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Global stocks Shares

Increasing Our Fair Value Estimate for LPL Financial to $161

Advisors on LPL’s platform serve approximately 4% of wealth management assets in the United States. Through its ClientWorks portal, the company offers a one-stop solution for advisors that incorporates billing, account analytics, research, trading, and relationship-management tools. LPL aims to offer services to all advisors regardless of business model.

Production retention, which measures the percentage of advisor-generated revenue maintained from the previous year, has recently been over 95%. Recently, LPL has been making moves to improve its value proposition to advisors, with the rollout of a new online portal and the purchase, and subsequent integration, of Advisory World. Acquisitions of advisor networks have also been a source of growth, with the 2017 acquisition of NPH for $325 million and the wealth management business of Waddell & Reed in 2021 for $300 million showing that LPL is willing and able to buy growth outright when it makes sense to do so. 

Financial Strength

LPL’s financial strength is adequate. At the end of 2020, the company had $2.3 billion of long-term debt. With a debt/equity ratio of about 1.8 times, the company is fairly leveraged. The company also has about $1.9 billion of goodwill and intangibles on its balance sheet, so has no tangible equity. The bulk of its debt, about $1.4 billion, will come due in 2024, with the rest due the following year. With a debt/adjusted EBITDA ratio of around 2.5 times, LPL should have sufficient cash to meet these financial obligations.LPL has paid a consistent $0.25 quarterly dividend since first-quarter 2015. 

Our fair value estimate correlates to a price/forward earnings multiple of 22 times and an enterprise value/EBITDA multiple of 12.5 times. Positive adjustments to our fair value estimate include $6.50 from earnings since our previous valuation update, $20.50 from recent growth in client assets and higher projected growth in client assets, $10.50 from increasing the growth rate and assumed returns on capital after year 10 in our model, and $3.50 of miscellaneous adjustments.

Bulls Say’s

  • LPL has been able to weather the storm of a changing industry, and expanding margins suggest that its business model remains intact.
  • The company has been moving toward more recurring revenue, such as advisory fees and revenue from client cash balances, which the market may reward.
  • LPL has the resources to recruit aggressively, and improvements in feedback receptiveness should help it maintain strong retention rates.

Company Profile 

LPL Financial Holdings is an independent broker/dealer that provides a platform of proprietary technology, brokerage, and investment advisory services to financial advisors and institutions. The company also provides financial advisors licensed with insurance companies customized clearing services, advisory platforms, and technology solutions. LPL provides a range of services through its subsidiaries. Private Trust supplies trust administration, investment management oversight, and custodial services for estates and families; Independent Advisers Group offers investment advisory solutions to insurance companies; and LPL Insurance Associates operates as a brokerage general agency that offers life, long-term care, and disability insurance sales and services.

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 Technology Stocks

Twitter to Sell MoPub for $1.05 Billion; Maintaining FVE; Shares Fairly Valued

According to the firm, MoPub generated $188 million in revenue in 2020 (5% of total revenue), which makes this sale equivalent to 5.3 times revenue. Twitter is trading at more than 7 times our 2022 revenue estimate, excluding MoPub.

Company’s Future Outlook

Twitter said it plans to focus more on providing advertising opportunities for direct response marketers in addition to small- and medium-sized businesses. We think that this deal was also partially driven by questions surrounding how Apple’s IDFA and user privacy policies will impact in-app advertising. However, Twitter had also stated that some of its app ad offerings were already integrated with Apple’s SKAdNetwork that helps track and measure ads. Without MoPub, we expect slightly lower top-line growth and less margin expansion, both of which will not have a material effect on our $58 fair value estimate for the firm.

Twitter’s initial investment in MoPub  when it purchased the company in 2013 for only $350 million. However, cash received from this transaction likely will be offset by the $809.5 million charge that Twitter will recognize in the third quarter 2021 as the firm settled a case involving some of its investors who accused the firm of misleading them by providing lofty expectations of user count and engagement at an analyst day event in 2014. The event took place when Dick Costolo was at the helm at Twitter.

Company Profile 

Twitter is an open distribution platform for and a conversational platform around short-form text (a maximum of 280 characters), image, and video content. Its users can create different social networks based on their interests, thereby creating an interest graph. Many prominent celebrities and public figures have Twitter accounts. Twitter generates revenue from advertising (90%) and licensing the user data that it compiles (10%).

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

Supermarket Food Inflation Likely To Stage a Comeback in Fiscal 2022

We anticipate Coles and Woolworths to report food price deflation continued in the September quarter of 2021. However, we expect prices to reflate in the December quarter with food inflation to average 1.5% in fiscal 2022. We forecast higher prices to support the operating margins of supermarket operators, offsetting weak sales growth post-lockdowns. 

Morningstar’s proprietary Little Shopping Basket indicates prices were flat at Coles and declined by 1% at Woolworths in the September quarter 2021 versus the prior corresponding period against a backdrop of rising upstream costs, including cost pressures experienced by manufacturers of consumer-packaged goods, or CPGs.

Heading into the upcoming release of first-quarter fiscal 2022 sales figures in late October, we maintain our fair value estimates of AUD 24.00 and AUD 13.20 per share for narrow moat Woolworths and no-moat Coles, respectively. 

Although we estimate Woolworths dropped prices by more than Coles in the September quarter, our shopping basket was still cheaper at Coles than at Woolworths. Our average Coles basket was priced at a 2% discount to the average Woolworths basket consisting of identical items, suggesting Coles competed more aggressively on price.

 Large global suppliers have been sounding the alarm regarding inflationary pressures within their supply chains. 

Nonetheless, we don’t anticipate rising input costs to materially impact profit margins at Coles and Woolworth in fiscal 2022, as their suppliers are likely to partially internalise any inflation, and we expect the supermarkets to successfully pass on higher cost of goods sold to consumers in the form of low-single-digit price rises. Coles and Woolworths enjoy dominating positions within the Australian grocery retailing sector and can leverage buying power in their price negotiations with suppliers. Increasing the level of private label penetration also offers supermarkets the option to better manage the price of their baskets.

From fiscal 2024, we expect sales growth of the Australian food retailing industry to recover to a sustainable rate of about 4% annually, underpinned by food price inflation of 2.5% and population growth of around 1.5%. 

We also track a discount grocery basket, comparing private label product pricing at Woolworths, Coles, and Aldi. Our discount basket indicates prices were roughly the same at Woolworths and Aldi in the September quarter 2021, while the average private label product at Coles was priced at around a mid-single-digit premium, after adjusting for packaging sizes. 

We infer from our baskets differences in pricing strategies between the two majors. We conclude Woolworths aims to match Aldi on private label pricing, while Coles’ comparable private label range is less competitively priced. Rather, Coles seems to be focusing on matching Woolworths on its branded product range. 

However, we caution the readthrough from our baskets has its limitations due their small sample sizes. Morningstar’s Little Shopping Basket and our discount grocery basket each track only a small subset of products across the vast ranges stocked by Australian supermarket retailers. Also, over time periods shorter than a full year promotional cycle, differences in promotional schedules impact results.

 (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 Technology Stocks

Marvell taking aim at cloud, 5G and automotive markets

Between data processing units, or DPUs, optical interconnect, and ethernet solutions, Marvell has one of the broadest networking silicon portfolios in the world, and we think it is primed to steal market share from incumbent Broadcom with bleeding-edge technology.

Marvell has exited its low-margin legacy markets of consumer hard disk drives and Wi-Fi chipsets to focus on its networking portfolio and used the acquisitions of Cavium, Avera, Aquantia, Inphi, and Innovium to expand out of its enterprise market niche into the rapidly growing data center and 5G markets.

Marvell’s recent financial history has been choppy as a result of CEO Matt Murphy’s aggressive overhaul of the business’ focus. Trends toward disaggregated networks and merchant silicon, as well as 5G and data center buildouts, would act as secular tailwinds for Marvell.

Financial Strength:

As of May 1, 2021, the firm carried $522 million in cash and $4.7 billion in total debt—largely taken on to acquire Inphi. Marvell is expected to exit fiscal 2022 with a gross debt/adjusted EBITDA ratio of 2.4 times, above its target of 2 times. As per the analysts, Marvell is expected to stay leveraged but to pay down debt as it matures.

The firm’s free cash flow generation is expected to ramp up toward $2 billion a year by fiscal 2026, up from just over $700 million in fiscal 2021, as it exacts material operating leverage with top-line growth.

The firm would be prudent to postpone any M&A until it returns below its debt/EBITDA target, following $11 billion spent so far in fiscal 2022 on Inphi and Innovium.

Bulls Say:

  • Marvell has best-of-breed data processing units and optical interconnect products that should allow it to benefit from the rapidly growing cloud and 5G markets.
  • We think the combination of Inphi and Innovium under the Marvell umbrella could give it a technological advantage to Broadcom in high-performance networking.
  • We expect Marvell to exact significant operating leverage as it incorporates acquisitions and adds volume to the top line.

Company Profile:

Marvell Technology is a leading fabless chipmaker focused on networking and storage applications. Marvell serves the data center, carrier, enterprise, automotive, and consumer end markets with processors, optical

interconnections, application-specific integrated circuits (ASICs), and merchant silicon for ethernet applications. The firm is an active acquirer, with five large acquisitions since 2017 helping it pivot out of legacy consumer applications to focus on the cloud and 5G markets.

(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

Pointsbet Holdings delivered strong FY21 results with group revenue up by 159%

Investment Thesis:

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

Key Risks:

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

Key highlights:

  • PBH’s FY21 results were largely in line with expectations, with group revenue up +159% to $194.7m and gross profit up +129% to $87.6m YoY.
  • The recently launched iGaming product represents another growth opportunity (backed by a strong management team), with management noting that ~71% of all iGaming players have placed an in-play wager and 40% of cash active clients have placed an iGaming bet since launch.
  • The more mature market of Australia still has room to grow, with PointsBet, the no. 5 player (by online market share) and management still targeting 10% online market share by 2025.
  • Group normalised EBITDA for the year was a loss of $156.1m vs loss of $37.6m in the pcp, as PBH continues to invest in the business to scale the U.S. business and invests in its technology stack.
  • Australian Trading segment reported revenue of $150.7m (vs $68.2m in pcp) and EBITDA of $9.2m (vs $6.9m in the pcp).
  • USA segment reported revenue of $42.3m (vs $7.0m in pcp) and EBITDA loss of $149.6m (vs loss of $38.2m in pcp). During the year, PBH operational in six U.S. states: New Jersey, Iowa, Indiana, Illinois, Colorado, and Michigan.
  • Balance sheet is in a good position to support investment in growth, with pro forma cash balance of $665.2m (post the July 21 capital raising).

Company Description: 

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

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 Technology Stocks

Oracle transition to the cloud to get benefit from the Data boom

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

However, growth has been lacking as more customers shift their workloads to the cloud, bypassing Oracle’s solutions. Despite Oracle’s cloud migration efforts, cloud competition will likely provide headwinds for Oracle.

 However, we don’t view the company as being on the forefront of recent software trends, and new and potential customers appear to be looking past Oracle for their database needs. Database preferences are far wider today due to the sheer number of ways to manipulate data, and the different data storage practices this necessitates. In turn, Oracle is losing database market share to new database types that may be better suited to the cloud. 

Additionally, the transition to the cloud is prompting enterprises to change software vendors away from all-in-one ERP systems to application specific that are best of breed. In response, Oracle is banking on its second-generation cloud to not only cater to its traditional enterprise workloads, like supporting databases, but also general use workloads. However, we view Oracle’s cloud as sub-scale to Amazon and others and we doubt Oracle can close this gap soon. In our opinion, Oracle should still be successful in moving a significant amount of its traditional on-premises workloads to Oracle cloud. However, migrating all of its customers is not such a sure thing, as cloud-first software vendors have been able to take meaningful share from legacy Oracle customers.

Financial Strength 

Oracle is in healthy financial standing. As of fiscal 2020, Oracle had $43 billion in cash and equivalents versus $72 billion in debt. However, Oracle should generate robust free cash flow in the years ahead to settle these debt obligations over time. We think that Oracle will have the capital to increase its total annual dividends to $1.28 in fiscal 2025 from $0.96 in fiscal 2020, as the company continues to make share repurchases and acquisitions. However, we think that the magnitude of acquisitions will moderate as the company comes off of its buildout of its second-generation cloud product and has stressed their recent preference to build new capabilities in house. In terms of capital expenditures, we think Oracle will spend an average of $1.6 million per year over the next five years, as the company continues to require build outs for its cloud operations.

Bulls Say

  • Oracle’s relational database should be able to post strong growth as customers continue to depend on its quality features, such as data partitioning which brings incomparable load balancing efficiency.
  • Oracle’s autonomous database and IaaS was built with ease of use in mind, which could bring a significant base of first-time Oracle users to the company, strengthening top line results. 
  • Oracle’s stake in TikTok Global and cloud services to TikTok’s U.S. operations should add a significant boost to Oracle’s top line and attract more “general use” cloud customers.

Company Profile

Oracle provides database technology and enterprise resource planning, or ERP, software to enterprises around the world. Founded in 1977, Oracle pioneered the first commercial SQL-based relational database management system. Today, Oracle has 430,000 customers in 175 countries, supported by its base of 136,000 employees.

(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

Capri’s Faces COVID-19 Disruptions and Intense Competition While Working on its brands

Powered by store openings and retail expansion in the 2010-15 period, Michael Kors became one of the largest American handbag producers in sales and units. However, over the past five years, growth has stalled due to markdowns of bags at third-party retail and declining sales at company-owned stores. While Capri has reduced distribution to limit discounting of Michael Kors bags, competition in the American handbag market is fierce and growth is limited. Moreover, the company is in the process of closing more than 100 Michael Kors stores.

Capri spent a steep $3.4 billion to purchase Jimmy Choo and Versace to boost its status as a luxury house and reduce its dependence on Michael Kors. However, we do not think these deals have changed Capri’s no-moat status as the acquired brands have more fashion risk, less profitability, and narrower appeal than Michael Kors. Capri is investing in store remodels, store openings, and expanding the set of accessories for both Jimmy Choo and Versace, but we don’t think these efforts will yield the intended gains, particularly given the severe interruption we expect from COVID-19. 

We believe Michael Kors lacks the brand strength (and ultimately pricing power) to provide an economic moat for Capri, rating poorly on the criteria that Morningstar uses to evaluate luxury brands, in contrast to others such as narrow-moat Tapestry’s Coach.

Financial Strength

Capri has debt, but it is very manageable. At the end of June 2021, it had total shortand long-term debt of $1.3 billion, but it also had more than $350 million in cash. Capri, though, has $1.3 billion in available borrowing capacity it amended its revolving and term loan credit agreement.Thus, Capri has no significant debt maturities prior to 2023. Capri has also recently modified its debt covenants, allowing a maximum leverage ratio of 3.75 times. Its debt/adjusted EBITDA was 2.3 times at the end of fiscal 2021, and we forecast this will decline to 1.2 times at the end of fiscal 2022. The firm averaged more than $500 million in annual buybacks in fiscal 2015-20. We now forecast its share repurchases at an annual average of about $630 million over the next decade. However, Capri does not pay dividends. We forecast its fiscal 2021 capital expenditures will rise to $205 million (3.9% of sales) from just $111 million (2.7% of sales) last year. Long term, we forecast Capri’s annual capital expenditures as a percentage of sales at 4.3% as management works to improve the performance at Jimmy Choo and Versace.

Bulls Say

  • Michael Kors is one of the largest brands in terms of units and sales in the high-margin handbag market, and we think this positioning should aid its prospects as it looks to grow in complementary categories like footwear.
  • Michael Kors has reduced its dependence on wholesale customers, which we view favorably as increased direct-to-consumer sales allow for better pricing and control over marketing.
  • The acquisitions of Jimmy Choo and Versace afford diversification opportunities by bringing two luxury brands that maintain products with high price points into the fold.

Company Profile

Michael Kors, Versace, and Jimmy Choo are the brands that comprise Capri Holdings. Capri markets, distributes, and retails upscale accessories and apparel. Michael Kors, Capri’s largest and original brand, offers handbags, footwear, and apparel through more than 800 company-owned stores, third-party retailers, and e-commerce. Milan-based Versace (acquired in 2018) is known for its ready-to-wear luxury fashion. Jimmy Choo (acquired in 2017) is best known for women’s luxury footwear. John Idol has served as CEO since he was part of a group that acquired Michael Kors in 2003.

 (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

BioNTech’s COVID-19 Vaccine Success Could Help It Build a Moat on mRNA Technology

The emerging biotech’s first commercial vaccine, for COVID-19, received its first authorization in December 2020, and its early-stage pipeline and mRNA technology platforms have caught the eye of several large pharmaceutical companies, resulting in collaborations and partnerships.

Further, the company has a burgeoning vaccine pipeline for infectious diseases. In partnership with the Bill & Melinda Gates Foundation, BioNTech is developing vaccines for HIV and tuberculosis, and the company’s COVID-19 program in partnership with Pfizer and Fosun Pharma was built off an existing partnership with Pfizer for an influenza vaccine. The COVID-19 vaccine, Comirnaty (BNT162b2), quickly progressed through human trials, culminating in authorization in the United States and Europe in December 2020. 

Company’s Future Outlook

We think the vaccine’s excellent efficacy, strong supply, and early leadership on the market all support $35 billion in Comirnaty sales in 2021 and $43 billion in 2022 (BioNTech books half of Pfizer’s gross profits, profit share from other smaller partners, and direct sales in Germany and Turkey). However, the long-term market for coronavirus vaccines is uncertain, and even if there is demand for continued vaccination in the long run, we expect the market to be competitive.

BioNTech’s COVID-19 Vaccine Success Could Help It Build a Moat on mRNA Technology

We believe BioNTech has a positive moat trend due to strengthening intangible assets in its pipeline. Over the next five years, we expect several data readouts, assets progressing through trials, and even the company’s first potential approval. Further, testing new combinations of treatments, which tends to improve efficacy in cancer treatment, will also strengthen the competitive position of BioNTech’s platforms. 

The positive results and subsequent authorization of BNT162b2, BioNTech’s vaccine against SARS-CoV-2, support our positive moat trend rating. While the long-term profit outlook for BNT162b2 remains uncertain, we believe its success demonstrates the potential of the company’s mRNA vaccine platform.

Financial Strength 

BioNTech has historically burned through cash to fund research and development of its pipeline. The company has minimal debt on its balance sheet, as it has funded discovery and development with equity issues,collaboration payments from partnerships with large pharmaceutical firms as well as a large inflow of cash from Comirnaty gross profits in 2021 and 2022 and believe this will continue for long term basis.Outside of BioNTech’s COVID-19 vaccine candidates, we think the earliest approval could arrive in 2023, which would put the company on a path toward steady profitability. Management has taken advantage of a couple of opportunities to acquire early-stage assets and expand its geographic footprint to establish a U.S. research hub at low prices. We expect the near-term focus for capital allocation to remain on its pipeline of vaccines and other therapies.

Bull Says

  • BioNTech’s pipeline, which relies on expertise in mRNA and bioinformatics, will be difficult to replicate by competitors. 
  • BioNTech will be able to command a premium price with its personalized cancer therapies, if successful. 
  • The rapid development of COVID-19 vaccine Comirnaty bodes well for the rest of BioNTech’s pipeline and the future of its mRNA research platform.

Company Profile

BioNTech is a Germany-based biotechnology company that focuses on developing cancer therapeutics, including individualized immunotherapy, as well as vaccines for infectious diseases, including COVID-19. The company’s oncology pipeline contains several classes of drugs, including mRNA-based drugs to encode antigens, neoantigens, cytokines, and antibodies; cell therapies; bispecific antibodies; and small-molecule immunomodulators. BioNTech is partnered with several large pharmaceutical companies, including Roche, Eli Lilly, Pfizer, Sanofi, and Genmab. Comirnaty (COVID-19 vaccine) is its first commercialized product.

 (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

Praemium Ltd balance sheet remains strong with cash reserves of $26.7m

Businesswoman pointing at diagram in her hands when explaining marketing trends to her team during online meeting

Investment Thesis

  • Merger with powerwrap creates a much better capitalized and resourced competitor in the market, with significant opportunities for synergies.
  • Increase diversification via geography and product offering.
  • Increase competition amongst platform providers such as HUB24, Wealth O2, BT panorama, Netwealth, North Platform, etc.
  • Very attractive Australian industry dynamics – Australian superannuation assets expected to grow at 8.1% p.a to A$9.5 trillion by 2035.
  • Disruptive technology and hold a leading position to grow funds under advice via SMAs.
  • The fallout from the Royal Commission into Australian banking has led to increased inquiries for PPS’ product/services.
  • Growing and maturing SMSF market = more SMSF demand for tailored and specific solutions.
  • Both-on acquisitions to supplement organic growth.
  • Further consolidation in the sector could benefit PPS.

Key Risks

  • Execution risk – delivering on PPS’s strategy or acquisition.
  • Contract or key client loss.
  • Competitive platform/offering.
  • Associated risks in relation to system, technology and software.
  • Operational risks related to service levels and the potential for breaches.
  • Regulatory changes within the wealth management industry.
  • Increased competition from major banks and financial institutions.

FY21 Results Summary

  • Australian business segment delivered revenue growth of +37% over pcp to $53.1m, driven by Platform revenue increase of+73% to $36.5m with Powerwrap revenue of $16.3m amid strong underlying growth from record platform inflows and Portfolio services revenue increase of +6% to $16.1m with VMAAS revenue up +40% from continued portfolio on-boarding. EBITDA declined -2% to $19m, primarily due to the transition of the Powerwrap cost base and some cost expansion to support growth and service across sales, marketing and operations (EBITDA margins declined -14% to 36%), however, management forecast growth investments and scale benefits from Powerwrap synergies will drive improved earnings into FY22.
  • International net revenue (net of product commissions) increased +6% over pcp to $12.5m, driven by Platform revenue growth of +30% to $8.1m from record inflows driving International platform FUA to $5bn (up+ 55%), partially offset by declines in the Smartfund range of managed funds, with fund revenue down -47% to $1.5m. Expenses were up +2% to $16.4m from operational capability to support growth, partially offset by continued cost management. EBITDA loss declined -7% to $3.9m, comprising UK’s EBITDA loss of $1.4m (27% improvement), Asia’s EBITDA loss of $0.9m (1% increase) and the inclusion of Dubai’s cost centre of $1.6m (up 17%).

Company Profile 

Praemium Limited (PPS) is an Australian fintech company which provides portfolio administration, investment platforms and financial planning tools to the wealth management industry.

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

Temple & Webster Group delivered solid FY21 results driven by customer’s adoption of online shopping

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. 
  •  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 Risk

  • Rising competitive pressures. 
  • Any issues with 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 update 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.

FY21 results highlights. 

  • Group revenue was up +85% to $326.2, with 4Q21 revenue up +26% YoY despite cycling a period which saw growth of +130%. 
  •  Gross profit was up +88% to $148m, with gross profit margin increasing to 45.4% from 44.6%. This was primarily driven by increasing private label penetration, which increased to 26% of group sales vs 19% in the prior year. Private labels had higher margin vs drop-ship sales (i.e., drop-ship means TPW takes no inventory risk and works with their >500 local distributors), given TPW source directly from the factory.  
  • Delivered margin increased +87% to $100.7m, however was impacted by one-off distribution costs in the 2H21 due to some local shortages in 3PL space and TPW had to store product in more expensive alternate sites. 
  •  Contribution margin after one-off distribution came in at 14.6% as percentage of revenue vs 15.5% in pcp. Management is aiming to keep the contribution margin in the range of 12 – 15% over the short to medium term to support their reinvestment strategy to aggressively target market share via improved pricing, tactical promotional activity, and higher investment in brand building initiatives. 
  • Group adjusted EBITDA of $20.5m was significantly higher (up +141%) than $8.5m in the pcp, with a margin of 6.3% (vs 4.8% in pcp). 
  •  Balance sheet is solid, with cash balance of $97.5m

Trending Update:“The year got off to a fantastic start with a 39 percent increase in income from July 1 to July 24. TPW benefit from tailwinds, such as the adoption of online shopping as a result of these structural and demographic developments, as well as the acceleration of transitive Covid. Following that, an increase in discretionary spending due to travel constraints and, as we all know, the housing market’s continuous resurgence. As Mark stated, “we will continue to engage in growth there as a business, vastly increasing our online market leadership and driving market share.”

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: 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.