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

Novartis results beat consensus delivering revenue of US$12.95bn

Investment Thesis:

  • Relatively high barriers to entry, with a significant amount of funds deployed in R&D every year. 
  • Recent and upcoming divestments will streamline the business and provide increased focus to deliver shareholder returns. 
  • Recent product launches indicate solid sales momentum, with near-term product pipeline potentially providing further upside. 
  • Selective bolt-on acquisitions to supplement organic growth. 
  • Operating efficiency focuses to further support earnings growth. 
  • As the new management team improves Company culture, investors are less likely to ascribe a discount to the stock based on legacy issues.

Key Risks:

  • Recently launched products fail to deliver sales growth as expected by the market. 
  • New product pipeline fails to yield “blockbuster” products or delays in bringing key products to market. 
  • R&D programs do not yield new long-term ideas. 
  • Increased competition (pricing pressure & innovative products) from new entrants or existing players. 
  • Value destructive M&A. 
  • Regulatory / litigation risks.

Key highlights:

  • NOVN’s product development pipeline continues to progress well without any major disruptions.
  • Novartis (NOVN) 2Q21 results beat consensus on both top and bottom line, delivering revenue of US$12.95bn (vs estimates of US$12.49bn) and EPS of US$1.28 (vs estimate of US$1.08) as disruption from the pandemic waned, with management announcing the growth drivers and launches continue to show excellent momentum with +35% growth and now contributing to more than 50% of top line.
  • The Oncology business continued to recover delivering +7% growth with sales reaching US$3.9bn during the quarter, with management expecting to see accelerated growth if trends move toward pre-Covid-19 levels in 2H21.
  • Financial position remained strong with the Company not experiencing liquidity or cash flow disruptions during 2Q21 due to the Covid-19, ending the quarter with total liquidity of US$5.4bn.
  • FY21 net sales to grow low to mid-single digit, with Innovative Medicines to grow mid-single digit and Sandoz to decline low to mid-single digit, and core operating income to grow midsingle digit (ahead of sales), with Innovative Medicines growing mid to high-single digit, ahead of sales, and Sandoz declining low to mid-teens.
  • The Company retained strong capital structure (credit rating of A1/AA- by Moody’s/S&P), not experiencing any liquidity or cash flow (2Q FCF up +17% over pcp) disruptions during 2Q21 due to the COVID-19 pandemic.

Company Description: 

Novartis AG (NOVN) is an innovative healthcare company headquartered in Basel, Switzerland, with approximately 125,000 employees. In 2017, the Group reported net sales of US$49.1bn, while R&D throughout the Group amounted to approximately US$9.0bn. The Company sells its products in approximately 155 countries. The group has two segments which it reports on: (1) Innovative Medicines (Oncology / Pharmaceutical), and (2) Sandoz generics division.

(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

Status Quo Likely to Be Maintained on U.S. Health Insurance and Tax Rates

Business Strategy and Outlook:

Centene aims to be the top provider of government- sponsored health plans. Although it has grown at a solid clip organically, Centene also has made significant acquisitions- most notably the 2020 WellCare merger–to meet that goal. Technology investments to boost efficiency have helped Centene prosper in this relatively low-margin managed care sector, as well.

Centene leads the Medicaid managed-care business; those plans accounted for about two thirds of its medical membership. The Medicaid program is jointly funded by federal and state governments and primarily serves low-income individuals of any age and people with disabilities. The Affordable Care Act expanded the Medicaid population starting in 2014, and we think this program may be used in the future to expand insured rates further.

Through the acquisition of WellCare in early 2020, Centene added to its Medicare-related capabilities, particularly in the fast-growing Medicare Advantage program. With positive demographic trends and increasing popularity relative to traditional Medicare plans, we see the Medicare Advantage program as one of the most attractive growth opportunities in health insurance in the long run. This opportunity largely explains the appeal of the WellCare deal, although WellCare also added to Centene’s Medicaid footprint, too.

Financial Strength:

The fair value estimate of the stock is USD 91.00, which reflects 17 times price/earnings multiple on 2022 expected earnings.

Centene’s balance sheet remains in fine financial shape even after the WellCare merger in early 2020. With total debt around $19 billion at the end of September 2021 (including $2 billion issued for the pending Magellan Health acquisition) and the potential to deleverage in the near term primarily through profit growth, we project that the company’s gross leverage could decline to roughly 3 times in the next couple of years. Debt/capital appears likely to return to its target of the mid- to high-30s in the near future, too. The company’s maturity schedule appears easily manageable, as well, with the company facing limited maturities during the next five years, which includes its $2 billion term loan facility, borrowings on its revolver ($150 million), a construction loan ($188 million), and finance leases ($495 million).

Bulls Say:

  • Centene represents a countercyclical investment opportunity in managed care, as it can benefit from economic downturns through increasing enrollment in its Medicaid and individual exchange products. 
  • With a focus on government-sponsored programs, Centene could benefit from potential U.S. policy changes to reach universal, affordable coverage in the long run. 
  • Centene’s midteens annualized earnings growth goal through 2024 puts its near the top of its MCO peers in that metric.

Company Profile:

Centene is a managed-care organization focused on government-sponsored healthcare plans, including Medicaid, Medicare, and the individual exchanges. Centene served 22 million medical members as of September 2021, mostly in Medicaid (68% of membership), the individual exchanges (10%), Medicare Advantage (6%), and the balance in Tricare (West region), correctional facility, and international plans. The company also serves 4 million users through the Medicare Part D pharmaceutical program.

(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

Cintas Corp Posts Solid Second-Quarter Results

Business Strategy and Outlook:

Cintas is the dominant provider in the $16 billion U.S. uniform rental/sales and related ancillary-services industry. It enjoys a roughly 43% market share, and no singular end market comprises a significant portion of total revenue. Despite its already impressive position, Cintas is expected to grow over the next 10 years. The firm constantly considers new product lines while emphasizing cross-selling to its existing customers. About 60% of its annual sales growth derives from new client wins, and at $4 billion-$5 billion, the remaining unvended market remains sizable, and the G&K acquisition added 170,000 uniform rental clients to Cintas’ book of business.

Cintas is a highly cyclical business; its uniform rental segment moves closely with U.S. employment trends, and given the current market environment, revenues will increase in fiscal 2022 after marginal growth in fiscal 2021. The firm recovered quickly after the 2009 recession, with revenue exceeding pre-recession levels by fiscal 2012, and Cintas still generated economic profits despite sustaining revenue losses for five straight quarters. Management has navigated this tough economic environment well over the last year, and cost management has been impressive.

Financial Strength:

The fair value estimate of the stock has been increased due to raised revenue guidance and time value of money.

Cintas’ balance sheet is considered to be healthy. At the end of the fiscal 2021 (ended May 31, 2021), the firm posted $494 million in cash and equivalents and about $1.6 billion of total long-term debt. Long-term debt was down significantly from the $2.5 billion posted at the end of fiscal 2020. Solid free cash generation will enable the firm to continue reducing leverage as desired in the years ahead. Cintas’ debt/EBITDA was near 1.4 times at the end of fiscal-year 2021, versus 1.6 times at the end of fiscal-year 2020–$1 billion dollars of debt will mature in fiscal 2022, followed by about $350 million of debt maturing in 2023 and about $50 million in 2025. Beyond that, no more debt will mature until 2027 and beyond.

Bulls Say:

  • Cintas’ industry-leading operating efficiency stems from its significant scale-based cost advantages, achieved through superior route density. 
  • The firm’s impressive sales execution is supporting robust new business wins and greater penetration among existing customers. It’s also helping Cintas to realize material cross-selling opportunities with the former G&K operations. 
  • There is still ample opportunity for expansion, as companies in the sizable unvended market look to outsource their uniform programs and facilities services.

Company Profile:

In its core uniform and facility services unit (80% of sales), Cintas provides uniform rental programs to businesses across the size spectrum, mostly in North America. The firm is by far the largest provider in the industry. Facilities products generally include the rental and sale of entrance mat, mops, shop towels, hand sanitizers, and restroom supplies. Cintas also runs a first aid and safety services business (11% of sales), a fire protection services business (6% of sales), and a uniform direct sales business (3% of sales).

(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 Sectors

Medtronic Plc reported solid FY 21 result with revenue of $30.1bn and adjusted EPS of $4.44

Investment Thesis 

  • The Company trades on 2-yr PE-multiple of 19.5x and dividend yield of 2.1%, which is attractive in our view. 
  •  The Company should come out of COVID-19 in a solid position, with significant balance sheet liquidity increasing flexibility to undertake strategic M&A and invest in the business. 
  •  Market leadership position in medical equipment and supplies industry. 
  •  Global footprint with continuing strong growth in EM. 
  •  Successful track record of developing breakthrough technologies. The Micra AV transcatheter pacing system is expected to be a blockbuster. 
  •  Opportunities in growing diabetes market. 
  • Successful M&A to gain strategic advantage

Key Risks

  • Aggressive competition by other established players putting pressure on margins. 
  •  Strict government regulations and scrutiny. 
  •  IP theft by countries like China. 
  •  Challenging political environments with U.S.-China trade war and Brexit. 
  •  Downturn in U.S. economy given the fact that the company still derives 51% of its revenue from the local market. 
  •  Currency headwinds

Key financial highlights of year2021

  • Revenue of $30.117bn increased +4% over pcp (+2% on an organic basis, which adjusts for the $331m benefit of foreign currency translation, the $15m inorganic benefit of the company’s acquisition of Titan Spine in the Cranial & Spinal Technologies division in the Neuroscience Portfolio, and the $360-390m benefit the company received from an extra week in 1Q21 compared to 1Q20). 
  •  Net earnings were $3.606bn or $2.66 per diluted share (non-GAAP earnings and diluted EPS were $6.005bn and $4.44, respectively, both decreasing -3%, however, adjusting for the negative 22 cent impact from FX, non-GAAP diluted EPS increased +2%). 
  •  Cash flow from operations was $6.240bn, down -13.7% over pcp and FCF was $4.885bn, down – 18.9% over pcp and representing FCF conversion from non-GAAP net earnings of 81%. 
  •  The Company ended the year with a cash position ~$10.8bn.

Management’s FY22 outlook

  • Organic revenue growth acceleration to +9% with FX having a positive impact of $400-500m (1Q22 organic growth of 17-18%, and a currency tailwind of $200-250m at recent rates). 
  • Cardiovascular and Neuroscience to grow 10-11%, Medical Surgical to grow 6-7%, and Diabetes to grow 3-4%, all on an organic basis (1Q21 Cardiovascular to grow 14-15%, Medical Surgical to grow 18-19%, Neuroscience to grow 25-26%, and Diabetes to be flat). 
  •  Non-GAAP diluted EPS in the range of $5.60-5.75, including a benefit of 10-15 cents from currency at recent rates (1Q21 EPS of $1.31-1.34, including a currency tailwind of 3 cents at recent rates).

Company Profile:

Medtronic Plc (MDT) is a medical technology, services and solutions company operating in four segments: Cardiac and Vascular Group, Minimally Invasive Therapies Group, Restorative Therapies Group and Diabetes Group. The Cardiac and Vascular Group segment includes cardiac rhythm and heart failure, coronary and structural heart, and aortic and peripheral vascular; Minimally Invasive Therapies Group segment includes surgical solutions, and patient monitoring and recovery; Restorative Therapies Group segment includes spine, neuromodulation, surgical technologies and neurovascular and the Diabetes Group segment includes intensive insulin management, non-intensive diabetes therapies, and diabetes services and solutions.

(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

Johnson Matthey PLC diversified global stock with good financial health

Business Strategy and Outlook

Johnson Matthey is a U.K.-based specialty chemical company with unique expertise in catalysts, chemicals, and manufactured products derived from platinum group metals, or PGMs. Sales are fairly concentrated in developed markets, particularly Europe and North America. China, growing fast, now accounts for 15% of sales. Roughly 60% of sales are targeted at the automobile sector. 

The clean air segment is the company’s largest (51% of EBIT) and is the foundation of narrow moat rating. The segment, a global leader in a highly concentrated market, manufactures auto catalysts for cars and heavy-duty trucks that reduce emissions and improve air quality. Success is primarily dependent on increasingly stringent environmental legislation, which allows the company to develop novel solutions that can be sold at premium prices. While the advent of electric vehicles will ultimately cause auto catalysts to move into secular decline, it is still seen to have more than a decade of high returns for the business.

Other core segments include efficient natural resources and health, which contribute 44% and 5% of EBIT, respectively. Efficient natural resources manufacture industrial catalysts for the chemical and oil and gas sectors, licenses technology for chemical processing, and includes the precious metals refining and manufacturing business. EBIT should fall in the next few years as high PGM prices normalize, but the overall outlook for the segment remains solid. The health segment is a global leader in manufacturing active pharmaceutical ingredients, or APIs, for controlled substances like opiates and amphetamines. Growth will depend on success of the pipeline of new APIs, which is still a few years away. 

The company also offers fuel cells, technology for blue hydrogen production, and components for green hydrogen plants

Financial Strength

Johnson Matthey is in good financial health. The model-driven credit risk assessment is moderate. The company targets a net debt (including post-tax pension deficits) to EBITDA ratio of 1.5-2 times. As of September 2020, the ratio stood at 1.6 times. The company’s debt maturity profile is balanced, with a good portion of borrowings having maturity dates more than five years and no major refinancing due in 2020 or 2021.

Bulls Say’s

  • The pipeline of increasing global environmental legislation targeting vehicle emissions remains full for the foreseeable future. 
  • Johnson Matthey’s expertise in hydrogen and fuel cells should enable the company to be a meaningful player when these markets develop. 
  • Johnson Matthey is positioned to benefit from current megatrends such as increasing environmental concerns and rising wealth in emerging markets.

Company Profile 

Based in the U.K., Johnson Matthey is a global leader in production of emissions catalysts for automobiles and trucks. The company also manufactures industrial catalysts for the chemicals and oil and gas sectors, and a variety of other industrial products derived from platinum-group metals.

(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

Deere’s Prospects for Fiscal 2022 Look Bright to Us, Given Strong End Market Demand

Business Strategy and Outlook

Deere’s strong brand is underpinned by its high-quality, extremely durable, and efficient products. Customers in developed markets also value Deere’s ability to reduce the total cost of ownership. The company’s strategy focuses on delivering a comprehensive solution for farmers. Deere’s innovative products target each phase of the farming process, which includes field preparation, planting and seeding, applying chemicals, and harvesting. The company also embeds technology in its products, from guidance systems to seed placement and spacing and customized spraying applications. Deere is committed to expanding customer offerings and providing value-added services. Additionally, we believe the management team will look to reduce the company’s cost structure as some markets have matured, providing an opportunity to rethink its footprint and create a leaner organization.

Financial Strength 

Deere maintains a sound balance sheet. On the industrial side, the net debt/adjusted EBITDA ratio was relatively low at the end of fiscal 2021, coming in at 0.4. Total outstanding debt, including both short- and long-term debt, was $10.4 billion. Deere’s strong balance sheet gives management the financial flexibility to run a balanced capital allocation strategy going forward that mostly favors organic growth and also returns cash to shareholders. The company’s cash position as of fiscal year-end 2021 stood at $7.2 billion on its industrial balance sheet. We also find comfort in Deere’s ability to tap into available lines of credit to meet any short-term needs. Deere has access to $5.7 billion in credit facilities.

Additionally, management is determined to rationalize its footprint by reducing the number of facilities in mature markets. If successful, this will put Deere on much better footing from a cost perspective, further supporting its ability to return cash to shareholders. The captive finance arm holds considerably more debt than the industrial business, but this is reasonable, given its status as a lender to both customers and dealers. Total debt stood at $38 billion in fiscal 2021, along with $38 billion in finance receivables and $829 million in cash. In our view, Deere enjoys a strong financial position supported by a clean balance sheet and strong free cash flow prospects.

Bulls Say’s

  • Higher crop prices encourage farmers to grow more crops and will lead to more farming equipment purchases, substantially boosting Deere’s revenue growth. 
  • Deere will benefit from strong replacement demand, as uncertainty around trade, weather, and agriculture commodity demand has eased, encouraging farmers to refresh their machine fleet. 
  • Increased infrastructure spending in the U.S. and emerging markets will lead to more construction equipment purchases, benefiting Deere.

Company Profile 

Deere is the world’s leading manufacturer of agricultural equipment, producing some of the most recognizable machines in the heavy machinery industry. The company is divided into four reportable segments: production and precision agriculture, small agriculture and turf, construction and forestry, and John Deere Capital. Its products are available through a robust dealer network, which includes over 1,900 dealer locations in North America and approximately 3,700 locations globally. John Deere Capital provides retail financing for machinery to its customers, in addition to wholesale financing for dealers, which increases the likelihood of Deere product sales.

(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 Markets Global stocks

Fisher & Paykel reported strong FY21 earnings with operating revenue up by 56% and NPAT up by 82%

Investment Thesis:

  • Global leader in invasive and non-invasive inhalation, nasal high flow therapy and during surgery. 
  • Strong global market position in a significantly under-penetrated treatment of sleep apnea market and chronic obstructive pulmonary disease. 
  • Increasing uptake of Nasal high-flow (NHF) therapy and consumables growth on the back of this. 
  • High barriers to entry in establishing global distribution channels. 
  • Strong R&D program ensuring FPH remains ahead of competitors. 
  • New product releases 
  • Bolt-on acquisitions to supplement organic growth.

Key Risks:

  • Consolidation / normalization of sales post the COVID-19 driven demand. 
  • Disruptive technology leading to better patient compliance. 
  • Product recall leading to reputational damage. 
  • Competitive threats leading to market share loss. 
  • Disappointing growth (company and industry specific). 
  • Adverse currency movements. 
  • FPH needs to grow to maintain its high PE trading multiple. Therefore, any impact on growth may put pressure on FPH’s valuation.

Key highlights:

  • Fisher & Paykel Healthcare Corp (FPH) reported very strong FY21 results, with operating revenue of $1.97bn up+56% (or +61% in constant currency (CC)) and earnings (NPAT) of $524m up +82% (or+94% in CC) over the previous corresponding period (pcp).
  • FPH saw an increase of +49% (constant currency) in revenue for new applications consumables; i.e. products used in non-invasive ventilation, Optiflow nasal high flow therapy and surgical applications, accounting for 66% of Hospital consumables revenue.
  • The Board declared a final dividend to 22.0cps up +42% on pcp. Total dividend for FY21 of 38.0cps was up +38%. 
  • Balance sheet remains strong with FY21 net cash of $303m, up from $42m in FY20.
  • COVID-19 has aggressively accelerated FPH’s global devices installed base and changing clinical practices. FPH achieved +337% growth in hospital hardware in FY21 vs pcp.

Company Description: 

Fisher & Paykel Healthcare (FPH) is a designer, manufacturer and marketer of products for use in respiratory care, acute care, surgery and treatment of obstructive sleep apnea. The Company sells its products in over 120 countries. FPH’s products are used in the treatment of more than 12 million patients. In the hospital setting, FPH products are used in invasive inhalation, non-invasive inhalation, nasal high flow therapy, and during surgery. In long-term care facilities and home settings, FPH technologies assist in the treatment of obstructive sleep apnea (OSA) and chronic obstructive pulmonary disease (COPD), and other chronic respiratory conditions.

(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

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.