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Global stocks

Bank of Queensland has branches owned by branch managers and corporate branches

Business Strategy & Outlook

Bank of Queensland is one of Australia’s top-10 largest banks, but is considerably smaller than the four major Australian banks. Preceding the global financial crisis, the bank grew aggressively via acquisitions and the rollout of its distinctive owner-manager branch franchise model. However, expanding the branch network and diversifying from traditional residential lending came at a cost, with additional equity required to fund growth, significantly increased bad debts, and multiple banking systems, which resulted in deteriorating cost/income and returns on equity. The successful integration of ME Bank is expected to materially lift earnings per share in the medium term. Other influences on earnings growth are modest credit growth, provisions for loan losses, and pressure on funding costs and intense lending competition constraining interest margins. Operating expenses are increasing on investment in the banking system and increased regulatory and compliance spending.

The strategic plan outlined by CEO George Frazis in 2020 centers on a digital transformation of the bank’s core banking systems, which should lead to better customer outcomes and operational efficiencies. The aim is to ensure the bank is more competitive, particularly in the home loan market, but this investment is not giving the bank any competitive edge. At best, it can narrow the gap to peers, but with the big investment budgets of the majors, those innovations are likely to be hard to keep up with. BOQ, Virgin Money, ME Bank, BOQ Business, BOQ Specialist, and BOQ Finance—are key differentiators or a source of competitive advantage. Bank of Queensland has branches owned by branch managers and corporate branches. The model has the potential for the bank to outperform its peers on customer service, with owner branch managers building relationships with local customers, and niche business lending specialists with an understanding of borrower needs and industry. Despite its strengths, a narrower business mix, smaller customer base, and higher funding costs see the bank struggle to generate margins comparable to those of the majors.

Financial Strengths

The capital structure and balance sheet provide comfort the bank can manage a large increase in loan losses. Common equity Tier 1 capital was 9.7% as at Feb. 28, 2022, or close to 9.8% post a securitisation in March 2022. This is well above APRA’s 8.5% minimum capital benchmark for standardized banks, and above the bank’s own 9.5% target. The bank is to pay out around 60% to 65% of earnings given the credit growth outlook, elevated investment in the banking platform, and integration of ME Bank. A 70% pay-out ratio from fiscal 2024 is expected. With the elevated savings rate in 2020 and 2021, the bank has been able to increase its share of funding from customer deposits. In March 2020 the RBA announced the Term Funding Facility, or TFF, which provided three-year funding at 0.25%. From Nov. 4, 2020, new drawdowns would pay 0.1%. The initial funding available via the TFF was set at 3% of the bank’s outstanding loan balance, with an additional 2% of balances announced in November.

Bulls Say

  • Management extract greater cost and revenue synergies from the acquisition of ME Bank.
  • Substantial capital raisings bolstered the balance sheet, ensuring that the bank satisfies capital rules and can still fund investments in technology and expand loan balances.
  • Productivity improvements not only lead to improved operating margins, but a more streamlined loan approval process lifts mortgage growth rates.

Company Description

Bank of Queensland, or BOQ, is an Australia-based bank offering home loans, personal finance, and commercial loans. BOQ operates both owner-managed and corporate branches, and is the owner of Virgin Money Australia and Me Bank. Its BOQ business includes the BOQ branded commercial lending activity, BOQ Finance and BOQ Specialist businesses. The division provides tailored business banking solutions including commercial lending, equipment finance and leasing, cash flow finance, foreign exchange, interest rate hedging, transaction banking, and deposit solutions for commercial customers.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks Shares

APM needs to maintain is navigating and executing bid processes within the government sector

Business Strategy & Outlook

APM Human Services International’s strategy revolves around maintaining its superior service levels to renew existing contracts and gain market share at key government retenders. Over a government contract, which is typically longer than five years, slight market share gains and losses can arise if certain employment service areas, or ESAs, experience faster growth or from relocation due to contract underperformances. However, inorganic growth has been a key strategy for APM to expand more effectively and service new ESAs outside of government retenders. Industry players may expand their footprint of physical offices into new ESAs but would still need a license to operate in a new region. Greater scale allows APM to better leverage its personnel, locations, and brand awareness, and allows it to apply learnings and replicate service offerings more easily across its global operations. A core competency APM needs to maintain is navigating and executing bid processes within the government sector. This involves responding to governments’ requests for proposals, or RFPs, where APM would estimate cost structures and submit proposals with respect to both price and client outcomes. A common focus of governments is a strong track record of contract performance, capability, and the ability to deliver positive outcomes, but price is also a consideration.

Employment services contributed more than 75% of fiscal 2022 revenue but a key strategy of APM is to grow into the National Disability Insurance Scheme, or NDIS, sector. APM’s current exposure to the fast-growing NDIS sector is limited, with less than 5% of group revenue being sourced from NDIS. The market is currently very fragmented with limited national providers, but APM aims to consolidate the market and provide efficiency. Self-managed NDIS participants would need little assistance from APM but the share of participants choosing to work with plan managers, to assist with budgeting for example, has increased to over 50% in June 2022 from 30% in June 2019.

Financial Strengths

APM is in a comfortable financial position. As of June 2022, APM had AUD 431 million in net debt with net debt/EBITDA at 1.7 pre-AASB 16, that is, including all rental expenses. APM’s net debt/EBITDA is to remain under 1.0 over the explicit 10-year forecast period while also funding a 50% dividend payout ratio and flexibility to pursue organic or acquisitive growth opportunities. APM’s free cash flow generation is also strong. Free cash flow prior to acquisitions and dividends averaging 113% of net income over the next 10 years.

Bulls Say

  • APM has industry leading star ratings across its key Australian contracts which underpins its market share.
  • Earnings are defensive due to lengthy government contracts that are typically over five years.
  • APM is actively targeting the fast-growing NDIS sector and aims to bring efficiencies to the highly fragmented market.

Company Description

APM Human Services International Pty is engaged in providing services to job seekers and employers on behalf of the Australian Government. It is also involved in helping individuals in the prevention and proactive management of injuries. The company operates in Australia, Apac, Europe/UK and North America.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks

Amgen’s own large biosimilar portfolio and low manufacturing costs make it a viable biosimilar player, as well

Business Strategy & Outlook

Amgen has its roots in providing supportive-care products to kidney disease and cancer patients, but the firm has expanded its portfolio to include additional innovative drugs in therapeutic areas ranging from cardiology to immunology. Despite headwinds from biosimilar and branded competition, Amgen’s newer blockbusters like cholesterol-lowering drug Repatha defend its wide moat and keep free cash flow above 30% of sales. Amgen’s first generation of biologics is coming under pressure, but newer drugs are keeping overall sales steady. Tougher labels and reimbursement had been affecting anemia drugs Epogen and Aranesp since safety concerns emerged in 2007, and the 2019 launch of Pfizer’s biosimilar, Retacrit, is weighing on sales. 

Neutropenia drug Neupogen has had biosimilar competition for years, but longer-acting drug Neulasta began seeing declines in the key U.S. market in 2019 due to biosimilar launches. More effective branded competitors are poised to continue to erode Enbrel’s share, and while Enbrel patents run to 2028, biosimilar Humira (expected in 2023 in the United States) could pull down sales of the TNF class. To address these headwinds, Amgen has invested heavily in more-efficient manufacturing and has undertaken a massive cost-cutting program to defend margins and reinvest in research and development and promotion in new areas, like cardiology. Amgen also purchased oral immunology drug Otezla, which fits well with the Enbrel franchise. Amgen’s own large biosimilar portfolio and low manufacturing costs make it a viable biosimilar player, as well.

Financial Strengths

At the end of 2021, Amgen held $8 billion in cash and $33 billion in debt. The company is to generate roughly $9 billion in free cash flow annually over the next several years; this will be sufficient to handle debt coming due as well as continued strong prioritization of the share-repurchase and dividend programs, which is modeled at roughly $4 billion each on an annual basis.

Bulls Say

  • Amgen’s pipeline had been stale since the launch of Prolia/Xgeva, but cholesterol drug Repatha and migraine drug Aimovig revived the enthusiasm for the firm’s research engine, and Lumakras and Tezspire also look differentiated.
  • The acquisition of Decode gave Amgen the ability to identify potential new drug targets, validated by human genetics, and the firm continues to build on this database
  • Amgen’s improved manufacturing efficiency not only will benefit gross margins but also could give the firm a cost advantage in the biosimilar market.

Company Description

Amgen is a leader in biotechnology-based human therapeutics, with historical expertise in renal disease and cancer supportive-care products. Flagship drugs include red blood cell boosters Epogen and Aranesp, immune system boosters Neupogen and Neulasta, and Enbrel and Otezla for inflammatory diseases. Amgen introduced its first cancer therapeutic, Vectibix, in 2006 and markets bone-strengthening drug Prolia/Xgeva (approved 2010) and Evenity (2019). The acquisition of Onyx bolstered the firm’s therapeutic oncology portfolio with Kyprolis. Recent launches include Repatha (cholesterol-lowering), Aimovig (migraine), Lumakras (lung cancer), and Tezspire (asthma). Amgen’s biosimilar portfolio includes Mvasi (biosimilar Avastin), Kanjinti (biosimilar Herceptin), and Amgevita (biosimilar Humira).

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks

Biogen’s MS antibody Tysabri also sees $2 billion in annual sales due to its high efficacy

Business Strategy & Outlook

Biogen’s specialty-market-focused drug portfolio and novel, neurology-focused pipeline create a wide economic moat. Biogen’s strategy has its roots in the 2003 merger of Biogen (multiple sclerosis drug Avonex) and Idec (cancer drug Rituxan). While Rituxan is succumbing to biosimilar competition, Biogen is expanding its neurology portfolio beyond MS, including blockbuster neuromuscular disease drug Spinraza and several promising drugs behind Aduhelm in Alzheimer’s disease. In MS, Avonex and longer-acting Plegridy still generate nearly $2 billion in annual sales and remain the leading MS interferon drugs. Biogen’s MS antibody Tysabri also sees $2 billion in annual sales due to its high efficacy. Oral MS drug Tecfidera peaked above $4 billion in sales in 2019, but U.S. generics drastically cut into sales in 2021 after entry in 2020. The new oral therapy Vumerity offers improved GI tolerability but will only partly offset this headwind. While pricing power and demand for Biogen’s injectable MS portfolio are eroding in the face of new competition, Biogen receives substantial royalties on the biggest new competitor, Roche’s Ocrevus, which helps offset pressure on older MS drugs.

Outside of MS, Biogen has strong human genetic validation for its neurology pipeline. Spinal muscular atrophy drug Spinraza (partnered with Ionis) is a $2 billion drug, although competition from Novartis (gene therapy Zolgensma) and Roche (oral drug Evrysdi) are beginning to erode sales. While Aduhelm was approved in the U.S. in June 2021, skepticism surrounding the launch and lack of Medicare coverage have made the drug a commercial failure. That said, Biogen and Eisai’s lecanemab (data fall 2022) could have more definitive data. While there is significant uncertainty surrounding Biogen’s Alzheimer’s pipeline, the market also underestimates Biogen’s remaining pipeline, which includes a continuing partnership with Ionis (including tau-targeting Alzheimer’s drug BIIB080) and drug candidates to treat conditions including stroke, depression, Parkinson’s, pain, and ALS.

Financial Strengths

Biogen’s year-end 2021 cash and marketable securities balance ($4.7 billion) and free cash flow will help fund future repurchases and allow the firm flexibility on future acquisitions. Most maturities for Biogen’s $7.3 billion in long-term debt are well into the future, with only $1 billion in debt due before 2025. Historically, Biogen has focused on returning excess cash to shareholders via buybacks, but its limited acquisition and collaboration record is strong, and more tuck-in acquisitions going forward can be seen. Of the $15 billion in free cash flow generated in 2006-15, Biogen spent the vast majority of this cash on repurchases, with an average repurchase price over 2006-15 of $87 per share.

Bulls Say

  • Biogen leads the $20 billion global MS market with Avonex, Plegridy, Tysabri, and Tecfidera, and the launch of Vumerity partly protects Tecfidera sales from generic headwinds in the U.S.
  • Biogen receives royalties and profit share from Roche on MS drug Ocrevus and cancer therapies Rituxan and Gazyva, boosting Biogen’s profitability.
  • Biogen’s neurology portfolio outside of MS, including Spinraza in SMA, should help diversify revenue and boost.

Company Description

Biogen and Idec merged in 2003, combining forces to market Biogen’s multiple sclerosis drug Avonex and Idec’s cancer drug Rituxan. Today, Rituxan and next-generation antibody Gazyva are marketed via a collaboration with Roche. Biogen also markets novel MS drugs Plegridy, Tysabri, Tecfidera, and Vumerity. In Japan, Biogen’s MS portfolio is co-promoted by Eisai. Hemophilia therapies Eloctate and Alprolix (partnered with SOBI) were spun off as part of Bioverativ in 2017. Biogen has several drug candidates in phase 3 trials in neurology and neurodegenerative diseases and has launched Spinraza with partner Ionis. Aduhelm was approved as the firm’s first Alzheimer’s disease therapy in June 2021.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks

Netflix’s international expansion will continue to hamper margin expansion

Business Strategy & Outlook

Netflix is a pioneer in subscription video on demand and is now the largest online video provider in the U.S. and the world. The economic moat rating of narrow is based on intangibles resulting from the use of data stemming from the firm’s massive worldwide subscriber base. From its origin in the U.S., Netflix expanded rapidly into markets abroad as the service now has more subscribers outside of the U.S. than inside. The firm has used its scale to construct a massive data set that tracks every customer interaction. It then leverages this customer data to better purchase content as well as finance and produce original material such as “Stranger Things.” However, the firm has recently ramped up its production using more traditional methods.

Many consumers use, and will continue to use, SVODs like Netflix as a complementary service, especially as SVOD prices increase and pay television bundle prices decrease (due to the shift to over-the-top, or OTT, delivery). With a number of new services from media firms launched over the last five years, many consumers now pay for or have access to multiple services. One potential issue for these platforms is the potential for consumers to move between the services with minimal friction. This usage pattern and increased competition will constrain Netflix’s ability to raise prices without inducing greater churn. Netflix will trial an ad-supported tier in fourth-quarter 2022 into 2023 as the firm looks to capture potential subscribers that were unwilling to pay the ad-free price. While the potential audience could be large, particularly in emerging markets, management will need to ensure that the lower-priced tier doesn’t cannibalize the full-price subscriber base in more saturated markets like the U.S. Netflix will expand further into local-language programming to augment its offering in many countries. This will generate a competitive response from the firm’s global and local rivals, which will augment their own first-party content budgets. In turn, Netflix’s international expansion will continue to hamper margin expansion.

Financial Strengths

Netflix’s financial health is poor due to its weak free cash flow generation, large number of content investments that require outside funding (primarily debt), and content obligations. Debt has been taken on to fund additional content investments and international expansion. The company’s weak free cash flow due to this spending is a concern, there’s no need to spend decreasing in the near future. The net cash burn was over $2 billion in 2017, over $3 billion in 2018, and $3.5 billion in 2019. While the firm generated positive free cash in 2020 due to pandemic-related production shutdown, Netflix returned to a slight cash burn in 2021. As of June 2022, Netflix has $14.2 billion in senior unsecured notes that do not have borrowing restrictions, but a relatively small amount due in the near term ($700 million due 2022, $400 million due 2024, and $800 million due 2025), as the firm generally issues debt with a 10-year maturity. Netflix also has a material quantity of noncurrent content liabilities ($3.0 billion recognized on the balance sheet and $15.6 billion not yet reflected on the balance sheet.)

Bulls Say

  • Netflix’s internal recommendation software and large subscriber base give the company an edge when deciding which content to acquire in future years.
  • Netflix has built a substantial content library that will benefit the firm over the long term.
  • International expansion offers attractive markets for adding subscribers.

Company Description

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

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks Shares

URW’s large debt load has put the balance sheet under pressure

Business Strategy & Outlook

Unibail-Rodamco-Westfield, was formed in 1968, and it acquired several large malls through to 1995, and offices thereafter. In 2000 it launched a conventions and exhibitions business and is now the European leader in that sector. In 2007 Unibail merged with Rodamco, becoming the largest retail REIT in continental Europe. The group expanded into the U.K. and U.S. via the acquisition of Westfield in 2018. The Westfield acquisition was via a combination of cash and scrip, and management committed to non core asset sales to reduce debt. Progress was good until the COVID-19 crisis crimped its previous earnings certainty, and market sentiment toward Unibail-Rodamco. The group’s assets remain high quality, owning centres that are among the best in Europe and the U.S. Its iconic assets include the Carrousel du Louvre in Paris, Westfield Mall of Scandinavia in Stockholm, Westfield centres at Stratford and Shepherd’s Bush in London, the Westfield World Trade Centre in New York, Westfield Valley Fair in the San Francisco region, and many others.

Unibail’s malls to perform strongly as economic conditions normalise, and as rival low-quality malls in the U.S. close their doors. However, URW’s large debt load has put the balance sheet under pressure. Unibail was able to issue debt during the COVID-19 crisis at cheap prices (albeit slightly higher than 2019 levels), but needs to reduce debt. In November 2020, shareholders rejected a proposed EUR 3.5 billion equity raising. Unibail may instead exit its more than EUR 10 billion of assets in North America, sell approximately EUR 4 billion of assets in Europe, pay no distributions until 2023, and cut development spend. Given the fast-changing landscape, shouldn’t be surprised to see further adjustments to the strategy, with management taking an opportunistic approach, with options including full or partial asset sales, development partnerships.

Financial Strengths

URW is under financial pressure due to its high debt load combined with a hole in its earnings from coronavirus shutdowns, social distancing, and related economic damage. Its loan to valuation ratio of 41.5% (pro forma, as at June 30, 2022) is excessive. A proposed EUR 3.5 billion equity raising was rejected by shareholders in November 2020, URW instead raising cash through European asset sales over 2021 and 2022, and potentially more than EUR 10 billion of sales in North America. The capital proceeds will be used to repay debt, and are confident gearing can be brought under 35%, however, to go much lower than that will require favourable conditions for asset sales, which could take time. If the economy approaches normal conditions and other planned cash collection/retention measures proceed, the company should be on a firmer footing. However, it is possible URW would have to raise equity again if high interest rates persist, or there is a severe and prolonged recession, or virus restrictions return. There remains a remote risk this could completely wipe out current securityholders if all of these negatives occurred, though this would be an extreme scenario. URW’s long-dated debt profile and leases linked to CPI and tenant sales provide some protection from these risks.

Bulls Say

  • COVID-19 vaccine rollouts, and the milder omicron virus variant, should help URW’s rents and asset sales in coming years.
  • URW tenants have recovered to sales numbers near and even exceeding pre-COVID-19 levels. This suggests that rents should eventually recover and exceed pre-COVID-19 levels once vacancies continue to reduce.
  • Although e-commerce competition is intense, a lot of the damage has already been done. URW’s affluent catchments remain desirable for retailers, who require a physical presence to maintain their brand and customer service standards.

Company Description

Unibail-Rodamco-Westfield, or URW, owns a portfolio of quality malls, about two thirds in continental Europe. Since acquiring Westfield in 2018 URW also has about 10% in the U.K. and about 25% in the U.S., but it plans to drastically reduce exposure to the latter. More than 90% of rent comes from shopping centres, the remainder from offices, mostly Paris, as well as some offices attached to mixed-use assets around the world, and a similar amount from a conventions and exhibitions business in France.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks

Geberit’s strategy is aimed at reinforcing its competitive advantage

Business Strategy & Outlook

Geberit’s strategy is aimed at reinforcing its competitive advantage, which supports the group’s exceptional returns on invested capital and high profitability. Geberit’s “push-pull” sales model has successfully created long-term brand loyalty by educating and turning key decision-makers (wholesalers and installers) for sanitary products into business partners. Behind-the-wall products place particular importance on brand reputation and relationships with key decision-makers that are encouraged to sell higher-value products, which makes it extremely difficult for competitors to penetrate Geberit’s existing core markets. Continuous product innovation and product range extension justify price increases, which are ultimately passed on to the end consumer, who lacks understanding on behind-the-wall sanitary matters and relies on support of the intermediary. 

Geberit has utilized a combination of extraordinary price increases in addition to its annual price increase to support profitability to combat significant raw material and transportation inflation. Consistent capital investment in the efficiency of production facilities and product innovation helps reduce the reliance of cyclical construction demand to support profitability. With the COVID-19-driven home improvement trend subsiding and a rising-interest rate cycle likely to put the brakes on a strong residential market, greater reliance is placed on product innovation to drive sales. Geberit is consistently investing in product innovation, reflected by 185 new patents having been registered between 2016 and 2021. Novel product innovation justifies the consumer paying premium prices. Slow adoption of new products generally means new product launches enjoy many years of runway. The Sanitec acquisition in 2015 allowed Geberit to accelerate the growth of concealed cisterns in underpenetrated markets. Since 2016 Geberit has returned over 80% of free cash flow to shareholders through dividends and share buybacks, without compromising reinvestment. The firm continues to provide shareholders with a regular source of income, maintaining its target dividend payout ratio of between 50% and 70%.

Financial Strengths

Geberit is in a comfortable financial position, which provides it with financial flexibility and the ability to make long-term investments throughout the cycle. The group has net debt of CHF 273 million on its balance sheet, translating into a net debt/EBITDA ratio of 0.3 times as at the 2021 financial year, a highly conservative level of leverage. Free cash conversion rates have averaged around 100% of net income, allowing Geberit to invest significantly in product innovation to help support price increases and maintaining strong relationships with key decision-makers, as well as generous capital return to shareholders.

Bulls Say

  • Geberit enjoys long-lasting relationships with its fragmented customer base of wholesalers and plumbers, the relatively price-agnostic critical decision-makers for behind-the-wall sanitary equipment, which helps protect profitability against rising inflation. 
  • Regular investment into product innovation and productivity efficiencies reduces the reliance of demand on cyclical construction cycles. 
  • Shareholder returns are enhanced by Geberit’s generous capital return policy that is supported by strong free cash flow generation.

Company Description

Geberit is a leading manufacturer of sanitary products, which include flushing systems, piping systems and bathroom ceramics. Products are primarily sold through the wholesale channel. Geberit has an extensive history in sanitary products, having filed a patent for its first flushing mechanism in 1912. The company generates sales in 118 countries and operates 29 production plants, the majority of which are in Europe. Geberit shares are listed on the SIX Swiss Exchange. The majority of sales are generated from residential and renovation activities.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Dividend Stocks

ORA’s FY22 results came in above expectations, with underlying NPAT up +19.4% YoY

Investment Thesis:

  • Trading on fair value relative to the valuation and attractive yield of ~5%. 
  • Exposure to both developed and emerging markets’ growth.
  • Near-term headwinds should be in the price. 
  • Revised strategy following recent strategic review.
  • Bolt-on acquisitions (and associated synergies) provide opportunities to supplement organic growth.
  • Leveraged to a falling AUD/USD. 
  • Potential corporate activity.
  • Capital management (current on-market share buyback plus potential for additional initiatives). 

Key Risks:

  • Competitive pressures leading to margin erosion.
  • Input cost pressures which the company is unable to pass on to customers.
  • Deterioration in economic conditions in US, EM and Australia.
  • Emerging markets risk.
  • Adverse movements in AUD/USD.
  • Declining OCC prices.

Key Highlights: 

  • FY22 results summary. Compared to pcp:  Sales revenue was up +15.6% (+13% in CC) to $4,090.8m, underlying EBIT was up +14.6% (+12.7% in CC) to $285.5m and underlying NPAT was up +19.4% (+17.6% in CC) to $187.1m. 
  • Underlying operating cash flow up +10.6% to $272.6m with cash conversion improving +60bps to 73.5%, driven by earnings growth and continued working capital management, partially offset by higher base capex, which combined with higher tax payments and +101.5% increase in growth capex delivered -27% decline in FCF to $121.6m. 
  • Net debt increased +38.9% to $629m, driven by on-market share buyback and increased capex, equating to leverage of 1.8x, up +0.3x, vs long-term target of 2-2.5x. 
  • RoAFE increased +250bps to 22.4%, reflecting higher North American earnings, partially offset by higher Australasian average working capital. 
  • Capital management. The Company completed its on-market share buyback, purchasing ~30.7m shares at an average price of $3.55 and returning a further $109m to shareholders. The Board declared an unfranked final dividend of 8.5cps, up +13.3% YoY, taking full year dividends to 16.5cps (up +17.9% YoY) and representing a dividend payout ratio of 76.2%. 
  • Australasia. Compared to pcp: Revenue increased +9%, as higher aluminium costs were passed through to customers and slight growth in Cans and Glass volumes, partially offset by Glass product sales mix. 
  • EBIT increased +0.2% as inflationary pressures were more than offset by cost recoveries and improvement in operating efficiencies. However, margin declined -140bps to 16.6%, primarily due to the impact of higher aluminium costs passed through to customers.
  •  Underlying operating cash flow declined -1.3% amid lower cash EBITDA, partially offset by lower base capex. However, cash conversion improved +70bps to 72.9%. 
  •  RoAFE declined -80bps to 24.6%, driven primarily by higher average working capital.    
  • North America. Compared to pcp: Revenue was up +17.7% (+14.3% in CC), amid improvement in operating performance, with revenue growth for OPS and OV. 
  • EBIT increased +36.6% (+32.6% in CC) with margins improving +50bps to 4.2%, with significant earnings growth in both manufacturing and distribution driven by improvements in account profitability, operating efficiency, and a focus on managing inflationary inputs and cost to serve. 
  • Underlying operating cash flow increased +28.7% or US$18.9m with cash conversion remaining stable at 74.1%. 
  • RoAFE increased +530bps to 20.3%. 
  • FY23 outlook. Management anticipates: Earnings increasing YoY. 
  •  Australasia EBIT being broadly flat YoY with 1H23 impacted by inflationary cost increases ahead of further 2H23 customer price recovery, and cash conversion being >70%, excluding the G3 glass furnace rebuild, which is treated as base capex. 
  •  North America is expected to deliver further EBIT growth, reflecting the full year impact of FY22 price increases and ongoing implementation of profit improvement programs, and cash conversion remaining >70%. 
  •  Capex of ~$230m with growth capex of ~$150m. 
  •  Dividends staying towards the top end of 60-80% of NPAT target payout range. 

Company Description:

Orora Limited (ORA) provides packaging products and services. The Company offers fiber, glass and beverage can packaging materials in Australia and Asia and packaging distribution services in North America and Australia.   

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks Shares

Gross margins should continue to benefit as BBN flows more product through its National DC

Investment Thesis

  • Mandatory product safety standards for baby goods in Australia limit supply sources and provide barriers to entry to international competitors.
  • BBN has the largest presence in Australia amongst specialty baby goods retailers. 
  • Low risk that online sales threaten the high service business model of brick-and-mortar stores to showcase goods and in-store advice.
  • Solid growth story via new store openings (targeting 100+ stores network).
  • Strong market shares in a highly fragmented market.
  • NZ’s $450m addressable market represents another opportunity. The Company will have 2 stores by the end of FY23. 
  • Management is looking at ways to expand BBN’s addressable market from the A$2.5bn today to the broader A$5.1bn baby goods market. This will likely include category expansion and other growth opportunities

Key Risks

  • Retail environment and general economic conditions in addressable markets may deteriorate. 
  • Competition may intensify especially from online retailers such as Amazon, specialty retailers, department stores, and discounted department stores.
  • Customer buying habits/trends may change. Rapid changes in customer buying habits and preferences may make it difficult for the Company to keep up with and respond to customer demands. 
  • Higher operating and occupancy costs. Any increase in operating costs, especially labor costs will affect the Company’s profitability.
  • Poor inventory control and product sourcing may be disrupted. 
  • Management performance risks such as poor execution of store rollout especially into ex-metro areas.

Key Highlights: Relative to the pcp and on a constant currency basis: 

  • Sales of $507.3m were up +8.3%, with same-store comparable sales up +5.0%. Management noted that 2H new store sales revenue fell short of expectations by ~$10m due to handover delays (availability of trades & delays in material imports). Some of these sales (~$3m) will now fall in FY23. During the year, 45.3% of all sales were either private label or exclusive product brands and grew +18.3% YoY. BBN’s Private Labels 4baby, Bilbi and JENGO brands grew +31.5% YoY and make up 8.2% of sales. The Company remains on target to achieve 50% of sales from private sales.
  • Gross profit of $195.8m was up +12.7% on pcp, with GP margin up +151bps to 38.6% and minimal changes to promotional activity. BBN now has ~80% of sales flowing through its National Distribution Centre and aims to get this up to 90%. Whilst managed, international freight costs and currency impacts are being managed. Cost of doing business (CODB) as a percentage of sales increased by +85bps to 28.6% (from 27.8%)
  • Operating earnings (EBITDA pre-AASB 16) were up +16.1% to $50.5m (with EBITDA margin up +70bps to 10.0%) and NPAT (post-AASB 16) was up +13.6% to $29.6m
  • Operating cash flow improved $14m to $36.1m, driven by significantly lower working capital
  • The Company declared a final dividend of 9.0cps, taking the full year dividend to 15.6cps (up 10.6% YoY). The Board continues to target a payout ratio in the range of 70-100% pro forma NPAT.

Company Description

Baby Bunting Group Limited (BBN) is Australia’s largest nursery retailer and one-stop-baby shop with 42 stores across Australia. The company is a specialist retailer catering to parents with children from new-born to 3 years of age. Products include Prams, Car Seats, Carriers, Furniture, Nursery, Safety, Babywear, Manchester, Changing, Toys, Feeding and others.

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks Shares

TPW is well positioned to benefit from the structural tailwind behind the migration of offline to online sales

Investment Thesis

  • Operates in a large addressable market – B2C furniture and homewares category is approx. $16bn. 
  • Structural tailwinds – ongoing migration to online in Australia in the homewares and furniture segment. At the moment less than 10% of TPW’s core market is sold online versus the U.S. market where the penetration rate is around 25%.  
  • Strong revenue growth suggests TPW can continue to win market share and become the leader in its core markets. 
  • Active customer growth remains strong, with revenue per customer also increasing at a solid rate. 
  • Successful execution in new growth pillars – Trade & Commercial (B2B) and Home Improvement. 
  • Management is very focused on reinvesting in the business to grow top line growth and capture as much market share as possible. Whilst this comes at the expense of margins in the short term, the scale benefits mean rapid margin expansion could be easily achieved. 
  • Strong balance sheet to take advantage of any in-organic (M&A) growth opportunities, however management is likely to be very disciplined. 
  • Ongoing focus on using technology to improve the customer experience – TPW has invested in merging the online with the offline experience through augmented reality (AR). 

Key Risks

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

Key Highlights: Relative to the pcp and on a constant currency basis: 

  • Group revenue was up +31 to $426m, driven by an increase in active customers (up +21% to 940k) and revenue per active customer (up +6%). 
  • Revenue per active customer growth was a function of both growth in average order   values and the repeat rate.
  • Group EBITDA of $16.2m was down -21% YoY and represented a margin of 3.8% which came in at the high end of management’s guidance range of 2-4%. Adjusting for the investment of $1.7m in TPW’s new home improvements site – thebuild.com.au – and share based payments, adjusted EBITDA was $19m and EBITDA margin was 4.5%.

Company Description

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

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

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