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

WESCO financial performance continues to improve

Business Strategy and Outlook

Wesco operates in very fragmented markets, but its large scale, global footprint, expansive product portfolio and supplier base, and service offerings differentiate it from smaller local and regional competitors. Service offerings, such as vendor-managed inventory, efficiency assessments, product repairs, and training, generate a meaningful portion of Wesco’s sales and are key components of the firm’s value proposition to customers. Wesco’s size is also an important competitive advantage because the company has the scale to serve large, multinational clients anywhere in the world. Wesco doubled in size after it completed its acquisition of close peer Anixter in June 2020.

Financial Strength

Wesco’s $4.7 billion acquisition of close peer Anixter International in June 2020 caused the firm’s net debt/EBITDA ratio (excluding synergies) to swell to 5.7. However, Wesco’s elevated free cash flow generation in 2020 allowed the firm to reduce net debt by $389 million, finishing 2020 with a 5.3 net leverage ratio. Wesco’s leverage ratio continued to decline as 2021 progressed, and the firm finished the year with a 3.9 net debt/adjusted EBITDA ratio. At the end of 2021, Wesco had $4.7 billion of debt, but modeling about $4.2 billion of free cash flow over the next five years. Wesco has a proven ability to generate free cash flow throughout the cycle. Indeed, it has generated positive free cash flow (defined as operating cash flow less capital expenditures) every year since its 1999 initial public offering, and its free cash flow generation tends to spike during downturns due to reduced working capital requirements. 

Wesco delivered 16% organic revenue growth during the fourth quarter, and gross profit margin and adjusted EBITDA margin expanded 120 and 140 basis points to 20.8% and 6.6%, respectively. All three of Wesco’s segments delivered revenue growth and adjusted EBITDA margin expansion during the quarter, and the firm’s backlog has reached a record level, which bodes well for 2022 growth prospects. Management expects revenue to increase 5%-8% in 2022, adjusted EBITDA margin of 6.7% to 7.0% (20-50-basis point improvement), and adjusted EPS of $11.00-$12.00

Bulls Say’s

  • Wesco’s transformative acquisition of Anixter should result in stronger growth and profitability, which should help the stock fetch a higher multiple. 
  • Wesco’s global footprint and focus on value-added inventory management services help the firm take market share from smaller distributors and support pricing power. 
  • Despite serving cyclical end markets, Wesco’s business model generates strong free cash flow throughout the cycle. The firm will likely continue to use its cash flow to fund organic growth initiatives, acquisitions, and share repurchases.

Company Profile 

Wesco International is a value-added industrial distributor that has three reportable segments, electrical and electronic solutions, communications and security solutions, and utility and broadband solutions. The company offers more than 1.5 million products to its 125,000 active customers through a distribution network of 800 branches, warehouses, and sales offices, including 42 distribution centers. Wesco generates 75% of its sales in the United States, but it has a global reach, with operations in 50 other countries.

(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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Ecolab Poised for Long-Term Growth as Institutional Business Recovers from Pandemic

Business Strategy and Outlook

As the global leader in the cleaning and sanitation industry, Ecolab provides products that help its hospitality, food-service, and healthcare customers do laundry, wash dishes, and maintain regulatory compliance. With unmatched scale and a solid razor-and-blade business model, Ecolab’s competitive advantages are firmly in place. The company’s cleaning and sanitation scale dwarfs the competition. Ecolab generates over 3 times the revenue of its largest rival. Its industries are fragmented, with many markets made up of regional and local competitors. Ecolab controls roughly 8% of the $152 billion global market. 

With its unrivaled scale and breadth of product offerings, the company is an attractive partner to global hospitality and food-service firms. We think it will continue to grow from market share gains and expanding into new markets. The firm uses a razor-and-blade business model by providing cleaning equipment to customers that solely uses Ecolab’s proprietary consumables. This model creates a steady stream of consumables revenue. The installed base and consumables model also leads to high customer switching costs, as clients are generally reluctant to switch out equipment and retrain staff.

Financial Strength

Ecolab is in decent financial health. Net debt/adjusted EBITDA was 3.1 times as of Dec. 31, well above below the company’s long-term goal of 2.0 times. The company’s leverage ratios are currently elevated as it recently closed the $3.7 billion Purolite acquisition, which was mostly financed with debt. Ecolab’s leverage ratio will likely remain elevated throughout 2022. The institutional business continues to recover, with operating income up 73% in 2021 versus 2020, on 11% revenue growth. Segment operating margins expanded 500 basis points to 14% in 2021. While this is still well below pre-pandemic levels above 21%, it shows how volume recovery translates to an outsized profit rebound. This level of margin expansion likely is a result of management’s decision to maintain its workforce throughout the COVID-19 slowdown, despite the sharp decline in volumes.

Bulls Say’s

  • Ecolab’s focus on delivering savings on labor, energy, and water for customers makes the firm’s products and services attractive even during economic slowdowns. 
  • Ecolab’s customers are willing to pay a premium to protect their own brand reputations. For example, a restaurant knows what a food contamination incident can do to its standing with customers. 
  • Rising fresh water costs will drive demand for industrial water management systems. Ecolab’s water management systems will be able to save its customers water and energy costs, which will increase water business profits.

Company Profile 

Ecolab produces and markets cleaning and sanitation products for the hospitality, healthcare, and industrial markets. The firm is the global market share leader in this category with a wide array of products and services, including dish and laundry washing systems, pest control, and infection control products. The company has a strong hold on the U.S. market and is looking to increase its profitability abroad. Additionally, Ecolab serves customers in water, manufacturing, and life sciences end markets, selling customized solutions. 

(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 Shares

URW Under Huge Debt, But All Can Be Cleared At Ease

Business Strategy and Outlook

Unibail-Rodamco-Westfield or URW, was formed in 1968, and it acquired several large malls through to 1995, and offices thereafter. In 2000 it launched a conventions and exhibitions business and is now the European leader in that sector. In 2007 Unibail merged with Rodamco, becoming the largest retail REIT in continental Europe. The group expanded into the United Kingdom and United States via the acquisition of Westfield in 2018. 

The Westfield acquisition was via a combination of cash and scrip, and management committed to noncore asset sales to reduce debt. Progress was good until the COVID crisis crimped its previous earnings certainty, and market sentiment toward URW. The group’s assets remain high quality, owning centres that are among the best in Europe and the United States. Its iconic assets include the Carrousel du Louvre in Paris, Westfield Mall of Scandinavia in Stockholm, Westfield centres at Stratford and Shepherd’s Bush in London, the Westfield World Trade Centre in New York, Westfield Valley Fair in the San Francisco region, and many others. It is foreseenURW’s malls to perform strongly once economic conditions return to approximately normal. However, URW’s large debt load combined with an earnings hole of unknown duration has put the balance sheet under pressure. 

URW was able to issue debt during the COVID crisis at cheap prices (albeit slightly higher than 2019 levels), but needs to reduce debt. In November 2020, shareholders rejected a proposed EUR 3.5 billion equity raising. URW may instead exit its more than EUR 10 billion of assets in North America, sell more than EUR 2 billion of assets in Europe, pay no distributions until 2023, and cut development spend. Given the fast-changing landscape, it wouldn’t be of surprise to see further adjustments to the strategy, with management taking an opportunistic approach, with options including full or partial asset sales, development partnerships.

Financial Strength

URW is under financial pressure due to its high debt load combined with a hole in its earnings from coronavirus shutdowns, social distancing, and related economic damage. Its loan to valuation ratio of 42.5% (pro forma, as at Dec. 31, 2021) is excessive in Analysts’ view. A proposed EUR 3.5 billion equity raising was rejected by shareholders in November 2020, URW instead raising cash through European asset sales over 2021 and 2022, and potentially EUR 10 billion of sales in North America. It is assumed the capital proceeds will be used to repay debt, and are confident gearing can be brought under 35%, however, to go much lower than that will require favourable conditions for asset sales, which could take time. If the economy approaches normal conditions and other planned cash collection/retention measures proceed, the company should be on a firmer footing. However, if COVID-19 variants result in consumer aversion to public places well into 2022, it is possible URW would have to raise equity again. In the event of dangerous new variants that require longer restrictions on retail trading, there is a remote risk this could completely wipe out current securityholders, though this would be an extreme scenario. A prolonged rise in interest rates is also a risk, though URW’s long-dated debt profile and leases linked to CPI and tenant sales provide some protection from this.

Bulls Say’s

  • COVID-19 vaccine rollouts, and the milder omicron virus variant, should help URW’s rents and asset sales in coming years. 
  • URW tenants have recovered to sales numbers near pre-COVID-19 levels. Though not maintained, this suggests that rents should eventually recover to preCOVID-19 levels once pandemic issues are in the past. 
  • Although e-commerce competition is intense, a lot of the damage has already been done. URW’s affluent catchments remain desirable for retailers, who require a physical presence to maintain their brand and customer service standards.

Company Profile 

Unibail-Rodamco-Westfield, or URW, owns a portfolio of quality malls, about two thirds in continental Europe. Since acquiring Westfield in 2018 URW also has about 10% in the U.K. and about 25% in the U.S., but it plans to drastically reduce exposure to the latter. More than 90% of rent comes from shopping centres, the remainder from offices, mostly Paris, as well as some offices attached to mixed-use assets around the world, and a similar amount from a conventions and exhibitions business in France. 

(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

Terex’s Fourth-Quarter Results Showed Strength, but Supply Headwinds Persist

Business Strategy and Outlook:

Terex provides customers an extensive product portfolio consisting of aerial lifts and materials processing equipment. Terex will continue to be one of the top companies in the heavy equipment industry, with strong brands that resonate with users across construction, industrial, utility, mining, and residential markets. Customers value Terex’s high-quality and strong-performing products, which also have good residual values. Terex also helps customers reduce their total cost of ownership through improved operational and fuel efficiency, limited machine down-time, and consistent parts availability.

The company’s strategy shifted in late 2015, when it repositioned its operations around two core segments, aerial work platforms and materials processing equipment and divested its unprofitable construction equipment, material handling and port solutions, and mobile cranes businesses. Company’s two core segments are market leaders in their respective industries. In aerial lifts, its Genie brand is highly regarded and offers customers a full line of products, including booms, scissor lifts, and telehandlers. The Genie brand also provides customers with valuable product features, such as safety, accessibility, and capacity, allowing Terex to achieve better pricing.

Financial Strength:

Terex maintains a sound balance sheet. Total debt at the end of 2021 stood at $674 million, which equates to a net debt/adjusted EBTIDA ratio just above 1. The company’s net leverage ratio declined significantly in 2021, as management paid down a substantial portion of debt $503 million. Terex will generate close to $300 million in free cash flow, supporting its ability to return free cash flow to shareholders. Looking ahead, management should focus on growing its dividend and tuck-in acquisitions to grow its two core segments. Management is determined to rationalize its manufacturing footprint and reduce its selling, general, and administrative spending to improve cost efficiencies. The company’s cash position as of year-end 2021 stood at $267 million on its balance sheet. The company has access to $600 million in credit facilities. Terex maintains a strong financial position, supported by a clean balance sheet and strong free cash flow prospects.

Bulls Say:

  • Increased infrastructure spending in the U.S. and emerging markets could result in more downstream equipment purchases (materials processing), driving higher sales growth for Terex.
  • Non-residential construction spending may begin to recover from pandemic lows, creating demand for Terex’s aerial products.
  • The aging aerial fleet could lead users to buy newer models with advanced features, boosting sales of Terex’s aerial lifts.

Company Profile:

Terex is a global manufacturer of aerial work platforms, materials processing equipment, and specialty equipment, such as material handlers, cranes, and concrete mixer trucks. Its current composition is a result of numerous acquisitions over several decades and a recent shift to focus on its two core segments after divesting a handful of underperforming businesses. The company’s remaining segments see heavy demand in nonresidential construction as well as in maintenance, manufacturing, energy, and materials management.

(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 Shares

Seek’s Boost From the Strong Australian Labour Market Likely to Eventually Wane

Business Strategy and Outlook

Seek captures 90% of total time spent online searching for jobs, dominating the Australian market. This dominance within a small niche global geographic market, built through a first-mover advantage, represents a strong competitive advantage given its network effect. Australians view seek.com.au as their first port of call for looking for employment, which is why we ascribe a narrow moat to the company. 

Seek’s international investments offer strong growth potential. Through a close working relationship with investment group Tiger Fund, Seek has acquired minority shareholdings in the number-one online job sites in Brazil, Mexico, Indonesia, Thailand, Malaysia, the Philippines, and China. Low Internet penetration is a common feature among these countries while gross domestic product growth rates remain comparatively high. The Chinese investment, Zhaopin, is of particular interest, as funds continue to be reinvested back into further establishing its growing online market share. Internet data indicates that Zhaopin and rival 51Job continue to trade the desired number-one market position back and forth from month to month. Morningstar analysts view Seek as an entrepreneurial organisation that is unafraid to create new concepts and push the boundaries in offering a range of new services within education and job-seeking to an online market that is rapidly evolving, compared with traditional business models.

Morningstar analysts have increased our fair value estimate for narrow-moat rated Seek by 8% to AUD 21.50 per share following its stronger than expected first-half financial result. The strong result partly reflects the currently tight job market in Australia but also more maintainable improvements, such as higher revenue per advertisement. The fair value increase reflects a combination of the time value of money boost to our financial model and higher earnings forecasts. For example, we’ve increased our revenue CAGR for the “core” ANZ business to 11% from 8% over the next decade and increased its average EBITDA margin to 63% from 62% over this period.

Financial Strength

Morningstar analysts have increased our fair value estimate for narrow-moat rated Seek by 8% to AUD 21.50 per share following its stronger than expected first-half financial result. The strong result partly reflects the currently tight job market in Australia but also more maintainable improvements, such as higher revenue per advertisement. The fair value increase reflects a combination of the time value of money boost to our financial model and higher earnings forecasts. For example, we’ve increased our revenue CAGR for the “core” ANZ business to 11% from 8% over the next decade and increased its average EBITDA margin to 63% from 62% over this period.

Bulls Say  

  • Seek has a dominant position in the Australian market underpinned by a network effect-based economic moat. This enables strong cash generation to fund other overseas businesses. 
  • Seek has successfully diversified beyond its core Australian business to build a global online employment marketing group. 
  • The network effect, epitomised by successful online market Titans such as Google, eBay, and Facebook, demonstrates the virtuous circle of the largest audiences attracting more and more users because of audience size.

Company Profile

Seek operates the dominant Australian online job advertising website, capturing 90% of time spent online looking for jobs. It also has an education division that provides vocational courses online. Overseas investments provide Seek with market-leading positions in the online jobs market in Asia and Latin America.

(Source: Morningstar)

  • Relative to the pcp: (1) 

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

Mastercard Has Multiple Characteristics That Should Draw Investors’ Attention.

Stock market digital graph chart on LED display concept. A large display of daily stock market price and quotation. Indicator financial forex trade education background.

Business Strategy and Outlook:

Mastercard has multiple characteristics that draw investors’ attention. Despite the evolution in the payment space, a wide moat surrounds the business and view Mastercard’s position in the current global electronic payment infrastructure as essentially unassailable. Mastercard benefits from the on-going shift toward electronic payments, which provides plenty of opportunities to utilize its wide moat to create value over the long term. Digital payments, on a global basis, surpassed cash payments just a few years ago, suggesting that this trend still has a lot of room to run, and the emerging markets could offer a further leg of growth even if growth in developed markets slows. 

Mastercard is moderately skeptic to more modest movements in the electronic payment space, as it earns fees regardless of whether payment is credit, debit, or mobile. Cross-border transactions, which are particularly lucrative for the networks, came under heavy pressure due to the fallout from the pandemic and a reduction in global travel. Full recovery is forecasted, and this should drive relatively strong growth in the near term. From a longer-term point of view, it is likely that smaller and more regional networks are building out capacity for cross-border transactions, which could eat into growth a bit in the coming years. 

Financial Strength:

Mastercard’s balance sheet is solid. The company added a small amount of debt to its balance sheet in 2014 and in the years since has steadily increased debt. Still, debt/EBITDA at the end of 2021 was a very reasonable 1.3 times, and Mastercard’s leverage is still a bit below Visa’s. It is predicted that debt will increase a bit more, but Mastercard will retain relatively modest leverage in the long run.

The company has shown a relatively limited appetite for M&A, and the business model requires very little balance sheet investment, so management has considerable flexibility. Given the integral nature of Mastercard to the global payment infrastructure, it is discredit that management would be eager to get too aggressive with its capital structure. On the other hand, an overly conservative balance sheet structure could impede long-term shareholder returns. It is believed that the current amount of leverage strikes a reasonable balance.

Bulls Say:

Mastercard has been outperforming Visa in terms of growth. Its smaller size and some leveling in market share between the two could maintain this trend. 

  • There is still plenty of runaway for growth in electronic payments. Electronic payments only surpassed cash payments on a global basis a couple of years ago.
  • Management is appropriately focused on long-term growth opportunities and not near-term margins.

Company Profile:

Mastercard is the second-largest payment processor in the world, having processed close to $6 trillion in purchase transactions during 2021. Mastercard operates in over 200 countries and processes transactions in over 150 currencies.

(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 Shares

DaVita Stays Steady on Cautious Guidance for 2022; Shares Fairly Valued

Two businesswomen working late in office look at documents

Business Strategy and Outlook

After selling the DaVita Medical Group in 2019, DaVita focuses almost exclusively on providing services to end-stage renal disease, or ESRD, patients primarily in the United States with an expanding international footprint. Over several decades, DaVita has built the largest network of dialysis clinics in the U.S., and although COVID-19-related mortality concerns look likely to constrain results through 2022, Morningstar analysts view DaVita’s long-term prospects as solid. 

Once COVID-19 concerns dissipate, Morningstar analysts expect DaVita to get back to more normalized growth trends driven primarily by ESRD trends. Analysts think low- to mid-single-digit revenue growth is likely for DaVita in the long run based on the continued expansion of the U.S. dialysis patient population, mild revenue per treatment growth, and ongoing international expansion. These expectations include ongoing expansion of at-home treatments, and we think DaVita can even benefit from extending the at-home treatment stage for patients, despite its clinic infrastructure. At-home patients still have relationships with clinics and are more likely to continue working and, in turn, remain on more profitable commercial insurance plans for a more substantial part of the 33 months where that is possible before Medicare automatically takes the lead on reimbursement for ESRD treatments. Eventually, most ESRD patients will need in-clinic therapy, too, unless they receive a kidney transplant. Of note, supply and demand for transplants remain greatly mismatched with the average wait list time around four years. But if those dynamics change, DaVita may even be able to benefit, as it has invested in early-stage initiatives to improve transplants. And in general, we think DaVita stands to benefit from the continued growth in the ESRD population however they are treated, and it is even pursuing integrated care models to gain a bigger piece of the treatment pie in the long run. 

With these factors in mind, management has highlighted mid-single-digit operating income and high-single-digit to low-double-digit earnings per share growth targets from 2021 to 2025, which is roughly in line with our assumptions during that period, as well.

DaVita Stays Steady on Cautious Guidance for 2022; Shares Fairly Valued

After trimming guidance for 2021 and expressing caution on 2022 during its third-quarter call, DaVita turned in solid operating results and guided in line with our 2022 expectations on its fourth-quarter call. Morningstar analyst   boosts its fair value estimate to $116 per share from $110 primarily to reflect a change in our long-term U.S. corporate tax rate estimate after previously assuming the tax rate would rise on Democratic policy initiatives, which appear unlikely now. Also, our fair value depends on business conditions normalizing in 2023 and beyond, and despite the near-term constraints, Morningstar analysts continue to see significant intangible assets and cost advantages around DaVita’s top-tier position in dialysis services, which informs our narrow moat rating on the firm. 

Financial Strength 

Like many healthcare services providers, DaVita operates with significant leverage, especially when considering lease obligations. DaVita owed $8.9 billion of debt and held $1.2 billion of cash and short-term investments as of September 2021, or in the middle of its net leverage target range of 3.0 to 3.5 times. Its operating lease obligations of $3.1 billion add another turn, roughly, to leverage. After refinancing many of its obligations, DaVita’s maturity schedule appears easily manageable, though, with big maturities in 2024 ($1.4 billion) and 2026 ($2.6 billion) but limited maturities otherwise. During that time frame, Morningstar analysts expect DaVita to generate at least $1 billion annually of free cash flow, so the company could handle those maturities as they come due through internal means. However, given the firm’s large share repurchase plans, Morningstar analysts think DaVita will seek to refinance its obligations coming due. After $2.4 billion of share repurchases in 2019, the company made another $1.4 billion of share repurchases in 2020 and $0.9 billion of repurchases through September 2021. The company anticipates making significant share repurchases going forward to boost its adjusted EPS growth (8% to 14% goal from 2021 to 2025) above its operating income prospects (3% to 7% goal from 2021 to 2025). It had $1.0 billion remaining on its share repurchase authorization as of September 2021.

Bulls Say

  • Excluding recent COVID-19-mortality challenges, we expect the ESRD patient population to grow at a healthy rate in the U.S. and around the globe for the long run, which should benefit DaVita. 
  • DaVita enjoys top-tier status in the essential dialysis business, and we do not expect competitive dynamics to negatively affect that attractive position anytime soon. 
  • While growing at-home care could change its business model a bit, DaVita could also benefit from ESRD patients being able to continue working and staying on commercial insurance plans.

Company Profile

DaVita is the largest provider of dialysis services in the United States, boasting market share that eclipses 35% when measured by both patients and clinics. The firm operates over 3,100 facilities worldwide, mostly in the U.S., and treats over 240,000 patients globally each year. Government payers dominate U.S. dialysis reimbursement. DaVita receives approximately 69% of U.S. sales at government (primarily Medicare) reimbursement rates, with the remaining 31% coming from commercial insurers. However, while commercial insurers represented only about 10% of the U.S. patients treated, they represented nearly all of the profits generated by DaVita in the U.S. dialysis business.

(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 Shares

Amcor Limited: Aiming on priority segments as Healthcare, Coffee & Pet Food

Investment Thesis:

  • Leading global market position, with high barriers to entry (very capital intensive).
  • Attractive exposure to both developed markets and emerging markets’ growth.
  • Clearly defined strategy to create shareholder value.
  • Bolt-on acquisitions provide opportunity to supplement organic growth.
  • Solid balance sheet.
  • Leveraged to a falling AUD/USD.
  • Benefits from the recently completed Bemis acquisition to start flowing through. 
  • Capital management initiatives – current share buyback of $600m. 

Key Risks:

  • Management fail to realize the synergies proposed in the Bemis transaction. 
  • Competitive pressures leading to margin erosion and potential balance sheet pressure (e.g. reduced earnings leading to potential debt covenant breaches). 
  • Input cost pressures in which the Company is unable to pass on to customers (even though the Company does pass through input costs).
  • Deterioration in global economic growth.
  • Value destructive acquisition. 
  • Emerging markets risk.
  • Adverse movements in AUD/USD.

Key highlights:

AMC’s 1H22 result highlighted the Company’s defensive capabilities and ability to recover higher input costs. Despite supply chain constraints holding back volumes, the Company delivered volume growth during the period and, on a further positive note, management’s comments suggested demand remains robust leading into 2H22. EBIT margin in both segments Flexibles and Rigid were down during the period (driven by input costs) but should improve in future periods. Management reiterated their previously provided FY22 guidance – EPS growth of 7-11% – however increased the share buyback amount to $600m (from $400m previously) for the full year. In our view, AMC’s current share price is screening attractively – trading on a 12-mth forward blended PE multiple of 13.9x and dividend yield of ~4.0%.  

• Group 1H22 headline results : AMC delivered solid 1H22 results, with revenue up +12% to $6.93bn, operating earnings (EBIT) up +5% to $769m and EPS up +9% to 35.8cps. Top line growth was assisted by approximately $650m driven by price increases highlighting AMC’s ability to pass through higher costs. Excluding pass through, organic sales were up +2% driven by higher volumes and favourable mix. AMC repurchased ~$300m shares in 1H22 and expect to repurchase a total of $600m in FY22. Group leverage (net debt / EBITDA) at the end of the period was 2.9x.

• Flexibles segment : Segment revenue was up +10% to $5.35bn, consisting of 2% organic growth (focusing on priority segments such as Healthcare, Coffee & Pet Food) and $480m boost from higher raw material costs recovery.

• Rigid Packaging segment : Segment revenue was up +17% to $1.58bn, however this includes +13% uplift from the pass through of higher raw material costs. Excluding pass through, segment revenue was up +4%. In North America, AMC saw solid underlying demand in the beverage business with volumes up +3% (accelerating to +6% in 2Q22).

• M&A quite whilst Bemis is bedded down and Covid hinders DD process : AMC hasn’t been active with bolt-on acquisitions in recent history, a key part of AMC’s growth strategy.

• Outlook – reaffirmed previous guidance : Management expects adjusted EPS to grow by 7-11% in constant currency terms, adjusted free cash flow of $1.1 – 1.2bn, and approximately $600m allocated to share repurchase (increased from $400m previously).

Company Description: 

Amcor Limited (AMC) is an international integrated packaging company offering packing and related services. Amcor primarily produces a wide range of packaging products which include corrugated boxes, cartons, aluminum and steel cans, flexible plastic packaging, PET plastic bottles and jars, and multi-wall sacks. The company has operations in Australasia, North America, Latin America, Europe, and Asia. 

(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

UnitedHealth Group Inc : Targeting at increasing health care delivery efficiencies at lower costs

Investment Thesis:

  • Well positioned to benefit from positive healthcare trends and demographics. 
  • Optum offers a sustainable cost edge with predictive data and analytics. Management is expecting to achieve a further 20-40bps cost efficiencies through automation and machine learning.
  • Consistent top line growth with revenues growing at CAGR ~14% and operating earnings growing at CAGR ~17%. The Company has a very diversified portfolio which seemingly benefits in every market (with the insurer serving employers, individuals, Medicare, and state and local governments).
  • Excessive expansion of international business giving UNH some protection from increasing regulations in the U.S. The global business is now earning revenue of ~US$10bn.
  • Competent management team.
  • Generating very significant cash flow (growing at a CAGR ~15%) and returning a fair amount of that cash flow back to shareholders via a growing dividend (DPS grew at a CAGR 22% over FY15-18) and share repurchase program.

Key Risks:

  • Slowdown in customer acquisition if health insurance tax comes back in 2021. 
  • Headwinds from potential regulatory reforms like Medicare for all. 
  • Value destructive M&A.
  • Key-man risk due to management changes.
  • Increased competition (pricing pressure & innovative products) from new entrants or existing players like Anthem and Humana.
  • Cyber-attacks or other privacy or data security incidents resulting in security breaches.
  • Legal proceedings leading to substantial penalties or damage to reputation.

Key highlights:

Management continues to focus their efforts and strategies to build an integrated health care system, aiming at increasing health care delivery efficiencies at lower costs, and is targeting 5 areas to support long-term growth

(1) Value-based Care (comprehensive clinical strategy encompassing growing behavioural, home, ambulatory and virtual care capabilities) – e.g. OptumCare is developing a patient-cantered, value-based care delivery system and 100 health payers to serve more than 20 million patients in the U.S. 

(2) Health Benefits – advancing the quality, innovation and consumer appeal of benefit offerings and bringing value-based strategy to life.

 (3) Health Technology – e.g., NavigateNow health plan, which is an all-virtual care offering, allowing employees to connect with a virtual-based Optum Care team for on-demand care, including for urgent, primary, and behavioral health services, and is currently available in nine cities, with management planning to expand into 25 cities by the end of FY22 and anticipating it to reduce healthcare premiums by ~15% compared to traditional plans. 

(4) Health Financial Services (seeking to improve payment processes for members) – e.g., Optum Financial supports more than 8 million consumers with health bank accounts and processed ~$260bn in payments, up +53% YoY with management seeing additional opportunities to streamline payments for patients and providers, helping to drive increased transparency, reduce administrative burdens, and unlocking capital for providers. 

(5) Pharmacy (with an emphasis on specialty pharmacy) – prioritizing direct-to-consumer offerings with focus on increasing market share in the life sciences market and lowering the cost of specialty drugs by identifying lower-cost treatments earlier in the process.

Company Description: 

UnitedHealth Group (NYSE: UNH) is a diversified health care company offering a broad spectrum of products and services through two distinct platforms: UnitedHealthcare, which provides health care coverage and benefits services and includes UnitedHealthcare Employer & Individual, UnitedHealthcare Medicare & Retirement, UnitedHealthcare Community & State, and UnitedHealthcare Global businesses; and Optum, which provides information and technology-enabled health services through its OptumHealth, OptumInsight and OptumRx businesses.

(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

Raising FMC’s Fair Value Estimate to $135 on Improved Outlook; Shares Slightly Undervalued

Business Strategy and Outlook

FMC is a pure play crop chemicals producer. The company is one of the five largest patented crop protection companies globally. FMC acquired Cheminova in 2015, increasing exposure to Europe and expanding its portfolio of crop chemicals. In late 2017, FMC acquired DuPont’s divested crop chemicals portfolio, which included blockbuster insecticide Rynaxypyr. At the same time, the company divested non-crop chemicals businesses. FMC is fairly balanced from a geographical standpoint among North America; Latin America; Asia; and Europe, the Middle East, and Africa. Latin America is the largest region, contributing over 30% of revenue, while the remaining regions typically account for 20% to 25% each. The company is also balanced from a crop exposure standpoint, with soybeans being the largest at nearly 20% of total revenue.

As emerging-market food consumption rises, demand for patented crop chemicals should rise to facilitate yield improvements. FMC’s pipeline of new premium products should generate sales growth above the general crop chemical industry. Both acquisitions greatly enhanced FMC’s research and development pipeline, which should allow the company to continue producing new crop chemicals as older products roll off patent. The company plans to launch 10 new molecules over the next decade that feature new modes of action. FMC also plans to launch new biologicals, or environmentally friendly pesticides. These new products should help farmers fight resistant pests, which are increasingly rendering older crop chemicals ineffective and require new crop chemicals.

Financial Strength

FMC is in good financial health. FMC’s leverage ratios fluctuate throughout the year as the company is subject to seasonality. However, unless the firm makes a transformative acquisition, It is expected that leverage ratios will generally remain healthy. With no large planned capital additions, the company should maintain its financial health and should be able to meet all its financial requirements, including dividends, going forward. FMC reported solid fourth-quarter results as adjusted EBITDA was up 30% year on year versus the prior-year quarter driven by higher volumes, a mix shift toward premium products, and increased prices.

On a qualitative basis, the results were in line with our thesis that FMC will continue to benefit from an increased proportion of new premium products that will drive revenue growth and margin expansion. FMC shares rallied on the company’s strong results and solid guidance for further profit growth in 2022. At current prices, we view shares as slightly undervalued, with the stock trading slightly below our updated fair value estimate but in 3-star territory. A major driver of our improved outlook comes from FMC’s growth of its Biologicals portfolio. Biologicals are pesticides, fertilizers, and other plant health inputs that are made from living or naturally occurring materials, versus traditional synthetic crop chemicals.

Bulls Say’s

  • FMC has transformed its portfolio to focus on crop chemicals, which should see strong growth prospects as yield gains are needed to support rising food consumption from emerging markets.
  • FMC has a large presence in Brazil, one of the few places with meaningful growth potential in arable land.
  • FMC’s pipeline should allow the company to continue expanding profits as the patents expire for its two largest molecules over the next decade.

Company Profile

FMC is a pure-play crop chemical company. The company has diversified its sales to create a balanced crop chemical portfolio across geographies and crop exposure. Through acquisitions, FMC is now one of the five largest patented crop chemical companies and will continue to develop new products through its research and development pipeline.

(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.