  • MetLife’s reorganization will lead to a more transparent entity that produces steadier cash flow.
  • If interest rates were to rise, MetLife would benefit through higher reinvestment yields.

Company Profile:

MetLife–once a mutual company before the 2000 demutualization–is the largest life insurer in the U.S. by assets and provides a variety of insurance and financial services products. Outside the United States, MetLife operates in Japan and more than 40 countries in Latin America, Asia-Pacific, Europe, and the Middle East.

(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 Technology Stocks

Whispir Ltd reported strong 1H22 results ; Focus on increasing platform usage and onboarding new customers

85215903 - attractive businessman using mobile phone while having lunch

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

  • 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. 

1H22 Results Highlights. Relative to the pcp: 

  • Revenues of $39.4m, up +70.4% (CAGR of +37.7% since 1H19). Annualised Recurring Revenue (ARR) at $60.0m, up +26.6% (CAGR of +29.4% since 1H19). WSP saw significant contract wins in ANZ, Asia and North America which bodes well for future revenue growth. 
  •  WSP achieved gross profit of $23.0m, up +64.9%. Gross margin declined from 60.4% to 58.4% due to a surge in transactional revenues, which grew from 66.6% to 80.6% of total revenue. 
  • Operating expenses jumped +75.0% to $29.9m, as WSP grew head count from 169 to 270 to service the growing business. 
  •  WSP reported an EBITDA loss of $(4.6)m versus $(1.8)m in the pcp. 
  •  WSP remains well-funded, with no debt and line of sight to cash flow breakeven. 
  • WSP remains on track to deliver on upgraded guidance for FY22.
  • WSP remains well-funded, with no debt and line of sight to cash flow breakeven

Company Profile

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). 

(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
Global stocks Shares

CGC reported solid FY 21 results driven by International segment to grow its revenue by 30%

Investment Thesis 

  • Improving momentum at the operational level and the stock is trading well below our valuation.
  • Positive thematic play on food supply for a growing global and domestic population.
  • Leading market positions in five core categories (Berries, Mushrooms, Citrus, Tomato and Avocado via the recent acquisition).
  • Near-term challenges could persist a little while longer (e.g. extreme weather and drought)
  • Execution of domestic berry growth program continues, while China berry expansion is gaining momentum. 
  • Balance sheet risk has been removed with the recent capital raising.
  • Given the number of downgrades, management will likely need to rebuild trust with its guidance and execution.

Key Risks

  • Further deterioration in weather conditions leading to pressure on earnings.
  • Further deterioration in earnings could put the balance risk at risk again.  
  • Weather affecting crops or any significant increase in insurance expense. This risk is mitigated as CGC has crop insurance (hail, wind, fire) and structure insurance.
  • Any power outage causing crops to be destroyed per incident.
  • Any significant increase in costs of power, affecting earnings.
  • Any disruption to operations from health and safety issues.
  • Any disruptions or issues associated with water, irrigation and water recycling.
  • Negotiations with supermarket giants Coles (Wesfarmers), Woolworths and independent grocers result in erosion of margins.
  • Pricing pressures arising from either competitors, or insufficient demand.
  • Increased costs due to lower water allocations. 

1H22 Results Highlights                

Relative to the pcp:   

  • Revenue increased +4.8% to $1220.6m, driven by International up +30% (+40% in CC) with both regions performing strongly with production and pricing improvements. 
  •  EBITDA-S increased +10.6% (+14% in CC) to $218.2m, with International up +33.9% (+49.2% in CC) underpinned by strong China pricing and additional production from increased footprint and yield, partially offset by -1.3% decline in Farms & Logistics segment amid Covid-19 lockdowns impacting foodservice/market industry. 
  •  NPAT-S increased +16% (+25% in CC) to $64m with higher D&A amid major capex programs going-live and impact of acquisitions was more than offset by reduced tax expense amid increased contribution from China. Statutory NPAT declined -32% (-28% in CC) to $41.4m. 
  •  Operating cashflow of $114.6m declined -16.8%, amid increased working capital in 2H21 (consistent with normal cycle) and $23.1m tax payments. 
  •  Operating capex increased +51% to $43.2m (expect CY22 to be $55-60m) and growth capex of $84.4m increased +68% amid continuation of international expansion. 
  •  Net debt increased +108% to $299.2m leading to leverage increasing +0.86x to 1.85x, still within target range of 1.5-2x. 
  •  The Board declared a fully franked final dividend of 5cps bringing FY21 payout to 9.0cps (flat over pcp). 

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

Myer remains highly uncertain as it grapples with cyclical and structural industry headwinds

Business Strategy and Outlook

Myer targets the middle to upper market, selling exclusive brands in competition with department store David Jones. The five largest Australian department stores share virtually the whole of the department store sector between them. While Myer, with a market share of around 15%, and key competitor David Jones (around 10%) operate at the upper end of the market, they also compete to an extent with the discount department stores operated by Wesfarmers (around 50%) and Woolworths (around 25%).

With entry into the Australian market of brands like Zara and H&M, and online competition from players such as Amazon, it is anticipated domestic department stores will increasingly find it difficult to compete with the international disrupters because of limited comparable sales volume growth. It is seen online sales to become an even more meaningful percentage of sales during the next decade as consumers increasingly perceive online retailers as offering value and convenience. Myer’s strategy is to strengthen its online presence and is rapidly growing its e-commerce business, while rationalising its physical footprint to maintain productivity levels, owing to relatively weak sales growth in the brick-and-mortar channel. But it is likely competition from e-commerce to intensify.

While it is likely the online channel to grow faster than the brick-and-mortar channel to fiscal 2030, and Myer to partially capture its share of this e-commerce growth, Amazon Australia will pursue its piece of the pie, leading to a decline in the size of the sector’s addressable market. The outlook for Myer remains highly uncertain as it grapples with cyclical and structural industry headwinds. To account for this uncertainty, analysts require a large discount to perceived value before investing in Myer. In tough economic times, it is the discount department stores benefit from more frugal customer behaviour. It is expected earnings to improve gradually from fiscal 2022, with the removal of virus-related restrictions when a treatment and vaccine for COVID-19 become widely available.

Financial Strength

The balance sheet continued to improve, and Myer finished January 2022 with a net cash position of around AUD 217 million. This compares with net cash of AUD 206 million as of January 2021. A new four-year funding package secured in November 2021, eliminated near-term refinancing risk. Myer’s board reinstated the dividend, which had been suspended since fiscal 2018. The reinstatement of the dividend signals the board’s confidence in the underlying strength of the business and could improve market sentiment.As are many other retailers, Myer is committed to paying rent to landlords for its store portfolio. These operating leases are now on balance sheet with new accounting standards from January 2019.

Bulls Say’s

  • Myer is an iconic Australian department store brand resonates with Australians. Myer is hanging onto this perception by improving its stores and online offerings to meet customer demand.
  • Myer is well placed to rebound strongly if it can successfully navigate the current economic slowdown.
  • Strategic initiatives–aimed at vertically integrating retail from design, manufacture, and sales–ensure that Myer is capturing a higher share of gross margin and control of its exclusive bands.

Company Profile

Myer is Australia’s largest department store operator, with some 60 stores that are mostly spread across eastern states. Stores are generally located in areas of high foot traffic in major metropolitan shopping centres. Competitive advantages include a well-established brand and scale benefits from a relatively large revenue base. The brand is somewhat iconic among Australian domestic consumers. The group’s loyalty programme has more than 5 million members.

(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

Ardent Leisure Buys Family Entertainment Venues in Colorado

Business Strategy and Outlook

Ardent Leisure’s underlying fundamentals is moderated by the wider macroeconomic factors that influence its operations and the current restructuring efforts to restore earnings after the recent upheavals. Of greater concern is the near-term impact of the coronavirus on Ardent’s operations and its financial position, especially theme parks. But cost-cutting and government assistance measures have provided relief. RedBird’s USD 80 million investment in June 2020 for an initial 24.2% preferred equity interest in Main Event secures the U.S. family entertainment chain’s funding position. Furthermore, RedBird has the option to acquire an additional 26.8% interest at a future date, with the valuation to be based upon 9.0 times EBITDA at the time of exercising the option, subject to a minimum equity floor price.

Beyond the current coronavirus crisis, Ardent Leisure possesses solid leisure and entertainment assets that all operate in intensely competitive markets. These assets compete for the leisure dollars of consumers who are spoilt with alternatives, especially in this online digital world, where most traditional entertainment activities can now be enjoyed in a virtual setting. Furthermore, most of the group’s businesses are relatively capital-intensive, particularly as Main Event expands its venue footprint and as Ardent strives to keep up with competing leisure options and stay fresh in consumers’ minds. The situation is exacerbated by cyclical factors, with consumer discretionary spending highly leveraged to swings in general economic conditions.

Financial Strength

Ardent has AUD 119 million of net debt on the balance sheet, as at the end of December 2021. This comfortable position with AUD 93 million in available liquidity for Main Event is mainly thanks to Redbird’s USD 80 million (AUD 100 million) capital injection into the U.S. business, in return for a 24.2% preferred equity stake. The Queensland government’s recent tourism-friendly three-year AUD 64 million loan package (plus AUD 3 million grant) also means the Australian theme parks unit now has AUD 18 million of available liquidity.

Bulls Say’s

  • COVID-19 has inflicted significant damage on Ardent Leisure’s businesses and the first and foremost question is how long it will take for businesses to return to pre-pandemic levels. 
  • Ardent Leisure’s businesses provide consumers with affordable leisure and entertainment destinations, although demand dynamics are highly leveraged to discretionary spending patterns. 
  • Competition is fierce for the group’s operations, with proliferating alternatives competing for consumers’ leisure dollars.

Company Profile 

Ardent Leisure is an owner and operator of leisure assets. Its theme park operations are situated in Australia, including Dreamworld and WhiteWater World on the Gold Coast. The group also runs Main Event, a growing portfolio of family entertainment operations in the United States, offering bowling, arcade and various other leisure activities.

(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.