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

Burberry Group Plc 1H22 revenue recovery with strong mainline and digital full – price sales

Investment Thesis

  • The rejuvenation of Burberry under a new creative director is underway, in our view. 
  • Leveraged to increasing consumer consumption in Asia (China). 
  • Leveraged to tourism flows (international travel) as consumers seek out experiences. 
  • Building a credible offering in the important category of leather goods.
  • Improving cash flow generation and a progressive dividend policy.
  • Strong balance sheet, which provides the Company flexibility.   
  • Capital management initiatives (e.g., Share Buyback). 

Key Risks

  • Execution risk with Burberry turnaround under new management team.
  • Fails to build a credible offering in the Leather Goods segment.  
  • Increased competition from existing players and new emerging brands. 
  • Value destructive acquisition of brand(s). 
  • Macroeconomic conditions deteriorate globally, impacting consumer spending and less tourism movements (i.e. travelers overseas).
  • Geopolitical tensions among regions restricting funds & tourists flow or a breakout of health epidemic impacting tourists flow in Europe / Asia. 
  • Significant change at the senior management level (Creative Director).  

Strong Margin accretion – driven by full sales price sales and cost out initatives

Management’s strategy to exit mainline and digital markdowns and the deliberate tight management of outlet business resulted in a significant shift towards full-price sales (within comparable store sales growth of +37% over pcp, full price sales advanced +49%, growing +121% and +10% across 1Q and 2Q, respectively), which underpinned an improvement of +130bps (at CER) in gross margin to 69.3% despite significant pressures from Brexit duties and channel mix. BRBY saw GBP 20m in cost savings (achieved GBP 55m of annualized savings, bringing cumulative savings to GBP 205m and providing a completely restructured cost base), delivering an improvement of +11.2% (at CER) in adjusted operating margin to 16.2%.

Company Profile 

Burberry Group Plc (BRBY), listed on the London Stock Exchange, is a global luxury brand with a British heritage. The Company designs and sources apparel and accessories, which it distributes via retail, digital, wholesale and licensing channels globally. 

(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

Strong customer retention and new business growth drives QBE earnings higher

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:

  • Prolonged period of pricing pressures. 
  • Adverse CAT claims. 
  • Ongoing prolonged period low interest rates and volatility in credit spreads which affects QBE’s predominately defensive portfolio. 
  • As a global insurer, QBE’s operations are much more diversified than domestic peers which means insurance risk is more spread out. However, at the same time, as it underwrites across the globe, the business it is more difficult to forecast and analyse claims and pricing environment as well as reinsurance.
  • Undesirable investment returns below management guidance. 
  • Prolonged poor performances in Asia

Key highlights:

  • QBE delivered 1H21 net income of $441m (vs loss of $712m y/y) as QBE continued to post solid premium rate increases (average group-wide rate increases averaged +9.7%) across all segments, as well as strong customer retention and new business growth.
  • However, management warned rate momentum is showing signs of moderating in some geographies and products, particularly in International Markets.
  • QBE’s operational efficiency program saw expense ratio improve -60bps over pcp to 13.7%. Balance sheet remained strong with gearing improving to 31.1%.
  • The Board declared an interim dividend of 11cps (up +175% over pcp) and guided to typically higher catastrophe incidence and Crop result variability in 2H21.
  • QBE saw expense ratio improve -60bps over pcp to 13.7%, with management announcing its next phase of efficiency program (focused on IT modernisation and digitisation) remains on track to deliver an expense ratio of 13% by 2023, anticipating a restructuring charge of $150m to be expensed over three years (of which $29m was recognised in 1H21).
  • Gross written premium increased +20% to $10,203m reflecting the strong premium rate environment

Company Description: 

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 Markets Global stocks

Strong fertilizer prices result in good earnings for Incitec Pivot for FY21

Investment Thesis:

  • Operational excellence at the WALA ammonia plant, operating at or above nameplate capacity and subsequent cash flows. 
  • Current strength in commodity / fertilizer prices is expected to continue over the short term – consensus earnings may need to be upgraded for FY22 if current spot prices hold up. 
  • Leverage to a lower AUD/USD rate.
  • Ongoing focus on productivity gains help support earnings.
  • Strong balance sheet provides flexibility to undertake inorganic growth opportunities or implement capital management initiatives 

Key Risks:

  • Manufacturing disruptions including risk of larger incident 
  • Commodity / fertilizer prices normalize or correct sharply. 
  • Disappointment on capital management announcement
  • Further decline in key resources end market (Coal remains in a structural decline trend). 
  • Market volatility and oil price movement
  • Higher AUD/USD
  • Drought / bad weather impacts operations or impact fertilizer markets. 

Key highlights:

  • Incitec Pivot (IPL) FY21 results were a strong beat relative to consensus expectations due to the very strong fertilizer prices.
  • Group revenue was up +10% to $4.35bn, consisting of DNA up +5%, DNAP down -6% and Fertilisers APAC up +26%.
  • Excluding significant items, group operating earnings (EBIT) was up +51% to $566.4m, predominantly driven by the recovery in earnings in Fertilisers APAC which saw EBIT jump to $268.4m from $26.2m in pcp.
  • Group underlying NPAT was up +91% to $358.6m and free cashflow was up +34% to $267m.
  • Dyno Nobel Americas (DNA) FY21 segment EBIT fell -9% in constant currency terms to US$141.2m, driven higher by Explosives up +5% up US$126.7m and Agriculture & Industrial Chemicals delivering EBIT of US$10.9m (vs US$1.3m in pcp)
  • Dyno Nobel Asia Pacific (DNAP) FY21 EBIT declined -6% over pcp to $140.2m, with growth in Technology (up $14m and in line with guidance) and costs savings program ($9m sustainable cost savings), more than offset by impact from contract renewals ($12m net decline), turnaround impact at Moranbah ($15m), decline in international business and W.A. contracts ($3m).
  • WALA is delivering more consistent performance and is expected to run at nameplate capacity in FY22. The reliable performance of this plant is important to the IPL investment thesis, although it remains host to non-controllable factors
  • IPL is enjoying very strong fertiliser prices, which are expected to remain elevated well into FY22.
  • Coal exposure remains a weak spot in IPL’s investment case, however Q&C activity will be supported by infrastructure spend in the U.S.       

Company Description: 

Incitec Pivot Limited (IPL) is a global industrial chemicals company. The company manufactures and distributes a range of industrial explosives, fertilizers, related services, and products to the mining and agriculture industries. Its industrial explosives’ business is the number one manufacturer (by tonnes) in the US and number two distributor and manufacturer (by tonnes) in Australia. The company’s fertilizer business is the number one manufacturer in Australia (by volume and revenue) and the number one distributor in eastern Australia (by volume and revenue). The company operates the following key divisions: Dyno Nobel Americas (DNA), Dyno Nobel Asia Pacific (DNAP), Incitec Pivot Fertilisers (IPF) and Southern Cross International (SCI).

(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

HALMA Plc: Private Equity with a Purpose

Investment Thesis:

  • High quality company with a history of earnings and dividend growth.
  • Management is looking to double EPS every five years. HLMA’s group earnings growth model is driven by organic and acquired growth. 
  • HLMA earnings are defensive as HLMA is exposed to attractive end markets which are niche and regulated in some shape or form – such as safety, medical and infrastructure.
  • HLMA consists of a strong diversified portfolio of companies (currently 45 companies). 
  • Strong management team with strong corporate culture. 
  • “Private Equity firm with a purpose” – the Company is not limited by a timeframe to exit positions. 
  • HLMA operates a decentralized operating structure with operating companies and management teams left to run their businesses. 
  • Scores well on ESG metrics – targeting a science-based emission target (1.5 degree-aligned 2030 target for Scope 1 & 2 emissions), a net zero target (scope 1 & 2 by 2040) and transitioning towards a circular economy. 

Key Risks:

  • Execution risk – specifically around acquired growth or the inability to source enough deals as the group grows larger.
  • Deterioration in global growth or consumption.
  • Turnover in senior management team. 

Key highlights:

HLMA can be thought of as a private equity company with a purpose, having a highly sustainable financial model, which focuses on maintaining portfolio companies’ growth and returns over the longer term (management aspires to double the size of the Group every 5-6 years), while delivering performance in the shorter term, through a combination of acquisition, venture partnerships and organic growth.

  • Strong top and bottom-line growth – Management prefers to be in markets delivering +3-5% year on year growth and invests in business that are typically one of top 3 players in their respective niches (market share can vary between 10-80% but on average market share across the group is 20%) which leads to strong top line growth, which combined with differentiated products leads to high gross margins (>60%) and strong EBIT margins (>20%). 
  • High return on capital – The Company remains capital light given it’s a final fixed assembler (don’t have huge production facilities with on average a production facility of 100-200 people) thus providing very high return on average capital across the group (70-75% return on average capital across the group and after intangibles and taxes its ~15% return on total capital in group). 
  • Strong cash flows making it self-funded – The Company has a self-funded model (doesn’t go to market for dilutive capital raise) and uses its strong cashflow (targets cash conversion of >90%) to first invest organically, and then to make further acquisitions to expand the addressable market and pay shareholder returns via dividends (+5-7% growth year on year. 

Company Description: 

Halma Plc (HLMA), listed on the London Stock Exchange, looks to acquire, and grow businesses in niche markets with a global reach. The Company focuses on markets such as medical, safety and environment. Management believes the earnings profile of these markets have a high degree of defensibility and long-term growth drivers. The Company is not like a Private Equity firm which looks to acquire businesses, reduce costs (to improve earnings profile) and then sell within a 5-year timeframe. HLMA looks to buy and hold companies over the long-term. They manage the mix of businesses in group portfolio to drive sustainable growth and returns over the long term. HLMA looks to acquire businesses to accelerate penetration of more markets, merge businesses where it markets sense, and exit markets if they become less attractive from a long-term growth and returns perspective.  

(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

Continental benefits from Auto Industry Trends in Connectivity, Electronics and Safety

Business Strategy and Outlook

Above-industry-average research and development spending enables consistent product and process innovation, supporting Continental’s revenue growth, healthy return on invested capital, and a narrow economic moat rating. After an acquisition binge that culminated in 2007 with the purchase of Siemens VDO, Continental has grown from being predominantly a European tiremaker to a global supplier of automotive components, systems, and modules. In 2008, Continental became an acquisition target as Schaeffler unsuccessfully bid for the company (it still holds 46% of the voting interest). Continental should benefit from automotive industry trends, including advanced driver-assist systems, autonomous driving features, V2X connectivity, and increased vehicular electronics. 

The company invests in and successfully cultivates innovative technologies. Management’s long-term targets are to annually increase revenue in excess of 5% and generate adjusted EBIT margins in the 8% to 11% range. Management spun off its powertrain division in September 2021 into a new company called Vitesco that trades under the ticker VTSC. Since 2008, powertrain segment revenue has grown at an average annual rate of 6%. In 2019, pro forma Vitesco had EUR 9.1 billion in prepandemic revenue and an adjusted EBITDA margin of 9.5%.

Continental sees Q3 Chip Crunch Hit to Results, Maintains Adjusted Guidance; EUR 143 FVE Unchanged 

Narrow-moat-rated Continental reported third-quarter earnings per share from continuing operations of EUR 1.27, handily beating the EUR 0.81 FactSet consensus by EUR 0.46 and jumping EUR 4.54 from the EUR 3.26 loss reported in the COVID-19-affected year-ago period. Consolidated revenue missed consensus by nearly 1%, declining 7% to EUR 8.0 billion from EUR 8.7 billion last year. However, excluding currency effect, organic revenue declined 9%. Our EUR 143 Fair Value Estimate remains unchanged. 

Third-quarter adjusted EBIT was EUR 419 million for 5.2% margin, down from a EUR 727 million with an 8.4% margin last year as the chip crunch made customer production sporadic during the quarter. Consolidated revenue is expected to be in a range of EUR 32.5 billion-EUR 33.5 billion with adjusted EBIT margin forecast in a range of 5.2%-5.6% and free cash flow in the range of EUR 0.8 billion – EUR 1.2 billion. However, management lowered its tax rate assumption to 23% from 27% due to the lower profitability guidance, which had minimal effect on our fair value.   

Financial Strength 

Continental’s financial health appears to be in good shape. Management targets investment-grade credit ratings and a gearing ratio (net debt/equity) range of 40% to 60%. At the end of 2020, the company’s liquidity was EUR 10.8 billion, the gearing ratio was 44%, and total adjusted debt/EBITDAR, which treats operating leases as debt and rent expense as interest, was 2.6 times. Since 2010, Continental has averaged 1.8 times total adjusted debt/EBITDAR, while netting cash against debt results in about a 1.4 times ratio. 

Maturities appear well laddered with the exception of roughly EUR 2.2 billion in short-term debt. The company syndicated a new 365-day EUR 3.0 billion line of credit in 2020 due to the pandemic, which was unused at year-end. While Continental’s EUR 4.0 billion revolving bank line of credit due in 2025 had not been utilized, short-term debt includes EUR 1.5 billion outstanding on other lines of credit. The large short-term debt balance has typically been rolled to the next year.

Bulls Say’s 

  • Continental is well positioned to capitalize on auto industry trends like safety, electronics, fuel economy, and emissions reduction. As a result, we expect the company’s revenue to average growth in excess of average annual growth in global vehicle production. 
  • The ability to continuously innovate new process and product technologies should enable Continental to maintain a narrow economic moat. 
  • A global manufacturing footprint enables participation in global vehicle platforms and provides penetration in developing markets.

Company Profile 

Continental is a global auto supplier and tiremaker. Operating segments include the autonomous mobility and safety segment and the vehicle networking and information segment in the automotive group, plus tires and ContiTech, which uses rubber in industrial and automotive components and systems, in the rubber group. Last year, pro forma for the spin-off of the powertrain segment, automotive group revenue was around 50% of the total with AM&S and VN&I each accounting for about 25%. Rubber group revenue, also at around 50% of the total, includes tires at about 32% and CT at around 18%. The company’s top five customers are Daimler, Stellantis, Ford, the Renault-Nissan-Mitsubishi alliance, and Volkswagen, representing about 37% of total revenue (as reported, before the Vitesco spin-off).

(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

Recovery Plan of Qantas is constructive and is ahead of target

Investment Thesis:

  • Attractive way to play the Covid reopen trade for investors  
  • All segments delivering return on invested capital > weighted average cost of capital 
  • Strong position in the domestic market (Qantas Domestic and Jetstar continue to remain the two highest margin earning airlines in the domestic market)
  • Jetstar is well positioned for growth and rising demand in Asia 
  • Partnership with Woolworths for Loyalty bodes well for membership and earnings 
  • Oil price hedging in FY20 could contribute to performance 
  • Increased competition in the international segment
  • Relative to peers, strong balance sheet strength
  • Investment grade credit rating  

Key Risks:

  • Disasters that could hurt the QAN brand
  • Ongoing price led competition forcing QAN to cut prices affecting margins
  • Leveraged to the price of oil
  • Adverse currency movements result in less travel 
  • Labour strikes
  • Depressed economic conditions leading to less discretionary income to spend on travel

Key highlights:

  • QAN’s FY21 revenue declined 58% over pcp as the decline in international operations was partially offset by record performance by Qantas Freight, which combined with 49% fall in operating expenses and 71% decline in fuel expenses saw the Company deliver underlying EBIT loss of $1.5bn vs $395m profit in pcp
  • Covid levels in 2H21 while state borders were open generated enough cash from $6.4bn in 3Q21, with management forecasting net debt to be in target range of $4.5- 5.6bn by end of FY22
  • The Company’s cost-cutting program remained ahead of schedule, with $650m taken out of its cost base during FY21, remaining on track to deliver $850m by the end of FY22 and $1bn in FY23
  • Recent outbreaks and associated domestic and trans-Tasman border closures to have an impact in the order of $1.4bn on the Group’s Underlying EBITDA in 1H22
  • Group Domestic capacity to increase from 38% in 1Q to 53% of pre-Covid capacity in 2Q and rise to ~110% in 2H22
  • Recovery plan progress remains ahead of schedule: The Recovery Plan delivered $650m in savings in FY21, ahead of its $600m target and remains on track to deliver $850m by the end of FY22 and greater than $1bn in ongoing savings by the end of FY23
  • Liquidity boosted by securing a further $0.6bn
  • Balance sheet repair commenced, reducing net debt to $5.9bn by end of FY21 from $6.4bn in 3Q21, with further debt reduction remaining a priority
  • Investment grade credit rating of Baa2 from Moody’s maintained
  • Shareholder distributions scrapped until the Group’s earnings and balance sheet have fully recovered in accordance with the Financial Framework

Company Description: 

Qantas Airways Ltd (QAN) provides passenger and freight air transportation services in Australia and internationally. QAN also operates a frequent flyer loyalty program. QAN was founded in 1920 and is headquartered in Mascot, Australia support. 

(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

Marriott’s Demand Set to Rebound Further in 2022, Aided by Global Leisure and Corporate Pick-Up

that Marriott to expand room and revenue share in the hotel industry over the next decade, driven by a favorable next-generation traveler position supported by renovated and newer brands, as well as its industry-leading loyalty program. Additionally, the acquisition of Starwood has strengthened Marriott’s long-term brand advantage, as Starwood’s global luxury portfolio complemented Marriott’s dominant upper-scale position in North America.

Marriott’s intangible brand asset and switching cost advantages are set to strengthen. Marriott has added several new brands since 2007, renovated a meaningful percentage of core Marriott and Courtyard hotels in the past few years, and expanded technology integration and loyalty-member presence; these actions have led to share gains and a strong positioning with millennial travelers. Starwood’s loyalty member presence and iconic brands should further strengthen Marriott’s advantages.

Future Outlook

It is expected that room growth for Marriott averaging midsingle digits over the next decade  supported by the company having around 20% of all global industry rooms under construction, well above its high-single-digit existing unit share, as of the end of 2020.

With 97% of the combined rooms managed or franchised, Marriott has an attractive recurring-fee business model with high returns on invested capital and significant switching costs for property owners. Managed and franchised hotels have low fixed costs and capital requirements, along with contracts lasting 20 years that have meaningful cancelation costs for owners.

Marriott’s Demand Set to Rebound Further in 2022

Marriott’s third-quarter revenue per available room, or revPAR, improved to 74% of 2019 levels ,up from 56% last quarter ,driven by rate recovering to 96% of prepandemic marks. 

Meanwhile, Marriott’s brand advantage remains intact. Marriott’s EBITDA margins improved to 17.3% from 14.5% a year ago. It is observed that high-teens operating margins in 2030, compared with the low-double-digit prepandemic average, aided by cost efficiency offsetting wage inflation.

It is expected that leisure travel to remain robust, but we expect business travel to recover in 2022. In this vein, Marriott noted that business travel bookings have recently picked up, and that group 2022 revenue on books is down about 20% from 2019, with rooms down 23% and rate up 4%.

Financial Strength

 Marriott’s financial health remains in good shape, despite COVID-19 challenges. Marriott entered 2020 with debt/adjusted EBITDA of 3.1 times, as its asset-light business model allows the company to operate with low fixed costs and stable unit growth, but reduced demand due to COVID-19 caused the ratio to end the year at 9.1 times. During 2020, Marriott did not sit still; rather, it took action to increase its liquidity profile, including suspending dividends and share repurchases, deferring discretionary capital expenditures, raising debt, and receiving credit card fees from partners up front. As a result, Marriott has enough liquidity to operate at zero revenue through 2022, and at second half of 2020 demand levels the company was around cash flow neutral. 

 Bulls Say  

  • Marriott is positioned to benefit from the increasing presence of the next-generation traveler through emerging lifestyle brands Autograph, Tribute, Moxy, Aloft, and Element. 
  • Marriott stands to benefit from worker flexibility driving higher long-term travel demand. Our constructive stance is formed by higher income occupations being the most likely industries to sustainably work from remote locations. 
  • Marriott has a high exposure to recurring managed and franchised fees (97% of total 2019 units), which have high switching costs and generate strong ROICs.

Company Profile

Marriott operates nearly 1.5 million rooms across roughly 30 brands. Luxury represents around 9% of total rooms, while full service, limited service, and time-shares are 43%, 46%, and 2% of all units, respectively. Marriott, Courtyard, and Sheraton are the largest brands, while Autograph, Tribute, Moxy, Aloft, and Element are newer lifestyle brands. Managed and franchised represent 97% of total rooms. North America makes up two thirds of total rooms. Managed, franchise, and incentive fees represent the vast majority of revenue and profitability for the company.

 (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

Nexstar Well Positioned to Capitalize on Political Ad Spending Growth

Though it’s slightly declining in importance, advertising remains an important source of revenue for Nexstar. Just under 44% of total 2019 revenue came from nonpolitical advertising. Over 70% of non-political advertising revenue is generated at the local level by selling ad time to area businesses, including restaurants, auto dealerships, and retailers, which have suffered during the pandemic. Because of its size and geographic reach, Nexstar also sells advertising nationally to auto manufacturers, telecom firms, fast-food restaurants, and retailers via their ad agencies. The larger scale of the firm, along with increased political ad spending, has increased the importance of elections. Hence it is expected that Nexstar will continue to benefit from political ad spending growth offsetting slower local and national ad growth.

Over the past decade, retransmission revenue has grown rapidly as a source of revenue for local television stations. For Nexstar, retrans revenue was 45% of total 2019 revenue, up from 25% in 2014. While the growth in retrans revenue has been and will continue to be a growth driver for local station owners, and it is projected that national network owners will continue to raise both network affiliation fees and reverse compensation fees, decreasing the bottom-line benefit to Nexstar.

Financial Strength 

Nexstar is more highly leveraged than it has been traditionally, it is in decent financial shape. Overall debt increased as a result of the Tribune Media acquisition. The firm had $7.5 billion in debt as of September 2021, up sharply from $3.9 billion at the end of 2018. Nexstar continues to use its free cash flow to lower its debt load. It spent over $425 million in the first nine month of 2021 to reduce its debt load, lowering its first-line net leverage to 2.14times at the end of the quarter from 3.52 times at the end of 2019. The new level is well below the covenant level of 4.25 times. Total net leverage is at 3.4 times, well below the management’s target of 4.0 times. The firm had no bond maturities due until 2024, though some of its $4.7 billion first-lien loans will come due over the next three years.

Bulls Say  

  • Nexstar can drive local ad revenue growth via its duopoly markets. 
  • The increased reach provided by the Tribune merger will help attract more national advertisers and grow political ad spending. 
  • Nexstar has the heft and reach to strike more advantageous retransmission agreements with pay television distributors. 

Company Profile

Nexstar is the largest television station owner/operator in the United States, with 197 stations in 115 markets. Of its 197 full-power stations, 158 are affiliated with the four national broadcasters: CBS (50), Fox (43), NBC (35), and ABC (30). The 2019 merger with Tribune made Nexstar the top broadcast affiliate for both Fox and CBS as well as the number-two partner for NBC and number three for ABC. The firm now has networks in 15 of the top 20 television markets and reaches 69 million television households. Nexstar also owns WGN, a nationwide pay-television network, and a 31% stake in Food Network and Cooking Channel.

 (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

Bed Bath carves out new revenue opportunities to boost performance; shares skyrocket

Narrow moat Kroger is the leading American grocer, with 2,742 supermarkets (at the end of 2020) across multiple banners. While the entry into boxes is set to be “small-scale,” a more meaningful long-term opportunity exists if the initial efforts are well-executed. Not only does this partnership offer Bed Bath an incremental distribution network for its products, but it also provides visibility to customers who want a one stop omnichannel option tied into their grocery transactions.

Second, Bed Bath is launching a digital marketplace for the home and baby categories that will offer curated third-party brand products that fit into the firm’s digital platform. While the economics of these projects were not offered, a benefit should fall to both the top line and the bottom line (as scale helps absorb costs).

Financial Strength:

The dividend yield by the company during the year 2020 was a whopping 6.3% and PE ratio was 23.5.

Bed Bath now plans to complete its $1 billion share buyback in 2021, two years ahead of schedule. Depending on the acquisition prices, Bed Bath could purchase its equity at premiums to the analyst’s fair value estimate, which would not be viewed as prudent. However, this move is appreciated by the analysts as it signals management’s long-term belief surrounding the stability of the business, and that the turnaround is well underway.

Company Profile:

Bed Bath & Beyond is a home furnishings retailer, operating around 1,000 stores in all 50 states, Puerto Rico, Canada, and Mexico. Stores carry an assortment of branded bed and bath accessories, kitchen textiles, and cooking supplies. In addition to 813 Bed Bath & Beyond stores, the company operates 132 Buy Buy Baby stores and 54 Harmon Face Values stores (health/beauty care). In an effort to refocus on its core businesses, the firm has divested the online retailer Personalizationmall.com, the One Kings Lane business and Christmas Tree Shops and That (gifts/housewares), Linen Holdings, and Cost Plus World Market.

(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

UPS’ Ground Volumes Face Tough Comps, but Yields Excellent and U.S. Margin Outlook Positive

FedEx and UPS are the major U.S. incumbents.UPS has also boosted its exposure to the asset-light third-party freight brokerage market, especially with its 2016 acquisition of truckload broker Coyote Logistics. 

Despite its unionized workforce and asset intensity, UPS produces operating margins well above competitors’, thanks in large part to its leading package density. In the United States, FedEx’s express and ground units together handled 14.4 million average parcels daily in its four fiscal quarters ended in November 2020, while UPS moved 21.1 million in calendar 2020. The disparity is greater in the U.S. ground market, where UPS moved on average 17.4 million parcels per day and FedEx ground averaged 11.4 million.  

Favorable e-commerce trends should remain a longer-term top-line tailwind for UPS’ U.S. ground and express package business. That said, growth won’t be costless; UPS is amid an operational transformation initiative aimed at mitigating the challenges of a rising mix of lower-margin business-to-consumer deliveries.

Amazon has been insourcing more of its own last-mile delivery needs at a rapid pace to supplement capacity access amid robust growth. This removes some incremental growth opportunities for UPS while creating risk that Amazon decides to take in house the shipments it currently sends though UPS–the retailer now makes up approximately 13% of UPS’ total revenue.

Financial Strength 

UPS’ balance sheet is reasonable and mostly healthy. It held $6.9 billion in cash and marketable securities compared with roughly $24.7 billion of total debt at year-end 2020. Debt/EBITDA leverage came in around 2.4 times in 2020, ignoring underfunded pensions, though the firm plans to pay off more than $2 billion in 2021, with help from cash generation and the $800 million UPS Freight sale. Leverage will likely finish 2021 at comfortably less than 2 times EBITDA. EBITDA/interest coverage for 2020 was a healthy 15 times.Share repurchases slowed modestly in 2018 and 2019 on account of heavy capital investment and were suspended in 2020 (into 2021) due to pandemic risk-mitigation efforts (including debt reduction).

Bulls Say 

  • UPS’ U.S. ground and express package delivery operations should enjoy healthy medium-term growth tailwinds rooted in highly favorable e-commerce trends. 
  • UPS’ massive package sortation footprint, immense air and delivery fleet, and global operations knit together a presence that’s extraordinarily difficult to replicate. 
  • On top of superior parcel density, UPS uses many of the same assets to handle both express and ground shipments, driving industry-leading operating margins.

Company Profile

As the world’s largest parcel delivery company, UPS manages a massive fleet of more than 500 planes and 100,000 vehicles, along with many hundreds of sorting facilities, to deliver an average of about 22 million packages per day to residences and businesses across the globe. UPS’ domestic U.S. package operations generate 61% of total revenue while international package makes up 20%. Less-than-truckload shipping, air and ocean freight forwarding, truckload brokerage, and contract logistics make up the remaining 19%.

 (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.