Category: Sectors

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Dividend Stocks

Core business of Magellan Financial Group managed to grow despite a lesser outperformance

Investment Thesis:

  • Principal Investments could grow to become a meaningful contributor to group performance over the medium-to-long term
  • MFG no longer trades at a significant premium to its peer-group post the recent derating 
  • Acquisitions could pave growth runways, helping to ease the Company’s fund capacity constraints 
  • Average base management fee (bps) per annum (excluding performance fee) continues to be stable but there are risks to the downside from pressures on fees (which is an industry trend not specific to MFG alone)
  • Continued strong investment performances, especially in the global and infrastructure funds 
  • Growing levels of funds under management 
  • New strategies could significantly increase addressable market and help sustain earnings growth

Key Risks:

  • Decline in fund performance
  • Risk of potential funds outflow – both retail and institutional (loss of a large mandate)
  • Execution risk with the acquisitions
  • Significant key man risk around Hamish Douglass and key management or investment management personnel
  • New strategies fail to add meaningful earnings to the group

Key highlights:

  • MFG’s FY21 adjusted net profit of A$412.7m, declined -5.8% over pcp, which came in below consensus estimate of A$434m, as a year of trailing the market for MFG’s most important global equities strategy, the Magellan Global Fund, reduced the performance fee take for FY21 by -63% to $30.1m
  • The core business of funds management still managed to grow despite a lesser outperformance overall, and the Company reported management and service fees increasing +7% over pcp to $635.4m and average FUM increase of +9% to $103.7bn
  • The Board declared a final dividend of $1.141 a share taking FY21 dividend to $1.22 a share and announced a dividend reinvestment plan discounted at 1.5%
  • Management saw total Funds Management expenses declined -8.5% over pcp to $106.9m
  • Management has restructured three Global Equities retail funds into a single trust (Magellan Global Fund) with total FUN of $18bn

Company Description: 

Magellan Financial Group Ltd (MFG) is a specialist funds management business. MFG’s core subsidiary, Magellan Asset Management Ltd, manages ~$53.6bn of funds under management across its global equities and global listed infrastructure strategies for retail, high net worth and institutional investors.

General Advice Warning

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

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Dividend Stocks

Orora Ltd. reported solid operating earnings of $369.3m, up by 11.5%

Investment Thesis:

  • Trading on fair value relative to our valuation
  • Exposure to both developed and emerging markets’ growth 
  • Near-term headwinds should be in the price
  • Revised strategy following recent strategic review
  • Bolt-on acquisitions (and associated synergies) provide opportunity to supplement organic growth 
  • Leveraged to a falling AUD/USD 
  • Potential corporate activity
  • Capital management (current on-market share buyback plus potential for additional initiatives)

Key Risks:

  • Competitive pressures leading to margin erosion 
  • Input cost pressures which the company is unable to pass on to customers 
  • Deterioration in economic conditions in US, EM and Australia
  • Emerging markets risk 
  • Adverse movements in AUD/USD
  • Declining OCC prices

Key highlights:

  • ORA delivered a solid FY21 result, which came in ahead of consensus expectations – revenue of $3,538m was up +7.8% YoY
  • Operating earnings (EBITDA) of $369.3m was up +11.5% YoY
  • NPAT of $156.7m was up +34.1% YoY
  • EPS up +29% to 16.9cps (also driven by the on-market share buyback) and full year dividend of 14cps up +16.7% on pcp (representing a payout ratio of ~80% vs target range 60-80%)
  • Strong performance in the North America business, which delivered revenue growth of +8.2% and EBIT growth of +43.0% year-on-year (YoY) in constant currency
  • Leverage increased from 0.9x to 1.5x, driven by the impact of the on-market share buyback
  • With a strong balance sheet, the Company is looking to invest to drive growth
  • Australasia segment revenue was up +6.1% to $834
  • North America segment revenue was up +8.2% to US$2,019.8m and EBIT was up +43.0% to US$73.8m

Company Description: 

Orora Limited (ORA) provides packaging products and services. The Company offers fiber, glass and beverage can packaging materials in Australia and Asia and packaging distribution services in North America and 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.

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Funds Funds

SPDR S&P/ASX 200 Listed Property Fund: Decent option for A-REIT investments in a competitive market

About The Benchmark

A sector sub-index of the S&P/ASX 200, this index tracks the performance of Australian real estate investment trusts (A-REITs) and mortgage REITs.

Fund Objective

The SPDR S&P/ASX 200 Listed Property Fund seeks to closely track, before fees and expenses, the returns of the S&P/ASX 200 A-REIT Index.

Process 

SLF aims to fully replicate the S&P/ASX 200 A-REIT Index. REITs are listed vehicles that own and operate property. REITs are required to pass on the majority of their income to investors to enjoy favourable taxation arrangements, and distributions are not franked. High payout ratios and an absence of franking mean that REITs typically offer a high headline yield relative to other stock market sectors. SLF is by far the longest running, with an FUM of AUD 650 million as at September 2021, which helps it to maintain trading levels far above most rivals. SPDR doesn’t participate in securities lending for Australian ETFs.

Portfolio

With the relatively short list of A-REIT names in the S&P/ASX 200, the portfolio is understandably concentrated. As at September 2021, the index consists of 24 holdings, with the top 10 accounting for over 85% of the total portfolio. The exposure to the largest current holding, Goodman Group, has ballooned significantly over the past five years to 27% from around 11%. Seeing that the index is relatively untouched by any reconstitutions, portfolio turnover is quite low at 5%. However, in case of an eventual entry or exit of the constituents, the concentrated index is susceptible to reconstitution, which may lead to a meaningfully altered portfolio.

Top 10 HoldingsWeight (%)
GOODMAN GROUP27.07
SCENTRE GROUP11.52
DEXUS/AU8.59
MIRVAC GROUP8.17
STOCKLAND7.98
GPT GROUP7.27
CHARTER HALL GROUP5.93
VICINITY CENTRES4.91
SHOPPING CENTRES AUSTRALASIA2.20
CHARTER HALL LONG WALE REIT2.06

Sector Allocation

Sub-Industry BreakdownWeight (%)
Diversified REITs34.79
Industrial REITs28.49
Retail REITs23.96
Office REITs9.46
Specialized REITs1.90
Residential REITs1.41

People

The Global Equity Beta Solution team that is responsible for managing this ETF has undergone a leadership transition recently. Effective September 2021, John Tucker has been appointed as the new chief investment officer, replacing Lynn Blake, who has taken retirement. Tucker is a State Street veteran who has been in multiple senior leadership roles within GEBS for the past 20 years. The ecosystem and structure of the investment team is well-defined, where research and trading functions are centralised and spread out globally; however, portfolio managers are based locally. Australia-domiciled passive products are managed by a core team of Tucker and four portfolio managers: Alexander King, Lillian Poon, Andrew Howson, and Elda Dong.

Performance

The fund has managed its tracking difference well, matching up to the benchmark after accounting for management fees. SLF has recorded a return of 6.54% since its inception in 2002. As at the close of 2019, the annualised five-year returns for the fund stood at an attractive 10.55%, outperforming the category returns of 9.87%. The rally was mainly driven by the strong returns of Goodman Group in the latter half of the five-year period.

Total Return1 Month3 Month6 Month1 Year3 Year p.a5 Year p.aSince Inception  p.a
Fund (%)0.384.2712.0730.259.578.636.54
Index (%)0.424.3812.3430.879.878.966.78

(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 Shares

Cochlear reported solid FY21 results, with earnings up by 54%

Investment Thesis:

  • Attractive market dynamics – growing population requiring hearing aids, improving health in EM providing more access to devices such as hearing aids and relatively underpenetrated market
  • There remains a significant, unmet and addressable clinical need for cochlear and acoustic implants that is expected to continue to underpin the long‐term sustainable growth of COH
  • Market leading positions globally
  • Direct-to-consumer marketing expected to fast track market growth 
  • Best in class R&D program (significant dollar amount) leading to continual development of new products and upgrades to existing suite of products 
  • New product launches driving continued demand in all segments 
  • Attractive exposure to growth in China, India and more recently Japan 
  • Solid balance sheet position
  • Potential benefit from Australian tax incentive 
  • Subject to successful passage of legislation, the patent box tax regime for medical technology and biotechnology should encourage development of innovation in Australia by taxing corporate income derived from patents at a concessional effective corporate tax rate of 17%, with the concession applying from income years starting on or after 1 July 2022 

Key Risks:

  • Product recall
  • Sustained coronavirus outbreak which delays recommencement of hospital operations in China
  • R&D program fails to deliver innovative products 
  • Increase in competitive pressures 
  • Change in government reimbursement policy 
  • Adverse movements in AUD/USD
  • Emerging market does not recoup – significant downside to earnings

Key highlights:

  • COH reported strong FY21 results, with earnings (underlying NPAT) up +54% to $237m and within guidance of $225-$245m, despite Covid-19 impacted surgery activity recovering to varied levels across both developed and emerging markets
  • For FY22, it is expected to deliver net profit of $265‐285m, a 12‐20% increase on underlying net profit for FY21, based on a 74 cent AUD/USD
  • Sales revenue is expected to benefit from market growth, with a continuing recovery in surgery rates across many countries more affected by Covid
  • The management will continue their investment in market growth activities
  • Capex is expected to be ~$70‐90m for FY22 and includes around $20m related to a major process transformation and IT systems upgrade, a program that is expected to be a $100‐120m investment over the next four to five years
  • Effective tax rate is expected to decline to ~25% as a result of the introduction of changes to the R&D tax concession by the Australian government, with legislated changes to take effect from 1 July 2021
  • The Board is committed to maintaining the dividend policy which targets a 70% payout of underlying net profit
  • Record sales revenue of $1,493m, was up +10%, or +19% in constant currency (CC), driven by market share gains, market growth and rescheduled surgeries post Covid lockdowns
  • Implant units climbed +15% to 36,456 (developed markets up ~20%; emerging markets up ~10%), compared to FY19, implant units increased +7%
  • The Board declared final dividend of $1.40 which brings full year dividends to $2.55 per share, up +59% and equates payout ratio of 71% of underlying net profit, in line with COH’s 70% target payout
  • COH’s balance sheet position remains strong with net cash of $564.6m at year-end, improving from $457m in FY20

Company Description: 

Cochlear Ltd (COH) researches, develops and markets cochlear implant systems for hearing impaired people. COH’s hearing implant systems include Nucleus and Baha and are sold globally. COH has direct operations in 20 countries and 2,800 employees.

(Source: Banyantree)

General Advice Warning

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

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Shares Small Cap

Nufarm’s Fiscal 2022 Cash Conversion and working capital moves favourable

Business Strategy and Outlook

Nufarm is a major producer of crop-protection products including herbicides, fungicides, and pesticides, selling into all major world markets. The company is leveraged to growing demand for crops for biofuels, and food from rapidly industrialising markets such as China and India. Growth should come from astute brand and offshore business investments and from a customer-service-focused strategy. However, the global crop-protection markets are competitive and earnings are cyclical, given a reliance on seasonal conditions. Sumitomo Chemical’s 16% investment in Nufarm endorses the quality of its global distribution. Collaboration broadens product portfolios and adds distribution in Asia.

Nufarm has a growing presence in North America and Europe. Sound sales momentum has been evident in North America and Europe. Several Chinese companies have previously expressed interest in acquiring Nufarm, but withdrew either because of too high a price demanded by the board, or because of reduced availability of debt. In 2010, Japanese company Sumitomo Chemical bought 20% of Nufarm, subsequently increasing its stake to 23% before diluting to 16%. The resultant collaboration should boost the performance of both companies, given little product portfolio overlap.

Financial Strength

Nufarm’s balance sheet is in great shape. In early April 2020, the company received AUD 1.2 billion net sale proceeds from major shareholder Sumitomo, for the sale of its South American crop protection and seed treatment operations in Brazil, Argentina, Colombia, and Chile. This significantly bolstered the finances at a very fortuitous time, coming mid coronavirus. Prior to this in January 2020, group net debt had stood at a whopping AUD 1.6 billion. Nufarm’s under-leveraged balance sheet remains a strength. Fiscal 2021 net operating cash flow rebounded strongly from negative AUD 398 million in the pcp to positive AUD 370 million. This reflects a focus on working capital management. It sees net debt down 40% to a modest AUD 173 million, leverage (ND/(ND+E)) of just 8% and net debt/EBITDA very comfortable at 0.5. Net working capital significantly improved post sale of the Latin American business and remains a focus with improved debtor collections, reduced inventory and foreign exchange translation.

Our AUD 7.00 fair value for no-moat crop protection company Nufarm. Underlying fiscal 2021 NPAT improved to positive AUD 61 million against an underlying loss of AUD 67 million in the pcp. NPAT in the fiscal second half was negligible at just AUD 0.7 million. On a full fiscal year basis, APAC revenue enjoyed a sharp turnaround, up 52% to AUD 858 million and segment EBITDA margin nearly doubled to 12.7%. Nufarm shares plunged 8.5% on the day of profit release, a strange response given an all-important strong cash flow performance. The fall may have been in reaction to a decline in salmon demand impacting sales of Omega-3 canola. But there is a long way to run on Omega-3, still in its infancy, and we are unconcerned.

Bulls Say’s

  • Nufarm benefits from potential strength in soft commodities markets. 
  • Nufarm has well-established distribution platforms in most major global agricultural markets. 
  • Product and geographic diversification helps reduce earnings volatility.

Company Profile 

Nufarm Limited is a global crop-protection company that develops, manufactures, and sells a range of crop-protection products, including herbicides, insecticides, and fungicides. Nufarm sells its products in most of the world’s major agricultural regions, and operates primarily in the off-patent segment of the crop-protection market. Nufarm operates along two business lines: crop protection and seed technologies.

(Source: MorningStar)

General Advice Warning

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

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Shares Small Cap

Huon reported results as expected; however earnings dented due to impacts of Covid

Investment Thesis:

  • HUO takeover price is $3.85. The Board have announced it believes accepting the offer is in the best interest of shareholders, absent any superior offer or independent expert advice.
  • Founding/major shareholders, Frances and Peter Bender, who hold ~53% of total shares, intend on voting in favour.
  • Growing consumer preference for natural and organic products, both in Australia and abroad, may see significant increase in salmon sales and therefore higher share prices. 
  • Number two player in the domestic market. 
  • With rational behaviour around pricing, the concentrated industry could benefit. 
  • Supportive salmon prices given disruption to global salmon supply. 
  • High barriers to entry (desired temperatures and regulatory licenses difficult to obtain). 
  • Given the complex nature of salmon farming HUO is unlikely to have its dominant position as an Australian salmon farmer ever seriously threatened.

Key Risks:

  • Takeover fails to proceed. 
  • Impact to production due to adverse weather conditions and diseases. 
  • Chemical coloring in salmon may lead to further negative publicity and undermine demand for salmon.
  • Cost pressures or cost blowout could deteriorate margins significantly given the large cost base relative to earnings (EBITDA). 
  • Irrational competitive behaviour (domestic and international markets). 
  • Negative media on the sustainability of the Tasmanian salmon industry.

Key highlights:

  • On an operating basis, EBITDA of $16.7m was in line with management guidance but declined -65% on pcp due to a -10% fall in the average price, made worst by an increase in production which caused a shift in the channel mix to spot export sales at materially increased freight costs.
  • NPAT decline of -$128.1m was a significant deterioration from $4.9m in the pcp.
  • Cash flow from operations was -$3.0m reflecting higher working capital requirements as freight costs doubled on pcp to $66m.
  • The two main contributors were the -12% fall in the average international salmon price in FY2021 compared to the previous year and the significant increase in freight charges due to limited access to international flights.
  • The impact of these were amplified by the commencement of Huon’s ramp up in production as part of its five-year strategy to expand capacity to meet future growth in domestic demand
  • The shut-down of international commercial flights was a major impediment to gaining access to the markets Huon needed to sell 44% of its FY2021 harvest.
  • HUON also announced on 6 August 2021, a takeover offer at $3.85 per share which is a +38% premium to the Huon share price of $2.79 on the prior trading day’s close.

Company Description: 

Huon Aquaculture (HUO) is a vertically integrated salmon producer in Australia. Its operations span all aspects of the supply chain, from hatcheries and marine farming to harvesting and processing, as well as sales and marketing. HUO’s marine farms are located in the cool, pristine waters of Tasmania, with the Company’s logistics infrastructure delivering salmon efficiently to the major fish markets around 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
Dividend Stocks Sectors

HDB posted a solid 2Q22 result beating consensus top and bottom line estimate

Investment Thesis 

  • HDB is expected to be a beneficiary of Indian GDP growth. 
  • Positive demographic trends. Long term positive view on the sector given increase in working population, growing disposable income and positive changes to the regulatory environment.
  •  Strong brand with strong national network (5,314 banking outlets across 2748 cities) with a customer base of over 49m. Market leader in credit cards (13.3m) and a leading provider of payment gateway services, leading to high quality non fund revenues. Strong deposit base with CASA deposits (low cost deposits) comprising 39.3% of total deposits. 
  •  Healthy business fundamentals reflected through high interest margins expected to continue. 
  •  Focus on digitalization to improve efficiency and reduce cost to income ratio. 
  • Stable provisioning/bad and doubtful debt levels. 
  •  Partnering with the government to push for customer acquisition. 
  • Rapid growth in subsidiaries is expected to continue. 
  •  Reliable and competent management team.

Key Risks

  • India is not without concerns, especially around volatility and risk (such as India’s trade deficit and being a net oil importer, adverse movements in oil prices and in the U.S dollar are potential risks).
  • Intensifying competition and weak economy leading to decline in loan growth. 
  •  Cyber security threats given high volume of transactions through internet and mobile (92% of total transactions). 
  •  Political and regulatory changes affecting the banking legislation. 
  •  Funding pressures for deposits and wholesale funding

FY22 Results Highlights

  • Net revenues (net interest income plus other income) increased +14.7% over pcp, driven by growth in advances of +15.5% (reaching new heights driven through relationship management, digital offering and breadth of products) and deposits growth of +14.4%. Net interest income grew +12.1% over pcp and remained at 70% of net revenues, reflecting the underlying shift from unsecured lending essentially gravitating towards higher rated segments in the Covid period. 
  •  Other income increased +21.5% over pcp (+17% QoQ) with Fees and Commission income (constitutes approximately 2/3 of the other income) growing by +25.5% over pcp (retail constitutes 93% and wholesale constitutes 7% of the fees and commission income), FX and derivatives income growing +55% over pcp and Trading income declining -34% over pcp. 
  •  Provisions and contingencies increased +6% over pcp to INR 3,924.7 crore (consisting of specific loan loss provisions of INR 2,286.4 crore and general and other provisions of INR 1,638.3 crore). 
  •  The total credit cost ratio declined -37bps over pcp (-11bps QoQ) to 1.30%.

Strong balance sheet with CAR significantly higher than regulatory requirement. 

  • Strong capital position with total Capital Adequacy Ratio (CAR) up +90bps over pcp to 20.0% (vs regulatory requirement of 11.075%), Tier 1 CAR up +100bps to 18.7% and CET 1 at 17.4%. 
  •  Ample liquidity with average LCR for the quarter at 123%, ~$6bn excess over a floor of 110%, which positions the Bank favourably to capitalize on the opportunities that would arise as the economy gains momentum during the festive months. 
  •  Total deposits increased +14.4% over pcp to INR 1,406,343 crore, with CASA (Current Account-Saving Account) deposits growing +28.7% (savings account deposits at INR 452,381 crore and current account deposits at INR 205,851 crore) and Time deposits growing +4.2% to INR 748,111 crore, resulting in CASA deposits comprising 46.8% of total deposits. Total advances increased +15.5% over pcp to INR 1,198,837 crore, with retail loans growing +12.9%, commercial and rural banking loans growing +27.6% and other wholesale loans grew +6.0%, and overseas advances constituting 3.5% of total advances.

Leadership maintained in Payment business to be further enhanced by growth in BNPL

Management maintained leadership in payments business with acquiring business market share of 47% (acquiring business volumes including credit, debit, UPI, EPI, direct pay grew +45% over pcp to INR3,53,000 crore for the quarter with merchant acceptance points growing +27% over pcp to 2.5m), remaining confident of achieving a scale of 20 million merchants over time to be the largest payments ecosystem in the country. Additionally, the Bank has seen momentum returning in credit card with 416,000 cards issued during last 5 weeks of 2Q22 and early results for the first 10 days of October showing +42% growth in card spends over similar period in September driven by festive spend

(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
Dividend Stocks Shares

National Australia Bank (NAB) delivered a solid FY21 result despite underlying profit declining

Investment Thesis

  • Ongoing share back should be supportive of share price levels.
  • Well capitalized after the capital raising.
  • Expectations of further customer remediation costs.
  • Impairment charges provisioned for in 1H20 with lower risk of further impairments (especially as a low interest rate environment helps customers and arrears).
  • Strong franchise model with management capable of improving below a 40% cost to income ratio (however we do not factor in management’s long-term target of 35%). 
  • Potential pressure on net interest margins as competition intensifies with other major banks in a low interest rate environment. Though we expect these pressures to slightly alleviate as we move into a higher interest rate environment.
  • Improving return on equity with management proving their abilities in recent times to manage profitability in a low interest rate environment.
  • Strong provisioning coverage.
  • A well-diversified loan book.

Key Risk

  • Low growth environment impacting earnings.
  • Potential cuts or reduction to dividends due to low earnings growth. 
  • Intense competition for loan and deposit growth.
  • Normalizing / increase in bad and doubtful debts or increase in provisioning.
  • Funding pressure for deposits and wholesale funding (increased funding costs).
  • Any legal fees, settlements, loss or penalties associated with ASIC or US-based law suits.

FY21 Results Key Highlights:  Relative to the pcp:

  • Revenue declined -2.4% to $16,729m. Excluding large notable items in FY20, revenue was -3.0% lower, on lower Markets & Treasury (M&T) income, which was challenged due to limited trading opportunities.
  • Cash earnings up 76.8% to $6,558m. Excluding FY20 large notable items, cash earnings were up +38.6%.
  • Cash return on equity up 420 basis points to 10.7%.
  • Net interest margin of 1.71%, was 6bps lower due to M&T. NAB saw NIM pressure due to the low interest rate environment, home lending competitive pressures and a mix shift towards more fixed rate lending.
  • Group Common Equity Tier 1 ratio of 13% was up 153bps from September 2020 and includes 29bps net proceeds from the sale of MLC Wealth. Leverage ratio (APRA basis) is at 5.8%. Liquidity ratio quarterly average of 128%. Net Stable Funding Ratio of 123%.
  • Fully franked final dividend per share of 67 cents was up from 30cps in 2H20, and brings full year dividend to $1.27 per share, up +111% from 60cps in FY20.
  • Credit impairment charge write-back of $217m (versus $2,762m in FY20) reflecting forward looking provisions and lower underlying charges.
  • Collective provisions at 1.35 of credit risk weighted assets.

Company Profile

National Australia Bank Limited (NAB) is one of Australia’s largest banks, with the majority of their financial service businesses operating in Australia and New Zealand. The bank also has a presence in Asia, UK and the US. NAB offers banking services, credit and access card facilities, leasing, housing and general finance, international and investing banking, wealth and funds management, life insurance and custodian, trusts and nominee services.  

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
LICs LICs

Loomis Sayles Global Equity Fund: Concentrated portfolio of best global equities

The Responsible Entity (RE) is Investors Mutual Limited who has appointed Loomis, Sayles & Company, L.P as the Investment Manager of the Fund. Loomis Sayles is a global asset manager that was established in 1926 and had over US$350b AUM as at 30 June 2021 across fixed income and equity investment mandates.

The Fund has a long only investment strategy with a fundamental bottom-up investment approach with the portfolio representing the “best ideas” of the investment team. The Fund seeks to deliver a return (after fees and expenses but before taxes) in excess of the benchmark (MSCI All Country World Index) over a full market cycle, which is considered to be 3-5 years. The Manager has an unconstrained mandate with no sector, style or geographic limitations. Stock selection is driven by the fundamental bottom up analysis undertaken by the investment team. The portfolio is concentrated given the investable universe with 35-65 stocks. The Manager has a long-term investment horizon and as such typically has low levels of portfolio turnover. The portfolio is expected to be largely fully invested at all times, with the portfolio typically having a cash position of less than 5%.

Investment Team:

Eileen Riley and Lee Rosenbaum have managed the investment strategy behind the Loomis Sayles Global Equity Fund since 2013. They’re supported by a team of analysts and a solid foundation of interconnected firm-wide resources, enabling them to leverage extensive research capabilities across equity and debt. Collaboration helps ensure capital flows to the team’s best ideas.

Performance:

Global Equity Fund1 month1 yr2 yrs3 yrsSince Inception
Total Return2.70%27.20%19.00%20.00%20.00%
Benchmark*1.10%28.30%14.90%15.40%15.40%
Outperformance1.60%-1.10%4.10%4.60%4.60%

About the fund:

The Loomis Sayles Global Equity Fund seeks to provide a concentrated portfolio of best ideas in global equities. Using foresight and flexibility, the team behind the Loomis Sayles Global Equity Fund look far and wide to pursue attractive, sustainable potential returns. Their sound investment philosophy and disciplined process focus on uncovering drivers of long-term company performance. The research-driven approach is unconstrained by style, sector, or geography, with the flexibility to invest across market capitalisations, while risk management is integral to every investment decision.

This delivers a distinctive yet disciplined approach to global equities investing which looks different to other funds while seeking to deliver potential returns above the benchmark over the long term.

(Source: FNArena, loomissayles.com.au)

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

Synaptics well-positioned to capitalize on the secular trends toward smart devices and experience-centric

Business Strategy and Outlook:

Synaptics is an emerging provider of audio, video, automotive, docking, and wireless products for the consumer Internet of Things market, and to a decreasing extent, a developer of touch, display, and fingerprint solutions for the mobile device and PC markets. As the mobile and PC markets mature and growth opportunities diminish, Synaptics has focused investment efforts and resources on consumer Internet of Things, particularly on automotive, smart homes, and low power edge artificial intelligence, which we view favourably.

Within mobile, legacy solutions include discrete touch circuits that enable touch-based device interaction and user authentication, and display drivers to control LCD, and increasingly OLED, displays. As the mobile industry matures, component suppliers face heightening competitive pressures from industry consolidation, supplier price wars, and fast design refresh cycles. Over recent years Synaptics has worked to abate its mobile business’ decline by building combined products, like touch and display driver integrated chips, or TDDI chips, which, while industry-unique, failed to gain traction in the saturated competitive landscape. Accordingly, the transition to an Internet of Things-focused portfolio is viewed as a smart, necessary move.

Financial Strength:

As Synaptics made the strategic decision to divest its low margin LCD TDDI business in 2020 and transition investment focuses to higher-margin Internet of Things products, the company experienced a return to growth in its top line in fiscal 2021. 

Synaptics is in decent financial condition. At the end of fiscal 2021, the firm had $836.3 million in cash and equivalents, compared with $881.5 million of debt on its balance sheet. While the majority of the debt matures in the next year, analysts believe the cash cushion is strong and expect little material impact to future liquidity. Overall, the company generates adequate cash flow to meet its interest expense obligations. The company is anticipated to maintain a cash position that allows it to withstand the cyclical troughs to which semiconductor firms are prone while also maintaining a healthy research and development budget to remain competitive in the cutthroat consumer electronics market. Capital allocation priorities include organic growth investments, strategic acquisitions, debt level management, and opportunistic share repurchases.

Bulls Say:

  • An emerging leader in the Internet of Things space with its broad portfolio of audio, video, and wireless solutions winning designs in multiple Internet of Things end markets. 
  • The acquired Conexant, Marvell’s multimedia solutions business, DisplayLink, and Broadcom’s Internet of Things business have significantly diversified Synaptics’ product portfolio and opened it up to new high growth areas.
  • As the automotive industry experiences secular trends toward the digitalization of cars, Synaptics’ rapidly growing TDDI product for infotainment systems is likely to continue fueling success.

Company Profile:

Synaptics is a global producer of semiconductor solutions for the mobile, PC, and Internet of Things markets. The company develops human interface solutions that enable touch, display, fingerprint, video, audio, voice, AI, and connectivity functions for smartphones, PCs, Internet of Things products, and other electronic devices.

 (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.