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.

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Global stocks

Intellia Therapeutics’ Gene Editing Technology Looks Promising; FVE $85, Shares Undervalued

Business Strategy & Outlook: 

Intellia Therapeutics is a gene editing company focused on the development of CRISPR/Cas9-based therapeutics. Intellia’s technology platform specializes in Clustered Regularly Interspaced Short Palindromic Repeats (CRISPR)/Cas9, which precisely cuts DNA to disrupt, delete, correct, and insert genes to treat genetically defined diseases. CRISPR/Cas9 has created a new class of medicines, which are well suited for targeting rare diseases or other disorders that are caused by genetic mutations. CRISPR/Cas9 works by having CRISPR (pieces of DNA sequences) guide Cas9 (an enzyme that can cut and edit DNA) to edit, alter, or repair genes. Intellia is utilizing this gene knockout approach to remove unwanted proteins using its proprietary lipid nanoparticle delivery system. Intellia has leveraged its expertise in CRISPR/Cas9 gene editing to advance a pipeline of in vivo and ex vivo therapies for diseases with high unmet medical needs. It is believed that the company’s proprietary technology has the potential to build blockbusters in rare diseases with limited treatment options available. Intellia currently has no approved drugs and a largely early stage pipeline.

Risk and Uncertainty: 

A significant uncertainty related to regulatory approvals for the company’s early-stage pipeline candidates and a range of potential outcomes. Product governance is an ESG risk for Intellia, as failure to adhere to extensive regulations can lead to expensive recalls, increased regulatory scrutiny, and lawsuits from affected customers. Additionally, lawsuits related to patent rights and potential patent infringements are another risk. It is anticipated gene editing companies like Intellia will operate under cross licensing agreements with the Broad Institute as many of the gene editing technology platforms are interrelated. Access to basic services is another ESG risk the company will face if its drugs receive approval since its sales will depend on reimbursements from third-party payers, such as Medicaid or Medicare, private insurers, and national healthcare systems. Attempts by governments to contain healthcare costs could result in pricing pressure and lead to reduced profit margins.

Bulls Say:

  • Intellia’s partnerships allow it to receive milestones and economic benefits from drug candidate progression while offsetting some of the clinical development costs. 
  • Intellia’s CRISPR/Cas9 platform has the potential to develop highly efficacious and curative treatments for rare, genetic diseases with high unmet needs, which will likely lead to pricing power if approved. 
  • The company’s pipeline is viewed as possessing strengthening intangible assets and assign it a positive moat trend.

Company Description:

Intellia Therapeutics is a gene editing company focused on the development of CRISPR/Cas9-based therapeutics. CRISPR/Cas9 stands for Clustered Regularly Interspaced Short Palindromic Repeats (CRISPR)/CRISPR-associated protein 9 (Cas9), which is a revolutionary technology for precisely altering specific sequences of genomic DNA. Intellia is focused on using this technology to treat genetically defined diseases. It’s evaluating multiple gene editing approaches using in vivo and ex vivo therapies to address diseases with high unmet medical needs, including ATTR amyloidosis, hereditary angioedema, sickle cell disease, and immuno-oncology. Intellia has formed collaborations with several companies to advance its pipeline, including narrow moat Regeneron and wide-moat Novarti

(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

Circling Back on CIBC After Q4 Earnings; Lowering Fair Value Estimates to CAD 73/USD 54

Business Strategy & Outlook: 

Canadian Imperial Bank of Commerce is the fifth-largest bank in Canada by assets and one of six that collectively hold almost 90% of the nation’s banking deposits. CIBC is more Canadian-focused than some of its more international peers, although this is changing after the acquisition of PrivateBancorp. The bank plans to eventually have up to 25% of revenue coming from the U.S. Despite having one of the larger domestic branch networks, CIBC’s products haven’t typically had top share in Canada, though the bank had made significant strides in multiple categories for years starting in 2011, as the bank increased share in multiple categories and increased product numbers per customer. This improvement has admittedly slowed down recently. CIBC has encountered its own issues over the years, including multibillion-dollar write-downs in the aftermath of the global financial crisis. The bank had hit its stride since 2011, improving consumer satisfaction ratings, re-optimizing branches, improving internal processes, and expanding wealth operations. The bank is also seeing improved growth from its U.S. operations, which now contribute over 20% to earnings.

Risk and Uncertainty: 

Canadian banks face two primary risks: macroeconomic risks and risks related to future acquisitions. Canada has some of the highest median housing prices/annual median household income ratios in several of its major housing markets, and mortgage debt levels have consistently increased for more than a decade. While low interest rates have kept debt servicing ratios under control, this puts the economy in a riskier position as rates rise. The leverage of the Canadian consumer as a risk, as they have slowly leveraged up for more than a decade. CIBC has the largest relative exposure to the domestic real estate market in Canada; however, it is viewed as a manageable risk for the bank. While there are uncertainties related to consumer debt levels and the mortgage market, it is viewed as a threat to future growth and not an existential risk to Canada’s banking system. Further, the Canadian banking system has historically been one of the more stable systems in the world, and the system is designed to protect industry profit levels and maintain this stability and promote economic stability. From an ESG perspective, commercial banks are expected to have strong product governance. Predatory or discriminatory lending practices are examples of poor product governance, and this can affect certain banks at times. It is viewed by most product governance and social risks as manageable and incorporates a steady level of operational expenses related to compliance and litigation in some models. Outside of the rare, headline-grabbing scandals, social risks are not seen as having a material effect on valuation. Banks also lend to certain sectors which can come under more scrutiny at times, like gun manufacturers, or energy, for example. Commercial banks do not directly have a large environmental footprint and governance practices are in line with most companies. 

Bulls Say:

  • CIBC has significantly improved multiple measures of core banking performance, such as customer perception surveys, promoter scores, and products per a customer. The bank is now operating at a higher level. 
  • CIBC is more Canadian-focused than most of its peers. Its consolidated returns on tangible equity remain some of the highest in the industry.
  • The government has kept the Canadian market attractive by placing barriers to entry, protecting high returns, and the government will continue to attempt to keep the housing market under control, limiting any future hits to profitability.

Company Description:

Canadian Imperial Bank of Commerce is Canada’s fifth largest bank, operating three business segments: retail and business banking, wealth management, and capital markets. It serves approximately 11 million personal banking and business customers, primarily in Canada.

(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

Recovery Is Underway at Lendlease and the Business Is Transforming

Business Strategy & Outlook: 

Lendlease is a diversified global property developer, landlord, property manager, fund manager, and builder on a range of development projects, funds, and completed properties around the world. Interests have included apartments, offices, retail property, aged care facilities, retirement and military accommodation, roads, and rail tunnels. The group is evolving on numerous fronts: selling noncore businesses; seeking better returns on capital; accelerating its development pipeline; and shifting focus outside its homebase of Australia. Lendlease sold its risky engineering business in calendar 2020, though it retained liability for three engineering/ construction projects–two practically complete, and one complex project (Melbourne Metro) with several years to run. Lendlease found a buyer for its engineering services business after two years of marketing, and the price was respectable. Once this exit is complete Lendlease’s project mix will predominantly comprise residential and commercial property developments. The group’s ongoing business comprises three segments: development, investments and construction. Much growth isn’t expected in construction earnings, that business is primarily to preserve scale and construction expertise in support of Lendlease’s development business. The investments division houses a wide range of businesses including, military housing, property asset management and funds management. It is expected that the latter two business lines to grow substantially as Lendlease sells stakes in its development projects. This is a trade-off, relinquishing potential development profits in return for lower risk management fees, performance fees, and capital to accelerate its development pipeline. Lendlease’s history is in Australia and is is expected it to continue to pursue projects there, but it is expected earnings over the next two decades will rotate toward its offshore development pipeline in the United States, Europe, and to a lesser extent Asia

Risk and Uncertainty: 

Despite selling its engineering and services businesses, Lendlease retains risks on the Melbourne Metro project. A base case is that existing provisions will cover future costs, but risk remains through to completion by circa 2026. Lendlease’s remaining business is opaque, but becoming more transparent. The bulk of the value of the company is in multi-decade urbanisation projects, where end values and margins cannot be accurately estimated until the projects are substantially completed. Even if Lendlease knew what revenues and margins are likely to be, contract terms are largely confidential. Projects face political, social and environmental risk, given they involve redeveloping large tracts of inner urban land, in collaboration with local municipalities, land owners and other stakeholders. These ESG issues contribute to a High Uncertainty Rating. Development risks include rising interest rates, a decline in secular demand for offices and apartments, or mis-pricing of contracts by Lendlease. A risk for the investment segment is that demand from institutions wanes, prompting outflows from Lendlease funds. Investors may fear rising rates, or limited upside with rates near the zero-bound. Changes to pension, tax or investment regulations could cause institutions to move away from illiquid assets. There was a taste of that risk in Australia in 2020 when the government allowed individuals in financial hardship to make superannuation withdrawals amid the COVID-19 crisis. That saw industry super funds saddled with illiquid property assets as they sold liquid assets to fund redemption requests. Lendlease experienced redemptions from its retail property funds due to headwinds for that asset class, and its possible that these headwinds could spread to office and apartment assets. 

Bulls Say:

  • Lendlease has a huge development pipeline. Contract terms are confidential, but look to have been struck on attractive terms. 
  • The balance sheet is in good shape, which should help Lendlease to accelerate its huge development pipeline. 
  • Government balance sheets are strained, yet authorities appear to want to promote economic activity via construction. Lendlease is well positioned to participate, because of its near shovel-ready projects and capable management. 

Company Description:

Lendlease’s ongoing business comprises three segments: development, investments, and construction. Development accounted for more than half of EBITDA in 2020, and the future pipeline is so large it cannot be funded from its own balance sheet. The group is selling projects stakes to its funds management clients. This sacrifices development profit, in return for management fees, reduced risk, and capital to accelerate its development pipeline. Construction generates large revenues but slim margins. This business is retained to preserve expertise and scale for the development business. Lendlease sold its engineering and services business during the pandemic, but retains some risks, notably the Melbourne Metro project which has years to run

(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

SkyCity Looks Cheap Despite Adelaide Inquiry

Two young women talking together with a tablet in the living room. They sit spaced apart to prevent the virus.

Business Strategy & Outlook: 

SkyCity is expected to deliver strong earnings growth over the next decade, buoyed by the recovery from current coronavirus-induced lows and solid performance from its core assets in Auckland and Adelaide. SkyCity’s Auckland and Adelaide properties underpin the firm’s narrow economic moat. SkyCity is the monopoly operator in both jurisdictions, with long-dated licences (exclusive licence for Auckland expires in 2048, and Adelaide licence expires in 2085 with exclusivity guaranteed until 2035). These properties have performed strongly, thanks to SkyCity’s solid record of reinvestment, resulting in high property quality, stable visitor growth, and earnings resilience. The quality of these assets, particularly SkyCity Auckland, has helped build the firm’s VIP gaming business. SkyCity’s exposure to the volatile VIP gaming market is smaller than that of Australian rivals Crown Resorts and Star Entertainment. VIP revenue typically represents over 20% of Crown’s and Star’s sales, compared with SkyCity’s typical 10%-15%. While high rollers have no alternatives when in Auckland or Adelaide, SkyCity effectively competes as a destination casino on a global scale against locations such as The Star in Sydney and Crown Melbourne. VIP Gaming segment is expected to recover as border restrictions have eased and tourism recovers, to around 15% of revenue. To protect its competitive position and retain appeal, SkyCity is investing in its key properties. Successful execution of the two major projects in Auckland and Adelaide is key. They provide good earnings accretion opportunities, in particular at the core Auckland property. This includes a NZD 750 million upgrade to SkyCity Auckland to be completed by calendar 2025 and an AUD 330 million expansion for SkyCity Adelaide, a transformational project completed in fiscal 2021. Beyond 2025, when these expansion projects come on line in full, SkyCity Entertainment is expected to resume generating excess returns and revert to a strongly cash-generating business on a substantially stepped-up earnings base.

Risk and Uncertainty: 

The primary risk to SkyCity is the ongoing recovery from the pandemic. The pandemic effectively halted SkyCity’s VIP business, and a protracted recovery could present significant downside risk. VIP gaming relies on international high rollers coming into the country, often through operators known as junkets. SkyCity’s exposure to the volatile VIP gaming market is smaller than those of Australian rivals Crown Resorts and Star Entertainment. The current regulatory scrutiny around Crown’s and Star’s casino licences in Australia elevates uncertainty around the rate of recovery of VIP gaming, notably regarding the firm’s dealings with junket operators. While not focusing on SkyCity, it is believed  heightened regulatory oversight of Australian casinos in general is likely. It is expected to see a particular focus on junket operators potentially needing to be regulated locally (or even banned). It remains to be seen how New Zealand regulators will react, but SkyCity has pre-emptively banned junkets from April 2021. SkyCity’s expansion programs introduce execution risks. The sheer scale of the expansion program is unprecedented for the company, and the long construction duration could lead to higher-than-expected disruptions to the existing operations, not to mention potential cost overruns. Even when the expansion projects are fully completed, there is a threat the additional gaming capacity will not be fully absorbed

Bulls Say:

  • Long-dated exclusive licences to operate the only casino in Auckland and Adelaide allow SkyCity to enjoy economic returns in a regulated environment. 
  • It is expected transformative capital expenditure at SkyCity’s Auckland and Adelaide casinos will lead to a sizable step-up in earnings. 
  • SkyCity is well positioned to benefit from the emerging middle and upper class in China

Company Description:

SkyCity Entertainment operates a number of casino-hotel complexes across Australia and New Zealand. The flagship property is SkyCity Auckland, the holder and operator of an exclusive casino license (expiring in 2048) in New Zealand’s most populous city. The company also owns smaller casinos in Hamilton and Queenstown. In Australia, the company operates SkyCity Adelaide (exclusive license expiring in 2035).

(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

Credit Suisse has some very good, profitable, and generally asset light business

Business Strategy & Outlook

Credit Suisse’s true underlying profitability has been masked for the better part of a decade by multiple restructuring charges and the cost of running down a legacy book of unprofitable assets. The new management team at the helm of Credit Suisse hoped that it addressed all issues during 2020, but new problematic exposures continue to crop up. This suggests a deeper risk management malaise at Credit Suisse. Credit Suisse has some very good, profitable, and generally asset-light business with good long-term secular growth prospects—especially in wealth management/private banking and the Swiss universal bank. The discount that the market has imposed on the rating of Credit Suisse relative to UBS and its other peers should, however, remain in place until Credit Suisse can convince investors that it has addressed its risk management deficiencies. We believe that Credit Suisse will have to report several quarters of results free from the large non-recurring items that have historically marred its results. 

There is a strong long-term secular trend that sees the wealth of high-net-worth individuals and families growing ahead of global nominal GDP. The ultra-high net worth and family office segment, where Credit Suisse has focused most of its attention, is a particularly attractive segment. The threat of digital disintermediation is reduced and the need for bespoke solutions and strong relationship between banker and client remains. The current negative interest rate environment obscures the benefits of Credit Suisse’s very strong deposit franchise that provides it with ample surplus liquidity. Currently, this is damaging to Credit Suisse’s net interest income—it needs to invest its excess liquidity in short-term risk-free assets that currently pays no or negative interest. Credit Suisse has, however, starting passing on these costs to selected clients.

Financial Strengths

Credit Suisse has a common equity Tier 1 ratio of 14.4% currently, ahead of its own internal capital target of a 14% common equity Tier 1 ratio. This is comfortably ahead of its regulatory minimum capital requirement of 10%. However, Credit Suisse’s leveraged ratio of 4.2% is more of a constraint, with a regulatory minimum requirement of 3.5% and an internal target of 4.5%. Credit Suisse intends to pay out 25% of its earnings as a dividend and it has not announced new share buybacks. We do not believe Credit Suisse will be able to return more than this to Both Credit Suisse’s liquidity coverage ratio and its net stable funding ratio are comfortably above 100%, which indicates sound liquidity. To assess, these ratios, while helpful, do not fully capture the quality of a bank’s funding. One should also consider the structure of a bank’s funding—where the relatively lower importance of wholesale deposits in Credit Suisse’s funding mix is a clear positive. However, private banking/wealth management clients will typically be more sophisticated than the average retail banking client and therefore more likely to withdraw funds in times of stress. We therefore do not believe that private banking deposits are as sticky as general retail deposits, although they remain stickier than wholesale funding.

Bulls Say

  • Credit Suisse looks set to emulate UBS and transform its business model into a wealth manager with a complementary investment bank, which would increase profitability and reduce earnings volatility. 
  • Credit Suisse has run down a massive book of EUR 126 billion to EUR 45 billion over the past four years, incurring pretax losses of EUR 16 billion in the process. This has obscured the performance and profitability of the core business. 
  • Credit Suisse generates the bulk of its earnings in stable and low-risk private banking/wealth management and Swiss commercial banking.

Company Description

Credit Suisse runs a global wealth management business, a global investment bank and is one of the two dominant Swiss retail and commercial banks. Geographically its business is tilted toward Europe and the Asia-Pacific.

(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

Chubb and peers are experiencing a positive trend in underlying underwriting profitability

Business Strategy & Outlook

In January 2016, ACE acquired Chubb in a deal valued at about $28 billion and assumed its name. The deal looked fairly valued and there were meaningful cost benefits involved, with management eventually exceeding its initial targets. However, from a long-term perspective, the fact that the combination created a moaty international insurer with exposure across most insurance lines for the first time, marking Chubb as potentially the most attractive long-term core holding in the space from a fundamental point of view. In 2020, the coronavirus affected the industry’s and Chubb’s results, and the company’s COVID-19 losses were roughly in line with peers’ as a percentage of premiums. However, the impact at Chubb and peers was manageable and well within the range of events that the industry has successfully absorbed in the past. The future looks relatively bright. 

Pricing momentum picked up in primary lines in 2019, and this positive trend only accelerated in 2020. More recently, pricing has started to level off, but the industry has enjoyed the highest increases it has seen since 2003. While higher pricing is necessary to some extent to offset a rise in social inflation and other claims trends, pricing increases appear to be more than sufficient to offset these factors. As a result, Chubb and peers are experiencing a positive trend in underlying underwriting profitability, and the potential for a truly hard pricing market, similar to the period that followed 9/11. In this scenario, narrow-moat and highly disciplined operators such as Chubb are positioned to earn very attractive returns. However, the industry remains well capitalized, which could put something of a lid on the magnitude and duration of any excess returns.

Financial Strengths

Equity/assets was 30% at the end of 2021, and while the company has a large amount of goodwill on its balance sheet, its balance sheet structure is reasonable and roughly in line with peers on a tangible basis. Like all property and casualty insurers, the company’s earnings and capital in any particular year could take a material hit due to catastrophes or securities market movements that affect its investment portfolio. However, the company’s insurance operations are well diversified, and it has a history of superior underwriting profits, a large catastrophe year to significantly degrade its capital position is not expected. The firm also retains a fairly conservative investment portfolio, which is concentrated in government debt, municipal bonds, and highly rated corporate securities.

Bulls Say

  • Chubb is one of the few companies with the global footprint that large corporate insurance customers demand. Its network has created a barrier to entry for potential competitors. 
  • Chubb is a large insurer with leading positions in the most moaty areas of the P&C insurance industry. 
  • Chubb’s international operations benefit from significant growth opportunities.

Company Description

ACE acquired Chubb in the first quarter of 2016 and assumed the Chubb name. The combination makes the new Chubb one of the largest domestic property and casualty insurers, with operations in 54 countries spanning commercial and personal P&C insurance, reinsurance, and life insurance.

(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

BLD’s 1H22 results were impacted by Covid 19 related construction shutdowns and adverse wet weather

Investment Thesis:

  • Near-term outlook remains uncertain in Australia with higher costs and supply chain constraints.
  • BLD is a much cleaner business operations following several divestments, which increased focus.
  • Boral is expected to benefit from proposed infrastructure projects.
  • Better realization of price increases, whilst volumes remain solid.
  • Focused on the Australian market.
  • Proceeds from divestments could be returned to shareholders.
  • Large cornerstone shareholder – Seven Group Holdings (owns approx. 70%) – may provide shareholder turnover stability.

Key Risks:

  • Concentrated earnings, focused on just the Australian Construction market.
  • Indirect and direct effect of coronavirus on operations.
  • Potential delays to infrastructure assets leading to a volume gap in the market.
  • Cost pressures continue to exceed price increases.
  • Unfavourable weather impacts.
  • BLD is now majority owned by Seven Group Holdings (approximately 70% of outstanding shares) which means minority shareholders’ interest may not always be a priority when making key strategic decisions around capital structure, shareholder returns and strategic initiatives.

Key Highlights: Relative to the pcp:

  • Revenue of $1.5bn was up +1% (or up +3% on a comparable basis), driven by activity in detached house, A&A (alterations & additions) and R&B (roads, highways, subdivisions & bridges) and despite there being disruptions from lockdowns. The Company did see solid volumes in concrete (up +1%) and quarries (up +4%). Further, management noted that concrete like-for-like prices were steady and up +2% in quarries.
  • Operating earnings (EBIT) of $78m were down -23% (with EBIT margin declining to 5.8% from 6.8%), which was largely driven by the impact from Covid-19 related construction shutdowns (which adversely impacted earnings by $33m) and expenses (energy + other costs). Partially providing some buffer to EBIT was higher volume (up $22m) and $22m from the cost out program (Transformation program), which includes the $24m of cost inflation.
  • Operating cash flow from operations of $86m was down -22%, reflecting
  • lower EBITDA performance due to construction shutdowns.
  • Capital return of $2.72 per share. Given the completion of disposal of BLD’s North American
  • Building Products and Fly Ash, and Australian Building Products businesses (Timber and Roofing & Masonry) for more than $4bn, the Company will return $3bn surplus capital to
  • shareholders via a $2.65 capital reduction and 7cps unfranked dividend.
  • Capital structure. Following the divestments of its non-core assets and expected capital return to shareholders, BLD on a pro forma basis is expected to have net debt of less than $400m. Management is targeting net debt of $900m to $1.1bn (including leases) and leverage (net debt / EBITDA) of 2 – 2.5x.
  • FY22 outlook comments. Management did not provide overly specific guidance but noted the following: 2H22 revenue is expected to be above 1H22, driven by out-of-cycle national price increases effective Jan/Feb 2022. However, this is expected to offset the impact of higher energy costs, which will remain a headwind in 2H22.
  • No construction shutdowns in 2H22 ($33m impact in 1H22) are expected to be offset by typical 2H seasonality due to 6 fewer trading days.

Company Description:

Boral Ltd (BLD) is the largest integrated construction materials company in Australia, producing and selling a broad range of construction materials including quarry products cement, concrete, asphalt and recycled materials. The Company has a portfolio of assets consisting of upstream and downstream assets. BLD employs approximately 10,300 employees and contractors and has 367 construction materials sites across Australia.

(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

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

Investment Thesis

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

Key Risks

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

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

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

Company Description

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

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

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

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate. Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities. Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

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

Categories
Global stocks

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

Investment Thesis

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

Key Risks

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

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

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

Company Description

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

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

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

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate. Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities. Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

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

Categories
Global stocks

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

Investment Thesis

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

Key Risks

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

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

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

Company Description

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

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

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

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