Category: Dividend Stocks

Companies return profits to shareholders through two main channels, capital gains and income. A high dividend yield indicates that a company is returning a large amount of cash to shareholders relative to the value of the company. This allows investors to maximize their income received relative to their investment amount. The gross dividend is calculated from the net dividend amount paid to shareholders plus the value of any attached franking credits associated with those dividends. A fully franked dividend will have franking credits equal to 30% of the gross dividend value, which can, therefore, represent a significant source of additional value.

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Dividend Stocks

Sonic Healthcare’s share price strongly appreciated on the day of its 1H23 results announcement

Investment Thesis

On valuation grounds relative to the current share price, SHL trades fair value. 

  • As the Covid pandemic subsides, near-term earnings may underwhelm but in the longer term, there’s no doubt that the quality of SHL’s assets, which is geographically diversified and high-quality management team. 
  • The Aging population requires more diagnostic tests, especially as Medicine focuses on preventative medicine. 
  • Market leading positions in pathology (number one in Australia, Germany, Switzerland, and UK number three in the US). Second leading player in Imaging in Australia. 
  • High barriers to entry in establishing global channels. 
  • Ongoing bolt-on acquisitions to supplement organic growth and potentially improve margin from cost synergies. 
  • Leveraged to a falling dollar. 
  • Globally diversified.

Key Risks

  • Disruptive technology leading to reduced diagnostics costs. 
  • Competitive threats leading market share loss. 
  • Deregulation resulting in new pathology collection centres. 
  • Adverse regulatory changes (fee cuts). 
  • Disappointing growth. 
  • Adverse currency movements (AUD, EUR, USD).

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

  • Base business (ex-Covid testing) revenue of $3,703m, was up +9% versus the pcp or up +11% versus the pre-pandemic 1H20. Base business revenue (ex-Covid testing) organic growth was +6% versus 1H22 and +8% versus 1H20 (constant currency, per working day). SHL’s management noted “growth gaining momentum with January 2023 versus January 2020 revenue up 10%, particularly strong in Australian Pathology division”. Base business margins were in line with pre-pandemic levels. 
  • Covid-19 revenue of $379m, represents a decline of -72%. 
  • Total revenue of $4,082m, was down -14% versus the pcp or up +22% versus the prepandemic 1H20. 
  • EBITDA of $920m was down -40% versus the pcp or up +33% versus the pre-pandemic 1H20.
  • Net profit of $382m was down -54% versus the pcp or up 47% versus the pre-pandemic 1H20. Earnings per share was up +52% versus 1H20 (pre-pandemic). 
  • SHL’s gearing level are close to historic lows, with ~A$1.5bn of available liquidity, well positioned to fund growth, with the Company currently progressing several acquisition and contract opportunities.

Company Description

Sonic Healthcare (SHL) is a medical diagnostics company with operations in Australia, New Zealand, and Europe. The company provides a comprehensive range of pathology and diagnostic imaging services to medical practitioners, hospitals and their patients along with providing administrative services and facilities to medical practitioners. SHL has three main segments: (1) Pathology/clinical laboratory services based in Australia, NZ, UK, US, Germany, Switzerland, Belgium and Ireland. (2) Diagnostic imaging services in Australia; and (3) Other which includes medical centre operations (IPN), occupational health services (Sonic Health Plus) and laboratory automation development (GLP Systems).

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

This document is provided by Laverne Securities Pty Ltd T/as Investor Desk. 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 Investor Desk 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, Investor Desk 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.

Investor Desk and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Investor Desk 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 Investor Desk and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Investor Desk 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 Investor Desk 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. Investor Desk and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and is 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 Investor Desk and Banyan Tree.

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Dividend Stocks

Equitrans Highlights Need for Permitting Reform to Move MVP Forward

Business Strategy & Outlook: 

Equitrans’ biggest challenge is moving the deeply troubled Mountain Valley Pipeline, or MVP, into service. Equitrans sees Sen. Joe Manchin’s support as helpful and has been in frequent contact with the West Virginia Democratic senator. The recently announced proposed energy permitting provisions (separate legislation from the Inflation Reduction Act of 2022) contains direct benefits for MVP, thanks to Senator Manchin’s support, given the pipeline’s presence in West Virginia. A similar legislative proposal has also been introduced by the republican senator of West Virginia, Shelley Moore Capito. The Fourth Circuit remains the primary roadblock presently, as it has overruled state and federal agencies’ technical conclusions more than 10 times at this stage. Both legislative proposals address the judicial review. Manchin’s proposal moves the MVP case to the DC Circuit court, while Capito’s simply states that none of the approvals issued by the federal agencies as it relates to the MVP are subject to judicial review. It is observed that the two legislative proposals are indicative of fairly broad support for overall pipeline permitting reform. If either version were to pass as written, they would move the MVP into service, so it is seen the uncertainty primarily around obtaining enough political support to pass likely via adding or deleting certain provisions, which will likely be a razor-thin margin given the current political environment.

Risk and Uncertainty: 

The Mountain Valley Pipeline represents the largest risk to Equitrans from a financial and reputational perspective, given the numerous permitting issues it faces. The pipeline also recently resolved an over two-year criminal investigation into its activities without any issues. Another investigation was settled with $2.15 million in fines and court-ordered monitoring. The MVP bet is made bigger because of the over $500 million committed to several related projects that are explicitly tied to the MVP becoming operational. Customer concentration risk with EQT is a concern, as EQT makes up about 70% of Equitrans’ revenue. The firm recently resolved a dispute regarding the Hammerhead pipeline via an arbitration panel. The firm wrote off over $1.2 billion in 2018 and 2019, and another $2.5 billion in 2021 and 2022 related to MVP. Given the difficulty in valuing long-term 10- to 20-year contracts for gathering and processing assets due to the challenges in planned drilling and production,it is believed future write-downs are possible. From an ESG perspective, it is considered a major risk to Equitrans to be managing its carbon emissions profile and stakeholder management. Equitrans’ carbon emissions profile becomes important especially if the United States seeks to implement a national carbon tax. From a stakeholder management perspective, the legal, community, and regulatory challenges over the MVP have added billions of dollars in costs to the pipeline, and the damaged stakeholder relationships could also influence future projects.

Bulls Say:

  • The integration of Rice Energy Midstream offers optimization opportunities, given the geographic closeness of the assets, representing $300 million to $500 million in potential capital avoidance over the next five years. 
  • With the cancellation of the Atlantic Coast Pipeline, the MVP can take advantage of higher shipper demand and launch additional expansion efforts. 
  • Equitrans has been very successful at driving down unit costs at its gathering operations, with a 45% decline since 2015.

Company Description:

Equitrans acquired EQM Midstream in mid-2020, consolidating the midstream family. Equitrans now own EQM assets directly versus just unit ownership. EQM Midstream provides gathering, transmission, and water services to primarily Appalachian producers in Pennsylvania, West Virginia, and Ohio. 

(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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Dividend Stocks

Equity Residential Should Continue to Report High Revenue Growth While Inflation Remains Elevated

Business Strategy & Outlook: 

Equity Residential has repositioned its portfolio over the past decade to focus on owning and operating high-quality multifamily buildings in urban, coastal markets with demographics that allow the company to maintain high occupancies and drive strong rent growth. The company has sold out of inland and southern markets and increased its operations in high-growth core markets: Los Angeles, San Diego, San Francisco, Washington, D.C., New York, Boston, and Seattle. These markets exhibit traits that create demand for apartments, like job growth, income growth, decreasing homeownership rates, high relative cost of single-family housing, and attractive urban centers that draw younger people. The company regularly recycles capital by selling non core assets or exiting markets and using the proceeds for its development pipeline or acquisitions with strong growth prospects, a strategy that has produced strong returns. While Equity Residential has repositioned its portfolio into markets with strong demand drivers, it is advised to be cautious on its long-term growth prospects, given that many markets have historically seen high supply growth. The urban, luxury end of the apartment market where Equity Residential traditionally operates has seen the highest amount of new supply, competing directly with the company’s portfolio. Additionally, the pandemic has caused many millennials to consider moves to the suburbs, either into suburban apartments or their own single-family homes, though demand for new urban apartments has remained resilient. Equity Residential has created significant shareholder value through development, though rising interest rates may cut into the expected return on new projects. However, high inflation has driven revenue significantly higher as apartment leases are generally only a year long, allowing Equity Residential to push rate growth that has matched inflation. While revenue growth is expected to decelerate as inflation growth is brought under control and also expect a period of higher than normal expense growth, the company’s funds from operations per share are already above pre pandemic levels and continued same-store growth is expected to push FFO even higher

Risk and Uncertainty: 

Demand for multifamily assets in urban, coastal markets has benefited over the past decade from demographic trends such as a falling homeownership rate, the rising relative cost of single-family housing, and urban gentrification. Millennials have been driving many of these trends, and as the generation acquires enough capital to own single-family homes or if tastes change significantly, these trends could reverse and hurt demand for apartments. The company’s portfolio is also sensitive to any changes to the economies of its core markets. If job growth slows or industries experience significant layoffs, then demand for apartments falls. The Northern California and Seattle markets have seen significant job and income growth generated by the technology industry, which has created substantial apartment demand. A downturn in this industry would significantly affect the economies of these markets and affect the fundamentals for Equity Residential’s assets. Many of Equity Residential’s markets are seeing significant new supply. While the current level of supply is expected to be absorbed by existing demand growth and help moderate the market, increased new supply will pressure operations and asset values. Equity Residential has around $860 million in development project commitments scheduled for delivery over the next few years. The economics of these projects have marginal room for error and will depend heavily on market conditions at delivery meeting today’s expectations.

Bulls Say:

  • Equity Residential’s portfolio of high quality assets should see relatively consistent levels of demand long term from high-income earners and will likely see just a small hit to fundamentals during the current pandemic as most residents have not experienced job losses. 
  • Equity Residential has a history of finding accretive development opportunities to bolster its growth prospects. 
  • While current supply deliveries are near peak levels, rising construction costs and tighter lending standards should lead to lower supply growth. 

Company Description:

Equity Residential owns a portfolio of 308 apartment communities with around 80,000 units and is developing five additional properties with 1,361 units. The company focuses on owning large, high-quality properties in the urban and suburban submarkets of Southern California, San Francisco, Washington, D.C., New York, Seattle, and Boston. 

(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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Dividend Stocks

Baxter Announces Renal Spinoff to Unlock Value in Discounted Shares

Business Strategy & Outlook: 

Following the spinoff of Baxalta in mid-2015, Baxter’s new management team has focused on increasing efficiencies and innovating in medical products. That focus has resulted in much-improved profitability and cash flow generation since then. In the intermediate term, the company aims for mid-single-digit sales growth primarily through new product launches and for double-digit adjusted earnings per share and free cash flow growth compounded annually. Acquisitions, like the recent combination with Hill Rom (medical equipment like hospital beds with digital connection capabilities), could add to those prospects. Baxter’s renal and acute care technology supports patients with failing organs, most often kidneys. Baxter generates most of its revenue in these segments from at-home patients using its peritoneal dialysis, or PD, tools. However, it also sells hemodialysis products to dialysis clinics and continuous renal replacement therapy and other organ support equipment to intensive care units, which saw a boost in demand during the coronavirus pandemic. While some new product launches were delayed during the pandemic, this segment should continue to benefit from new hemo-and peritoneal-dialysis launches in the future. Additionally, increased demand for at-home dialysis tools should benefit Baxter in PD generally. Baxter also provides many injectable therapies. In pharmaceuticals, Baxter is pursuing an ambitious growth strategy to roughly double the number of molecules it sells through a variety of delivery options, including premixes. In advanced surgery, Baxter sells wound closure and bleeding control products. New products aim to help clinicians save time in the operating room. In medication delivery and nutrition, management has turned around these operations after recent hurricanes and regulatory concerns damaged Baxter’s reputation as a reliable supplier of these critical therapies. New product launches, including several infusion pumps, may boost growth in these segments in a post pandemic environment, too.

Risk and Uncertainty: 

It is believed that Baxter shed its riskier assets through the Baxalta spinoff, leaving a well-diversified company that participates in markets with limited risk of significant disruption. However, some of Baxter’s product lines, particularly IV solutions, nutritional products, and generic injectables, have been commodified and face significant quality control issues that contribute to the firm’s environmental, social, and governance risks. If new competitors decide to make the substantial up-front and ongoing investments needed to participate in these markets, it is thought pricing pressures, which have been manageable through volume increases or mix benefits on differentiated delivery systems, may accelerate, especially in an increasingly cost conscious healthcare system—another one of Baxter’s key ESG-related risks. It is also believed that Baxter must innovate to maintain its competitive advantages, particularly in renal care, infusion pumps, acute therapy, and advanced surgery. If the company does not invest appropriately in these product sets, its peers may surpass Baxter’s technology enough to affect market share eventually. The Hill Rom acquisition has also put some pressure on Baxter’s ROICs and added leverage to its balance sheet, which highlights another ESG risk for Baxter: corporate governance-related risks surrounding acquisitions. 

Bulls Say:

  • New management has revved up Baxter’s growth engine, primarily around evolutionary goals in all of the major business lines. 
  • Emerging markets are a prime source of growth for many of Baxter’s products, especially its peritoneal dialysis and nutrition solutions. 
  • The company continues to strive for even higher profitability, which should keep earnings growth above sales growth for the foreseeable future

Company Description:

Baxter offers a variety of medical instruments and supplies to caregivers. It enhanced its portfolio of hospital-focused offerings by acquiring Hill Rom in late 2021. Legacy Baxter offers tools to help patients with acute and chronic kidney failure. It also sells a variety of injectable therapies for use in care settings, such as IV pumps, administrative sets, and solutions; nutritional products; and surgical sealants and hemostatic agents. The company offers contract manufacturing services to pharmaceutical companies. The Hillrom transaction has added basic equipment, including hospital beds, to the portfolio, although about half of Hillrom’s 2021 revenue came from more digitally connected offerings like its smart beds and Voalte medical communications app.

(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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Dividend Stocks

FIS Is Trying to Get Back on Track

Business Strategy & Outlook: 

Fidelity National Information Services’ acquisition of Worldpay in 2019 was one of three similar deals that took place in short order. It is not believed that the move was especially attractive relative to the other two, and not believed the company materially strengthened its competitive position as a result. However, it is thought there is a valid strategic rationale for these deals, and the introduction of Worldpay’s acquiring business should boost overall long-term growth, given the ongoing shift toward electronic payments. The integration of Worldpay seems to have been completed without any major hiccups, with the company achieving its stated cost synergy targets. However, the COVID-19 pandemic illustrated one negative of the merger, in that the acquiring business is significantly more macro-sensitive than FIS’ legacy operations. Although cost synergies from the acquisition appear to have helped the company maintain its margins, the pandemic resulted in a modest organic revenue decline in 2020. But results from FIS and peers suggest payment volume has steadily improved and has bounced back fairly quickly, as the long-term secular tailwind appears to be reasserting itself and the worst seem to be past the industry. That said, if the economic environment takes a sharp negative turn, new headwinds could appear in the near term. Moreover, FIS’ performance has lagged peers a bit, suggesting the company may need to make some changes and increase investment to get back on track. From a long-term perspective, the pandemic could benefit the industry, as it appears to have accelerated consumers’ shift away from cash. Additionally, it may be plausible that a part of the rationale for the acquisition was to strengthen the company’s position in online payments. This area has become too large to ignore, and the pandemic has only reinforced the importance of capabilities in this area. Overall, while the company’s near term issues are recognized, the long-term picture of FIS looks good. The company’s segments could all be characterized as industry leaders with attractive margins and fairly stable revenue, and limited capital needs should allow FIS to generate strong free cash flow.

Risk and Uncertainty: 

Any weaknesses in the banking sector could lead banks to defer technology purchases, hurting FIS’ top line, and any dramatic changes in the structure of the banking industry could have hard-to-predict consequences for FIS. Aging core processing systems and increased needs for system flexibility could lead to higher replacement rates and erode the company’s moat. The payment processing industry is evolving, and while the position of the acquirers within the current dominant framework is well established, disruption could lessen the profitability the industry can generate or cut the acquirers out altogether. As the company’s revenue is directly tied to revenue at its merchant customers, FIS’ acquiring operations are sensitive to macroeconomic conditions. It is seen that the company’s largest environmental, social, and governance risk as data security. Historically, the industry has experienced significant system breaches at times, which creates event risk. The risk of breaches is likely higher on the acquiring side, but a breach on the bank technology side could have greater consequences. Finally, management has historically been aggressive when it comes to mergers and acquisitions, which can lead to integration risk and high financial leverage at certain points.

Bulls Say:

  • The bank technology business is very stable, characterized by high amounts of recurring revenue and long-term contracts. 
  • The shift toward electronic payments will continue to create room for acquirers to see strong growth without stealing share from each other.
  • With healthy operating margins and limited reinvestment needs, FIS throws off a good amount of free cash flow and actively returns it to shareholders

Company Description:

Fidelity National Information Services’ legacy operations provide core and payment processing services to banks, but its business has expanded over time. By acquiring Sungard in 2015, the company now provides recordkeeping and other services to investment firms. With the acquisition of Worldpay in 2019, FIS now provides payment processing services for merchants and holds leading positions in the United States and United Kingdom. About a fourth of revenue is generated outside 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.

Categories
Dividend Stocks

ACCC Hangs Up on TPG-Telstra Regional Deal

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Business Strategy & Outlook: 

TPG Telecom is grappling with structural changes in the Australian telecommunications industry. Rollout of the national broadband network, or NBN, and take-up of high-traffic products such as internet protocol television and video streaming, will increase the demand for broadband and backhaul capacity. However, the NBN will also force TPG Telecom to become a reseller, impacting its consumer broadband margins. TPG Telecom’s price-leader strategy still sees the company delivering solid subscriber and market share performance. Product bundling has also become a key segment in the market, with all players using broadband as a lead-in product and cross-selling voice, mobile, pay-TV, and digital streaming services. The ownership of submarine cable between Australia and Guam offers the group broader cost advantages. Pricing is mainly a function of demand and supply, available capacity, and the length of cable. Economies of scale play a large part in pricing where costs are measured on per unit of volume. A longer cable results in increased material and maintenance costs, meaning cost per unit is higher. Cables with large capacity reduce costs per unit, as costs such as fixed construction and rollout costs are spread across a larger base. A sharp price decline in international traffic remains a risk. Contracts are structured in typical 15-year leases, providing some certainty in revenue. Clients are allocated a fixed bandwidth and have the right to on-sell capacity. The 2020 merger with Vodafone Australia (the third-ranked mobile player in the country) is one way TPG Telecom is trying to limit the impact of the NBN. Mobile offers a critical strategic path to future-proof the group in the face of onslaught from the NBN. The government entity is already wreaking havoc on the narrow-moat-rated group’s retail fixed-line broadband and could even potentially impact the lucrative enterprise segment

Risk and Uncertainty: 

The strategic imperative of the combination is clear, not only in ensuring a clear mobile pathway for TPG in an increasingly mobile-centric world, but as a route to bypass the National Broadband Network’s debilitating economics longer term. However, the merged entity is not without risks. It is expected that synergy benefits could take time to realise, with elimination of duplicated costs, benefits from leveraging each other’s infrastructure and economies of scale easier done on a spreadsheet than in the dynamic real world. More importantly, the nimble, entrepreneurial modus operandi of TPG (previously ruled with an iron fist by executive chairman David Teoh) does not mesh neatly with the traditional “corporate” customs of Vodafone Australia (presided over by Inaki Berroeta, who is the managing director and CEO of the merged entity). This view was vindicated by the sudden resignation of Chairman David Teoh from the board in March 2021. In terms of ESG risks, data privacy and security are the biggest issues facing TPG Telecom. The company receives, stores, and processes large volumes of sensitive customer data. This triggers exposure to data privacy and security breaches, which may result in regulatory actions, litigation, public scrutiny or loss of customer trust. It is seen that the probability of significant and prolonged breaches in these areas as less than 25%. If a breach does occur, limited materiality to the fair value estimate for TPG Telecom, as rectification response would be swift. Investments in network integrity and cybersecurity are also being stepped up post the merger between TPG Telecom and Vodafone Australia.

Bulls Say:

  • Cross-selling opportunities remain for both consumer and corporate markets. 
  • The merger with Vodafone Australia increases the scale of the combined entity and allow it to better compete against Telstra and Optus in the Australian market. 
  • Further rollout of its fibre network also boosts growth, while incremental cost from an additional user is small. 

Company Description:

TPG Telecom is Australia’s third-largest integrated telecom services provider. It offers broadband, telephony, mobile and networking solutions catering to all market segments (consumer, small business, corporate and wholesale, government). The group has grown significantly since 2008, both via organic growth and acquisitions, and in July 2020 merged with Vodafone Australia. It owns an extensive stable of infrastructure assets. 

(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
Dividend Stocks

(CAR) reported strong 1H22 results reflecting look-through revenue growth of +30%

Investment Thesis:

  • Leading market position in online car classifieds.
  • Overseas expansion provides new growth opportunities from the challenging core Australian market. Heavily reliant on two growth stories (South Korea and Brazil).
  • Diversified geographic coverage.
  • Bolt-on acquisitions provide opportunities to supplement organic growth.
  • The Company can sustain high single-digit and low double-digit revenue growth.
  • CAR’s move into adjacent products and industries.
  • Increasing pricing in South Korea to boost margins. Looking to take more of the car buying experience online with dealers (i.e. increasing its total addressable market).

Key Risks:

  • Rich and demanding valuation.
  • Competitive pressures, that is car dealer driven substitute platform or the No. 2 & 3 player gain ground on CAR.
  • Motor vehicle sales remain subdued.
  • Value destructive acquisition / execution risk with international strategy.
  • Not immune from broader downturn in economy (consumer likely to delay a significant purchase in time of uncertainty).

Key Highlights: Relative to the pcp:

  • Look-through revenue of $282m, up +30% and Look-through EBITDA was up +15% to $149m, driven by strong domestic results in the Private and Media segments, growth in Encar in South Korea and good cost discipline.
  • Adjusted NPAT of $89m up 20% and adjusted EPS of 31.4c.
  • CAR reported strong cash flow with Reported EBITDA to operating cash flow conversion of 100%. 
  • The Board declared a fully franked interim dividend of 25.5cps, consistent with longstanding dividend payout policy of 80%.
  • Performance highlights by segments. Relative to the pcp: 
  • carsales Australia. Achieved adjusted Revenue growth of 16% on pcp and Adjusted EBITDA growth of 9% on pcp, excluding wage subsidies. Management noted traffic on carsales.com.au was up a strong +23% and remains elevated versus pre-pandemic levels.
  • Dealer. +1% adjusted Revenue growth, despite impacts from lockdowns in NSW and VIC in 1Q22.
  • Private. Revenue growth of 38%, driven by higher private ad volume.
  • Media. Revenue grew +11% as advertising conditions improved.
  • Data, Research & Services. Adjusted Revenue grew +1%, despite the impact of Covid lock downs and continued inventory challenges for dealers.
  • Carsales International. Look-through revenue and EBITDA growth of +76% and +72%, respectively, driven inclusion of Trader Interactive since September.
  • South Korea. Revenue and EBITDA up +19% and +7%, respectively, driven by strong product penetration growth across Guarantee, Dealer Direct and Encar Home. EBITDA margin was affected as CAR invested $4.7m in Dealer Direct marketing to drive future growth.
  • U.S. Revenue and EBITDA growth of +12% and +19% respectively was driven by solid performance across all four key verticals. Management is anticipating further upside as inventory levels continue to improve, particularly in trucks and powersports.
  • Brazil. Revenue and EBITDA growth of 20% and 19% respectively, was driven by continued dealer subscription growth, improving inventory levels and increasing dealer yield.

Company Description:

Carsales.com Ltd (CAR), founded in 1997, operates the largest online automotive, motorcycle and marine classifieds business in Australia. Carsales is regarded as one of Australia’s original disruptors and has expanded to include a large number of market leading brands. The Company employs over 800 and develops world leading technology and advertising solutions in Melbourne. CAR has also expanded to numerous global markets, such as South Korea, Brazil, and other countries in Latin America. 

(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
Dividend Stocks

Endeavour Group (EDV) reported its first earnings result as an independently listed entity

Investment Thesis:

  • High quality fundamentals and dividend yield but trading in line with the valuations. 
  • High quality assets, business model and management team. Both EDV’s Retail and Hotels segments have a moat ensuring stable earnings profile.
  • EDV does have some pricing power to push through CPI increases to the end consumer.
  • Leading market positions with key sites in higher population growth areas.
  • Positively leveraged to the growth in population over time.
  • Increasing digitization to remove more costs and increase the efficiency of the supply chain. 

Key Risks:

  • Margin pressure in the Retail or Hotels segment. 
  • Increasing competition. 
  • Changing consumer preference and consumption trends.
  • More regulatory risks than expected in relation to EDV’s Hotel (relating to gaming) or Retail (relating to alcohol consumption). 
  • As a result of the demerger with Woolworths, several agreements between Woolworths and EDV were established encompassing logistics/supply chain, and strategy. Hence, any negative change in logistics agreements with Woolworths is a risk for EDV earnings. 

Key Highlights: Relative to the pcp:

  • Group sales of $11.6bn, was flat relative to the pcp. This was a good result, considering the volatile trading environment, which saw the EDV’s Hotels business impacted by the ongoing pandemic causing temporary hotel closures and restrictions, especially in 1H22, offset by the Retail business, as these closures created tailwinds with an elevated at-home market.
  • Group EBIT of $924m, was up +2.8%. driven by the partial recovery of EDV’s Hotels segment and another strong performance in Retail, which delivered EBIT in line with FY21. Retail EBIT of $66m, was down -0.4%, whilst Hotels EBIT of $315m, was up +20.7%.
  • Group NPAT of $495m, was up +11.2%.
  • The Board declared a fully franked final dividend of 7.7cps, up +10%. This brings the full year dividend to 20.2cps and equates to 73.1% payout ratio. 
  • Performance Highlights by Segments. Relative to the pcp: Retail. Sales of $10,086m, was down -0.9% as the ongoing pandemic had a significant impact; EBITDA of $944m, was up +0.9%; EBIT of $666m, was down -0.4%. EBIT margin of 6.6% was up +3bps.
  • Hotels. Sales of $1,511m, was up +6.6% as the impact of Covid-19 on 1H22 was more than offset by a strong recovery in 2H22 as pandemic related restrictions were lifted (The FY22 results represent 231 trading days when all EDV’s hotels were able to open, versus 195 days in FY21); EBITDA of $561m, was up +12.4%; EBIT of $315m, was up +20.7%. EBIT margin of 20.8% was up +243bps. 

Company Description:

Endeavour Group Ltd (EDV) is an Australian retail drinks and hospitality business. The Company demerged from Woolworths in 2021 and operates the top-two retail drinks distribution in Australia (Dan Murphy’s and BWS), and the largest national hotel network.

(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
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
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.

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