Category: Sectors

Categories
Global stocks

Circling Back on CIBC After Q4 Earnings; Lowering Fair Value Estimates to CAD 73/USD 54

Business Strategy & Outlook: 

Canadian Imperial Bank of Commerce is the fifth-largest bank in Canada by assets and one of six that collectively hold almost 90% of the nation’s banking deposits. CIBC is more Canadian-focused than some of its more international peers, although this is changing after the acquisition of PrivateBancorp. The bank plans to eventually have up to 25% of revenue coming from the U.S. Despite having one of the larger domestic branch networks, CIBC’s products haven’t typically had top share in Canada, though the bank had made significant strides in multiple categories for years starting in 2011, as the bank increased share in multiple categories and increased product numbers per customer. This improvement has admittedly slowed down recently. CIBC has encountered its own issues over the years, including multibillion-dollar write-downs in the aftermath of the global financial crisis. The bank had hit its stride since 2011, improving consumer satisfaction ratings, re-optimizing branches, improving internal processes, and expanding wealth operations. The bank is also seeing improved growth from its U.S. operations, which now contribute over 20% to earnings.

Risk and Uncertainty: 

Canadian banks face two primary risks: macroeconomic risks and risks related to future acquisitions. Canada has some of the highest median housing prices/annual median household income ratios in several of its major housing markets, and mortgage debt levels have consistently increased for more than a decade. While low interest rates have kept debt servicing ratios under control, this puts the economy in a riskier position as rates rise. The leverage of the Canadian consumer as a risk, as they have slowly leveraged up for more than a decade. CIBC has the largest relative exposure to the domestic real estate market in Canada; however, it is viewed as a manageable risk for the bank. While there are uncertainties related to consumer debt levels and the mortgage market, it is viewed as a threat to future growth and not an existential risk to Canada’s banking system. Further, the Canadian banking system has historically been one of the more stable systems in the world, and the system is designed to protect industry profit levels and maintain this stability and promote economic stability. From an ESG perspective, commercial banks are expected to have strong product governance. Predatory or discriminatory lending practices are examples of poor product governance, and this can affect certain banks at times. It is viewed by most product governance and social risks as manageable and incorporates a steady level of operational expenses related to compliance and litigation in some models. Outside of the rare, headline-grabbing scandals, social risks are not seen as having a material effect on valuation. Banks also lend to certain sectors which can come under more scrutiny at times, like gun manufacturers, or energy, for example. Commercial banks do not directly have a large environmental footprint and governance practices are in line with most companies. 

Bulls Say:

  • CIBC has significantly improved multiple measures of core banking performance, such as customer perception surveys, promoter scores, and products per a customer. The bank is now operating at a higher level. 
  • CIBC is more Canadian-focused than most of its peers. Its consolidated returns on tangible equity remain some of the highest in the industry.
  • The government has kept the Canadian market attractive by placing barriers to entry, protecting high returns, and the government will continue to attempt to keep the housing market under control, limiting any future hits to profitability.

Company Description:

Canadian Imperial Bank of Commerce is Canada’s fifth largest bank, operating three business segments: retail and business banking, wealth management, and capital markets. It serves approximately 11 million personal banking and business customers, primarily in Canada.

(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

Recovery Is Underway at Lendlease and the Business Is Transforming

Business Strategy & Outlook: 

Lendlease is a diversified global property developer, landlord, property manager, fund manager, and builder on a range of development projects, funds, and completed properties around the world. Interests have included apartments, offices, retail property, aged care facilities, retirement and military accommodation, roads, and rail tunnels. The group is evolving on numerous fronts: selling noncore businesses; seeking better returns on capital; accelerating its development pipeline; and shifting focus outside its homebase of Australia. Lendlease sold its risky engineering business in calendar 2020, though it retained liability for three engineering/ construction projects–two practically complete, and one complex project (Melbourne Metro) with several years to run. Lendlease found a buyer for its engineering services business after two years of marketing, and the price was respectable. Once this exit is complete Lendlease’s project mix will predominantly comprise residential and commercial property developments. The group’s ongoing business comprises three segments: development, investments and construction. Much growth isn’t expected in construction earnings, that business is primarily to preserve scale and construction expertise in support of Lendlease’s development business. The investments division houses a wide range of businesses including, military housing, property asset management and funds management. It is expected that the latter two business lines to grow substantially as Lendlease sells stakes in its development projects. This is a trade-off, relinquishing potential development profits in return for lower risk management fees, performance fees, and capital to accelerate its development pipeline. Lendlease’s history is in Australia and is is expected it to continue to pursue projects there, but it is expected earnings over the next two decades will rotate toward its offshore development pipeline in the United States, Europe, and to a lesser extent Asia

Risk and Uncertainty: 

Despite selling its engineering and services businesses, Lendlease retains risks on the Melbourne Metro project. A base case is that existing provisions will cover future costs, but risk remains through to completion by circa 2026. Lendlease’s remaining business is opaque, but becoming more transparent. The bulk of the value of the company is in multi-decade urbanisation projects, where end values and margins cannot be accurately estimated until the projects are substantially completed. Even if Lendlease knew what revenues and margins are likely to be, contract terms are largely confidential. Projects face political, social and environmental risk, given they involve redeveloping large tracts of inner urban land, in collaboration with local municipalities, land owners and other stakeholders. These ESG issues contribute to a High Uncertainty Rating. Development risks include rising interest rates, a decline in secular demand for offices and apartments, or mis-pricing of contracts by Lendlease. A risk for the investment segment is that demand from institutions wanes, prompting outflows from Lendlease funds. Investors may fear rising rates, or limited upside with rates near the zero-bound. Changes to pension, tax or investment regulations could cause institutions to move away from illiquid assets. There was a taste of that risk in Australia in 2020 when the government allowed individuals in financial hardship to make superannuation withdrawals amid the COVID-19 crisis. That saw industry super funds saddled with illiquid property assets as they sold liquid assets to fund redemption requests. Lendlease experienced redemptions from its retail property funds due to headwinds for that asset class, and its possible that these headwinds could spread to office and apartment assets. 

Bulls Say:

  • Lendlease has a huge development pipeline. Contract terms are confidential, but look to have been struck on attractive terms. 
  • The balance sheet is in good shape, which should help Lendlease to accelerate its huge development pipeline. 
  • Government balance sheets are strained, yet authorities appear to want to promote economic activity via construction. Lendlease is well positioned to participate, because of its near shovel-ready projects and capable management. 

Company Description:

Lendlease’s ongoing business comprises three segments: development, investments, and construction. Development accounted for more than half of EBITDA in 2020, and the future pipeline is so large it cannot be funded from its own balance sheet. The group is selling projects stakes to its funds management clients. This sacrifices development profit, in return for management fees, reduced risk, and capital to accelerate its development pipeline. Construction generates large revenues but slim margins. This business is retained to preserve expertise and scale for the development business. Lendlease sold its engineering and services business during the pandemic, but retains some risks, notably the Melbourne Metro project which has years to run

(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

SkyCity Looks Cheap Despite Adelaide Inquiry

Two young women talking together with a tablet in the living room. They sit spaced apart to prevent the virus.

Business Strategy & Outlook: 

SkyCity is expected to deliver strong earnings growth over the next decade, buoyed by the recovery from current coronavirus-induced lows and solid performance from its core assets in Auckland and Adelaide. SkyCity’s Auckland and Adelaide properties underpin the firm’s narrow economic moat. SkyCity is the monopoly operator in both jurisdictions, with long-dated licences (exclusive licence for Auckland expires in 2048, and Adelaide licence expires in 2085 with exclusivity guaranteed until 2035). These properties have performed strongly, thanks to SkyCity’s solid record of reinvestment, resulting in high property quality, stable visitor growth, and earnings resilience. The quality of these assets, particularly SkyCity Auckland, has helped build the firm’s VIP gaming business. SkyCity’s exposure to the volatile VIP gaming market is smaller than that of Australian rivals Crown Resorts and Star Entertainment. VIP revenue typically represents over 20% of Crown’s and Star’s sales, compared with SkyCity’s typical 10%-15%. While high rollers have no alternatives when in Auckland or Adelaide, SkyCity effectively competes as a destination casino on a global scale against locations such as The Star in Sydney and Crown Melbourne. VIP Gaming segment is expected to recover as border restrictions have eased and tourism recovers, to around 15% of revenue. To protect its competitive position and retain appeal, SkyCity is investing in its key properties. Successful execution of the two major projects in Auckland and Adelaide is key. They provide good earnings accretion opportunities, in particular at the core Auckland property. This includes a NZD 750 million upgrade to SkyCity Auckland to be completed by calendar 2025 and an AUD 330 million expansion for SkyCity Adelaide, a transformational project completed in fiscal 2021. Beyond 2025, when these expansion projects come on line in full, SkyCity Entertainment is expected to resume generating excess returns and revert to a strongly cash-generating business on a substantially stepped-up earnings base.

Risk and Uncertainty: 

The primary risk to SkyCity is the ongoing recovery from the pandemic. The pandemic effectively halted SkyCity’s VIP business, and a protracted recovery could present significant downside risk. VIP gaming relies on international high rollers coming into the country, often through operators known as junkets. SkyCity’s exposure to the volatile VIP gaming market is smaller than those of Australian rivals Crown Resorts and Star Entertainment. The current regulatory scrutiny around Crown’s and Star’s casino licences in Australia elevates uncertainty around the rate of recovery of VIP gaming, notably regarding the firm’s dealings with junket operators. While not focusing on SkyCity, it is believed  heightened regulatory oversight of Australian casinos in general is likely. It is expected to see a particular focus on junket operators potentially needing to be regulated locally (or even banned). It remains to be seen how New Zealand regulators will react, but SkyCity has pre-emptively banned junkets from April 2021. SkyCity’s expansion programs introduce execution risks. The sheer scale of the expansion program is unprecedented for the company, and the long construction duration could lead to higher-than-expected disruptions to the existing operations, not to mention potential cost overruns. Even when the expansion projects are fully completed, there is a threat the additional gaming capacity will not be fully absorbed

Bulls Say:

  • Long-dated exclusive licences to operate the only casino in Auckland and Adelaide allow SkyCity to enjoy economic returns in a regulated environment. 
  • It is expected transformative capital expenditure at SkyCity’s Auckland and Adelaide casinos will lead to a sizable step-up in earnings. 
  • SkyCity is well positioned to benefit from the emerging middle and upper class in China

Company Description:

SkyCity Entertainment operates a number of casino-hotel complexes across Australia and New Zealand. The flagship property is SkyCity Auckland, the holder and operator of an exclusive casino license (expiring in 2048) in New Zealand’s most populous city. The company also owns smaller casinos in Hamilton and Queenstown. In Australia, the company operates SkyCity Adelaide (exclusive license expiring in 2035).

(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

Credit Suisse has some very good, profitable, and generally asset light business

Business Strategy & Outlook

Credit Suisse’s true underlying profitability has been masked for the better part of a decade by multiple restructuring charges and the cost of running down a legacy book of unprofitable assets. The new management team at the helm of Credit Suisse hoped that it addressed all issues during 2020, but new problematic exposures continue to crop up. This suggests a deeper risk management malaise at Credit Suisse. Credit Suisse has some very good, profitable, and generally asset-light business with good long-term secular growth prospects—especially in wealth management/private banking and the Swiss universal bank. The discount that the market has imposed on the rating of Credit Suisse relative to UBS and its other peers should, however, remain in place until Credit Suisse can convince investors that it has addressed its risk management deficiencies. We believe that Credit Suisse will have to report several quarters of results free from the large non-recurring items that have historically marred its results. 

There is a strong long-term secular trend that sees the wealth of high-net-worth individuals and families growing ahead of global nominal GDP. The ultra-high net worth and family office segment, where Credit Suisse has focused most of its attention, is a particularly attractive segment. The threat of digital disintermediation is reduced and the need for bespoke solutions and strong relationship between banker and client remains. The current negative interest rate environment obscures the benefits of Credit Suisse’s very strong deposit franchise that provides it with ample surplus liquidity. Currently, this is damaging to Credit Suisse’s net interest income—it needs to invest its excess liquidity in short-term risk-free assets that currently pays no or negative interest. Credit Suisse has, however, starting passing on these costs to selected clients.

Financial Strengths

Credit Suisse has a common equity Tier 1 ratio of 14.4% currently, ahead of its own internal capital target of a 14% common equity Tier 1 ratio. This is comfortably ahead of its regulatory minimum capital requirement of 10%. However, Credit Suisse’s leveraged ratio of 4.2% is more of a constraint, with a regulatory minimum requirement of 3.5% and an internal target of 4.5%. Credit Suisse intends to pay out 25% of its earnings as a dividend and it has not announced new share buybacks. We do not believe Credit Suisse will be able to return more than this to Both Credit Suisse’s liquidity coverage ratio and its net stable funding ratio are comfortably above 100%, which indicates sound liquidity. To assess, these ratios, while helpful, do not fully capture the quality of a bank’s funding. One should also consider the structure of a bank’s funding—where the relatively lower importance of wholesale deposits in Credit Suisse’s funding mix is a clear positive. However, private banking/wealth management clients will typically be more sophisticated than the average retail banking client and therefore more likely to withdraw funds in times of stress. We therefore do not believe that private banking deposits are as sticky as general retail deposits, although they remain stickier than wholesale funding.

Bulls Say

  • Credit Suisse looks set to emulate UBS and transform its business model into a wealth manager with a complementary investment bank, which would increase profitability and reduce earnings volatility. 
  • Credit Suisse has run down a massive book of EUR 126 billion to EUR 45 billion over the past four years, incurring pretax losses of EUR 16 billion in the process. This has obscured the performance and profitability of the core business. 
  • Credit Suisse generates the bulk of its earnings in stable and low-risk private banking/wealth management and Swiss commercial banking.

Company Description

Credit Suisse runs a global wealth management business, a global investment bank and is one of the two dominant Swiss retail and commercial banks. Geographically its business is tilted toward Europe and the Asia-Pacific.

(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
Technology Stocks

Infineon’s product lines still face formidable competition

Business Strategy & Outlook

Infineon is a leading broad-based European chipmaker, with substantial exposure to secular growth drivers in the industrial and automotive chip sectors. Infineon should emerge as a leading supplier for electric vehicles and active safety systems used in cars, with increasing exposure to car “infotainment” systems. However, like most chipmakers, Infineon’s business remains highly cyclical as demand rises and falls with the health of its various end markets. Looking at the automotive chip market, electric vehicles and cars with advanced powertrain technology and safety systems require a variety of sensors and power voltage chips supplied by firms like Infineon. Similarly, the company’s exposure to power semis allows it to benefit from trends in the electronics industry toward power conservation, not only in more efficient devices like industrial drives, but also in green energy solutions like solar panels. Infineon is also a leader in chip card and security products, such as chips for chip-and-pin credit cards. 

Finally, limiting exposure to challenging markets is just as important as increasing exposure to promising markets, and Infineon has done a good job of eliminating unattractive business segments in prior years. Nonetheless, Infineon’s product lines still face formidable competition. Many other large semiconductor firms also focus on power semiconductors and have similar products. Further, Infineon focuses on discrete power products rather than analog power management integrated circuits. While the former products are valuable to customers, the latter of which has more complex products that allow leading analog firms (such as several wide-moat names) to enjoy stronger pricing power and relatively higher returns on invested capital. Infineon also has hefty manufacturing capacity for its products, which may lead to a higher fixed-cost structure and may cause significant margin compression when supply far exceeds demand.

Financial Strengths

Credit Suisse has a common equity Tier 1 ratio of 14.4% currently, ahead of its own internal capital target of a 14% common equity Tier 1 ratio. This is comfortably ahead of its regulatory minimum capital requirement of 10%. However, Credit Suisse’s leveraged ratio of 4.2% is more of a constraint, with a regulatory minimum requirement of 3.5% and an internal target of 4.5%. Credit Suisse intends to pay out 25% of its earnings as a dividend and it has not announced new share buybacks. Credit Suisse will not be able to return more than this to Both Credit Suisse’s liquidity coverage ratio and its net stable funding ratio are comfortably above 100%, which indicates sound liquidity. To assess, these ratios, while helpful, do not fully capture the quality of a bank’s funding. One should also consider the structure of a bank’s funding—where the relatively lower importance of wholesale deposits in Credit Suisse’s funding mix is a clear positive. However, private banking/wealth management clients will typically be more sophisticated than the average retail banking client and therefore more likely to withdraw funds in times of stress. The private banking deposits aren’t as sticky as general retail deposits, although they remain stickier than wholesale funding.

Bulls Say

  • Infineon is now focused on its core industrial, automotive, and card security markets after a series of smart divestitures of underperforming businesses. 
  • The automotive semiconductor market could see healthy growth in the years ahead, as gas-powered cars are being equipped with extra sensors and processors while hybrid and electric cars require additional chip content to control new types of engines. 
  • Infineon’s power semis are well suited to benefit from broad-based demand across a wide variety of products seeking energy efficiency.

Company Description

Infineon Technologies headquartered in Munich, was spun off from German industrial conglomerate Siemens in 2000 and today is one of Europe’s largest chipmakers. The company is a leader in the automotive semiconductor market with prominent products used in active safety and powertrain content within vehicles. Infineon is also the market leader in power semiconductors used to deliver voltage within a wide variety of electrical systems. The company operates in four segments: automotive, industrial power control, power and sensor systems, and connected secure systems.

(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

(CAR) reported strong 1H22 results reflecting look-through revenue growth of +30%

Investment Thesis:

  • Leading market position in online car classifieds.
  • Overseas expansion provides new growth opportunities from the challenging core Australian market. Heavily reliant on two growth stories (South Korea and Brazil).
  • Diversified geographic coverage.
  • Bolt-on acquisitions provide opportunities to supplement organic growth.
  • The Company can sustain high single-digit and low double-digit revenue growth.
  • CAR’s move into adjacent products and industries.
  • Increasing pricing in South Korea to boost margins. Looking to take more of the car buying experience online with dealers (i.e. increasing its total addressable market).

Key Risks:

  • Rich and demanding valuation.
  • Competitive pressures, that is car dealer driven substitute platform or the No. 2 & 3 player gain ground on CAR.
  • Motor vehicle sales remain subdued.
  • Value destructive acquisition / execution risk with international strategy.
  • Not immune from broader downturn in economy (consumer likely to delay a significant purchase in time of uncertainty).

Key Highlights: Relative to the pcp:

  • Look-through revenue of $282m, up +30% and Look-through EBITDA was up +15% to $149m, driven by strong domestic results in the Private and Media segments, growth in Encar in South Korea and good cost discipline.
  • Adjusted NPAT of $89m up 20% and adjusted EPS of 31.4c.
  • CAR reported strong cash flow with Reported EBITDA to operating cash flow conversion of 100%. 
  • The Board declared a fully franked interim dividend of 25.5cps, consistent with longstanding dividend payout policy of 80%.
  • Performance highlights by segments. Relative to the pcp: 
  • carsales Australia. Achieved adjusted Revenue growth of 16% on pcp and Adjusted EBITDA growth of 9% on pcp, excluding wage subsidies. Management noted traffic on carsales.com.au was up a strong +23% and remains elevated versus pre-pandemic levels.
  • Dealer. +1% adjusted Revenue growth, despite impacts from lockdowns in NSW and VIC in 1Q22.
  • Private. Revenue growth of 38%, driven by higher private ad volume.
  • Media. Revenue grew +11% as advertising conditions improved.
  • Data, Research & Services. Adjusted Revenue grew +1%, despite the impact of Covid lock downs and continued inventory challenges for dealers.
  • Carsales International. Look-through revenue and EBITDA growth of +76% and +72%, respectively, driven inclusion of Trader Interactive since September.
  • South Korea. Revenue and EBITDA up +19% and +7%, respectively, driven by strong product penetration growth across Guarantee, Dealer Direct and Encar Home. EBITDA margin was affected as CAR invested $4.7m in Dealer Direct marketing to drive future growth.
  • U.S. Revenue and EBITDA growth of +12% and +19% respectively was driven by solid performance across all four key verticals. Management is anticipating further upside as inventory levels continue to improve, particularly in trucks and powersports.
  • Brazil. Revenue and EBITDA growth of 20% and 19% respectively, was driven by continued dealer subscription growth, improving inventory levels and increasing dealer yield.

Company Description:

Carsales.com Ltd (CAR), founded in 1997, operates the largest online automotive, motorcycle and marine classifieds business in Australia. Carsales is regarded as one of Australia’s original disruptors and has expanded to include a large number of market leading brands. The Company employs over 800 and develops world leading technology and advertising solutions in Melbourne. CAR has also expanded to numerous global markets, such as South Korea, Brazil, and other countries in Latin America. 

(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

Chubb and peers are experiencing a positive trend in underlying underwriting profitability

Business Strategy & Outlook

In January 2016, ACE acquired Chubb in a deal valued at about $28 billion and assumed its name. The deal looked fairly valued and there were meaningful cost benefits involved, with management eventually exceeding its initial targets. However, from a long-term perspective, the fact that the combination created a moaty international insurer with exposure across most insurance lines for the first time, marking Chubb as potentially the most attractive long-term core holding in the space from a fundamental point of view. In 2020, the coronavirus affected the industry’s and Chubb’s results, and the company’s COVID-19 losses were roughly in line with peers’ as a percentage of premiums. However, the impact at Chubb and peers was manageable and well within the range of events that the industry has successfully absorbed in the past. The future looks relatively bright. 

Pricing momentum picked up in primary lines in 2019, and this positive trend only accelerated in 2020. More recently, pricing has started to level off, but the industry has enjoyed the highest increases it has seen since 2003. While higher pricing is necessary to some extent to offset a rise in social inflation and other claims trends, pricing increases appear to be more than sufficient to offset these factors. As a result, Chubb and peers are experiencing a positive trend in underlying underwriting profitability, and the potential for a truly hard pricing market, similar to the period that followed 9/11. In this scenario, narrow-moat and highly disciplined operators such as Chubb are positioned to earn very attractive returns. However, the industry remains well capitalized, which could put something of a lid on the magnitude and duration of any excess returns.

Financial Strengths

Equity/assets was 30% at the end of 2021, and while the company has a large amount of goodwill on its balance sheet, its balance sheet structure is reasonable and roughly in line with peers on a tangible basis. Like all property and casualty insurers, the company’s earnings and capital in any particular year could take a material hit due to catastrophes or securities market movements that affect its investment portfolio. However, the company’s insurance operations are well diversified, and it has a history of superior underwriting profits, a large catastrophe year to significantly degrade its capital position is not expected. The firm also retains a fairly conservative investment portfolio, which is concentrated in government debt, municipal bonds, and highly rated corporate securities.

Bulls Say

  • Chubb is one of the few companies with the global footprint that large corporate insurance customers demand. Its network has created a barrier to entry for potential competitors. 
  • Chubb is a large insurer with leading positions in the most moaty areas of the P&C insurance industry. 
  • Chubb’s international operations benefit from significant growth opportunities.

Company Description

ACE acquired Chubb in the first quarter of 2016 and assumed the Chubb name. The combination makes the new Chubb one of the largest domestic property and casualty insurers, with operations in 54 countries spanning commercial and personal P&C insurance, reinsurance, and life insurance.

(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

BLD’s 1H22 results were impacted by Covid 19 related construction shutdowns and adverse wet weather

Investment Thesis:

  • Near-term outlook remains uncertain in Australia with higher costs and supply chain constraints.
  • BLD is a much cleaner business operations following several divestments, which increased focus.
  • Boral is expected to benefit from proposed infrastructure projects.
  • Better realization of price increases, whilst volumes remain solid.
  • Focused on the Australian market.
  • Proceeds from divestments could be returned to shareholders.
  • Large cornerstone shareholder – Seven Group Holdings (owns approx. 70%) – may provide shareholder turnover stability.

Key Risks:

  • Concentrated earnings, focused on just the Australian Construction market.
  • Indirect and direct effect of coronavirus on operations.
  • Potential delays to infrastructure assets leading to a volume gap in the market.
  • Cost pressures continue to exceed price increases.
  • Unfavourable weather impacts.
  • BLD is now majority owned by Seven Group Holdings (approximately 70% of outstanding shares) which means minority shareholders’ interest may not always be a priority when making key strategic decisions around capital structure, shareholder returns and strategic initiatives.

Key Highlights: Relative to the pcp:

  • Revenue of $1.5bn was up +1% (or up +3% on a comparable basis), driven by activity in detached house, A&A (alterations & additions) and R&B (roads, highways, subdivisions & bridges) and despite there being disruptions from lockdowns. The Company did see solid volumes in concrete (up +1%) and quarries (up +4%). Further, management noted that concrete like-for-like prices were steady and up +2% in quarries.
  • Operating earnings (EBIT) of $78m were down -23% (with EBIT margin declining to 5.8% from 6.8%), which was largely driven by the impact from Covid-19 related construction shutdowns (which adversely impacted earnings by $33m) and expenses (energy + other costs). Partially providing some buffer to EBIT was higher volume (up $22m) and $22m from the cost out program (Transformation program), which includes the $24m of cost inflation.
  • Operating cash flow from operations of $86m was down -22%, reflecting
  • lower EBITDA performance due to construction shutdowns.
  • Capital return of $2.72 per share. Given the completion of disposal of BLD’s North American
  • Building Products and Fly Ash, and Australian Building Products businesses (Timber and Roofing & Masonry) for more than $4bn, the Company will return $3bn surplus capital to
  • shareholders via a $2.65 capital reduction and 7cps unfranked dividend.
  • Capital structure. Following the divestments of its non-core assets and expected capital return to shareholders, BLD on a pro forma basis is expected to have net debt of less than $400m. Management is targeting net debt of $900m to $1.1bn (including leases) and leverage (net debt / EBITDA) of 2 – 2.5x.
  • FY22 outlook comments. Management did not provide overly specific guidance but noted the following: 2H22 revenue is expected to be above 1H22, driven by out-of-cycle national price increases effective Jan/Feb 2022. However, this is expected to offset the impact of higher energy costs, which will remain a headwind in 2H22.
  • No construction shutdowns in 2H22 ($33m impact in 1H22) are expected to be offset by typical 2H seasonality due to 6 fewer trading days.

Company Description:

Boral Ltd (BLD) is the largest integrated construction materials company in Australia, producing and selling a broad range of construction materials including quarry products cement, concrete, asphalt and recycled materials. The Company has a portfolio of assets consisting of upstream and downstream assets. BLD employs approximately 10,300 employees and contractors and has 367 construction materials sites across 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
Dividend Stocks

Endeavour Group (EDV) reported its first earnings result as an independently listed entity

Investment Thesis:

  • High quality fundamentals and dividend yield but trading in line with the valuations. 
  • High quality assets, business model and management team. Both EDV’s Retail and Hotels segments have a moat ensuring stable earnings profile.
  • EDV does have some pricing power to push through CPI increases to the end consumer.
  • Leading market positions with key sites in higher population growth areas.
  • Positively leveraged to the growth in population over time.
  • Increasing digitization to remove more costs and increase the efficiency of the supply chain. 

Key Risks:

  • Margin pressure in the Retail or Hotels segment. 
  • Increasing competition. 
  • Changing consumer preference and consumption trends.
  • More regulatory risks than expected in relation to EDV’s Hotel (relating to gaming) or Retail (relating to alcohol consumption). 
  • As a result of the demerger with Woolworths, several agreements between Woolworths and EDV were established encompassing logistics/supply chain, and strategy. Hence, any negative change in logistics agreements with Woolworths is a risk for EDV earnings. 

Key Highlights: Relative to the pcp:

  • Group sales of $11.6bn, was flat relative to the pcp. This was a good result, considering the volatile trading environment, which saw the EDV’s Hotels business impacted by the ongoing pandemic causing temporary hotel closures and restrictions, especially in 1H22, offset by the Retail business, as these closures created tailwinds with an elevated at-home market.
  • Group EBIT of $924m, was up +2.8%. driven by the partial recovery of EDV’s Hotels segment and another strong performance in Retail, which delivered EBIT in line with FY21. Retail EBIT of $66m, was down -0.4%, whilst Hotels EBIT of $315m, was up +20.7%.
  • Group NPAT of $495m, was up +11.2%.
  • The Board declared a fully franked final dividend of 7.7cps, up +10%. This brings the full year dividend to 20.2cps and equates to 73.1% payout ratio. 
  • Performance Highlights by Segments. Relative to the pcp: Retail. Sales of $10,086m, was down -0.9% as the ongoing pandemic had a significant impact; EBITDA of $944m, was up +0.9%; EBIT of $666m, was down -0.4%. EBIT margin of 6.6% was up +3bps.
  • Hotels. Sales of $1,511m, was up +6.6% as the impact of Covid-19 on 1H22 was more than offset by a strong recovery in 2H22 as pandemic related restrictions were lifted (The FY22 results represent 231 trading days when all EDV’s hotels were able to open, versus 195 days in FY21); EBITDA of $561m, was up +12.4%; EBIT of $315m, was up +20.7%. EBIT margin of 20.8% was up +243bps. 

Company Description:

Endeavour Group Ltd (EDV) is an Australian retail drinks and hospitality business. The Company demerged from Woolworths in 2021 and operates the top-two retail drinks distribution in Australia (Dan Murphy’s and BWS), and the largest national hotel network.

(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
Technology Stocks

ABC saw 1H22 revenue increase +8% YoY driven primarily by strong construction

Investment Thesis:

  • Trading on 2-Yr forward blended PE-multiple of 11.0x and dividend yield of 6.0% represents good value at these levels.
  • Macro conditions remain uncertain in key regions. 
  • Strong pipeline of infrastructure projects over the next 2 years is a positive but timing and execution is a risk.
  • Solid balance sheet position provides some flexibility to the Company to pursue growth.
  • Leading positions as a lime producer, concrete products producer and cement and clinker supplier.
  • Outlook for lime looks relatively positive with higher infrastructure projects and resource sector activity
  • Cost-out and vertical integration (cement) programs expected to deliver cost benefits that exceed cost headwinds of $10m in FY21. 

Key Risks:

  • Softer sales volume than expected. 
  • Loss of market share to competitors or imports and pressure on pricing. 
  • Softer than expected pricing increases. 
  • Higher than expected energy prices. 
  • Execution risk in relation to Company’s cost-out and vertical integration strategies.
  • Deterioration of A$ relative to other currencies. 
  • Unfavorable weather impacts. 

Key Highlights:  

  • Management did not provide any quantitative guidance, however, expects; Growth in underlying earnings for 2H22, driven by increased contributions from cement, concrete, aggregates, masonry, JV’s and recent business acquisitions.
  • Demand for products from the residential, infrastructure, commercial and mining sectors to remain strong in 2H22.
  • Further out-of-cycle price increases to help actively manage inflationary pressures, with pricing traction key to the ability to deliver.
  • Strong demand for cement despite building and project completion timelines being extended due to materials and labour shortages.
  • Lime volumes staying stable in 2H22 vs 1H22, however, lime pricing improving with new customers seeking reliable domestic supply due to supply chain disruptions experienced by importers.
  • Strong demand for concrete and aggregates to the end of the year, and if weather abates in NSW, will be buoyed by the commencement of delayed projects and flood recovery works, however, softness in retail spending to impact masonry demand, with increased interest rates impacting household discretionary spend.
  • FY22 capex investment (excluding business acquisitions) of ~$300m, including circa 40% for the Kwinana Upgrade project.
  • Proceeds of >$20m for FY22 from land sales for Rosehill and Kewdale.
  • Gross cost savings of circa $10m for FY22. 
  • Capital management. Net debt increased +34.5% YoY to $553.9m, representing a leverage ratio of 2x underlying EBITDA (vs 1.5x in pcp) and gearing of 43.2% (up +990bps), both towards the top-end of company’s credit metrics target range, however, well within banking covenants.
  • Return on Funds Employed (ROFE) declined -170bps YoY to 9.3%, well below pre-tax WACC of 11.4%, with management expecting long-term ROFE improvement coming from Kwinana Upgrade project cost savings, development of downstream land investments, ongoing cost-outs and low-cost gas supply.
  • The Board declared a fully franked interim dividend of 5cps, down -9.1% YoY and representing a payout ratio of 70.6% of underlying earnings (excluding property profits), within the Board’s target range of 65-75%. 
  • Inflation eating into margins. Despite the cost reduction program delivering $7.5m in gross savings for 1H22, ongoing cost headwinds in areas including pallets, shipping, labour, power, fuel and raw material prices, continued to eat into margins with EBITDA margin declining – 110bps YoY to 16.6%, as product repricing continues to lag cost inflation. 

Company Description:

Adbri Ltd (ABC) is an Australia listed construction materials and liming producing company. ABC is Australia’s leading (1) lime producer in the minerals processing industry; (2) concrete products producer; and (3) cement and clinker importer. ABC is Australia’s number two cement and clinker supplier to the Australian construction industry and number four concrete and aggregates producer. 

(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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