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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Strong unit economics and digital platforms position Chipotle well in restaurant space

or LTV, through its loyalty program, and serving sustainably sourced, healthier fare than quick service restaurant, or QSR, peers. The company has carved out an enduring niche in the U.S. restaurant landscape, with competitive menu prices, extreme convenience, and “food with integrity” allowing the firm to lure away customers from both upscale fast-casual and traditional fast-food competitors. 

The burrito chain’s unit development narrative remains compelling, with strong returns on investment driving our high-single-digit unit growth estimates. New format stores (Chipotlanes, digital-only concepts) offer attractive upside, yielding access to heretofore inaccessible or uneconomic trade areas like office buildings, college campuses, and freestanding suburban concepts, leaving us encouraged as Chipotle diligently links appropriate store footprints to various trade areas.

Financial Strength:

Chipotle’s financial strength is sound, with the firm maintaining $1 billion in cash, investments, and cash equivalents at the end of third-quarter 2021, access to a $500 million credit facility, and no long-term debt obligations. The company’s only meaningful fixed charges come in the form of operating leases. Given the company’s growth profile, management has indicated a preference for internally funding expansion (with the intention of maintaining financial flexibility) and has channelled some $1.5 billion into capital expenditure over the last five years, matching $1.5 billion in capital returns through share repurchases over the same time frame.

Bulls Say:

  • Accelerated digital adoption during the pandemic supercharged Chipotle’s loyalty program, which should drive increased order frequency and reduce customer churn. 
  • New format stores (Chipotlanes and digital-only pickup concepts) should position the brand to better compete with quick-service competitors, while opening up new trade areas. 
  • The success of recent menu innovations (quesadillas, queso blanco, cauliflower rice) validates Chipotle’s stage-gate innovation process and could drive daypart expansion.

Company Profile:

Chipotle Mexican Grill is the largest fast-casual chain restaurant in the United States, with systemwide sales of $7.2 billion over the last twelve months. The Mexican concept is entirely company-owned, with a footprint of nearly 2,900 stores at the end of the third quarter of 2021 heavily indexed to the United States, though the firm maintains a small presence in Canada, the U.K., France, and Germany. Chipotle sells burritos, burrito bowls, tacos, quesadillas, and beverages, with a selling proposition built around competitive prices, high-quality food sourcing, speed of service, and convenience. The company generates its revenue entirely from restaurant sales and delivery fees.

(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

L’Oreal third-quarter sales increasing fair value estimate to Euro$ 233 from Euro$225

Across the globe, per capita consumption of beauty products is on the rise, driven by a steady gain in the purchasing power of the middle class, particularly in emerging markets where L’Oréal sourced 48% of 2020 revenue. Consumers in Eastern Europe and Latin America spend one third of the level that developed market consumers spend on beauty, while consumers in Asia and the Middle East spend only 20%. One trait of L’Oréal that sets it apart from its peers is its wide-reaching, well-balanced portfolio across mass, prestige, salon, and medical/dermatological channels. 

The firm is adept at pivoting resources to the best opportunities, helping stabilize sales. During the pandemic, L’Oréal allocated resources to the most resilient channels (e-commerce, dermatological), categories (skincare) and geographies (China), allowing it to greatly outperform the market. In 2020, L’Oréal’s like-for-like sales contracted just 4% despite the widespread closure of stores and salons, half that of the 8% drop of the global beauty market. This diversification has also served it well in recessionary climates. Heading into the great recession of 2008 and 2009, L’Oréal was reporting high-single-digit revenue growth. In 2008 and 2009, revenue decelerated to 2.8% and negative 0.4%, respectively, before rebounding to 11.6% in 2010.

Financial Strength

After digesting L’Oreal’s third-quarter sales, increasing fair value estimate to EUR 233 from EUR 225 to account for material outperformance in the professional and active cosmetics segments. After a 4% drop in like-for-like sales in 2020, as salons and most retailers were closed for a portion of the year because of the pandemic, organic revenue will rebound 14% in 2021, then normalize at a mid-single-digit pace thereafter. L’Oréal traditionally carries a very low level of debt, generally less than cash on hand. The business generates a significant amount of cash, and as such, internally generated cash flow has been sufficient to fund the business’ needs. 

Over the past three years, free cash flow (cash flow from operations less capital expenditures) as a percentage of sales averaged 17%, comparable to our 16% average annual expectation over the next five years. The company prides itself on its long history of annual dividend increases, which will persist with the exception of 2020 due to the pandemic, with our model calling for high-single-digit increases in annual dividends in 2021 and thereafter, maintaining a 50% payout ratio throughout the course of our 10-year explicit forecast. The firm to spend 4.5% of sales on capital expenditures each year, generally in line with the historical average.

Bulls Say’s

  • With 48% of revenue sourced from emerging markets, L’Oréal is ideally positioned to benefit from growth of the expanding middle class.
  • L’Oréal is the only beauty company with exposure across mass, prestige, professional, and medi-spa, and the firm’s leading positions in these channels make L’Oréal a valued partner for retailers.
  • L’Oréal has a strong management team with an excellent track record for competently executing the firm’s strategy, which has led to its defensible competitive edge, stability of earnings given diverse market exposure, and consistent ROICs above WACC.

Company Profile 

L’Oréal, founded in 1909 by Eugene Schueller when he developed the first harmless hair colorant, is the world’s largest beauty company. It participates primarily in skincare (39% of 2020 revenue), makeup (21%), haircare (26%), and fragrance (9%). L’Oréal is a global firm, with 27% of its revenue sourced from Western Europe, 25% from North America, and 48% from emerging markets (35% Asia-Pacific, 5% Latin America, 6% Eastern Europe, and 2% Africa/Middle East). The firm sells its products in many channels, including mass retail, drugstores/pharmacies, department stores/perfumeries, hair salons, medi-spas, branded freestanding stores, travel retail, and e-commerce. The firm’s top selling brands are Lancôme, Yves Saint Laurent, Maybelline, Kiehl’s, L’Oréal Paris, Garnier, and Armani.

(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

Southwest targeting higher-yielding business travellers to continue growing

Southwest’s customer-friendly tactics benefit the firm by providing the closest thing to a brand asset in the airline industry, and the fact that over 85% of Southwest’s sales are through its own distribution channel, where prices among carriers are difficult to compare- other carriers have a higher reliance on third-party distributors to earn customers.

Southwest is targeting higher-yielding business travellers to continue growing. The pandemic has severely limited business travel, and the cyclical decline in business travel is expected to be longer-lasting. While we expect a structural lack of transoceanic routes and premium options to limit Southwest’s ability to attract the highest-yielding business travellers, we think Southwest’s focus on providing low fares and its relatively new global distribution system, which enables bulk purchases of reservations, ought to allow it to take business travel share while business travellers are looking to cut costs.

Financial Strength:

Southwest has the best balance sheet of all the U.S.-based carriers. As the pandemic has wreaked havoc on air travel demand and airlines’ business model, liquidity became more paramount in 2020 than it had been in previous years. The primary risks to airline investors are increased leverage and equity dilution as airlines look to bolster solvency while demand is depressed. The best-positioned airlines are firms like Southwest, which came into this crisis with relatively little debt and an efficient cost base. Southwest came into the crisis much more conservatively capitalized than peers, with a gross debt/EBITDA of less than 1 turn from 2014 to 2019. Southwest ended 2020 with about $10 billion of debt and negative EBITDA. Given Southwest’s lower-than-peers debt yields and a $12 billion base of unencumbered assets, capital markets would remain comfortable with Southwest and would allow the company to raise additional capital if the crisis gets materially worse.

Bulls Say:

  • Southwest operates a leisure-focused low-cost carrier, which is well-positioned for a leisure-led post pandemic recovery in aviation. 
  • Southwest has generally been able to achieve low-cost carrier unit expenses and passenger yields close to legacy carrier levels. 
  • Southwest’s focus on providing low fares could allow it to make inroads with business travel in the current recessionary environment.

Company Profile:

Southwest Airlines is the largest domestic carrier in the United States, as measured by the number of originating passengers boarded. Southwest operates over 700 aircraft in an all-Boeing 737 fleet. Despite expanding into longer routes and business travel, the airline still specializes in short-haul leisure flights, using a point-to-point network. Southwest operates a low-cost carrier business model.

(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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Supply Chain Disruptions Pressure Graco’s Margins

The company differentiates itself by manufacturing specialized products that handle difficult-to-move liquids, often used for niche applications where competition is limited. 

 Graco’s relentless cost control and commitment to lean manufacturing allow it to leverage shared components across different product lines to operate its plants efficiently and lower the overall cost of its products. The high-mix, low-volume nature of the business and the relatively small size of many niche end markets act as a barrier to entry, as rivals would struggle to establish the scale needed to challenge Graco’s competitive position.

While Graco is a high-quality business protected by a wide economic moat, the main challenge is generating growth, as the firm mostly competes in mature end markets growing at low-single-digit rates. Historically, Graco’s organic growth rate has outpaced GDP growth because of its commitment to research and development, which has allowed the company to generate additional sales by developing new products, penetrating adjacent markets, and capturing market share from competitors. 

We think that Graco can continue to increase sales 100-200 basis points faster than GDP growth thanks to its strategic initiatives, and we project mid-single-digit average organic sales growth over the next five years.

Demand Remains Strong but Supply Chain Issues Pressure Graco’s Third-Quarter Margins

Margins were adversely affected by supply chain interruptions and cost inflation, especially in the contractor segment. 

Graco’s third-quarter sales were up 9% year over year. While demand remains robust, supply chain constraints persist and continue to pressure margins for the remainder of the year. Graco’s third-quarter gross margins compressed 110 basis points year over year due to higher product costs, including material, labor, and freight. Graco implements price increases on an annual basis, so cost inflation will likely remain a headwind in the fourth quarter. However, Graco, affords the firm strong pricing power because of customer switching costs and intangible assets .

Financial Strength

Graco maintains a healthy balance sheet. The company ended 2020 with $150 million in long-term debt while holding approximately $379 million in cash and equivalents. Debt maturities are reasonably well laddered over the next few years, with no major payments due in 2021, and we believe the firm is adequately capitalized to meet its debt obligations and maintain its dividend. Management has indicated that it will prioritize organic growth, M&A opportunities, and increasing the dividend while allocating excess capital to opportunistic share repurchases. 

Bulls Say

  • Graco has a large installed base and leading market share across a wide range of niche products.
  • Graco has a healthy level of recurring revenue, generating roughly 40% of its sales from aftermarket parts and accessories, which reduces the volatility of its earnings from cyclical end markets. 
  • The company generates strong free cash flows, averaging around 17% of revenue over the last decade.

Company Profile

Graco manufactures equipment used for managing fluids, coatings, and adhesives, specializing in difficult-to-handle materials. Graco’s business is organized into three segments: industrial, process, and contractor. The Minnesota-based firm serves a wide range of end markets, including industrial, automotive, and construction, and its broad array of products include pumps, valves, meters, sprayers, and equipment used to apply coatings, sealants, and adhesives. The firm generated roughly $1.7 billion in sales and $410 million in operating income in 2020.

(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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Tabcorp’s Wagering Business expected to Recover as Restrictions Ease

Tabcorp’s lotteries are underpinned by long-dated state-based licences throughout Australia (with the exception of Western Australia)- an enormous scale that adds a degree of earnings certainty. Even when Tabcorp’s state-licenced exclusivities end, the scale of the business is such that new entrants will find it extremely hard to compete against Tabcorp’s distribution network and national jackpot pool size. 

With the ubiquity of smartphones, Tabcorp’s previously entrenched physical locations are increasingly competing with online players, where barriers to entry are much lower. Retail outlet exclusivity has little value when punters can place bets with competitors from their phones while in TAB-exclusive venues. Trend towards digitisation has been accelerated by COVID-19 shutdowns, as forced closures and social distancing requirements weighed heavily on Tabcorp’s retail venues and most betting ordinarily made at retail locations has transferred to online platforms.

Financial Strength:

Tabcorp’s balance sheet has strengthened following the AUD 600 million capital raise in August 2020 and improved earnings in fiscal 2021. Fiscal 2021 gearing (gross debt/EBITDA) of 2.4 below the firm’s target levels of 2.5-3.0. Sustainable leverage metrics are displayed especially for a company with still relatively defensive earnings and healthy free cash generation. Such a healthy financial position is necessary ahead of what is likely to be a disruptive future. It is one in which Tabcorp is likely to face increasing competition, facilitated by relentless innovation in online betting services, and potential diminution in the power of its physical retail distribution network. Tabcorp reinstated dividends during fiscal 2021 as earnings recovered. The firm is now targeting a dividend payout ratio of 70%-80% of underlying earnings, from 100% previously.

Bulls Say:

  • Tabcorp’s retail exclusivity and extensive brick-andmortar distribution presence places the company in a strong position to migrate its large wagering customer base to an omnichannel environment. 
  • Long-life wagering, lotteries, and keno licences furnish Tabcorp with a stable earnings and cash flow profile, underpinning a relatively high dividend payout ratio. 
  • The scale of the lotteries business is such that new entrants will find it extremely hard to compete against Tabcorp’s distribution network and national jackpot pool size.

Company Profile:

Tabcorp operates through principally three segments: wagering and media, lotteries and keno, and gaming services. The firm conducts wagering activities under the TAB brand both online and physically in every Australian state and territory other than Western Australia, reaching 90% of the population through a network of retail venues. Tabcorp also operates regulated lotteries in every Australian state except Western Australia. In addition, Tabcorp Gaming Solutions provides services to electronic gaming machine venues.

(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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Carnival’s planning for ship deployments drives improved visibility on return to breakeven profits

The global cruise market has historically been underpenetrated, offering long-term demand opportunity. Additionally, in recent years, the repositioning and deployment of ships to faster-growing and under-represented regions like Asia-Pacific had helped balance the supply in high-capacity regions like the Caribbean and Mediterranean, aiding pricing tactics. 

However, global travel has waned as a result of COVID-19, which has the potential to spark longer-term secular shifts in consumer behavior, challenging the economic performance of Carnival over an extended horizon. As consumers slowly resume cruising after a year-plus no-sail halt, cruise operators will have to continue to reassure passengers of both the safety and value propositions of cruising. On the yield side, Carnival is expected to see some pricing pressure as future cruise credits are redeemed in the year ahead, a headwind partially mitigated by a measured return of capacity. And on the cost side, higher spend to implement tighter cleanliness and health protocols could initially inflate spending. Aggravating profits will be the fact that the entire fleet will likely have staggered reintroductions, crimping profitability over the 2021-22 time frame, ceding scale benefits. For reference, as COVID-19 continues to wane, 61% of capacity (50 ships) is expected to be deployed by November.

Financial Strength:

The fair value of Carnival is USD 26.50 which has been raised by the analysts from USD 25 with a view that more than half the fleet (50 ships, 61% capacity) is expected to be deployed by the end of fiscal 2021, giving the better visibility on the return to profitability.

Carnival has secured adequate liquidity to survive a slow resumption of domestic cruising, with $7.8 billion in cash and investments at the end of August 2021. This should cover the company’s cash burn rate over the ramp-up, which is set to increase from the roughly $500 million per month experienced in the first half of 2021 as ship start-up costs arise. Carnival has raised $5.9 billion in debt, $1 billion in equity, and has repriced its $2.8 billion term loan (2025), bolstering financial flexibility. Additionally, Carnival eliminated its dividend ($1.4 billion in 2019), freeing up cash to support operating expense. An additional $3 billion in current customer deposits were on the balance sheet. The company has renegotiated much of its debt, with less than $4.5 billion in short term and current maturities of long term debt coming due over the next year versus $30 billion in total debt.

Bulls Say:

  • As Carnival deploys its fleet, passenger counts and yields could rise at a faster pace than we currently anticipate if capacity limitations are repealed. 
  • A more efficient fleet composition (after pruning 19 ships during COVID-19) may help contain fuel spending, benefiting the cost structure to a greater degree than initially expected, once sailings fully resume. 
  • The nascent Asia-Pacific market should remain promising post-COVID-19, as the four largest operators had capacity for nearly 4 million passengers in 2020, which provides an opportunity for long-term growth with a new consumer.

Company Profile:

Carnival is the largest global cruise company, set to deploy 50 ships on the seas by the end of fiscal 2021 as the COVID-19 pandemic wanes. Its portfolio of brands includes Carnival Cruise Lines, Holland America, Princess Cruises, and Seabourn in North America; P&O Cruises and Cunard Line in the United Kingdom; Aida in Germany; Costa Cruises in Southern Europe; and P&O Cruises in Australia. Carnival also owns Holland America Princess Alaska Tours in Alaska and the Canadian Yukon. Carnival’s brands attracted about 13 million guests in 2019, prior to COVID-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.

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Citigroup awaiting recovery in Credit Card balances as internal investment spending continues

international corporate banking, and card operations. It’s truly global presence differentiates the bank from all of its U.S.-based peers. With significant revenue coming from Latin America and Asia, the bank is poised to ride the growth of these economies through the coming decade. Because of its wide geographical footprint, Citigroup should remain a bank of choice for global corporations, due to its ability to provide a variety of services across borders. Developing economies should offer an attractive combination of high margins and rapid credit growth over time, especially in comparison with the low rates and declining leverage that is expected to persist in the United States and other Western economies.

On the downside, it’s still difficult to see how some of Citigroup’s lines of businesses fit together. There isn’t any material value creation seen by having multiple retail franchises in different countries, which is the case for Citi, with material operations in the U.S., Latin America, and Asia. Unsurprisingly, the bank’s global consumer franchise has underperformed peers. Citigroup also arguably remains the most complex of the Big Four and still has operational issues to solve, which the Revlon payment fiasco and resultant regulatory scrutiny highlighted once again. Overall, the bank continues to be on a path to improved returns and efficiencies.

Financial Strength:

The fair value estimate has been increased by the analysts from $78 to $83 as it incorporates a 100% chance of a statutory tax rate of 26% and also the rate hikes starting in late 2022.

Citigroup is in sound financial health. Its common equity Tier 1 ratio stood at 11.7% as of September 2021. As of the end of 2020, the bank reports that $545 billion of its roughly $2 trillion balance sheet takes the form of high-quality liquid assets, giving it a liquidity coverage ratio of 118%, in excess of the minimum of 100%. The bank’s supplementary leverage ratio was 5.9% (excluding relief), in excess of the minimum of 5%. Citigroup’s liabilities are prudently diversified, with just over half of its assets funded by deposits and the remainder of liabilities made up of long-term debt, repurchase agreements, commercial paper, and trading liabilities. Just over $19 billion in preferred stock was outstanding as of December 2020.

Bulls Say:

  • Citigroup is leveraged to the rise of Asia, Latin America, and other emerging markets, while its competitors may struggle with lacklustre loan demand in the U.S. and Western Europe. 
  • A strong economy, higher inflation, and potentially higher rates are all positives for the banking sector and should propel results even higher. 
  • Citigroup still has room for self-help, particularly around better optimizing current operations, and room to release excess capital, both levers to improve returns.

Company Profile:

Citigroup is a global financial services company doing business in more than 100 countries and jurisdictions. Citigroup’s operations are organized into two primary segments: the global consumer banking segment, which provides basic branch banking around the world, and the institutional clients group, which provides large customers around the globe with investment banking, cash management, and other products and services.

(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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Sensient Is Well Positioned to Meet Growing Demand for Natural Ingredients

Sensient has been focused on optimizing its portfolio, divesting less profitable, commodity-like business lines primarily in the flavors and extracts segment.Longer term, we expect consumer preferences will continue to shift toward natural flavors and colors and away from synthetic ingredients. However, with a growing natural ingredient portfolio, we think the company is well positioned for the transition. 

Although Sensient serves both large and small customers, it primarily targets middle-market customers rather than large consumer packaged goods customers. The company’s most valuable business relationships involve the manufacture of customized formulations from proprietary technologies that allow Sensient to be a sole supplier. 

Sensient reports three segments. The color segment is the largest .This business produces natural and synthetic color systems for a variety of end markets, including food, beverage, cosmetics, and pharmaceutical applications. The flavors and extracts segment (a little more than 40% of profits) sells both natural and synthetic taste and texture ingredients. 

Financial Strength 

Sensient is in very good financial condition. At the end of the third quarter of 2021, net debt/adjusted EBITDA was around 2 times. Sensient has historically remained safely below the leverage ratio and above the coverage ratio.We forecast the company will continue to generate healthy free cash flow, which it has consistently done over the last decade. Sensient should have no problem servicing existing debt. The company has only a small pension liability and no other major liabilities that will require material cash outflows in the coming years. Sensient has historically maintained a low cash balance, preferring to return excess cash to shareholders via dividends (management targets a 30%-40% payout ratio) or share repurchases.

Bull Says

  • Sensient’s restructuring program will lead to materially higher margins and ROICs as low-margin facilities are closed. 
  • The demand shift to natural colors from synthetic colors should drive higher volume for Sensient, boosting profits. 
  • Management’s 20% long-term operating margin goal is achievable as specialty colors and flavors will generate an increasing proportion of total sales, driving a mix shift-based margin expansion.

Company Profile

Sensient Technologies manufactures and markets natural and synthetic colors, flavors, and flavor extracts. The company has a widespread network of facilities around the globe, and its customers operate across a variety of end markets. Sensient’s offerings are predominantly applied to consumer-facing products, including food and beverage, cosmetics and pharmaceuticals.

 (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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Lufthansa’s Fair Value Estimate Lowered to EUR 8.15 to Account for Rights Issue

As a result of the coronavirus downturn the group is embarking on a cost and fleet restructuring program, which will see it emerge as a smaller business. In 2020, the group received a government-backed support package totaling EUR 9 billion, which included an equity stake of 20% by the German government for EUR 306 million. 

As part of the approval process the European Commission required the group to surrender 26 slots at its Frankfurt and Munich hubs to new competitors. Despite the recent EUR 2.1 billion rights issue, the group remains highly indebted, which may require additional capital restructuring if cash flows don’t recover to suitable levels to de-leverage organically. Due to the group’s indebtedness and highly uncertain timing of a recovery in cash flows, there is still a wide range of possible outcomes for the group’s equity value.

Financial Strength

Lufthansa is in a weak financial position due to its high levels of indebtedness. The coronavirus pandemic dealt a heavy blow to the aviation industry, resulting in record losses, cash outflows, and growing debt levels. To bolster liquidity, the group agreed to a EUR 9 billion government support package, which included the German state taking a 20% ownership in the group. Net debt, including pension provisions of EUR 7.6 billion, at the end of June 2021 equated to EUR 18 billion. The group has since raised EUR 2.1 billion in equity capital through a rights issue concluded in October 2021, the proceeds of which will be used to repay state aid. The group’s pro-forma net debt and liquidity position after the capital increase is expected to be EUR 16 billion and EUR 7.7 billion, respectively. Despite the capital raise, we believe the group remains highly geared, with a net debt to pre-pandemic EBITDA ratio of 3.5 times, and it will require multiple years of deleveraging to restore the balance sheet to sustainable levels.

Bulls Say’s

  • COVID-19 presents the group with a unique opportunity to structurally lower its cost base and emerge from the crisis with better profitability.
  • The airline has dominant positions at the key European hubs of Frankfurt and Munich, which could be an early beneficiary of a recovery in air travel.
  • Fleet reduction through the retirement of older and less efficient aircraft could lead to a more rational fleet with higher load factors and unit revenue.

Company Profile 

Deutsche Lufthansa is a European airline group. The company operates under the Lufthansa, Swiss Air, Austrian Airlines and Eurowings brands. In 2019, the company carried 145 million passengers to its network of 318 destinations globally. The group’s main airport hubs are Frankfurt, Munich, Vienna and Zurich. The company generated sales of EUR 36.4 billion in 2019.

(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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Nexstar Media Group looks to capitalize on its acquisition

158 are affiliated with the four national broadcasters: CBS (50), Fox (43), NBC (35), and ABC (30). The firm has networks in 15 of the top 20 television markets and reaches 63% of U.S. TV households. 

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 non-political advertising, down from 46% in 2017. 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. In markets where Nexstar has a duopoly (two local stations), the costs of the salesforce and news programming can be split and the access to two stations provides local (and national) advertisers more choices in terms of targeting certain demographic groups. 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.

Financial Strength:

The fair value of Nexstar has been maintained by the analysts at USD 150.00. This fair value estimate implies 2021 adjusted price/earnings of 9 times, an enterprise value/adjusted EBITDA multiple of 8, and a free cash flow yield of 16%. 

Although 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 $7.2 billion in net debt as of March 2019, up sharply from $3.9 billion at the end of 2018. Nexstar took a number of steps over the first quarter of 2020 to adapt its business for the potential impact of COVID-19. It spent $457 million in the first quarter to reduce its debt load, lowering its first-lien net leverage to 3.04 times 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. The firm had no bond maturities due until 2024, though some of its $5.4 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.