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ETFs ETFs

Vanguard focus on increasing dividends while also delivering some capital growth

Investment Objective 

Vanguard Australian Shares High Dividend Yield seeks to replicate the performance of the FTSE Australia high Dividend yield index before taking into account fees, expenses and taxes.

Investment Strategies

  • The Funds seeks low cost exposure to ASX Listed Companies that are expected to deliver higher Dividend as compared to other ASX Listed Companies.
  • Funds Achieves diversification by limiting the amount of securities holds of maximum 10% of portfolio.
  • Fund does not invest more than 40% of its assets in single industry. AREIT Investing does not excludes particular funds.  

Portfolio Objective 

  • Long term returns are competitive in nature.
  • Provides long term returns at low cost. 
  • The fund seeks long-term capital growth and tax-efficient income while being risk-averse in the stock market.

Positives 

  • Diversification 
  • Low Cost exposure to dividend paying ASX Listed Securities
  • Distributions are made on quarterly basis

Negatives 

  • Dividend-paying stocks underperform the market as a whole.
  • Share market volatility may cause the portfolio value to fluctuate.
  • The fund’s index tracking capability may fail to meet the fund’s objectives.
  • The fund’s fees and costs are subject to change.

Company Profile 

The Vanguard Group has been in Australia since 1996 and currently has $140billion of assets under management. The Group manages some 82 funds with head office in Melbourne, Australia. The Vanguard Group, globally, has been operating since 1975 with $1.6 trillion of asset under management. The global group manages 400 funds with 30 million investors worldwide.

ETF Performance…

Figure 1: Fund performance as at30June 2021

(%)FundBenchmark
1-month+1.39%+0.1.39%
3-months+6.03%+6.03%
6- months+16.33%+16.34%
1-year +34.89%+34.86%
3-year (p.a.)+10.46%+10.38%
Since Inception (p.a.)+9.50%+9.45%

Source: Vanguard. Inception date: 26 May2011.

ETF Positioning…

Figure 2: Top ten holdings

Source: Vanguard

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

BETASHARES AUSTRALIAN SUSTAINABILITY LEADERS ETF is true-to-label and cost effective

Investment Objective:
The main goal of Betashares Australian Sustainability Leaders ETF is to track the index (before fees and expenses) that involves Australian companies, which have passed through screens so as to eliminate companies with direct or sufficient exposure to fossil fuels or those that are involved in activities which are supposed to be inconsistent when compared to responsible investment requirement.

Investment Strategy:
This fund offers a chance to investors to align their investments with their ethical standards. FAIR’s investment methodology includes strict screening criteria, which provide investors a true to label ethical investment option. FAIR does not consider investing in any of the big 4 banks or large Australian mining companies.

Portfolio Objective:
Diversified exposure is provided to ethical Australian shares
High preference towards companies that are classified as “Sustainability Leaders”
Ethical investment methodology that are true to label

Positives:
Shares diversification
Australian shares options that are available at low cost
Distributions made semi-annually

Negatives:
Fluctuations in Share market can make the portfolio value go up and down during the holding period.
Concentrated market in relation to others
Exclusion of major market sectors experiencing strong returns
Change in fees and costs of the fund might be possible

Company Profile:
BetaShares is a renowned manager of ETFs and other funds that are traded on the ASX. The inception of the company was in 2009 and it now consists of over 60 products in its portfolio, all of which can be bought and sold on the ASX. The company aims to offer investors simple, liquid, and cost-effective solution to Australian and global shares, cash and fixed income, currencies, commodities, and active and alternative strategies.

ETF Performance:

(%)FundBenchmark
1-month+0.29%+0.34%
3-months+5.53%+5.66%
6-months+11.28%+11.46%
1-year+19.30%+19.76%
5-year (p.a.)–+9.80%
Since Inception (p.a.)+10.54%+11.07%

(Source: BetaShares)

Fig. 1: Fund performance as at 31 July 2021

ETF Positioning:

(Source: BetaShares)

Fig. 2: Top 10 Exposures

(Source: BetaShares)

Fig. 3: Sector Allocation

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

BetaShares ETF to allow investors to invest in Companies identified as Climate Leaders

Investment Objective

ETHI aims to track index performance (before fees and expenses), which includes a range of large global stocks that have also passed screens to exclude firms with direct or significant exposure to fossil fuels or which have been engaged in activities that are considered inconsistent with responsible investment considerations. ETHI is responsible for the monitoring of the index.

Investment Strategy

  • The fund offers investors the chance to link their ethical values with their interests. 
  • ETHI integrates a wide range of ESG criteria with positive climate leadership screens, providing an authentic ethical investment approach.
  • ETHI holds a diversified portfolio from a range of worldwide locations of major, sustainable, ethical enterprises.

Portfolio Objective

  • Provide diversified exposure to globally listed ethical shares.
  • Prefer companies classified as “climate leaders”.
  • True to designate the methodology of ethical investment.

Positives 

  • Shares, currencies, and markets are all used to diversify.
  • Exposure to international ethical shares at a low cost
  • Distributions are made on a semi-annual basis.

Negatives 

  • Share market volatility may cause the portfolio value to fluctuate during the holding period. 
  • It is more concentrated in comparison and it excludes major market sector that may experience strong returns. 
  • Fund may changes their cost and fees. 

Company Profile 

BetaShares is a well-known manager of ETFs and other funds traded on the ASX.  The company was founded in 2009 and now has over 60 products available, all of which can be bought and sold on the ASX.  The company seeks to offer investors simple, liquid, and cost-effective access to Australian and global shares, cash and fixed income, currencies, commodities, and active and alternative strategies. 

ETF Performance…

Figure 1: Fund performance as at 31 July 2021

(%)FundBenchmark
1-month+3.74 %+3.79%
3-months+11.26%+11.44%
6-months+21.98%+22.25%
1-year +35.34%+35.89%
3-year (p.a.)+25.60%+26.21%
Since Inception (p.a.)+23.43%+23.92%

Source:BetaShares

ETF Positioning…

Figure 2: Top ten holdings

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

Vanguard MSCI ETF gives exposure to companies to deliver long term growth

Investment Objective

Vanguard MSCI Index International Shares ETF seeks to track the return of the MSCI World ex-Australia (with net dividends reinvested), in Australian dollars Index, before taking into account fees, expenses and tax.

Investment Strategy

The fund provides exposure to many of the world’s largest companies in major developed markets and countries. The fund seeks to deliver this exposure efficiently by keeping the costs low. There fund offers diversification through number of securities, sectors, and markets and gives exposure to companies with the potential to deliver long term capital growth. The fund offers investors exposure to economies other than just Australia’s. The fund is also exposed to various currencies and their fluctuating prices, though the fund will not hedge foreign currency volatility against Australian dollar.  

Portfolio Objective

  • Provide diversified exposure to internationally diversified global shares.
  • Capital growth over the long term.
  • Currency exposures and diversification away from Australia.

Positives

  • Diversification by sectors, securities, regions, and currencies.
  • Low cost exposure to globally diversified portfolio.
  • Quarterly distributions. 

Negatives 

  • Share market and currency volatility could cause the portfolio value to go up and down during the holding period.  
  • The index tracking capability of the fund may fail to meet the objectives of the fund.
  • The fees and costs of the fund may change.

About the Company

The Vanguard Group has been in Australia since 1996 and currently has $140billion of assets under management.  The Group manages some 82 funds with head office in Melbourne, Australia. The Vanguard Group, globally, has been operating since 1975 with $1.6 trillion of asset under management. The global group manages 400 funds with 30 million investors worldwide.

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

oOh! Media Ltd reported solid first half year results in 2021

Investment Thesis:

  • Out of Home advertising has a strong market share .(47 % in Australia and New Zealand) 
  •  Due to the current uncertainty around lockdown restrictions, the share price are traded at a meaningful discount in comparison to its valuation in terms of DCF / PE-multiple; EV/EBITDA multiple.
  • Dividends have been temporarily suspended, with the Board expecting to reconsider when market conditions improve and the Company’s lenders agree.
  • OML operates in a highly concentrated market which makes it difficult for new players to enter in.
  • The top line of the company is still well-diversified, with no single contract having a large impact on revenue.
  • Management did not disclose an earnings guidance for FY22, but did say that “revenue for Q3 is now pacing 38 percent higher than the corresponding period in 2020,” and also stated that audiences and associated revenues will see a strong recovery when the current lockdowns end.
  • Unproven Cathy O’Connor having vast media experience and a track record of leading profitable media firms joined as OML CEO in January 2021.

Key Risk:

  • Threats from competitors lead to loss in market share.
  • Unsatisfactory growth (company and industry specific).
  • The pandemic has lasted longer than anticipated.
  • Market cyclicity in advertising.
  • Updates on contract renewals have been disappointing.

 Highlights of key FY21 results:

  • OML reported solid 1H21(first half of year 2021) results, reflecting improvement in earnings. During the underlying period OML reported revenue of $251.6m which is 23% up  compared to 1H20(first half of year2020).
  • The increase in revenue was driven by revenue recovery across its key products namely commute, road ,retail , fly , locate and other junkee media and Cactus Imaging .
  • During the underlying period, the gross margin was 42.5% which is 8.8 points up in comparisons to 1H20, indicating a return to pre covid levels.
  • EBIDTA for the underlying period was $33.3 million, which is 209% above from 1H20, ton account of margin improvement leveraging revenue growth.
  • With the help of its property partners, OML was able to secure $19 million in net rent abatements.
  • Underlying NPATA was $2.4m versus a loss of $16.9m in 1H20.
  • The balance sheet of OML improved, with the gearing ratio (Net Debt / Underlying EBITDA) falling to 1.1x (from 1.8x) and net debt falling to $94 million, down by 16 percent from the previous first half year result.
  • The total capital investment for the year will be about $25 million, with the focus remaining on revenue growth and concession renewals.
  • The Board has put a stop to dividends for the time being, with the purpose of reviewing the decision if market conditions improve and the Company’s lenders agree.

Company Profile:

oOh!media Ltd (OML) is one of Australia’s largest operators of out-of-home advertising products, including all major advertising formats such as billboards, shops, street furniture, airports, and office towers (largest scale with footprint in all major regions in Australia and New Zealand). The company employs 800 individuals, with 150 working in sales, 250 in operations (cleaning, maintaining street furniture, and so on), and the remainder in shared services, technology, and so on.

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

oOh!Media Ltd a buy given the Company’s leverage to ad spend pick up once restrictions ease.

Investment thesis

  • Strong market share (~47% in Australia / New Zealand) in a growing advertising medium Out Of Home (OOH).
  • The share price trades below our blended valuation (DCF / PE-multiple / EV/EBITDA multiple).
  • Dividend temporarily suspended, with the Board intending to revisit this decision when prevailing market conditions improve and with consent of the Company’s lenders.
  • Management did not provide quantitative FY22 earnings guidance but did provide “revenue for Q3 is currently pacing 38% higher than the corresponding period in 2020 and 74% of Q3 2019”. Further, management noted, “forward visibility remains uncertain given the ongoing effects of Covid-19 lockdowns and associated movement restrictions, however we expect that when the current lockdowns end there will be a strong recovery in audiences and associated revenues as has been the case previously”. 
  • The market that OML competes in is concentrated (majority share with three very well financed competitors), which poses a challenge for international players wanting to come in (need to have a network established to be an out-of-home player). 
  • Unproven CEO Cathy O’Connor became CEO of OML in January 2021, however she brings extensive experience in media and history of running profitable media companies. 
  • OML utilises audience analytics to stay ahead of the curve, with its association with Quantium (Quantium is 50% held by Woolworths and the other 50% is private equity, with its data set currently covering all the Woolworths loyalty data, NAB credit card data, real estate core logic etc to capture more than 75% of Australians spend). OML believes Quantium gives it an edge over its competitors, especially given it has exclusive rights and the contract was only recently renewed.

Key Risks

  • The following are the key challenges to the investment thesis:
  • Competitive threats leading to market share loss.
  • Disappointing growth (company and industry specific).
  • Pandemic is prolonged longer than expected.
  • Cyclicality in advertising markets 
  • Disappointing updates on contract renewals.

Highlights of key FY21 results

Relative to the pcp: (1) Revenue of $251.6m was up +23% driven by revenue recovery across key formats in Australia (Road, Retail and Street Furniture) and NZ. OML maintained the number one market position in both the Australian and New Zealand markets. (2) Gross margin of 42.5% was up 8.8 points reflecting recovery towards pre-Covid levels. (3) Underlying EBITDA of $33.3m was up +209% driven by margin expansion leveraging revenue uplift. (4) OML was able to negotiate with property partners for net rent abatements of $19m. (5) Underlying NPATA was $2.4m versus a loss of $16.9m in 1H20. Reported Net Loss after tax of $9.3m (post AASB16) was an improvement from a -$28.0m loss in 1H20. (6) OML’s balance sheet strengthened with gearing ratio (Net Debt / Underlying EBITDA) down to 1.1x (from 1.8x) and net debt declined to $94m, down -16% relative to the pcp. (7) The Board has temporarily suspended dividends (as per OML’s announcement during its March 2020 equity raising) with the Board intending to revisit this decision when prevailing market conditions improve and with consent of the Company’s lenders.

Company Description 

oOh!media Ltd (OML) is one of Australia’s largest operators of out of home advertising products (largest scale with footprint in all major regions in Australia & New Zealand) covering all the major advertising formats including – billboards, retail, street furniture, airports and office towers (~95% market share in office tower marketing). The Company has a workforce of 800 people, with ~150 people sales facing, ~250 people on operations (cleaning maintaining street furniture etc) and rest in shared services, technology, etc.

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

Dell Reports Q2 Results, but faces Supply Chain Challenges

Dell Technologies is a pre-eminent vendor of IT infrastructure products and services. Although Dell Technologies has substantial exposure to commoditized markets and carries considerable financial leverage, it expects a hybrid cloud IT to offer a growth opportunity amid Dell trimming its debt load via cash injections coming from divestitures and spinning off VMware. 

Dell Technologies’ business centers on PCs and peripherals, servers, storage, networking equipment, as well as software, services, and financial services. Its brands include Dell, Dell EMC, VMware, Secure works, and Virtustream. The company returned to the public market in late 2018 through a reverse merger of the VMware tracking stock, DVMT. The company’s largest revenue streams of commercial PCs and servers are in tough pricing environments that can rely on services and support to generate profit.

While Dell is a benefactor of heightened demand for computers and peripherals due to the pandemic, it remains hesitant about the long-term growth and competitive pricing environment of the computing market. On the other side of the business, it is expected that Dell’s hybrid-cloud portfolio can ramp up business as organizations update their infrastructure to modern solutions.

Financial Strengths

Dell is maintaining $80 fair value estimate after its second-quarter results surpassed the expectations for year-over-year revenue growth and earnings. Dell’s last traded price was 101.55 USD, whereas its fair value estimate is 80 USD, which makes it an overvalued stock. As with peers in the computer market, Dell’s rampant growth is being restrained by supply chain challenges that are expected to persist in the near term. Shares slightly dropped after Dell reported results Since returning to the public markets, the company has placed a priority on paying down its debt balance with the goal to become investment-grade. As of the end of fiscal 2021, Dell Technologies had about $48.5 billion in total debt. The Dell sale of Boomi will bring in another $4 billion, and it is expected Dell to use both transactions to pay down debt.

Bulls Say

  • As a supplier with an end-to-end IT infrastructure portfolio, Dell Technologies has significant up selling and cross-selling opportunities.
  • Through its cloud-based products, higher-margin nascent technologies, traditional hardware prowess, and VMware, the company is well-positioned to be a leader in hybrid cloud environments.
  • Dell Technologies’ healthy cash flow is focused on paying down debt and creating a more balanced long-term capital structure that can support future investments.

Company Profile

Dell Technologies, born from Dell’s 2016 acquisition of EMC, is a leading provider of servers and storage products through its ISG segment; PCs, monitors, and peripherals via its CSG division; and virtualization software through VMware. Its brands include Dell, Dell EMC, VMware (expected to be spun off toward the end of 2021), Boomi (expected to be sold by the end of 2021), Secure works, and Virtustream. The company focuses on supplementing its traditional mainstream servers and PCs with hardware and software products for hybrid-cloud environments. The Texas-based company employs around 158,000 people and sells globally.

(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
Technology Stocks

Avita Benefits From the Incidence of Burns Normalising

Digital tablet display the stock market data

currently a skin graft sourced from elsewhere on the patient’s body. It is believed Avita will be successful based on the product’s clinical performance, ease of use and relative price point. RECELL creates Spray-on Skin within 30 minutes from a skin sample, typically less than 5% of the size required in a graft. It has been clinically demonstrated to heal the burn site as effectively as a skin graft without creating a large donor site wound.

Despite the technology in Avita’s RECELL system being in use since the Bali bombings in 2002, the product has had limited commercial success as it entered the market as an investigational device. This limited the reimbursement and take-up of the product. RECELL relaunched in the U.S. following randomized clinical trials and FDA approval in late 2018. Currently, it’s approved for treating second and third degree burns in adults, and Phase 3 pediatrics clinical trials began in first-quarter calendar 2020.

The treatment of severe burns in the U.S. is concentrated across the 136 burn centers, making commercial roll-out of RECELL straightforward. Of the approximately 14,000 adults with second- or third-degree burns treated at these burn centers each year, Avita could ramp-up to 37% share or 5,200 patients per year by fiscal 2026. The cost of RECELL compares favorably with a skin graft in this setting, as RECELL has a list price of USD 7,500 per single-use unit versus the USD 17,000 to USD 20,000 cost of a skin graft. It also has the benefits of shorter length of stay and fewer additional procedures.

Financial Strengths

Avita is in a solid financial position with no debt, and cash on the balance sheet of USD 111 million as at June 30, 2021, Having raised AUD 120 million in equity funding in November 2019, and a further USD 69 million in February 2021. It is expected that the operations of the company to be a net consumer of cash in fiscal years 2022, 2023, and 2024 as it scales up operations, and become free cash flow positive thereafter. Key operational cash requirements include the Salesforce and clinical trials and approvals for new indications. There is little capital investment required as the owned factory where it assembles the RECELL systems in the U.S. is currently running at only 10% capacity. 

Bulls Say

  • Avita’s RECELL system as a sound alternative treatment for large second- and third-degree burns treated in burn centers. It compares favorably on price and ease of use with new products and the existing standard of care being skin grafts.
  • The company requires little invested capital and is expected to generate very high returns once it ramps up its commercial roll-out.
  • RECELL has achieved an estimated 17% market share in its key addressable market since launching in 2019 and shows promising signs to expand its use for other indications.

Company Profile

Avita is a single product company. Its RECELL system is an innovative burn treatment device which creates Spray-on Skin from a small skin sample within 30 minutes, thus avoiding or reducing the need for skin grafts. It’s approved for the treatment of adult patients in the U.S. with pediatric clinical trials and expanded indications in soft-tissue reconstruction and vitiligo underway. It is currently in roll-out across the approximately 136 U.S. burn centers. Despite having product approval in Australia, Europe, Canada, and China, Avita is not actively marketing in those territories and focusing instead on the U.S. region. However, it is expected to gain approval and launch in Japan via distribution partner Cosmotec shortly. Avita is domiciled, and has its primary listing, in the U.S.

(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

Western Digital merger with Kioxia to Become Global NAND Behemoth

Male gamer in headphones holds joystick and playing videogame on console or desktop PC, gaming lifestyle, cybersport. Computer games player in his room with neon light, streamer

Such a deal would be a defensive, but prudent, move by Western to reinforce its competitive position in the swiftly consolidating chip market. In the long term, it is expected the NAND market to follow the dynamics of DRAM and HDDs, and consolidate down to about three leading players for a largely commodity like product. 

Western and rival Micron were interested in a Kioxia tie up. Western would be materially better off by beating Micron to the deal, either deal would create three dominant players in NAND, and Western would avoid being on the outside looking in. Nevertheless, a potential deal wouldn’t alter no-moat or stable moat trend ratings for Western. The company maintains $70 fair value estimate for Western Digital until a deal is officially announced. 

Although they are competitors, Western and Kioxia have a long-standing joint venture for their NAND manufacturing, wherein the firms invest equally, buy chips back, and compete to sell them on the open market. The potential combination would create the largest NAND supplier in the world, barely edging out current leader Samsung. 

Company’s Future Outlook

A deal would further emphasize the strategic differences between Western Digital and HDD rival Seagate. While Seagate has doubled down on mass capacity HDDs for enterprise and cloud customers, Western has diversified into flash with its 2016 SanDisk acquisition and now the potential Kioxia deal. The deal would reportedly be funded entirely through stock. For privately held Kioxia, $20 billion or more would secure a solid return, especially after pursuing a $16 billion valuation in a suspended 2019 IPO. Seagate will able to earn more attractive returns by staying out of the high-investment NAND market. 

Company Profile

Western Digital is a leading vertically-integrated supplier of data storage solutions, spanning both hard disk drives (HDDs) and solid state drives (SSDs). In the HDD market it forms a practical duopoly with Seagate, and it is the largest global producer of NAND flash chips for SSDs in a joint venture with competitor Kioxia.

(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
Technology Stocks

Afterpay’s Milestones over FY21 Illustrate It Has Much to Offer Square

The fair value estimate of Afterpay is at AUD 113 per share.  The company’s valuation assumes a 75% chance the acquisition will proceed to completion at AUD 126 per share, which is based off Square’s share price at the time of offer. 

Square’s deal to buy Afterpay looks like another move to push Square’s business model closer to that of PayPal and strengthen the bonds between its Cash App and seller businesses to create a more fleshed-out two-sided platform. The firm intends to amass Afterpay’s 16.2 million (and growing) highly-engaged shoppers and 98,200 merchant partners (most of which are large enterprises) as selling points to attract more merchants and customers. Incorporating Afterpay’s features into Square’s own offerings (and vice versa) also further enhances the product proposition to users.

The quality of Afterpay’s shoppers is well known. Not only is the number of shoppers growing, but spend per customer is rising–in fiscal 2021, more than 93% of underlying sales were made by repeat customers, while its top 10 customers (by sales) now spend 34 times per year, up 21% from a year ago. Quantitatively, the value Afterpay brings to merchants is reflected in rapid signup of merchants to the platform and the margins merchants can afford to (and are willing to) pay–merchant margins were unchanged from the prior year at 3.9% in fiscal 2021.

Company’s Future Outlook

The buy now, pay later, or BNPL, firm expects its acquisition by Square to close in the first quarter of 2022, with a scheme booklet due to be dispatched in September 2021. It is believed Afterpay’s strategy in moving beyond just extending credit to playing a larger role in a customer’s lifecycle (such as via Afterpay Money) should help dissuade customers from switching to an alternate finance provider and subsequently, entrench the durability of its growing network

Company Profile

Afterpay started its buy now, pay later, or BNPL, financing product in calendar 2015, listed on the ASX in May 2016 and merged with Touchcorp (who designed and built Afterpay’s platform software) in June 2017. Its BNPL platform allows consumers to make acquisitions at merchant partners by paying installments every two weeks. If consumers pay on time, they transact on Afterpay for free. Afterpay primarily generates revenue from receiving a margin from the merchant. Afterpay pays the merchant the full purchase price immediately on the sale, less this margin. The margin compensates Afterpay for accepting all non-payment risk, including credit risk and fraud by the consumer, and for encouraging consumers to purchase greater dollar values and transact more frequently.

(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.