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.

Categories
Global stocks Shares

Capri’s Faces COVID-19 Disruptions and Intense Competition While Working on its brands

Powered by store openings and retail expansion in the 2010-15 period, Michael Kors became one of the largest American handbag producers in sales and units. However, over the past five years, growth has stalled due to markdowns of bags at third-party retail and declining sales at company-owned stores. While Capri has reduced distribution to limit discounting of Michael Kors bags, competition in the American handbag market is fierce and growth is limited. Moreover, the company is in the process of closing more than 100 Michael Kors stores.

Capri spent a steep $3.4 billion to purchase Jimmy Choo and Versace to boost its status as a luxury house and reduce its dependence on Michael Kors. However, we do not think these deals have changed Capri’s no-moat status as the acquired brands have more fashion risk, less profitability, and narrower appeal than Michael Kors. Capri is investing in store remodels, store openings, and expanding the set of accessories for both Jimmy Choo and Versace, but we don’t think these efforts will yield the intended gains, particularly given the severe interruption we expect from COVID-19. 

We believe Michael Kors lacks the brand strength (and ultimately pricing power) to provide an economic moat for Capri, rating poorly on the criteria that Morningstar uses to evaluate luxury brands, in contrast to others such as narrow-moat Tapestry’s Coach.

Financial Strength

Capri has debt, but it is very manageable. At the end of June 2021, it had total shortand long-term debt of $1.3 billion, but it also had more than $350 million in cash. Capri, though, has $1.3 billion in available borrowing capacity it amended its revolving and term loan credit agreement.Thus, Capri has no significant debt maturities prior to 2023. Capri has also recently modified its debt covenants, allowing a maximum leverage ratio of 3.75 times. Its debt/adjusted EBITDA was 2.3 times at the end of fiscal 2021, and we forecast this will decline to 1.2 times at the end of fiscal 2022. The firm averaged more than $500 million in annual buybacks in fiscal 2015-20. We now forecast its share repurchases at an annual average of about $630 million over the next decade. However, Capri does not pay dividends. We forecast its fiscal 2021 capital expenditures will rise to $205 million (3.9% of sales) from just $111 million (2.7% of sales) last year. Long term, we forecast Capri’s annual capital expenditures as a percentage of sales at 4.3% as management works to improve the performance at Jimmy Choo and Versace.

Bulls Say

  • Michael Kors is one of the largest brands in terms of units and sales in the high-margin handbag market, and we think this positioning should aid its prospects as it looks to grow in complementary categories like footwear.
  • Michael Kors has reduced its dependence on wholesale customers, which we view favorably as increased direct-to-consumer sales allow for better pricing and control over marketing.
  • The acquisitions of Jimmy Choo and Versace afford diversification opportunities by bringing two luxury brands that maintain products with high price points into the fold.

Company Profile

Michael Kors, Versace, and Jimmy Choo are the brands that comprise Capri Holdings. Capri markets, distributes, and retails upscale accessories and apparel. Michael Kors, Capri’s largest and original brand, offers handbags, footwear, and apparel through more than 800 company-owned stores, third-party retailers, and e-commerce. Milan-based Versace (acquired in 2018) is known for its ready-to-wear luxury fashion. Jimmy Choo (acquired in 2017) is best known for women’s luxury footwear. John Idol has served as CEO since he was part of a group that acquired Michael Kors in 2003.

 (Source: Morningstar)

General Advice Warning

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

Categories
Global stocks Shares

BioNTech’s COVID-19 Vaccine Success Could Help It Build a Moat on mRNA Technology

The emerging biotech’s first commercial vaccine, for COVID-19, received its first authorization in December 2020, and its early-stage pipeline and mRNA technology platforms have caught the eye of several large pharmaceutical companies, resulting in collaborations and partnerships.

Further, the company has a burgeoning vaccine pipeline for infectious diseases. In partnership with the Bill & Melinda Gates Foundation, BioNTech is developing vaccines for HIV and tuberculosis, and the company’s COVID-19 program in partnership with Pfizer and Fosun Pharma was built off an existing partnership with Pfizer for an influenza vaccine. The COVID-19 vaccine, Comirnaty (BNT162b2), quickly progressed through human trials, culminating in authorization in the United States and Europe in December 2020. 

Company’s Future Outlook

We think the vaccine’s excellent efficacy, strong supply, and early leadership on the market all support $35 billion in Comirnaty sales in 2021 and $43 billion in 2022 (BioNTech books half of Pfizer’s gross profits, profit share from other smaller partners, and direct sales in Germany and Turkey). However, the long-term market for coronavirus vaccines is uncertain, and even if there is demand for continued vaccination in the long run, we expect the market to be competitive.

BioNTech’s COVID-19 Vaccine Success Could Help It Build a Moat on mRNA Technology

We believe BioNTech has a positive moat trend due to strengthening intangible assets in its pipeline. Over the next five years, we expect several data readouts, assets progressing through trials, and even the company’s first potential approval. Further, testing new combinations of treatments, which tends to improve efficacy in cancer treatment, will also strengthen the competitive position of BioNTech’s platforms. 

The positive results and subsequent authorization of BNT162b2, BioNTech’s vaccine against SARS-CoV-2, support our positive moat trend rating. While the long-term profit outlook for BNT162b2 remains uncertain, we believe its success demonstrates the potential of the company’s mRNA vaccine platform.

Financial Strength 

BioNTech has historically burned through cash to fund research and development of its pipeline. The company has minimal debt on its balance sheet, as it has funded discovery and development with equity issues,collaboration payments from partnerships with large pharmaceutical firms as well as a large inflow of cash from Comirnaty gross profits in 2021 and 2022 and believe this will continue for long term basis.Outside of BioNTech’s COVID-19 vaccine candidates, we think the earliest approval could arrive in 2023, which would put the company on a path toward steady profitability. Management has taken advantage of a couple of opportunities to acquire early-stage assets and expand its geographic footprint to establish a U.S. research hub at low prices. We expect the near-term focus for capital allocation to remain on its pipeline of vaccines and other therapies.

Bull Says

  • BioNTech’s pipeline, which relies on expertise in mRNA and bioinformatics, will be difficult to replicate by competitors. 
  • BioNTech will be able to command a premium price with its personalized cancer therapies, if successful. 
  • The rapid development of COVID-19 vaccine Comirnaty bodes well for the rest of BioNTech’s pipeline and the future of its mRNA research platform.

Company Profile

BioNTech is a Germany-based biotechnology company that focuses on developing cancer therapeutics, including individualized immunotherapy, as well as vaccines for infectious diseases, including COVID-19. The company’s oncology pipeline contains several classes of drugs, including mRNA-based drugs to encode antigens, neoantigens, cytokines, and antibodies; cell therapies; bispecific antibodies; and small-molecule immunomodulators. BioNTech is partnered with several large pharmaceutical companies, including Roche, Eli Lilly, Pfizer, Sanofi, and Genmab. Comirnaty (COVID-19 vaccine) is its first commercialized product.

 (Source: Morningstar)

General Advice Warning

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

Categories
Global stocks

BMW Attractively Valued Despite Chip Shortage, Coronavirus, and Higher Spending on Electrification

especially in powertrains. BMW continues to outperform the overall car market despite global economic uncertainties from the coronavirus and is one of only a handful of automakers to which we assign an economic moat. As emerging-market consumers become wealthier, many will purchase luxury items for the first time.

BMW has consistently produced vehicles that command superior pricing and generated revenue increases above global vehicle growth rates. From 2004 to 2019, worldwide light-vehicle sales grew at a 2.7% average annualized rate. During the same 15-year period, BMW consolidated revenue and automobile unit volume grew at annual averages of 6.0% and 5.3%, respectively. BMW also has long-term goals to generate automotive segment return on capital employed of equal to or greater than 40% and an automotive segment EBIT margin of 8%-10%.

Financial Strength

BMW enjoys solid financial health with flexible balance sheet. The company has averaged 14.8% industrial EBITDA margins (including China JV equity income and excluding financial services) for the past 15 years, generating solid cash flow and enabling moderate dividend payments to shareholders. With the financial services group accounted for on an equity basis, balance sheet leverage has been overly conservative with an average total debt/total capital ratio of 6.2% during the past 10 years.Also excluding financial services, manufacturing operations’ total adjusted debt/EBITDAR averages a very low 0.6 times.

BMW’s liquidity position as extremely robust, with the manufacturing operations’ cash and marketable securities balance of EUR 9.5 billion and syndicated credit line availability of EUR 8 billion at the end of March 2020. BMW’s credit line expires in July 2024. BMW’s consolidated total debt/total capital ratio, including financial services has averaged 63.2% over the past 10 years.

Bulls Say’s

  • BMW possesses sustainable competitive advantages, given the strength and global recognition of the brands, technological leadership in powertrains, and ability to command premium pricing from consumers that regularly rate its vehicles as some of the best toown, resulting in excess returns.
  • BMW’s presence in global markets reduces reliance on any one regional economy and improves growth prospects as developing markets offset mature regions.
  • The BMW, Mini, and Rolls-Royce brand images command a premium among consumers in all parts of the world.

Company Profile 

In addition to being one of the world’s leading premium light-vehicle manufacturers, BMW Group produces BMW motorcycles and provides financial services. Premium light-vehicle brands include BMW, Mini, and ultraluxury brand Rolls-Royce. Operations include 31 production facilities in 15 countries, with a sales network reaching over 140 countries. In 2020, worldwide sales volume exceeded 2.3 million automobiles and more than 179,000 motorcycles.

General Advice Warning

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

Categories
Global stocks

Crown Resorts net operating cash outflows of $14m

Investment Thesis

  • Broader economic recovery and cashed up consumer.
  • Under normal trading conditions, CWN has quality mature assets, which are highly cash generative and difficult to replicate.
  • New Sydney casino (if allowed to retain the casino license) could offer a significant step change in earnings for CWN.
  • CWN is leveraged to growth in Australian tourism.
  • Corporate activity given the stronghold of a cornerstone investor is slowly eroding.
  • Capital management initiatives – additional special dividends or share buy-backs.

Key Risks

  • Competitive pressures, including international (for VIP play) and domestic competitors.
  • Return of international tourists to Australia ahead of expectations.
  • Credit-rating risk (given our expectation of significant capital expenditure over the next five years).
  • Regulatory risk – several inquiries are being held against various Crown casinos. Adverse outcomes to materially alter the outlook.
  • Capital expenditure fails to deliver adequate returns

FY21 Result Summary

  • Statutory revenue of $1,536.8m declined -31.3%, theoretical EBITDA before closure cand significant items) of $241.7m was down -52% (reported EBITDA of $114.1m down -77.4%) and theoretical NPAT attributable to the parent (before closure costs and significant items) a loss of $84.2m vs $161m profit in pcp (reported NPAT attributable to the parent a loss of $261.6m vs $79.5m profit in pcp).
  • Net significant items expense of $54.6m (net of tax) relating to Crown Sydney pre-opening costs, one-off allowance for expected credit losses, restructuring costs, asset impairments, and underpayments of casino tax by Crown Melbourne, offset by profit on disposal of Crown Sydney apartments which settled during the period.
  • The Board scrapped the final dividend.
  • Net operating cash outflow of $14m (vs net operating cash flow of $326.9m in pcp), reflecting severe impacts on the operations from the Covid-19 pandemic. Capex of $559.1m was down -25% over pcp, primarily relating to the continued construction of Crown Sydney.
  • Total liquidity (excluding working capital cash) was $560.8m comprising $390.1m in available cash and $170.7m in  committed undrawn facilities. Net debt position of $892.9m remained almost flat over pcp (though declined – 28% over 1H21).

Company Profile 

Crown Resorts Ltd (CWN) is Australia’s largest operator of casinos along with hotels and conference centre facilities. In Australia, CWN owns and operates Crown Melbourne Entertainment Complex and Crown Perth Entertainment Complex which services mass market and VIP segments. Overseas, CWN also owns and operates Crown Aspinall’s in London. CWN also has a portfolio of other gaming investments. CWN’s wagering and on-line social gaming operations include Betfair Australasia (a 100% owned, on-line betting exchange) and DGN Games (a 70% owned, on-line social gaming business based in Austin, Texas).

General Advice Warning

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

Categories
Global stocks

Despite Covid-19 disruptions, Virtus FY21 results show turnaround in earnings

Young serious business woman explaining her idea to colleague when they are having meeting and discussing charts and reports

Investment Thesis:

  • Ageing Australian population and increased age of mothers (especially with the trend of more females choosing career over family until their early thirties) will provide favorable demographic tailwinds
  • Potential accretive acquisitions domestically and internationally
  • Domestic acquisition of other laboratories will consolidate VRT geographic expansion strategy along the eastern seaboard of Australia
  • Earnings increasingly become diversified as international segments are expected to become a larger contributor 
  • Solid balance sheet with flexibility to execute expansion strategies
  • New management for Victorian business to turn results around 
  • Market-leading position with ~40% of domestic market share

Key Risks:

  • Regulatory risk as changes in government funding may increase patient’s out-of-pocket expenses and thereby decrease volume demand 
  • Fluctuations in the availability and size of Medicare rebates may negatively influence the number of IVF cycles administered and overall industry revenue 
  • Weakening cycle activity continues to adversely impact revenues
  • Increased competition from low-cost providers 
  • Weakening economic activity resulting in increased unemployment leading to less disposable income to be spent in IVF treatment 
  • Execution of international forays goes poorly 
  • Population of males and females with fertility problems decline

Key highlights:

  • Total market capitalization of Virtus Health Ltd. is A$538.9m
  • Relative to the pcp, revenue was up +25.4%, adjusted EBITDA up +44.2%, and adjusted NPAT up more than 100%, driven by global fresh IVF cycles of 23,994, up +26.4%
  • Separate to FY21 results, VRT announced the acquisition of Adora Fertility and 3 day hospitals from Healius Ltd (ASX: HLS) for $45.0m.
  • Revenue $324.6m was up +25.4%
  • Reported EBITDA of $93.4m, was up significantly from $46.2m in FY20
  • Reported NPAT of $43.1m improved significantly from $0.5m in FY20
  • VRT’s leverage ratio (Net Debt / Adjusted EBITDA) declined to 1.5x (vs 2.2x in FY20)
  • Total dividends of 24.0cps vs 12cps in pcp. Forward dividend payout guidance was reduced to 45-55% (from 60-70% historically)
  • By segments, financials are as follows:
    • Australia: Revenue of $259.5m was up +24.4%, which drove segment EBITDA up +30.1% to $97.6m
    • International: EBITDA of $15.3m was up +68.1%

Company Description: 

Virtus Health Ltd (ASX: VRT) is a global provider of assisted reproductive services. The group’s main activity is providing patients with Assisted Reproductive Services such as specialized diagnostics, fertility clinics and day hospital services. It has 116 fertility specialists who are supported by over 1100 professional staff and is the largest network and provider of fertility services in Australia and Ireland, with a growing presence in Singapore. Virtus is one of three major players which collectively control more than 80% of market share and was the first infertility treatment company in the world to float on the stock market.

General Advice Warning

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

Categories
Global stocks Shares

Temple & Webster Group delivered solid FY21 results driven by customer’s adoption of online shopping

Investment Thesis

  • Operates in a large addressable market – B2C furniture and homewares category is approx. $16bn. 
  • Structural tailwinds – ongoing migration to online in Australia in the homewares and furniture segment. At the moment less than 10% of TPW’s core market is sold online versus the U.S. market where the penetration rate is around 25%. 
  • Strong revenue growth suggests TPW can continue to win market share and become the leader in its core markets. 
  •  Active customer growth remains strong, with revenue per customer also increasing at a solid rate. 
  •  Management is very focused on reinvesting in the business to grow top line growth and capture as much market share as possible. Whilst this comes at the expense of margins in the short term, the scale benefits mean rapid margin expansion could be easily achieved. 
  • Strong balance sheet to take advantage of any in-organic (M&A) growth opportunities, however management is likely to be very disciplined. 
  •  Ongoing focus on using technology to improve the customer experience – TPW has invested in merging the online with the offline experience through augmented reality (AR).

Key Risk

  • Rising competitive pressures. 
  • Any issues with supply chain, especially because of the impact of Covid-19 on logistics, which affects earnings / expenses. 
  •  Rising cost pressures eroding margins (e.g., more brand or marketing investment required due to competitive pressures). 
  • Disappointing earnings update or failing to achieve growth rates expected by the market could see the stock price significantly re-rate lower. 
  •  Trading on high PE-multiples / valuations means the Company is more prone to share price volatility.

FY21 results highlights. 

  • Group revenue was up +85% to $326.2, with 4Q21 revenue up +26% YoY despite cycling a period which saw growth of +130%. 
  •  Gross profit was up +88% to $148m, with gross profit margin increasing to 45.4% from 44.6%. This was primarily driven by increasing private label penetration, which increased to 26% of group sales vs 19% in the prior year. Private labels had higher margin vs drop-ship sales (i.e., drop-ship means TPW takes no inventory risk and works with their >500 local distributors), given TPW source directly from the factory.  
  • Delivered margin increased +87% to $100.7m, however was impacted by one-off distribution costs in the 2H21 due to some local shortages in 3PL space and TPW had to store product in more expensive alternate sites. 
  •  Contribution margin after one-off distribution came in at 14.6% as percentage of revenue vs 15.5% in pcp. Management is aiming to keep the contribution margin in the range of 12 – 15% over the short to medium term to support their reinvestment strategy to aggressively target market share via improved pricing, tactical promotional activity, and higher investment in brand building initiatives. 
  • Group adjusted EBITDA of $20.5m was significantly higher (up +141%) than $8.5m in the pcp, with a margin of 6.3% (vs 4.8% in pcp). 
  •  Balance sheet is solid, with cash balance of $97.5m

Trending Update:“The year got off to a fantastic start with a 39 percent increase in income from July 1 to July 24. TPW benefit from tailwinds, such as the adoption of online shopping as a result of these structural and demographic developments, as well as the acceleration of transitive Covid. Following that, an increase in discretionary spending due to travel constraints and, as we all know, the housing market’s continuous resurgence. As Mark stated, “we will continue to engage in growth there as a business, vastly increasing our online market leadership and driving market share.”

Company Profile

Temple & Webster Group (TPW) is a leading online retailer in Australia, which offers consumers access to furniture, homewares, home décor, arts, gifts, and lifestyle products.

 (Source: Morningstar)

General Advice Warning

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

Categories
Global stocks Shares

OOh!media is strongly-positioned but shares are overvalued relative to our intrinsic assessment

In the nine years to 2019, advertising dollars flowing to the Australian outdoor medium increased at a CAGR of 9%.

Our view is based on three structurally related tailwinds:

 First, unlike other traditional media, the outdoor audience is increasing. 

Second, a key Achilles heel for the outdoor advertising industry was the lack of reliable audience measurement. However, with the 2010 launch of measurement of Outdoor Visibility and Exposure, or MOVE, the medium now has greater legitimacy and offers a more robust way for marketers to assess the return on money allocated to outdoor advertising. 

Third, in contrast to its debilitating impact on other traditional media, digital technology is a growth facilitator for the outdoor industry. We estimate converting a static site to a digital site can lift advertising revenue three- to four-fold, potentially doubling the margin and vastly lifting the return on capital. 

We view these drivers as long-dated, and will continue to be exploited by oOh!media. Management is investing in further technological, data, and analytics capability. While adding to near-term costs, these investments are designed to more effectively convince marketers of the benefits of outdoor advertising, in terms of greater sophistication in audience targeting, resulting in longer-term sustainability.

Our fair value estimate for oOh!media is AUD 1.40 per share, which implies fiscal 2021 enterprise/EBITDA of 11.9 times but Shares in oOh!media are trading 30% above our AUD 1.40 fair value estimate. We are not ignorant of the stock’s appeal to investors lusting after high-beta, COVID-19 recovery trades ahead of imminent reopening of the New South Wales and Victorian economies.

Bulls Say 

  • Outdoor advertising is a growth medium benefiting from structural tailwinds such as increasing audience, more reliable measurement, and conversion of inventory to digital.
  • Australian outdoor’s 5% share of the total advertising pie still lags Canada (8%), the U.K. (7%), and the global average of 6%-plus. 
  • OOOh!media may have failed in its attempt to merge with APN Outdoor in 2017, but it completed the acquisition of Adshel in September 2018 and there is an opportunity to extract sizable synergies from the combination.

Financial Strength

 At the end of June 2021, net debt/EBITDA was 1.1 times, pre AASB 16. We forecast this to fall to 0.7 by the end of 2021, within the renegotiated 3.25-3.50 covenant limit for 2021. The current dividend payout policy is reasonably conservative at between 40% and 60% of net profits after tax but before amortisation acquired intangibles, allowing further investment in inventory digitisation. However, due to the uncertain impact of the coronavirus outbreak, there were no dividends in 2020 and we forecast resumption of just AUD 0.04 in 2022.

Company Profile

OOh!media operates a network of outdoor advertising sites with a sizable share of the Australian market of around 30%, and has a presence in New Zealand. It boasts a diverse portfolio of locations to service the needs of outdoor advertisers, and is particularly strong in the roadside billboard and retail (such as shopping malls) segments. OOh!media offers these services by entering into lease arrangements with owners of outdoor sites–effectively an intermediary allowing site owners to monetise their visible space in high-traffic areas. In late September 2018, the group completed the acquisition of Adshel from HT&E for AUD 570 million, a deal that cements its competitive position in the face of industry consolidation.

 (Source: Morningstar)

General Advice Warning

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

Categories
Global stocks Shares

Digital Realty Continues Deepening its Global Footprint and Transitioning Away From Wholesale Only

power, and connection needs. Along with Equinix, we think this makes Digital Realty one of only two data center providers that can offer this breadth and set itself apart from the pack.

Before its acquisition of Telx in 2015, Digital Realty garnered almost 95% of its total revenue from wholesale data centers and had virtually no interconnection revenue. At the end of 2020, a year in which Digital Realty also acquired Interxion, a firm with almost exclusively co-location and interconnection revenue, we estimate that annualized rent from the largest customers–those taking greater than 1 megawatt of power–made up only about half of total annualized revenue, and interconnection revenue was about 9% of the total.

In Digital Realty’s data centers, tenants can directly connect to their cloud providers or other partners, resulting in reduced latency and superior security. Even when in different Digital Realty locations, customers can bypass the public Internet to connect with other Digital Realty data centers via direct fiber connections within cities or through a software-defined network between cities. 

Steady Performance in Q3 for Digital Realty as It Continues Pursuing New Opportunities 

Digital Realty’s third-quarter results were consistent with recent performance, with a solid level of new bookings and re-leasing spreads that remain sluggish. 

The firm’s 11% year-over-year revenue growth was significantly boosted by higher utilities revenue, which simply reflects higher energy costs that Digital passes on to its customers.Rental revenue, which excludes pass-through revenue, was up 6%. Renewal spreads remain under pressure as the firm continues working off below-market contracts with its larger deployments, but this quarter’s negative 6% cash re-leasing spread was misleading, as it was the result of a 30- megawatt renewal combined with a very large new lease.

New bookings totaled $113 million in annualized revenue, with space and power bookings just over $100 million for the third straight quarter, and interconnection bookings in the $12 million-$13 million range for the fifth straight quarter-every quarter since Digital acquired Interxion. While this level of bookings is solid, it is believed that the moves the firm is making will lead them to pick up in the future. Key moves Digital made during or after the third quarter include entries into both India and Nigeria, both through joint ventures. The firm also made an investment in AtlasEdge data centers in Europe to propel its edge ambitions.

Bulls Say 

  • Digital Realty’s shift toward connection and colocation exposes it to the most attractive parts of the data center business and the growth tailwinds of cloud providers and data connectivity. 
  • Digital Realty’s global offering and high exposure to cloud providers gives it an advantage over competitors that operate in more narrow geographies or can only offer retail colocation space.
  • Internet of Things, artificial intelligence, and other innovations that increase the public’s demand for data and connectivity require more hardware and connections in data centers.

Company Profile

Digital Realty owns and operates nearly 300 data centers worldwide. It has more than 35 million rentable square feet across five continents. Digital’s offerings range from retail colocation, where an enterprise may rent a single cabinet and rely on Digital to provide all the accommodations, to “cold shells,” where hyperscale cloud service providers can simply rent much, or all, of a barren, power-connected building. In recent years, Digital Realty has de-emphasized cold shells and now primarily provides higher-level service to tenants, which outsource their related IT needs to Digital. Digital Realty has also moved more into the co-location business, increasingly serving enterprises and facilitating network connections. Digital Realty operates as a real estate investment trust.

 (Source: Morningstar)

General Advice Warning

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

Categories
Global stocks Shares

ANN delivered solid FY21 performance with strong financial position

Investment Thesis

  • ANN is a reputable company with international production capability.
  • The 5-yr forward earnings estimates are on the conservative side and capture the moderating growth likely to be seen from the elevated levels experienced in FY21.
  • ANN’s share price trades at a >10% discount in comparison to DCF valuation
  • FX translation should be positive for the Company. 
  •  Raw material cost pressures can be shared with customers and suppliers.
  • ANN has a healthy financial sheet, allowing it to repay cash to shareholders or borrow money to fund acquisitions.

Key Risk

  • Recall of a product.
  • Trade wars escalate, leading to higher tariffs.
  • Increase in competitive pressures.
  • Adverse movements in AUD/USD.
  • The expansion of emerging and developed markets both disappoints.
  • Any worse or better prices for raw materials.

Key highlights of FY21

  •  Sales of $2,027m, up by 25.6% (+22.5% in CC) with Healthcare organic growth of 34.8% and Industrial organic growth of 7.1%. 
  •  EBIT of $338m, up by 56.0% (+51.4% in CC) with margin improving 330bps to 16.7%, driven by higher production volumes, pricing/mix benefit and SG&A operating leverage, partly offset by elevated labour and freight costs combined with increase in inventory provision.
  •  Profit Attributable to ANN shareholders of $246.7m, up by 57.5% (+48.5% in CC) and EPS of 192.2cps (EPS would have been 193.9cps, without Cloud Computing accounting policy change), up by 59.9% (+50.8% I CC). 
  •  Operating Cash Flow of $49.2m (down by 74.3% over pcp) representing cash conversion of 60.9%, negatively impacted due to greater investment in working capital to support top line growth along with pricing impact as well as higher capex to increase capacity in a number of higher demanded products.
  • ROCE saw significant improvement (up +590bps to 19.8% pre-tax and up +550bps to 16.8% post tax), predominantly due to strong EBIT growth.
  • Final dividend of US43.6cps (up +54.3% over pcp), taking full year dividend to US76.8cps, up +53.6% over pcp and representing payout of 40%.
  • Strong financial position with ample liquidity of $464m (cash and committed undrawn bank facilities), conservative gearing profile (net debt/EBITDA of 0.7x vs 0.6x in pcp), well managed debt profile with net debt position below target leverage and no significant upcoming maturities in the next 12-months and investment grade rating of Baa2 by Moody’s.

FY 22 Outlook

Assuming net interest expense in the range of $20-21m, effective tax rate in the range of 22-23% and increased software investments where a portion will now be expensed rather than capitalised and amortised pursuant to the new cloud computing accounting policy resulting in 5-6cps adverse EPS impact, management anticipates EPS to be in the range of 175-195cps. Management further noted on the analyst conference call, “we expect continued demand for Mechanical, Surgical, Life Sciences and internally manufactured Single Use gloves, however, lower demand is expected in areas which benefited most during the onset of COVID-19 .

Company Profile

Ansell Ltd (ANN) operates two global business units: (1) Ansell’s Industrial segment manufactures and markets multi-use protection solutions specific for hand, foot, and body protection, for a wide-range of industries such as automotive, chemical, metal fabrication; (2) Ansell’s Healthcare segment (Medical + Single Use) offers a full range of surgical and examination gloves covering all applications, as well as healthcare safety devices and active infection protection products. The segment also manufactures and markets single use hand protection. Ansell recently sold its  Sexual Wellness Global Business Unit group.

General Advice Warning

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

Categories
Global stocks

HT&E delivered strong results led by higher consumer confidence

Investment Thesis:

  • Improvement in radio advertising markets over the medium term and solid demand for radio as a medium for advertising agencies is expected
  • Further cost outs, specifically significantly lower corporate overheads costs
  • ATO (Australian Taxation Office) and HT&E settlement in due course is expected
  • Potential corporate activity due to amendment made in media ownership rules
  • Increase in the valuation of Soprano (25% interest)  
  • Ongoing capital management initiatives
  • Strong balance sheet

Key Risks:

  • Decline in advertising dollars (radio and outdoor), especially if the retail sector in Australia comes under pressure 
  • Radio experiences structural disruption
  • Increased competition from major player(s) on tenders
  • Execution risk which might arise due to international expansion
  • ATO tax liability materializes at a level above market expectation
  • Hong Kong could become a drag on group performance (Coronavirus or protests escalate)
  • New and extensive Covid-19 related lockdowns are reintroduced nationwide

Key highlights:

  • Core group revenue was up by 18.2% to $109.9m (a like basis revenue was up by 21%) 
  • Underlying EBITDA of $30.4m was up by 55.9%, and NPAT of $16.3m was up by 352.8%
  • The Board reinstated the dividend and declared a fully franked interim dividend of 3.5cps
  • Soprano (HT&E holds a 25% interest) which is to be sold to Link Mobility Group Holdings, a global CPaaS (Communications Platform as a Service) provider listed on the Oslo stock exchange, for a total consideration of approx. $560m. This values HT1’s share at approx. $139m.
  • 1H21 Radio revenue was up by 19% YoY, which was in-line with the market at 20.2%. This was a solid performance given ARN has reported significant market share gains over the past two financial years.
  • Cody Outdoor – HK. The segment saw a significant improvement in earnings (EBIT of $0.7m vs a loss of $2.7m in the pcp), driven by fewer lockdowns and a well progressed vaccination program, which has driven renewed advertiser confidence, with revenue up 28% on a local currency basis.
  • The commercial benefits will be fetched by building up the audience for the digital platform.

Company Description: 

HT&E Limited (HT1) is a media and entertainment company with operations in Australia, New Zealand and Hong Kong. The Company operates the following key segments: (1) Australian Radio Network (ARN) – metropolitan radio networks including KIIS Network, The Edge96.One and Mix106.3 Canberra; (2) Hong Kong Outdoor (Cody) – Billboard, transit and other outdoor advertising in Hong Kong, with over 300 outdoor advertising panels and in-bus multimedia advertising across 1,200 buses; and (3) Digital Investments – digital assets including iHeartRadio, Emotive and Conversant Media.

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.