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Altius Sustainable Bond Fund- A fund that aims to provide a total return approach

The Altius Sustainable Bond Fund offers investors fixed interest investments, which are managed with the consideration of environment, social and corporate governance (ESG) principles. The Manager recently expanded its exclusion of companies engaged in thermal coal to all fossil fuels (or at least have revenue no greater than 10% sourced from these activities). The Fund is a credible offering. It is run by an investment team with strong credentials and lengthy investment experience in managed assets in the investment class (the team of six comprises three PMs all with at least 25 years’ experience and the remaining team members all with over 10 years’ experience).

Downside Risk: 

  • Interest rate risk (however the Fund’s total return focus should limit this). 
  • The Manager gets the thematic and top-down view wrong. 
  • Key man risk – Bill Bovingdon, Chris Dickman and Gavin Goodhand.

Investment Team:

The fund is managed by Australian Unity’s Cash and Fixed Interest team (Altius) consisting of experienced fixed interest investment professionals. The investment team is supported by a very experienced Investment Advisory Committee, which meet every quarter (formally). Below are the 

  • Bill Bovingdon – Executive Director, Chief Investment Officer 
  • Chris Dickman – Executive Director, Senior Portfolio Manager
  • Gavin Goodhand – Senior Portfolio Manager
  • Yen Wong – Head of Credit Research
  • Kirsten Lee – Credit Analyst.
  • Vincent Tang – Senior Portfolio Analyst

Performance:

(%)Fund  Benchmark**Out-performance
1-month-0.110.35-0.46
3-months0.390.77-0.38
1-year (p.a.)-0.550.32-0.23
3-years (p.a.1.422.49-1.07
5-year (p.a.)1.532.13-0.6
Since inception (p.a.)*2.262.65-0.39

Fees Structure:

The Fund has lowered its management fees 0.56% p.a. to 0.37%p.a. The Fund charges no performance fee.

Fund Positioning:

Sector Allocation:

Top 10 Holdings:

About the fund:

The Altius Sustainable Bond Fund is an Australian fixed interest fund that invests in companies which conduct their business and apply capital responsibly, considering a range of environmental, social and governance (ESG) issues. The Fund aims to provide a total return approach, offering duration exposure at appropriate points in the cycle, as well as positioning the portfolio defensively in a rising rate environment and invests only in domestic assets, thus avoiding importation of global risks (e.g. currency) and offering a different risk profile.

(Source: Banyantree)

General Advice Warning

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

Categories
Technology Stocks

Threat-prevention Solution providing robust growth for Palo Alto Network Inc

Graphic of investment stock market data analysis business

Business Strategy and Outlook

Palo Alto Networks became a leading cybersecurity provider through its next-generation firewall appliance altering the requirements of an essential piece of networking security. The firm’s portfolio has expanded outside of network security into areas such as cloud protection and automated response. Looking ahead, Palo Alto’s nascent threat-prevention solutions will provide robust growth along with a significantly improved margin profile.

Core to Palo Alto’s technology is its security operating platform, which provides centralized security management. The ability to add technologies via subscriptions in the Palo Alto framework can alleviate complications by providing more holistic security, which can generate sustainable demand. Palo Alto will continue to outpace its security peers by focusing on providing solutions in areas like cloud security and automation. Palo Alto’s concerted efforts into machine learning, analytics, and automated responses could make its products indispensable within customer networks. Although it is expected that Palo Alto will remain acquisitive and dedicated to organic innovation, significant operating leverage will be gained throughout the coming decade as recurring subscription and support revenue streams flow from its expansive customer base.

Financial Strength 

Palo Alto is financially stable and would generate strong cash flow as it expands its operating margin profile. The company has historically operated at a loss (excluding fiscal 2012), and we expect it to turn profitable by fiscal 2023 on a GAAP basis. Palo Alto ended fiscal 2021 with $2.9 billion in cash and cash equivalents and total debt of $3.2 billion in 2023 and 2025 convertible senior notes. The $1.7 billion 2023 notes mature in June 2023 and have a 0.75% fixed interest rate per year paid semiannually, while the $2.0 billion of notes that mature June 2025 have a 0.375% interest rate paid semiannually. Palo Alto issued note hedges for both maturity dates to alleviate potential earnings per share dilution. The company announced a $1.0 billion share-repurchase authorization in February 2019, which was increased to $1.7 billion the following year with an expiration at the end of 2021, and has subsequently extended the program. Palo Alto continues to use share buybacks to return capital to shareholders, and believe that it will not pursue any dividend payouts.

The fair value estimate of $585 per share is consistent with a fiscal 2022 enterprise/sales ratio of 11 times and 4% free cash flow yield and upgraded its moat to wide.

Bulls Says 

  • Adding on modules to Palo Alto’s security platform could win greenfield opportunities and increase spending from existing customers. 
  • Palo Alto could showcase great operating margin leverage as it moves from brand creation into a perennial cybersecurity leader. Winning bids should be less costly as the incumbent, and we think Palo Alto is typically on the short list of potential vendors. 
  • The company is segueing into high-growth areas to supplement its firewall leadership. Analytics and machine learning capabilities could separate Palo Alto’s offerings.

Company Profile

Palo Alto Networks is a pure-play cybersecurity vendor that sells security appliances, subscriptions, and support into enterprises, government entities, and service providers. The company’s product portfolio includes firewall appliances, virtual firewalls, endpoint protection, cloud security, and cybersecurity analytics. The Santa Clara, California, firm was established in 2005 and sells its products worldwide.

(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
Dividend Stocks Sectors

Transurban toll revenue declined -17.6% to $616m driving a -20.7% decline in EBITDA

Investment Thesis

  • Hard to replicate critical infrastructure assets. 
  • Consistent growth in earnings driven by four key factors: 1) Traffic (with mature toll roads delivering on average 2-4% annual traffic growth); 2) Prices (with escalation set with agreements with governments); 3) operational efficiency improvements; and 4) development contribution from new assets. 
  • Attractive yield – steady and growing distribution stream. 
  • Integration of technology and systems to enhance operations. 
  • Growth by asset acquisition and/or development of greenfield and brownfield projects. 
  • Exposure to infrastructure assets in the U.S. 
  • Strong management team with experience in deploying the developer-operator business model. 
  • West Gate Tunnel dispute is a drag on share price.

Key Risks and project deliverables

  • Bond yields experience a significant increase in the short term and track upwards over the long term. 
  • Valuation appears full at current levels. 
  • Project development cost blowouts. 
  • Reduced traffic volumes. 
  • Regulatory changes within the sector. 
  • Unfavorable financing arrangements. 
  • Poor acquisitions (derived from inaccurate modelling of traffic).

FY21 Results Highlights

  • Average daily traffic (ADT) decreased by 0.4% vs FY20 or 7.0% excluding the contribution from new assets, M8/M5 East and NorthConnex, which opened during the year and performed ahead of expectations. 
  • Free Cash decreased by 13.5% vs FY20, primarily reflecting the impacts of reduced traffic in Melbourne and North America due to Covid-19 related mobility restrictions as well as increases in cost related to strategic growth projects. 
  • FY21 distribution of 36.5cps including a final distribution of 21.5 cps for 2H21. 
  • Statutory profit of $3,272m, which includes $3,726m gain on sale of TCL’s Chesapeake assets. 
  • The Board declared a distribution of 21.5 cps for 2H21 which takes the total FY21 distribution to 36.5cps, of which 1.0 cent is fully franked. TCL highlighted that its distribution reinvestment plan is open for this distribution payment.

Company Profile 

Transurban Group (TCL) develops, operates, and maintains urban toll road networks in Australia and the United States. The company holds interest in 15 roads in Melbourne, Sydney, Brisbane, and Virginia. Transurban Group is headquartered in Docklands, Australia.

(Source: BanyanTree)

General Advice Warning

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

Categories
Technology Stocks

Check Point Software Technologies Ltd: Changing the cybersecurity mindset in a hybrid cloud world

Business Strategy and Outlook

Check Point Software Technologies is a top player in the cybersecurity market. It generates revenue from selling products, licenses, and subscriptions to protect networks, cloud environments, endpoints, and mobile users. Historically, firms purchased security point solutions to combat the latest threats and had to manage various software and hardware vendors’ products simultaneously. Changing the cybersecurity mindset in a hybrid cloud world, Check Point’s Infinity architecture consolidates various security products into a single management plane that deploys the latest updates across all attack vectors. With its vast customer base of over 100,000 businesses and renowned product leadership for existing threat technology, it is believed that Check Point’s consolidated security architecture provides ample upselling and cross-selling opportunities as enterprises increase their reliance on cloud-based products and distributed networking. With its growth lagging security peers, Check Point will ramp up sales and marketing efforts to showcase the advantage of its platform approach and next-generation security offerings. Check Point has adjusted its selling model to be subscription-based, and further ingrain the company with businesses that favor predictable operating expenditures. Its subscription-based Infinity Total Protection architecture offers all of Check Point’s products on an annual pay-per-user basis. This concept may help permeate Check Point’s product throughout an organization, since there are no additional costs for using more products, which then creates higher switching costs and better customer retention.

Check Point Software Moat Ratings upgraded to wide and increased fair value from $ 132 to  $137

Morningstar analysts have upgraded its moat roating for Check point Software to wide from narrow. For moat trend,analyst maintained a stable view of point in regards to the firm and increased its fair value estimate is now $137 from $132. Check Point’s shares attractive for patient investors in the steady, but lower growing firm.For Check Point’s stable trend, analyst  believes the company has a large, loyal customer base that relies upon its sticky products, but a conservative approach of investing in development and sales and marketing efforts has caused leading competitors to make inroads in the broader security landscape.

Financial Strength

Check Point can be viewed as financially stable firm that should continue to generate strong operating cash flow. .At the end of 2020, the company had no debt with $4.0 billion in cash, equivalents, and marketable securities. Check Point has never paid a dividend, and it is expected to continue to repurchase shares following the announcement of an additional $2 billion buyback authorized during 2020 (with a $350 million cap per quarter).Outside of the repurchase program, it is also expected that Check Point to primarily use its cash for operating expenditures to capitalize on customers requiring cloud-based threat protection. Additionally, Check Point will continue to make tuck-in acquisitions to bolster its presence in the cloud and mobile-based security markets.

Bulls Say 

  • Customers may adopt Check Point’s Infinity platform over using multiple vendors for cybersecurity protection. This should further embed the company’s products and increase switching costs. 
  • Check Point’s movement into cloud-based and mobile user security offers large growth opportunities to supplement its network security portfolio. Its existing customer base may prefer Check Point for security consistency. 
  • Increasing subscription-based sales and growing recurring revenue should further bolster Check Point’s stellar operating margin profile.

Company Profile

Check Point Software Technologies is a pure-play cybersecurity vendor. The company offers solutions for network, endpoint, cloud, and mobile security in addition to security management. Check Point, a software specialist, sells to enterprises, businesses, and consumers. At the end of 2020, 45% of its revenue was from the Americas, 43% from Europe, and 12% from Asia-Pacific, Middle East, and Africa. The firm, based in Tel Aviv, Israel, was founded in 1993 and has about 5,000 employees.

(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
Funds Funds

Allspring Diversified Income Builder Fund – Class C: A fund providing high income

Fund Objective

The investment seeks long-term total return, consisting of current income and capital appreciation.

Approach

The strategy targets a yield of 4%-5% and allocates 60%-90% of assets in fixed income, with the remainder in stocks. The team may also employ tactical shifts, vetted by the firm’s tactical trading council, by trading currencies or equity sector indexes, but these can be difficult to execute well consistently. Since introducing a multisleeved approach in early 2018, this strategy has undergone three prospectus benchmark shifts that signal it continues to experiment with its profile. The most recent adjustment (February 2020) decreased the equity exposure by 10 percentage points to 25% in order to make room for a more diversified bond sleeve. Other adjustments include the removal of a REITs sleeve in September 2018, the addition of a securitized bond sleeve in March 2019, and the introduction of an options sleeve in January 2020.

Portfolio 

As fixed-income markets have proved richly priced, the portfolio managers cited more attractive capital appreciation and dividends in the equity space, prompting an uptick in the equity holdings to roughly 38% here by September 2021. Within that equity sleeve, technology stocks (Microsoft MSFT is a holding) and healthcare stocks (such as Bausch Health Companies BHC, DaVita DVA, and AbbeVie ABBV) occupied roughly 27% and 17% of assets, respectively. 

High-yield bonds dominate the fixed-income portion of the strategy (59% of the portfolio as of September 2021), and it is worth noting that these are more sensitive to equity markets than the investment-grade fare employed by many peers for downside protection in stressed markets. Other bond sleeves here are modest but diversifying relative to the portfolio’s historical profile and include municipal bonds (3%) and securitized bonds (2%).

People

Kandarp Acharya as co manager alongside Margie Patel, who was the sole manager since 2007 but is departing this strategy (though she remains on Allspring Diversified Capital Builder EKBYX) as of Dec. 13, 2021. This move is accompanied by the arrival of quantitative researcher Petros Bocray, a 15-year firm veteran and Acharya’s collaborator on Allspring Asset Allocation EAAIX.

Performance

Over the strategy’s short tenure with its new contours (January 2018 through November 2021), the 5.5% annualized return of its R6 share class modestly outpaced the 5.3% return of the Morningstar Conservative. Target Risk Index and trailed the 6.7% return of its custom benchmark (60% ICE BoA U.S. Cash Pay HY Index, 25% MSCI ACWI, and 15% Barclays Aggregate Index). From an absolute return perspective, the strategy also generated a higher return than the 5.0% median of its typical allocation–15% to 30% equity Morningstar Category peer.This strategy has a riskier profile than many strategies in the category, particularly during stress periods, resulting in risk-adjusted returns (as measured by the Sharpe ratio) that trail all comparative points (typical category peer and benchmark as well as custom benchmark) over the aforementioned period. In three recent stress periods (when energy prices plummeted from June 2015 to February 2016, the 2018 fourth-quarter high-yield sell-off, and the coronavirus-driven market panic of Feb. 20-March 23, 2020), the fund lagged its category index by more than double and trailed its typical peer.

Top 10 Holdings

C:\Users\Akhila\Downloads\Screenshot 2021-12-10 121827.png

About the fund

The Fund seeks high current income from investments in income-producing securities. The Fund will normally invest at least 80% of its assets in income producing securities, including debt securities of any quality, dividend paying common and preferred stocks, convertible bonds, and  

derivatives. The strategy targets a yield of 4%-5% and allocates 60%-90% of assets in fixed income, with the remainder in stocks. The team may also employ tactical shifts, vetted by the firm’s tactical trading council, by trading currencies or equity sector indexes, but these can be difficult to execute well consistently.

(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
Dividend Stocks

Tyson Sets Sights on Improving Long-Term Efficiency

Business Strategy and Outlook

Several secular trends are affecting Tyson’s long-term growth prospects. While U.S. consumers (86% of fiscal 2021 sales) are limiting their consumption of red and processed meat (69% of Tyson’s sales), they are consuming more chicken (29%). International demand for meat has been strong, and although Tyson’s overseas sales mix is just 14%, it is likely to increase over time, as this is an area of acquisition focus. The beef segment has been a bright spot in Tyson’s portfolio in recent years, as strong international demand, coupled with a drought-induced beef shortage in Australia, has increased the segment’s operating margins to 10% over the past four years from 2% prior to 2016. 

Conversely, the chicken segment has suffered from executional missteps that have resulted in structurally higher costs relative to competitors. About 80% of Tyson’s products are undifferentiated (commoditized), so it is difficult for them to command price premiums and higher returns. Although Tyson is the largest U.S. producer of beef and chicken, we do not believe this affords it a scale-based cost advantage, as its segment margins tend to be in line with or below those of its smaller peers.

Financial Strength

Tyson’s financial health as solid and don’t see any issues to suggest that it will be unable to meet its financial obligations. While Tyson generates healthy cash flow and is committed to retaining its investment-grade credit rating, the business is inherently cyclical, with many factors outside of its control. But management has made changes to improve the predictability of earnings. Chicken pricing contracts, which now link costs and prices, and a greater mix of prepared foods (from 10% in 2014 to the current 19%) both serve as stabilizers. 

In terms of leverage, net debt/adjusted EBITDA stood at a rather low 1.2 times at the end of fiscal 2021, below Tyson’s typical range of 2-3 times. At the end of September, Tyson held $2.5 billion cash and had full availability of its $2.25 billion revolving credit agreement. Together, this should be sufficient to meet the firm’s needs over the next year, namely about $2 billion in capital expenditures, nearly $700 million in dividends, and $1.1 billion in debt maturities. Management has expressed a commitment to enhancing the income returned to shareholders in the form of its dividend (targeting a 2.0%-2.5% yield over time).

Bulls Say’s

  • China’s significant protein shortage resulting from African swine fever should boost near-term protein demand, while the country’s continued moderate increase in per capita consumption of proteins will drive sustainable growth. 
  • While investor angst over chicken price-fixing litigation has weighed on shares, Tyson’s recently announced settlements materially reduce this overhang. 
  • In the current inflationary environment, Tyson’s cost pass-through model limits potential profit margin pressure

Company Profile 

Tyson Foods is the largest U.S. producer of processed chicken and beef. It’s also a large producer of processed pork and protein-based products under the brands Jimmy Dean, Hillshire Farm, Ball Park, Sara Lee, Aidells, State Fair, and Raised & Rooted, to name a few. Tyson sells 86% of its products through various U.S. channels, including retailers (48%), food service (28%), and other packaged food and industrial companies (10%). In addition, 14% of the company’s revenue comes from exports to Canada, Mexico, Brazil, Europe, China, and Japan.

(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 Markets Global stocks

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

Investment Thesis:

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

Key Risks:

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

Key highlights:

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

Company Description: 

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

(Source: Banyantree)

General Advice Warning

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

Categories
Shares Small Cap

Bank of Queensland brings forward cost savings to offset margin pressure

Business Strategy and Outlook

Bank of Queensland is one of Australia’s top-10 largest banks, but is considerably smaller than the four major Australian banks. Preceding the global financial crisis, the bank grew aggressively via acquisitions and the rollout of its distinctive owner-manager branch franchise model. However, expanding the branch network and diversifying away from traditional residential lending came at a cost, with additional equity required to fund growth, significantly increased bad debts, and multiple banking systems, which resulted in deteriorating cost/income and returns on equity. 

The aim is to ensure the bank is more competitive, particularly in the home loan market, but this investment giving the bank any competitive edge. At best, it can narrow the gap to peers, but with the big investment budgets of the majors, those innovations are likely to be hard to keep up with. Bank of Queensland has branches owned by branch managers and corporate branches. The model has the potential for the bank to outperform its peers on customer service, with owner branch managers building relationships with local customers, and niche business lending specialists with an understanding of borrower needs and industry.

Financial Strength

The capital structure and balance sheet provide comfort that the bank can manage a large increase in loan losses associated with COVID-19, but it remains the greatest threat to the bank’s capital position. Common equity Tier 1 capital was 9.8% as at August 2021, well above APRA’s 8.5% minimum capital benchmark for standardised banks. It is expected that the bank will pay out around 60% to 65% of earnings given the credit growth outlook, elevated investment in the banking platform, and integration of ME Bank. Our fair value estimate for no-moat rated Bank of Queensland is unchanged at AUD 8.50.

With the elevated savings rate in 2020, the bank has been able to increase its share of funding from customer deposits to 70% as at Aug. 31, 2021, up from pre-COVID-19 levels of 64% as at Aug. 31, 2019. In March 2020 the RBA announced the Term Funding Facility, or TFF, which provided three-year funding at 0.25%. From Nov. 4, 2020, new drawdowns would pay 0.1%. The initial funding available via the TFF was set at 3% of the bank’s outstanding loan balance, with an additional 2% of balances announced in November.

Bulls Say’s

  • The appointment of new senior executives and a clean out of the troubled commercial loan portfolio has ensured a more risk-conscious culture. 
  • Substantial capital raisings bolstered the balance sheet, ensuring that the bank satisfies capital rules and can still fund investments in technology and expand loan balances. 
  • Productivity improvements not only lead to improved operating margins, but a more streamlined loan approval process lifts mortgage growth rates. 
  • Management extract greater cost and revenue synergies from the acquisition of ME Bank.

Company Profile 

Bank of Queensland, or BOQ, is an Australia-based bank offering home loans, personal finance, and commercial loans. BOQ operates both owner-managed and corporate branches, and is the owner of Virgin Money Australia. Its BOQ business includes the BOQ branded commercial lending activity, BOQ Finance and BOQ Specialist businesses. The division provides tailored business banking solutions including commercial lending, equipment finance and leasing, cashflow finance, foreign exchange, interest rate hedging, transaction banking, and deposit solutions for commercial customers

(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
Dividend Stocks Sectors

Attractive valuation and yield makes Aurizon an appealing stock

Investment Thesis:

  • Undemanding valuation relative to the market. 
  • Current share price is factoring in several negative sentiments already. 
  • Higher (and stabilizing) commodity prices should translate into improving volumes. 
  • Better than expected performance on the cost out. 
  • Attractive dividend yield 
  • Mostly defensive earnings backed by contracts, providing stability in shareholder returns. 
  • The Company does have long-term plans to reduce exposure to coal.

Key Risks:

  • Significant decline in commodity prices leading to mine closures or reduce volumes from customers. Any potential declines in iron ore prices. 
  • Structural decline in some commodities (e.g. coal). 
  • High costs impacting margins. 
  • Contract repricing resulting in longer term revenue loss. 
  • Pricing pressure to increase. 
  • Potential cuts to dividends given the elevated payout ratio. 
  • Weather related impacts.

Key highlights:

  • Management noted that they have identified growth opportunities. Near-term earnings appear to be more stable.
  • Group revenue of $3,019m was down -1%, EBITDA of $1,482m was up +1% (with operating costs down -4%), and NPAT of $533m mostly unchanged
  • The flat earnings outcome for the year were driven by a decline in Coal volume being offset by higher earnings in Bulk and Network, primarily due to the commencement of WIRP fee billing.
  • Cost improvements came on the back of lower access and lower fuel expenses, with cost pressure from volume growth in Bulk being offset by transformation benefits
  • AZJ maintained its 100% dividend payout ratio with a final dividend of 14.4cps (up +5% YoY + 70% franked), taking FY21 dividend to 28.8cps.
  • The segment wise contribution of Aurizon is as follows:
  • Network: FY21 revenue was up +4% YoY (Track Access +4%, Services & Other -19%) and EBITDA was up +6% to $849m. Segment earnings were driven by revenue growth and supported by lower operating costs (down -3%) and Energy & Fuel expenses (down -5%).
  • Coal: FY21 revenue was down -9% YoY (Above Rail -8%, Track Access -13%) and EBITDA down -13% to $533m, with earnings supported by lower operating costs (down -4%) and access costs (down -11%). Top line growth was impacted by a decline in haulage volumes over the year.
  • Bulk: FY21 revenue was up +4% YoY (net of access, revenue was up +10%), driven by new contract and services growth. EBITDA was up +27% to $140m, with earnings driven higher by lower operating costs (down -6%) and access costs (down -23%)

Company Description: 

Aurizon Holdings Ltd (AZJ) operates an integrated heavy haul freight railway in Australia. It transports various commodities, such as mining, agricultural, industrial and retail products; and retail goods and groceries across small and big towns and cities, as well as coal and iron ore. The Company also operates and manages the Central Queensland Coal Network that consists of approximately 2,670 kilometres of track network; and provides various specialist services in rail design, engineering, construction, management, and maintenance, as well as offers supply chain solutions. In addition, it transports bulk freight for customers in the resources, manufacturing, and primary industries sectors. The Company was formerly known as QR National Limited and changed its name to Aurizon Holdings Limited in December 2012. AZJ is headquartered in Brisbane, Australia.

(Source: Banyantree)

General Advice Warning

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

Categories
Funds Funds Research

Vanguard Total International Stock Index Fund Investor Share: A fund providing outstanding diversification with ultralow fee

Investment Objective 

The Fund seeks to track the performance of a benchmark index that measures the investment return of stocks issued by companies located in developed and emerging markets, excluding the United States.

Approach

Vanguard’s portfolio managers use full replication to track the FTSE Global All Cap ex U.S. Index. This benchmark starts with all stocks listed outside of the United States and sorts them by their free-float adjusted market cap. It targets firms that land in the top 98% of each country’s market capitalization. The index uses buffer rules around the cutoff point to keep turnover low, and it applies some additional liquidity requirements to ensure that its holdings are investable. The index weights its final constituents by market cap, which helps further mitigate turnover and trading costs. It reconstitutes semiannually in March and September.

Portfolio 

This fund captures the entire foreign stock market. Its comprehensive portfolio effectively diversifies stockspecific risk, with only 9% of assets in its 10 largest holdings. . Sector weightings are comparable, with financial and industrial stocks collectively representing almost one third of the portfolio. Eurozone stocks represent the largest regional allocation, at 20% of the portfolio, while Japan and the United Kingdom make up an additional 16% and 9.4%, respectively. The fund does not hedge its currency risk, so its exposure to currencies like the euro, yen, and pound can add to its volatility. Stocks listed on emerging-markets exchanges account for a little more than 28% of this fund. Allocating to these companies improves the fund’s reach and shouldn’t materially impact its risk or performance. The fund includes small caps but weights its holdings by market cap. So, it leans toward large-cap multinationals, with companies like Taiwan Semiconductor, Nestle, and Samsung among its biggest names.

People

The portfolio managers on this fund are part of Vanguard’s Equity Index Group. Christine Franquin and Michael Perre share responsibility for this fund. They are both principals at Vanguard and captain some of Vanguard’s largest index-tracking funds listed in North America. This duo not only oversees the portfolio but also executes trades on a day-to-day basis

Performance

This fund’s category-relative performance has not stood out from its competitors in the foreign large-blend category. The Admiral share class managed to slightly edge out the average of its peers by 18 basis points annualized over the 10 years through November 2021. The fund’s larger-than-average stake in emerging- markets stocks was a drag during the first few years of that period and partially explains its mediocre showing. The fund’s composition looks a lot like the category average, and it remains fully invested in order to tightly track its target index. That means it tends to post average performance during volatile periods like the coronavirusdriven sell-off in the first quarter of 2020. The fund’s 24% decline was comparable to the loss incurred by the category norm over those three months.

Recent category-relative performance has been stronger. The portfolio led the category average by 67 basis points per year over the trailing three years through November 2021, landing just outside the top third of the category. Poor stock selection in the financials and information technology sectors on the part of some active managers hurt their category-relative performance and boosted the fund’s standing.

Top holdings of the fund

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About the fund

The fund tracks the FTSE Global All Cap ex U.S. Index, which includes stocks of all sizes from foreign developed and emerging markets. It weights them by market cap, an approach that benefits investors by capturing the market’s collective opinion of each stock’s value while keeping turnover low. This is one of the broadest portfolios in the foreign large-blend category. Its exceptional diversification mitigates the impact of holding the worst-performing names. It holds more than 7,000 stocks and has only 9% of assets in its 10 largest positions. Its regional composition looks modestly different from a typical fund in the category because it has a larger dose of emerging-markets stocks. But their weight in the portfolio isn’t large enough to materially increase the fund’s risk or compromise its category relative performance.

(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.