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Technology Stocks

Zoom and Five9 Terminate Merger Agreement; FVE Remains unchanged

LONDON, UNITED KINGDOM: Analysts work on the trading floor at Goldman Sachs in London, 22 March 2004. AFP PHOTO / ODD ANDERSEN (Photo credit should read ODD ANDERSEN/AFP via Getty Images)

It provides video telephony and online chat services through a cloud-based peer-to-peer software-platform and is used for teleconferencing, telecommunication, distance education and social relations. Zoom is a recognized market leader in meeting software and is disrupting and expanding the $43 billion video conferencing market with its ease of use and superior user experience. 

Zoom relies mainly on a low-touch e-commerce model that lends itself to viral adoption, but it has also established a direct salesforce to gather and serve larger, more strategic customers. The company has been adept at adding users, especially during COVID-19-induced lockdowns, and it also has several related products to upsell. Even as the lockdowns are loosening, customer retention has been better than expected.

With the 2019 introduction of Zoom Phone, which it does not plan to sell to customers who do not already have Zoom Meetings, Zoom Apps and OnZoom, the portfolio is expanding meaningfully. The company’s focus is squarely on adding as many users as possible. This starts with generating buzz and familiarity with free users, while the direct salesforce sells to enterprise accounts. Customers are growing rapidly, with larger customers numbering more than 1,999, while smaller customers total approximately 497,000.

Zoom and Five9 Terminate Merger Agreement; $252 FVE unchanged

Our $252 fair value estimate is unchanged after no-moat Zoom announced that it was terminating its $14.7 billion merger agreement for Five9. This is not entirely surprising after the Sept. 17 news that Institutional Shareholder Services recommended to Five9 shareholders that they vote against the merger coupled with the announcement several days later that the Department of Justice was investigating the acquisition. We view this as unfortunate, as the acquisition would have expanded the portfolio while deepening switching costs and creating cross-selling opportunities. We suspect that the company will continue to pursue smaller deals but believe national security issues will creep up again in larger transactions.

At the time of the announcement, we viewed the deal as strategically sharp, so we similarly view the cancellation as less than ideal. Fortunately, at its investor day on Sept. 13, Zoom announced the Zoom Video Engagement Center for customer engagement would launch in early 2022, with initial use cases targeting wealth management, doctor visits, and retail shopping. Two weeks ago, we wondered how the company would integrate this solution with Five9 when that acquisition closes. In short, we now think Zoom has the makings of an organic contact center solution, and still has a long-standing partnership with Five9 to leverage in the near term. With the rapid success of Zoom Phone as a test case, swollen coffers and strong margins, we expect the company to develop VEC relatively quickly.

Bulls Say

  • Both the Zoom user base and the company’s revenue have grown rapidly and are expected to continue to do so over the next several years. 
  • Zoom offers a disruptive technology that is designed from the ground up as a video-first collaboration platform. Customer satisfaction is well above video conferencing peers.
  •  Zoom’s low-touch, low-friction model should eventually drive strong margins. The company has already produced a full year of positive GAAP profitability, which is well ahead of other high-growth software.

Company Profile

Zoom Video Communications provides a communications platform that connects people through video, voice, chat, and content sharing. The company’s cloud-native platform enables face-to-face video and connects users across various devices and locations in a single meeting. Zoom, which was founded in 2011 and is headquartered in San Jose, California, serves companies of all sizes from all industries around the world.

 (Source: Morningstar)

General Advice Warning

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

Categories
Global stocks Shares

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

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

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

Company’s Future Outlook

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

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

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

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

Financial Strength 

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

Bull Says

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

Company Profile

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

 (Source: Morningstar)

General Advice Warning

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

Categories
Global stocks

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

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

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

Financial Strength

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

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

Bulls Say’s

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

Company Profile 

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

General Advice Warning

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

Categories
Global stocks

Crown Resorts net operating cash outflows of $14m

Investment Thesis

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

Key Risks

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

FY21 Result Summary

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

Company Profile 

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

General Advice Warning

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

Categories
Shares Small Cap

Praemium Ltd balance sheet remains strong with cash reserves of $26.7m

Businesswoman pointing at diagram in her hands when explaining marketing trends to her team during online meeting

Investment Thesis

  • Merger with powerwrap creates a much better capitalized and resourced competitor in the market, with significant opportunities for synergies.
  • Increase diversification via geography and product offering.
  • Increase competition amongst platform providers such as HUB24, Wealth O2, BT panorama, Netwealth, North Platform, etc.
  • Very attractive Australian industry dynamics – Australian superannuation assets expected to grow at 8.1% p.a to A$9.5 trillion by 2035.
  • Disruptive technology and hold a leading position to grow funds under advice via SMAs.
  • The fallout from the Royal Commission into Australian banking has led to increased inquiries for PPS’ product/services.
  • Growing and maturing SMSF market = more SMSF demand for tailored and specific solutions.
  • Both-on acquisitions to supplement organic growth.
  • Further consolidation in the sector could benefit PPS.

Key Risks

  • Execution risk – delivering on PPS’s strategy or acquisition.
  • Contract or key client loss.
  • Competitive platform/offering.
  • Associated risks in relation to system, technology and software.
  • Operational risks related to service levels and the potential for breaches.
  • Regulatory changes within the wealth management industry.
  • Increased competition from major banks and financial institutions.

FY21 Results Summary

  • Australian business segment delivered revenue growth of +37% over pcp to $53.1m, driven by Platform revenue increase of+73% to $36.5m with Powerwrap revenue of $16.3m amid strong underlying growth from record platform inflows and Portfolio services revenue increase of +6% to $16.1m with VMAAS revenue up +40% from continued portfolio on-boarding. EBITDA declined -2% to $19m, primarily due to the transition of the Powerwrap cost base and some cost expansion to support growth and service across sales, marketing and operations (EBITDA margins declined -14% to 36%), however, management forecast growth investments and scale benefits from Powerwrap synergies will drive improved earnings into FY22.
  • International net revenue (net of product commissions) increased +6% over pcp to $12.5m, driven by Platform revenue growth of +30% to $8.1m from record inflows driving International platform FUA to $5bn (up+ 55%), partially offset by declines in the Smartfund range of managed funds, with fund revenue down -47% to $1.5m. Expenses were up +2% to $16.4m from operational capability to support growth, partially offset by continued cost management. EBITDA loss declined -7% to $3.9m, comprising UK’s EBITDA loss of $1.4m (27% improvement), Asia’s EBITDA loss of $0.9m (1% increase) and the inclusion of Dubai’s cost centre of $1.6m (up 17%).

Company Profile 

Praemium Limited (PPS) is an Australian fintech company which provides portfolio administration, investment platforms and financial planning tools to the wealth management industry.

General Advice Warning

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

Categories
Global stocks

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

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

Investment Thesis:

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

Key Risks:

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

Key highlights:

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

Company Description: 

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

General Advice Warning

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

Categories
Global stocks Shares

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

Investment Thesis

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

Key Risk

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

FY21 results highlights. 

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

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

Company Profile

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

 (Source: Morningstar)

General Advice Warning

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

Categories
Funds Funds

Top pick within global listed property

of stocks within a range of real estate sectors across developed markets (North America, U.K, Europe, and Asia Pacific). The Fund’s objective is to exceed the total returns of the Benchmark (FTSE EPRA/NAREIT Developed Index (AUD) Net TRI) after fees on a rolling 3-year basis.

Approach

Resolution mixes top-down thematic and bottom-up fundamental research to arrive at a relatively

concentrated 40- to 60-stock portfolio with little resemblance to the benchmark. The first step filters the 450- plus stock universe down to a manageable size. Macroeconomic drivers play a part, based on the team’s company visitation schedule. Resolution also uses its proprietary screening database to filter out stocks with undesirable characteristics such as high debt/EBIT ratios and balance-sheet risk.

Portfolio

Resolution has managed global property since 2006, but this vehicle was founded in 2008 during the depths of the global financial crisis, when some low-quality REITs flirted with bankruptcy. Resolution didn’t avoid all the underperformers, but it did better than rivals at avoiding the worst offenders. Its focus on sustainability and corporate governance helped, as did the chosen UBS Global Investors Index, which focused more on rent collectors and less on risky development. Being brand new gave Resolution a clean slate, helping the team to buy quality REITs at bargain prices. The quality preference also keeps a lid on portfolio turnover, which oscillates between 30% and 55%–not as low as an index fund but lower than the average active strategy. However, Resolution has been willing to make occasional substantial portfolio shifts. In the first half of 2019, Resolution saw some industrial property such as Goodman as expensive and was underweight in this name, favouring industrial exposure through ProLogis and Segro. During the following 12 months (to 30 April 2021), Resolution preferred residential, data centre, and tower exposure, specifically in the US. The strategy managed AUD 14.4 billion as at 30 April 2021.

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
ETFs ETFs

The fund offers simple approach, portfolio, and low fee

but with some additional trade-offs of the listed structure, including brokerage costs and variable bid-ask spreads. The AsiaPacific investment strategy group and global asset-allocation committee are responsible for setting and reviewing the strategic asset allocation. The methodology starts by defining reasonable investment horizons for each portfolio and alloates to broad asset-class exposures such as equities and fixed interest based on the defensive/growth split. Then, subasset allocation within classes follows a market-cap-weighting approach, while allowing for behavioural biases and regulatory factors specific to each local market. The SAA determination is aided by the Vanguard Capital Markets Model, which forecasts asset-class returns through scenario analysis. An annual review may identify major structural shifts that can lead to a revised SAA, such as a change in the taxation of an asset class. Underlying sector exposures are realised through in-house index-tracking funds. Vanguard does not use tactical asset allocation and cites illiquidity, low transparency,

and cost as reasons for avoiding alternatives

Portfolio

Vanguard’s straightforward approach applies a strategic asset allocation that is updated periodically and broadly mirrors its equivalent unlisted fund range. Dynamic and tactical asset allocation are not used. Vanguard sticks to the traditional asset classes of equities, fixed interest, and cash, while avoiding alternatives and unlisted assets. The four diversified options are designed to suit different investor objectives and risk profiles. Vanguard Conservative has a defensive/growth split of 70/30, Balanced is 50/50, Growth is 30/70, and High Growth is 10/90. In-house index funds are relied on. Vanguard’s SAA, inclusive of both listed and unlisted vehicles, is strikingly similar to the Morningstar Category benchmarks. It hedges 30% of the international equities to keep the non-Australian-dollar exposure roughly steady. Since inception to June 2021, Vanguard’s multisector ETFs have on average traded with a bid-ask spread of 8-25 basis points, though it has elevated during bouts of volatility like most listed structures.

Performance

The Vanguard Diversified Index ETFs were launched in November 2017. Given the consistency in approach to the long-running unlisted iterations, we believe its extended track record is more informative. Vanguard’s inexpensive cost has been a key pillar in leading this strategy to strong medium-term return. Returns have historically closely mirrored the Morningstar Category benchmarks over time, typifying the limited opportunity to exceed the hurdle given the structural likeness between the two. In comparison to unlisted peers, all ETFs sit in the top quartile over a trailing three-year time period as at June 2021. Calendar-year results between 2018 and 2020 have been consistently in the first and second quartiles, surpassing the average manager in each year. Maintaining interest-rate duration has aided peer-relative performance, particularly in the more-defensive options. This structural stance also helped amid the crisis market environment in the first quarter of 2020. Albeit, the more-defensive ETFs lagged the category average over the last year to June 2021 because of its higher allocation to defensive assets relative to peers. Record-low interest rates globally suppressed returns from fixed-income securities over this period but favoured growth

assets, resulting in the more-growth oriented portfolios keeping pace with peers.

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
Shares Small Cap

Super Retail’s attractive loyalty program with 8 million member

Shot of elegant smart businesswoman explaining a project to his colleagues with statistics on the computer on coworking place.

Investment Thesis

  • Trading below our valuation and on attractive trading multiples and dividend yield. 
  • Strong tailwinds/fundamentals in SUL’s four core segment. For instance, sales for vehicle aftermarket continue to remain strong (with increase in secondhand vehicle sales (Supercheap); travelers seeking social distancing and hencemoving away from public transport (Supercheap); with Covid lockdown measures in forced, more people are spending their holidays domestically (BCF; macpac), utilising their vehicles (Supercheap); growing awareness of fit and healthy lifestyles (rebel). 
  • Solid capital position. 
  • Strong brands in BCF, macppac, rebel and Supercheap with solid industry positions in largely oligopolies and solid store network. 
  • Transitioning to an omni-channel business. Whilst previously the business has been modeled on like-to-like store numbers, management now thinks of business metrics based on club members and has been able to grow the active club membership much faster than store numbers (store numbers in last 5 years have grown +2% CAGR vs active club members at +10% CAGR), providing it with an opportunity to expand customer base and therefore revenue base without significant capex for investment in stores (most of the customers are omni channel). 
  • Management continues to push towards expanding its online sales (Covid-19 added to this tailwind), with online sales penetration of ~13-15% of total sales currently and expected to reach 20-25% over the next 5 years. 
  • Attractive loyalty members program, with over 8 million members.

Key Risks

  • Rising competitive pressures.des 
  • Any issues with supply chain,especially as a result of the impact of Covid-19 on logistics which affects earnings. 
  • Rising cost pressures eroding margins (e.g. more brand or marketing investment required due to competitive pressures). 
  • Disappointing earnings update or failing to achieve growth rates expected by the market could see the stock price significantly re-rate lower.

FY21 Results Highlights

  • Total Group sales of $3.45bn, up +22% (Group like-for-like sales growth of +23%).Online sales of $415.6m, up +43% and nowaccounts for ~12% of total sales. On the impact of Covid -19 lockdowns, management noted its “omni-retail capability enabled it to pivot to online channels to meet consumer demand through both Click & Collect and home delivery”.
  • Segment EBIT of $476.8m was up +80%. 
  • Segment normalised PBT of $435.8m, up +108%.
  • Normalised NPAT up +107% to $306.8m. Basic EPS up +139% to 133.4cps.
  • The Board declared a fully franked final dividend of 55.0cps, bringing the full year dividend to 88.0cps, significantly higher than 19.5cps in FY20. Dividend equates to 65%, which is in line with SUL’s 65% payout ratio policy.
  • Management guided capex in FY22 of $125m to fund expanded store development and investment in omni and digital capability.

Company Profile 

Super Retail Group (SUL) is one of Australasia’s Top 10 retailers. SUL comprises four core segments. (1) BCF: Australia’s largest outdoor retailer focused on selling Boating, Camping and Fishing products. (2) macpac: retailer of apparel and equipment with their own designs focused on outdoor adventurers. (3) rebel: retailer of branded sporting and leisure goods and equipment for casual and serious fitness enthusiast. (4) Supercheap Auto: specialty retail business which specialises in automotive parts and accessories. 

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.