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Technology Stocks

Veeva Beats Revenue and EPS Guidance; However, CRM Headwinds Could Dampen Short-Term Growth

providing an ecosystem of products to address the operating challenges and regulatory requirements that these companies face. The company operates in two categories: Veeva Commercial Cloud, which entails vertically integrated customer relationship management (CRM) services and end-market data and analytics solutions; and Veeva Vault, a horizontally integrated content and data manager. Veeva’s CRM application supports real-time collaboration and regulatory oversight, and enables incremental add-on solutions. As a follow-on to the initial introduction of CRM, management introduced the Veeva Vault platform to broaden the portfolio that addresses the largely unmet needs of the life sciences industry outside of CRM.

Veeva’s effective technology and dominant position enables it to generate excess returns commensurate with a wide-moat company. The company’s strong retention, continued development of new applications, increasing penetration within existing customers, addition of new customers, and expansion into industries outside of life sciences should allow the company to extend its market leadership.

Veeva Beats Revenue and EPS Guidance; However, CRM Headwinds Could Dampen Short-Term Growth:

Veeva System reported strong quarterly results, with total revenue of $456 million and adjusted EPS of $0.94 slightly exceeding guidance ($450 million-$452 million and $0.85-0.86, respectively). Subscription services revenue grew 29% year over year, due to the addition of new CRM customers during the quarter, add-on module adoption, and strong Vault growth. The company reported the signing of its first top 20 pharma company to the Vault Safety platform and strong growth of other Vault modules during the quarter.

Despite the positive results and a nominal bump to fiscal 2022 revenue and EPS guidance, shares fell nearly 8% after trading hours, with investors likely overreacting to management’s commentary on macro trends impacting customer relationship management software (CRM) growth.

Financial Strength

Veeva enjoys a position of financial strength arising from its strong balance sheet (no debt) and leading position in a growing market. As of fiscal 2021 Veeva had over $1.6 billion in cash and short-term investments and no debt. It is assumed that the company will continue to use the cash it generates from operations to fund future growth opportunities. 

During FY 2021, the firm reported revenue of USD Million 1,465 which is 32.7 % higher in relation to the previous year while its EBIT stood at USD Million 378.The free cash flow for the firm for the year 2021 was USD Million 342 while its diluted EPS was USD 2.94.

Bull Says

  • Veeva’s best-of-breed vertical addressing unmet needs provides opportunities to further penetrate a highly fragmented market.
  • The rapid adoption of the company’s new modules continues to entrench Veeva into mission-critical operations of customers, making it increasingly challenging for competitors to gain a foothold.
  • Veeva’s institutional knowledge and co-development partnerships with customers enable the company to develop robust offerings addressing market needs.

Company Profile:

Veeva is a leading supplier of software solutions for the life sciences industry. The company’s best-of-breed offering addresses operating and regulatory requirements for customers ranging from small, emerging biotechnology companies to departments of global pharmaceutical manufacturers. The company leverages its domain expertise and cloud-based platform to improve the efficiency and compliance of the underserved life sciences industry, displacing large, highly customized and dated enterprise resource planning, or ERP, systems that have limited flexibility. As the vertical leader, Veeva innovates, increases wallet share among existing customers, and expands into other industries with similar regulations, protocols, and procedures, such as consumer goods, chemicals, and cosmetics.

( 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

NEXTDC reports strong results as of ongoing cloud adoption

Investment Thesis

  • Australia is still in the early stages of cloud adoption. The NBN’s implementation will drive demand from cloud providers for NXT’s asset follows more efficient and cheaper broadband. 
  • Extremely high-quality collection of sites.
  • Tier 4 gold centers focus on the premium end where pricing is more stable.
  • NXT has balance sheet capacity to handle more debt and self fund expansion through operating cash flow from the base building. 
  • Capital intensive nature of the sector provides a high barrier to entry.
  • Government adoption of cloud and the subsequent need to outsource present an opportunity.
  • Sticky customers are unlikely to churn which creates a strong customer ecosystem.
  • The Company’s national footprint enables it to scale more effectively than competitors.
  • Margin expansions demonstrate strong operating leverage.
  • Additional capacity has been announced.
  • Given the global demand for data, mergers and acquisitions are on the rise.

Key Risks

  • There is no product diversification (NXT only operates data centres).
  • NXT and competitors have significantly increased their supply of data centres.
  • Delays in the construction or ramp-up of data centres have an impact on the earnings growth profile.
  • Pressures from competitors (price discounting by NXT or competitors).
  • Higher power densities in Australia as a result of increased average rack power utilization.
  • Inadequate customer demand to generate a satisfactory return on investment.
  • NXT’s ability to expand and pursue growth opportunities may be hampered if sufficient capital is not obtained on favourable terms.
  • The risk of leasing (NXT does not own the land or building where its data centres are situated).

FY21 results highlights 

  • Data center service revenue was up +23% to $246.1million and at the bottom end of upgraded guidance of $246m to $251m.
  • Underlying EBITDA increased by +29 percent to $134.5 million, exceeding the company’s revised guidance of $130 million to $133 million.
  • Operating cash flow increased by 148% to $133.2 million.
  • Capex was down -18% to $301 million, falling short of the $380-400 million range.
  • NXT had $1.7 billion in liquidity (cash and undrawn debt facilities) at the end of the fiscal year, and its balance sheet strength is supported by $2.6 billion in total assets, indicating that it is well capitalised for growth.
  • Contract utilisation increased by 8% to 75.5MW. (7) NXT’s customer base increased by 183 (or 13%) to 1,547.
  • Interconnections grew 1,667 (or +13%) to 14,718, and now equates to ~7.7% of recurring revenue.

Company Profile 

NEXTDC Limited (NXT) is a Data-Center-as-a-Service (DCaaS) provider offering a range of services to corporate, government and IT services companies. NXT has a total of five data centers located in major commerce hubs in Australia, with three more due to be completed within the next 2 years. These facilities are network-neutral, meaning they operate independently of telecommunication and IT service providers. Currently NXT has a total of 34.7 MW built for data and serving housing, with a target to reach 104.1MW by the end of 1H18. 

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

Woolworths Ltd (WOW) posted solid FY21 results along with off-market buy-back

Investment Thesis :

  • Leading market positions with strategic locations in areas with strong population growth.
  • Positively correlated with population growth throughout time.
  • Increasing digitalization to save costs and improve the supply chain’s efficiency.
  • For the core Australian Food segment, key leading indicators (such as basket size / goods per basket) are improving.
  • Customer metrics and transaction growth are both improving. 
  • The momentum of BIG W is expected to continue.
  • Capital management post Endeavour deal.

Key Risks:

  • The Food & Petrol business is seeing more margin pressure.
  •  Changing consumer preferences and purchasing trends, as well as increased retail competition.
  • Deterioration in balance sheet as a result of lower earnings.
  • Unfavourable fluctuation in AUD/USD (international sourcing).

Key highlights of FY 2021: 

Following the demerger of Endeavour Drinks, Woolworths Ltd (WOW) posted solid FY21 results and a $2 billion off-market buy-back. Relative to pcp:

  •  During the year Woolworth reported sales of $67,278 million were up 5.7 percent (online sales of $5,602 million were up 58.1 percent).
  • The  revenue of Woolworth  is from following segment (1)  Australian Food (2) ) New Zealand Food (3) ) New Zealand Food (4)  Discontinued operations.
  • In the year 2021 , 80%of  sales revenue of Woolworths (continuing operation )was from Australia amounting to $44,441m , 12% of sales revenue was from  new zealand zone amounting to $6,652,8% of revenue from BIG W amounting to $4,583 and  sales from discontinued operation “Endeavour Drinks” amounted $10167.
  • During the year, the firms EBIT was $3,663m, up by 13.7% EBIT from continuing operations  was $2,764m, up by 11.1% driven by a 9% increase from Australian Food and an increase of over 300% from BIG W.
  • Group EBIT margin was 5%, up by 28bps.
  • Cost of doing business increased 16bps due to higher CODB in NZ and higher contribution from Big, which operates on a higher CODB.
  • NPAT of $1,972m, up by 22.9%.
  • The Board declared a final dividend of 55cps which brings FY21 dividend to 108cps, up by 14.9%. Shareholders on the record date of 3 September 2021 are eligible for the final dividend of $0.55

$2bn off-market buy-back: WOW announced $2bn capital return via an off-market buy-back. The Buy-Back will be handled through a tender process. . Eligible Shareholders who choose to participate can offer to sell some or all of their Shares to WOW at:  (1) a discount to the Market Price of 10% to 14% (inclusive) at 1% intervals; or (2) the Buy-Back Price established by WOW after the tender process is completed (as a Final Price Offer). (1) a discount to the Market Price of 10% to 14% (inclusive) at 1% intervals; or (2) the Buy-Back Price (1) a discount to the Market Price of 10% to 14% (inclusive) at 1% intervals; or (2) the Buy-Back Price, established by WOW. The Buy-Back Price will be determined as the lowest price at which WOW can buy back the targeted amount of capital.

The buyback period begins on September 13 and ends on October 15, 2021. On October 21, 2021, the Buy-Back Price will be paid to successful Eligible Shareholders.

Shareholders benefits from buyback: The Buy-Back Price paid for each share purchased back will be $4.31, with the remaining being a fully franked dividend. The Buy-Back Price may be lower than the price at which one might sell their shares on ASX, but  after-tax return may be greater because of personal tax status and the tax treatment of the Capital Component, dividend Component, and franking credits.

Company Profile:

Woolworths Limited (WOW) is an Australian retailer that operates supermarkets, speciality and discount department shops, as well as liquor and electronics stores. Woolworths also produces processed foods, exports and wholesales food, and sells gasoline. The corporation also owns and runs hotels that feature pubs, restaurants, lodging, and gambling.

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

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.

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

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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.