Category: Sectors

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Technology Stocks

Pro Medicus reports strong FY21 results beating market estimates

Investment Thesis:

  • Management believes they are 24 months ahead of their competitors driven by proven and market leading technology, thereby making PME’s product command a price premium. 
  • New contract wins by Pro Medicus (more win rates plus higher value per contract) and increase in usage by existing clients. 
  • Launch of new products namely; Enterprise imaging solutions, exploring other “ologies” such as cardiology and ophthalmology. 
  • Development of artificial intelligence (AI) capabilities. 
  • Leveraged to the digital health data thematic and industry’s transition to cloud. 
  • Business expansion into new geographies.
  • Probability of Mergers and Acquisitions.

Key Risks:

  • Stock price exposed to more volatility on account of high valuation.
  • Long lead time to close contracts and scalability of new contract leads to disappointment with reference to market anticipations. 
  • Renewal of contracts (pricing pressure) and potential budget reduction at hospitals leads to the delay of software upgrades / investment. 
  • Large scale players and new entrants with innovative technology offer increase in competitive pressures. 
  • Reliability of system i.e. data breach or drop in quality. 
  • Regulatory / funding changes, for instance, reimbursement changes leading to lower imaging volumes.

Key Highlights:

  • PME to benefit from their recent contract wins and is positively leveraged to several important themes – digital health data, replacing legacy technology with PME’s innovative platform, AI adoption in imaging, Electronic Health Records (EHR) driving PME’s Enterprise Imaging solutions and PME’s cloud solution substantially increasing its concerned market.
  • Pro Medicus Ltd (PME) reported solid FY21 results outperforming the market estimates. The profit before tax of $42.6m, was up +41.0% mainly because of significant revenue growth in three key jurisdictions – North America, up +18.0%, Australia, up +23.4% and Europe, up +25.7%.
  • Revenue of $67.9m is up by 19.5% 
  • Underlying profit before tax $42.6m, which is up by 41.0%  
  • Net profit of $30.9m is up by 33.7%. 
  • PME remains debt-free with cash reserves at year-end of $61.8m, 42.4% higher than pcp. 
  • The Board declared a fully franked final dividend of 8c per share, which brings the total FY21 dividend to 15cps.
  • In FY21, PME won key contracts which are as follows: (1) NYU Langone (A$25.0m, 7-year) (2) Zwanger-Pesiri (A$8.5m, 5-year renewal) (3) LMU Klinikum (A$10.0m, 7-year) (4) Medstar Health (A$18.0m, 5-year) (5) Intermountain Healthcare (A$40.0m, 7-year) (6) University of California (A$31.0m, 7-year) (7) University of Vermont (A$14.0m, 8-year)

Company Profile:

Pro Medicus Ltd (PME) was founded in 1983 and provides a full range of radiology IT software and services to hospitals, imaging centers and health care groups globally. In Jan-09, PME purchased Visage Imaging, which has become a global provider of leading-edge enterprise imaging solutions, pioneering the best-of-breed, or Deconstructed PACSSM enterprise imaging strategy. Visage 7 technology delivers fast, multi-dimensional images streamed via an intelligent thin-client viewer. The company offers a leading suite of RIS, PACS and e-health solutions constituting one of the most comprehensive end-to-end offerings in radiology. Pro Medicus has global offices in Melbourne, Berlin (R&D) and San Diego (Sales).

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

Sonic Healthcare increased its margins in both its laboratory and imaging divisions

Investment Thesis

  • Ageing Population Requires more diagnostic tests especially as medicine focuses on Preventives medicine
  • Market leading positions in Pathology(number one in Australia, Germany, Switzerland and United Kingdom number three in US). Australia is the Second leading player in the market in Imaging. 
  • Establishment of Global Channels to high barriers entry.
  • Organic growth and potential improvement from margin cost strategy on the acquisition of ongoing bolt.
  • Leveraged against a weakening dollar.
  • Globally Diversified.

Key Risks

  • Diagnostic expenses are being decreased as a result of disruptive technology.
  • Market share is being lost due to competitive threats.
  • Deregulation has resulted in the establishment of new pathology collection centres.
  • Regulative changes that are detrimental (fee cuts).
  • Growth that has been disappointing.
  • Unfavorable currency fluctuations (AUD, EUR, USD).

FY21 results highlights 

  • Revenue Growth of +28 to A$8.8 billion. In constant Currency, revenue of $9,129 million was up +33.7%, driven by Covid-19 testing revenue in each of SHL’s laboratory businesses. Base business revenue (exclude Covid testing) grew +6% versus FY20 and +4% versus FY19.
  • EBITDA growth of +81% to A$ 2.6 Billion (or +89% on constant Currency basis) driven by +97% EBITDA Growth of +89% in the laboratory division due to Covid-19 testing. 
  • Net profit growth of +149% to A$1.3 billion, reflecting growth in revenue and SHL’s strong operating leverage. 
  • Sonic Healthcare achieved margin accretion in both laboratory and imaging divisions.
  • SHL’s balance sheet is well placed with record low gearing level and liquidity of ~A$1.5bnto fund growth via acquisitions. 
  • Gearing (Net debt/[Net debt + equity) of 12.5%, interest cover (EBITA/Net interest expense) of 33.8x and debt cover (Net debt/EBITDA) of 0.4x all improved from 21.6%, 20.5x and 1.0x, respectively, at Dec-20 (and remains within covenant limit of <55%, >3.25x, and <3.5x respectively). 
  • As per its progressive dividend policy, sonic healthcare declared a final dividend of 55cps, up +8% and franked to 65%. Total dividends are up +7%.

Company Profile 

Sonic Healthcare (SHL) is a medical diagnostics company with operations in Australia, New Zealand, and Europe. The company provides a comprehensive range of pathology and diagnostic imaging services to medical practitioners, hospitals and their patients along with providing administrative services and facilities to medical practitioners. SHL has three main segments: (1) Pathology/clinical laboratory services based in Australia, NZ, UK, US, Germany, Switzerland, Belgium and Ireland. (2) Diagnostic imaging services in Australia; and (3) Other which includes medical centre operations (IPN), occupational health services (Sonic HealthPlus) and laboratory automation development (GLP Systems).

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 Technology Stocks

Despite a rise in earnings, the share price of Nine Entertainment has dropped.

20025825 - closeup image of businessman drawing 3d graphics

Investment Thesis

  • Upside potential to NEC’s share price from investors ascribing a higher value for Stan, NEC’s subscription video of demand (SVOD). Stan is now cash flow positive and profitable, with margins having the potential to surprise on the upside. 
  • Relatively attractive dividend yield of ~4%. 
  • NEC is a now a much more diversified business, with revenue not dominated by traditional FTA TV but also attractive digital platforms and assets. 
  • Cost out strategy – looking to remove $230m in structural costs.  
  • Corporate activity given NEC’s strategic assets.
  • Trading below our valuation.

Key Risks

We see the following key risks to our investment thesis:

  • Competitive pressure in Free to Air (FTA) TV and SVOD. 
  • Stan growth (subscriber numbers or breakeven point) disappoints market expectations. 
  • Structural decline in TV audiences continues to impact sentiment towards the stock. 
  • Deterioration in advertising markets.
  • Cost blowouts in obtaining new programming/content.
  • Increased competition from Netflix and Disney.

FY21 Results Highlights. Relative to the pcp: 

  • Revenue of $2,331.5, up +8%. 
  • Group EBITDA of $564.7m, was up +43%. 
  • NPAT of $277.5m, was up +76%, which translates to fully diluted EPS of 15.3%, up +83%.
  • The Board declared a final dividend per share of 5.5cps which brings full year total dividends to 10.5cps, up +50%, and equates to a payout ratio of ~69% (in line with management’s policy of paying ~60-80% through the cycle).

Current trading environment and outlook

NEC did not provide specific quantitative FY22 earnings guidance but did provide significant colour: 

  • “Nine started the new financial year strongly, well supported across our platforms by advertisers from all categories. In the current quarter, Nine’s metro FTA ad revenue is expected to be up almost 20% on the same quarter last year. Forward bookings remain ahead of same day last year, with positive market momentum continuing into Q2, notwithstanding more difficult comparables, including timing of the NRL. The FTA ad market has recovered more quickly and convincingly than previously expected. FY22 will see the return of some cyclical costs – Nine currently expects FTA costs in FY22 to be ~3% higher than FY21”. 
  • 9Now: “continues its strong growth trajectory, with around 70% revenue growth in July (on pcp). Nine expects positive momentum to continue through the rest of FY22, as 9Now establishes its place in the broader digital video market”.
  • Nine Radio: “Notwithstanding the short-term impact of the lockdown on the radio market, Nine Radio’s Q1 ad revenues are expected to grow in the double-digits (%), with further share improvement across both agency and local ad sales. Coupled with Nine Radio’s restructured cost base, this is expected to underpin strong profit leverage as the ad market recovers”. 
  • Stan: “Total costs for Stan Sport in FY22 are now expected to be at the lower end of the $70-90m range previously cited. Whilst this investment will reduce Stan’s overall EBITDA in the short term (in FY22 combined EBITDA for Stan Entertainment and Stan Sport is expected to be in the low double-digit millions of dollars), over the medium and longer term, it is expected to significantly grow earnings”. 
  • Publishing: “As previously announced, Nine expects growth of $30-40m in Publishing EBITDA in FY22 on FY21”.

Company Description  

Nine Entertainment Co (NEC), through its subsidiaries, broadcast news and current affairs, sporting events, comedy, entertainment and lifestyle programs. Nine Entertainment serves customers throughout Australia. NEC has repositioned itself from a linear free-to-air broadcaster, to a creator and distributor of cross-platform, premium content. While the channel Nine Network remains core, it is now complemented by subscription video on demand (SVOD) provider Stan, a live streaming and catch-up service 9Now, digital network nine.com.au and array of digital content.

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

The share price of Pointsbet has dropped as a result of the FY21 performance.

Investment Thesis

  • U.S. growth opportunity – the U.S. online sports betting market continues to open following the 2018 supreme court ruling which legalise the industry. Market growth estimates forecast the industry to grow to US$51bn by 2033.  
  • Strong management team with a solid track record – the ability to grow market share in a competitive and mature market of Australia gives us some confidence the management team have the right strategy in place to build share in the U.S. 
  • Proprietary technology stack – The speed and useability are key differentiating factors. PBH operates proprietary technology, which it developed inhouse. This means new modifications and updates are easier to implement (i.e., more control) with inhouse tech versus outsourced (i.e., having to go to an external provider each time with an update). 
  • Cross sell opportunities with iGaming – PBH’s recently launched iGaming product (online casino) is already highlighting cross-sell opportunities to its customers.

Key Risks

We see the following key risks to our investment thesis:

  • Rising competitive pressures.
  • Adverse regulatory change in key operating jurisdictions (Australia / U.S.). 
  • Loss of market share in key regions or growth rate fails to meet market expectations. 
  • Higher than expected costs – especially around investment in sales & marketing to drive market share. 
  • Trading on high PE-multiples / valuations means the Company is more prone to share price volatility. 
  • Cyber-attack on PBH’s platform. 

FY21 headline results. 

  • PBH group revenue of $194.7m was up +159% YoY. 
  • Gross profit of $87.6m was up +129% YoY. 
  • PBH made heavy investment in sales and marketing over the year, with S&M expense of $170.7m significantly above the $38.2m in pcp. The Australian segment accounted for $51.4m (higher due to brand campaign with Shaquille O’Neal). However, the U.S. accounted for most of the uplift in marketing spend (total $119.2m) given the increased number of operating jurisdictions. As the footprint in the U.S. continues to expand, management noted the market spend will continue to increase. 
  • At the end of the period, Australia has 196,585 cash active clients (vs. 90,422 in pcp) and the U.S had 159.321 cash active clients (vs 20,939 in pcp). 
  • Group normalised EBITDA for the year was a loss of $156.1m vs loss of $37.6m in the pcp, as PBH continues to invest in the business to scale the U.S. business and invests in its technology stack.
  • Australian Trading segment reported revenue of $150.7m (vs $68.2m in pcp) and EBITDA of $9.2m (vs $6.9m in the pcp). A solid result given the significant increase in marketing spend over the year. 
  • USA segment reported revenue of $42.3m (vs $7.0m in pcp) and EBITDA loss of $149.6m (vs loss of $38.2m in pcp). During the year, PBH operational in six U.S. states: New Jersey, Iowa, Indiana, Illinois, Colorado, and Michigan. 
  • Balance sheet is in a good position to support investment in growth, with pro forma cash balance of $665.2m (post the July 21 capital raising).

Company Description  

PointsBet Holdings Ltd (PBH), founded in 2015, is a corporate bookmaker with operations in Australia and the United States (New Jersey, Iowa, Illinois and Indiana). PointsBet has developed a scalable cloud-based wagering platform which offers customers sports and racing wagering products. PBH’s key products include fixed odds sports, fixed odds racing and PointsBetting.

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
Fixed Income Fixed Income

Suncorp’s stock is in the spotlight following the announcement of a $350 million capital round.

final margin set at 2.90%. The margin is also in line with the recent issuances from Westpac Capital Notes 8 (WBCPK) and Macquarie Capital Notes 3 (MBLPD) (MBPLD are trading largely in line with par value since listing). We note this is a new issuance and therefore has no rollover or reinvestment plan attached to it. The underlying issuer, Suncorp Group, is a strong business and a regular issuer of debt in the market. We would have liked to have seen the final margin at the upper end of the indicative range (3.1% above BBSW). However, the demand for this relatively small issuance ($375m market cap) is also likely to be high given the issuer is someone other than the big 4 banks (although the sector exposure is the same, therefore we are not fully convinced of the diversification benefits here). Our positive view on these is a relative call.

Security Description: 

SUNPI securities are fully paid, subordinated, perpetual, redeemable, convertible, unsecured, non-cumulative, subject to a capital trigger event and non-viability trigger event, listed securities. The securities are scheduled to convert into ordinary shares on 17 Dec 2030 (subject to the conversion conditions being satisfied). 

Issuer Description: 

Suncorp is an ASX-listed company and financial services provider in Australia and New Zealand, and the ultimate parent company of the Suncorp Group, with a market capitalisation of approximately $16 billion as at 27 August 2021. The Suncorp Group offers insurance and banking products and services in Australia and New Zealand. 

KEY RISKS

  • The market price of SUNPI may fluctuate due to various factors that affect financial market conditions. It is possible that SUNPI may trade at a market price below their Issue Price of $100. Interest Rate will fluctuate with changes in the market rate.
  • Significant economic shock to the Australian economy, including a severe and prolonged downturn in the Australian economy. These capital notes are not deposit liabilities or protected accounts.
  • There is a risk that Distributions will not be paid given they are discretionary.
  • Unless exchanged on or before that date, SUNPI are expected to Convert into Ordinary Shares on the Mandatory Conversion Date. However, there is a risk that Conversion will not occur on the Mandatory Conversion Date because the Scheduled Conversion Conditions are not satisfied due to a large fall in the Ordinary Share price relative to the Issue Date VWAP, or if Ordinary Shares cease to be quoted on ASX or have been suspended from trading for a certain period. Mandatory Conversion may therefore not occur when scheduled or at all. The Ordinary Share Price may be affected by transactions affecting the share capital of Suncorp Group, such as rights issues.
  • The market price of SUNPI (and the Ordinary Shares into which they are expected to Convert) may be affected by Suncorp Group’s financial performance and position.

Interest Rate: Margin of 2.9% above the 90day BBSW rate. 

Interest / Distribution Payments: Discretionary, Non-cumulative and subject to following conditions: (1) Distributions will be paid if Suncorp’s capital requirements are sufficient as required by APRA. (2) Distributions will not cause Suncorp to become insolvent. (3) APRA not objecting to distributions being paid. Distributions are expected to be fully franked but not guaranteed.

Mandatory Conversion: On 17 Dec 2030, SUNPI Holders will receive ordinary shares worth $101 per note. Conversion may not occur on 17 Dec June 2030, being the first possible Mandatory Conversion Date, or at all if the Conversion Conditions are not satisfied.  Holders have no right to request that their Notes be Converted, Redeemed or Transferred.  Holders would need to sell their Notes on ASX at the prevailing market price to realise their investment. That price may be less than the Face Value (initially $100 per Note) and there may be no liquid market in the Notes.

Non-Viability Trigger Event:  In case of the event that APRA considers Suncorp non-viable, these notes will be written off (in all or in part) or Converted into Ordinary Shares and Holders will hold Ordinary Shares and rank equally with other holders of Ordinary Shares in a subsequent Winding Up of the Bank. Following a Non-Viability Trigger Event, if Conversion does not occur within five Business Days for any reason, those Capital Notes 4 that are required to be Converted will be Written-Off and Holders will not receive any Ordinary Shares with respect to those Capital Notes 4.

Ranking: In the event of a Winding Up, if the Notes are still on issue and have not been Redeemed or Converted, they will rank ahead of Ordinary Shares, equally among themselves and with all Equal Ranking Capital Securities and behind Senior Creditors (including depositors and holders of Westpac’s senior or less subordinated debt). This means that if there is a shortfall of funds on a Winding Up to pay all amounts ranking senior to, and equally with, the Notes, Holders will lose all or some of their investment.

The above is a brief summary of the terms and risks. Investors should read the PDS for more information.

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

Wesfarmers reported solid revenue in FY 21

Global network and financial technology concept.

Investment Thesis:

  • Ongoing momentum in discretionary spending, fueled by rising property values.
  • Diversified asset base with core assets continuing to grow.
  • Expect improved performance from Target and Industrials business.
  • Continued emphasis on shareholder return, including a high yield.
  • A capable management team.
  • A strong sense of balance allows to seize opportunities as they emerge.
  • Potential  Capital management initiatives.

Key Risks:

  • Due to competitive pressures, margins are eroding.
  • Bunnings earnings have been disappointing.
  • The macro picture is deteriorating, resulting in decreasing retail sales activity and volumes.
  • Metrics on the balance sheet have deteriorated.
  • Adverse movements in AUD/USD.

Key highlights of FY21: Relative to the pcp:

  • During the year WES revenue rose by 10% to $33.9bn relative to previous year.
  • During the year 2020, WES revenue from continuing operation arises broadly from the following segment : 62% from Bunnings,19 % from kmart group, 11% from WesCEF , 6%from Office work  and 2% from Industrial and safety.
  • Bunnings delivered a 15% increase in revenue to $16,871m. Kmart Group revenue increased by 8.3% to $9,982m. Officeworks revenue increased by  8.7% to $3,029m . Wesfarmers Chemicals, Energy &Fertilisers (WesCEF) revenue increased by 2.9% to $2,146m.  Industrial and Safety saw revenue increased by 6.3% to $1,855m
  • NPAT from continuing operations increased by 16.2 % to $2.4 billion (excluding major items).
  • Operating cash flows of $3,383m were 25.6% lower over pcp as strong earnings growth businesses was offset by the normalisation in working capital positions across the retail combined with gross capex of $896m (+3.3% higher over pcp) due to increased investment in data and digital initiatives across all divisions, the conversion of Target stores to Kmart stores, as well as the ongoing development of the Mt Holland lithium project .
  • The company announced a $2.3 billion capital return in the form of a $2 per share payment on top of a final dividend of 90 cents per share, bringing the total payout for the year to $3.78 per share.
  • The Board declared a fully franked final dividend of 90cps, taking the full-year dividend to 178cps (up by 17.1% over pcp) and recommended a return of capital of 200cps, equating to total shareholder return for the year of 378cps.
  • The Company maintained significant balance sheet flexibility, ending the year with a net cash position of $109m.

Company Profile

Wesfarmers Limited (WES) operates convenience stores, home improvement stores, office supply stores, and department stores, among other businesses. Chemicals and fertilisers, industrial and safety items, and coal are all part of the industrial sector of the corporation. Wesfarmers has a workforce of about 220,000 workers.

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 Expert Insights

PepsiCo Inc Prioritizes Spending to Support Its Brands and Its Advantaged Platform

cola cans and advertisements praising the brand’s taste superiority over Coke. While, as of now PepsiCo is not only considered as beverage behemoth but its its business now extends beyond this industry, with Frito-Lay and Quaker products accounting for over half of sales and over 65% of profits. A diversified portfolio across snacks and beverages can be considered as competitive edge of PepsiCo.

After years of sluggish sales growth and underinvestment, Pepsi has committed to reinvigorating its top line. To that end, it has made significant investments in manufacturing capacity (for example, production lines to meet demand for reformulated packaging), system capacity (route optimization and sales technology), and productivity (harmonization and automation.

These investments can be considered as prudent as they will allow the company to strengthen its key trademarks such as Mountain Dew and Gatorade while deepening its presence in growth markets like sub-Saharan Africa, and also yielding enough cost savings to reinvest and widen profits. Pepsi’s growth trajectory is not without risk, as the company faces secular headwinds such as shifts in consumer behavior. Additionally, changing go-to-market dynamics, such as online commerce that encourages real-time price comparisons and obviates the extent of Pepsi’s retail distribution advantage, allow for more nimble and aggressive competition.

Financial Strength

Pepsi’s financial health can be considered as excellent. While leverage has ticked up due to recent acquisitions the company still has a strong balance sheet with manageable debt levels and robust free cash flow generation. Strong interest coverage ratios also lend credence to the firm’s health in this regard. For the year2020, PespiCo has reported revenue of USD Mil 70,372 while its estimated revenue for the year 2021 is USD Mil 76,632 which is up by 8.9% compared to the previous year. The firm in the year 20220 has reported EBIT of USD Mil 10,080 while its estimated EBIT in the year 2021 is USD Mil 11,746 which is 16.5% up compare to the previous year.The firm has reported free cash flow USD Mil 584 which is 83.8% down compared to the previous year. The major reason for the same is PepsiCo has ramped up strategic investments across the business and booked a slew of nonrecurring cash charge.

Bulls Say

  • In still beverages- a category facing fewer secular challenges, particularly in the U.S.-Pepsi is a much more formidable competitor to Coca-Cola.
  • Pepsi’s global dominance in salty snacks may be underappreciated; with volume share more than 10 times that of the next-largest competitor, the firm benefits from unparalleled unit economics and go-to market optionality.
  • The firm’s consolidated beverage and snack distribution operations, combined with its direct store delivery capabilities, allow for better execution in merchandising.

Company Profile

PepsiCo is one of the largest food and beverage companies globally. It makes, markets, and sells a slew of brands across the beverage and snack categories, including Pepsi, Mountain Dew, Gatorade, Doritos, Lays, and Ruffles. The firm uses a largely integrated go-to-market model, though it does leverage third-party bottlers, contract manufacturers, and distributors in certain markets. In addition to company-owned trademarks, Pepsi manufactures and distributes other brands through partnerships and joint ventures with companies such as Starbucks. The firm segments its operations into five primary geographies, with North America (comprising Frito-Lay North America, Quaker Foods North America, and North America beverages) constituting over 60% of consolidated 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.

Categories
Global stocks Shares

IDP Education reported low earnings due to pandemic

Investment Thesis:

  • Global re-open and vaccine roll-out acts as leverage for IDP Education.
  • The company is expected to be benefitted from margin expansion (computer- based IELTS), network expansion (latest inclusion of IELTS test centres in Ireland, Poland, Chile and Peru and student placement offices in Pakistan and Canada).
  • IDP’s English Language Testing stream (IELTS) has a strong reputation as the world’s most trusted English language test for study, work and migration.  
  • Solid margin and strong earnings/revenue growth/strong cashflow generation is maintained by IDP.
  • Strong management team.
  • Growth opportunities at global level due to international student population and education industry. 
  • Introduction and planned roll out of online IELTS delivery to provide opportunities for stronger growth.
  • Strong balance sheet, with high liquidity. 
  • Substantial margin opportunity is unlocked by potential restructuring with British Council  

Key Risks:

  • Periodic growth cannot be predicted with IDP’s business model 
  • Future economic lock-downs to Covid-19
  • Risk of currency conversion
  • In order to justify the valuations, high growth rate should be met  
  • Threat of a new entrant or competition from the existing players

Key Highlights:

  • FY21 Earnings were impacted by the pandemic, with adjusted EBIT of $71.8m, which was down by 31% over the pcp (previous corresponding period).
  • IELTS volumes were up 5% despite ongoing disruptions at the operational level due to the on-going pandemic and government-imposed restrictions.
  • The placement volumes of students to countries except Australia reduced by 12% relative to FY20 in spite of the uncertainties that were associated with travel and physical learning
  • Digital Marketing revenue jumped 8% to $30m driven by institutional clients looking up to IDP’s global digital platform for marketing and data insights.
  • Strategic acquisition in a growth market in British Council’s IELTS operation in India for £130m, which is highly strategic for IDP and provides several benefits like increased exposure to the high-growth Indian IELTS market; simplified distribution arrangements providing the opportunity to simplify and improve the delivery of IELTS to test takers in India.
  • The highlights by segments are stated as below:
  • English Language Testing: Revenue of $325.6m, which was up by 8%
  • Student Placement: Revenue of $143.3, was 22% lower; for Australia, revenue was 34% weaker at $59.7m, due to border closures relating to Covid-19. For Multi-destination, revenue was -17% weaker at $83.5m.
  • English Language Teaching: Revenue of $20.2m, which is -23% lower
  • Digital Marketing and Events: Revenue of $36.4m, which is -2% lower
  • Others: Revenue of $3.2m was -20% weaker

Company Profile:

IDP Education Ltd (IEL) offers: (i) Student placement: student recruitment/placement in 93 offices across 30 countries into  approximately 600 universities, schools and colleges globally in 5 destination countries; and (ii) co-owner of IELTS, an English language proficiency test which foreigners must pass in order to obtain certain visas and permanent residency in Australia. IEL is 50% owned by Education Australia Ltd – a business in which 38 Australian universities own a 50.1% stake.

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

Afterpay on rapid growth with stagnant loss in fiscal year 2021

Investment Thesis:

  • With over 16 million customers and over 98,000 retail partnerships, Afterpay have the benefit of being the first mover .
  • APT and clients can profit from their data (potentially introduce data mining services).
  • Vertical expansion.
  • New revenue streams and new opportunities to drive revenue – Afterpay Money.
  • International expansion – both the U.S. and the UK are off to a solid start. The addressable market for online shopping in the United States is $630 billion dollars, whereas the market in the United Kingdom is $130 billion dollars. 
  • Additional opportunities are anticipated to arise as a result of the recently announced partnerships with Visa, Squarespace, and Stripe.
  • Strong management team.

Key Risks:

  • High valuation will lead to de-rating and thereby creating miss expectation in growth rates.
  • Expansion into new verticals disappoints management and market expectations.
  • Execution risk with international expansion.
  • Increased competition from major player(s).
  •  Increased regulation. 
  • Significant data breach.
  •  Deal with Square Inc fails to complete.

Key highlights of FY21:  Relative to the pcp:( The abbreviation for p.c.p is previous corresponding period . Herein, the year 2020 is considered as p.c.p)

  • Group total income was up by 78% to $924.7m, consisting of Afterpay up by 90% to $822.3m, Pay Now down by 16% to $13.8m and Other income up +29% to $88.6m.
  • The gross loss of Afterpay as % of underlying sales unchanged at 0.9%in the year 2021.
  • Group reported net margin of $443.3m which was up by 70%.
  • Afterpay reported net margin of $434.1m up by 74 % while its net transaction loss margin was 0.6 % (up from 0.4 percent), and net margin as a percentage of underlying sales was 2.1 percent (down from 2.3 percent), impacted by lower margin from newer international regions that are still in the early stages of their lifecycle.
  • Despite increased underlying sales and contribution from new territories, the Afterpay income margin of 3.9 percent remained steady over the pcp, with merchant income margins largely stable across all regions.
  • Due to increased marketing and talent expenditure, the group’s underlying operating profitability (EBITDA) fell by 13 % to $38.7 million. The loss after tax increased to $159.4 million from $22.9 million owing principally to an increase in the valuation of the ClearPay UK minority investment.
  • Management continues to invest heavily in the company in order to expand into new markets and raise brand awareness. Employment expenses increased by 75% year over year to $150.9 million, while operational expenses increased by 104 percent to $298.6 million.
  • APT has plenty of cash, with management claiming that it has the capacity to support an additional $40 billion in underlying sales on top of its existing annualised run rate of $24 billion.

 APT and Square Inc announced a Scheme Implementation Deed on August 2nd, under which Square Inc will purchase all of APT’s outstanding shares in a transaction valued at $39 billion at the time. . The deal is expected to finalise in the first quarter of FY22.

Company Profile

Afterpay Ltd (APT) is an Australian-based technology-driven payments company. The Afterpay and Touch products and businesses are part of APT. The company’s business model is “purchase now, take now, pay later.” Merchants sign up for Afterpay, which allows their retail customers to pay in four equal instalments, interest-free. APT pays merchants up front and assumes the credit and fraud risk upon themselves. Customers can pay with a debit or credit card (Visa/Mastercard) — as a result, APT views banks and credit card companies as collaborators rather than rivals. Merchants benefit because they may increase sales to customers who would otherwise be unable to afford large purchases in one go.

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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Despite pandemic disruptions, NIB Holdings produce strong FY21 results

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Investment Thesis:

  • Increased demand for health care services due to ageing population of Australia, thereby contributing increased dependence on private health care insurers. NHF offers exposure to the business model of providing a funding mechanism for the high-growth health care sector.
  • Healthcare expenditure is expected to rise by 5-10% per annum, so government cannot offer healthcare services to people without increase in tax.
  • The average premium rates increased at the rate of 5 – 6% per annum. 
  • Policyholder growth and exposure to speed up the investments, NHF is expected to offer double-digit growth in medium term.
  • Strong members in management.
  • Chalking out budget plan, which improves the company’s expense ratio. 
  • PHI (Protected Health Information) is promoted by giving incentives and benefits. 
  • Joining with Tasly Holdings (Chinese Pharmaceutical Company) in Joint Venture and making international presence through the same.

Key Risks:

  • Increase in competition among top 6 players
  • Putting policy growth targets at risk 
  • Marketing expenses are anticipated to go high, thereby straining earnings growth.
  • Unexpected decline in policyholders in spite of providing incentives 
  • Rapid increase in healthcare spending and health services demand from people have left Australian Government struggling.
  • Registered health insurance firms are unable to increase premium rates without prior approval from the Government/Minister for Health/PHIAC/APRA. Because of this, NHF’s ROE and margins would be exposed to political process and pressures if the company makes large profits.
  • Regulatory changes including tax incentives and benefits which encourage take up of PHI. 
  • Due to poor insurance policy design, aging population, and costs of new medical equipment, procedures and treatments; lapse rates and claims inflation would be higher than expected.
  • Negotiations not done rightly with healthcare providers (private hospital operators) which may result into unfavorable contractual terms;
  • Investment returns might be lower than expected.

Key Highlights:

  • nib holdings Ltd. (NHF) reported strong FY21 results in spite of Covid-19, however it was in line with management expectations
  • Revenue grew by +2.9% to $2.6bn and Group operating profit (UOP) of $204.9m, which is up by 39.5%
  • NPAT of $160.5m was mainly driven by net investment income of $51.8m.
  • Statutory EPS of 35.2 cents, which was +82.4% higher.
  • ROIC of 19.1% which was similar to pre-pandemic levels.
  • Final dividend of 14cps fully franked (up from 4 cents), which brings the full year dividend to 24cps.

Company Profile:

nib Holdings Limited (NHF) is the Australian private health insurer. NHF operates in four divisions which are private health insurance, life insurance, travel insurance and related health care activities.

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.