Category: Shares

Investment Thesis

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

Key Risks

We see the following key risks to our investment thesis:

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

FY21 headline results. 

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

Company Description  

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

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.

Investment Thesis:

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

Key Risks:

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

Key highlights of FY21: Relative to the pcp:

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

Company Profile

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

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Investment Thesis:

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

Key Risks:

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

Key Highlights:

• FY21 Earnings were impacted by the pandemic, with adjusted EBIT of $71.8m, which was down by 31% over the pcp (previous corresponding period).
• IELTS volumes were up 5% despite ongoing disruptions at the operational level due to the on-going pandemic and government-imposed restrictions.
• The placement volumes of students to countries except Australia reduced by 12% relative to FY20 in spite of the uncertainties that were associated with travel and physical learning
• Digital Marketing revenue jumped 8% to $30m driven by institutional clients looking up to IDP’s global digital platform for marketing and data insights.
• Strategic acquisition in a growth market in British Council’s IELTS operation in India for £130m, which is highly strategic for IDP and provides several benefits like increased exposure to the high-growth Indian IELTS market; simplified distribution arrangements providing the opportunity to simplify and improve the delivery of IELTS to test takers in India.
• The highlights by segments are stated as below:

• English Language Testing: Revenue of $325.6m, which was up by 8%
• Student Placement: Revenue of $143.3, was 22% lower; for Australia, revenue was 34% weaker at $59.7m, due to border closures relating to Covid-19. For Multi-destination, revenue was -17% weaker at $83.5m.
• English Language Teaching: Revenue of $20.2m, which is -23% lower
• Digital Marketing and Events: Revenue of $36.4m, which is -2% lower
• Others: Revenue of $3.2m was -20% weaker

Company Profile:

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

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Investment Thesis:

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

Key Risks:

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

Key Highlights:

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

Company Profile:

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

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Investment Thesis :

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

Key Risks:

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

Key financial highlights of year2021:

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

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

Company Profile:

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

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Investment Thesis:

• Out of Home advertising has a strong market share .(47 % in Australia and New Zealand) 
•  Due to the current uncertainty around lockdown restrictions, the share price are traded at a meaningful discount in comparison to its valuation in terms of DCF / PE-multiple; EV/EBITDA multiple.
• Dividends have been temporarily suspended, with the Board expecting to reconsider when market conditions improve and the Company’s lenders agree.
• OML operates in a highly concentrated market which makes it difficult for new players to enter in.
• The top line of the company is still well-diversified, with no single contract having a large impact on revenue.
• Management did not disclose an earnings guidance for FY22, but did say that “revenue for Q3 is now pacing 38 percent higher than the corresponding period in 2020,” and also stated that audiences and associated revenues will see a strong recovery when the current lockdowns end.
• Unproven Cathy O’Connor having vast media experience and a track record of leading profitable media firms joined as OML CEO in January 2021.

Key Risk:

• Threats from competitors lead to loss in market share.
• Unsatisfactory growth (company and industry specific).

• The pandemic has lasted longer than anticipated.
• Market cyclicity in advertising.
• Updates on contract renewals have been disappointing.

 Highlights of key FY21 results:

• OML reported solid 1H21(first half of year 2021) results, reflecting improvement in earnings. During the underlying period OML reported revenue of $251.6m which is 23% up  compared to 1H20(first half of year2020).
• The increase in revenue was driven by revenue recovery across its key products namely commute, road ,retail , fly , locate and other junkee media and Cactus Imaging .
• During the underlying period, the gross margin was 42.5% which is 8.8 points up in comparisons to 1H20, indicating a return to pre covid levels.
• EBIDTA for the underlying period was $33.3 million, which is 209% above from 1H20, ton account of margin improvement leveraging revenue growth.
• With the help of its property partners, OML was able to secure $19 million in net rent abatements.
• Underlying NPATA was $2.4m versus a loss of $16.9m in 1H20.
• The balance sheet of OML improved, with the gearing ratio (Net Debt / Underlying EBITDA) falling to 1.1x (from 1.8x) and net debt falling to $94 million, down by 16 percent from the previous first half year result.
• The total capital investment for the year will be about $25 million, with the focus remaining on revenue growth and concession renewals.
• The Board has put a stop to dividends for the time being, with the purpose of reviewing the decision if market conditions improve and the Company’s lenders agree.

Company Profile:

oOh!media Ltd (OML) is one of Australia’s largest operators of out-of-home advertising products, including all major advertising formats such as billboards, shops, street furniture, airports, and office towers (largest scale with footprint in all major regions in Australia and New Zealand). The company employs 800 individuals, with 150 working in sales, 250 in operations (cleaning, maintaining street furniture, and so on), and the remainder in shared services, technology, and so on.

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.