Category: Global stocks

Global Stock refer to share that are traded on multiple exchanges with different currencies. For example, if a publicly-traded company issues shares in dollars on the New York Stock Exchange and in pounds on the London Stock Exchange, it is issuing global registered shares. Global stock to a portfolio offers diversification and may provide higher returns. Global stock markets may experience higher levels of volatility than other domestic markets with bigger swings to both the upside and downside.

Categories
Global stocks

WSP provides a communications workflow platform that automates interactions between businesses and people

Investment Thesis:

  • Sizeable market opportunity – in the U.S. alone WSP TAM is US$4.7bn (WSP North American target markets) vs total U.S. CPaaS TAM of US$98bn.
  • Established a solid foundation to build from – the Company has over 800 customers worldwide with leading brand names.  
  • Structural tailwinds – ongoing automation and digitization. 
  • Increasing direct sales penetration.
  • Attractive recurring revenue base via subscriptions. 
  • Investment in R&D to continue developing the Company’s competitive position and enhance value proposition with customers.   

Key Risks:

  • Rising competitive pressures.
  • Growth disappoints the market, given the company trades on high valuation multiples – growth in subscriptions, new customers and penetration of existing clients. 
  • Product innovation stalls and fails to resonate with customers. 
  • Emergence of new competitors and technology.
  • Key channel partnerships breakdown. 

Key Highlights: Headline FY22 results. Group revenue of $70.6m was up +48% YoY and ahead of management’s guidance range of $64-68m. Management noted the Company is seeing growing interest in the Whispir platform from governments and government agencies, as highlighted by the recent high-profile launch by Victoria Police of the public transport initiative “STOPIT”, which is built on the Whispir platform. 

  • Regional performance – ANZ region was up $22m (or +56%) to $62m revenue for FY22, which was driven by the pandemic response (Covid-19 vaccine rollout programs). North America revenue was up +38% to $1.8m, with management highlighting growth opportunities in this market and WSP’s investment in digital marketing campaigns to drive revenue growth. Asia revenue of $6.7m was mostly flat YoY due to the region still being impacted by Covid-19 related disruptions and lockdowns (e.g., fresh China lockdowns in July). However, WSP recently signed contract with telco Singtel should drive growth in the region.
  • Customer churn of 2.1% was +30bps better than 2.4% in pcp. 
  • Group gross margin (GM) was down -130bps to 58.5%, due to change in revenue mix – that is, a higher revenue contribution from transaction revenue which has lower GM than platform and services. On a positive note, GM on transaction revenue also improved +250bps over the year (with further improvement expected), whilst GM on platform and services was unchanged YoY.
  • Group operating earnings (EBITDA) for the year was a loss of $10.6m, which was ahead of the guidance which was looking for a loss of $11.2 – 13.2m for FY22. EBITDA building blocks: ANZ $16.1m + Asia loss $2.5m + North America loss $4.7m + R&D cost $16.2m + Corporate costs $11.9m. Management is “firmly” focused on becoming EBITDA positive by 2H23. Operating expenses in 4Q22 were -11% below 3Q22, driven by efficiencies program.
  • Balance sheet remains well placed with $26.1m in cash and no debt, which should take the company to profitability in FY23 and cash flow positive by FY24.

Company Description:

Whispir Ltd (WSP), founded in 2001, is a global enterprise software-as-a-service (SasS) company. WSP provides a communications workflow platform that automates interactions between businesses and people. The Company has over 800 customers, operates in 60 countries and more than 200 staff globally. WSP operates in an emerging subset of the enterprise communications SaaS market known as Workflow Communications-as-a-Service (WCaaS). WSP currently solves two communication problems: (1) Operational Messaging – engaging with employees; and (2) External Messaging – engaging with customers. WSP operates in 3 key markets – Operational messaging (size $8bn), API messaging (size $32bn) and Marketing messages (size $66bn). 

(Source: Banyantree)

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

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

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

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

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

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

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

Categories
Global stocks Shares

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

Investment Thesis:

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

Key Risks:

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

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

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

Company Description:

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

(Source: Banyantree)

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

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

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

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

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

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

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

Categories
Global stocks

TPW is well positioned to benefit from the structural tailwind behind the migration of offline to online sales in the homewares and furniture ($16bn market) category

Investment Thesis

  • Operates in a large addressable market – B2C furniture and homewares category is approx. $16bn. 
  • Structural tailwinds – ongoing migration to online in Australia in the homewares and furniture segment. At the moment less than 10% of TPW’s core market is sold online versus the U.S. market where the penetration rate is around 25%.  
  • Strong revenue growth suggests TPW can continue to win market share and become the leader in its core markets. 
  • Active customer growth remains strong, with revenue per customer also increasing at a solid rate. 
  • Successful execution in new growth pillars – Trade & Commercial (B2B) and Home Improvement. 
  • Management is very focused on reinvesting in the business to grow top line growth and capture as much market share as possible. Whilst this comes at the expense of margins in the short term, the scale benefits mean rapid margin expansion could be easily achieved. 
  • Strong balance sheet to take advantage of any in-organic (M&A) growth opportunities, however management is likely to be very disciplined. 
  • Ongoing focus on using technology to improve the customer experience – TPW has invested in merging the online with the offline experience through augmented reality (AR). 

Key Risks

  • Rising competitive pressures.
  • Any issues with the supply chain, especially because of the impact of Covid-19 on logistics, which affects earnings / expenses. 
  • Rising cost pressures eroding margins (e.g., more brand or marketing investment required due to competitive pressures).
  • Disappointing earnings updates or failing to achieve growth rates expected by the market could see the stock price significantly re-rate lower. 
  • Trading on high PE-multiples / valuations means the Company is more prone to share price volatility. 

Key Highlights

  • Group revenue was up +31 to $426m, driven by an increase in active customers (up +21% to 940k) and revenue per active customer (up +6%). Revenue per active customer growth was a function of both growth in average order values and the repeat rate. Group EBITDA of $16.2m was down -21% YoY and represented a margin of 3.8% which came in at the high end of management’s guidance range of 2-4%.
  • The Management called out that macro conditions did deteriorate during the 4Q22 and they are expecting a challenging FY23
  • TPW will be cycling strong previous trading periods which were the beneficiaries of lockdowns, especially the first half, hence expect a “bumpy start to this financial year.” Jul-22 trading was down -21% YoY and YTD Aug-22 trading is down 17%. However, management noted that the current trading YTD is ahead of their internal estimates (despite being down YoY) and expect the business to return to double digit growth in FY23 once lapping the extraordinary Covid lockdowns periods.
  • Management upgraded their FY23 EBITDA guidance from 2-4% range to 3-5% (effectively by 2% at the midpoint). This profitability range is after TPW’s investment in thebuild.com.au, which management noted highlights the increasing operating leverage in the core business

Company Description

Temple & Webster Group (TPW) is a leading online retailer in Australia, which offers consumers access to furniture, homewares, home décor, arts, gifts, and lifestyle products. 

(Source: Banyantree)

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

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

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

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

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

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

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

Categories
Global stocks Shares

IAG has reported weak but expected FY22 results

Investment Thesis

  • Trading on fair value and trading multiples (based on the numbers).
  • Strong FY23 guidance and outlook, but signs of management execution can be seen before upgrading recommendation.
  • Strong capital position with CET1 ratio of 0.97 (within benchmark range of 0.9-1.1).
  • Prospect of an uplift in margins from cost-out programmes.
  • Portfolio rationalisation potentially yields better business performance. 
  • Potentially higher returns from investment portfolio should market conditions move in favour of current positioning. 

 Key Risks

  • Any adverse catastrophe claims without warning with inadequate reinsurance results in lower          combined operating ratios.Benefits and targets from cost-out initiatives not achieved. 
  • Adverse regulatory changes impacting capital positions or dividend payout ratios. 
  • Lower return from investment portfolios. 

Key Highlights

  • Strong FY23 guidance and outlook. Management guided “strong underlying business performance expected in FY23. IAG is forecasting mid-to-high single digit GWP growth and a reported Insurance margin of 14% to 16%. The FY23 guidance aligns to the aspirational goals to achieve a 15% to 17% insurance margin and a reported ROE of 12 to 13% over the medium term.
  • These goals encompass the ambitions around increasing customer base by 1m to 9.5m by FY26, an insurance profit of at least $250m by FY24 in the Intermediated Australia business, further simplification and efficiencies to maintain the Group’s cost base at $2.5bn, $400m in value from DIA claims and supply chain cost reductions on a run rate basis from FY26, and higher customer interactions through the company’s digital channels”.
  • Gross Written Premiums (GWP) of $13,317m was up +5.7%, driven by rate increases to offset inflationary pressures in the supply chain and natural perils, and improvement in retention rates across FY22. GWP growth in the Direct Insurance Australia business was +4.6%, accelerating in 2H22 to +5.8%, while its underlying margin remained strong at 20.5%. Management noted solid performance from Intermediated Insurance Australia business with GWP growth at +6.0% (versus +5.6% in FY21) while underlying insurance margin of +5.0% was better than the +3.9% in FY21. IAG’s NZ business saw +7.0% NZ currency GWP growth, up from +2.8% in FY21 on growth across its commercial insurance and direct brands with a volume increase in commercial motor. 
  • Net Earned Premiums of $7,909m was up +5.8%.

Company Description

Insurance Australia Group (IAG) is one of the two largest general insurance underwriters in Australia   and New Zealand. IAG core insurance product categories are in Consumer (Motor, Home, Compulsory Third Party (CTP)) and Business (predominantly SME, Specialty Lines, Workers’ Compensation) across Australia, NZ, and Asia. 

(Source: Banyantree)

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

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

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

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

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

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks Shares

Nib holdings Ltd (NHF) reported a solid set of FY22 results despite the ongoing Covid-19 pandemic

Investment Thesis:

  • Given Australia’s growing and ageing population, there will be increased demand for health care services. This will add additional pressure on Australia’s public health care system and the Federal budget and an increased dependence on private health care insurers. NHF offers exposure to the business model of providing a funding mechanism for the high-growth health care sector. Healthcare spending is expected to grow at 5-10% per annum, so without significant tax hikes, the government cannot afford for people to shift back to the public healthcare system.
  • Given underlying increases in average premium rates of around 5 – 6% p.a., some policyholder growth (especially at the 30-34-year-old segment), and exposure to upstart investments, the NHF offers close to double-digit underlying growth in the medium term.
  • Solid management team.
  • Cost-out strategy which improves the company’s expense ratio. 
  • Incentives and benefits encourage PHI take-up. They include 1. Tax benefits and penalties for Australian residents (via Lifetime Health Cover, Medicare Levy Surcharge and means tested rebate); and 2. Shorter wait times, a choice of specialist doctor/hospital and coverage of ancillary health services support.
  • Growth runways through the JV with Tasly Holdings Group, and also international expansion, through product offerings like NISS.

Key Risks:

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

Key Highlights:

  • Outlook. On the conference call with analysts, management did not provide specific quantitative earnings guidance. However, the Company did provide the following commentary: Australian Residents Health Insurance (arhi). “Net policyholder growth 3-4%; Claims experience expected to remain subdued for 1H23; Gradual movement towards net margin target of 6-7% over time”.
  •  International Inbound Health Insurance (iihi). “Worker’s outlook positive with continued demand for skilled migration; Strong return of student market expected, although margins will take time to recover; Continued improving profitability outlook”. 
  •  nib Travel. “Continuing improvement in profitability in FY23; Return to pre COVID conditions by FY24, but on recent demand trends this may occur in FY23”. 
  •  NZ. “Net policyholder growth 34% for core health book; Return to net margin target 8-10% over time, although unlikely in FY23 due to systems investment”.
  • FY22 Results Highlights. Relative to the pcp: Group underlying revenue $2.8bn, up +7.2%, driven by arhi membership which grew +3.2% with over 20,000 additional members, and International inbound health insurance and nib travel which both returned to profitability in 2H22. Group claims expense of $2.1bn, was up +4.0%. Group underlying operating profit of $235.3m, was up +14.8%. 
  • NPAT of $133.8m, down -16.6%, mainly due to investment losses.
  •  Statutory earnings per share 29.6 cents, down 15.9%.
  •  The Board declared a final dividend of 11.0 cents per share fully franked, which came in below FY21 final of 14.0 cps. The total dividend of 22.0cps for FY22 was down -8.3% YoY.
  • Performance Highlights by Segments. Relative to the pcp: arhi. Premium revenue of $2,286.2m, was up +5.2% despite premium deferrals. Risk equalisation payments of $206.1m, fell -7.1% due to reduced industry claiming. Claims fell -3.1% to $1,525.8m as NHF observed that Covid-19 lockdowns affected both members’ willingness and ability to access surgery and healthcare, and clinical providers’ capacity to accommodate treatment.
  •  iihi. Premium revenue was up +7.1% to $123.7m, on growth in international worker members and premium increases. Despite reporting a full year loss (UOP) of $1.1m, it was an improvement on a loss of $5.9m in FY21. The Company noted that 2H22 results were solid, posting a UOP of $6.3m against a loss of -$7.4m in 1H22.
  •  NZ. The segment saw strong premium growth of +12.8% to $291.8m. Policyholder numbers grew strongly to 156,275 from 120,148 in FY21, including life and living insurance.
  •  Nib Travel. Management noted a strong recovery in 4Q22, reducing the full year underlying operating loss to $7.4m compared to a loss of -$13.6m in FY21. 

Company Description:

Nib Holdings Limited (NHF) is the Australian private health insurer. NHF operates in four divisions which are private health insurance, life insurance, travel insurance and related health care activities.

(Source: Banyantree)

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

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

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

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

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

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

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

Categories
Global stocks Shares

Management Is Optimistic About GM’s Future, as shown by the dividend resumption

Business Strategy & Outlook

The General Motors with a competitive lineup in all segments, combined with a reduced cost base, finally enabled it to have the scale to match its size. The head of Consumer Reports automotive testing even said Toyota and Honda could learn from the Chevrolet Malibu. The GM’s earnings potential is excellent because the company has a healthy North American unit and a nearly mature finance arm with GM Financial. Moving hourly workers’ retiree healthcare to a separate fund and closing plants drastically lowered GM North America’s breakeven point to U.S. industry sales of about 10 million-11 million vehicles, assuming 18%-19% share. The more scale to come from GM moving its production to more global platforms and eventually onto vehicle sets over the next few years for even more flexibility and scale. GM makes products that consumers are willing to pay more for than in the past. It no longer has to overproduce trying to cover high labor costs and then dump cars into rental fleets (which hurts residual values). GM now operates in a demand-pull model where it can produce only to meet demand and is structured to do no worse than break even at the bottom of an economic cycle when plants can be open. The result is higher profits than under old GM despite lower U.S. share. It now seeks roughly $300 billion in total revenue by 2030 with about $80 billion from many new high-margin businesses such as insurance, subscriptions, and selling data, while targeting 2030 total company adjusted EBIT margin of 12%-14%, up from 11.3% in 2021 and 7.9% in 2020. The actions such as buying Cruise, along with GM’s connectivity and data-gathering via OnStar, position GM well for this new era. Cruise is offering autonomous ride-hailing with its Origin vehicle, and GM targets $50 billion of Cruise revenue in 2030. GM is investing over $35 billion in battery electric and autonomous vehicles for 2020-25 and is launching 30 BEVs through 2025 with two thirds of them available in North America. Management also targets over 2 million annual BEV sales by mid decade and in early 2021 announced the ambition to only sell zero-emission vehicles globally by 2035.

Financial Strengths

GM’s balance sheet and liquidity were strong at the end of 2021, apart from $11.2 billion in underfunded pension and other postemployment benefit obligations, an improvement from $30.8 billion at year-end 2014. Management targets automotive cash and securities of $18 billion and liquidity of $30 billion-$35 billion. As per the calculation that at June 30, GM had automotive net cash and securities, excluding legacy obligations but including Cruise, of $4.6 billion, about $3.15 per diluted share. Global pension contributions in 2022 are expected at about $570 million, with about $500 million of that amount for non-U.S. plans. Auto and Cruise debt at June 30 is $16.9 billion, mostly from senior unsecured notes and capital leases. Credit line availability is about $17.5 billion across three lines with one of those lines being a 364-day $2 billion line allocated exclusively to GM Financial. The other two automotive lines are a $4.3 billion line expiring in April 2024 and an $11.2 billion line. The $11.2 billion line has $9.9 billion available until April 2026 while the remaining portion is available until April 2023. GM fulfilled its UAW VEBA funding obligations in 2010. As per calculation 2021 automotive and Cruise debt/adjusted EBITDA at 1.3, excluding legacy obligations and equity income. Automotive debt maturities including capital leases are about $463 million in 2022.

Bulls Say

  • GMNA’s break even point of about 10 million-11 million units is drastically lower than it was under old GM. Earnings should grow rapidly as GM becomes more cost-efficient. 
  • GM’s U.S. hourly labor cost is about $5 billion compared with about $16 billion in 2005 under old GM. 
  • GM can charge thousands of dollars more per vehicle in light-truck segments. Higher prices with fewer incentive dollars allow GM to get more margin per vehicle, which helps mitigate a severe decline in light vehicle sales and falling market share.

Company Description

General Motors Co. emerged from the bankruptcy of General Motors Corp. (old GM) in July 2009. GM has eight brands and operates under four segments: GM North America, GM International, Cruise, and GM Financial. The United States now has four brands instead of eight under old GM. The company lost its U.S. market share leader crown in 2021 with share down 280 basis points to 14.6%, but the GM to reclaim the top spot in 2022 as 2021 suffered from the chip shortage. GM Financial became the company’s captive finance arm in October 2010 via the purchase of AmeriCredit.

(Source: Morningstar)

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

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

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

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

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

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

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

Categories
Global stocks

Keurig Dr Pepper appears poised to augment the positioning of its cold business 60% of sales

Business Strategy & Outlook

The merger of Keurig Green Mountain and Dr Pepper Snapple into Keurig Dr Pepper created a North American beverage behemoth with strong brands and supply chain positioning. Despite being only one third and one sixth the size of Coke and Pepsi, respectively, Keurig Dr Pepper appears poised to augment the positioning of its cold business (60% of sales). However, it will have a more difficult time navigating various structural headwinds plaguing its hot business. Across soft drinks, the firm should be able to maintain a top-three position in its core categories. Although it’s disproportionately exposed to the beleaguered soda category, innovation will continue to resonate, owing to a core consumer gleaning a higher marginal benefit from consumption, affording continued pricing tailwinds. Moreover, the breadth of Keurig Dr Pepper’s selling apparatus facilitates exposure to high-growth segments, as smaller brands (like Polar Seltzer) leverage the firm for manufacturing or distribution.

Merger synergies have fuelled Keurig Dr Pepper’s strategic initiatives, with $600 million in cost savings (around 5% of sales) to be realized by 2022 via consolidated distribution, procurement leverage, and administrative streamlining. Management noted at the 2021 investor day that these savings would be used to fund initiatives surrounding customer acquisition and company-owned delivery. Competition remains robust across Keurig Dr Pepper’s core categories, and growth prospects outside of North American markets are encumbered by the firm’s lack of ownership rights to key trademarks internationally. Still, its resonant brands, distribution prowess, and partner networks will allow the company to maintain its positioning.

Financial Strengths

KDP’s financial position is manageable, though far from stellar. Keurig was considered the acquirer from an accounting perspective for the merger and funded the purchase of DPS’ assets with roughly 60% debt. The net debt/adjusted EBITDA for the combined entity rose above 8 times in 2018 after the merger, precariously higher than peers. Still, the stability of its industries, in conjunction with its profitability and management team, has allowed the company to manage its debt load, which will continue. KDP’s net debt/adjusted EBITDA ratio fell to 2.9 times as of December 2021, completing management’s goal of sub-3 times by 2021. Leadership aims to remain above the investment-grade threshold, and the material reduction in Keurig’s debt levels subsequent to being taken private lends credence to its ability in this regard. Though business prospects remain bright despite COVID-19, management used the opportunity to restructure its debt profile through extended maturities and lower rates, which gives us even greater confidence that the firm will be able to maintain its investment-grade credit rating (Moody’s also upgraded the debt outlook from negative to stable in

February 2021). Liquidity should also not be an issue, as in addition to over $550 million in cash (as of June 2022), the firm has ample access to short-term liquidity by way of commercial paper and its structured payables program.

Bulls Say

  • Cost synergies realized from the merger are allowing the company to invest in customer acquisition and other strategic assets like company owned distribution.
  • The firm still touts the dominant ecosystem in the North American single-serve coffee category, which yields several self-perpetuating advantages.
  • With a formidable distribution system, KDP is able to gain exposure to secularly advantaged categories through partnerships with upstart brands.

Company Description

Keurig Dr Pepper, the product of a 2018 merger between Dr Pepper Snapple and Keurig Green Mountain, is the third-largest non-alcoholic beverage company in North America. In addition to the eponyms, the firm’s flagship brands include 7UP, Canada Dry, Schweppes, Mott’s, and Bai. The company situates itself at different positions of the value chain depending on the segment (it reports four operating segments) and the product. It is primarily a brand owner in its beverage concentrates and Latin America beverages segments, as well as for the single-serve brewers within its coffee systems segment, and owns integrated production and distribution operations in its packaged beverages segment as well as for its K-cup pods.

(Source: Morningstar)

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

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

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

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

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

Categories
Global stocks Shares

Blackmores has seen strong growth in its international segment

Business Strategy & Outlook

Blackmores’ customer profiles are very different in its two key markets, Australia and China. Vitamin-taking Australians tend to be older or females either before or during pregnancy, while in China the market is dominated by young, online shoppers who view international vitamin and dietary supplements as luxury purchases. Nonetheless, the importance of perceived product quality—largely

an extension of brand positioning—is common to both customer groups. Blackmores’ brand intangible assets support its narrow economic moat. Blackmores’ position within the core Australian market as stable and the market as well penetrated. Actual performance in Australia is clouded by informal exports of products purchased for the daigou channel and sent to China. In fiscal 2021, roughly 9% of ANZ sales were ultimately sent to China. While this contribution remaining below 10% due to coronavirus and regulatory changes requiring daigous to register as businesses and pay taxes, this will be offset by growth in the direct China segment.

China presents a large opportunity for Blackmores as it is the second-largest global VDS market after the U.S, and it will contribute roughly 30% of group revenue at mid-cycle. Other than the informal daigou trade, Blackmores primarily distributes into China via cross-border e-commerce where the product is sold on online platforms. Further opportunity lies in establishing a sizable offline retail business, but this hinges on the company obtaining regulatory approval. Blackmores has seen strong growth in its international segment, which now contributes more to earnings than the China segment

and is forecast to remain larger. The segment is largely composed of regions in Southeast Asia including Malaysia, Thailand and Indonesia. Blackmores aims to continue the momentum after entering India in 2021 and gaining halal accreditation to serve Muslim consumers, particularly in Indonesia.

Financial Strengths

Blackmores is in a solid financial position with net cash of AUD 92 million as at June 2022. It should maintain its net cash position over the forecast period and afford a 45% dividend payout ratio. Free cash flow conversion of net income has averaged 102% over the preceding five years (before acquisitions), above the average 54% dividend payout ratio. Free cash conversion of net income to average 93% over the next five years.

Bulls Say

  • A reputation for quality is fundamental in the VDS market and Blackmores’ reputation is untarnished.
  • Bar fiscal 2020, the company has earned returns on invested capital well above its single-digit cost of capital, demonstrating its brand strength and associated pricing power.
  • Blackmores’ new CEO brings experience in navigating international brand sales and distribution in Asian markets which should allow the company to progress its business outside of Australia.

Company Description

Blackmores is a leading Australian vitamin and health supplement manufacturer and is the larger of two major vitamin brands by market share in Australia. Overseas sales also contribute a significant amount to earnings, particularly from Southeast Asia and the Chinese market via both formal (cross-border e-commerce) and informal (daigou) sales channels.

(Source: Morningstar)

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

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

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

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

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

Categories
Global stocks Shares

The Continued Recovery of the Hotel Industry Will Drive High Growth for Park Hotels

Business Strategy & Outlook

Park Hotels & Resorts is the second largest U.S. lodging REIT, focusing on the upper-upscale hotel segment. The company was spun out of narrow-moat Hilton Worldwide Holdings at the start of 2017. Since the spinoff, the company has sold all the international hotels and 15 lower-quality U.S. hotels to focus on high-quality assets in domestic, gateway markets. Park completed the acquisition of Chesapeake Lodging Trust in September 2019, a complimentary portfolio of 18 high-quality, upper upscale hotels that should help to diversify Park’s hotel brands to include Marriott, Hyatt, and IHG hotels. In the short term, the coronavirus significantly impacted the operating results for Park’s hotels with high-double-digit RevPAR declines and negative hotel EBITDA in 2020. However, the rapid rollout of vaccinations across the country allowed leisure travel to quickly recover, leading to significant growth in 2021 and 2022. The company should continue to see strong growth as business and group travel also recover to Prepandemic levels with Park eventually returning to 2019 levels by 2024. However, the hotel industry will continue to face several long-term headwinds. Supply has been elevated in many of the biggest markets, and that is likely to continue for a few more years. Online travel agencies and online hotel reviews create immediate price discovery for consumers, preventing Park from pushing rate increases. Finally, while the shadow supply created by Airbnb doesn’t directly compete with Park on most nights, it does limit Park’s ability to push rates on nights where it would have typically generated its highest profits. Still, the Park does have some opportunities to create value. Management has only had control of the portfolio for three years, and there is some additional growth that can be squeezed out of current renovation projects. The Chesapeake acquisition should provide an additional source of growth as the company drives higher operating efficiencies across this new portfolio. The pandemic could create additional opportunistic ways for Park to grow the portfolio.

Financial Strengths

Park is in solid financial shape from a liquidity and a solvency perspective. The company seeks to maintain a solid but flexible balance sheet, which will serve stakeholders well. Park does not currently have an unsecured debt rating. Instead, Park utilizes secured debt on its high-quality portfolio. Currently, the majority of Park’s debt is secured by five of its largest hotels, leaving Park with 39 consolidated hotels that are free of debt encumbrance. Even if Park is unable to pay its debt obligations, the company can return the collateral secured by its debt to the lenders and proceed with its unencumbered business essentially debt free. That said, debt maturities in the near term should be manageable through a combination of refinancing, the company’s free cash flow, and the large cash position Park currently has on their balance sheet. Additionally, the company should be able to access the capital markets when acquisition opportunities arise. In 2024, which is the year hotel operations should return to normal, net debt/EBITDA and EBITDA/interest will be roughly 4.1 and 4.2 times, respectively, both of which suggest that the company should weather any future economic downturn and that it would be able to selectively acquire assets as the market recovers. As a REIT, Park is required to pay out 90% of its income as dividends to shareholders, which limits its ability to retain its cash flow. However, the company’s current run-rate dividend is easily covered by the company’s cashflow from operating activities, providing Park plenty of flexibility to make capital allocation and investment decisions. The Park will continue to be able to access the capital markets given its current solid balance sheet and its large, higher-quality, unencumbered asset base.

Bulls Say

  • Potentially accelerating economic growth may prolong a robust hotel cycle and benefit Park’s portfolio and performance. 
  • Low leverage gives Park greater financial flexibility to be opportunistic with new investments or return more capital to shareholders through dividend growth or share buybacks. 
  • Park’s management identified several enhancement initiatives that it can execute to drive EBITDA higher on the newly acquired Chesapeake portfolio.

Company Description

Park Hotels & Resorts owns upper-upscale and luxury hotels with 27,224 rooms across 45 hotels in the United States. Park also has interests through joint ventures in another 4,297 rooms in seven U.S. hotels. Park was spun out of narrow-moat Hilton Worldwide Holdings at the start of 2017, so most of the company’s hotels are still under Hilton brands. The company has sold all its international hotels and 15 lower-quality U.S. hotels to focus on high-quality assets in domestic, gateway markets.

(Source: Morningstar)

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

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

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

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

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

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

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

Categories
Global stocks

Raising the Valuation of Carlsberg After Margins Expand in First Half

Business Strategy & Outlook

Until recently, Carlsberg had underperformed its close peers. Although it has a very strong competitive positioning in its native Denmark and other Scandinavian markets, in other major developed markets it is a second-tier player and has suffered shelf space loss, including the high-profile removal of the flagship brand from Tesco’s shelves in 2015. In addition, Carlsberg’s second-largest market, Russia, has been undergoing volume declines since 2012 due to a decadelong government clampdown on the availability and affordability of beer and a shrinking drinking age population. Returns on invested capital were regularly below the cost of capital, and the low-teens operating margin was below that of the firm’s largest competitors. Yet, under new management at around the same time as the Tesco incident, Carlsberg has come out fighting and now looks in far better shape. SAIL’22, an umbrella for strategic initiatives designed to cut costs and reignite growth, has been a coherent set of strategies to deliver the margin opportunity that for several years was possible. Progress has been decent, with organic sales having grown by over 3% annually over the five years of the program, in spite of the COVID-19-related declines in 2020, and almost 200 basis points being added to the operating margin, which stood at 16.3% on an adjusted basis in 2021. Benchmarking against competitors, however, there is further room for improvement, and the encouragement was that the recently unveiled SAIL’27 strategy suggests more profitability improvement to come. Mix should play a pivotal role. Some of Carlsberg’s markets, including China, are undergoing structural premiumization, and Carlsberg’s premium and above portfolio, including the Tuborg and 1664 brands, as well as line extensions to the Carlsberg brand, should continue to grow at rates well above the market. Medium-term guidance under SAIL’27 is 3%-5% organic revenue growth. The medium-term growth slightly below the midpoint of that guidance, primarily because of Carlsberg’s heavy presence in developed markets, in which beer is likely to lose share to other categories including wine and spirits.

Financial Strengths

Carlsberg is in sound financial shape, and after a multiyear period of paying down debt, it is now less leveraged than Heineken and AB InBev. Following the S&N acquisition in 2008, Carlsberg’s net debt/EBITDA ratio increased to 4.1 times. Since that time, debt has fallen from DKK 48 billion to just DKK 29 billion at year-end 2021, when the adjusted net debt/EBITDA ratio stood at just under 1.4 times. Under the SAIL’22 initiative, management targets a net debt/EBITDA ratio of 2 times, so Carlsberg has some room for releveraging for M&A, increasing the dividend, or repurchasing shares. Carlsberg increased its annual dividend 60% in 2018 and after a further 9% increase in 2021, its payout ratio was 49% last year. This is more or less in line with the large-cap consumer staples peer group. The free cash flow to average over DKK 12 billion over the next five years, and with leverage under control and an average of DKK 4 billion paid out in dividends at the new annualized rate, Carlsberg now has more balance sheet optionality than it has had in several years. The company completed a share-repurchase program of DKK 4 billion and announced an additional program to repurchase a further DKK 1 billion in the first quarter of 2022. Acquisitions could be one use of the company’s excess cash. That said, it showed little interest publicly in the assets being divested by AB InBev as part of the SABMiller acquisition, and most deals have been bolt-on in nature in recent years. The Grolsch and Peroni brands, sold to Asahi, had the potential to be value-accretive to Carlsberg. With cash and stock, Carlsberg could enter into a transformative deal, especially as the company delivers on its SAIL’22 and SAIL’27 targets of strengthening the core business.

Bulls Say

  • Although Carlsberg is under indexed in premium segments, it does have a presence with brands such as Tuborg and 1664 Blanc, and the premiumization of the portfolio could be seen as a long-term opportunity. 
  • Carlsberg is present in the attractive market of Vietnam and has the opportunity to raise its economic interest in its local subsidiary, Habeco. 
  • Management’s medium-term guidance around its SAIL’27 strategy implies that there is more margin expansion to come in the years ahead, which will further close the financial performance gap to Heineken.

Company Description

Carlsberg is the fourth-largest brewer in the world following the combination of Anheuser-Busch InBev and SABMiller, with major operations in Russia, Europe, and Asia. It holds leading shares in Russia, Scandinavia, Laos, Cambodia, and parts of western China. Its key brands include Carlsberg, Tuborg, Baltika, Holsten, and Somersby. The company’s 2021 beverage volume was split among Northern and Western Europe (30%), Eastern Europe (39%), and Asia (31%).

(Source: Morningstar)

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