Category: Shares

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Global stocks Shares

Traffic is still a problem, but there is more than adequate money to get through another year of hard times.

Investment thesis

  • Recent takeover offers that have been rejected are currently supporting the share price.
  • Sydney International Airport is an appealing asset with a long-term lease, but earnings are currently being impacted by the pandemic.
  • Long-term growth in international tourism and domestic travel is expected post-Covid.
  • Prior to the pandemic, SYD delivered a consistent and growing dividend stream, which is expected to continue post-Covid.
  • New development initiatives (expand capacity & improve passenger experience).
  • Exposure to a falling dollar (cheaper to visit Australia).
  • Earnings can be increased by diversifying into hotels.
  • Potential new markets, such as India and new emerging markets, could drive growth.

Key Risks

The following are the key challenges to the investment thesis:

Bond yields (viewed as a bond proxy, rising bond yields will have a negative impact on SYD’s valuation)

  • A decline in Australian tourism.
  • A global disaster that reduces international travel.
  • Distribution growth, or lack thereof, disappoints.
  • Cost constraints / operational disruptions
  • International airlines are lowering their exposure to Australia.
  • Long-term competition from Western Sydney Airport.

Highlights of key FY21 results

  • Revenue of $341.6 million was -33.2 percent lower than the pcp. SYD had 6.0 million passengers, a -36.4 percent decrease, with domestic and global passenger numbers down by 91.0 percent and -3.1 percent, respectively.
  • Operating expenses were $74.2 million lower, a -7.8 percent decrease.
  • EBITDA was down -29.8 percent to $210.8 million.
  • SYD revealed a $97.4 million loss after income taxes. In terms of Covid-19 impacts, SYD recognised abatements and expected credit loss in the form of $77.0 million in rental abatements and $24.5 million in doubtful debt provision, and government assistance of $2.6 million in JobKeeper payments was recognised as an offset to employee benefits expense up to March 2021.
  • As of 30 June, SYD had a strong balance sheet with $2.9 billion in liquidity ($0.5 billion in available cash and $2.4 billion in undrawn bank debt facilities). On the conference call, management stated that SYD “continues to expect to remain compliant with its covenant requirements.” SYD’s credit rating remained unchanged, at BBB+/Baa1 by S&P/ Moody’s, with a negative outlook. Net debt fell to $7.5 billion from $9.1 billion in the first half of the year, with a cashflow cover ratio of 2.0x (down from 2.4x in the first half of the year) and a nett debt/EBITDA ratio of 14.0x (versus 9.3x at 1H20).

Company Description 

Sydney Airport (SYD) operates the Sydney International Airport (Kingsford Smith). The company develops and maintains the airport infrastructure and leases terminal space to airlines and retailers. The ASX listed stock consists of Sydney Airport Limited (SAL) and Sydney Airport Trust (SAT1). Shares and units in the Group are stapled.

General Advice Warning

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

Categories
Shares Technology Stocks

Palo Alto’s Product Demand Accelerates in Q4 As Next-Gen Security Soars

Male gamer in headphones holds joystick and playing videogame on console or desktop PC, gaming lifestyle, cybersport. Computer games player in his room with neon light, streamer

its next-generation firewall appliance altering the requirements of this essential piece of networking security. The firm’s portfolio has expanded outside of network security into areas such as cloud protection and automated response. The complexity of an entity’s threat management increases as the quantity of data and traffic being generated off-premises grows. Security point solutions were traditionally purchased to combat the latest threats, and IT teams had to manage various vendors’ products simultaneously, which leads us to believe that IT teams are clamoring for security consolidation to manage disparate solutions. Core to Palo Alto’s technology is its security operating platform, which provides centralized security management. Palo Alto’s concerted efforts into machine learning, analytics, and automated responses could make its products indispensable within customer networks.

Financial Strength 

Palo Alto ended fiscal 2021 with $2.9 billion in cash and cash equivalents and total debt of $3.2 billion in 2023 and 2025 convertible senior notes. The $1.7 billion 2023 notes mature in June 2023 and have a 0.75% fixed interest rate per year paid semiannually, while the $2.0 billion of notes that mature June 2025 have a 0.375% interest rate paid semiannually. The company announced a $1.0 billion share-repurchase authorization in February 2019, which was increased to $1.7 billion the following year with an expiration at the end of 2021, and has subsequently extended the program.

Our fair value estimate for narrow-moat Palo Alto Networks to $440 per share from $400 after its fourth quarter earnings bolstered our confidence in its long-term opportunity within the cybersecurity market. Shares are modestly undervalued, in our view, even after jumping more than 10% following the strong results in the fourth quarter. Palo Alto breezed by our lofty expectations, and previous guidance, for the fourth quarter, with 28% year-over-year revenue growth and adjusted earnings of $1.60. Billings grew by 34% year over year, and remaining performance obligations, or RPO, increased by 36% year over year to $5.9 billion. 

Subscriptions and support increased by more than 36% while product revenue accelerated to 11% growth, both year over year. Its core firewall offerings continue to outpace the market, with 26% year-over-year billings growth and software-based versions represented 47% of firewall billings in the quarter. Next-gen security billings increased by 71% year over year, and now represent 33% of total billings, as the demand for cloud security and automation ramps up in the industry. Next-gen ARR increased by 81% year over year to $1.2 billion. 

Bulls Say’s 

  • Adding on modules to Palo Alto’s security platform could win greenfield opportunities and increase spending from existing customers.
  • Palo Alto could showcase great operating margin leverage as it moves from brand creation into a perennial cybersecurity leader. Winning bids should be less costly as the incumbent, and we think Palo Alto is typically on the short list of potential vendors.
  • The company is segueing into high-growth areas to supplement its firewall leadership. Analytics and machine learning capabilities could separate Palo Alto’s offerings.

Company Profile 

Palo Alto Networks is a pure-play cybersecurity vendor that sells security appliances, subscriptions, and support into enterprises, government entities, and service providers. The company’s product portfolio includes firewall appliances, virtual firewalls, endpoint protection, cloud security, and cybersecurity analytics. The Santa Clara, California, firm was established in 2005 and sells its products worldwide.

(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

SYD’s share price up by 41.5% over the past year

Investment Thesis:

  • Currently share price is supported by recent takeover offers which have been rejected.
  • Earnings affected by the pandemic; Attractive asset with long-dated lease – Sydney International Airport.
  • Long-term growth is anticipated in international and domestic travel.
  • Solid and high growing dividend stream was offered by SYD before Covid, which is expected to repeat post Covid recovery.
  • Development of new projects (expansion of capacity & improvement of passenger experience). 
  • Leveraged due to a falling dollar (cheaper to visit Australia). 
  • Diversification into hotels for earnings.
  • New markets to drive business growth e.g. India, new emerging markets

Key Risks:

  • Bond rates (which is seen as a bond proxy and rising bonds yields would negatively affect SYD’s valuation) 
  • Slowdown in Australian travel and tourism. 
  • Universal calamity which might lead to downsizing of international travel.
  • Disappointment created by growth distribution and its absence.  
  • Disruptions caused due to cost pressure and operations.
  • Less exposure to Australia by International Airlines. 
  • Long-term competition majorly from Western Sydney Airport. 

Key Highlights:

  • SYD’s share price is $7.70 (+41.5% in comparison to past year); however cannot surpass the price which was at the beginning of pandemic i.e. $8.41.
  • Revenue of $341.6m indicated a sharp decline of -33.2%. The decrease in the rate of passengers of SYD was -36.4%.
  • SYD retained a financially healthy balance sheet with $2.9bn of liquidity as at 30 June.
  • EBITDA of $210.8m was down by -29.8%.
  • Revenue of Aeronautical constitutes 36% amounting to $110.82m, declined -36% or -27.0% on an adjusted basis on lower passenger volumes, down -36.4%.
  • Revenue of Retail (28% of the total revenue) amounts to $87.4m (or $27.5m when adjusted for rental abatements and doubtful debts) declined -40.6% (or -73.4% on an adjusted basis). 
  • Revenue of Property and car rental (27% revenue by segment) of $84.6m (or $83.5m when adjusted for rental abatements and doubtful debts), was down -22.3% (or up +1.1% on an adjusted basis).
  • Revenue of Car parking and ground transport consists of 9% amounting to $28.7m (or $27.8m when adjusted for rental abatements and doubtful debts), which was down -24.7%.

Company Profile:

Sydney Airport Holdings is a publicly–listed Australian holding company which owns a 100% interest in Kingsford Smith Airport via Sydney Airport Corporation. The company is listed on the Australian Stock Exchange and has its head office located in Sydney, New South Wales. The principal activity of the Company is investment in airport assets. The Company’s investment policy is to invest funds in accordance with the provisions of the governing documents of the individual entities within the Company. The Company consists of Sydney Airport Limited (SAL) and Sydney Airport Trust 1 (SAT1). The Trust Company (Sydney Airport) Limited (TCSAL) is the responsible entity of SAT1.

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

Inghams delivered a strong result in spite of national lockdowns in Australia and NZ

Investment Thesis 

  • The pricing condition is improving.
  • The largest integrated poultry producer in Australia and New Zealand.
  • Additional asset sales are planned.
  • Project Accelerate has proven to be effective in increasing labor productivity and automation, resulting in increased earnings despite lower revenue.
  • Procurement measures are being executed, and the results are meeting expectations.
  • Investing in Australia and New Zealand plants to boost capacity and capabilities across the board.
  • With a healthy balance sheet, capital management measures are high on the agenda.

Key Risks

  • Re-negotiation of important contracts with significant clients on less favourable terms.
  • Increased feed and electricity costs, which could be passed on to customers through market price hikes, lowering competitiveness.
  • Uncertainty arises from the lack of information on the appointment of a new CEO.
  • In QSRs (Quick Service Restaurants) and supermarkets, there is a risk of customer concentration.
  • Exotic disease outbreaks are a risk, limiting ING’s ability to produce poultry goods.
  • From the parent stock provider, there has been a significant decline in volume and quality.
  • Material disruptions in ING’s intricate and interconnected supply chain.

Key FY21 group results 

Despite the impact of Covid-19, ING delivered solid FY21 results that were in line with management’s recent guidance (EBITDA & NPAT) issued on May-21. In comparison to the previous year, group revenue increased by +4.4 percent (with Core Poultry volumes increasing by +4.2 percent, with volume growth in NZ exceedingly strong at +6.3 percent), underlying EBITDA increased by +9.6 percent, and underlying NPAT increased by +57.4 percent. Coverage expansion in wholesale and recovery in the QSR and food service channels drove top-line growth. Total dividends increased +17.9 percent year on year to 16.5cps, representing a payout ratio of 71 percent after earnings growth (in line with policy targets of 60 – 80 percent of underlying NPAT post AASB 16 adjustments). The balance sheet is in excellent shape, with net debt falling by -23.7 percent to $240.2 million in the last year. Group leverage fell from 1.8x to 1.2x, well within management’s 1.0–2.0x target range.

Company Description  

Inghams Group Ltd (ING) is Australia and New Zealand’s largest integrated poultry producer. The Company produces and sells chicken, turkey and stock feed that are used by the poultry, pig, dairy and equine industries. Over one quarantine facility, over ten feed mills, over 74 breeder farms, over 11 hatcheries, over 225 predominantly contracted broiler farms, over seven primary processing plants, over seven further processing plants, over one protein conversion plant, and over nine distribution centres are among the Company’s operations in Australia and New Zealand. Ingham’s and Waitoa are two of the company’s brands.

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

Analysts estimate increase in Stifel Fair Value

Additionally, an initial need for capital in the recession and then low interest rates and a strong stock market led to high capital-raising activity.

Stifel Financial has a long history of being an active acquirer. With several hundred million dollars of arguably excess capital, the company could make some decent-size acquisitions. The company may see some growth from a renewed commitment to its independent advisor business.

Stifel has been deepening its expertise in certain niche areas lately through acquisitions. The KBW merger improved the company’s presence in financial industry investment banking, and Stifel has made a series of public finance firm acquisitions over the past several years. In wealth management, adding Barclays’ advisors can help the firm move more upmarket. The investment banking and wealth management landscape is undergoing a decent amount of change from regulations, such as those related to capital requirements and fiduciary standards.

Financial Strength:

Stifel’s financial health is fairly good. At the end of 2020, the company had approximately $1.1 billion of corporate debt and over $2 billion of cash on its balance sheet. Its next large debt maturity is $500 million in 2024.The Company’s total leverage is less than 8, which is fair considering the mix of its investment banking and traditional banking operations. At the end of 2020, Stifel was at its disclosed target of 11.9% Tier 1 leverage ratio. Given that its Tier 1 leverage ratio is above management’s previously stated target of 10%, the company would resume more material share repurchases or pursue acquisitions. 

Bulls Say:

Stifel’s string of acquisitions has increased operational scale and expertise. Stifel is an experienced acquirer and integrator. A recession could provide ample acquisition opportunities. Net interest income growth over the previous several years at the company’s bank materially expanded wealth management operating margins, and the increased size of the bank and wealth management business provides diversification with its institutional securities business.

Company Profile:

Stifel Financial is a middle-market-focused investment bank that produces more than 90% of its revenue in the United States. Approximately 60% of the company’s net revenue is derived from its global wealth management division, which supports over 2,000 financial advisors, with the remainder coming from its institutional securities business. Stifel has a history of being an active acquirer of other financial service firms.

(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

Positive effect on Amcor stock as the company’s net income and free cash flow increase

  • Flattering exposure to the growth of both emerging and developed markets.
  • A well-defined strategy for increasing shareholder value.
  • Acquisitions that are bolt-ons provide an opportunity to supplement organic growth.
  • A strong balance sheet.
  • Leveraged against a falling AUD/USD
  • Advantages from the recently finished Bemis acquisition will begin to flow.
  • Capital management initiatives include a $500 million share buyback currently underway.

Key Risks

The following are the key challenges to the investment thesis:

  • Management fails to realise the proposed synergies in the Bemis transaction.
  • Increasing competition causing margin erosion and potential balance-sheet stress (e.g. reduced earnings leading to potential debt covenant breaches).
  • Cost constraints on inputs that the company is unable to pass on to customers (even though the Company does pass through input costs).
  • Global economic growth has slowed.
  • Value-destroying acquisition.
  • The risk of emerging markets.
  • Unfavorable movements in the AUD/USD.

Highlights of key FY21 results

  • EBIT increased by 8% to $1,621 million, with margins enhancing by +60 basis points to 12.6 percent. 
  • GAAP net income of $939 million, a +53 percent increase, translates to GAAP EPS of 60.2 cents, a +58 percent increase (or adjusted EPS of 74.4 cents, a +16 percent increase on a CC basis, above guidance range).
  • Adjusted FCF of $1.1bn, flat -9.9 percent over pcp (albeit at the upper end of guidance range), effected by rising capex on organic growth projects, lower working capital benefit, and adverse tax payment timing compared to pcp.
  • Return on average funds employed of 15.4 percent, an increase of +140 basis points over the pcp. 
  • The Board declared a final dividend of 11.75 cents per share, bringing the full-year dividend to 47 cents per share, and repurchased $350 million (2% ) of outstanding shares.

Company Description 

Amcor Limited (AMC) is an international integrated packaging company offering packing and related services. Amcor primarily produces a wide range of packaging products which include corrugated boxes, cartons, aluminum and steel cans, flexible plastic packaging, PET plastic bottles and jars, and multi-wall sacks. The company has operations in Australasia, North America, Latin America, Europe and Asia.

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

Cleanaway’s Asset Acquisition of Suez in F.Y.22

Close-up LED charts and summary info for making stock trading graph

 It is clear about Cleanaway’s growth into materials recovery which features more favorable economics than waste collection. Under its “Footprint 2025” capital allocation strategy, the group will continue to focus investment in materials recovery and waste-to-energy, or WTE. 

Since fiscal 2016, Cleanaway has invested in excess of AUD 100 million in Greenfield materials recovery, waste treatment, and WTE projects. The recent purchase of the materials recovery assets of SKM Recycling represents a further step toward Cleanaway’s goal of moving further into the industry’s midstream.

Further diversifying Cleanaway away from waste collection is the acquisition of Toxfree in late fiscal 2018, skewing Cleanaway’s earnings stream away from collections, the most competitive segment of the waste management value chain.

Financial Strength

Cleanaway has made further progress on its proposed AUD 501 million acquisition of key Australian post-collection assets from Suez, securing new debt facilities which will allow the deal to be fully debt funded. Therefore, balance sheet flexibility post deal completion exists should further acquisition opportunities arise. Cleanaway’s liquidity position is more than ample to secure the business’ operations without external financing through the medium-term. With minimal debt maturities over the fiscal 2021-24 period, Cleanaway’s sources of cash—those being cash at bank, undrawn debt and operating cash flow–are more than sufficient to fund Cleanaway’s ongoing operations. Cleanaway’s earnings exhibit little volatility through the economic cycle. As a result, its conservatively positioned balance sheet provides ample flexibility for further capital allocation to materials recovery and waste disposal assets —whether bolt-on or Greenfield–under Cleanaway’s Footprint 2025 strategy. 

Bull Says

  • Cleanaway is benefiting from industry consolidation.
  • Municipal waste contracts provide relatively stable cash flows through the economic cycle.
  • Capital allocation improved markedly under outgoing CEO Vik Bansal’s guidance.

Company Profile

Cleanaway Waste Management (ASX: CWY) is Australia’s largest waste management business with a national footprint spanning collection, midstream waste processing, treatment and valorization, and downstream waste disposal. Cleanaway is active in municipal and commercial and industrial, or C&I, waste stream segments and in nonhazardous and hazardous liquid waste and medical waste streams following the acquisition of Toxfree in fiscal 2018. While Cleanaway is allocating greater capital to midstream waste processing and treatment, earnings remain skewed toward waste collection. Cleanaway is particularly strong in C&I and municipal waste collection with strong market share in all large Australian metro waste collection 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.

Categories
Global stocks Shares

Orora Limited (ASX: ORA)

  • Exposure to the growth of both developed and emerging economies.
  • Headwinds in the near term should be factored into the price.
  • Following a recent strategic assessment, the strategy has been revised.
  • Bolt-on acquisitions (and the synergies that come with them) can help complement organic growth.
  • Leveraged against the AUD/USD and is now declining.
  • Corporate activities that could occur.
  • Management of capital (current on-market share buyback plus potential for additional initiatives).

Key Risks

  • Margin loss due to competitive forces.
  • Cost pressures in the supply chain that the company is unable to pass on to customers.
  • Economic conditions in the United States, emerging markets, and Australia are deteriorating.
  • Risk associated with emerging markets.
  • Adverse Movements in AUD/USD exchange rates 
  • OCC prices are decreasing.

FY21 group result highlights

Group revenue was slightly down (-0.8 percent) to $3.5 billion (up +7.8% in constant currency), operating earnings (EBIT) were up +11.6 percent to $249.1 million (up +17.3 percent in CC), underlying NPAT was up +23.7 percent to $156.7 million, EPS was up +29 percent to 16.9 cents (also driven by the on-market share buyback), and the full year dividend of 14cps up +16.7% on pcp. 2) Balance sheet. The impact of the on-market share buyback boosted leverage from 0.9x to 1.5x. Leverage, on the other hand, is still far below management’s goal range of 2 – 2.5x.

Company Description 

Orora Limited (ORA) provides packaging products and services. Orora is a global packaging manufacturer, distributor and visual communication solutions company The Company offers fibres, and glass and beverage can be packaged materials in Australia and Asia and packaging distribution services in North America and Australia.   

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

HT&E Limited (ASX: HT1)

  • Additional cost savings, notably a large reduction in corporate overhead expenditures.
  • The ATO and HT1 are anticipated to reach an agreement in the near future.
  • Changes in media ownership rules could lead to more corporate activity. Upside to the valuation of Soprano (25% interest) 
  • Initiatives for capital management that are still in progress.
  • A solid financial statement.

Key Risks

  • Decline in advertising dollars (radio and outdoor), particularly if Australia’s retail industry is under stress.
  • The structure of radio is being disrupted.
  • Increased tender competition from large players.
  • With worldwide expansion, there is a danger of poor execution.
  • The tax liabilities of the Australian Taxation Office materialize at a higher level than expected by the market.
  • Hong Kong could detract from the group’s performance (Corona virus or protests escalate).
  • Lockdowns relating to Covid-19 are being reintroduced around the country.

1H CY21 group results 

HT1 had a great first half of the year, owing to a solid market recovery. Core revenue increased by 18.2 percent to $109.9 million, underlying EBITDA increased by 55.9% to $30.4 million, underlying EBIT increased by 139.5 percent to $23.7 million, and NPAT increased by 352.8 percent to $16.3 million. On a like-for-like basis, group sales increased by 21%, owing to higher consumer confidence and advertising spend in Australia and Hong Kong. Higher cost of sales (ongoing investment in digital audio capability) and the resumption of marketing and certain discretionary spending that were deferred to the pandemic in the pcp drove up operating costs (up +9% vs pcp, or up +12% on a similar basis). The Board reinstated the dividend and announced a fully franked interim dividend of 3.5cps vs. zero in the PCP due to strengthening market circumstances.

Company Description  

HT&E Limited (HT1) is a media and entertainment company with operations in Australia, New Zealand and Hong Kong. The Company operates the following key segments: (1) Australian Radio Network (ARN) – metropolitan radio networks including KIIS Network, The Edge96.One and Mix106.3 Canberra; (2) Hong KongOutdoor (Cody) – Billboard, transit and other outdoor advertising in Hong Kong, with over 300 outdoor advertising panels and in-bus multimedia advertising across 1,200 buses; and (3) Digital Investments – digital assets including iHeartRadio, Emotive and Conversant Media.   

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

Cochlear’s FVE Up 9% Driven by a Stronger U.S. Dollar and Lower Expenses

Cochlear implants became the standard of care many years ago for children in developed markets with profound hearing loss or deafness. Large price differentials in the lower range of products result in 80% of revenue being earned in developed markets and 20% in tender-oriented emerging markets. Currently, penetration is still estimated to be under 5%, and Cochlear is at a pivot point as it invests to be adopted more widely by seniors with profound hearing loss. Prevalence of profound hearing loss increases over 65 years and has a steep increase from over 80 years of age. However, hearing aids, not cochlear implants, are the standard of care. Cochlear is investing significantly to grow awareness as well as funding research to support pay or reimbursement.

Financial Strength

The company has typically enjoyed low capital intensity and high cash conversion, affording it to pay out 70% of earnings as a dividend. However, with the confluence of operational weakness due to deferred elective surgeries as a result of the coronavirus, a peak in the capital cycle, and a patent infringement penalty becoming payable, the company faced a liquidity crunch. Consequently, it completed an AUD 850 million equity raise in fiscal 2020, adding an additional 10% to shares on issue and we forecast the company to carry no net debt for the foreseeable future. The company is not acquisitive and organic growth is driven by R&D spending of roughly 12% of revenue per year.

Wide-moat Cochlear’s fiscal 2021 underlying NPAT rebounded 54% to AUD 237 million following the resumption of elective surgeries. As vaccination rates increase, the firm anticipates a continued recovery and provided fiscal 2022 NPAT guidance of AUD 265 million-285 million. The guidance is based on a USD/AUD exchange rate of 0.74 and doesn’t factor in material disruption from COVID-19. Our fair value increases by 9% to AUD 175, driven by our forecast 0.72 USD/AUD exchange rate from 0.77 prior. We also decreased our long-term assumptions for the tax rate and R&D investment as a percentage of sales to 25% and 12%, respectively, from 27% and 13% prior. 

Fiscal 2021 implant sales grew 19% constant-currency on 15% growth in unit sales. Despite a much stronger USD, our revised fiscal 2022 revenue forecast of AUD 1,627 million implies just 9% growth on fiscal 2021. Shares still screen as overvalued with our forecast five-year revenue growth of 9% unchanged. Cochlear declared a final dividend of AUD 1.40 per share with full-year dividends representing a 71% dividend payout on underlying NPAT but unfranked as a result of fiscal 2020 losses.

Bulls Say’s 

  • Continued strong top-line growth is likely to be more challenging and dependent on growing penetration in emerging markets and adults in developed markets.
  • The more reliable annuitylike revenue stream from sound processor upgrades is forecast to contribute an increasingly larger proportion of group earnings as it is driven by a growing installed base.
  • The company enjoys low capital intensity and high gross margins and cash conversion, enabling Cochlear to afford a 70% dividend payout ratio in a typical year.

Company Profile 

Cochlear is the leading cochlear implant device manufacturer with around 60% global market share. Developed markets contribute 80% of group revenue where cochlear implants are the standard of care for children with severe to profound hearing loss. The company also actively targets the growing cohort of seniors in developed markets. Tender-oriented emerging markets contribute the remaining 20% of group revenue. Main products include cochlear implants, bone-anchored hearing aids, or BAHA, and associated sound processors. In fiscal 2020, 49% of revenue came from the Americas, 35% from EMEA, and 16% from the Asia-Pacific segment.

(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.