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Wyndham’s Brands Continue to See Industry Leading Travel Recovery in the U.S.

a brand intangible asset and switching cost advantage. This view is supported by the company’s roughly 40% share of all U.S. economy and midscale branded hotels and the industry’s fourth-largest loyalty program by which encourages third-party hotel owners to join the platform. 

With essentially all of its nearly 9,000-plus hotels managed or franchised, Wyndham has an attractive recurring-fee business model with healthy returns on invested capital, as these asset-light relationships have low fixed costs and capital requirements. This asset-light model creates switching costs, given 10- to 20-year contracts that have meaningful cancellation costs for owners.

The 2018 acquisition of La Quinta as a strategically strong fit that supports Wyndham’s intangible-asset-driven narrow moat while enhancing long-term growth Cyclicality, illnesses like COVID-19, and overbuilding are the main risks for shareholders.

Wyndham Continues to Lead the Global Travel Rebound; More Demand Recovery Expected in 2022

Wyndham’s leisure, continued to lead the global travel recovery in the third quarter, with total revenue per available room reaching 98% of 2019 levels. U.S. and international revPAR increased to 107% and 75% of 2019 levels, respectively, up from 95% and 56% in the three months prior. Wyndham expects demand to sustain in the fourth quarter and now sees its 2021 revPAR growth at 43% versus 40% prior and compared with our forecast of 41%. 

Looking to 2022, we expect strong U.S. leisure demand to continue, aided by remote work flexibility, while international markets should experience a strong revPAR recovery because vaccination rates now allow for reduced travel restrictions. This view is supported by Wyndham’s Canadian revPAR improving to 90% of 2019 levels in the quarter, up from around 60%, as the country reduced its pandemic-related restrictions.

Financial Strength

Wyndham’s financial health remains in good shape, despite COVID-19 challenges. Wyndham exited 2020 with debt/adjusted EBITDA of 7.9 times, up from 3.5 times in 2019, as its asset-light business model allows the company to operate with low fixed costs and stable unit growth . But Wyndham did not sit still during the depths of the pandemic; rather, it took action to increase its liquidity profile, tapping its $750 million credit facility (which was repaid in full by Nov. 2020), cutting discretionary expenses, suspending buybacks, and reducing its quarterly dividend from $0.32 to $0.08 (which was increased back to $0.32 per share in Oct. 2021).Further, Wyndham saw positive cash flow generation in 2020, despite COVID-19 significantly reducing global travel demand in that year. While Wyndham’s adjusted EBIT/interest expense was negative 0.4 times in 2020.The company has only $64 million in debt maturing over the next three years. 

Bull Says

  • The La Quinta brand offers long-term growth opportunity to 2,000 units from 937 at the end of 2020, as it is not in 30% of the regions monitored by Smith Travel Research, despite strong third-party hotel operator renewal rates and strong revPAR share in existing market.
  • Wyndham’s economy/midscale select service presence operates at low operating costs, allowing its U.S. hotels to break even at 30% occupancy levels. 
  • The vast majority of Wyndham Hotels’ EBITDA is generated by service-for-fee operations, which are less capital-intensive than owned assets, leading to healthy ROICs.

Company Profile

As of Sept. 30, 2021, Wyndham Hotels & Resorts operates 803,000 rooms across 22 brands in the economy (around 51% of total U.S. rooms) and midscale (45%) segments. Super 8 is the largest brand, representing around 30% of all hotels, with Days Inn (18%) and La Quinta (10%) the next two largest brands. During the past several years, the company has expanded its extended stay/lifestyle brands (2% of total properties), which appeal to travelers seeking to experience the local culture of a given location. The United States represents 61% of total rooms. The company closed its La Quinta acquisition in the second quarter of 2018, adding around 90,000 rooms at the time the deal closed.

(Source: Morningstar)

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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

Healius EBIT margin to expand to 13% by fiscal 2026 from 8% in pre-pandemic fiscal 2019

Healius is looking to new sources of strategic growth as well as dealing with prior under investment in infrastructure. There is much to fix in the business and we anticipate it to take a few years before significant margin improvements are made in the base pathology and imaging businesses. Healius selling its medical centers and Adora Fertility to focus on redirecting capital toward infrastructure upgrades and higher-margin Montserrat day hospitals is viewed as a positive strategic step.

Improvement in systems is key to improving efficiency. Pathology is an increasingly technologically driven service and the company intends to invest in a new laboratory information system, automation, and digitization through to fiscal 2024. In addition, the number of tests available is expanding. Increasing complexity of tests, such as veterinary and gene-based testing, is also resulting in average fee price increases. Pathology has a high fixed cost of operation and thus benefits from volume growth to drive lower cost-per-test outcomes.

Financial Strength

After divesting the medical centers and Adora Fertility businesses, Healius boasts significant balance sheet flexibility. While the sale proceeds were used predominantly to retire debt, Healius is also on track to return AUD 200 million to shareholders in the form of share buybacks in calendar 2021. At the end of fiscal 2021, Healius reported AUD 188 million in net debt, representing net debt/EBITDA of 0.7 times pre-AASB 16. Following Healius’ improvement program in the near term, it is expected to free cash flow prior to dividends to settle around 96% of net income at midcycle. The high cash conversion affords Healius to maintain dividend payout ratio of 60%, within Healius’ 50%-70% target range.

Bulls Say’s 

  • On top of the base level of COVID-19 testing that is likely to continue, Healius is well-positioned for underlying trends in preventive diagnostic treatments and outpatient care in its day hospitals. 
  • Simplifying the business via the sale of its medical centers and Adora Fertility is a positive indicator for the ultimate success of the company’s turnaround. 
  • Advances in technology and personalized medicine are increasing the number of complex and gene-based tests available to patients, which are typically higher margin.

Company Profile 

Healius is Australia’s second-largest pathology provider and third-largest diagnostic imaging provider. Pathology and imaging revenue is almost entirely earned via the public health Medicare system. Healius typically earns approximately 70% of revenue from pathology, 25% from diagnostic imaging and a small remainder from day hospitals.

(Source: Morningstar)

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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 Philosophy Technical Picks

CyrusOne Doing Well in Europe and With Hyperscalers, but It Doesn’t Have the Connectivity We Prefer

While the firm has seen major growth in interconnection revenue recently, as more enterprises are co-locating and connecting with their cloud providers, it does not operate any major Internet exchanges, and its properties are less network-dense than top competitors, so we think little differentiates its offering.

CyrusOne believes cloud companies favor outsourcing data centers because they can earn higher returns on capital in their core businesses and data center companies have building efficiency expertise and a cost advantage. CyrusOne is quickly expanding its portfolio to exploit the opportunity. It has nearly 3 times as much undeveloped land as developed and is now expanding outside the U.S. In 2017, it announced an operating partnership with GDS (to gain exposure to the Chinese market) and the acquisition of Zenium (two data centers each in Frankfurt and London). It intends to continue adding in Europe in the near term before focusing more on Asia.

Given the switching costs inherent in the industry and what is effectively CyrusOne’s first-mover advantage in procuring its existing tenants, it is expected that the firm will continue to grow and retain its customers. However, CyrusOne’s strategy to accumulate land and continue building could ultimately prove too aggressive, and it may not be able to fill all its future space on comparable terms, especially given cloud providers’ bargaining power (they have the size and financial ability to keep data centers in-house, and they provide the attraction for CyrusOne’s other tenants). CyrusOne is currently heavily investing, and it will ultimately realize a worthy payoff.

Financial Strength

CyrusOne’s financial position does not seem to be strong, but lack of near-term debt maturities and the ability to issue equity to fund expansion keep this from being a significant near-term concern. CyrusOne is one of the more highly leveraged data center companies we cover–nearly 6 times net debt/EBITDA at the end of 2020–but as a wholesale provider, it has long-term contracts in place with very financially strong tenants, so it should be able to easily meet its obligations, especially with no significant debt maturing before 2024. The firm has taken advantage of low interest rates and its investment-grade credit rating to reduce floating-rate debt to about one third of its total (down from about half at the end of 2019) and bring its weighted average cost of debt down to only about 2% at the end of 2020. CyrusOne has posted negative free cash flow (operating cash flow minus capital expenditures) each year since it went public in 2012, and to remain negative until 2024, as the company continues its aggressive expansion. 

Bulls Say

  • CyrusOne’s rapid expansion and increasing global presence makes it best positioned to capitalize on the huge demand for data centers brought on by cloud usage and a more data-dependent world. 
  • The Internet of Things, artificial intelligence, and other innovations that increase the demand for data and connectivity leave us in the early innings of a data center renaissance. 
  • CyrusOne’s global presence makes it a more attractive landlord for customers that prefer consistent providers worldwide. Only a handful of companies can offer a similar proposition.

Company Profile

CyrusOne owns or operates 53 data centers, primarily in the U.S., that encompass more than 8 million net rentable square feet. It has a few properties in Europe and Asia. CyrusOne has both multi tenant and single-tenant data centers, and it is primarily a wholesale provider, offering large spaces on longer-term leases. The firm has about 1,000 total customers, and cloud service providers and other information technology firms make up about half its total revenue. Its largest customer, Microsoft, accounted for over 20% of 2020 revenue, and its top 10 customers generated about 50%. After cloud providers, companies in the financial services and energy industries contributed the biggest proportions of CyrusOne’s sales.

 (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 Technology Stocks

Vivo Is Turning the Corner on Growth as Network Investments Bear Fruit

But the market faces several challenges, including stiff competition, a fragmented fixed-line industry, and general economic weakness that has also hurt the value of the Brazilian real. The plan to carve up Oi’s (Brazilian mobile network operator) wireless assets promises to significantly improve the industry’s structure, cutting the number of wireless players to three. Vivo also holds the largest, and fastest growing, fiber network footprint in Brazil, which should allow the firm to stabilize and ultimately grow broadband market share. While results will likely remain volatile, it is expected that Vivo will prosper as Brazilians continue to adopt wireless and fixed-line data services.

Vivo is the largest wireless carrier in Brazil by far, holding 34% of the wireless market, including 38% of the more lucrative postpaid business. The firm generated about 60% more wireless service revenue in 2020 than America Movil or TIM, its closest rivals. The three carriers have agreed to split up the wireless assets of Oi, the distant fourth-place operator that has been in bankruptcy protection. If successful, the transaction could remove a sub-scale player from the industry.

Financial Strength:

The fair value estimated is USD 11.00, which is mainly because revenue growth will average about 5% annually over the next five years.

Vivo’s financial health is excellent, as the firm has rarely taken on material debt. The net debt load increased to BRL 4.4 billion following the acquisition of GVT in 2015, but even this amounted to less than 0.5 times EBITDA. Cash flow has been used to allow leverage to drift lower since then. At the end of 2020, the firm held BRL 3.0 billion more in cash than it has debt outstanding, excluding capitalized operating leases. Even with the capitalized value of operating lease commitments, net debt stands at BRL 7.4, equal to 0.4 times EBITDA. Parent Telefonica has control of Vivo’s capital structure. While Telefonica’s balance sheet has improved markedly in recent years, the firm still carries a sizable debt load and faces growth challenges in its core European operations. The dividend is set to decline another 2% in 2021 based on 2020 earnings. These cuts have come despite ample free cash flow generation.

Bulls Say:

  • Vivo is the largest telecom carrier in Brazil and benefits from scale-based cost advantages in both the wireless and fixed-line markets. 
  • The firm is well-positioned to benefit as consumers demand increased wireless data capacity. Its network in Brazil is first-rate and its reputation for quality is second-to-none. 
  • Owning a high-quality fiber network enables Vivo to offer converged services throughout much of the country, while buttressing its wireless backhaul, improving network speeds and capacity.

Company Profile:

Telefonica Brasil, known as Vivo, is the largest wireless carrier in Brazil with nearly 80 million customers, equal to about 34% market share. The firm is strongest in the postpaid business, where it has 45 million customers, about 38% share of this market. It is the incumbent fixed-line telephone operator in Sao Paulo state and, following the acquisition of GVT, the owner of an extensive fiber network across the country. The firm provides Internet access to 6 million households on this network. Following its parent Telefonica’s footsteps, Vivo is cross-selling fixed-line and wireless services as a converged offering. The firm also sells pay-tv services to its fixed-line customers.

(Source: Morningstar)

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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 Expert Insights

Texas Instruments Has Secular Growth Opportunities in Industrial and Automotive

Texas Instruments has a leading share of the fragmented yet lucrative analog chip market. Analog chips are used to convert real-world signals, such as sound and temperature, into digital signals that can be processed. Since analog chips are neither particularly expensive, nor do they require cutting-edge manufacturing techniques, high-quality analog chipmakers tend to retain design wins for the life of the product, yet maintain healthy pricing and strong profitability on such sales over time.

Additionally, Texas Instruments’ size allows the firm to compete across a broader spectrum of industries, without its fortunes tied to a single customer or end market. Texas Instruments’ embedded chip business is a bit more exposed to the automotive and communications infrastructure end markets, but should also see healthy growth over the next few years. The “Internet of Things” is an interesting tailwind for TI, as the company’s chips could be key components in a massive array of new electronics devices with improved connectivity and processing power.

Financial Strength

Revenue in the September quarter was $4.64 billion, up 1% sequentially, up 22% year over year and above the midpoint of guidance of $4.40 billion-$4.76 billion as provided in July. Industrial chip demand was strongest, up 40% year over year, even though sales were down a mid-single-digit percentage sequentially. Automotive revenue was up 20% year over year and up more than 30% from pre-pandemic levels (fourth quarter of 2019). These near-term results still bode well for strong long-term tailwinds for TI, in terms of rising chip content per car and industrial device. Gross margin expanded 70 basis points sequentially to 67.9%, thanks to higher sales levels. In turn, operating margin expanded 130 basis points sequentially to 49.6%.

Texas Instruments is in a modest net debt position, with $6.6 billion of cash on hand versus $6.8 billion of debt as of December 2020. The company’s target is to pay out 100% of free cash flow (less debt repayments) to investors over time. The firm offers a $1.02 quarterly dividend that yields over 2%, and the company intends to issue 40%-60% of its 4-year trailing free cash flow out to investors via dividends. Meanwhile, Texas Instruments continues to make hefty share repurchases (over $2 billion per year in each of the last six years). Nonetheless, we do not believe Texas Instruments will adopt a balance sheet with reckless leverage anytime soon, as the industry is highly cyclical and firms with healthy cash cushions are often able to better handle the inevitable industry downturns.

Bulls Say’s 

  • Texas Instruments has a leading market share position in several chip segments, such as analog semiconductors and digital signal processors.
  • A key element of Texas Instruments’ success has come from its massive global sales staff, which allows the firm to cross-sell its extensive semiconductor product portfolio to existing customers.
  • Texas Instruments’ ability to manufacture analog parts on 300-millimeter silicon wafers has provided the company with robust gross margin expansion in recent years, and we anticipate further expansion in the years ahead.

Company Profile 

Dallas-based Texas Instruments generates about 95% of its revenue from semiconductors and the remainder from its well-known calculators. Texas Instruments is the world’s largest maker of analog chips, which are used to process real-world signals such as sound and power. Texas Instruments also has a leading market share position in digital signal processors, used in wireless communications, and microcontrollers used in a wide variety of electronics applications.

(Source: Morningstar)

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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

Texas Instruments Has Secular Growth Opportunities in Industrial and Automotive

Texas Instruments has a leading share of the fragmented yet lucrative analog chip market. Analog chips are used to convert real-world signals, such as sound and temperature, into digital signals that can be processed. Since analog chips are neither particularly expensive, nor do they require cutting-edge manufacturing techniques, high-quality analog chipmakers tend to retain design wins for the life of the product, yet maintain healthy pricing and strong profitability on such sales over time.

Additionally, Texas Instruments’ size allows the firm to compete across a broader spectrum of industries, without its fortunes tied to a single customer or end market. Texas Instruments’ embedded chip business is a bit more exposed to the automotive and communications infrastructure end markets, but should also see healthy growth over the next few years. The “Internet of Things” is an interesting tailwind for TI, as the company’s chips could be key components in a massive array of new electronics devices with improved connectivity and processing power.

Financial Strength

Revenue in the September quarter was $4.64 billion, up 1% sequentially, up 22% year over year and above the midpoint of guidance of $4.40 billion-$4.76 billion as provided in July. Industrial chip demand was strongest, up 40% year over year, even though sales were down a mid-single-digit percentage sequentially. Automotive revenue was up 20% year over year and up more than 30% from pre-pandemic levels (fourth quarter of 2019). These near-term results still bode well for strong long-term tailwinds for TI, in terms of rising chip content per car and industrial device. Gross margin expanded 70 basis points sequentially to 67.9%, thanks to higher sales levels. In turn, operating margin expanded 130 basis points sequentially to 49.6%.

Texas Instruments is in a modest net debt position, with $6.6 billion of cash on hand versus $6.8 billion of debt as of December 2020. The company’s target is to pay out 100% of free cash flow (less debt repayments) to investors over time. The firm offers a $1.02 quarterly dividend that yields over 2%, and the company intends to issue 40%-60% of its 4-year trailing free cash flow out to investors via dividends. Meanwhile, Texas Instruments continues to make hefty share repurchases (over $2 billion per year in each of the last six years). Nonetheless, we do not believe Texas Instruments will adopt a balance sheet with reckless leverage anytime soon, as the industry is highly cyclical and firms with healthy cash cushions are often able to better handle the inevitable industry downturns.

Bulls Say’s 

  • Texas Instruments has a leading market share position in several chip segments, such as analog semiconductors and digital signal processors.
  • A key element of Texas Instruments’ success has come from its massive global sales staff, which allows the firm to cross-sell its extensive semiconductor product portfolio to existing customers.
  • Texas Instruments’ ability to manufacture analog parts on 300-millimeter silicon wafers has provided the company with robust gross margin expansion in recent years, and we anticipate further expansion in the years ahead.

Company Profile 

Dallas-based Texas Instruments generates about 95% of its revenue from semiconductors and the remainder from its well-known calculators. Texas Instruments is the world’s largest maker of analog chips, which are used to process real-world signals such as sound and power. Texas Instruments also has a leading market share position in digital signal processors, used in wireless communications, and microcontrollers used in a wide variety of electronics applications.

(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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Technology Stocks

Netflix Beats Low Subscriber Guidance; Competition Appears to Be Weighing on Net Adds

It is believed that lower subscriber growth reflects not only saturation in its largest markets but strong competition in the regions with the most potential growth remaining, including Latin America and India. 

Netflix posted 4.4 million net subscriber adds during the quarter, up only 2% sequentially and up 9% from 195 million a year ago. Growth was slower in the U.S., with fewer than 100,000 net additions–only the third time below that mark since the start of 2012. Latin America has also seen anemic growth in 2021, with only 330,000 net adds in the quarter and only 1.45 million year to date, which is well below the same periods in 2019 (3.3 million) and 2018 (4.4 million).

Revenue of $7.5 billion, up 16%.U.S. revenue improved by 11% year over year, largely due to the price hike in 2020 as the subscriber base only increased 1% versus last year. Average revenue per customer for the region was up 10% versus a year ago to $14.68, implying that most customers are on the standard HD plan at $14 with a growing share on the 4K plan at $18. The 4K plan remains the most expensive streaming option in the U.S. marketplace right now, potentially capping Netflix’s ability to continually raise prices as subscriber growth dwindles.

Europe, Middle East and Africa, Netflix’s second-largest region by revenue and subscribers, posted continued strong revenue growth of 21% as the region continues to benefit from price hikes along with a large influx of new subscribers. The region now has over 70 million subscribers with almost 19 million net adds over the last seven quarters, 5 million more than any other region. 

Asia-Pacific, Netflix’s supposed long-term growth engine, increased revenue year over year by an impressive 31% in the quarter but ARPU remained under $10 and actually declined sequentially. It is expected that ARPU will decline going forward as the firm rolls out low-price plans in more countries across the region. These lower priced plans will be necessary to compete with both Amazon and Disney in emerging markets like India and Indonesia. 

Company Profile

Netflix’s primary business is a streaming video on demand service now available in almost every country worldwide except China. Netflix delivers original and third-party digital video content to PCs, Internet-connected TVs, and consumer electronic devices, including tablets, video game consoles, Apple TV, Roku, and Chromecast. In 2011, Netflix introduced DVD-only plans and separated the combined streaming and DVD plans, making it necessary for subscribers who want both to have separate plans.

 (Source: Morningstar)

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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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Technology Stocks

Microsoft Flexes Cloud Muscle

Additionally, Microsoft has largely transitioned from a traditional perpetual license model to a subscription model. Finally, Microsoft exited the low-growth, low-margin mobile handset business and is driving Gaming to be more cloud-based. These factors have combined to drive a more focused company that offers impressive revenue growth with high and expanding margins. 

Azure is the centerpiece of the new Microsoft. It is already an approximately $30 billion business, it grew at a staggering 50% rate in fiscal 2021. Azure also is an excellent launching point for secular trends in AI, business intelligence and Internet of Things, as it continues to launch new services centered around these broad themes. 

Microsoft is also shifting its traditional on-premises products to become cloud-based SaaS solutions. Critical applications include LinkedIn, Office 365, and Dynamics 365, with these moves now beyond the halfway point and no longer a financial drag.Lastly, the company is also pushing its gaming business increasingly toward recurring revenues and residing in the cloud. We believe that customers will continue to drive the transition from on-premises to cloud solutions, and revenue growth will remain robust with margins continuing to improve for the next several years.

Microsoft Continues to Impress with All Around Strength and Another Positive Guide; FVE Up to $345

Wide-moat Microsoft continues to benefit from digital transformation efforts at enterprise customers. Azure and commercial related demand was robust by any measure, and gaming and Windows were strong even as supply constraints for PCs and Surface tablets remain challenging. We see a slowdown in remaining performance obligation, or RPO, growth and commercial bookings, two forward-looking metrics, as driven by large Azure deals in the prior year period and not a reflection of deteriorating demand

For the second quarter, revenue growth accelerated by 22% year over year to $45.32 billion. All segments were ahead with more personal computing driving the most upside.Operating margin was 44.7%, compared with 42.7% last year, driven by improved scale, upside to quarterly results, and lower operating expenses generally resulting from COVID-19-related dampening of travel, entertainment, and related expenses. Gross margins were down 50 basis points year over year, with a prior change in depreciable life assumption serving as a headwind, offset by growing Azure margins. 

Financial Strength 

Microsoft enjoys a position of excellent financial strength arising from its strong balance sheet, growing revenue, and high and expanding margins. As of June 2020, Microsoft had $136.5 billion in cash and equivalents, offset by $63.3 billion in debt, resulting in a net cash position of $73.2 billion, or nearly $10 per share. Gross leverage is at 1.0 times fiscal 20202 EBITDA. Free cash flow margin has averaged 30% over the last three years and the company has generated more than $32 billion in free cash flow in each of the last three years.

Bulls Say 

  • Public cloud is widely considered to be the future of enterprise computing, and Azure is a leading service that benefits the evolution to first to hybrid environments, and then ultimately to public cloud environments. 
  • Shift to subscriptions accelerates growth after the initial growth pressure, and the company has passed the margin inflection point now such that margins are increasing again and have returned to pre-Nokia and pre-“cloud” levels. 
  • Microsoft has monopoly-like positions in various areas (OS, Office) that serve as cash cows to help drive Azure growth.

Company Profile

Microsoft develops and licenses consumer and enterprise software. It is known for its Windows operating systems and Office productivity suite. The company is organized into three equally sized broad segments: productivity and business processes (legacy Microsoft Office, cloud-based Office 365, Exchange, SharePoint, Skype, LinkedIn, Dynamics), intelligence cloud (infrastructure- and platform-as-a-service offerings Azure, Windows Server OS, SQL Server), and more personal computing (Windows Client, Xbox, Bing search, display advertising, and Surface laptops, tablets, and desktops).

 (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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Funds Funds

AMP Capital Specialist Property and Infrastructure Fund: A fully listed real assets portfolio

The AMP Capital team also decides on strategic weights to each manager and allowable tactical deviations. Managers are assessed on such criteria as business structure; experience of the team; their alignment of interest, investment merit, and performance; and capacity and fees. The team is also responsible for portfolio review and rebalancing. Portfolio monitoring is undertaken using FactSet and Cortex risk systems.

Portfolio:

AMP Capital Specialist Property and Infrastructure is a multimanager portfolio designed to bring together a mix of Australian and global managers to produce a diversified portfolio of listed real estate and infrastructure. The strategy removed its last direct property asset in May 2021. The portfolio’s composition of the underlying managers had been fairly stable since its inception in 2014, but an October 2019 strategic asset allocation review spurred the decision to remove exposure to unlisted property from its prior 15% allocation (increasing the global listed infrastructure by 15%). AMP Capital has shown strong conviction and patience with the underlying strategies in the listed space, with listed investments now comprising the total portfolio. Both global listed property and global listed infrastructure are represented by internal AMP Capital managers, with allocations of 32% and 47%, respectively, as at July 2021. Australian listed real estate exposure of 20% is managed by passively in the UBS property index. This vehicle makes a suitable supporting holding, and it managed around AUD 259 million as at 31 July 2021.

People:

AMP Capital’s multimanager team sits within the shop’s Multi-Asset Group. MAG is headed by CIO Anna Shelley, who joined in AMP Capital in July 2021. Duy To was appointed head of public markets in August 2021. Day-to-day management of the strategy lies with Rebecca Liu and Trent Loi, who is also portfolio manager for the International Share strategy. External consultant Willis Towers Watson is used at times to work on specific projects and provide research on existing and potential strategies.

Price:

Analysts find it difficult to analyse expenses since it comes directly from the returns. The fees levied by the share class is under middle quintile. Analysts expect that it would be difficult to generate positive alpha relative to its benchmark index for this fund.

Performance:

AMP Capital Specialist Property and Infrastructure lagged its blended benchmark after fees to June 2021 since its December 2014 inception. The passive Australian listed property strategy (UBS Australian Property Index) has closely closely tracked the S&P/ASX 200 AREIT Index over time. The AMP Capital global property securities portfolio has delivered returns ahead of the FTSE EPRA NAREIT Developed TR AUD Hedged Index over the trailing three and five years to June 2021.

(Source: Factsheet from https://www.ampcapital.com/)


(Source: Factsheet from www.schwabassetmanagement.com)           (Source: Morningstar)

About the Fund:

While AMP Capital Specialist Property and Infrastructure’s move to a fully listed real assets portfolio is well received, a period of team instability continues to hinder. This is a multimanager strategy combining Australian and international property and infrastructure managers to build a diversified core portfolio of real assets. The managers are assessed on various criteria such as business structure, team and its alignment, performance track record, and fees and capacity. Its inception date is 01 July, 2014. Total Assets under this fund are 264.9 AUD Million.

(Source: Morningstar)

General Advice Warning

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

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Global stocks Shares

Lockdowns Cause Transurban’s Traffic Volumes To Slump in Key Markets

Stock market digital graph chart on LED display concept. A large display of daily stock market price and quotation. Indicator financial forex trade education background.

Concessions grant the right to operate the roads and collect tolls for predetermined amounts of time. The roads benefit from strong competitive advantages, and the assets generate attractive returns on initial investment, warranting a wide economic moat rating.

Operating cash flow should increase strongly during concession lives, as solid revenue growth, driven by rising tolls and traffic volumes, is leveraged over a mostly fixed cost base. Cash flow stops when concessions end. Concessions on the Australian roads are set to end between 2026 and 2065. Including the long-life U.S. assets, the weighted average is 30 years. To extend its existence, Transurban will look to build new roads or undertake road upgrades which may require new equity issues or increased financial leverage, given that the firm currently pays out all free cash flow as distributions to investors. 

Typically, cash flow is defensive and grows strongly, but returns are lower than they appear at first blush, given that the roads are handed over to the government for no consideration when concessions end.

Lockdowns Causes Transurban’s Traffic Volumes To Slump in Key Markets

Sydney and Melbourne–51% and 25% of fiscal 2021 revenue, respectively–have suffered through prolonged lockdowns to slow the spread of the delta variant while rolling out vaccinations. September quarter traffic volumes in Sydney and Melbourne were down 43% and 46% in the same quarter in 2019, prior to the COVID-19 outbreak. Lockdowns are ending and traffic volumes are now recovering, with Sydney leading the way.  A rapid recovery is expected consistent with the experience in other markets as they exit lockdowns. 

Financial Strength 

Transurban is in sound financial health after selling 50% of U.S. assets. As of June 2021, Transurban had a proportional gearing ratio (defined as debt/enterprise value) of 34.3%, a corporate senior debt interest cover ratio of 2.8 times and funds from operations/debt of 8.9%. While financial leverage is high compared with other infrastructure firms, it should quickly improve on strong earnings growth. There is also comfort from relatively defensive revenue and immaterial maintenance capital expenditure requirements. Almost all debt is hedged, and the average maturity (which is currently 7.7 years) has been lengthening. Typically, debt associated with each road is repaid progressively during the last 10 years of concession lives.

Bull Says

  • Core Australian roads generate defensive revenue that grows with traffic volumes and toll price increases, which are at a minimum pegged to inflation. Solid revenue growth and a high fixed-cost base translate to strong cash flow and distribution growth. 
  • Transurban owns high-quality infrastructure assets with limited regulatory risk. 
  • There are attractive organic growth opportunities, such as potential widening of roads.

Company Profile

Transurban Group is an owner/operator of toll roads in Melbourne, Sydney, and Brisbane. It also owns toll roads in Virginia, USA and Montreal, Canada. The weighted average concession life across the portfolio is close to 30 years. Australian assets contribute around 90% of proportional revenue

(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.