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 Shares

CGC reported solid FY 21 results driven by International segment to grow its revenue by 30%

Investment Thesis 

  • Improving momentum at the operational level and the stock is trading well below our valuation.
  • Positive thematic play on food supply for a growing global and domestic population.
  • Leading market positions in five core categories (Berries, Mushrooms, Citrus, Tomato and Avocado via the recent acquisition).
  • Near-term challenges could persist a little while longer (e.g. extreme weather and drought)
  • Execution of domestic berry growth program continues, while China berry expansion is gaining momentum. 
  • Balance sheet risk has been removed with the recent capital raising.
  • Given the number of downgrades, management will likely need to rebuild trust with its guidance and execution.

Key Risks

  • Further deterioration in weather conditions leading to pressure on earnings.
  • Further deterioration in earnings could put the balance risk at risk again.  
  • Weather affecting crops or any significant increase in insurance expense. This risk is mitigated as CGC has crop insurance (hail, wind, fire) and structure insurance.
  • Any power outage causing crops to be destroyed per incident.
  • Any significant increase in costs of power, affecting earnings.
  • Any disruption to operations from health and safety issues.
  • Any disruptions or issues associated with water, irrigation and water recycling.
  • Negotiations with supermarket giants Coles (Wesfarmers), Woolworths and independent grocers result in erosion of margins.
  • Pricing pressures arising from either competitors, or insufficient demand.
  • Increased costs due to lower water allocations. 

1H22 Results Highlights                

Relative to the pcp:   

  • Revenue increased +4.8% to $1220.6m, driven by International up +30% (+40% in CC) with both regions performing strongly with production and pricing improvements. 
  •  EBITDA-S increased +10.6% (+14% in CC) to $218.2m, with International up +33.9% (+49.2% in CC) underpinned by strong China pricing and additional production from increased footprint and yield, partially offset by -1.3% decline in Farms & Logistics segment amid Covid-19 lockdowns impacting foodservice/market industry. 
  •  NPAT-S increased +16% (+25% in CC) to $64m with higher D&A amid major capex programs going-live and impact of acquisitions was more than offset by reduced tax expense amid increased contribution from China. Statutory NPAT declined -32% (-28% in CC) to $41.4m. 
  •  Operating cashflow of $114.6m declined -16.8%, amid increased working capital in 2H21 (consistent with normal cycle) and $23.1m tax payments. 
  •  Operating capex increased +51% to $43.2m (expect CY22 to be $55-60m) and growth capex of $84.4m increased +68% amid continuation of international expansion. 
  •  Net debt increased +108% to $299.2m leading to leverage increasing +0.86x to 1.85x, still within target range of 1.5-2x. 
  •  The Board declared a fully franked final dividend of 5cps bringing FY21 payout to 9.0cps (flat over pcp). 

Company Profile

Costa Group Holdings Ltd (CGC) grows and markets fruit and vegetables and supplies them to supermarket chains and independent grocers globally. CGC has leading market positions in five core categories of Berries (Blueberries, strawberries and raspberries), Mushrooms, Citrus, Tomato and Avocado via the recent acquisition.

(Source: Banyantree)

General Advice Warning

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

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Global stocks

Coles Group reported 1H22 results reflecting modest sales growth despite cycling elevated sales

Investment Thesis

  • Strong market position in supermarkets, with significant scale and penetration providing a competitive advantage.
  • Increasing private labels penetration – COL recently reiterated its target of 40% penetration.
  • Relatively defensive earnings (food tends to be largely non-discretionary).
  • Undemanding valuation relative to main domestic competitor Woolworths. 
  • Improved focus and capital allocation now that the Company is demerged. 
  • Supply chain automation and upgrades should lead to efficiency gains.
  • In our view, the deal with Ocado puts Coles in a leadership position for online delivery. 
  • Flybuys is a highly attractive asset which could be monetized. 

Key Risks

  • Significant competitive pressures (including the emergence of new players) could erode margins. 
  • Management resets earnings base at the upcoming Strategy update in June 2019.
  • Online disruption (full online offering).
  • Automation and supply chain upgrades will require significant capital expenditure, cost of which has not been fully identified. 
  • Balance sheet could be stretched once adjusted for leases. 
  • Cost inflation runs ahead of top line growth. 

1H22 Results Highlights 

  • Sales revenue growth of +1.0% to $20.6bn and +9.2% on a two-year basis despite cycling elevated Covid-related sales in the pcp.
  • EBITDA of $1,762m was down -2.2%, and EBIT of $975m, was down -4.4% and impacted by higher Covid-19 disruption costs, related travel restrictions on Express’ earnings and transformation project costs. EBIT margin of 4.7%, was down -27bps.
  • NPAT of $549m, was down -2.0%.
  • Smarter Selling benefits in excess of $100m in 1H22; On track to deliver over $200m of benefits in FY22.
  • Cash realisation of 117% and a strong balance sheet (leverage ratio of 2.7x) with a net cash position of $54m (excluding lease liabilities). COL retained solid investment grade credit ratings with S&P and Moody’s.
  • The Board declared a fully franked interim dividend of 33.0cps and retained an annual target dividend payout ratio of 80% to 90%.
  • In February 2020, Coles conducted a review into the pay arrangements for all team members who received a salary and were covered by the General Retail Industry Award 2010 (GRIA). To date COL has incurred $13m of remediation costs.

Company Profile 

Coles Group Ltd (COL) is an Australian retailer (supermarket and liquor), demerged from Wesfarmers (WES) which acquired the business in 2007. As at 30 June 2018, Coles processed more than 21 million customer transactions on average each week, employed over 112,000 team members and operated 2,507 retail outlets nationally. The Company has three main operating segments: Supermarkets, Liquor and Convenience. The Company will also retain a 50% ownership stake in flybuys loyalty programs. 

(Source: BanyanTree)

General Advice Warning

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

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Global stocks Shares

G8 Education Ltd Long term Outlook remains positive with growing population; Announced share buyback

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

Investment Thesis

  • Trading below our valuation. 
  • Long-term outlook for childcare demand remains positive with growing population (organic and net immigration). 
  • Greater focus on organic growth as well as acquired growth. 
  • National footprint allows the Company to scale better than competitors and mum and dad operators.
  • Potential takeover target by a global operator. 
  • Leverage to improving occupancy levels – (rough estimates) a 1.0% improvement in occupancy equates to $10-11m revenue and approx. $3m EBIT benefit.

Key Risk

  • Execution risk with achieving its operating leverage and occupancy targets.
  • Increased competition leading to pricing pressure. 
  • Increased supply in places leading to reduced occupancy rates. 
  • Value destructive acquisition(s). 
  • Adverse regulatory changes or funding cuts to childcare.
  • Recession in Australia.
  • Dividend cut   

CY21 Results Highlights Given the disruption to CY20 results, comparing the CY21 results to pre-Covid CY19 results. 

  • Group core revenue of $828m was down -6.9% (or down ~$62m) vs CY19 due to lower occupancy (down 2.1% vs CY19) impacting revenue by ~$50m and a $48m impact from the centers divested since CY19. Partly offsetting these were higher average net fees of $16m and $20m of temporary government support relating to Covid-19. 
  •  Core centre NPBT of $137.8m was down -7.7% on CY19, however core centre NPBT margin of 16.6% was mostly flat on CY19 (16.8%) driven by cost management (effective booking and attendance levels; roster optimization) and removal of negative or low margin centers through lease surrender or divestment. 
  •  Group’s cash conversion of 107% was higher vs CY19 101% despite lower overall operating cash flows (driven by lower EBITDA), in part driven by the benefits of lower interest payments (refinance and lower net debt levels). 
  •  GEM finished the year with a strong balance sheet, with a net debt position of $26m and leverage (net debt / EBITDA) of 0.2x. 
  • The Board declared a fully franked dividend of 3cps, representing a payout ratio of 56% and within the target payout ratio range of 50-70% of NPAT. The Company also announced an on-market buyback “to be determined by appropriately balancing between shareholder returns and leverage levels, the uncertain earnings recovery outlook driven by Covid-19, the funding of strategic priorities including the improvement program and the property investment program and other funding needs included for wage remediation and network optimization.”

Company Profile

G8 Education Limited (GEM) owns and operates care and education services in Australia and Singapore through a range of brands. The Company initially listed on the ASX in December 2007 under the name of Early Learning Services, but later merged with Payce Child Care to become G8 Education.

(Source: Banyantree)

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

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Global stocks

Cochlear Limited’s net profit was up +26% to $158m, driven by strong sales growth & improved gross margin.

Investment Thesis:

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

Key Risks:

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

Key Highlights:

  • Revenue increased +12% to $815m driven by demand for sound processor upgrades and new acoustic implant products, despite Cochlear implant revenue continuing to be impacted by Covid‐related restrictions which caused lower overall operating theatre capacity. Cochlear implant units increased +7% to 18,598.
  • Statutory net profit of $169m includes $12m in innovation fund gains after‐tax. Underlying net profit was up +26% to $158m, driven by strong sales growth and improved gross margin, with some benefit from lower‐than‐expected operating expenses.
  • The Board declared an interim dividend of $1.55 per share, up +35% and equates to a payout of 65% of underlying net profit (up from 61% in the pcp). Management expects dividend payout to be around 70% for the full year, in line with our target payout.
  • COH’s balance sheet remains strong with net cash of $506m and operating cash flows sufficient to fund investing activities and capex.
  • Cochlear implant units increased +7% to 18,598 units, driven by strong growth in emerging markets (up +30%), offsetting a decline in developed markets (down -2%). Revenue was up +2% to $457.9m, with a mix shift to the emerging markets.
  • For the emerging markets, unit volumes overall increased around +30% with a strong recovery from Covid‐related surgery deferrals experienced across most countries. Surgeries in a few countries, including China, are trading above pre‐Covid levels. India and Brazil are recovering well although volumes are still materially below pre‐Covid levels.
  • In service segment revenue increased +21% to $256.5m, driven by a growing recipient base. Sound processor upgrade revenue saw a strong growth due to pent-up demand following the restricted access to clinics during Covid lockdowns.
  • In acoustics segment Revenue increased +40% to a record $100.9m, reflecting strong demand for new products and a recovery from Covid‐related surgery delays.

Company Description:

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

(Source: Banyantree)

General Advice Warning

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

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Global stocks Shares

QBE FY21 statutory NPAT improve to $750m, as premiums shot up by an average of 9.7% during the year

Sydney, Australia - March 14, 2013: The Australia Stock Exchange big board viewed from the sidewalk in front of the exchange building in Sydney. The ASX board displays real-time stock information for companies listed on the exchange.

Investment Thesis 

  • New CEO announced could bring a fresh perspective and potential rebasing of earnings. 
  • As a global insurer, QBE’s operations are much more diversified than domestic peers which means insurance risk is more spread out. 
  • Solid global reinsurance program should insulate earnings from catastrophe claims.
  • Expected prolonged period of lower interest rates (which does not benefit QBE’s investment portfolio).
  • Committed to the share buyback program.
  • Undertook a simplification process and sold non-core operations.

Key Risks

  • New CEO announced could bring a fresh perspective and potential rebasing of earnings. 
  • As a global insurer, QBE’s operations are much more diversified than domestic peers which means insurance risk is more spread out. 
  • Solid global reinsurance program should insulate earnings from catastrophe claims.
  • Expected prolonged period of lower interest rates (which does not benefit QBE’s investment portfolio).
  • Committed to the share buyback program.
  • Undertook a simplification process and sold non-core operations.

1H22 Results Highlights                

Relative to the pcp:   

  • Statutory NPAT improved to $750m from a loss of $1,517m in pcp, reflecting a material turnaround in underwriting profitability. Adjusted net cash profit after tax improved to $805m from a loss of $863m in pcp and equated to ROE of 10.3%. 
  •  GWP grew +22% to $18,457m reflecting the strong premium rate environment (average group-wide rate increases averaged +9.7%) as well as improved customer retention and new business growth across all regions with growth in Crop exceptionally strong at 51% due to the significant increase in corn and soybean prices coupled with targeted organic growth. Excluding Crop, GWP increased +18%, or +10% in excess of premium rate increases, up +600bps over pcp, including growth in excess of rate of +15%, +7% and +11% in North America, International and Australia Pacific, respectively. 
  • Combined operating ratio improved -10.5% over pcp to 93.7% as pcp was significantly impacted by Covid-19 claims and adverse prior accident year claims development. North America Crop business reported a combined operating ratio of 92.7%, declining -550bps over pcp. 
  •  Statutory expense ratio declined -140bps over pcp to 13.6% amid operational efficiencies, remaining on track to reach 13% by 2023. 
  • Catastrophe claims were $905M (6.6% of net earned premium vs 5.8% in pcp), up +31.5% over pcp and 90bps above the Group’s increased allowance. 
  • Investment income declined -46% over pcp to $122m amid negative mark-to-market impact of higher risk-free rates on fixed income portfolio. 
  •  Capital position strengthened with indicative pro-forma APRA PCA multiple increasing +0.03x to 1.75x, at the higher end of 1.6–1.8x target range and pro-forma gearing (debt/capital) declining -170bps to 24.1%, within the 15–30% target range. 
  •  Probability of adequacy (PoA) of net outstanding claims reduced -80bps to 91.7% but remained towards the top end of our 87.5–92.5% target range. 

Company Profile

QBE Insurance Group Ltd (QBE) is a global general insurer that underwrites commercial and personal policies across North America, Australia and New Zealand, Europe and emerging markets. QBE’s Equator Re segment is its captive reinsurer, providing reinsurance protection to the entire Group’s operating divisions.

 (Source: Banyantree)

General Advice Warning

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

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Global stocks Shares

Cost Absorption Normalizes as Top Line Growth Moderates at No-Moat Wayfair

Business Strategy and Outlook

Wayfair continues to take share in the fragmented home goods market. The firm’s differentiation comes by way of product breadth and its logistics network, which permits faster delivery of both small and large parcels than most of its peers. Targeting a wide consumer base with a customer aged 20-64 years old (200 million domestic households) with income of $25,000-$250,000 also means Wayfair is competing with mass-market retailers, specialty retail, and low-cost providers, making it harder to stay top of mind. This, along with no switching costs, underlies our no-moat rating.

Wayfair’s inventory-light model benefits inventory turns, a strategy has freed up capital to spend on customer acquisition and retention, leading to 27 million active users as of December 2021 who spend around $500 per year (versus 1.3 million users who spent $300 in 2012). This implies its product mix and marketing are resonating with end users. The pandemic pulled forward the capture of positive free cash flow to 2020, and scale should allow Wayfair to generate positive free cash flow to equity over our forecast, even with constraints from infrastructure spend in Europe and IT investment.

Given Wayfair’s lifecycle position, with significant growth potential but also corresponding expenses to achieve market share gains, we expect ROICs to be volatile. We think Wayfair can hit some of its long-term goals, but the duration of execution to achievement is trickier. While it should exceed its prior 25%-27% gross margin target longer term (we forecast reaching 29% due to higher private label mix), we don’t see operating expenses in management’s targeted range 15%-19% of sales until beyond 2031. We plan to watch post pandemic customer acquisition cost trends to determine whether Wayfair could develop a network effect.

Financial Strength 

Wayfair carries modest levels of debt, keeping its financial profile stable as it grows into a more mature business. It carried about $3 billion in long-term debt at competitive rates on its balance sheet as of Dec. 30, 2021, after executing a $535 million convertible raise in April 2020 and another $1.5 billion convertible raise in August 2020. The firm also has access to liquidity through its $600 million credit facility, which matures in 2026. There is cash and marketable securities ($2.4 billion at the end of December) to help cover expenses like operating lease obligations.Over the past two fiscal years, the company has turned free cash flow positive (CFO minus capital expenditures plus site and software development costs). Free cash flow has averaged about 1% of revenue during the past five years, a metric that should average a mid-single-digit rate over the next decade benefiting from increasing scale. Capital expenditures have averaged 2% of sales over the last five years, which we consider a reasonable run rate as the brand invests back into the business to further support top line growth and improving profitability. Morningstar analysts don’t expect the board to initiate a dividend in the near term, given the volatile cash flow pattern that Wayfair has generated in recent years and the need for the firm to continue to invest heavily in technology and customer acquisition. However, in August 2021 it authorized a $1 billion share buyback program, which we would expect to at least partially be deployed in 2022 after shares declined nearly 16% during calendar 2021.

Bull Says

  • Different brands in the Wayfair portfolio cater across income and age demographics, offering some resiliency in cases of macroeconomic cyclicality and economic uncertainty. 
  • Over the last five years, the company has expanded into untapped markets such as Canada, the United Kingdom, and Germany. Additionally, international opportunities could provide location and revenue growth and improved brand awareness. 
  • B2B represents around 10% of sales and targets a $200 billion total addressable market in the U.S. and Europe. This opportunity could grow materially faster than we anticipate.

Company Profile

Wayfair engages in e-commerce in the United States and Europe. At the end of 2021, the firm offered more than 33 million products from 23,000-plus suppliers for the home sector under the brands Wayfair, Joss & Main, AllModern, DwellStudio, Birch Lane, and Perigold. This includes a selection of furniture, decor, decorative accent, housewares, seasonal decor, and other home goods. Wayfair was founded in 2002 and is focused on helping people find the perfect product at the right price.

(Source: Morningstar)

General Advice Warning

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

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Global stocks

Jazz Reports Strong Q4, Raising FVE to $172 on Improved Near-Term Outlook; Shares Undervalued

Business Strategy and outlook

Jazz Pharmaceuticals added its leading drug, Xyrem, to its portfolio in 2005 with the acquisition of Orphan Medical for about $123 million. This was a great price for the then newly approved drug, which became a blockbuster. At that point, Xyrem was the only approved treatment for cataplexy (sudden muscle weakness or paralysis) in narcolepsy; it has since garnered additional approvals for excessive daytime sleepiness in patients with narcolepsy. Jazz reached a settlement in 2017 with Hikma Pharmaceuticals to not allow generics on the market until January 2023. Jazz will retain some economic profit from royalties on generic sales and a shared distribution program. 

Management has been focused on diversifying its portfolio, with the new drug approvals of Zepzelca (for metastatic small-cell lung cancer), Rylaze (for acute lymphoblastic leukemia), and Xywav (for the treatment of cataplexy, EDS, and idiopathic hypersomnia). Strong launches and commercialization efforts for these drugs will be crucial for Jazz to diversify its portfolio. Acquiring recently launched drugs has been part of Jazz’s portfolio diversification strategy. In May 2021, Jazz acquired GW Pharmaceuticals for the hefty price of $7.2 billion. GW contributed $677 million to Jazz’s overall 2021 revenue, largely driven by its leading product, Epidiolex. This drug is a cannabidiol for the treatment of severe, rare forms of epilepsy.

Financial Strength

Jazz is in a decent financial position thanks to historically strong cash flow generation from Xyrem’s sales of $7.2 billion. GW’s leading drug, Epidiolex, could be a potential blockbuster grossing over $1 billion annually by 2023. Company has already received FDA approval and is also marketed in Europe. This acquisition allows Jazz to reach patient populations with rare and severe forms of epilepsy with approved indications for Epidiolex as young as one year of age. 

The GW acquisition will be dilutive to both GAAP and non-GAAP adjusted net income in the near term, and it will damp adjusted ROICs. Historically, management has pursued both larger deals ($1 billion or more) and smaller, early-stage deals for growth while spending a low-double-digit percentage of sales on R&D. Once the acquisition of GW is fully integrated and management has deleveraged, the company will continue making acquisitions to help expand and diversify its portfolio.

Bulls Say

  • The GW acquisition allows Jazz to reach patient populations with rare and severe forms of epilepsy with approved indications for Epidiolex as young as one year of age.
  • Jazz’s extensive network of sleep doctors should give the company a competitive edge when marketing its new sleep therapies.
  • Xyrem’s historically strong cash generation has allowed the company to make recent acquisitions to help diversify its portfolio.

Company Profile

Jazz Pharmaceuticals is an Ireland-domiciled biopharmaceutical firm focused primarily on treatments for sleeping disorders and oncology. Jazz has nine approved drugs across neuroscience and oncology indications; its portfolio includes Xyrem and Xywav for narcolepsy, Zepzelca for the treatment of metastatic small-cell lung cancer, Rylaze for acute lymphoblastic leukemia, and Vyxeos for acute myeloid leukemia. In May 2021, Jazz acquired GW Pharmaceuticals and gained its leading product, Epidiolex for the treatment of severe, rare forms of epilepsy.

(Source: Morningstar)

General Advice Warning

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

Categories
Global stocks

Tabcorp holdings remain challenged in their wagering & Media

Business Strategy and Outlook

  • The demerger of its Lotteries & Keno business (to be named The Lottery Corporation) from its Wagering & Media business (to be named Tabcorp) could unlock shareholder value as standalone business. 
  • Subdued outlook for wagering business and cost pressures likely to keep a lid on margin expansion in the near term.
  • Positive regulatory changes could drive out smaller uneconomical corporate bookmakers. 
  • Potential capital management initiatives.

Financial Strength

  • Competitive pressures within the core Wagering business.
  • Loss of market share.
  • Lack of product development.
  • Cost blowouts with failed investment in Sun Bets business in the UK.
  • Adverse outcome from any regulatory change. 

Bulls Say’s

  • Revenue of $2,934m was up +2.2%, variable contribution was mostly flat (-0.9%) at $942m and underlying EBITDA of $529m was down -5.5% vs pcp, mainly reflecting the impact of Covid-19 with a strong performing Lotteries and Keno businesses being offset by Wagering & Media and Gaming Services (impacted by venue restrictions and trading). Management delivered a further $16m in savings in 1H22 from 3S optimization program, bringing total savings to date from the program to approximately $46m.
  • The Company declared an interim dividend of 6.5 cents per share, which is down -13.3% on pcp and represents a payout ratio of 77% of net profit before significant items (and at the top end of 70 – 80% range).
  • Underlying NPAT of $187m was down -9.7% on pcp.
  • Gearing (gross debt / EBITDA) of 2.5x is at the lower end of target range of 2.5 – 3.0x.
  • Revenues of $1,073m were -9.8% weaker, with EBITDA of $148m down -34.8% on pcp as margin declined -530bps driven by higher generosities (due to highly competitive market) and advertising spend. Covid-19 related retail closures impacted wagering turnover (retail was down -36% vs digital up +2%) & revenue and media subscription revenues. Increased investment and Advertising & Promotion (A&P) expenses also impacted segment earnings.

Company Profile 

Tabcorp Holdings Ltd (TAH) is an integrated gambling and entertainment company listed in Australia, with operations overseas. The business operates three key segments – Wagering & Media, Keno and Gaming Services. These services are delivered to customers through TAH’s retail, digital and Sky media platforms. 

(Source: BanyanTree)

General Advice Warning

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

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Global stocks Shares

Telstra Ltd delivered strong earnings growth with declining NBN headwinds; Resulting in increased shareholder returns

Investment Thesis

  • Solid FY22 earnings guidance with management flagging a turning point as it expects mid to high single digit growth in FY22.
  • Solid dividend yield in a low interest rate environment. 
  • On market buyback of $1.35bn (post sale of part of Towers business), expected to be completed by end of FY22, should support its share price.
  • Additional cost measures announced to support earnings.
  • InfraCo provides optionality in the long-term. 
  • Despite intense competition, subscriber growth numbers remain solid. 
  • Company looking to monetize $2.0bn of assets. 
  • In the long-term, the introduction of 5G provides potential growth, however we continue to monitor the ROIC from the capex spend. 
  • TLS still commands a strong market position and has the ability to invest in growth technologies and areas (e.g., Telstra Ventures) which could provide room for growth.
  • Industry consolidation leading to improved pricing behavior by competitors. 
  • The Company continues to deliver strong underlying earnings growth which combined with declining NBN headwinds could see the Company increase shareholder returns via increased dividends which combined with the remaining 60% of the current buybacks should support the share price

Key Risk

  • Further cuts to dividends.
  • Further deterioration in the core mobile and fixed business.  
  • Management fails to deliver on cost-out targets and asset monetisation. 
  • Any increase in churn, particularly in its Mobile segment – worse than expected decrease in average revenue per users (or any price war with competitors).
  • Any network disruptions/outages.
  • More competition in its Mobile segment. Merger of TPG Telecom and Vodafone Australia creates a better positioned (financially and resource wise) competitor
  • Quicker than expected deterioration in margins for its Fixed segment.
  • Risk of cost blowout in upgrading network and infrastructure to 5G.

Key highlights 1H22                        1H22 Results Highlights. 

  • On a reported basis, total income declined -9.4% over pcp to $10.9bn, amid declines of ~$450m in one off nbn receipts and ~$200m in nbn commercial works. 
  • Operating expenses on an underlying basis declined -8.5% over pcp, with underlying fixed costs declining -8.9% over pcp enabled by ongoing drive to digitise and simplify processes, move to an agile workforce and continued migration of fixed customers to the nbn network as well as focus on rationalising 3rd party vendors and services. 
  • Underlying EBITDA increased +5.1% over pcp to $3.5bn driven by strong growth in Mobile. 
  • Net finance costs declined -22.5% over pcp to $238m, primarily due to a reduction in interest on borrowings and financing items relating to contracts with customers. 
  • Underlying EPS was up +55% over pcp to 6.2 cents per share, representing a strong start against T25 ambition for underlying EPS target of high teens CAGR from FY21-25. 
  •  Net cash provided by operating activities declined -5.7% over pcp to $3,246m mainly due to a $1,193m decline in receipts from customers, partly offset by a $955m reduction in payments to suppliers and employees. FCF (after lease payments) declined -9.1% over pcp to $1,675m

Company Profile

Telstra Corporation (TLS) provides telecommunications and information products and services. The company’s key services are the provision of telephone lines, national local and long distance, and international telephone calls, mobile telecommunications, data, internet and on-line. Its key segments are Mobile, Fixed, Data & IP, Foxtel, Network applications and services and Media

(Source: Banyantree)

General Advice Warning

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

Categories
Global stocks Shares

The a2 Milk Co. Ltd progressing well in 1H22

Investment Thesis

  • Inventory issue remains a downside risk but can also provide upside surprise should management work through the excess inventory in its distribution channels. It appears the inventory is at target levels for some of the key channels. 
  • Wining market share in Australia and China. 
  • Growing consumer demand for health and well-being globally. 
  • Demand growth in China for premium infant formula product.
  • Expansion into new priority markets, aided by the capabilities of Fonterra.
  • US expansion provides new markets + opportunities. 
  • Key patents provide barrier to entry.
  • Takeover target – the Company was the subject of a takeover bid in 2015.

Key Risks

  • Management fails to meet its revised FY21 guidance. 
  • Chinese demand underperforming market expectations.
  • Disruption to A2 milk supply.
  • Increased competition, including private labels & competitors developing products or branding that erode the differentiation of A2M branded products from other dairy products.
  • Expiration of A2M’s intellectual property rights may weaken or be infringed by competitors.
  • Withdrawal of A2M product from international markets due to market share loss or lack of market penetration. 

1H22 Results Highlights

  • Revenue was marginally lower, down -2.5% to $661m but in line with guidance, and up +24.8% on 2H21, due to (i) China label IMF sales were constrained in 1Q22 to rebalance distributor inventory levels with sales falling -11.4% for 1H22 vs pcp; (ii) English and other label IMF sales fell -9.8% in 1H22 vs pcp with lower market share; (iii) ANZ liquid milk sales were up with higher market share, while U.S. liquid milk sales were down.
  • EBITDA fell -45.3% to $97.6m due to lower revenue and gross margin as well as a +37.3% increase in marketing investment vs pcp. EBITDA margin of 14.8% in 1H22 (17.3% ex-MVM) was weaker versus 26.4% in 1H21. Gross margin percentage fell to 46.2% (with underlying gross margin of 50.7% excluding MVM), due to inclusion of MVM, adverse product mix and cost headwinds (especially raw milk and freight costs), partially offset by price increases.
  • NPAT including non-controlling interest was down -53.3% to $56.1m.
  • Balance sheet remains strong with closing net cash of $667.2m due to high operational cash conversion during 1H22. Inventory at the end of the period was $127.9m, higher than at the end of FY21, due to the inclusion of MVM.
  • A2M noted the Mataura Valley Milk (‘MVM’) acquisition and strategic partnership with China Animal Husbandry Group (‘CAHG’) was completed in July 2021 and fully consolidated into the results.

Company Profile 

The a2 Milk Company Limited (A2M) sells a2 brand milk and related products. The company owns intellectual property that enables the identification of cattle for the production of A1 protein free milk products. It also sources and supplies a2 brand milk in Australia, the UK and the US, exports a2 brand milk to China, and distributes and markets a2 brand milk and a2 Platinum brand infant nutrition products in Australia, New Zealand, and China

(Source: BanayanTree)

General Advice Warning

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