Category: Sectors

Categories
Dividend Stocks

PTM continued to struggle with outflows primarily due to weak absolute investment returns

Investment Thesis

  • Trades on an attractive dividend yield. 
  • PTM is in a position to attract net inflows as value-oriented strategies may make a sustained comeback.
  • Further pressure can be seen on the funds management industry and fees (as a result of industry and super funds building inhouse capabilities and passive investing with significantly lower fees/asset allocators becomes more of the norm). 
  • Change in management or investment management team. 
  • Industry consolidation could benefit PTM (potential M&A target).

Key Risks

  • Any significant outperformance across funds. 
  • Kerr Neilson’s departure from the Board could be disruptive. 
  • Potential change in regulation (superannuation) with more focus on retirement income (annuities) than wealth creation. 
  • There are earnings risks to the downside from pressures on fees. 
  • Emergence of industry funds who are building in-house capabilities. 
  • PTM’s investment style becomes out of favour.

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

  • Total revenue declined -26.4% y/y to $232.8m, as fee revenue decreased -6.1% y/y to $252.7m, with -7.2% y/y decline in management fees (excluding performance fees) amid -8.5% y/y decline in average FUM to $21.4bn, partially offset by +67.5% y/y increase in performance fees to $6.7m, primarily from absolute return mandates and Asia strategy driven largely by the benefit of downside protection provided by short positions, and the company incurred $20.4m unrealised losses on seed investments vs $46.7m profit in pcp. 
  • Expenses increased +4.7% y/y to $86.1m, primarily driven by +3.9% y/y increase in staff costs reflecting increase in share-based payment expenses due to additional deferred equity granted to employees, and +16.7% increase in business development expenses which included the launch of the Platinum Investment Bond product (and its direct to-market proposition) and associated new campaigns, the growth in social media advertising, and third-party distribution costs. 
  • Underlying NPAT, which excludes gains and losses on seed investments (net of tax), declined -10.9% y/y to $118.2m. 
  • FUM declined -22.6% y/y to $18.2bn, driven by negative investment performance of $2.2bn, net fund outflows of $2.2bn and the net distribution paid to investors of $0.9bn. 
  • The Board declared a fully franked final dividend of 7cps, down -42% y/y, equating to ~9.8% annualized yield, taking the full year dividend to fully franked 17cps, down -29% y/y. 
  • The Board extended its on-market share buyback for upto 10% of issued share capital for further period of upto 12-months, commencing from 4th October 2022, intending to buy shares should the Board determine that PTM’s share price is trading at a significant discount to its underlying value. 
  • International Fund delivered absolute performance of -5.9% during the year, outperforming the MSCI AC World Net Index ($A) by +210 bps, as negative impact by contrarian view on inflation/loss making tech/EM/commodities was more than offset by benefit of downside protection provided by short positions. However, the fund continues to underperform the benchmark by -380bps and -200bps on a 5-year and 10-year basis, respectively, while delivering outperformance of +440 bps (p.a.) since inception.
  •  Asia Fund delivered 1-year absolute return of -14.5%, however, outperformed benchmark by +360 bps, returning to outperformance of +230 bps, +200 bps and +410 bps (p.a.) over 5-year, 10-year and since inception basis.

Company Description

Platinum Asset Management (PTM) is an ASX-listed, Australian based fund manager which specializes in investing in international equities. PTM currently manages ~A$18.2bn.

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

Medibank Private (MPL) reported mixed 1H22 results – while group operating profit up +12.3% to $286.5m driven by growth

Investment Thesis

  • On valuation grounds relative to the current share price, MPL trades fair value. 
  • MPL is a quality business with a high-quality management team. 
  • Given Australia’s growing and ageing population, there will be increased demand for health care services. This will add additional pressure on Australia’s public health care system and the Federal budget and an increased dependence on private health care insurers. NHF offers exposure to the business model of providing a funding mechanism for the high-growth health care sector. Healthcare spending is expected to grow at 5-10% per annum, so without significant tax hikes, the government cannot afford for people to shift back to the public healthcare system. 
  • Given underlying increases in average premium rates of around 5 – 6% p.a., some policyholder growth (especially at the 30-34-year-old segment), estimates that MPL offers close to low double-digit underlying growth in the medium term. 
  • Potential to improve the company’s expense ratio. 
  • Room for industry-wide benefits such as losses from risk equalization funds as nonprofitable players are consolidated.
  •  Incentives and benefits encourage PHI take-up. They include 1. Tax benefits and penalties for Australian residents (via Lifetime Health Cover, Medicare Levy Surcharge and means tested rebate); and 2. Shorter wait times, a choice of specialist doctor/hospital and coverage of ancillary health services support.

Key Risks

  • Intensifying competition between top 6 players, putting policy growth targets at risk and any increases in expected marketing spend going forward will no doubt add further strain on earnings growth.
  • Policyholders declined unexpectedly, despite the incentives and Australian Government struggling with the rapid increase in healthcare spending and health services demand. 
  • Registered health insurers cannot increase premium rates without approval from the Government/Minister for Health/PHIAC/APRA. This leaves NHF’s ROE and margins exposed to a political process and pressures if the company is deemed too profitable. 
  • Regulatory changes especially relating to any changes to tax incentives and benefits which encourage take up of PHI. 
  • Higher than expected lapse rates and claims inflation as a result of poor insurance policy design, aging population, and costs of new medical equipment, procedures and treatments. 
  • Poor negotiations with healthcare providers such as private hospital operators leading to unfavourable contractual terms. 
  • Lower than expected investment returns.

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

  • Group operating profit up +12.3% to $286.5m driven by growth in both MPL’s segments – Health Insurance and Medibank Health. 
  • NPAT was down -2.7% to $220.2m, on lower net investment income relative to the pcp. Underlying NPAT, which normalises for investment market returns, was up +4.4%. Net investment income of $30.9m, was down from $71.8m in 1H21, with income from the growth and defensive portfolios down $14.8m and $24.6m, respectively. Gross margin of 15.4% and operating margin of 8.1%, was a 20bps and 40 bps improvement over the pcp, respectively. 
  • The Board declared a fully franked interim dividend of 6.1cps, which equates to a 79.1% payout ratio of underlying NPAT which normalises for investment market returns, and within the target payout ratio range of between 75-85% of underlying NPAT. MPL expects the payout ratio to be towards the top end of the target range for the full year. 
  • Retains a strong capital position with health Insurance capital of $960.8m as at 31 December 2021, which equates to 13.0% of premium revenue after the allowance for the dividend declared with this result and is at the top end of the Board’s stated target range of 11.0-13.0%.
  • Health Insurance: Operating profit was up +10.3% to $280.9m driven by growth in premium revenue up +3.8% to $3,452.0m, and a benign claims environment. The segment saw strong resident policyholder growth of +1.5% in the 6 months to 31 December 2021, with policyholder growth of 28,100 comprising 12,100 for Medibank and 16,000 for ahm. Management expense ratio was down 30 bps to 7.2% due to lower management expenses and increasing revenue. 
  • Medibank Health: Segment profit was up +36.7% to $25.7m driven by strong revenue growth up +6.9% to $155.7m with strong demand in telehealth and health and wellbeing, partially offset by MPL’s travel insurance business (which was impacted by closed borders due to the Covid pandemic).
  • Management noted MPL’s healthcare investments including Myhealth Medical Group, East Sydney Private Hospital and JV with Calvary contributed $2.3m to this result.

Company Description

Medibank (MPL) is Australia’s largest private health insurer with ~30% market share. Medibank’s health insurance business (Health Insurance) underwrites private health insurance and the insurer generates revenue from a number of complementary services.

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
Technology Stocks

NXT retains a strong medium-term earnings growth outlook from ongoing cloud adoption

Young woman trading stock market by touching.

Investment Thesis

  • Australia is still in the early stages of cloud adoption. More efficient and cheaper broadband following the NBN’s implementation will drive demand from cloud providers for NXT’s assets. 
  • Extremely high-quality collection of sites. 
  • Focus on the premium end where pricing is more stable – Tier 4 gold centres. 
  • NXT has the balance sheet capacity to handle more debt and self-fund expansion through operating cash flow from the base buildings. 
  • Capital intensive nature of the sector provides a high barrier to entry. 
  • Government adoption of cloud and the subsequent need to outsource presents an opportunity.
  • Strong customer ecosystem creates a ‘sticky’ customer base who are unlikely to churn. 
  • National footprint allows Company to scale better than competitors. 
  • Margin expansions highlighting strong operating leverage. 
  • Additional capacity announced. 
  • M&A activity given the global demand for data.

Key Risks

  • No product diversification (NXT only operates data centres). 
  • Significant new supply of data centres by NXT and competitors. 
  • Delays in data centre build or ramp up, impacting earnings growth profile. 
  • Competitive pressures (price discounting by NXT or competitors).
  •  Higher power densities as a result of increasing average rack power utilization in Australia. 
  • Insufficient customer demand to achieve a satisfactory return on investments. 
  •  Failure to obtain sufficient capital on favourable terms may hinder NXT’s ability to expand and pursue growth opportunities. 
  •  Lease risk (NXT does not own the land or building where its data centres are situated).

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

  • Data centre services revenue of $144.5m was up +19%. 
  •  Underlying EBITDA of $85.0m, up +29%. 
  • Operating cash flow increased +9% to $69.5m. 
  • NPAT of $10.3m was a significant improvement from the $17.8m net loss in the pcp. 
  • NXT retained a strong liquidity position of $2.1bn, including undrawn debt facilities of $1.4bn at 1H22-end. Gearing (Net debt / (net debt + equity) increased to 16.6% from 7.3%. 
  •  Contracted utilisation increased 10.0MW, or +14% to 81.0MW. 
  • Customer numbers grew by 144, or +10% to 1,569.
  • Interconnections was up 1,968, or +14% to 15,879, and now equates to 7.3% of recurring revenue.

Company Description

NEXTDC Limited (NXT) is a Data-Center-as-a-Service (DCaaS) provider offering a range of services to corporate, government and IT services companies. NXT has a total of five data centers located in major commerce hubs in Australia, with three more due to be completed within the next 2 years. These facilities are network-neutral, meaning they operate independently of telecommunication and IT service providers. Currently NXT has a total of 34.7 MW built for data and serving housing, with a target to reach 104.1MW by the end of 1H18.

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
Technology Stocks

For PBH the Australian business performance was solid, whilst the U.S. business was awarded provisional license for Kansas

Investment Thesis

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

Key Risks

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

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

  • The Group’s net win for the year was $309.4m and net revenue of $296.5m, which was up +52% YoY.
  • Group gross profit of $121.6m was up +39% YoY, however gross profit margin was down to 41% from 45% due to a lower gross profit margin in the Australian trading business due to higher taxes and product fees, including an increase in the point of consumption tax in Victoria from 1st of July 2021. Also impacting margin was product mix with a higher contribution of revenue from betting events which attract higher product fees. 
  • Group sales and marketing expenses were up +38.7% YoY to $236.8m, with U.S. marketing up +36% to $162.6m, Australia up +20% to $61.5m and $12.8m for Canada. Management highlighted that they saw an aggressive uplift in competitor marketing spend in the US. In FY23, management does not expect U.S. marketing expense to exceed FY22 levels in the U.S. and will look to regionalize marketing expense and reduce spend in some of the less targeted acquisition channels. In Australia, FY23 marketing expense is expected to be slightly higher than FY22 levels. In Canada, FY23 marketing expense is expected to run annually at a quarterly rate similar to the Q422 marketing expense of C$7m. 
  • The Australian trading business reported net revenue of $195.2m, up +30% YoY and EBITDA of $7.7m was down -16.3% due to lower gross profit margins and higher marketing expense. 
  • U.S. trading business reported net revenue of $98.7m, up +133% YoY, and an EBITDA loss of $197.4m versus loss of $149.6m in the pcp, which was primarily driven by the U.S. marketing expense as PBH expanded operations across 10 U.S. states and grow U.S. based team. Management noted the progress they made during the year.
  • Corporate costs of $25.6m were significantly higher than $12.4m in the pcp due to higher employee benefits, listing costs, capital raising costs and start-up costs for Canada.
  • Group normalized EBITDA loss over FY22 was $243.6m versus a loss of $156.1m in the pcp – that is down – 56% YoY. Loss for the year was $266.9m versus $164.9m in the pcp. 
  • Balance sheet – the Company raised $400m via equity raising and a strategic placement of $94.2m to SIG Sports Investment Corp in Jun-22. The Company is adequately funded to execute on its strategy in the near term with a cash balance as at 30 Jun-22 of $473m.

Company Description

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

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
Technology Stocks

Pact Group reported disappointing FY22 results, despite the Company seeing increasing demand for recycled content

Investment Thesis

  • Solid market share in Australia and growing presence in Asia. Hence provides attractive exposure to both developed and emerging markets’ growth. 
  • Valuation is fair on the forward estimates. 
  • Management appears to be less focused on acquired growth going forward, which means there is a less of a chance for the Company to make a value destructive acquisition.
  • Reinstatement of the dividend is positive and highlights management’s confidence in future earnings growth. 
  • Focusing on sustainable packaging in an environmentally friendly market.

Key Risks

  • Competitive pressures leading to further margin erosion. 
  • Input cost pressures which the company is unable to pass on to customers. 
  • Deterioration in economic conditions in Australia and Asia. 
  • Emerging markets risk.
  •  Poor acquisitions or not achieving synergy targets as PGH moves to reduce its dependency on packaging for food, diary, and beverage clients to more high growth sectors such as healthcare.
  •  Adverse currency movements (purchased raw materials in U.S. dollars)

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

  • Revenue of $1,838m was up +4%, driven by solid demand for sustainable packaging and recycled products.
  •  FY22 underlying EBIT was in line with guidance provided at 1H22. However, underlying EBIT of $156m, was down -15%, with EBIT from Packaging & Sustainability of $110m, up +5% more than offset by declines in Material Handling & Pooling underlying EBIT of $50m, down -8%, and Contract Manufacturing underlying EBIT, which saw a loss of -$4m (versus $24m in the pcp).
  • Underlying NPAT of $70m was down -25% largely due to the absence of one-off revenue in the Contract Manufacturing segment recorded in FY21. Reporting NPAT of $12m was significantly down – 86%. 
  • The Board declared a final dividend of 1.5cps, franked to 65%, which brings FY22 total dividend to 5cps, down -55% and equates to a payout ratio of 25% of underlying NPAT. 
  • PGH acquired Synergy Packaging for ~$20m which adds to sustainable health and beauty packaging. 
  • PGH began operations at Circular Plastics Australia (PET) recycling facility in Albury-Wodonga with international food grade certification in place and producing recycled resin for joint venture partners. 
  • PGH maintained gearing of 2.7x, within its target range, with net debt at $561m, $24m lower than pcp, and operating cash conversion of $253m. 
  • Packaging and Sustainability. The segment achieved reported revenue of $1.209 billion, up +7% and underlying EBIT of $110m, up +5%, despite tough trading conditions, driven by strong results in the New Zealand dairy and fresh food businesses, large format industrial packaging in Australia, and contract wins in the Asian closures business. 
  • Materials Handling and Pooling. The segment saw reported revenue of $354m, up +3% but a decline in underlying EBIT of -8% to $50m. A strong performance in Pooling which saw volume growth against the backdrop of supply chain challenges, and growth in Infrastructure business was offset by a slowdown in activity in Sulo mobile garbage bin business as local councils delayed tenders for bin contracts.
  • Contract Manufacturing. As previously advised in 1H22 by management, the segment reported a decline in revenue of -5% to $306m and underlying EBIT loss of $4m, with the segment impacted negatively in 2H22 by elevated raw material pricing, supply chain costs, and lower volumes.

Company Description

Pact Group Holdings Ltd (PGH) was established by Raphael Geminder in 2002 (Mr. Geminder remains a major shareholder with ~44% and is the brother-in-law of Anthony Pratt, Chairman of competitor Visy). Pact has operations throughout Australia, New Zealand and Asia and conceives, designs, and manufactures packaging (plastic resin and steel) for many products in the food (especially dairy and beverage), chemical, agricultural, industrial and other sectors.

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

Nufarm Ltd (NUF) delivered strong profit growth during 1H22, with underlying EBITDA up +41% y/y to $330m

Investment Thesis

  • Upside to the blended valuation. 
  • Current earnings headwinds are seasonal rather than structural. 
  • Recent acquisitions of European products provide growth options. 
  • Ongoing focus on operational efficiency to support earnings. 
  • Undemanding valuation relative to domestic chemicals’ peer group and international players.
  • Launch of Omega-3 canola business. 
  • Sale of its South American crop protection and seed treatment businesses to simplify business model and reduce working capital volatility. 
  • Sector consolidation could see NUF potentially engaged in corporate activity.

Key Risks

  • Integration risk associated with recent acquisitions. 
  • Adverse movements in commodities prices. 
  • Unfavourable seasonal impacts. 
  • Competitive pressures. 
  • Adverse currency movements. 
  • Regulatory / litigation risks. 
  • South America transaction fails to proceed.

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

  • Revenue increased +31% to $2.2bn, as seasonal conditions and strong commodity prices boosted demand across all product groups and regions with tight supply and low channel inventories stimulating early demand. 
  • Underlying EBITDA increased +41% to $330m, driven by passing-on of higher costs to customers, increase in higher margin portfolio mix and benefits from strategic and performance improvement initiatives. 
  • Underlying NPAT increased +112% to $133m. 
  • Net operating cash flow was a $65m outflow (vs $63m inflow in pcp) with the improvement in underlying earnings more than offset by the seasonal outflow in working capital, resulting in FCF outflow of $137m vs inflow of $9m in pcp. 
  • Balance sheet strengthened with net debt declining -6% equating to leverage (net debt/uEBITDA) of 1.1x, down 0.3x, and management completing high yield bond refinancing which delivers annualised interest savings of US$9.8m from lower fixed rate coupon and reduced face value. 
  • The Board declared an unfranked interim dividend of 4cps, the first interim dividend since 2018.
  • APAC revenue increased +34% to $581m, which combined with previously implemented manufacturing footprint rationalisation, cost reductions and performance improvement initiatives and introduction of new higher margin products, delivered uEBITDA of $99m, up +45%. 
  • Europe revenue increased +6% to €316m, due to targeted campaigns, strong customer relationships and reliable supply under challenging logistic conditions, partially offset by €26m impact of product de-registrations, however, uEBITDA was flat at €75 m, as price increases offset inflation in raw materials and logistics costs.
  • North America revenue improved +49% to US$581m, as improved seasonal conditions and higher grain prices drove increased demand, and uEBITDA increased +167% to US$67m, driven by product mix and volume growth in key segments, higher end-user prices and improved efficiencies amid investment in supply chain. 
  • Seed Technologies delivered revenue growth of +28% to $185m and uEBITDA increased +24% to $46m.

Company Description

Nufarm Ltd (NUF) is one of the world’s leading crop protection and specialist seeds companies. The Company produces products to assist farmers in protecting their crops against damage caused by weeds, pests and disease. The Company has manufacturing and marketing operations in Australia, New Zealand, Asia, Europe and the Americas.

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
Dividend Stocks

WOW saw strong 2H22 sales growth improved for all segments except NZ Food

Investment Thesis

  • High quality fundamentals but trades on fair value considering trading multiples, valuations and dividend yield. 
  • High quality assets, business model and management team. 
  • Leading market positions with key sites in higher population growth areas. 
  • Positively leveraged to the growth in population over time. 
  • Increasing digitisation to remove more costs and increase the efficiency of the supply chain. 
  • Key leading indicators (such as basket size / items per basket) are improving for the core Australian Food segment. 
  • Transaction growth and customer metrics are showing improving trends.
  •  Capital management post Endeavour transaction.

Key Risks

  • Further margin pressure in the Food & Petrol business. 
  • Increasing competition in retail and changing consumer preference and consumption trends 
  • Deterioration in balance sheet metrics due to earnings decline. 
  • Adverse movements in AUD/USD (international sourcing).

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

  • Group sales of $60,849m, up +9.2% and +10.5% in 2H22. WOW saw strong 2H22 sales growth improved for all segments except NZ Food, which was impacted by Covid-related disruptions to availability and a market slowdown. 
  • Group gross margin was up +35 bps due to an increase in Australian Food of 74 bps offsetting a BIG W decline of 28 bps. 
  • Group CODB increased 89 bps, impacted by supply chain and team availability issues impacting efficiency in stores and DCs and the impact of BIG W’s sales decline in 1H22 due to store closures. 
  • EBIT of $2,690m, declined -2.7%, but made a strong recovery in 2H22, up +8.1%, driven by an +9.7% increase in 2H22 Australian Food EBIT. 
  • NPAT of $1,514m, was up +0.7%. 
  • The Board declared a final dividend of 53cps, down -3.6% (or excluding Endeavour Group, 53cps, up +3.9%). This brings FY22 dividend per share to 92cps, up +1.1%. 
  • Australian Food. Sales of $45,461m, was up +4.5% with comparable sales for the year increasing 3.5% (5.1% ex Tobacco). EBIT of 2,420m, was up +0.3%. EBIT margin of 5.3% was down -22bps.
  • Australian B2B. Both sales of $3,963m, and EBIT of 42m, was significantly up from the pcp, reflecting the acquisition of PFD and inclusion of Endeavour Group revenue under the partnership agreements for the first time. EBIT margin of 1.1% was up 6bps. 
  • NZ Food. Sales of $7,092m was up +6.6%. EBIT of 2,420m, was up +0.3%. EBIT of $316m was down -11.9% impacted by challenging trading conditions, such as supply chain disruptions caused by a three-day strike in late November, widespread Omicron community transmission, and global shipping challenges. 1H22 sales increased +8.3%, due to lockdowns in mid-August which resulted in higher in-home consumption, however, the Omicron outbreak in March caused significant team absenteeism and disruption to the supply chain and stores which negatively impacted sales (2H22 sales growth slowed to 3.1% and 2.3% in Q4 with higher selling prices partially offset by lower volumes. EBIT margin of 4.2% was down 87bps. 
  • Big W. Sales of $4,431m was down -3.3%. EBIT of 2,420m, was up +0.3%. EBIT of $55m, was down -68.2%, as a result of store closures in 1H22, offset by sales in 2H22, which increased +4.0% to $2,083m. Q3 sales were impacted by limited customer mobility caused by Omicron early in the quarter but Q4 sales growth strongly recovered to +11.9% due to festive events (Easter, Mother’s Day and Toy Mania events) and cycling lockdown impacts in some Victorian stores in the prior year. EBIT margin of 1.2% was down -251bps.

Company Description

Woolworths Limited (WOW) operates supermarkets, specialty and discount department stores, liquor and electronics stores throughout Australia. Woolworths also manufactures processed foods, exports and wholesales foods and offers petrol retailing. The company also operates hotels which includes pubs, food, accommodation, and gaming operations.

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

SOL reported a statutory net loss of $12.9m after tax

Investment Thesis

  • Trades on fair-value in terms of valuation. 
  • The portfolio is well positioned and diversified, providing access to a range of asset classes across sectors, including equities, private equity, private credit and property. 
  • Solid investment philosophy/approach given investment strategies have delivered above market returns over a significant timeframe. 
  • Strong management/investment team led by Rob Millner, with solid credentials and a strong track record of execution and active stewardship of capital. 
  • Strong track record of paying a consistent and increasing dividend for over 20 years.

Key Risks

  • Deterioration in performance in investments. 
  • Global and Australian economic conditions deteriorate. 
  • The investment Manager/analysts miss-calculate their bottom-up valuation of investments.
  • Reliance on the investment team and their expertise to outperform investment benchmarks. Hence key man risks and departure of key investment personnel, especially Rob Millner.

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

  • Group regular profit after tax of $834.6m, up +154.4%. 
  • Group loss after tax up -104.7% to -$12.9m. 
  • Net asset value up +71.6% to $9.96 billion. 
  • Pre-tax net asset value per share was up 13.8% for the period (outperformance of 20.2% against market).
  •  After-tax net asset value per share up 28.5% (outperformance of 34.9% against market). 
  • Net cash flows from investments up 93% yoy to $347.9m. Net Cash Flows from investments on a per share basis is up 28%, relative to FY21.
  • The Board declared a final ordinary dividend of 43 cps, which brings total dividends for FY22 to 72 cps, up +16.1% and a 15 cps Special Dividend. Both fully franked.
  • Strategic portfolio (48.6% of total portfolio). The portfolio retains 12.6% of TPG, 39.9% of New Hope, 25.4% of Tuas, 43.3% of Brickworks, 29.8% of Apex Healthcare, 37.0% of Pengana. API stake was sold to Wesfarmers. The portfolio delivered a total return of 25.8% over FY22, driven by gains in New Hope, due to higher coal prices. 
  • Large Caps (31.2% of total portfolio). The portfolio retains positions in companies within the ASX-100 index. The portfolio delivered a total return of -0.6% over FY22 beating the ASX200 Accumulation Index return of -2.2%. 
  • Private Equity (6.6% of total portfolio). The portfolio retains positions in unlisted companies such as Round Oak, Ampcontrol, Ironbark, Agricultural and Water investments, and Aquatic Achievers. Contributions to net cash flow from investments jumped 213% relative to the pcp. The portfolio saw a total return of 19.1%. 
  • Emerging Companies (6.1% of total portfolio). The portfolio retains positions in ex-ASX100 listed equities and unlisted growth companies. The portfolio delivered a total return of -2.3% over 12 months to 31 July 2022, outperforming the ASX Small Ordinaries Accumulation Index by 7.5%.
  • Structured Yield (2.5% of total portfolio). The portfolio retains positions of corporate loans or hybrid instruments. Net cash flow from investments of $19.7m was up +18.7% over the pcp.
  • Property (2.3% of total portfolio). The portfolio comprises positions in actively managed direct property. Industrial development asset was acquired in Kirrawee, NSW and its Retirement lifestyle development (Sage by Moran at Cronulla, NSW) is currently under construction.

Company Description

Washington H. Soul Pattinson and Company Ltd (ASX: SOL) holds a diversified portfolio of uncorrelated investments across listed equities, private equity, property and loans. It has a flexible mandate to generate returns by making long-term investment decisions and adjust the portfolio by changing the mix of investment classes over time. The Company is the second oldest publicly listed company on the ASX and has been successfully managed by the same family from the outset: Lewy Pattinson, Fred Pattinson, Jim Millner and current Chairman, Rob Millner.

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

MQGs market facing businesses to pick up additional earnings

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

Investment Thesis

  • Significant operations across the globe, which provides diversity in business and geographic mix.
  • Changing business mix has seen the company move to a more reliable (annuity style) earnings stream – making it a more quality (less volatile) business. 
  • Solid management team. 
  • Strong infrastructure business, which should benefit further government policies to drive economic growth. 
  • Push into green energy is a positive. 
  • Solid balance sheet, with surplus capital available for deployment (i.e. growth opportunities). 
  • Management unable to quantify FY23 earnings guidance due to the ongoing volatile market conditions. 
  • Potential capital management initiatives in the absence of investment in growth opportunities.

Key Risks

  • Weakness / volatility in financial markets. 
  • Change in regulatory landscape. 
  • Weakness in asset values (e.g. MQG’s co-investments). 
  • Increased competition for advisory work. 
  • Value / EPS destructive acquisitions. 
  • Company fails to achieve its FY20 guidance.

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

  • Net operating income increased +36% YoY to $17.3bn, primarily driven by higher Fee and commission income (up +33% YoY), Net other operating income (up +74% YoY) and Net interest and trading income (up +21% YoY), which combined with +22% YoY increase in operating expenses to $10.8bn, delivered NPAT of $4.7bn, up +56% YoY. 
  • Net credit and other impairment charges declined -3% YoY, driven by the partial release of Covid-19 overlays in BFS and CGM, partially offset by small number of underperforming equity investments in Macquarie Capital, though credit provisioning levels remained prudent with combined downside macroeconomic scenarios having a higher weighting than the upside scenario. 
  • ROE improved +440 bps YoY to 18.7%.income (up +33% YoY), Net other operating income (up +74% YoY) and Net interest and trading income (up +21% YoY), which combined with +22% YoY increase in operating expenses to $10.8bn, delivered NPAT of $4.7bn, up +56% YoY. 
  • Net credit and other impairment charges declined -3% YoY, driven by the partial release of Covid-19 overlays in BFS and CGM, partially offset by small number of underperforming equity investments in Macquarie Capital, though credit provisioning levels remained prudent with combined downside macroeconomic scenarios having a higher weighting than the upside scenario. 
  • ROE improved +440bps YoY to 18.7%.
  • MAM saw NPAT increase +4% YoY to $2.15bn, driven by income related to the disposition of MIC assets and increased base fees (up +40% YoY) amid acquisition of Waddell & Reed, partially offset by gain on sale of Macquarie European Rail in pcp and lower performance fees (down -40% YoY). AUM increased +38% to $773.1bn (31% private markets + 69% public investments), primarily due to acquisition of Waddell & Reed Financial. 
  • BFS delivered NPAT growth of +30% YoY to $1bn, as strong growth in home loan portfolio (up +33.6% YoY), funds on platform (up +17% YoY) and total BFS deposits (up +21.4% YoY) together with releases in net credit impairments were partially offset by increased technology investment and higher average headcount to support business growth and regulatory requirements. 
  • CGM saw NPAT increase +50% YoY to $3.9bn, driven by increased revenue across Commodities with strong risk management revenue driven by increased client hedging activity and trading activity as a result of elevated volatility and commodity price movements, and partial sale of the UK Meters portfolio, partially offset by the impact of fair value adjustments across the derivatives portfolio.
  • Macquarie Capital delivered NPAT of $2.4bn, up +269% YoY, reflecting +374% YoY growth in net interest and trading income resulting from growth in the private credit portfolio, +131% YoY growth in investment-related income due to material asset realisations in the green energy, technology and business services sectors, and +36% YoY growth in fee and commission income due to M&A and debt capital markets activities, partially offset by lower equity capital markets fee income and brokerage income.

Company Description

Macquarie Group (MQG) is a leading provider of financial, advisory, investment and funds management services. The company has operations around the globe, including world’s major financial centres. The company operates the following key divisions: Macquarie Asset Management; Corporate and Asset Finance; Banking and Financial Services; Commodities and Global Markets; and Macquarie Capital. MQG has over 14,000 employees in over 25 countries across Europe, Middle East & Africa, Asia, Americas and Australia).

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
Dividend Stocks

WES reported 1H22 results reflecting earnings weaker relative to the pcp, with revenue of $17,758m

Investment Thesis:

  • Ongoing momentum in discretionary spend, driven by strength in housing prices. Diversified asset base with core assets continuing to grow (Bunnings).
  • Expect improved performance from Target and Industrials businesses.
  • On-going focus on shareholder return including attractive yield.
  • Strong management team.
  • Strong balance provides flexibility to take advantage of opportunities as they arise.
  • Potential capital management initiatives.

Key Risks:

  • Margin erosion due to competitive pressures. 
  • Disappointing earnings performance in Bunnings. 
  • Deterioration in the macro picture leading to lower retail sales activity and volumes. 
  • Deterioration in balance sheet metrics. 
  • Adverse movements in AUD/USD.

Key Highlights:

  • WES’s earnings were weaker relative to the pcp, with revenue of $17,758m largely flat relative to the pcp, but EBIT of $1,905, declined -12.3%, and NPAT of $1,213, was -14.2% weaker, with strong results in WesCEF and Industrial and Safety, up +36.3% and +10.8% respectively, more than offset by poor performance in Kmart and Officeworks, down -63.4% and -18.0% respectively.
  • Free cash flows of $949m was -51.7% weaker.
  • Net capex increased to $405m, up +66.7%.
  • WES’s balance sheet position deteriorated from the pcp as a result of a $2.3bn return of capital to shareholders in December, with net financial debt/cash reversing from a net cash position of $871m to $2,615m net financial debt position at the end of the half. Debt to EBITDA (excluding significant items) is now 2.0x versus 1.3x in the pcp.
  • The Board declared an interim dividend of 80cps, fully franked, -9.1% lower than the pcp.
  • Revenue was up +1.7% to $9,209m, whilst earnings dropped -1.2% to $1,259m. On the conference call, management noted “Bunnings remains well positioned for long-term growth, the near-term trading remains uncertain. With Covid continuing to add operational complexity and increased variability in trading patterns. In the second half, the business to benefit from customers continuing to spend more time at home and a sustained pipeline of residential building activity… to expect supply chain constraints and elevated team absenteeism to continue, creating operational complexity as well as cost pressures”.
  • Kmart Group: revenue fell -9.6% to $4,917m as earnings before significant items declined -63.4% to $178m. WES noted “combined Kmart and Target earnings declined 55.8% to $222m for the half, reflecting the significant impact of government-mandated store closures, which led to the loss of almost 25% of store trading days during the half, as well as higher costs and lower stock availability as a result of domestic supply chain disruptions”. On the call with management, WES also highlighted “looking forward to navigating near-term trading environments that remain uncertain volatile across both supply and demand, and with the addition of increasing all material costs”.
  • Officeworks: Revenue was up +3.7% to $1,580m, while earnings fell -18.0% to $82m, with sales growth driven by strong demand in technology and furniture, partially offset by declining sales in higher-margin office supplies and print & copy categories, which continued to be adversely impacted by Covid-related restrictions, including government-mandated temporary store closures.
  • Chemicals, Energy and Fertilisers: Revenue increased +29.8% to $1,077m as earnings increased +36.3% to $218m driven by higher global commodity prices, particularly for LPG, ammonia and ammonia-related products.
  • Industrial and Safety: Revenue was up +5.1% to $944m as earnings increased +10.8% to $41m driven by increased operating efficiencies at Blackwoods, growth in demand from Coregas’ industrial and healthcare customers.

Company Description:

Wesfarmers Limited (WES) has diverse business operations covering convenience stores, home improvement, office supplies, and department stores. The company also has an industrials division which includes businesses in chemicals and fertilizers, industrial and safety products and coal. Wesfarmers employs over 220,000 people.

(Source: Banyantree)

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