Category: Shares

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Shares Small Cap

MVF reported solid 1H22 results; Growing above industry growth resulting in market share of 20.8% in key domestic markets

Investment Thesis

  • High barriers to entry with unique expertise and assets. 40-year heritage of leadership in science and innovation in ARS and women’s imaging, coupled with the depth of experience from the doctors and clinical team which will continue to underpin MVF’s future growth and maintain treatment success rates.
  • Aging Australian population and increased age of mothers (especially with the trend of more females choosing career over family until their early thirties) will provide favourable demographic tailwinds.
  • Improving balance sheet with flexibility to execute expansion strategies. Earnings increasingly become diversified as the Malaysian business gains momentum. 
  • Potential earnings diversification and growth via international expansion and increased presence in diagnostics.
  • Demonstrated capacity to perform well in terms of cost out and earnings growth despite tough conditions (i.e., lower cycle volumes).
  • Transparent and detailed disclosures.

Key Risk

  • Low growth environment impacting earnings.
  • Regulatory risk as changes in government funding may increase patient’s out-of-pocket expenses and thereby volume demand. 
  • Fluctuations in the availability and size of Medicare rebates may negatively influence the number of IVF cycles administered and overall industry revenue 
  • The Australian market does not rebound following this period of downturn. Population of males and females with fertility problems decline.
  • Loss of key specialists.
  • Loss of market share especially to low-cost providers, with one already appearing in Victoria.
  • Weakening economic activity resulting in increased unemployment leading to less disposable income to be spent in IVF treatment.
  • Execution of international forays into Malaysia goes poorly.

1H22 results summary:  Relative to the pcp:

  • Revenue increased +11.2% to $101m, largely driven by domestic stimulated cycles growth of +6.6% and average ARS revenue per stimulated cycle growth of +4.4%, partially offset by decline in ultrasound scan volumes. 
  • Adjusted EBITDA of $26.8m, increased +8.5% with volume leverage gained from increased domestic IVF activity partly offset by short-term margin declines in Ultrasound and Kuala Lumpur, pandemic related costs and $1m increase in medical malpractice and D&O liability insurance reflecting appropriate insurance policies in the current settings. 
  • Adjusted NPAT of $13.4m increased +11.7% and came in +3.1% ahead of management’s guidance. Reported NPAT declined -17.6% to $12.2m, primarily due to receipt of Job Keeper subsidies in pcp. 
  • FCF (excluding job keeper subsidy receipts in pcp) increased +51.6% to $9.7m, driven by 83% cash conversion of EBITDA to pre-tax operating cash flows and a decline of -42% in capex to $3.6m. 

Growing above industry growth and gaining market share

IVF industry fundamentals remain attractive including advanced maternal age and stable and continued government funding, which saw positive industry momentum continue in the half with industry volume growth at +3.6% and MVF recording above-industry growth of +6.6% resulting in market share gains of +70bps to an overall market share of 20.8% in key domestic markets. 

Company Profile

Monash IVF Group Ltd (MVF) offers assisted reproductive technology services, ultrasound services, gynecological services, in-vitro fertilization services, consultancy services and general clinical services to patients in Australia and Malaysia. MVF comprises 40 clinics and ultrasound practices and employs ~100 doctors and has a network of 650 associated health professionals. 

(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.

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Global stocks Shares

The a2 Milk Co. Ltd progressing well in 1H22

Investment Thesis

  • Inventory issue remains a downside risk but can also provide upside surprise should management work through the excess inventory in its distribution channels. It appears the inventory is at target levels for some of the key channels. 
  • Wining market share in Australia and China. 
  • Growing consumer demand for health and well-being globally. 
  • Demand growth in China for premium infant formula product.
  • Expansion into new priority markets, aided by the capabilities of Fonterra.
  • US expansion provides new markets + opportunities. 
  • Key patents provide barrier to entry.
  • Takeover target – the Company was the subject of a takeover bid in 2015.

Key Risks

  • Management fails to meet its revised FY21 guidance. 
  • Chinese demand underperforming market expectations.
  • Disruption to A2 milk supply.
  • Increased competition, including private labels & competitors developing products or branding that erode the differentiation of A2M branded products from other dairy products.
  • Expiration of A2M’s intellectual property rights may weaken or be infringed by competitors.
  • Withdrawal of A2M product from international markets due to market share loss or lack of market penetration. 

1H22 Results Highlights

  • Revenue was marginally lower, down -2.5% to $661m but in line with guidance, and up +24.8% on 2H21, due to (i) China label IMF sales were constrained in 1Q22 to rebalance distributor inventory levels with sales falling -11.4% for 1H22 vs pcp; (ii) English and other label IMF sales fell -9.8% in 1H22 vs pcp with lower market share; (iii) ANZ liquid milk sales were up with higher market share, while U.S. liquid milk sales were down.
  • EBITDA fell -45.3% to $97.6m due to lower revenue and gross margin as well as a +37.3% increase in marketing investment vs pcp. EBITDA margin of 14.8% in 1H22 (17.3% ex-MVM) was weaker versus 26.4% in 1H21. Gross margin percentage fell to 46.2% (with underlying gross margin of 50.7% excluding MVM), due to inclusion of MVM, adverse product mix and cost headwinds (especially raw milk and freight costs), partially offset by price increases.
  • NPAT including non-controlling interest was down -53.3% to $56.1m.
  • Balance sheet remains strong with closing net cash of $667.2m due to high operational cash conversion during 1H22. Inventory at the end of the period was $127.9m, higher than at the end of FY21, due to the inclusion of MVM.
  • A2M noted the Mataura Valley Milk (‘MVM’) acquisition and strategic partnership with China Animal Husbandry Group (‘CAHG’) was completed in July 2021 and fully consolidated into the results.

Company Profile 

The a2 Milk Company Limited (A2M) sells a2 brand milk and related products. The company owns intellectual property that enables the identification of cattle for the production of A1 protein free milk products. It also sources and supplies a2 brand milk in Australia, the UK and the US, exports a2 brand milk to China, and distributes and markets a2 brand milk and a2 Platinum brand infant nutrition products in Australia, New Zealand, and China

(Source: BanayanTree)

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.

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Global stocks Shares

Tech-Led Reimagination Starting to Bear Fruit, but eBay’s Near-Term Road Looks Turbulent

Business Strategy and Outlook:

With divestitures of Stubhub, eBay Classifieds, and Gmart largely in the rearview mirror, eBay’s business looks remarkably similar to its genesis: a customer-to-customer e-commerce platform connecting hundreds of millions of buyers and sellers worldwide, with an emphasis on non-new, seasoned goods. The core eBay Marketplace business should have plenty of room to run, considering management’s estimated $500 billion total addressable market for non-new, seasoned goods, and could benefit from swelling interest in resale markets and a strong pull-forward in e-commerce demand in 2020 and 2021.

eBay’s Marketplace generated the sixth-highest gross merchandise volume, or GMV, among global players in 2021, and renewed attention by management in core verticals like collectibles, used and refurbished goods, liquidation inventory, premium shoes, and luxury jewelry–often products without a benchmark average sales price, or ASP, index (limiting price comparison pressure and leaning into the marketplace’s edge in price discovery)-appears clever. The eBay’s, 147 million active buyer base, and recent platform improvements (including managed payments, promoted listings, and inventory management services) should prove sufficient to solidify advantages in many targeted verticals.

Financial Strength:

eBay’s financial health is sound. The company has access to a $1.5 billion commercial paper facility and a $2 billion line of credit represent attractive backstops, particularly when considering that the firm maintained only $4.2 billion in net debt at the end of 2021, with a further $5.8 billion available in short-term investments. eBay’s highly free-cash-flow generative business model, comfortable coverage of interest payments (7.8 times over the same period), and investment-grade credit rating suggest that the firm should have no trouble meeting its fixed obligations.

Management again raised its buyback facility again in the fourth quarter of 2021, to $6 billion from $2 billion prior. With $1.6 billion in cash and equivalents on the balance sheet at the end of 2021, eBay maintains a bulletproof balance sheet, with substantial flexibility to meet fixed interest and principal payments, invest in attractive internal investment opportunities, and return a generous amount of capital to shareholders through share repurchases and dividends.

Bulls Say:

  • The firm’s managed payments rollout executed seamlessly, and offers optionality for auxiliary financial services down the line.
  • Recent successes in higher-touch luxury resale and collectibles categories offer a blueprint for sustained growth in the C2C marketplace.
  • The addition of auction-based items and offsite advertising could catalyze better sell-through rates and monetization in the promoted listings business.

Company Profile:

eBay operates one of the largest e-commerce marketplaces in the world, with $87 billion in 2021 gross merchandise volume, or GMV, rendering the firm the sixth-largest global e-commerce company. eBay generates revenue from listing fees, advertising, revenue-sharing arrangements with service providers, and managed payments, with its platform connecting more than 147 million buyers and roughly 20 million sellers across almost 190 global markets. eBay generates just north of 50% of its GMV in international markets, with a large presence in the U.K., Germany, and Australia.

(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

Qube Working Towards Cost Effective Supply Chain

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Business Strategy and Outlook

Qube’s strategy is to consolidate the fragmented logistics chain surrounding the export and import of containers, bulk products, automobiles, and general cargo, to create a more efficient and cost-effective supply chain. The business has enjoyed some successes to date, though significant scope for industry consolidation remains. 

It is alleged Qube to generate robust earnings growth over the long term on acquisitions, developments and organic growth. The domestic port logistics industry has traditionally been very fragmented, highly competitive, and inefficient. Currently, there are more than 250 operators providing port logistics services in one segment of the market. These are typically small operators with limited geographic scope offering limited point-to-point services. Qube’s strategy is to provide a broad range of services nationwide, touching multiple segments of the import/export supply chain. Analysts are supportive of this strategy and believe there is significant scope for further industry rationalisation. 

Consolidating the fragmented logistics chain should significantly improve Qube’s competitive position. Qube has already established a dominant market share in some specific port logistics offerings, particularly with regards to rail haulage services to and from Port Botany. Successfully developing its strategic land holdings into inland intermodal terminals should add materially to Qube’s future earnings and support cost advantages to less efficient peers. Qube aims to develop inland rail terminals as an alternative to moving container volumes from port via road. When fully developed, Moorebank will be Australia’s largest inland intermodal terminal. The bulk and general segments are highly fragmented and competitive but Qube is one of the largest players, with operations at 28 city and regional ports. The automotive stevedoring business operates in a duopoly market structure, holding long-term off-ship transportation, processing and storage contracts with major foreign vehicle manufacturers.

Financial Strength

Following the sale of Moorebank warehouses, Qube is in strong financial health. Gearing (net debt/net debt plus equity) was 10% in December 2021, well below Qube’s 30%-40% long-term target range. It has less than AUD 400 million in debt after receiving the upfront component of Moorebank sale proceeds, providing ample headroom to fund developments and bolt-on acquisitions. A special dividend or share buyback is likely in 2022. It is projected net debt/EBITDA to fall from 3.8 at June 2021 to below 2 times in 2022 and for the medium term. Qube’s businesses have delivered steadily increasing operating cash flow in recent years, though operations remain cyclical. Recent growth initiatives should generate strong future cash flow, though a large-scale acquisition or development project may require new equity funding. Qube has significant capital expenditure requirements including Moorebank development. Qube is committed to paying 50%-60% of earnings per share before amortisation as dividends.

Bulls Say’s

  • There is significant potential to increase efficiency through vertical integration of port logistics services. Qube will attempt to deliver on this strategy through consolidation and integration. 
  • The Moorebank Intermodal Terminal should become a key piece of Sydney’s transport infrastructure, driving strong returns for Qube. 
  • Senior management has a proven track record in the port logistics segment and has demonstrated an ability to generate strong returns for shareholders

Company Profile 

Qube has three main divisions: operating; property; and Patrick. Operating undertakes road/rail transportation of containers to and from port, operation of container parks, customs/quarantine services, warehousing, intermodal terminals, international freight forwarding, domestic stevedoring, and bulk transport. Patrick is the container terminals business acquired from Asciano, and the property division includes tactical land holdings in Sydney. 

(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.

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Shares Small Cap

Temple & Webster Group strong focus on reinvesting earnings back into business

Shot of elegant smart businesswoman explaining a project to his colleagues with statistics on the computer on coworking place.

Investment Thesis

  • Operates in a large addressable market – B2C furniture and homewares category is approx. $16bn. 
  • Structural tailwinds – ongoing migration to online in Australia in the homewares and furniture segment. At the moment less than 10% of TPW’s core market is sold online versus the U.S. market where the penetration rate is around 25%.  
  • Strong revenue growth suggests TPW can continue to win market share and become the leader in its core markets. 
  • Active customer growth remains strong, with revenue per customer also increasing at a solid rate. 
  • Successful execution in new growth pillars – Trade & Commercial (B2B) and Home Improvement. 
  • Management is very focused on reinvesting in the business to grow top line growth and capture as much market share as possible. Whilst this comes at the expense of margins in the short term, the scale benefits mean rapid margin expansion could be easily achieved. 
  • Strong balance sheet to take advantage of any in-organic (M&A) growth opportunities, however management is likely to be very disciplined. 
  • Ongoing focus on using technology to improve the customer experience – TPW has invested in merging the online with the offline experience through augmented reality (AR). 

Key Risks

  • Rising competitive pressures.
  • Any issues with the supply chain, especially because of the impact of Covid-19 on logistics, which affects earnings / expenses. 
  • Rising cost pressures eroding margins (e.g., more brand or marketing investment required due to competitive pressures).
  • Disappointing earnings updates or failing to achieve growth rates expected by the market could see the stock price significantly re-rate lower. 
  • Trading on high PE-multiples / valuations means the Company is more prone to share price volatility. 

1H22 Result Highlights

  • TPW delivered strong top line growth of +46% YoY for 1H22, despite experiencing some supply chain and product availability issues (which also impacted customer satisfaction metrics). Hence the growth rate would have likely been stronger in our view. The Company also saw some inflationary pressures on product and freight, which saw 1H22 delivered margin decline to 30.5% (from 33.0% in pcp) and was in line with management’s previous guidance.
  • Advertising & Marketing costs were up +55% YoY and increased as a percentage of revenue to 13.6% (from 12.8% in pcp), driven by a step up in both performance and brand marketing. TPW’s brand awareness continues to increase, now above 60%. Management also spoke about pushing the brand awareness strategy nationally.
  • TPW’s ongoing investment in the business (people and technology, new growth horizons in B2B and home improvement) saw fixed cost increase YoY and hence saw EBITDA decline -19% YoY to $12.0m.
  • TPW posted the sixth straight quarter of revenue per active customer growth, which was up +10% YoY. This was driven by higher average order value and the repeat rate. 

Company Profile 

Temple & Webster Group (TPW) is a leading online retailer in Australia, which offers consumers access to furniture, homewares, home décor, arts, gifts, and lifestyle products. 

(Source: BanayanTree)

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

Marriott’s Strong Brand Intangible Asset Positioned Well for a Travel Rebound

Online stock exchange team

Business Strategy and Outlook:

While COVID-19 is still materially impacting near-term travel demand in many regions of the world, we expect Marriott to expand room and revenue share in the hotel industry over the next decade, driven by a favorable next-generation traveler position supported by renovated and newer brands, as well as its industry-leading loyalty program. Additionally, we believe the acquisition of Starwood (closed in September 2016) has strengthened Marriott’s long-term brand advantage, as Starwood’s global luxury portfolio complemented Marriott’s dominant upper-scale position in North America.

Marriott’s intangible brand asset and switching cost advantages are set to strengthen. Marriott has added several new brands since 2007, renovated a meaningful percentage of core Marriott and Courtyard hotels in the past few years, and expanded technology integration and loyalty-member presence; these actions have led to share gains and a strong positioning with millennial travelers. Starwood’s loyalty member presence and iconic brands should further strengthen Marriott’s advantages. With 97% of the combined rooms managed or franchised, Marriott has an attractive recurring-fee business model with high returns on invested capital and significant switching costs for property owners. Managed and franchised hotels have low fixed costs and capital requirements, along with contracts lasting 20 years that have meaningful cancelation costs for owners.

Financial Strength:

Marriott’s financial health remains in good shape, despite COVID-19 challenges. Marriott entered 2020 with debt/adjusted EBITDA of 3.1 times, as its asset-light business model allows the company to operate with low fixed costs and stable unit growth, but reduced demand due to COVID-19 caused the ratio to end the year at 9.1 times. During 2020, Marriott did not sit still; rather, it took action to increase its liquidity profile, including suspending dividends and share repurchases, deferring discretionary capital expenditures, raising debt, and receiving credit card fees from partners up front. As travel demand recovered in 2021, so too did Marriott’s debt leverage, with debt/adjusted EBITDA ending the year at 4.5 times. If demand once again plummeted, we think Marriott has enough liquidity to operate at zero revenue into 2023.

Bulls Say:

  • Marriott is positioned to benefit from the increasing presence of the next-generation traveler through emerging lifestyle brands Autograph, Tribute, Moxy, Aloft, and Element. 
  • Marriott stands to benefit from worker flexibility driving higher long-term travel demand. Our constructive stance is formed by higher income occupations being the most likely industries to continue to work from remote locations. 
  • Marriott has a high exposure to recurring managed and franchised fees (97% of total 2019 units), which have high switching costs and generate strong ROICs.

Company Profile:

Marriott operates nearly 1.5 million rooms across roughly 30 brands. Luxury represents 10% of total rooms, while full service, limited service, and time-shares are 43%, 46%, and 2% of all units, respectively. Marriott, Courtyard, and Sheraton are the largest brands, while Autograph, Tribute, Moxy, Aloft, and Element are newer lifestyle brands. Managed and franchised represent 97% of total rooms. North America makes up two thirds of total rooms. Managed, franchise, and incentive fees represent the vast majority of revenue and profitability for the company.

(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.

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Global stocks Shares

Meat Shortages Are Lifting Selling Prices and Margins for Tyson, but Should Prove Temporary

Stock market information

Business Strategy and Outlook:

Several secular trends are affecting Tyson’s long-term growth prospects. While U.S. consumers (81% of fiscal 2021 sales) are limiting their consumption of red and processed meat (71% of Tyson’s sales), they are consuming more chicken (29%). International demand for meat has been strong, and although Tyson’s overseas sales mix is just 12%, it is likely to increase over time, as this is an area of acquisition focus. Also, in order to feed the world sustainably, alternative proteins should play a key role. Tyson is actively investing in lab-grown and plant-based meats and should participate in this growth (albeit to a small degree). The beef segment has been a bright spot in Tyson’s portfolio in recent years, as strong international demand, coupled with a drought-induced beef shortage in Australia, has increased the segment’s operating margins to 10% over the past five years from 2% prior to 2017. Conversely, the chicken segment has suffered from executional missteps that have resulted in structurally higher costs relative to competitors.

About 80% of Tyson’s products are undifferentiated (commoditized), so it is difficult for them to command price premiums and higher returns. Although Tyson is the largest U.S. producer of beef and chicken, we do not believe this affords it a scale-based cost advantage, as its segment margins tend to be in line with or even below those of its smaller peers. The absence of a competitive edge, in the form of either a brand intangible asset or a cost advantage, leads us to our no-moat rating.

Financial Strength:

Tyson’s financial health is viewed as solid and there aren’t any issues to suggest that it will be unable to meet its financial obligations. While Tyson generates healthy cash flow and is committed to retaining its investment-grade credit rating, the business is inherently cyclical, with many factors outside of its control. But management has made changes to improve the predictability of earnings. Chicken pricing contracts, which now link costs and prices, and a greater mix of prepared foods (from 10% in 2014 to the current 19%) both serve as stabilizers. In terms of leverage, net debt/adjusted EBITDA stood at a rather low 1.2 times at the end of fiscal 2021, below Tyson’s typical range of 2-3 times. At the end of December, Tyson held $3.0 billion cash and had full availability of its $2.25 billion revolving credit agreement. Together, this should be sufficient to meet the firm’s needs over the next year, namely about $2 billion in capital expenditures, nearly $700 million in dividends, and $1.1 billion in debt maturities.

Bulls Say:

  • China’s significant protein shortage resulting from African swine fever should boost near-term protein demand, while the country’s continued moderate increase in per capita consumption of proteins should drive long-term growth. 
  • While investor angst over chicken price-fixing litigation has weighed on shares, Tyson’s recently announced settlements materially reduce this overhang. 
  • In the current inflationary environment, Tyson’s cost pass-through model limits potential profit margin pressure.

Company Profile:

Tyson Foods is the largest U.S. producer of processed chicken and beef. It’s also a large producer of processed pork and protein-based products under the brands Jimmy Dean, Hillshire Farm, Ball Park, Sara Lee, Aidells, State Fair, and Raised & Rooted, to name a few. Tyson sells 81% of its products through various U.S. channels, including retailers (47% in fiscal 2021), food service (32%), and other packaged food and industrial companies (10%). In addition, 11% of the company’s revenue comes from exports to Canada, Mexico, Brazil, Europe, China, and Japan.

(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

Mastercard Inc is Expanding in payments – represents a $255 trillion opportunity

Investment Thesis:

  • Leveraged to the structural growth story of electronics payments globally.
  • Difficult to replicate technology platform which provides an element of high barrier to entry to new entrants.
  • Largely defensive earnings and strong market position (second largest payments network globally). 
  • Expansion into new markets / segments provides upside potential
  • Value accretive acquisitions. Management aims for all acquisitions to be value-accretive by the third year of the transaction.
  • Capital management initiatives 

Key Risks:

  • Adverse currency movements and regulatory changes (data privacy / protection, governments’ intervention/protection policies). 
  • Security and technology risks (including cyber-attacks). 
  • Increased competition, potentially from new forms of payment systems. 
  • Value destructive acquisition(s). 
  • Macroeconomic conditions globally deteriorate, impacting consumer spending and business activity, especially given the coronavirus outbreak.
  • Significant change at the senior management level.
  • Company fails to meet market/investor expectations leading to analysts’ earnings downgrade – the stock is likely to come under selling pressure. 
  • Outstanding litigation risk.

Key highlights:

  • MA’s FY21 results came in above consensus estimates with revenue of $18.9bn (up +23%) vs estimate of $18.8bn and EPS of $8.76 (up +38%) vs estimate of $8.43 amid a spending rebound, with management forecasting YoY growth in FY22 as cross-border travel continues to improve. 
  • MA’s fundamentals remain strong with highly defensible and recurring revenue streams, high incremental margins and superior Free Cash Flow (FCF) generation, and remains well positioned to capture management’s targeted $255 trillion in new payment flows. The impact of potential sanctions on Russia and broader valuation declines of tech stocks amid monetary policy tightening weigh on investor sentiment.
  • Secular growth should remain strong from ongoing global shifts toward card-based and electronic payments with MA’s innovations and acquisitions to strengthen Buy Now Pay Later (BNPL), crypto currency and account-to-account payments providing further boost.
  • Management sees significant opportunity by expanding in payments and has upgraded its total addressable market size estimate to $255 trillion, up +8.5% over prior estimate driven by driving growth in person to merchant payments through new wins across the globe, capturing new payment flows, including commercial, B2B accounts payable, bill pay and cross-border remittances, and leaning into payment innovation in areas like instalments, contactless acceptance and crypto currencies.
Graphical user interface Description automatically generated with medium confidence

Company Description:

Mastercard Inc is a technology company in the global payments industry that connects consumers, financial institutions, merchants, governments, digital partners and businesses, enabling them to use electronic forms of payment instead of cash and cheques. The Company provides payment solutions and services through brands such as Mastercard, Maestro and Cirrus.

(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

Wynn’s Macao Better Than Fears, While Vegas Demand Remains Strong; Shares Undervalued

Business Strategy and Outlook:

Las Vegas demand remains robust, with fourth-quarter sales reaching 134% of 2019 levels, up from 119% last quarter, driven by strong gaming, food and beverage, and room revenue. Wynn plans to sell and leaseback its Boston assets for $1.7 billion, which will be used to pay down debt and invest back into its existing properties and new opportunities, like the property in the United Arab Emirates (scheduled to open in 2026). Wynn will receive management fees for this property and we see this as a good allocation of capital, supporting our Standard capital allocation rating. Macao benefits from a large addressable market (China’s 1.4 billion population), which is captive (only gambling location in China) and underpenetrated (2% of Chinese visited Macao in 2019), with a propensity to gamble (average Macao visitor produced $925 in gaming sales versus $244 in Las Vegas in 2019). Also, supply is limited, with just 41 casinos versus around 1,000 in the United States, supporting operator regulatory advantages, the source of narrow moats in the industry.

Financial Strength:

Wynn’s 2021 sales and EBITDA (pre-corporate expense) of $3.8 billion and $837 million, respectively, surpassed our $3.4 billion and $808 million forecast, driven by better-than-expected Macao sales results. Wynn shares are viewed as undervalued, but prefer shares of narrow-moat Las Vegas Sands, which also trades at a discount to our $53 valuation, while offering stronger assets, along with a stout balance sheet. Macao (76% of 2019 EBITDA) 2021 revenue of $1.5 billion was ahead of our $1.3 billion estimate, while EBITDA of $96 million trailed our $129 forecast. Encouragingly, Wynn saw strong VIP direct play during the recent Chinese New Year, with turnover per day up 175% from 2021 and at 88% of 2019 levels.

Company Profile:

Wynn Resorts operates luxury casinos and resorts. The company was founded in 2002 by Steve Wynn, the former CEO. The company operates four megaresorts: Wynn Macau and Encore in Macao and Wynn Las Vegas and Encore in Las Vegas. Cotai Palace opened in August 2016 in Macao, Encore Boston Harbor in Massachusetts opened June 2019. Additionally, we expect the company to begin construction on a new building next to its existing Macao Palace resort in 2022, which we forecast to open in 2025. The company also operates Wynn Interactive, a digital sports betting and iGaming platform. The company received 76% and 24% of its 2019 prepandemic EBITDA from Macao and Las Vegas, respectively.

(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

Revenue of CSL at $6041m up by 4%; however EBIT was 8% weaker

Investment Thesis:

  • Strong FY22 earnings guidance momentum as CSL continues to see strong demand. 
  • Seqirus flu business which recorded its first year of positive earnings (EBIT) in FY18 and continues to perform well.
  • Strong demand for their portfolio of products.
  • High barriers to entry in establishing expertise + global channels + operations/facilities/assets.
  • Strong management team and operational capabilities. 
  • Leveraged to a falling dollar. 

Key Risks:

  • Competitive pressures.
  • Product recall / core Behring business disappoints.
  • Growth disappoints (underperform company guidance).
  • Turnaround in Seqirus flu business stalls or deteriorates.
  • Adverse currency movements (AUD, EUR, USD)

Key highlights:

  • CSL Ltd (CSL) 1H22 results came in ahead of expectations. Net earnings (NPAT) of $1.76bn, down -3%, or -5% on a constant currency (CC) basis.
  • Revenue of $6,041m was up +4%. EBIT of $2,215m, was -8% weaker.
  • Margins of 36.7% was down from 41.1% in the pcp.
  • NPAT of $1.76bn, down -5% (Constant Currency, CC) and likewise, earnings per share $3.77, down -5%, despite revenue up +4% (CC) driven by strong growth CSL’s market leading haemophilia B product IDELVION and specialty products KCENTRA and HAEGARDA.
  • CSL Behring: Total sales of $4,356 was flat, whilst EBIT of $1,331, was -22% weaker
  • Immunoglobulins: sales of $1,977m was down -9% with management pointing to supply tightness temporarily impacting growth. 
  • Albumin: sales of $571m was up +1% due to competitive pressures in the EU as local manufacturers compete for volume and as CSL saw a decline in US as supply constraints stem from plasma collections.
  • Haemophilia: sales of $587m was up +5% with sales in recombinants of $372m, up +12% offset by plasma sales, $215m, down -6%.
  • Specialty: sales of $914m was up +2% despite sales in peri-operative bleeding of $465m, up +8%.
  • Seqirus: revenue of $1,685m was up +17% as seasonal influenza vaccine sales were up +20% and CSL achieved a record volume ~110m doses in the northern hemisphere

Company Description: 

CSL Limited (CSL) develops, manufactures and markets human pharmaceutical and diagnostic products from human plasma. The company’s products include pediatric and adult vaccines, infection, pain medicine, skin disorder remedies, anti-venoms, anticoagulants and immunoglobulins. These products are non-discretionary life-saving products.

(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.