Category: Sectors

Categories
Dividend Stocks

MFG saw FY22 revenue decline -8% yy, driven by material client outflows and consistent underperformance of the flagship global fund

Investment Thesis

  • Principal Investments could grow to become a meaningful contributor to group performance over the medium-to-long term.
  • MFG no longer trades at a significant premium to its peer-group post the recent derating.
  • Acquisitions could pave growth runways, helping to ease the Company’s fund capacity constraints.
  • Average base management fee (bps) per annum (excluding performance fee) continues to be stable but there are risks to the downside from pressures on fees (which is an industry trend not specific to MFG alone).
  • Continued strong investment performances, especially in the global and infrastructure funds.
  • Growing levels of funds under management.
  • New strategies could significantly increase the addressable market and help sustain earnings growth.

Key Risks

  • Decline in fund performance. 
  • Risk of potential funds outflow – both retail and institutional (loss of a large mandate). 
  • Execution risk with the acquisitions. 
  • Significant key man risk around Hamish Douglass and key management or investment management personnel. 
  • New strategies fail to add meaningful earnings to the group. 

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

  • Revenues declined -8% to $609.1m, driven by -7% decrease in management fee revenue as a result of a -9% decrease in average FUM to $94.3bn and -62% decline in performance fees, partially offset by +274% increase in other revenue and income driven by distribution income of $17.6m, realised capital gains of $19.4m and net FX gain of $3.5m. 
  • Expenses increased +20% to $127.1m and came in between management’s guidance range of $125-130m (guidance range remains unchanged for FY23), equating to cost to income ratio (excluding performance fees) of 21.3%, up +450 bps, primarily driven by +25% growth in employee expenses and +45% growth in marketing expenses. 
  • Statutory NPAT increased +44% to $383m, however, adjusted NPAT (adjusted for strategic, non-recurring, non-cash or unrealised items) was down -3% to $399.7m. 
  • Strong balance sheet maintained with no debt and $963.3m in cash, financial assets and investments in associates, up +7%. 
  • FUM declined -46% to $61.3bn, split between global equities (54%), infrastructure equities (33%) and Australian equities (13%), driven by investment losses of $2.3bn, net outflows of $49.5bn and cash distributions (net of reinvestment) of $0.8bn.

Company Description

Magellan Financial Group Ltd (MFG) is a specialist funds management business. MFG’s core subsidiary, Magellan Asset Management Ltd, manages funds across its global equities and global listed infrastructure strategies for retail, high net worth and institutional investors.

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

TCL also appears to be well positioned for an a higher inflationary & rising interest rate environment

Stock market digital graph chart on LED display concept. A large display of daily stock market price and quotation. Indicator financial forex trade education background.

Investment Thesis

  • Hard to replicate critical infrastructure assets.
  • TCL is well positioned for a higher inflationary & rising interest rate environment, given: (1) TCL’s exposure to interest rate exposure is low due to hedging policy, with 99% of TCL’s existing debt book hedged as at 31 Dec-21 and the majority of the debt which expires out to FY25 is above TCL’s weighted average cost of debt; (2) 68% of TCL’s revenue is linked to CPI price escalations as part of their concessions.
  • Consistent growth in earnings driven by four key factors: 1) Traffic (with mature toll roads delivering on average 2-4% annual traffic growth); 2) Prices (with escalation set with agreements with governments); 3) operational efficiency improvements; and 4) development contribution from new assets.
  • Solid yield – steady and growing distribution stream.
  • Integration of technology and systems to enhance operations.
  • Growth by asset acquisition and/or development of greenfield and brownfield projects.
  • Exposure to infrastructure assets in the U.S.
  • Strong management team with experience in deploying the developer-operator business model
  • West Gate Tunnel dispute is a drag on share price.

Key Risks

  • Bond yields experience a significant increase in the short term and track upwards over the long term.
  • Valuation appears full at current levels.
  • Project development cost blowouts.
  • Reduced traffic volumes.
  • Regulatory changes within the sector.
  • Unfavourable financing arrangements.
  • Poor acquisitions (derived from inaccurate modelling of traffic).

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

  • Average daily traffic was down -4.8% vs pcp. Proportional toll revenue of $1.2bn was mostly unchanged on pcp with lower volumes offset by price escalations and resilience in commercial traffic. 
  • Total free cash for the half of $459m was down -1.6% on pcp (predominantly driven by Covid impacts on TCL’s 100% owned assets and higher working capital) and covered the first half distribution of 15cps. There were no capital releases during the period.
  • 1H22 proportional EBITDA of $805m was down -4.1% on pcp, with higher toll revenue more than offset by higher costs – with operational costs up +5.6% YoY driven by insurance premiums and investment in new capabilities (data analytics, cyber and other technology). A change in accounting of Software as a Service also contributed to the cost increase. 
  • Proportional EBITDA margins at the group level were down -310bps to 65.9%, driven by Covid restrictions impact on traffic in TCL’s largest markets. Management expects to see group margins return towards a more normal range 73-74% as restrictions lift and traffic again returns to pre-Covid levels. 
  • Company maintained a solid balance sheet, with Gering of 34.6% (most unchanged on pcp), liquidity of $3.8bn and debt book is 99% hedged (which provides protection in a rising interest rate environment).

Company Description

Transurban Group (TCL) develops, operates, and maintains urban toll road networks in Australia and the United States. The company holds interest in 15 roads in Melbourne, Sydney, Brisbane, and Virginia. Transurban Group is headquartered in Docklands, Australia.

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

WES reported 1H22 results reflecting earnings weaker relative to the pcp, with revenue of 17758m largely flat relative to the pcp

Investment Thesis

  • Ongoing momentum in discretionary spend, driven by strength in housing prices.
  • Diversified asset base with core assets continuing to grow (Bunnings)
  • Expect improved performance from Target and Industrials businesses.
  • On-going focus on shareholder return including attractive yield.
  • Strong management team.
  • Strong balance provides flexibility to take advantage of opportunities as they arise.
  • Potential capital management initiatives.

Key Risks

  • Margin erosion due to competitive pressures.
  • Disappointing earnings performance in Bunnings.
  • Deterioration in the macro picture leading to lower retail sales activity and volumes.
  • Deterioration in balance sheet metrics.
  • Adverse movements in AUD/USD.

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

  • WES’s earnings were weaker relative to the pcp, with revenue of $17,758m largely flat relative to the pcp, but EBIT of $1,905, declined -12.3%, and NPAT of $1,213, was -14.2% weaker, with strong results in WesCEF and Industrial and Safety, up +36.3% and +10.8% respectively, more than offset by poor performance in Kmart and Officeworks, down -63.4% and -18.0% respectively. 
  • Free cash flows of $949m was -51.7% weaker.
  • Net capex increased to $405m, up +66.7%.
  • WES’s balance sheet position deteriorated from the pcp as a result of a $2.3bn return of capital to shareholders in December, with net financial debt/cash reversing from a net cash position of $871m to $2,615m net financial debt position at the end of the half. Debt to EBITDA (excluding significant items) is now 2.0x versus 1.3x in the pcp. 
  • The Board declared an interim dividend of 80cps, fully franked, -9.1% lower than the pcp.

Company Description

Wesfarmers Limited (WES) has diverse business operations covering convenience stores, home improvement, office supplies, and department stores. The company also has an industrials division which includes businesses in chemicals and fertilizers, industrial and safety products and coal. Wesfarmers employs over 220,000 people.

(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

VUK reported a very strong FY21 result, with +546% YoY underlying PBT growth, driven by improving net interest margin

Investment Thesis

  • Trades on undemanding valuations (i.e. depressed price to book and price to earnings) and below the valuation (which also includes a Brexit / Covid discount). 
  • Potentially further provisioning required as a result of Covid-19. 
  • Improving shareholder returns (including potential for buybacks).
  • Delivering on medium term targets.
  • Solid franchise and branch network. 
  • Synergies from Virgin Money acquisition to support earnings growth.
  • Expected low levels of impairment charges (especially as a low interest rate environment helps customers and arrears). 
  • Funding position remains sound, however excess funding for potential capital management is unlikely now. 
  • Increasing penetration in the SME and retail banking space in the UK.

Key Risks

  • The UK economy recovers quicker than expected post-Covid-19. 
  •  VUK resumes dividend payments earlier than expected. 
  • More intense competition for deposit and loan growth. 
  • Increase in bad and doubtful debts or increase in provisioning. 
  • Funding pressure for deposits. 
  • Medium term guidance targets, especially cost reduction targets, fall short. 
  • Regulatory changes especially around any capital requirements and hence lower ROEs achieved.
  • Brexit uncertainty (potentially leading the UK economy into recession).
  • Clarity provided over Virgin Money disappoints.

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

  • Underlying operating income +2% to £1572m, with net interest income increasing +5% to £1412m as lower deposit costs, structural hedge benefit and growth in higher yielding assets more than offset mortgage spread pressures, partially offset by -16% decline in non-interest income to £160m, reflecting weaker market conditions.
  • Underlying operating expenses reduced -2% to £902m with the underlying cost-to-income ratio reducing -200bps to 57% as efficiencies from cost savings programme were partly offset by higher variable remuneration. 
  • Impairment release of £131m (vs £501m charge in pcp) amid robust asset quality & improving outlook, however, maintained coverage levels of 70bps (down -33bps), well above pre-pandemic levels. 
  • Underlying PBT improved +546% to £801m driven by a recovery in income, lower costs and improved impairment performance leading to underlying RoTE improving +17.2% to 17.8%. VUK returned to statutory profit before tax of £417m from £168m loss, equating to statutory RoTE of 10.2%. 
  • Capital strengthened with CET1 increasing +150 bps to 14.9% (14.4% excluding software benefit) equating to buffer of £1.4bn over MDA threshold of 8.7%, and strong liquidity & funding position maintained with LCR of 151% (up +11%) and 108% (up +100 bps) loan-to-deposit ratio.
  • Capital returns resumed with the Board declaring a 1p dividend (updated capital framework and dividend policy post-SST at 1H22).

Company Description

Virgin Money UK Plc is a holding company that owns Clydesdale Bank and Yorkshire Bank in the United Kingdom. It was formed by National Australia Bank (NAB) in February 2016, in advance of the divestment of its UK segment via IPO. VUK is a full-service challenger bank of scale servicing both retail and SME in the UK market. VUK services ~160k small business customers with a turnover of less than £2m, and ~23k medium businesses with a turnover of >£2m.

(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

Tabcorp (TAH) delivered a solid 1H22 result which came in ahead of expectations

Investment Thesis

  • The demerger of its Lotteries & Keno business (to be named The Lottery Corporation) from its Wagering & Media business (to be named Tabcorp) could unlock shareholder value as standalone business.
  • Subdued outlook for wagering business and cost pressures likely to keep a lid on margin expansion in the near term.
  • Positive regulatory changes could drive out smaller uneconomical corporate bookmakers.
  • Potential capital management initiatives.

Key Risks

  • Competitive pressures within the core Wagering business.
  • Loss of market share.
  • Lack of product development.
  • Cost blowouts with failed investment in Sun Bets business in the UK.
  • Adverse outcome from any regulatory change.
  • The demerger fails to get all necessary approvals.

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

  • Revenue of $2,934m was up +2.2%, variable contribution was mostly flat (-0.9%) at $942m and underlying EBITDA of $529m was down -5.5% vs pcp, mainly reflecting the impact of Covid-19 with a strong performing Lotteries and Keno businesses being offset by Wagering & Media and Gaming Services (impacted by venue restrictions and trading). Management delivered a further $16m in savings in 1H22 from 3S optimization program, bringing total savings to date from the program to approximately $46m.
  • The Company declared an interim dividend of 6.5 cents per share, which is down -13.3% on pcp and represents a payout ratio of 77% of net profit before significant items (and at the top end of 70 – 80% range). 
  • Underlying NPAT of $187m was down -9.7% on pcp.
  • Lotteries & Keno. Revenues of $1,784m were up +10.9%, with EBITDA of $358m up +15.1% (margin up +80 bps on pcp). Segment earnings were driven by strong growth in Lotteries revenue (Jackpot games up; active registered customers up +5% and very strong digital growth of +26%) and Lotteries VC margin (digital growth drove margin expansion; 3S savings initiatives). This was partly offset by Keno revenue being impacted by retail shutdowns, which also had an adverse impact on reported margins.
  • TAH is on track to implement the demerger of its Lotteries & Keno business (to be named The Lottery Corporation) from its Wagering & Media business (to be named Tabcorp) no later than June 2022, subject to all necessary approvals. The Company expects to incur one-off costs of up to $275m and ongoing incremental costs of $40-45m p.a. further, The Lotteries and Keno business will target gearing levels of around 3.5x to 4.0x and the wagering & gaming business will target gearing of 1.0x to 1.5x.

Company Description

Tabcorp Holdings Ltd (TAH) is an integrated gambling and entertainment company listed in Australia, with operations overseas. The business operates three key segments – Wagering & Media, Keno and Gaming Services. These services are delivered to customers through TAH’s retail, digital and Sky media platforms.

(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

Suncorp’s regional banking franchise is more concentrated than the major banks, with home loans making up around 80% of the loan book

Business Strategy & Outlook

Suncorp is a well-capitalized financial services business with a dominant market position in the Australian and New Zealand general insurance industry and a regional banking franchise headquartered in Queensland. In addition to offering insurance under the parent name, key brands in Australia include AAMI, GIO, bingle, Apia, Shannons, and Terri Scheer. In New Zealand, key brands include Vero, AA Insurance, and Asteron Life. At group level, the insurer carries concentrated weather and earthquake risk in Australia and New Zealand, and in particular Queensland which makes up around 25% of gross written premiums in Australia. The group’s exposure to the Queensland market, where large natural peril events have been larger and more frequent, heightens the risks. Reinsurance protection mitigates risks to some extent, but can be expensive, particularly following large events.

Suncorp’s regional banking franchise is more concentrated than the major banks, with home loans making up around 80% of the loan book and Queensland accounts for more than half of total lending. A smaller operating presence, higher funding and operational costs, and relatively limited product offerings have all led to lower margins relative to the majors. A sale of the bank to ANZ Bank would see capital returned to shareholders and is pending regulatory approvals. While there are potential benefits to the bancassurance model, such as better customer insights versus stand-alone insurance peers, and better cross-selling opportunities, they have not delivered a material tangible improvement in earnings, returns, or switching costs. Selling home insurance to borrowers is the lowest hanging fruit, with recent improvements to give the group a single customer view likely to make the process smoother. Similar to its peers, Suncorp is focused on enhancing the digital offering to ensure simpler and faster quotes, claim processing, and to ensure the large insurer remains competitive on price. In response to changes in the way customers engage with their insurer, with less human contact and the expectation of being able to access services at any time, productivity improvements remain a priority.

Financial Strengths

Suncorp Group is in good financial health. As at June 30, 2022, Suncorp Insurance had a prescribed capital amount, or PCA, multiple of 1.77 times the regulatory minimum. The common equity Tier 1 ratio for the insurance business was 1.22 times post the final dividend payment, within the target range of 1.125-1.325 times the PCA, and well above the regulatory minimum of 0.6 times. The bank’s common equity Tier 1 ratio as at June 30, 2022 was 9.1%, within Suncorp’s 9% to 9.5% target range.

Suncorp targets a dividend payout of 60-80% cash earnings (excluding special dividends).

Bulls Say

  • Premium increases stick without an equal rise in claims and rising rates lift yields on fixed income, together lifting underlying profitability and dividends.
  • A benign claims environment with a lower incidence of major catastrophes would considerably boost underwriting profits.
  • Risk management has been improved, and productivity initiatives are expected to deliver greater cost efficiencies.

Company Description

Suncorp is a Queensland-based financial services conglomerate offering retail and business banking, general insurance, superannuation, and investment products in Australia and New Zealand. It also operates a life insurance business in New Zealand. The core businesses include personal insurance, commercial insurance, Vero New Zealand, and Suncorp Bank. Suncorp and competitors IAG Insurance and QBE Insurance dominate the Australian and New Zealand insurance markets.

(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

A2M’s share price jumped on the results announcement with management announcing expectations to deliver revenue growth in FY22

Stock market digital graph chart on LED display concept. A large display of daily stock market price and quotation. Indicator financial forex trade education background.

Investment Thesis

  • Inventory issue remains a downside risk but can also provide upside surprise should management work through the excess inventory in its distribution channels. It appears the inventory is at target levels for some of the key channels.
  • Wining market share in Australia and China.
  • Growing consumer demand for health and well-being globally.
  • Demand growth in China for premium infant formula product.
  • Expansion into new priority markets, aided by the capabilities of Fonterra.
  • US expansion provides new markets + opportunities.
  • Key patents provide barrier to entry.
  • Takeover target – the Company was the subject of a takeover bid in 2015.

Key Risks

  • Management fails to meet its revised FY21 guidance.
  • Chinese demand underperforming market expectations.
  • Disruption to A2 milk supply.
  • Increased competition, including private labels & competitors developing products or branding that erode the differentiation of A2M branded products from other dairy products.
  • Expiration of A2M’s intellectual property rights may weaken or be infringed by competitors.
  • Withdrawal of A2M product from international markets due to market share loss OR lack of market penetration.

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

  • Revenue: The outlook for revenue in FY22 has improved since the start of the year with the Company still expecting 2H22 revenue (including MVM) to be significantly higher than 2H21, but

with growth now expected on 1H22 and for FY22 which is ahead of initial expectations due mainly to growth in China label and English label IMF. 

  • Gross profit: The improved outlook for revenue in 2H22 should result in higher gross profit than previously expected. However, this is likely to be offset by cost of goods sold headwinds related to increasing milk, ingredient and packaging costs. Accordingly, the Company still expects 2H22 gross margin percent to be broadly similar to 1H22.
  • Earnings: “Revenue improvement is not expected to translate into higher earnings as the Company significantly increases brand and other reinvestment consistent with its growth strategy”.
  • Operational cash conversion: “is likely to be less than 100% in FY22 due mainly to the business expecting to hold higher inventory and an increase in other working capital, as well as MVM needing to make a payment to CAHG in connection with a2MC’s acquisition of its 75% interest in MVM that completed in 1H22

Company Description

The a2 Milk Company Limited (A2M) sells a2 brand milk and related products. The company owns intellectual property that enables the identification of cattle for the production of A1 protein free milk products. It also sources and supplies a2 brand milk in Australia, the UK and the US, exports a2 brand milk to China, and distributes and markets a2 brand milk and a2 Platinum brand infant nutrition products in Australia, New Zealand, and China.

(Source: Banyantree)

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

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

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

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

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

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

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

Categories
Global stocks Shares

TPW’s performance till date suggests it is well positioned to benefit from the structural tailwind behind the migration of offline to online sales

Investment Thesis

  • Operates in a large addressable market – B2C furniture and homewares category is approx. $16bn
  • Structural tailwinds – ongoing migration to online in Australia in the homewares and furniture segment. At the moment less than 10% of TPW’s core market is sold online versus the U.S. market where the penetration rate is around 25%.
  • Strong revenue growth suggests TPW can continue to win market share and become the leader in its core markets. 
  • Strong balance sheet to take advantage of any in-organic (M&A) growth opportunities, however management is likely to be very disciplined. 
  • Ongoing focus on using technology to improve the customer experience – TPW has invested in merging the online with the offline experience through augmented reality(AR).

Key Risks

  • Rising competitive pressures.
  • Any issues with the supply chain, especially because of the impact of Covid-19 on logistics, which affects earnings / expenses.
  • Rising cost pressures eroding margins (e.g., more brand or marketing investment required due to competitive pressures) Increased competition, including private labels & competitors developing products or branding that erode the differentiation of A2M branded products from other dairy products.
  • Disappointing earnings updates or failing to achieve growth rates expected by the market could see the stock price significantly re-rate lower.
  • Trading on high PE-multiples / valuations means the Company is more prone to share price volatility.

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

  • TPW delivered strong top line growth of +46% YoY for 1H22, despite experiencing some supply chain and product availability issues (which also impacted customer satisfaction metrics). Hence the growth rate would have likely been stronger. The Company also saw some inflationary pressures on product and freight, which saw 1H22 delivered margin decline to 30.5% (from 33.0% in pcp) and was in line with management’s previous guidance.
  • Advertising & Marketing costs were up +55% YoY and increased as a percentage of revenue to 13.6% (from 12.8% in pcp), driven by a step up in both performance and brand marketing. TPW’s brand awareness continues to increase, now above 60%. Management also spoke about pushing the brand awareness strategy nationally.Group contribution margin was up +18% and represents 13.8% of revenue, which is in line with management’s stated target range of 12 – 15%.
  • TPW’s ongoing investment in the business (people and technology, new growth horizons in B2B and home improvement) saw fixed cost increase YoY and hence saw EBITDA decline -19% YoY to $12.0m. Full year EBITDA margin of 5.1% was above management’s target range of 2-4% for the half, however this is expected to fall back into the range over FY22 as the full cost of the investments made in 1H22 materialize in 2H22. 
  • TPW posted the sixth straight quarter of revenue per active customer growth, which was up +10% YoY. This was driven by higher average order value and the repeat rate. 
  • (5) TPW continues to produce attractive levels of cash flow and operates
  • a negative working capital model, which continues to benefit its balance sheet strength. The
  • Company has no debt and closed the half with $105.5m in cash. 

Company Description

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

(Source: Banyantree)

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

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

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

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

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

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

ResMed has a minority stake in Nyxoah who are developing a neurostimulation implant to treat OSA

Business Strategy & Outlook

ResMed is taking a “smart devices” and Big Data approach to further entrench itself as one of the two leading players in the global obstructive sleep apnea, or OSA, market. With cloud-connected devices, physicians can monitor patient compliance and encourage continued use. Higher adherence supports both reimbursement rates from payers and the resupply of masks and accessories. ResMed also plays a key role in producing clinical data that demonstrates treatment can minimize related risks such as hypertension, stroke, heart attack and Alzheimer’s disease. Through its own testing devices and education, ResMed seeks more widespread diagnosis and treatment of OSA. The global OSA homecare device market, is a two-player duopoly with over 80% estimated market share split between ResMed and Philips, with ResMed the market leader in the majority of the 140 countries it competes in. The market offers a large global growth opportunity as penetration within developed markets is estimated at one fifth of the roughly 15% prevalence, and emerging markets are essentially untapped. In the U.S., roughly half of the 22 million people diagnosed with OSA are treated with continuous positive airway pressure, or CPAP, with another 34 million remaining undiagnosed. ResMed operates in over 140 countries with over 900 million people estimated to have sleep apnea globally, indicating the long runway for growth.

ResMed has made acquisitions of home healthcare software platforms as it seeks to leverage the trends of digital health and providing care in a lower-cost setting. Brightree, acquired in 2016, and MatrixCare, acquired in 2019, offer business management software for a range of home health providers. ResMed is currently directing significant capital to this area, and although high returns have largely been unproven, the move has been strategically sound given the structural industry tailwinds. ResMed has a minority stake in Nyxoah who are developing a neurostimulation implant to treat OSA. Although there’s a little near-term risk from this therapy due to the higher cost and invasive surgery needed, ResMed’s minority stake hedges some risk from emerging competition.

Financial Strengths

ResMed is in a strong financial position. Free cash flow conversion of earnings prior to acquisition spending has averaged 91% over the last five years and has allowed ResMed to quickly repay the debt funding its acquisitions. At the end of fiscal 2022, ResMed reported USD 502 million in net debt representing net debt/EBITDA of only 0.4 times. Free cash flow to grow to USD 1,558 million by fiscal 2027 from USD 88 million in fiscal 2022, and in the absence of major acquisitions, the company should be in a net cash position by fiscal 2025. ResMed commenced paying a dividend in fiscal 2013 and doesn’t have a fixed payout ratio policy. A 28% payout ratio is lower than the trailing three-year average of 31% of underlying net income mainly due to ResMed’s significant uplift in earnings. The dividends are to grow at a five-year 14% CAGR versus a trailing five-year CAGR of 5%, and ResMed is likely to seek optionality for further acquisitions in the software-as-a-service segment.

Bulls Say

  • The long-term growth opportunity for respiratory homecare devices is sizable as both developed and emerging markets are still significantly underpenetrated.
  • The focus on cloud-connected devices has led to increased adherence, supporting both reimbursement rates and the resupply of masks and accessories.
  • ResMed stands to benefit from Philips’ significant product recall and the launch of its new flagship product, AirSense 11.

Company Description

ResMed is one of the largest respiratory care device companies globally, primarily developing and supplying flow generators, masks and accessories for the treatment of sleep apnea. Increasing diagnosis of sleep apnea combined with aging populations and increasing prevalence of obesity is resulting in a structurally growing market. The company earns roughly two thirds of its revenue in the Americas and the balance across other regions dominated by Europe, Japan and Australia. Recent developments and acquisitions have focused on digital health as ResMed is aiming to differentiate itself through the provision of clinical data for use by the patient, medical care advisor and payer in the out-of-hospital setting.

(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

SUL was able to navigate the extended period of store lockdowns due to Covid via omni-retail execution

Investment Thesis

  • Trading below the valuation and on attractive trading multiples and dividend yield.
  • Strong tailwinds/fundamentals in SUL’s four core segments. For instance, sales for vehicle aftermarket continue to remain strong (with increase in secondhand vehicle sales (Supercheap); travelers seeking social distancing and hence moving away from public transport (Supercheap); with Covid lockdown measures in forced, more people are spending their holidays domestically (BCF; macpac), utilizing their vehicles (Supercheap); growing awareness of fit and healthy lifestyles (rebel).
  • Solid capital position.
  • Strong brands in BCF, macpac, rebel and Supercheap with solid industry positions in largely oligopolies and solid store network.
  • Transitioning to an omni-channel business. Whilst previously the business has been modeled on like-to-like store numbers, management now thinks of business metrics based on club members and has been able to grow the active club membership much faster than store numbers (store numbers in last 5 years have grown +2% CAGR vs active club members at +10% CAGR), providing it with an opportunity to expand customer base and therefore revenue base without significant capex for investment in stores (most of the customers are omni channel). Management continues to push towards expanding its online sales (Covid-19 added to this tailwind), with online sales penetration of ~13-15% of total sales currently and expected to reach 20-25% over the next 5 years.
  • Attractive loyalty members program, with over 8 million members.

Key Risks

  • Rising competitive pressures.
  • Any issues with supply chain, especially as a result of the impact of Covid-19 on logistics, which affects earnings.
  • Rising cost pressures eroding margins (e.g., more brand or marketing investment required due to competitive pressures).
  • Disappointing earnings update or failing to achieve growth rates expected by the market could see the stock price significantly re-rate lower.

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

  • Sales of $1,705.1m was down -4.0% vs 1H21 but up +18.1% vs 1H20.
  • Segment EBITDA of $329.4m was down -21.2% vs 1H21 but up +27.0% vs 1H20. 
  • As a result of supply chain disruption, SUL’s gross margin of 46.7% was 100 bps below pcp but 170 bps above 1H20, driven by improved sourcing, pricing and tailoring the range of inventory, offset by higher freight and transport costs, growth in home delivery sales and some normalization of promotional activity in 2Q22.
  • Normalised NPAT of $112.8m was down -35.8% vs 1H21 but up +60.9% vs 1H20 (Normalised EPS of 49.9 cents). 
  • SUL was able to expand its store network, completing 15 new store openings and 28 refurbishments and relocations. 
  • SUL maintains a conservative balance sheet with no bank debt and $94m cash balance.
  • The Board declared a fully franked interim dividend of 27.0cps and reaffirmed its dividend policy to pay out total annual dividends of between 55% and 65% of underlying NPAT. 

Company Description

Super Retail Group (SUL) is one of Australasia’s Top 10 retailers. SUL comprises four core segments. 

(1) BCF: Australia’s largest outdoor retailer focused on selling Boating, Camping and Fishing products. (2) macpac: retailer of apparel and equipment with their own designs focused on outdoor adventurers.

 (3) rebel: retailer of branded sporting and leisure goods and equipment for casual and serious fitness enthusiast. 

(4) Supercheap Auto: specialty retail business which specializes in automotive parts and accessories.

(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.