Category: Sectors

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Dividend Stocks

Australian Media Companies Enjoying Positive Ad Breaks From Pandemic Outbreaks

Business Strategy & Outlook

An investment in Nine Entertainment requires balancing the strong positioning of its Nine Network division in Australian free-to-air television against the structural challenges facing the industry from proliferating competition for viewers and advertising dollars. The competitive intensity continuing, preventing any sustained improvement in Nine Network’s margins. The same is true for digital

division, which operates in the equally competitive digital advertising space. However, Nine Entertainment has a strong balance sheet and is a high cash-generating business. This provides management with significant flexibility, allowing it to invest in marquee television content, diversify into digital businesses, and engage in capital management initiatives. The group has been

executing admirably to date and culminated in the merger with Fairfax (consummation in December 2018), using mostly Nine shares as consideration.

Financial Strengths

Nine Entertainment is in solid financial health. As at the end of December 2021, the company had net debt of AUD 150 million on a wholly owned group basis, equating to net debt/EBITDA of just 0.4 times.

Bulls Say

  • Nine Entertainment commands a strong position in the Australian free-to-air television industry, with number-two ratings and revenue share positions.
  • The company generates solid free cash flow and boasts a strong balance sheet, key attributes that allow management the flexibility to invest in programming while engaging in capital-management initiatives.
  • Synergy from the merging with Fairfax could be greater than expected, with potential upside from collaboration and savings on newsroom/journalistic resources over time.

Company Description

Nine Entertainment operates Nine Network, a free-to-air television network spread across five capital cities, as well as in regional Northern New South Wales and Darwin. It also owns Australia’s third-largest portfolio of online digital properties, one that reaches more than 60% of the country’s active online audience. The merger with Fairfax combines Nine’s top-ranked TV network and the second-largest newspaper group, topped with a collection of quality digital assets in Nine Digital, subscription video on demand operator Stan, and Fairfax’s 59%-owned Domain. It ensures the merged

entity remains relevant in the eyes of audiences and advertisers.

(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
Philosophy Technology Stocks

Zip Co’s Recent Acquisitions And Geographic Expansions To Assist Expansion Of Its Addressable Market

Young woman trading stock market by touching.

Business Strategy and Outlook

Zip’s focus is on maximising its addressable market. Its business is more diversified than single-product BNPL players, with varieties in financing options, transaction limits, and repayment schedules. Customers enjoy a simple sign-up and checkout process, high acceptance by retailers and flexible financing solutions to help better manage their cash flows. Merchant partners may benefit from increased conversion rates, basket sizes, and transaction frequencies.

The firm operates a revolving credit business in Australia. ZipPay finances up to AUD 1,000, and ZipMoney AUD 1,000 and above. It also boasts a broader merchant base including retail, home, electronics, health, auto, and travel. Around 70% of revenue is derived from customers, mainly from account fees and interest. Meanwhile, Zip Business provides unsecured loans of up to AUD 500,000 to small and midsize enterprises. Zip adopts a Pay in 4 installment financing model overseas, helping it scale up faster and keep up with competition on the underpenetrated global BNPL landscape. The acquisition of U.S.-based QuadPay materially boosts its growth prospects. It also operates in the U.K., Canada, Europe, Mexico, and the Middle East. Zip enhances customer stickiness via ongoing product add-ons. It has a Pay Anywhere function that lets users transact at a wide variety of avenues without being confined to merchant partners. Users also benefit from promotional offers, cash-back deals, or free credits. Newer features include crypto trading, credit reporting, and savings accounts. For merchant partners, Zip invests in co-marketing to help them acquire new customers. 

Zip has strong earnings prospects, its margins are projected to be increasingly under pressure and it will not achieve the same penetration and transaction frequency overseas as it had domestically. While it benefits from the growth of e-commerce and increasing preference for more convenient/cheaper forms of financing, heightened competition to its products is anticipated. The capital-intensive domestic business cannot scale up as quickly, it is relatively late (compared with Afterpay) in its overseas foray, and QuadPay also lacks a clear differentiation.

Financial Strength

Zip is in reasonable financial health, with no signs of significant credit stress. As of September 2021, the net bad debt ratio for its core ANZ business sits at 2.44% of receivables, while arrears are at 1.87%. Its debt/capital ratio is 61%, while the ratio of equity/receivables has improved to 52% in fiscal 2021 from 8.1% in fiscal 2017. Zip’s bad debts are anticipated to stay manageable in a major credit event. Unlike some peers, Zip conducts a greater degree of background check before onboarding customers, such as collecting bank statements and pulling in information from a credit bureau. Soft credit checks are similarly performed when onboarding new customers overseas. These help compensate for the fact that its receivables are higher-risk due to them having longer repayment periods and higher transaction value (notably for Zip Money) or it having a Pay Anywhere model. The fact that the company’s installment businesses (such as QuadPay) have shorter turnover periods and lower transaction values is noted, meaning it can know much earlier (relative to credit cards) if customers have trouble making payments and can therefore amend its risk controls accordingly. Most its Australian receivables are funded by its asset-based securitisation program, with undrawn facilities totaling AUD 608 million as of September 2021. It also has USD 188 million and AUD 105 million of undrawn facilities to fund QuadPay’s and Zip Business’ receivables, respectively.

Bulls Say’s

  • Zip is well placed to continue growing its transaction volume, given its variety in financing options and retailer base, as well as its Pay Anywhere model which provide greater avenue to spend using its products. 
  • Zip benefits from an accelerated shift to e-commerce, increased adoption of cashless payments, and a growing need among merchants for effective marketing amid a challenging retail backdrop. 
  • Zip is expected to face lower regulatory risks than its BNPL rivals, as it already conducts a greater degree of background checks and ZipMoney is already regulated by the National Credit Act.

Company Profile 

Zip is a diversified finance provider, offering consumer financing via a line of credit (via Zip Pay and Zip Money) and instalment-based finance (via QuadPay, Spotii, Twisto, and PayFlex); as well as lending to small to midsize enterprises (via Zip Business). Zip’s fortunes are largely tied to the buy now, pay later, or BNPL, industry. Most of its products–Zip Pay, QuadPay (Zip U.S.), and PayFlex–do not charge interest based on outstanding balances. Around 60%-70% of Zip Pay’s/Zip Money’s revenue is derived from customers, mainly via account fees and interest. Meanwhile, its instalment businesses primarily generate revenue by receiving a margin from merchants, which compensates it for accepting all nonpayment risk and for encouraging consumers to transact more frequently.

(Source: MorningStar)

General Advice Warning

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

Categories
Dividend Stocks

Domain’s Relatively Low Exposure to Real Estate Price Risk Expected To Underpin Growth

Business Strategy and Outlook

Domain offers exposure to favourable trends in the Australian real estate market, but with relatively low exposure to real estate price risk in the long term. The company has generated strong revenue growth in recent years, boosted by an increase in agents using its website, listings, premium listings, and acquisitions. However, similar growth is not expected from these factors in future, as it is projected that Domain now has near saturation of available agents and listings and as such, further acquisitions are not anticipated. 

Domain is expected to generate revenue growth primarily from growth within its residential division, and listings are projected to increase by at least 1%-2% per year, in line with population and dwelling growth over the long term. In addition, it is viewed that Domain can generate above-inflation growth in revenue per listing, as a result of above-inflation listing price growth and an increase in the proportion of premium listings on its website, from around 10% national penetration toward REA Group’s 20%. A revenue CAGR for the group of 12% is forecasted over the next decade. 

Domain currently generates a lower EBIT margin than REA Group and other leading Australian online listings websites; however, the company is expected to achieve margin expansion as a result of strong revenue growth and operating leverage. Although margin improvement is anticipated, a lower margin is forecasted for Domain in comparison to peers, as Domain is the number-two provider, whereas peers are all leading providers in their respective segments.

Financial Strength

Domain is in good financial health, which is partly attributed to the capital-light business model and expected cash flow strength. As with many software companies, most of Domain’s costs relate to employee costs, and the company does not require large capital expenditures to grow. The lack of capital requirements means cash conversion is usually high and cash flows are available for dividend payments and growth investments, such as acquisitions or investments in early-stage businesses. It also means that equity issuance is usually negligible, which means little or no dilution of existing shareholders. Domain is not expected to undertake large acquisitions, in part due to the lack of obvious large acquisition candidates but also due to the present opportunity to invest in and expand its core business.

Bulls Say’s

  • Domain is projected to generate high revenue growth, primarily owing to an increase in revenue per listing as a result of an increase in premium listings. 
  • Domain should benefit from Australian population growth of around 1%-2%, which should equate to a similar increase in dwelling numbers and therefore listings. 
  • Domain’s diversification into real estate-related businesses, such as mortgage, insurance, and utility services, is likely to strengthen the firm’s competitive position by increasing switching costs, and could diversify earnings.

Company Profile 

Domain is an Australian real estate services business that owns real estate listings websites and print magazines, and provides real estate-related services. Domain was formed as a home and lifestyle section of newspapers owned by Fairfax Media Limited (ASX:FXJ) in 1996, and an associated residential real estate website, www.domain.com.au, was launched in 1999. Domain’s real estate listings website has grown to become its core business and the second-largest residential real estate website in Australia, after REA Group’s (ASX:REA) owned www.realestate.com.au. Newscorp (ASX:NWS) owns 60% of REA Group.

(Source: MorningStar)

General Advice Warning

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

Categories
Dividend Stocks

Centuria Industrial REIT threatened by declining disparity between capitalisation rates and bond yields

Business Strategy and Outlook

Centuria Industrial REIT is an externally managed Australian real estate investment trust. It owns a portfolio of 84 industrial properties, including distribution centres, manufacturing facilities, and data centres. About 82% of the portfolio by value is in urban infill areas of the major cities, with good prospects for rental growth and potentially redevelopment over the long term for higher and better use, including multi storey industrial, mixed use, residential, healthcare, or bulky goods retail. 

Revenue is defensive and growing. The trust earns rental income from a wide variety of tenants across multiple industries. Weighted average lease term is long, with typically 5% to 15% of leases expiring each year. In fiscal 2022, close to 80% of leases have fixed rent reviews averaging 2.8%, with most other leases linked to CPI inflation. Excluding a handful of properties with very long leases, portfolio rents are close to 10% below market, suggesting positive rent reversion as leases expire. All this adds up to a positive outlook for revenue. 

As with other REITs, operating profit margins are high, but operating costs tend to grow in line with revenue. The trust’s main costs are direct property expenses (which are mostly recovered from tenants under net leases), responsible entity fees, and interest expense. Responsible entity fees paid to the external manager Centuria Capital Group (ASX: CNI) are linked to portfolio size and have tripled in the past five years on rising property values and acquisitions. The trust’s strategy is relatively aggressive. Although the current level of financial leverage is acceptable,  the distribution payout ratio exceeds underlying earnings, interest rate hedging is limited, and management plans to undertake more acquisitions despite being late in the property cycle.

Financial Strength

Centuria Industrial REIT is in sound financial health. At December 2021, gearing was 31%, toward the bottom of its 30% to 40% target range and well below the 50% covenant limit. Likewise, interest cover of 5.7 times is comfortably above the 2 times covenant limit. These measures have been aided by extraordinarily low interest rates and high property values. Other credit metrics appear more aggressive, though are not a major concern. For example, net debt/EBITDA of 7 to 8 times for the medium term is forecasted, broadly in line with most AREIT peers. The trust has a Baa2 issuer credit rating from Moody’s Investors Service. Average debt duration is relatively long at 4.8 years and the trust has only modest debt maturities in the next couple of years. But limited interest rate hedging means the trust is exposed to rising interest rates–weighted average hedge maturity is 2.6 years. The trust is expected to pay out about 95% of funds from operations, which is aggressive as FFO ignores such things as maintenance capital expenditure, leasing incentives, and debt establishment costs. Distributions are anticipated to exceed underlying earnings by about 10%, which could be unmaintainable if property values stop rising. The trust’s portfolio has grown rapidly via acquisitions, requiring substantial equity raisings. Units on issue have increased more than six-fold since 2014.

Bulls Say’s

  • Revenue growth is underpinned by long leases with fixed or CPI-linked rent reviews. 
  • Very low market vacancies in Sydney and Melbourne suggest strong re-leasing spreads. 
  • About 80% of the portfolio is in urban infill areas, which benefit from supply constraints and superior demand from industrial tenants because of good access to customers and employee bases.

Company Profile 

Centuria Industrial REIT owns a AUD 4 billion portfolio of industrial properties, including distribution centres, manufacturing facilities, and data centres. Melbourne and Sydney are its biggest markets at more than a third of portfolio value each, followed by Brisbane, Perth and Adelaide. The trust is externally managed by Centuria Capital Group. 

(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 is 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

Ramsay Health Care: The Board declared a fully franked Dividend of 48.5 cps

Investment Thesis:

  • The Company is currently under a takeover offer at $88.00 per share  
  • It is expected that the demand on waiting lists will start to drive RHC’s earnings higher over FY22-24.
  • RHC has a diversified portfolio with significant scale and leading positions in Australia, France and Scandinavia. Attractive industry dynamics and high barriers to entry 
  • Largest private hospital operator in Australia, with attractive industry fundamentals (aging population). Favorable macro industry trends: ageing and growing population, proliferation of chronic disease, and increasing innovation, treatment, and technologies to drive demand to private hospitals.
  • Supportive government policy (tax incentive to get private health insurance). 
  • Ongoing brownfield program driving earnings and offshore earnings growth.
  • Significant operations offshore provide opportunities for growth outside of the domestic market.

Key Risks:

  • The current takeover offer fails to proceed. 
  • Competitive risk (new hospitals, new beds), from listed and unlisted hospital operators. 
  • Brownfield projects fail to deliver the earnings uplift. 
  • Cost pressures (negotiating price increases with private health insurance companies).
  • Change to government policy on private health insurance. 
  • Execution risk (able to get the uplift in earnings from brownfield projects).
  • Snap economic lockdowns due to Covid-19.

Key Highlights:

  • Revenue of $6,687.4m, was up +1.2%; EBIT of $489.2m, is down -16.2%; PAT of $303.7m, is down -23.8%; NPAT of $158.9m, was down -29.1%.
  • Having completed its acquisition of UK’s leading mental healthcare provider, Elysium at the end of January and via Ramsay Santé, several acquisitions of specialist primary healthcare businesses in the Nordic region, RHC’s balance sheet remains strong enough to underpin ongoing investment in brownfield and greenfield expansion.
  • The Board declared a fully franked dividend of 48.5 cps, which is flat relative to the pcp.
  • In Asia Pacific region the Revenue of $2,731.3, was up +0.5%, with EBIT of $285.4m, down -5.9% with RHC’s Australian hospitals. Management estimated the total impact of the disruption caused by Covid in 1H22 was $107m. RHC’s share of profits from its Asian JV, Ramsay Sime Darby of $7.9m was a reversal from the pcp loss of -$18.6m. Ramsay Sime Darby saw +16.4% growth in EBIT due to the acquisition of a new hospital in Malaysia and the contribution of Covid treatment and vaccination activities.
  • In U.K. the Revenue of $512.9m was up +6.7%, but this did not translate to earnings, with EBIT loss of -$35.6, materially down from the pcp, with the segment severely impacted by ongoing pandemic. EBIT also includes A$24.7m in costs relating to proposed scheme of arrangement for Spire Healthcare plc £2.5m, (A$4.7m), which was voted down by Spire shareholders in July 2021 and acquisition of Elysium Healthcare £10.8m (A$20m) completed on 31st January 2022. The segment opened the Buckshaw day surgery hospital in Chorley in October, the third new hospital facility opened during the pandemic.
  • In Europe. In 1H22, Ramsay Santé's hospitals in France remained operating under the French Government's revenue guarantee arrangements which was extended from 1 July 2021 to 31 December 2021 and compensated RHC for the use of facilities and services during the pandemic. Revenue from patients and other income of $3,236.3m is up +2.8%, whilst income from government grants was $203.1m, down -8.8%. EBIT of $239.4 was up +3.3%.
  • In 1H22, Ramsay Santé acquired an ophthalmology business in Sweden, a public primary care business in Denmark and an IVF business in Norway, totalling €38m (A$60m) with further deferred consideration of €48m (A$68.2m) subject performance hurdles.

Company Description:

Ramsay Health Care Ltd (RHC) provides healthcare services. RHC operates hospitals, day surgery centres, treatment facilities, rehabilitation & psychiatric units across countries around the globe.  It operates through approximately 500 locations across Australia, the United Kingdom, France, Sweden, Norway, Denmark, Germany, Indonesia, Malaysia, Hong Kong, Italy, and Nordics.

(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

Masco Is Less Cyclical and Interest-Rate Sensitive Than the Market is Giving It Credit For

Business Strategy & Outlook:

Masco’s financial performance over the past eight years has been as much of a self-help story as a story of improving end markets. Masco almost entirely refreshed its senior executive management team in 2014. Since then, it has taken significant measures to build a stronger and more consistent business model. The firm divested its most cyclical and least profitable businesses (it spun off its installation business, now named TopBuild, to shareholders in 2015 and sold its windows and cabinetry businesses in 2019 and 2020, respectively). Management also executed significant cost-reduction initiatives and shored up the firm’s balance sheet. Masco’s sale of its windows and cabinetry businesses was a positive development for the firm because they had long viewed its plumbing and decorative architectural businesses as the firm’s crown jewels and key drivers of the company’s valuation, while Masco’s cabinetry and windows businesses have often been laggards that have been a drag on margins and returns on invested capital.

Repair and remodel spending, and to a much lesser extent, new residential construction, are major drivers of Masco’s financial performance. After divesting its installation, windows, and cabinetry businesses, the firm’s overall exposure to the R&R market is 88% of sales. Over the long term, the repair and remodel market will benefit from several long-term secular tailwinds related to aging housing stock, favorable demographics, increased demand for smart home and energy-efficient products and solutions, and increased spending among minority households. The R&R spending shall grow at about a 5% CAGR through 2030, reaching over a $650 billion addressable market. There is nice growth runway for Masco as the company capitalizes on improving end markets and internal growth initiatives across its remaining plumbing and decorative architectural platforms.

Financial Strengths:

Masco has a sound capital structure, and its consistent free cash flow generation should easily support its debt-service requirements and future capital-allocation decisions. Masco’s balance sheet has improved significantly over the past five years; based on the calculations, net debt/EBITDA peaked at over 4 in 2011 but is now 1.3. Masco plans to maintain a similar leverage ratio to support an investment-grade debt rating. Masco has approximately $3 billion of outstanding debt with maturities staggered through 2051, but the next maturity isn’t until 2028 when $600 million is due.  Masco has ample liquidity, with over $900 million of cash on hand and no outstanding borrowings on a $1 billion credit facility. By the calculations, 2021 marked the 31st consecutive year Masco has generated positive free cash flow since financials were publicly available via the Securities and Exchange Commission website (1991). The company’s ability to generate consistent free cash flow, even in a downturn, demonstrates the durability of Masco’s business model.

Bulls Say:

  • The R&R market is poised for long-term growth, driven by several secular tailwinds, including the aging housing stock and favorable demographics.
  • Masco has well-articulated growth plans for its plumbing and decorative architectural segments. These strategies could drive meaningful top-line growth over the next several years. Furthermore, cost- reduction initiatives have improved profitability.
  • Masco’s brand portfolio enjoys pricing power, which supports margin stability.

Company Description:

Masco is a global leader in home improvement and building products. The company’s $5.1 billion plumbing segment, led by the Delta and Hansgrohe brands, sells faucets, showerheads, and other related plumbing components. The $3.2 billion decorative architectural segment primarily sells paints and other coatings under the Behr and Kilz brands.

(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

CS: History of Poor Risk Management Drives Discounted Valuation

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. 

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.

Both Credit Suisse’s liquidity coverage ratio and its net stable funding ratio are comfortably above 100%, which indicates sound liquidity. 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 are as sticky as general retail deposits, although they remains 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
Dividend Stocks

ABN Amro Has a Solid Position in the Attractive Dutch Market

Business Strategy & Outlook:

After emerging from outright government ownership ABN Amro is one of the simpler banks in Europe. It is essentially a retail and commercial bank with limited capital markets activities. Its strong retail deposit base supported above-average profitability until negative interest rates started to bite. Having a lending book dominated by fixed-rate mortgages does not help either. The long-duration lending book forces ABN Amro to use more expensive long-term funding in order to manage liquidity risk, which then compounds margin pressure in a declining interest-rate environment. ABN Amro offers investors exposure to the oligopolistic Dutch banking system where ABN Amro and its two main rivals hold more than 90% of all Dutch current accounts. This is in sharp contrast to the fragmented banking markets that are the norm in much of the eurozone. Historically this concentration supported higher levels of profitability for ABN Amro and its Dutch peers.

ABN Amro has a solid competitive position in Dutch retail banking with a 20% market share in Dutch personal current accounts and a 25% share of business current accounts. This provides ABN Amro with cheap, sticky funding and forms the base from which ABN Amro can cross-sell other products. In a negative interest-rate environment what should be a major competitive advantage has turned into a major headache. In a negative interest-rate environment banks earn negative interest on their surplus liquidity and with essentially a zero interest-rate floor on some of their deposits this leads to a margin squeeze. The injection of liquidity via monetary and fiscal interventions from central banks and governments following the coronavirus pandemic has just amplified this problem as banks are faced with even more deposits from clients flush with cash. ABN Amro cannot pass on negative interest rates to smaller depositors without damaging client goodwill. It is increasingly passing on higher costs to larger clients. Interest-rate hedges only provide protection against interest-rate volatility, not to a long-term decline in interest rates, especially not when rates go negative.

Financial Strengths:

Even after taking into consideration the more onerous capital guidelines under Basel IV ABN Amro is one of the best-capitalised banks in Europe. At the end of 2020 ABN Amro indicated that on a Basel IV basis it has a common equity Tier 1 ratio of over 15%, compared with its internal target of 13%. With an enviable retail deposit base ABN Amro is one of the banks in Europe with the soundest liquidity profile. Retail deposits tend to be sticky as retail depositors are less likely to move to other banks in the search of higher yields. Wholesale funding are much more likely to disappear during periods of stress in the funding markets. Wholesale funding makes up only around 26% of ABN Amro’s total funding.

Bulls Say:

  • ABN Amro is one of the three leading banks in the oligopolistic Dutch banking sector.
  • It has an attractive funding mix with low reliance on wholesale funding.
  • It has a simple, clear, and focused business model and strategy.

Company Description:

ABN Amro Bank is a Dutch bank, and the Netherlands accounts for around 90% of its operating profit. Operationally, retail and commercial banking contributes the bulk of its operating profit, while ABN Amro continues to reduce its exposure to corporate and investment banking. It views private banking as one of its key growth areas.

(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

Vivendi Looks to Canal+ and Havas for Growth with Further M&A on the Horizon

Business Strategy & Outlook:

Vivendi’s transformation into a pure-play media firm, completed in 2014, left it with two primary business units: Canal+, the largest pay-TV company in France, and Universal Music Group, the largest global music label. However, controlling shareholder Vincent Bollore has dragged Vivendi back to its inglorious past as a conglomerate, exemplified by the purchases of Havas, the world’s sixth-largest ad agency holding company, and Editis, a French-language book publisher. Bollore also led the spinout of UMG, the firm’s crown jewel, in September 2021 with Vivendi holding on to a 10% stake in the music label. As a result of the UMG transaction, Canal+ is now the largest segment for Vivendi, representing 60% of revenue. While Canal+ appears to be returning to growth after years of decline, the core French pay-TV business remains a drag on growth. The growth for Canal+ will continue be driven by overseas operations via subscriber growth and new country launches. 

Canal+ is attempting to transition from a traditional pay-TV business to a content aggregator. Companies that depend heavily on buying or aggregating content from other creators may find themselves squeezed, particularly in markets with multiple aggregators. Now the second-largest segment with roughly 25% of revenue, Havas is heavily leveraged to Europe and North America, which account for over 80% of revenue. Havas competes against larger players in these regions; the only GDP-level growth in these mature markets and further expansion into Asia-Pacific and Latin America, largely via acquisitions of local agencies. Editis now generates roughly 10% of total revenue for Vivendi. The firm is the second-largest French-language publishing group, with 50 publishing houses covering everything from children’s books to popular literature to dictionaries to manga. 

Financial Strengths:

While Vivendi has done an admirable job of cleaning up the mess from the early 2000s, it remains in flux in terms of how to use its cash and where it invests. The large number of divestitures, including the sale of 30% of Universal Music, over the last few years has left the company with a net debt position of only $1.9 billion as of June 2021. However, management continues to use cash to buy stakes in firms in peripheral industries such as the Telecom Italia and Mediaset. The firm will look for additional acquisitions over time to releverage the balance sheet. The firm shall rush into an acquisition and overpay for it.

Bulls Say:

  • The spinout of Universal Music Group should reduce the conglomerate discount that has plagued the stock.
  • StudioCanal is a leading studio that benefits from the increased global demand for French-language original content.
  • Vivendi will return much of the cash from the UMG sale to shareholders via special dividends.

Company Description:

Vivendi’s transformation into a pure-play media firm was completed in 2014, but recent acquisitions and the spinout of Universal Music Group have again changed the firm. The company now operates multiple divisions with one very large core segment: Canal+, a leading producer and distributor of film and TV content in France, produces over 80% of revenue. It also owns Havas, the world’s sixth-largest ad agency holding company; Editis, a French-language book publisher; Gameloft, a mobile game publisher; and minority stakes in multiple companies in Europe.

(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

Kering SA: Online Penetration is growing at a solid pace

Investment Thesis:

  • Solid momentum in the core Gucci brand, aside from the disruption caused by the Coronavirus. 
  • Sales momentum will be assisted once international tourism returns. 
  • Leveraged to increasing consumer consumption in Asia (China, India). 
  • Leveraged to tourism flows (international travel) as consumers seek out experiences. 
  • New upcoming brands.
  • Strong cash flow generation and solid dividend yield.
  • Strong balance sheet, which provides the Company flexibility.  
  • Key cornerstone investor (Pinault Family) provides stability in the share register.  

Key Risks:

  • Adverse currency movements, especially EUR strength against the U.S. dollar (USD) and Chinese Renminbi (RMB). 
  • Increased competition from existing players and new emerging brands. 
  • Key brands – Gucci (>70% of revenue), Saint Laurent (>10% of revenue), Bottega (>5% of revenue) – cease to resonate with consumers and growth halts. 
  • Value destructive acquisition of brand(s). 
  • Macro-economic conditions globally deterioration, impacting consumer spending and less tourism movements (i.e. travelers overseas).
  • Geopolitical tensions among regions restricting funds & tourists flow or a breakout of health epidemic impacting tourists flow in Europe / Asia. 
  • Significant change at the senior management level (divisional CEOs or Creative Director).  
  • Significant changes with the key cornerstone investor (leading to influence on long-term company strategy or shareholder outcomes). 
     

Key Highlights:

  • Revenue increased +34.7% over pcp (+35% on a comparable basis with North America up +76%, APAC up +33%, Japan up +21%, Western Europe up +10% and Rest of the World up +48%) and +13% over pre-Covid FY19 to €17,645.2m, driven by outstanding performances from all Houses, which generated revenue of €17,019m, up +34.3% over pcp (+34.9% on a comparable basis).
  • Recurring operating income rose sharply, up +60% over pcp (up +5% over FY19) to reach a new record €5,017.2m, with margin improving +450bps over pcp (down -170bps over FY19) to 28.4%, with recurring operating income from the Houses up +53.7% over pcp to €5,175.3m with margin expanding +380bps to 30.4% despite all Houses continuing to invest significantly in their operations.
  • Capital management – using strong cashflow to deleverage the balance sheet and increase shareholder returns. The Company delivered +87.6% YoY growth in FCF to €3.9bn which combined with proceeds from the disposal of an additional 5.9% in Puma (stake is now ~4%, covering the exchangeable bond due in 2022), saw management reduce net debt by -92.2% over pcp to €168m (debt/equity down -16.6% to 1.2%), resume share-buyback to repurchase 0.7% of shares for €540m (1.3% remaining with second tranche to cover 0.5% and expected to be completed by 26th April 2022), increase dividends by +50% over pcp to €12 and reinforce KER’s eyewear portfolio with the acquisition of LINDBERG.
  • Online penetration is growing at a solid pace. The Company saw online sales continue to grow at an solid pace, up +55% over pcp, leading to a doubling of the online channel’s penetration rate in two years, and now accounting for 15% of total sales in the retail (23% North America, 26% Western Europe, 7% APAC and 5% Japan), as management continued to drive brand engagement with the upcoming generations of luxury shoppers and target new customers through the metaverse by Balenciaga’s appearance on Fortnite and Gucci leveraging a presence on Roblox gaming platform, apart from successful internalization of all brand.com sites, which allows the Company to use e-concession only if complements KER’s own sites and control all the key elements of presence.
  • Outlook – management hints towards price increases and M&A activity. Though no specific guidance was provided for FY22, management flagged Gucci (which increased prices twice in 2020 and in 2021) along with KER’s other labels would again raise prices in a “targeted manner” in the year and pointed towards potential acquisitions to expand the Company’s footprint and bolster jewellery offering, which management believes has high potential.

Company Description:

Kering (KER), listed on the Euronext Paris (Paris stock market), is a global luxury group made up of iconic brands in Fashion, Leather Goods, Jewellery and Watches. The Company designs, manufactures and markets its goods globally. The group’s core brands are Gucci, Saint Laurent and Bottega Veneta. 

(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.