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Sanofi’s Discontinuation of Cancer Drug Amcenstrant Is Disappointing, but No Major FVE Impact

Business Strategy & Outlook

Sanofi’s wide line up of branded drugs and vaccines and robust pipeline create strong cash flows and a wide economic moat. Growth of existing products and new product launches should help offset upcoming patent losses. Sanofi’s existing product line boasts several top-tier drugs, including immunology drug Dupixent. Dupixent looks well positioned to reach peak sales over EUR 14 billion, with an initial focus on the moderate to severe atopic dermatitis market. The additional indications in areas such as the more recently added severe asthma indication will help the drug serve additional patients. 

While Sanofi shares profits on the drug with Regeneron, the very high sales expected for the drug should provide a strong tailwind to overall growth for the company. Additionally, Sanofi holds a strong position with several vaccines and rare disease drugs that should hold up well as pricing pressures and competition tend to be less severe in these areas. The company also harnesses its research and development group to bring new drugs to emerging markets. While pricing in emerging markets is not usually as strong as in developed markets, the company can still leverage its investment in developing new drugs for developed markets by bringing the drugs to emerging markets. The rapid economic growth in emerging markets has created new geographic markets for Sanofi’s drugs. A history of acquisitions and robust cash flow from operations means Sanofi could take advantage of further growth opportunities through external collaborations. Sanofi’s acquisition focus on immunology drugs and rare disease drugs will continue following several deals in this area.

Financial Strengths

Sanofi is to remain on solid financial footing, closing 2021 with a debt/EBITDA ratio of 2 times. Further, the company generates stable cash flows that should enable the firm to meet its dividend payments and still accumulate significant cash reserves. The company redeployed its cash through bolt-on acquisitions in the neighborhood of $2 billion-$5 billion each year to augment its internal research and development. The recent sale of Regeneron stock of close to $12 billion may open up the possibility of a larger acquisition.

Bulls Say

  • Sanofi is launching immunology drug Dupixent, which holds strong pricing power and major blockbuster potential across several indications.
  • Sanofi’s strong entrenchment in rare-disease drugs should translate into steady pricing power as payers tend not to push back on pricing in this area. 
  • With a wide product offering in vaccines, consumer health and insulins, Sanofi is well positioned for the fast-growing emerging markets.

Company Description

Sanofi develops and markets drugs with a concentration in oncology, immunology, cardiovascular disease, diabetes, and vaccines. However, the company’s decision in late 2019 to pull back from the cardiometabolic area will likely reduce the firm’s footprint in this large therapeutic area. The company offers a diverse array of drugs with its highest revenue generator, Dupixent, representing just over 10% of total sales, but profits are shared with Regeneron. About 30% of total revenue comes from the United States and 25% from Europe. Emerging markets represent the majority of the remainder of revenue.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

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Global stocks Shares

Merck’s Current Portfolio Looks Well Positioned for Growth in the Near Term

Business Strategy & Outlook

Merck’s combination of a wide line-up of high-margin drugs and a pipeline of new drugs should ensure strong returns on invested capital over the long term. Further, following the divestment of the Organon business in June 2021, the remaining portfolio at Merck holds a higher percentage of drugs with strong patent protection. On the pipeline front, after several years of only moderate research and development productivity, Merck’s drug development strategy is yielding important new drugs. Merck’s new products have mitigated the generic competition, offsetting the recent major patent losses. In particular, Keytruda for cancer represents a key blockbuster with multi-billion-dollar potential: It holds a first mover advantage in one of the largest cancer indications of non-small cell lung cancer with excellent clinical data. Also, the new cancer drug combinations will further propel Merck’s overall drug sales. However, the intense competition in the cancer market with several competitive drugs likely to report important clinical data over the next couple years in earlier stage cancer settings. Other headwinds include generic competition, notably to diabetes drug Januvia, likely to intensify in 2023. After several years of mixed results, Merck’s R&D productivity is improving as the company shifts more toward areas of unmet medical need. Owing to side effects or lack of compelling efficacy, Merck experienced major setbacks with cardiovascular disease drugs anacetrapib, Tredaptive, Rolofylline, and TRA along with Telcagepant for migraines. Safety questions ended the development of osteoporosis drug odanacatib. Despite these setbacks, Merck has some solid successes, including a successful launch for its PD-1 drug Keytruda in oncology. Following this success, Merck is shifting its focus toward areas of unmet medical need in specialty-care areas, and Keytruda is leading this new direction. Keytruda’s leadership in non-small cell lung cancer will be a key driver of growth for the company over the next several years.

Financial Strengths

Merck remains on solid financial footing. The company closed 2021 with debt/capital of 46%, and strong cash flows expected over the next several years should further strengthen the balance sheet. Also, with the spinoff of Organon, Merck received a one-time payment from Organon of $9 billion. Merck redeployed this capital through the acquisition of Acceleron to help fortify its late-stage pipeline. Merck has signalled a strong willingness to make acquisitions, and historically it has tended to make several bolt-on acquisitions each year. Given that Merck hasn’t made any major acquisitions since the Schering-Plough deal in 2009, it will make a larger acquisition over the next two to three years. Beyond acquisitions, the steady future dividends, supported by a payout ratio of close to 50% relative to adjusted earnings per share.

Bulls Say

  • Keytruda looks best positioned in the immuno-oncology landscape, buoyed by a first-mover advantage in the important indication of first-line non-small cell lung cancer.
  • The growth in Merck’s high margin cancer drugs should help expand the company’s overall operating margin.
  • Merck supports a strong dividend yield that looks secure based on a wide diversified portfolio of drugs.

Company Description

Merck makes pharmaceutical products to treat several conditions in a number of therapeutic areas, including cardiometabolic disease, cancer, and infections. Within cancer, the firm’s immuno-oncology platform is growing as a major contributor to overall sales. The company also has a substantial vaccine business, with treatments to prevent hepatitis B and pediatric diseases as well as HPV and shingles. Additionally, Merck sells animal health-related drugs. From a geographical perspective, just under half of the firm’s sales are generated in the United States.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

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ALS’ global network of more than 350 laboratories provides a geographically diverse revenue base

Global network and financial technology concept.

Business Strategy & Outlook

ALS is a global provider of analytical testing and inspection services; it also has a small Australian-focused distribution business. While dominating the fragmented Australian market, and being a large global player in commodity and environmental testing, it is trumped by the majors, Bureau Veritas, SGS, and Intertek in non-destructive testing and inspection. Services include laboratory testing for the mineral, coal, environmental, food, and pharmaceutical segments. Excellent reputation, technical capabilities, a global network, and established relationships with global clients are key advantages over often fragmented competitors. While laboratory equipment is readily available, it is the service and ability to meet customer requirements in a cost-effective way that helps ALS retain clients and expand the existing business. Earnings volatility stems from significant exposure to cyclical commodity markets, particularly exploration. ALS’ global network of more than 350 laboratories provides a geographically diverse revenue base: 37% Asia-Pacific, 36% Americas, 24% EMENA, and the balance Africa. This global network reduces region reliance and gives it the capability to leverage experience across borders and serve an international client base.

During the mining boom, the minerals division was the growth engine. EBIT almost doubled within two years, and minerals still accounts for just under half of group EBIT. It provides services across the exploration, expansion, and production stages. These include sample preparation, quantity and quality analysis, grading and process plant control/optimisation, and reshipment inspection across a vast range of minerals and commodities such as gold, silver, platinum, iron ore, nickel, bauxite, and uranium. Earnings are heavily tied to exploration-type projects. ALS charges market-leading prices for superior service, reputation, and timeliness. ALS life sciences undertakes environmental, pharmaceutical, and food testing. The flow-on impacts of population growth, and developing world urbanisation driving public and private infrastructure expansion, are expected to increase demand in these areas.

Financial Strengths

ALS is in reasonable financial health. At the end of fiscal 2015, acquisitions and capital expenditure had pushed net debt to AUD 776 million and gearing to 37%. A subsequent AUD 325 million capital raising meant gearing fell to near 28% and net debt/EBITDA from 2.6 times to a manageable 2.0 times.

Incremental acquisitions in the life sciences segment have again been accompanied by increasing group net debt. Despite strong net operating cash flow in fiscal 2022, net debt increased nearly 50% on the previous corresponding period to AUD 902 million, reflecting AUD 410 million in capital and acquisition expenditure and AUD 131 million on dividends. Gearing rose to 44% from 36% and net debt/EBITDA to 1.8 from 1.6. While not low, this remains a comfortable level of gearing, particularly given the reliability of life sciences revenue and the fact that this segment has grown to 53% of group total revenue. Gearing remains within the limits of ALS’ sub-45% target ratio. Excluding acquisitions, projected sub-1.0 net debt/EBITDA by fiscal 2027, though ALS’ acquisitiveness makes a sub-1.0 target unlikely.

Management has continued to seek additional bolt-on acquisitions, particularly in the life sciences area, but given cyclical earnings and a weaker environment for mineral and coal testing, the focus remains on balance sheet conservatism. Many companies servicing the mining sector were crippled during the global financial crisis, when a dangerous combination of high debt levels and volatile earnings required large capital raisings to keep them afloat. ALS avoided this by increasing earnings diversity, keeping debt levels manageable, and turning to shareholders when it needed to fund acquisitions. The capital base has increased significantly since fiscal 2005, funding acquisitions of The Reservoir Group in the U.S., Enviro-Test Lab Group in Canada, Ecochem in the Czech Republic, and Pearl street, Ecowise, and Ammtec in Australia.

Bulls Say

  • ALS has diversified the earnings base to mitigate exposure to highly cyclical commodity markets. Expansion into food and pharma testing, as well as inspection and certification markets, should provide growth despite a significant slowdown in minerals testing.
  • Large clients are unlikely to move away on price alone, with quality and skills essential requirements.
  • Exposure to mineral and coal testing could once again provide earnings growth if the global economy’s appetite for commodities increases.

Company Description

Founded in the 1880s and listed on the ASX in 1952, ALS operates three divisions: commodities, life sciences, and industrial. ALS commodities traditionally generated the majority of underlying earnings, providing geochemistry, metallurgy, inspection and mine site services for the global mining industry. Expansion into environmental, pharmaceutical and food testing areas and commodity price weakness have lessened earnings exposure to commodities.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

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Global stocks Shares

APM needs to maintain is navigating and executing bid processes within the government sector

Business Strategy & Outlook

APM Human Services International’s strategy revolves around maintaining its superior service levels to renew existing contracts and gain market share at key government retenders. Over a government contract, which is typically longer than five years, slight market share gains and losses can arise if certain employment service areas, or ESAs, experience faster growth or from relocation due to contract underperformances. However, inorganic growth has been a key strategy for APM to expand more effectively and service new ESAs outside of government retenders. Industry players may expand their footprint of physical offices into new ESAs but would still need a license to operate in a new region. Greater scale allows APM to better leverage its personnel, locations, and brand awareness, and allows it to apply learnings and replicate service offerings more easily across its global operations. A core competency APM needs to maintain is navigating and executing bid processes within the government sector. This involves responding to governments’ requests for proposals, or RFPs, where APM would estimate cost structures and submit proposals with respect to both price and client outcomes. A common focus of governments is a strong track record of contract performance, capability, and the ability to deliver positive outcomes, but price is also a consideration.

Employment services contributed more than 75% of fiscal 2022 revenue but a key strategy of APM is to grow into the National Disability Insurance Scheme, or NDIS, sector. APM’s current exposure to the fast-growing NDIS sector is limited, with less than 5% of group revenue being sourced from NDIS. The market is currently very fragmented with limited national providers, but APM aims to consolidate the market and provide efficiency. Self-managed NDIS participants would need little assistance from APM but the share of participants choosing to work with plan managers, to assist with budgeting for example, has increased to over 50% in June 2022 from 30% in June 2019.

Financial Strengths

APM is in a comfortable financial position. As of June 2022, APM had AUD 431 million in net debt with net debt/EBITDA at 1.7 pre-AASB 16, that is, including all rental expenses. APM’s net debt/EBITDA is to remain under 1.0 over the explicit 10-year forecast period while also funding a 50% dividend payout ratio and flexibility to pursue organic or acquisitive growth opportunities. APM’s free cash flow generation is also strong. Free cash flow prior to acquisitions and dividends averaging 113% of net income over the next 10 years.

Bulls Say

  • APM has industry leading star ratings across its key Australian contracts which underpins its market share.
  • Earnings are defensive due to lengthy government contracts that are typically over five years.
  • APM is actively targeting the fast-growing NDIS sector and aims to bring efficiencies to the highly fragmented market.

Company Description

APM Human Services International Pty is engaged in providing services to job seekers and employers on behalf of the Australian Government. It is also involved in helping individuals in the prevention and proactive management of injuries. The company operates in Australia, Apac, Europe/UK and North America.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

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Global stocks Shares

URW’s large debt load has put the balance sheet under pressure

Business Strategy & Outlook

Unibail-Rodamco-Westfield, was formed in 1968, and it acquired several large malls through to 1995, and offices thereafter. In 2000 it launched a conventions and exhibitions business and is now the European leader in that sector. In 2007 Unibail merged with Rodamco, becoming the largest retail REIT in continental Europe. The group expanded into the U.K. and U.S. via the acquisition of Westfield in 2018. The Westfield acquisition was via a combination of cash and scrip, and management committed to non core asset sales to reduce debt. Progress was good until the COVID-19 crisis crimped its previous earnings certainty, and market sentiment toward Unibail-Rodamco. The group’s assets remain high quality, owning centres that are among the best in Europe and the U.S. Its iconic assets include the Carrousel du Louvre in Paris, Westfield Mall of Scandinavia in Stockholm, Westfield centres at Stratford and Shepherd’s Bush in London, the Westfield World Trade Centre in New York, Westfield Valley Fair in the San Francisco region, and many others.

Unibail’s malls to perform strongly as economic conditions normalise, and as rival low-quality malls in the U.S. close their doors. However, URW’s large debt load has put the balance sheet under pressure. Unibail was able to issue debt during the COVID-19 crisis at cheap prices (albeit slightly higher than 2019 levels), but needs to reduce debt. In November 2020, shareholders rejected a proposed EUR 3.5 billion equity raising. Unibail may instead exit its more than EUR 10 billion of assets in North America, sell approximately EUR 4 billion of assets in Europe, pay no distributions until 2023, and cut development spend. Given the fast-changing landscape, shouldn’t be surprised to see further adjustments to the strategy, with management taking an opportunistic approach, with options including full or partial asset sales, development partnerships.

Financial Strengths

URW is under financial pressure due to its high debt load combined with a hole in its earnings from coronavirus shutdowns, social distancing, and related economic damage. Its loan to valuation ratio of 41.5% (pro forma, as at June 30, 2022) is excessive. A proposed EUR 3.5 billion equity raising was rejected by shareholders in November 2020, URW instead raising cash through European asset sales over 2021 and 2022, and potentially more than EUR 10 billion of sales in North America. The capital proceeds will be used to repay debt, and are confident gearing can be brought under 35%, however, to go much lower than that will require favourable conditions for asset sales, which could take time. If the economy approaches normal conditions and other planned cash collection/retention measures proceed, the company should be on a firmer footing. However, it is possible URW would have to raise equity again if high interest rates persist, or there is a severe and prolonged recession, or virus restrictions return. There remains a remote risk this could completely wipe out current securityholders if all of these negatives occurred, though this would be an extreme scenario. URW’s long-dated debt profile and leases linked to CPI and tenant sales provide some protection from these risks.

Bulls Say

  • COVID-19 vaccine rollouts, and the milder omicron virus variant, should help URW’s rents and asset sales in coming years.
  • URW tenants have recovered to sales numbers near and even exceeding pre-COVID-19 levels. This suggests that rents should eventually recover and exceed pre-COVID-19 levels once vacancies continue to reduce.
  • Although e-commerce competition is intense, a lot of the damage has already been done. URW’s affluent catchments remain desirable for retailers, who require a physical presence to maintain their brand and customer service standards.

Company Description

Unibail-Rodamco-Westfield, or URW, owns a portfolio of quality malls, about two thirds in continental Europe. Since acquiring Westfield in 2018 URW also has about 10% in the U.K. and about 25% in the U.S., but it plans to drastically reduce exposure to the latter. More than 90% of rent comes from shopping centres, the remainder from offices, mostly Paris, as well as some offices attached to mixed-use assets around the world, and a similar amount from a conventions and exhibitions business in France.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

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Global stocks Shares

Gross margins should continue to benefit as BBN flows more product through its National DC

Investment Thesis

  • Mandatory product safety standards for baby goods in Australia limit supply sources and provide barriers to entry to international competitors.
  • BBN has the largest presence in Australia amongst specialty baby goods retailers. 
  • Low risk that online sales threaten the high service business model of brick-and-mortar stores to showcase goods and in-store advice.
  • Solid growth story via new store openings (targeting 100+ stores network).
  • Strong market shares in a highly fragmented market.
  • NZ’s $450m addressable market represents another opportunity. The Company will have 2 stores by the end of FY23. 
  • Management is looking at ways to expand BBN’s addressable market from the A$2.5bn today to the broader A$5.1bn baby goods market. This will likely include category expansion and other growth opportunities

Key Risks

  • Retail environment and general economic conditions in addressable markets may deteriorate. 
  • Competition may intensify especially from online retailers such as Amazon, specialty retailers, department stores, and discounted department stores.
  • Customer buying habits/trends may change. Rapid changes in customer buying habits and preferences may make it difficult for the Company to keep up with and respond to customer demands. 
  • Higher operating and occupancy costs. Any increase in operating costs, especially labor costs will affect the Company’s profitability.
  • Poor inventory control and product sourcing may be disrupted. 
  • Management performance risks such as poor execution of store rollout especially into ex-metro areas.

Key Highlights: Relative to the pcp and on a constant currency basis: 

  • Sales of $507.3m were up +8.3%, with same-store comparable sales up +5.0%. Management noted that 2H new store sales revenue fell short of expectations by ~$10m due to handover delays (availability of trades & delays in material imports). Some of these sales (~$3m) will now fall in FY23. During the year, 45.3% of all sales were either private label or exclusive product brands and grew +18.3% YoY. BBN’s Private Labels 4baby, Bilbi and JENGO brands grew +31.5% YoY and make up 8.2% of sales. The Company remains on target to achieve 50% of sales from private sales.
  • Gross profit of $195.8m was up +12.7% on pcp, with GP margin up +151bps to 38.6% and minimal changes to promotional activity. BBN now has ~80% of sales flowing through its National Distribution Centre and aims to get this up to 90%. Whilst managed, international freight costs and currency impacts are being managed. Cost of doing business (CODB) as a percentage of sales increased by +85bps to 28.6% (from 27.8%)
  • Operating earnings (EBITDA pre-AASB 16) were up +16.1% to $50.5m (with EBITDA margin up +70bps to 10.0%) and NPAT (post-AASB 16) was up +13.6% to $29.6m
  • Operating cash flow improved $14m to $36.1m, driven by significantly lower working capital
  • The Company declared a final dividend of 9.0cps, taking the full year dividend to 15.6cps (up 10.6% YoY). The Board continues to target a payout ratio in the range of 70-100% pro forma NPAT.

Company Description

Baby Bunting Group Limited (BBN) is Australia’s largest nursery retailer and one-stop-baby shop with 42 stores across Australia. The company is a specialist retailer catering to parents with children from new-born to 3 years of age. Products include Prams, Car Seats, Carriers, Furniture, Nursery, Safety, Babywear, Manchester, Changing, Toys, Feeding and others.

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks Shares

TPW is well positioned to benefit from the structural tailwind behind the migration of offline to online sales

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. 

Key Highlights: Relative to the pcp and on a constant currency basis: 

  • Group revenue was up +31 to $426m, driven by an increase in active customers (up +21% to 940k) and revenue per active customer (up +6%). 
  • Revenue per active customer growth was a function of both growth in average order   values and the repeat rate.
  • Group EBITDA of $16.2m was down -21% YoY and represented a margin of 3.8% which came in at the high end of management’s guidance range of 2-4%. Adjusting for the investment of $1.7m in TPW’s new home improvements site – thebuild.com.au – and share based payments, adjusted EBITDA was $19m and EBITDA margin was 4.5%.

Company Description

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: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks Shares

Pebblebrook should continue to recover as business and group travel eventually returns to 2019 levels by 2024

Business Strategy & Outlook

Pebblebrook Hotel Trust is the largest U.S. lodging REIT focused on owning independent and boutique hotels. After Pebblebrook merged with LaSalle Hotel Properties in December 2018, the company owns 54 upper-upscale hotels, with more than 13,300 rooms located in urban, gateway markets. Pebblebrook’s combined portfolio has a higher revenue per available room price point and EBITDA margin than its hotel REIT peers. The recent merger with LaSalle provides Pebblebrook some new avenues to create value for shareholders. The company doubled in size while taking on only a portion of the general and administrative costs, making the combined company more efficient. Pebblebrook’s CEO, Jon Bortz, previously ran LaSalle and acquired many of the hotels in that portfolio. His knowledge of those hotels combined with management’s demonstrated ability to maximize margins should allow him to implement cost-saving initiatives that drive up margins. Additionally, management has begun an extensive renovation program across both the LaSalle portfolio and the legacy portfolio that will drive EBITDA gains over time.

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

Financial Strengths

Pebblebrook is in solid financial shape from a liquidity and a solvency perspective after the merger with LaSalle, but the additional assets sales will put the company in great financial shape. The company seeks to maintain a solid but flexible balance sheet, which will serve stakeholders well. Pebblebrook does not currently have an unsecured debt rating. Instead, it uses secured debt on its high-quality portfolio and takes out unsecured term loans. Debt maturities in the near term should be manageable through a combination of refinancing and the company’s free cash flow. Additionally, the company should be able to access the capital markets when acquisition opportunities arise. In the year 2024, the operations will fully return to normal, net debt/EBITDA and EBITDA/interest will be roughly 5.5 and 5.8 times, respectively, both of which are within the long-term target for the company and should continue to improve over time. As a REIT, Pebblebrook is required to pay out 90% of its income as dividends to shareholders, which limits its ability to retain its cash flow. However, the company’s current run-rate dividend is easily covered by the company’s cash flow from operating activities, providing plenty of flexibility for capital allocation and investment decisions. Pebblebrook will continue to be able to access the capital markets given its current solid balance sheet and its large, higher-quality, unencumbered asset base.

Bulls Say

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

Company Description

Pebblebrook Hotel Trust currently owns upper-upscale and luxury hotels with 13,366 rooms across 54 hotels in the United States. Pebblebrook acquired LaSalle Hotel Properties, which owned 10,451 rooms across 41 U.S. hotels, in December 2018, the company current Pebblebrook CEO founded in 1998, though management has sold many of those hotels over the past few years. Pebblebrook’s portfolio consists mostly of independent hotels with no brand affiliations, though the combined company does own and operate some hotels under Marriott, Starwood, InterContinental, Hilton,

and Hyatt brands.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks Shares

CSL was able to grow plasma collections significantly, albeit at a higher cost, with collections up by 24%

Investment Thesis

  • The DCF valuation of CSL is >10% above the current share price. 
  • Strong FY23 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: Relative to the pcp and on a constant currency basis: 

  • Revenue was up +3% to $10,242m, driven by strong growth in haemophilia B product IDELVION® and key specialty product KCENTRA®, up +20% and 18% respectively, and strong performance in its influenza vaccines business, CSL Seqirus, which saw revenue up +13%. HPV royalties were up 55% rebounding strongly to now exceed pre-Covid levels following strong demand and increased supply. 
  • NPAT of $2,236m, down -6% was at the top end of guidance, despite a difficult global environment, and immunoglobulin sales limited by constrained plasma collections in FY21, which however, improved 2H22 which saw growth in plasma collected. 
  • Earnings per share of $4.81, was down -8%. 
  •  Acquisition of Vifor Pharma completed on 9 August 2022.
  • By key segments. CSL Behring: Revenue was up +2% to $8,598m driven by Haemophila, up 8% to $1,166m, and Specialty, up +3% to $1,792m, offsetting Immunoglobulins, down -3% to $4,024m and Albumin, down -1% to $1,072m. The segment was driven by IDELVION, up +20%; KCENTRA, up +18%; HAEGARDA, up +5%; HPV royalties, up +55%; whilst Immunoglobulin declined -3%. Plasma collected was up +24%. Gross profit of $4,580m was down -4%, whilst gross profit margin fell to 53.3% from 56.5%. 
  • CSL Seqirus: Revenue of $1,964m was up +13%. Seasonal influenza vaccines sales were up +16% driven by US sales which were greater than $1bn for the first time and FLUAD® was up +41%. The segment saw record volume of ~135 million doses distributed in FY22. On a further positive note, the US Centers for Disease Control and Prevention adopted the Advisory Committee on Immunisation Practices recommendation that FLUAD® be a preferentially recommended seasonal vaccine option for adults aged 65+ years. Gross profit of $1,152m was up +16%, whilst gross profit margin improved to 58.7% from 57.3%.

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)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks Shares

REA Group Ltd (REA) reported strong FY22 results reflecting revenue growth of +26% to $1,170m, an increase in EBITDA

Investment Thesis:

  • Clear 1 market position in online property classifieds, with consumers spending over more time on realestate.com.au app than the number two website. 
  • Growth opportunities via expansion into Asia and North America.
  • Recent strategic partnerships with National Australia Bank (property finance) could potentially be positive in the long term. 
  • Upside in key markets – particular in areas where REA is under-penetrated and could potentially win market share from competitors. 
  • New product developments to increase customer experience. 
  • Regular price increases help offset listing pressure. 

Key Risks:

  • Competitive pressures lead to a further de-rating of the PE-multiple.
  • Volume (listings) outlook remains subdued in the near term. 
  • Execution risk with Asia/North America strategy.
  • Failing to get an adequate return on the recent acquisition of iProperty.
  • Value/EPS destructive acquisitions. 
  • Decline in Australian property market.
  • Given REA trades on a very high PE-multiple, underperforming to market estimates can exacerbate a share price de-rating.
  • Recent tightening of lending practices by banks would affect the Financial services business.

FY22 Results Highlights: Relative to the pcp: Revenue of $1,170m, up +26%. 

  • EBITDA (including associates) of $674m, up +19%. Core operating costs jumped +34%, mainly due to Mortgage Choice and REA India acquisitions. Excluding acquisitions, core operating costs increased +11%, reflecting a tight labour market driving higher remuneration costs, an increase in revenue-related variable costs, and investment in brand and marketing. 
  • Net profit of $408m, up +25%. EPS of 308 cents, up 25%. 
  • The Board declared a fully franked final dividend of 89cps which brings the full year dividend to 164cps, up 25%. 
  • REA retains a solid balance sheet. As at 30 June 2022, REA’s total drawn debt was $414m, with a cash balance of $248m. Free cash flow generation remains strong at $394m in FY22, up +55%.
  • Performance by segments. Relative to the pcp: Australia. In Australia, REA operates realestate.com.au and realcommercial.com.au, data and insights business, PropTrack, and mortgage broking business, Mortgage Choice. Core revenue of $1,116m was up 23%, or 18% excluding the impact of the Mortgage Choice acquisition, driven by Residential revenue up +24% to $776m, Commercial and Developer revenue up +3% to $134m, Media, Data and Other revenue up +9% to $97m, and Financial Services core operating revenue jumping +12%, on a pro forma basis to $79m (assuming REA owned Mortgage Choice in the prior period). India. REA India achieved strong results with revenue growth of 92% to $54m on a pro forma basis (assuming it was owned for the full prior period), largely driven by Housing.com’s property advertising business, which saw strong customer growth. 
  • Equity accounted investments. REA has a 20% investment in Move, Inc. (Move) which operates realtor.com®, a property portal in North America. Move revenue increased 11% on traditional lead generation and referral model growth. However, Move also saw higher employee and marketing costs as the business continues to reinvest. This resulted in a $2m decline in Move’s equity accounted contribution to $14m. REA also holds a 17.5% stake in PropertyGuru Group Ltd, which contributed an equity accounted loss of $6m in FY22 to core EBITDA. 
  • FY22 Results 

Company Description:

REA Group (REA) provides online property listings, web management, financial services and data analytics to the real estate industry via advertising services. For consumers, REA offers the largest online real estate search engine in Australia. The Company also has operations and a growing presence in Asia and other parts of the world.

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.