Category: Global stocks

Investment Thesis:

• PPT is a business having vast diversification, with earnings obtained from trustee services, financial advice and funds management.
• PPT has a chance to increase FUM (Funds Under Management) through its Global Share Fund, which has a strong performance track record over 1, 3 and 5-years and significant capacity. 
• PPT maintains FUM in Australian equities, which is of maximum amount. This equates to levelled earnings growth unless PPT can attract FUM into international equities, credit and multi-asset strategies (and other incubated funds).
• Inflow of funds from retail and institutional investors are expected to be high especially from positive compulsory superannuation trend and Perpetual Private. 
• Perpetual Private’s high potential to ramp up growth in funds under management and funds under advice.
• Process of cost improvements in Perpetual Private and Corporate Trust.

Key Risks:

• Probability of any significant underperformance across funds.
• Key man risk surrounding key management or investment management personnel.
• Probability of change in regulation (superannuation) with major interest on retirement income (annuities) than creation of wealth.
• The average base management fee (bps) annually (excluding performance fee) continues to be stable at ~70bps but there are risks caused due to drawbacks from pressures on fees.
• The provision of financial advice and Perpetual Private adjoins more regulation and compliance costs.
• Industry funds, which are building in-house capabilities (~15-20% of total PPT funds under management), have good exposure.

Key Highlights:

• The operating revenue increased +31% and underlying profit after tax was up +26% post the acquisition of Trillium and Barrow Hanley.
• Statutory NPAT decreased -9% because of the significant one-off costs.
• PPT’s assets under management increased by +246% over pcp (previous corresponding period) to $98.3bn, wherein significant amount of funds outperformed their respective benchmarks over the year.
• Fully franked final ordinary dividend of A$0.96 per share was declared, thereby amounting the total FY21 dividend to A$1.80 per share, which is up +16% over pcp.
• Perpetual Asset Management Australia delivered total revenue of A$165.7m, which was down -5% over pcp.
• Perpetual Asset Management International (new international division comprising the Trillium and Barrow Hanley businesses), had total revenue of A$139.2m and underlying profit before tax was A$40.7m.
• Perpetual Private delivered total revenue of $183.8m, relatively unchanged over pcp and underlying profit before tax of A$35m.
• Perpetual Corporate Trust delivered total revenue of $134.9m, up +7% over pcp and underlying profit before tax of A$63.8m, which was +9% higher over pcp.

Company Profile:

Perpetual Ltd (PPT) is an ASX-listed independent wealth manager with three core divisions in Perpetual Investments (one of Australia’s largest investment managers); Perpetual Private (one of Australia’s premier high net worth advice business); and Perpetual Corporate Trust (which provides trustee services). PPT looks after ~$98.3 billion in funds under management, ~$17.0 billion in funds under advice and ~$922.8 billion in funds under administration (as on 30 June 2021).

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.

Investment Thesis 

• CWY trades at fair value based on our infused valuation.
• Earnings are fairly defensive (as the Company has long term rubbish collection contracts with local government).
• The solids segment is growing at a slightly higher-than-average GDP rate, with the potential to benefit as CWY’s sales team concentrates more on price increases.
• Liquids and Industrial Services are expected to recover and benefit from high oil prices.
• A strong balance sheet that allows for bolt-on acquisitions or capital management initiatives.
• High entry barriers – difficult to replicate assets & solid margin business

Key Risks

• Its Solids segment performed worse than expected.
• There will be no or only minor price increases.
• Liquids and Industrial Services performed poorly.
• Oil prices are recovering slowly or not at all.
• China’s National Sword policy imposes additional cost surcharges.
• Management fails to meet their key segment margin targets.
• While earnings are largely defensive, there is some exposure to cyclical economic activity, which may be a drag on earnings.

FY21 Result Highlights

• Net revenue increased by 7.5% to $1,476.3 million; EBITDA increased by 4.4% to $405.3 million; and EBIT increased by $0.3 million to $213.0 million. “FY22 D&A is expected to be higher reflecting full year contributions from acquisitions and municipal contracts that partially contributed in FY21, new municipal contracts that start in FY22 (Logan, Hornsby), the start of operations at the rebuilt Perth MRF, and higher landfill depreciation,” management stated.
• The reported EBITDA of $48.0m was +4.6% higher. EBITDA margin was 110 basis points higher than in FY20, owing to the successful implementation of the strategy of exiting low-value workstreams. EBIT increased by $1.2 million to $22.6 million, and the EBIT margin increased by 60 basis points to 7.4 percent.
• EBITDA increased by 3.5 percent to $110.0 million, while margins increased by 80 basis points to 21.5 percent. EBIT increased by 5.1% to $67.6 million, and EBIT margins increased by 70 basis points to 13.2 percent.
• Covid-19 lockdowns on lower East coast oil collection volumes had an impact on hydrocarbons. Covid-19-related activity at aged care facilities, hotel quarantine, and mass testing and vaccination centres resulted in higher earnings for Health Services.
• Despite lower volumes from visitor states, hospitality (grease trap), cruise ships, and automobile industries as a result of Covid-19, liquids and technical services earned more than the pcp.

Company Profile 

Cleanaway Waste Management Ltd (CWY) is Australia’s leading total waste management services company. CWY has a nation-wide footprint in solid, liquid, hydrocarbon and industrial services (with ~200 solid, liquid, hydrocarbon and industrial services depots and processing facilities across the country servicing well over 100,000 customers.

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.

with wide-moat Auckland Airport’s annual result offering fiscal 2022 guidance on what the airport will spend (on capital programs), but no guidance on what it will earn (for example revenue from passengers). Fair value estimate increases 2% to AUD 6.70 for the Australian listing due to time value of money. The shares screen as fairly valued at current levels. The New Zealand government has indicated that once vaccination rates increase, the plan is for a phased reopening, so long as that remains supported by the medical science.

The more cautious response to the pandemic in Australia and New Zealand means restrictions are unlikely to be largely removed until midway through fiscal 2022, a further recovery in the economy, consumer confidence in long-haul travel to rebuild, and a reigniting of the logistics needed to support mass travel, including travel agents, tour operators, business conferences, and so on.

The experience elsewhere in the world supports this view, with other highly vaccinated developed markets gradually removing restrictions. The pandemic’s notoriety was elevated in 2020 with the outbreak of corona virus on the Diamond Princess, but even the cruise industry has now restarted services in parts of the world. The company’s base case remains that virus concerns eventually fade, and passengers get back on board boats and airplanes.

Company’s Future outlook

It is believed that the air travel will recover to pre-pandemic levels. Air New Zealand’s fiscal 2021 domestic passenger capacity averaged a respectable 77% of pre-pandemic levels. Across the Tasman, Qantas was slower for the year, due to more frequent restrictions in Australia. However in the fourth quarter, a period which was relatively virus and restriction free nationwide, Qantas achieved domestic passenger traffic at 95% of pre-pandemic levels. Admittedly domestic travel in both nations was likely boosted by the inability to travel abroad. However, this is largely offset by the absence of international travelers taking domestic flights, especially in New Zealand, where nearly all international arrivals enter the country through Auckland Airport.

Company Profile

Auckland Airport is New Zealand’s largest airport, handling 21 million passenger movements in fiscal 2019, approximately 70% of the country’s international visitors. It owns 1,500 hectares of land, and hosts ancillary commercial services, including retail and duty-free, car parking, hotels, warehouses, and offices. Substantial development opportunities could bring its capacity up to nearly 26 million passenger movements per year anticipated by 2026, as well as adding capacity in the ancillary services offered. It also has a minority stake in the small but fast growing Queenstown airport on New Zealand’s south island.

(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.

Investment thesis

• Potential for solid growth in Europe and Japan, with significant opportunities that the Company is well positioned to capitalise on.
• DMP has a strong position in the market in all of its existing geographies.
• DMP is ahead of the curve in terms of technology and innovative customer offerings.
• Merger in Europe to increase top-line revenue.
• A solid management team.
• Aiming for higher margins (i.e. operating leverage benefits).

Key Risks

The following are the key challenges to the investment thesis:

• Acquisition integrations are not proceeding as planned.
• Failure to meet market expectations for sales and earnings growth.
• Dietary concerns that compel customers to seek out healthier alternatives
• Input and labour costs have risen.
• Competition-related market pressures.
• Key management personnel have left.
• The corporate office must increase financial assistance to struggling franchisees.
• Any additional negative media coverage, particularly regarding underpayment of wages at the franchisee level.
• Any new concerns about store rollout (such as cannibalisation or demographics not supportive of new stores).
• Commodity prices have risen as a result of Australia’s ongoing drought.

Highlights of key FY21 results

• FY22 has begun on a strong footing, with 2,974 stores (including 26 opened this fiscal year) delivering +7.7 percent network sales growth (+2.7 percent on a Same Store basis)… With a two-year cumulative Same Store Sales growth of 13.7 percent, Domino’s is trying to demonstrate sustainable growth by retaining customers from the pandemic’s initial peaks.
• The 3-5 Year Outlook for New Store Openings has increased to +9-12 percent (up from +7-9 percent),” with management stating that “a review of our modelling has increased our expectations for Benelux (+200 stores) and Japan (+500 stores), and now expects to operate 6,650 stores by 2033.
• DMP reaffirms its 3-5 year Same Store Sales forecast of +3-6 percent.
• The 3-5 year net capex outlook has been raised to $100-150 million (up from $60-100 million) as DMP assists franchisees with store expansions.
• The Board has determined that it will increase its payout ratio from 70% to 80% in recognition of this new phase in Domino’s growth and the expected free cash flow.

Company Description  

Domino’s Pizza Enterprises Limited (DMP) operates retail food outlets. The Company offers franchises to the public and holds the franchise rights for the Domino’s brand and network in Australia, New Zealand, Europe and Japan. 

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.

Investment thesis

• Recent takeover offers that have been rejected are currently supporting the share price.
• Sydney International Airport is an appealing asset with a long-term lease, but earnings are currently being impacted by the pandemic.
• Long-term growth in international tourism and domestic travel is expected post-Covid.
• Prior to the pandemic, SYD delivered a consistent and growing dividend stream, which is expected to continue post-Covid.
• New development initiatives (expand capacity & improve passenger experience).
• Exposure to a falling dollar (cheaper to visit Australia).
• Earnings can be increased by diversifying into hotels.
• Potential new markets, such as India and new emerging markets, could drive growth.

Key Risks

The following are the key challenges to the investment thesis:

Bond yields (viewed as a bond proxy, rising bond yields will have a negative impact on SYD’s valuation)

• A decline in Australian tourism.
• A global disaster that reduces international travel.
• Distribution growth, or lack thereof, disappoints.
• Cost constraints / operational disruptions
• International airlines are lowering their exposure to Australia.
• Long-term competition from Western Sydney Airport.

Highlights of key FY21 results

• Revenue of $341.6 million was -33.2 percent lower than the pcp. SYD had 6.0 million passengers, a -36.4 percent decrease, with domestic and global passenger numbers down by 91.0 percent and -3.1 percent, respectively.
• Operating expenses were $74.2 million lower, a -7.8 percent decrease.
• EBITDA was down -29.8 percent to $210.8 million.
• SYD revealed a $97.4 million loss after income taxes. In terms of Covid-19 impacts, SYD recognised abatements and expected credit loss in the form of $77.0 million in rental abatements and $24.5 million in doubtful debt provision, and government assistance of $2.6 million in JobKeeper payments was recognised as an offset to employee benefits expense up to March 2021.
• As of 30 June, SYD had a strong balance sheet with $2.9 billion in liquidity ($0.5 billion in available cash and $2.4 billion in undrawn bank debt facilities). On the conference call, management stated that SYD “continues to expect to remain compliant with its covenant requirements.” SYD’s credit rating remained unchanged, at BBB+/Baa1 by S&P/ Moody’s, with a negative outlook. Net debt fell to $7.5 billion from $9.1 billion in the first half of the year, with a cashflow cover ratio of 2.0x (down from 2.4x in the first half of the year) and a nett debt/EBITDA ratio of 14.0x (versus 9.3x at 1H20).

Company Description 

Sydney Airport (SYD) operates the Sydney International Airport (Kingsford Smith). The company develops and maintains the airport infrastructure and leases terminal space to airlines and retailers. The ASX listed stock consists of Sydney Airport Limited (SAL) and Sydney Airport Trust (SAT1). Shares and units in the Group are stapled.

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.

Investment Thesis:

• Currently share price is supported by recent takeover offers which have been rejected.
• Earnings affected by the pandemic; Attractive asset with long-dated lease – Sydney International Airport.
• Long-term growth is anticipated in international and domestic travel.
• Solid and high growing dividend stream was offered by SYD before Covid, which is expected to repeat post Covid recovery.
• Development of new projects (expansion of capacity & improvement of passenger experience). 
• Leveraged due to a falling dollar (cheaper to visit Australia). 
• Diversification into hotels for earnings.
• New markets to drive business growth e.g. India, new emerging markets

Key Risks:

• Bond rates (which is seen as a bond proxy and rising bonds yields would negatively affect SYD’s valuation) 
• Slowdown in Australian travel and tourism. 
• Universal calamity which might lead to downsizing of international travel.
• Disappointment created by growth distribution and its absence.  
• Disruptions caused due to cost pressure and operations.
• Less exposure to Australia by International Airlines. 
• Long-term competition majorly from Western Sydney Airport. 

Key Highlights:

• SYD’s share price is $7.70 (+41.5% in comparison to past year); however cannot surpass the price which was at the beginning of pandemic i.e. $8.41.
• Revenue of $341.6m indicated a sharp decline of -33.2%. The decrease in the rate of passengers of SYD was -36.4%.
• SYD retained a financially healthy balance sheet with $2.9bn of liquidity as at 30 June.
• EBITDA of $210.8m was down by -29.8%.

• Revenue of Aeronautical constitutes 36% amounting to $110.82m, declined -36% or -27.0% on an adjusted basis on lower passenger volumes, down -36.4%.
• Revenue of Retail (28% of the total revenue) amounts to $87.4m (or $27.5m when adjusted for rental abatements and doubtful debts) declined -40.6% (or -73.4% on an adjusted basis). 
• Revenue of Property and car rental (27% revenue by segment) of $84.6m (or $83.5m when adjusted for rental abatements and doubtful debts), was down -22.3% (or up +1.1% on an adjusted basis).
• Revenue of Car parking and ground transport consists of 9% amounting to $28.7m (or $27.8m when adjusted for rental abatements and doubtful debts), which was down -24.7%.

Company Profile:

Sydney Airport Holdings is a publicly–listed Australian holding company which owns a 100% interest in Kingsford Smith Airport via Sydney Airport Corporation. The company is listed on the Australian Stock Exchange and has its head office located in Sydney, New South Wales. The principal activity of the Company is investment in airport assets. The Company’s investment policy is to invest funds in accordance with the provisions of the governing documents of the individual entities within the Company. The Company consists of Sydney Airport Limited (SAL) and Sydney Airport Trust 1 (SAT1). The Trust Company (Sydney Airport) Limited (TCSAL) is the responsible entity of SAT1.

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.