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 Sectors

Transurban toll revenue declined -17.6% to $616m driving a -20.7% decline in EBITDA

Investment Thesis

  • Hard to replicate critical infrastructure assets. 
  • Consistent growth in earnings driven by four key factors: 1) Traffic (with mature toll roads delivering on average 2-4% annual traffic growth); 2) Prices (with escalation set with agreements with governments); 3) operational efficiency improvements; and 4) development contribution from new assets. 
  • Attractive yield – steady and growing distribution stream. 
  • Integration of technology and systems to enhance operations. 
  • Growth by asset acquisition and/or development of greenfield and brownfield projects. 
  • Exposure to infrastructure assets in the U.S. 
  • Strong management team with experience in deploying the developer-operator business model. 
  • West Gate Tunnel dispute is a drag on share price.

Key Risks and project deliverables

  • Bond yields experience a significant increase in the short term and track upwards over the long term. 
  • Valuation appears full at current levels. 
  • Project development cost blowouts. 
  • Reduced traffic volumes. 
  • Regulatory changes within the sector. 
  • Unfavorable financing arrangements. 
  • Poor acquisitions (derived from inaccurate modelling of traffic).

FY21 Results Highlights

  • Average daily traffic (ADT) decreased by 0.4% vs FY20 or 7.0% excluding the contribution from new assets, M8/M5 East and NorthConnex, which opened during the year and performed ahead of expectations. 
  • Free Cash decreased by 13.5% vs FY20, primarily reflecting the impacts of reduced traffic in Melbourne and North America due to Covid-19 related mobility restrictions as well as increases in cost related to strategic growth projects. 
  • FY21 distribution of 36.5cps including a final distribution of 21.5 cps for 2H21. 
  • Statutory profit of $3,272m, which includes $3,726m gain on sale of TCL’s Chesapeake assets. 
  • The Board declared a distribution of 21.5 cps for 2H21 which takes the total FY21 distribution to 36.5cps, of which 1.0 cent is fully franked. TCL highlighted that its distribution reinvestment plan is open for this distribution payment.

Company Profile 

Transurban Group (TCL) develops, operates, and maintains urban toll road networks in Australia and the United States. The company holds interest in 15 roads in Melbourne, Sydney, Brisbane, and Virginia. Transurban Group is headquartered in Docklands, Australia.

(Source: BanyanTree)

General Advice Warning

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

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Dividend Stocks

Tyson Sets Sights on Improving Long-Term Efficiency

Business Strategy and Outlook

Several secular trends are affecting Tyson’s long-term growth prospects. While U.S. consumers (86% of fiscal 2021 sales) are limiting their consumption of red and processed meat (69% of Tyson’s sales), they are consuming more chicken (29%). International demand for meat has been strong, and although Tyson’s overseas sales mix is just 14%, it is likely to increase over time, as this is an area of acquisition focus. The beef segment has been a bright spot in Tyson’s portfolio in recent years, as strong international demand, coupled with a drought-induced beef shortage in Australia, has increased the segment’s operating margins to 10% over the past four years from 2% prior to 2016. 

Conversely, the chicken segment has suffered from executional missteps that have resulted in structurally higher costs relative to competitors. About 80% of Tyson’s products are undifferentiated (commoditized), so it is difficult for them to command price premiums and higher returns. Although Tyson is the largest U.S. producer of beef and chicken, we do not believe this affords it a scale-based cost advantage, as its segment margins tend to be in line with or below those of its smaller peers.

Financial Strength

Tyson’s financial health as solid and don’t see any issues to suggest that it will be unable to meet its financial obligations. While Tyson generates healthy cash flow and is committed to retaining its investment-grade credit rating, the business is inherently cyclical, with many factors outside of its control. But management has made changes to improve the predictability of earnings. Chicken pricing contracts, which now link costs and prices, and a greater mix of prepared foods (from 10% in 2014 to the current 19%) both serve as stabilizers. 

In terms of leverage, net debt/adjusted EBITDA stood at a rather low 1.2 times at the end of fiscal 2021, below Tyson’s typical range of 2-3 times. At the end of September, Tyson held $2.5 billion cash and had full availability of its $2.25 billion revolving credit agreement. Together, this should be sufficient to meet the firm’s needs over the next year, namely about $2 billion in capital expenditures, nearly $700 million in dividends, and $1.1 billion in debt maturities. Management has expressed a commitment to enhancing the income returned to shareholders in the form of its dividend (targeting a 2.0%-2.5% yield over time).

Bulls Say’s

  • China’s significant protein shortage resulting from African swine fever should boost near-term protein demand, while the country’s continued moderate increase in per capita consumption of proteins will drive sustainable growth. 
  • While investor angst over chicken price-fixing litigation has weighed on shares, Tyson’s recently announced settlements materially reduce this overhang. 
  • In the current inflationary environment, Tyson’s cost pass-through model limits potential profit margin pressure

Company Profile 

Tyson Foods is the largest U.S. producer of processed chicken and beef. It’s also a large producer of processed pork and protein-based products under the brands Jimmy Dean, Hillshire Farm, Ball Park, Sara Lee, Aidells, State Fair, and Raised & Rooted, to name a few. Tyson sells 86% of its products through various U.S. channels, including retailers (48%), food service (28%), and other packaged food and industrial companies (10%). In addition, 14% of the company’s revenue comes from exports to Canada, Mexico, Brazil, Europe, China, and Japan.

(Source: MorningStar)

General Advice Warning

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

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Dividend Stocks Sectors

Attractive valuation and yield makes Aurizon an appealing stock

Investment Thesis:

  • Undemanding valuation relative to the market. 
  • Current share price is factoring in several negative sentiments already. 
  • Higher (and stabilizing) commodity prices should translate into improving volumes. 
  • Better than expected performance on the cost out. 
  • Attractive dividend yield 
  • Mostly defensive earnings backed by contracts, providing stability in shareholder returns. 
  • The Company does have long-term plans to reduce exposure to coal.

Key Risks:

  • Significant decline in commodity prices leading to mine closures or reduce volumes from customers. Any potential declines in iron ore prices. 
  • Structural decline in some commodities (e.g. coal). 
  • High costs impacting margins. 
  • Contract repricing resulting in longer term revenue loss. 
  • Pricing pressure to increase. 
  • Potential cuts to dividends given the elevated payout ratio. 
  • Weather related impacts.

Key highlights:

  • Management noted that they have identified growth opportunities. Near-term earnings appear to be more stable.
  • Group revenue of $3,019m was down -1%, EBITDA of $1,482m was up +1% (with operating costs down -4%), and NPAT of $533m mostly unchanged
  • The flat earnings outcome for the year were driven by a decline in Coal volume being offset by higher earnings in Bulk and Network, primarily due to the commencement of WIRP fee billing.
  • Cost improvements came on the back of lower access and lower fuel expenses, with cost pressure from volume growth in Bulk being offset by transformation benefits
  • AZJ maintained its 100% dividend payout ratio with a final dividend of 14.4cps (up +5% YoY + 70% franked), taking FY21 dividend to 28.8cps.
  • The segment wise contribution of Aurizon is as follows:
  • Network: FY21 revenue was up +4% YoY (Track Access +4%, Services & Other -19%) and EBITDA was up +6% to $849m. Segment earnings were driven by revenue growth and supported by lower operating costs (down -3%) and Energy & Fuel expenses (down -5%).
  • Coal: FY21 revenue was down -9% YoY (Above Rail -8%, Track Access -13%) and EBITDA down -13% to $533m, with earnings supported by lower operating costs (down -4%) and access costs (down -11%). Top line growth was impacted by a decline in haulage volumes over the year.
  • Bulk: FY21 revenue was up +4% YoY (net of access, revenue was up +10%), driven by new contract and services growth. EBITDA was up +27% to $140m, with earnings driven higher by lower operating costs (down -6%) and access costs (down -23%)

Company Description: 

Aurizon Holdings Ltd (AZJ) operates an integrated heavy haul freight railway in Australia. It transports various commodities, such as mining, agricultural, industrial and retail products; and retail goods and groceries across small and big towns and cities, as well as coal and iron ore. The Company also operates and manages the Central Queensland Coal Network that consists of approximately 2,670 kilometres of track network; and provides various specialist services in rail design, engineering, construction, management, and maintenance, as well as offers supply chain solutions. In addition, it transports bulk freight for customers in the resources, manufacturing, and primary industries sectors. The Company was formerly known as QR National Limited and changed its name to Aurizon Holdings Limited in December 2012. AZJ is headquartered in Brisbane, Australia.

(Source: Banyantree)

General Advice Warning

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

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Dividend Stocks

Core business of Magellan Financial Group managed to grow despite a lesser outperformance

Investment Thesis:

  • Principal Investments could grow to become a meaningful contributor to group performance over the medium-to-long term
  • MFG no longer trades at a significant premium to its peer-group post the recent derating 
  • Acquisitions could pave growth runways, helping to ease the Company’s fund capacity constraints 
  • Average base management fee (bps) per annum (excluding performance fee) continues to be stable but there are risks to the downside from pressures on fees (which is an industry trend not specific to MFG alone)
  • Continued strong investment performances, especially in the global and infrastructure funds 
  • Growing levels of funds under management 
  • New strategies could significantly increase addressable market and help sustain earnings growth

Key Risks:

  • Decline in fund performance
  • Risk of potential funds outflow – both retail and institutional (loss of a large mandate)
  • Execution risk with the acquisitions
  • Significant key man risk around Hamish Douglass and key management or investment management personnel
  • New strategies fail to add meaningful earnings to the group

Key highlights:

  • MFG’s FY21 adjusted net profit of A$412.7m, declined -5.8% over pcp, which came in below consensus estimate of A$434m, as a year of trailing the market for MFG’s most important global equities strategy, the Magellan Global Fund, reduced the performance fee take for FY21 by -63% to $30.1m
  • The core business of funds management still managed to grow despite a lesser outperformance overall, and the Company reported management and service fees increasing +7% over pcp to $635.4m and average FUM increase of +9% to $103.7bn
  • The Board declared a final dividend of $1.141 a share taking FY21 dividend to $1.22 a share and announced a dividend reinvestment plan discounted at 1.5%
  • Management saw total Funds Management expenses declined -8.5% over pcp to $106.9m
  • Management has restructured three Global Equities retail funds into a single trust (Magellan Global Fund) with total FUN of $18bn

Company Description: 

Magellan Financial Group Ltd (MFG) is a specialist funds management business. MFG’s core subsidiary, Magellan Asset Management Ltd, manages ~$53.6bn of funds under management across its global equities and global listed infrastructure strategies for retail, high net worth and institutional investors.

General Advice Warning

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

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Dividend Stocks

Orora Ltd. reported solid operating earnings of $369.3m, up by 11.5%

Investment Thesis:

  • Trading on fair value relative to our valuation
  • Exposure to both developed and emerging markets’ growth 
  • Near-term headwinds should be in the price
  • Revised strategy following recent strategic review
  • Bolt-on acquisitions (and associated synergies) provide opportunity to supplement organic growth 
  • Leveraged to a falling AUD/USD 
  • Potential corporate activity
  • Capital management (current on-market share buyback plus potential for additional initiatives)

Key Risks:

  • Competitive pressures leading to margin erosion 
  • Input cost pressures which the company is unable to pass on to customers 
  • Deterioration in economic conditions in US, EM and Australia
  • Emerging markets risk 
  • Adverse movements in AUD/USD
  • Declining OCC prices

Key highlights:

  • ORA delivered a solid FY21 result, which came in ahead of consensus expectations – revenue of $3,538m was up +7.8% YoY
  • Operating earnings (EBITDA) of $369.3m was up +11.5% YoY
  • NPAT of $156.7m was up +34.1% YoY
  • EPS up +29% to 16.9cps (also driven by the on-market share buyback) and full year dividend of 14cps up +16.7% on pcp (representing a payout ratio of ~80% vs target range 60-80%)
  • Strong performance in the North America business, which delivered revenue growth of +8.2% and EBIT growth of +43.0% year-on-year (YoY) in constant currency
  • Leverage increased from 0.9x to 1.5x, driven by the impact of the on-market share buyback
  • With a strong balance sheet, the Company is looking to invest to drive growth
  • Australasia segment revenue was up +6.1% to $834
  • North America segment revenue was up +8.2% to US$2,019.8m and EBIT was up +43.0% to US$73.8m

Company Description: 

Orora Limited (ORA) provides packaging products and services. The Company offers fiber, glass and beverage can packaging materials in Australia and Asia and packaging distribution services in North America and Australia.

(Source: Banyantree)

General Advice Warning

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

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Dividend Stocks Shares

Cochlear reported solid FY21 results, with earnings up by 54%

Investment Thesis:

  • Attractive market dynamics – growing population requiring hearing aids, improving health in EM providing more access to devices such as hearing aids and relatively underpenetrated market
  • There remains a significant, unmet and addressable clinical need for cochlear and acoustic implants that is expected to continue to underpin the long‐term sustainable growth of COH
  • Market leading positions globally
  • Direct-to-consumer marketing expected to fast track market growth 
  • Best in class R&D program (significant dollar amount) leading to continual development of new products and upgrades to existing suite of products 
  • New product launches driving continued demand in all segments 
  • Attractive exposure to growth in China, India and more recently Japan 
  • Solid balance sheet position
  • Potential benefit from Australian tax incentive 
  • Subject to successful passage of legislation, the patent box tax regime for medical technology and biotechnology should encourage development of innovation in Australia by taxing corporate income derived from patents at a concessional effective corporate tax rate of 17%, with the concession applying from income years starting on or after 1 July 2022 

Key Risks:

  • Product recall
  • Sustained coronavirus outbreak which delays recommencement of hospital operations in China
  • R&D program fails to deliver innovative products 
  • Increase in competitive pressures 
  • Change in government reimbursement policy 
  • Adverse movements in AUD/USD
  • Emerging market does not recoup – significant downside to earnings

Key highlights:

  • COH reported strong FY21 results, with earnings (underlying NPAT) up +54% to $237m and within guidance of $225-$245m, despite Covid-19 impacted surgery activity recovering to varied levels across both developed and emerging markets
  • For FY22, it is expected to deliver net profit of $265‐285m, a 12‐20% increase on underlying net profit for FY21, based on a 74 cent AUD/USD
  • Sales revenue is expected to benefit from market growth, with a continuing recovery in surgery rates across many countries more affected by Covid
  • The management will continue their investment in market growth activities
  • Capex is expected to be ~$70‐90m for FY22 and includes around $20m related to a major process transformation and IT systems upgrade, a program that is expected to be a $100‐120m investment over the next four to five years
  • Effective tax rate is expected to decline to ~25% as a result of the introduction of changes to the R&D tax concession by the Australian government, with legislated changes to take effect from 1 July 2021
  • The Board is committed to maintaining the dividend policy which targets a 70% payout of underlying net profit
  • Record sales revenue of $1,493m, was up +10%, or +19% in constant currency (CC), driven by market share gains, market growth and rescheduled surgeries post Covid lockdowns
  • Implant units climbed +15% to 36,456 (developed markets up ~20%; emerging markets up ~10%), compared to FY19, implant units increased +7%
  • The Board declared final dividend of $1.40 which brings full year dividends to $2.55 per share, up +59% and equates payout ratio of 71% of underlying net profit, in line with COH’s 70% target payout
  • COH’s balance sheet position remains strong with net cash of $564.6m at year-end, improving from $457m in FY20

Company Description: 

Cochlear Ltd (COH) researches, develops and markets cochlear implant systems for hearing impaired people. COH’s hearing implant systems include Nucleus and Baha and are sold globally. COH has direct operations in 20 countries and 2,800 employees.

(Source: Banyantree)

General Advice Warning

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

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HDB posted a solid 2Q22 result beating consensus top and bottom line estimate

Investment Thesis 

  • HDB is expected to be a beneficiary of Indian GDP growth. 
  • Positive demographic trends. Long term positive view on the sector given increase in working population, growing disposable income and positive changes to the regulatory environment.
  •  Strong brand with strong national network (5,314 banking outlets across 2748 cities) with a customer base of over 49m. Market leader in credit cards (13.3m) and a leading provider of payment gateway services, leading to high quality non fund revenues. Strong deposit base with CASA deposits (low cost deposits) comprising 39.3% of total deposits. 
  •  Healthy business fundamentals reflected through high interest margins expected to continue. 
  •  Focus on digitalization to improve efficiency and reduce cost to income ratio. 
  • Stable provisioning/bad and doubtful debt levels. 
  •  Partnering with the government to push for customer acquisition. 
  • Rapid growth in subsidiaries is expected to continue. 
  •  Reliable and competent management team.

Key Risks

  • India is not without concerns, especially around volatility and risk (such as India’s trade deficit and being a net oil importer, adverse movements in oil prices and in the U.S dollar are potential risks).
  • Intensifying competition and weak economy leading to decline in loan growth. 
  •  Cyber security threats given high volume of transactions through internet and mobile (92% of total transactions). 
  •  Political and regulatory changes affecting the banking legislation. 
  •  Funding pressures for deposits and wholesale funding

FY22 Results Highlights

  • Net revenues (net interest income plus other income) increased +14.7% over pcp, driven by growth in advances of +15.5% (reaching new heights driven through relationship management, digital offering and breadth of products) and deposits growth of +14.4%. Net interest income grew +12.1% over pcp and remained at 70% of net revenues, reflecting the underlying shift from unsecured lending essentially gravitating towards higher rated segments in the Covid period. 
  •  Other income increased +21.5% over pcp (+17% QoQ) with Fees and Commission income (constitutes approximately 2/3 of the other income) growing by +25.5% over pcp (retail constitutes 93% and wholesale constitutes 7% of the fees and commission income), FX and derivatives income growing +55% over pcp and Trading income declining -34% over pcp. 
  •  Provisions and contingencies increased +6% over pcp to INR 3,924.7 crore (consisting of specific loan loss provisions of INR 2,286.4 crore and general and other provisions of INR 1,638.3 crore). 
  •  The total credit cost ratio declined -37bps over pcp (-11bps QoQ) to 1.30%.

Strong balance sheet with CAR significantly higher than regulatory requirement. 

  • Strong capital position with total Capital Adequacy Ratio (CAR) up +90bps over pcp to 20.0% (vs regulatory requirement of 11.075%), Tier 1 CAR up +100bps to 18.7% and CET 1 at 17.4%. 
  •  Ample liquidity with average LCR for the quarter at 123%, ~$6bn excess over a floor of 110%, which positions the Bank favourably to capitalize on the opportunities that would arise as the economy gains momentum during the festive months. 
  •  Total deposits increased +14.4% over pcp to INR 1,406,343 crore, with CASA (Current Account-Saving Account) deposits growing +28.7% (savings account deposits at INR 452,381 crore and current account deposits at INR 205,851 crore) and Time deposits growing +4.2% to INR 748,111 crore, resulting in CASA deposits comprising 46.8% of total deposits. Total advances increased +15.5% over pcp to INR 1,198,837 crore, with retail loans growing +12.9%, commercial and rural banking loans growing +27.6% and other wholesale loans grew +6.0%, and overseas advances constituting 3.5% of total advances.

Leadership maintained in Payment business to be further enhanced by growth in BNPL

Management maintained leadership in payments business with acquiring business market share of 47% (acquiring business volumes including credit, debit, UPI, EPI, direct pay grew +45% over pcp to INR3,53,000 crore for the quarter with merchant acceptance points growing +27% over pcp to 2.5m), remaining confident of achieving a scale of 20 million merchants over time to be the largest payments ecosystem in the country. Additionally, the Bank has seen momentum returning in credit card with 416,000 cards issued during last 5 weeks of 2Q22 and early results for the first 10 days of October showing +42% growth in card spends over similar period in September driven by festive spend

(Source: Banyantree)

General Advice Warning

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

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Dividend Stocks Shares

National Australia Bank (NAB) delivered a solid FY21 result despite underlying profit declining

Investment Thesis

  • Ongoing share back should be supportive of share price levels.
  • Well capitalized after the capital raising.
  • Expectations of further customer remediation costs.
  • Impairment charges provisioned for in 1H20 with lower risk of further impairments (especially as a low interest rate environment helps customers and arrears).
  • Strong franchise model with management capable of improving below a 40% cost to income ratio (however we do not factor in management’s long-term target of 35%). 
  • Potential pressure on net interest margins as competition intensifies with other major banks in a low interest rate environment. Though we expect these pressures to slightly alleviate as we move into a higher interest rate environment.
  • Improving return on equity with management proving their abilities in recent times to manage profitability in a low interest rate environment.
  • Strong provisioning coverage.
  • A well-diversified loan book.

Key Risk

  • Low growth environment impacting earnings.
  • Potential cuts or reduction to dividends due to low earnings growth. 
  • Intense competition for loan and deposit growth.
  • Normalizing / increase in bad and doubtful debts or increase in provisioning.
  • Funding pressure for deposits and wholesale funding (increased funding costs).
  • Any legal fees, settlements, loss or penalties associated with ASIC or US-based law suits.

FY21 Results Key Highlights:  Relative to the pcp:

  • Revenue declined -2.4% to $16,729m. Excluding large notable items in FY20, revenue was -3.0% lower, on lower Markets & Treasury (M&T) income, which was challenged due to limited trading opportunities.
  • Cash earnings up 76.8% to $6,558m. Excluding FY20 large notable items, cash earnings were up +38.6%.
  • Cash return on equity up 420 basis points to 10.7%.
  • Net interest margin of 1.71%, was 6bps lower due to M&T. NAB saw NIM pressure due to the low interest rate environment, home lending competitive pressures and a mix shift towards more fixed rate lending.
  • Group Common Equity Tier 1 ratio of 13% was up 153bps from September 2020 and includes 29bps net proceeds from the sale of MLC Wealth. Leverage ratio (APRA basis) is at 5.8%. Liquidity ratio quarterly average of 128%. Net Stable Funding Ratio of 123%.
  • Fully franked final dividend per share of 67 cents was up from 30cps in 2H20, and brings full year dividend to $1.27 per share, up +111% from 60cps in FY20.
  • Credit impairment charge write-back of $217m (versus $2,762m in FY20) reflecting forward looking provisions and lower underlying charges.
  • Collective provisions at 1.35 of credit risk weighted assets.

Company Profile

National Australia Bank Limited (NAB) is one of Australia’s largest banks, with the majority of their financial service businesses operating in Australia and New Zealand. The bank also has a presence in Asia, UK and the US. NAB offers banking services, credit and access card facilities, leasing, housing and general finance, international and investing banking, wealth and funds management, life insurance and custodian, trusts and nominee services.  

General Advice Warning

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

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Dividend Stocks

Hanesbrands’ Investments in Key Brands as Part of Its Full Potential Plan Support Its Narrow Moat

Business Strategy and Outlook

Hanesbrands is the market leader in basic innerwear (69% of its 2020 sales) in multiple countries. In May 2021, the firm unveiled its Full Potential plan to expand Global Champion, bring growth back to innerwear, improve connections to consumers (through greater marketing and enhanced ecommerce, for example), and streamline its portfolio.

As part of Full Potential, Hanes intends to build on Champion’s increasing popularity in North America, Asia, and Europe. Although COVID-19 and the discontinuation of the C9 label at Target hurt sales in 2020,it is believed that Champion will continue its growth path in 2021 as it and other activewear apparel have become more than just athletic apparel and are increasingly worn as lifestyle/fashion brands. Moreover, Hanes recently found a new home for C9 as an exclusive brand for wide-moat Amazon. Hanes’ management forecasts Champion will reach $3 billion in global sales in 2024, up from about $2 billion this year, which we see as an achievable goal.

Another key strategy for Hanes is to improve the efficiency of its supply chain. It has already made progress in this area, having achieved a 15% increase in manufacturing output over the past three years. Hanes, unlike many rivals, primarily operates its own manufacturing facilities. More than 70% of the more than 2 billion apparel units sold by the company each year are manufactured in its own plants or those of dedicated contractors. It is believed that the combination of strong pricing and production efficiencies allow Hanes to maintain operating margins above 20% for its American innerwear business despite somewhat inconsistent sales.

Morningstar analyst maintains per share fair value estimate of $26 after the release of Hanes’ 2021 third-quarter report.The fair value estimate implies 2022 adjusted price/earnings of 13 and enterprise value/adjusted EBITDA of 10.

Financial Strength 

Hanes is saddled with heavy debt from its acquisition spree in 2013-18 and closed September 2021 with $3.7 billion in debt. However, the firm also had nearly $900 million in cash and no borrowings under its revolving credit facilities of just over $1 billion. Moreover, it intends to refinance its $700 million in 5.375% 2025 senior notes at a lower interest rate to save about $35 million per year in interest costs. Hanes has a stated goal of bringing debt/EBITDA below 3 times by 2024.The company bought back significant amounts of stock in 2016 and 2017 and repurchased $200 million in shares in early 2020 before the virus spread. .Hanes, unlike many peers, did not suspend its dividend due to the virus. Its annual dividend has been set at $0.60 per share since 2017.Hanes may expand the business through acquisitions, although it has not made a major acquisition since 2018. We do not include acquisitions in our model due to uncertainty about timing, size, and profitability.

Bulls Say 

  • Hanes’ Champion is a contender in the hot but crowded athleisure space. The brand is already well known in North America and parts of Europe, and there is significant potential in China and other underpenetrated markets. 
  • Hanesbrands has successfully introduced brand extensions that have allowed it to expand shelf space and increase price points in the typically staid category of basic apparel. 
  • After a review, Hanesbrands announced a new strategic plan called Full Potential to boost growth and reduce expenses, which should benefit its brand strength.

Company Profile

Hanesbrands manufactures basic and athletic apparel under brands including Hanes, Champion, Playtex, Bali, and Bonds. The company sells wholesale to discount, midmarket, and department store retailers as well as direct to consumers. Hanesbrands is vertically integrated as it produces more than 70% of its products in company-controlled factories in more than three dozen nations. Hanesbrands distributes products in the Americas, Europe, and Asia-Pacific. The company was founded in 1901 and is based in Winston-Salem, North Carolina.

(Source: Morningstar)

General Advice Warning

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

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Dividend Stocks Shares

Monash IVF Group Ltd reported solid dividend yield of 4.6%

Investment Thesis

  • High barriers to entry with unique expertise and assets. 40-year heritage of leadership in science and innovation in ARS and women’s imaging, coupled with the depth of experience from the doctors and clinical team which will continue to underpin MVF’s future growth and maintain treatment success rates. 
  • Ageing Australian population and increased age of mothers (especially with the trend of more females choosing career over family until their early thirties) will provide favorable demographic tailwinds. 
  • Improving balance sheet with flexibility to execute expansion strategies. Earnings increasingly become diversified as the Malaysian business gains momentum. 
  • Potential earnings diversification and growth via international expansion and increased presence in diagnostics. 
  • Demonstrated capacity to perform well in terms of cost out and earnings growth despite tough conditions (i.e., lower cycle volumes).
  • Transparent and detailed disclosures.

Key Risks 

  • Regulatory risk as changes in government funding may increase patient’s out-ofpocket expenses and thereby volume demand. 
  • Fluctuations in the availability and size of Medicare rebates may negatively influence the number of IVF cycles administered and overall industry revenue 
  • The Australian market does not rebound following this period of downturn. Population of males and females with fertility problems decline. 
  • Loss of key specialists. 
  • Loss of market share especially to low-cost providers, with one already appearing in Victoria.  
  • Weakening economic activity resulting in increased unemployment leading to less disposable income to be spent in IVF treatment. 
  • Execution of international forays into Malaysia goes poorly.

FY21 Result Highlights

  • Revenue was up +26.3% to $183.6m underpinned by market share gains and strong industry volumes. 
  • Adjusted EBITDA was up +37.1% to $47.7m, with margin improving to 26% (from 23.9%) despite a +12% increase in marketing expenditure and patient communication digitisation activities and ~$1.7m of further costs for suspension of Ni-PGT genetic testing program. 
  • Adjusted NPAT of $23.3m, was up +61.5% and ahead of profit guidance ($21m-$23m). Reported NPAT of $25.5m was up +116.9%. 
  • MVF Australian FY21 Stimulated Cycles (STIMS) was up +36.6% driven by industry growth of 31.1% and 0.6% market share gains to 21.0%. Management pointed out “in Q1FY21, Monash IVF serviced the pent-up demand/deferred treatment created by the initial COVID-19 related temporary suspension of IVF services. Notwithstanding on-going and sporadic COVID-19 related lockdowns, IVF services have been largely undisrupted and as a result, growth continued throughout the year. Market Share gains were achieved in Victoria, New South Wales, Queensland and Northern Territory whilst the exceptionally high level of market share in South Australia was maintained above 60%. STIM industry growth of 31.1% supported the strong volume growth across the Group bringing the 5-year annual CAGR to 5.6%”. 
  • International STIMS was up +25.1% or 208 cycles. 
  • The positive diagnostics ultrasound performance was driven by obstetrics growth and a shift of activity from public to privately owned clinics. Ultrasound scan volumes were up +12.9% to 92,776 and Non-invasive Pre-natal testing were up +17.8% to 15,877. 
  • MVF appointed five experienced Fertility Specialists and a Medical Director of Genetics. 
  • MVF is opening its Sydney CBD flagship clinic and has earmarked further new clinics in the pipeline for FY22.

Company Profile 

Monash IVF Group Ltd (MVF) offers assisted reproductive technology services, ultrasound services, gynecological services, in-vitro fertilization services, consultancy services and general clinical services to patients in Australia and Malaysia. MVF comprises 40 clinics and ultrasound practices and employs ~100 doctors and has a network of 650 associated health professionals.

(Source: BanyanTree)

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