Market leading position (significantly ahead of the nearest competitor).
Growing global trade and increasingly globalization of products sold.
High degree of revenue visibility and low customer annual attrition rates.
R&D spend will ensure product/services are enhancing WTC products. WTC’s vision is to be the operating system for global logistics. Having completed 39 acquisitions since its IPO in 2016, WTC has assembled significant resources and development capabilities to fuel its CargoWise technology pipeline.
Scalability of the business model.
Geopolitical tensions considered by management as “tailwinds” due to higher consolidation of the logistics software industry.
Key Risks
Company announces another earnings downgrade.
Organic growth could moderate further, which may no longer warrant such a lofty valuation. However, organic growth has improved over FY19.
Management noting that revenues from recent acquisitions actually declined and offered little margin. This means the return from these acquisitions could take longer than management’s expectations.
Competitive threat (new product/technological advancements).
Disruption to technology (data breach).
Adverse currency movements.
1H22 Results: Relative to the pcp:
1H22 Total Revenue of $281.0m, up +18% (+22% ex FX) on 1H21.
CargoWise revenue was up +29% (+33% ex FX) to $193.0m, driven by Large Global Freight Forwarder rollouts, new customer wins, price and increased existing customer usage.
Acquisition (non-CargoWise) revenue of $87.9m, down -1% (up +2% ex FX).
Market penetration momentum continuing – two new global rollouts secured in 1H22 – FedEx and Access World – and Brink’s Global Services (Brink’s) signed post 31 December 2021.
Ongoing product development delivered 589 CargoWise new product features and enhancements and continued expansion of the CargoWise ecosystem.
Organization-wide efficiency and acquisition synergy program well-progressed – $20.2m of gross cost reductions in 1H22 (net benefit $19.7m).
EBITDA of $137.7m up +54% driven by revenue growth and cost reductions. Margin of 49%, up 12bps. CargoWise’s 1H22 EBITDA margin of 58% represents an increase of 4pp on 1H21.
Underlying NPAT of $77.3m, up +77%.
WTCgenerated strong free cash flow of $90.3m, up +85%.
WTC retained a strong balance sheet, with cash as at 31 December 2021 of $380.3m and no outstanding debt excluding lease liabilities. WTC has an undrawn, unsecured, four-year, $225m, bi-lateral debt facility, to fund future growth.
WTC’s Board declared a fully franked interim ordinary dividend of 4.75cps, which equates to payout ratio of 20% of Underlying NPAT.
Company Profile
WiseTech Global (WTC), founded in October 1994, is a leading provider of software to the logistics services industry globally. WTC develops, sells and implement software solutions that enable logistics service providers to facilitate the movement and storage of goods, domestically and internationally. WTC’s software assists their customers to better address and adapt to the complexities of the logistics industry while increasing their productivity, reducing costs and mitigating risks. WTC services over 6,000 customers across more than 115 countries with offices in Australia, New Zealand, China, Singapore, South Africa, United Kingdom and the United States.
(Source: Banyantree)
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.
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.
1H22 Results Highlights
Revenue was marginally lower, down -2.5% to $661m but in line with guidance, and up +24.8% on 2H21, due to (i) China label IMF sales were constrained in 1Q22 to rebalance distributor inventory levels with sales falling -11.4% for 1H22 vs pcp; (ii) English and other label IMF sales fell -9.8% in 1H22 vs pcp with lower market share; (iii) ANZ liquid milk sales were up with higher market share, while U.S. liquid milk sales were down.
EBITDA fell -45.3% to $97.6m due to lower revenue and gross margin as well as a +37.3% increase in marketing investment vs pcp. EBITDA margin of 14.8% in 1H22 (17.3% ex-MVM) was weaker versus 26.4% in 1H21. Gross margin percentage fell to 46.2% (with underlying gross margin of 50.7% excluding MVM), due to inclusion of MVM, adverse product mix and cost headwinds (especially raw milk and freight costs), partially offset by price increases.
NPAT including non-controlling interest was down -53.3% to $56.1m.
Balance sheet remains strong with closing net cash of $667.2m due to high operational cash conversion during 1H22. Inventory at the end of the period was $127.9m, higher than at the end of FY21, due to the inclusion of MVM.
A2M noted the Mataura Valley Milk (‘MVM’) acquisition and strategic partnership with China Animal Husbandry Group (‘CAHG’) was completed in July 2021 and fully consolidated into the results.
Company Profile
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: BanayanTree)
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.
Portrait of handsome man smiling and listening to female manager while discussing contract in meeting, copy space
Investment Thesis
Trading below our 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 second hand vehicle sales (Supercheap); travellers 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), utilising their vehicles (Supercheap); growing awareness of fit and healthy lifestyles (rebel).
Solid capital position.
Strong brands in BCF, macppac, 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 modelled 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.
1H22 Results Highlights
Relative to the pcp:
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 normalisation 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 Profile
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) SupercheapAuto: specialty retail business which specialises in automotive parts and accessories.
(Source: Banyantree)
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.
With divestitures of Stubhub, eBay Classifieds, and Gmart largely in the rearview mirror, eBay’s business looks remarkably similar to its genesis: a customer-to-customer e-commerce platform connecting hundreds of millions of buyers and sellers worldwide, with an emphasis on non-new, seasoned goods. The core eBay Marketplace business should have plenty of room to run, considering management’s estimated $500 billion total addressable market for non-new, seasoned goods, and could benefit from swelling interest in resale markets and a strong pull-forward in e-commerce demand in 2020 and 2021.
eBay’s Marketplace generated the sixth-highest gross merchandise volume, or GMV, among global players in 2021, and renewed attention by management in core verticals like collectibles, used and refurbished goods, liquidation inventory, premium shoes, and luxury jewelry–often products without a benchmark average sales price, or ASP, index (limiting price comparison pressure and leaning into the marketplace’s edge in price discovery)-appears clever. The eBay’s, 147 million active buyer base, and recent platform improvements (including managed payments, promoted listings, and inventory management services) should prove sufficient to solidify advantages in many targeted verticals.
Financial Strength:
eBay’s financial health is sound. The company has access to a $1.5 billion commercial paper facility and a $2 billion line of credit represent attractive backstops, particularly when considering that the firm maintained only $4.2 billion in net debt at the end of 2021, with a further $5.8 billion available in short-term investments. eBay’s highly free-cash-flow generative business model, comfortable coverage of interest payments (7.8 times over the same period), and investment-grade credit rating suggest that the firm should have no trouble meeting its fixed obligations.
Management again raised its buyback facility again in the fourth quarter of 2021, to $6 billion from $2 billion prior. With $1.6 billion in cash and equivalents on the balance sheet at the end of 2021, eBay maintains a bulletproof balance sheet, with substantial flexibility to meet fixed interest and principal payments, invest in attractive internal investment opportunities, and return a generous amount of capital to shareholders through share repurchases and dividends.
Bulls Say:
The firm’s managed payments rollout executed seamlessly, and offers optionality for auxiliary financial services down the line.
Recent successes in higher-touch luxury resale and collectibles categories offer a blueprint for sustained growth in the C2C marketplace.
The addition of auction-based items and offsite advertising could catalyze better sell-through rates and monetization in the promoted listings business.
Company Profile:
eBay operates one of the largest e-commerce marketplaces in the world, with $87 billion in 2021 gross merchandise volume, or GMV, rendering the firm the sixth-largest global e-commerce company. eBay generates revenue from listing fees, advertising, revenue-sharing arrangements with service providers, and managed payments, with its platform connecting more than 147 million buyers and roughly 20 million sellers across almost 190 global markets. eBay generates just north of 50% of its GMV in international markets, with a large presence in the U.K., Germany, and Australia.
(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.
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Business Strategy and Outlook
VMware, a pioneer of virtual machines, dominates the maturing data center server virtualization market. With organizations prioritizing cloud over on-premises computing infrastructure, it is seen VMware’s robust cloud provider partnerships, including the hyperscalers, should help the firm handle the changing market landscape. It is anticipated VMware’s growth to come from being the glue between computing infrastructures, networking locations, and burgeoning security and developer offerings being bolstered from its strong end user compute portfolio.
Analysts’ view of cloud networking, akin to VMware’s assessment, is that most enterprises will utilize hybrid cloud solutions. Public clouds can precipitously augment network growth but enterprises face integration complexities among on-premises networks and private and public clouds. Beyond hyperscale cloud provider partnerships, VMware’s Cloud Provider Program offers thousands of cloud partners collaborating with VMware software. In Analysts’ view, this allows VMware to remain ingrained in networks while becoming the commonality between private and public clouds. It is held the November 2021 spin-off from Dell Technologies put an end to an uncertain future around VMware, and that growth can accelerate through VMware’s integration with cloud vendors and cadence of product releases outside of Dell’s umbrella. With solid free cash flow and growth opportunities, it is foreseen its $11.5 billion special dividend, to all shareholders, as part of the spin-off was worth the price of becoming a stand-alone entity.
VMware’s vSphere and ESXi hypervisor are virtualization gold standards, and its hybrid cloud platform creates a consolidated view across multicloud environments. It is projected the company’s strong franchises within end user compute, security, and virtualized networking and storage can be overlooked, and support growth ventures such as VMware’s integration of Kubernetes-based container management within vSphere. It is likely, software cohesion across on-premises and clouds along with nascent networking products should give VMware sustainable growth.
Financial Strength
It is held VMware a financially stable company that should continue generating strong free cash flow. The company’s main expenditures are in the forms of developing product innovations and marketing efforts. VMware’s R&D expenditures are in the low 20s as a percentage of revenue while sales and marketing expenditures are in the low 30s. In the past, VMware has bolted on firms to bolster its presence in focus growth areas, and it is projected organic developments to be supplemented with future acquisitions. As of the end of fiscal 2022, VMware had $3.6 billion in cash and equivalents, and it is anticipated the company will pay its debts on time.VMware completed its first special dividend of $11 billion in December 2018, which helped Dell Technologies facilitate an exchange of Dell Class V tracking stock (DVMT) for a new class of Dell Technologies Class C common stock or a cash buyout option for shareholders. As part of becoming an independent company and spinning off from Dell, VMware paid special dividends worth $11.5 billion and retained an investment-grade credit rating. Although VMware raised capital to help pay the special dividend, it is likely to quickly lower its obligations through cash on hand and its robust free cash flow generation.
Bulls Say’s
VMware’s hybrid cloud program could yield tremendous growth if VMware is cemented as the dominant software supplier between private and public clouds. Its presence in hyperscale public cloud networks could make it the de facto virtualization choice.
Product leadership in application management, enduser computing, cybersecurity, and software-defined networking provides robust growth opportunities beyond core virtualization.
VMware can more tightly integrate itself with Dell peers as a stand-alone company, while also benefiting from its Dell commercial contract and their salesforce.
Company Profile
VMware is an industry leader in virtualizing IT infrastructure and became a stand-alone entity after spinning off from Dell Technologies in November 2021. The software provider operates in the three segments: licenses; subscriptions and software as a service; and services. VMware’s solutions are used across IT infrastructure, application development, and cybersecurity teams, and the company takes a neutral approach to being the cohesion between cloud environments. The Palo Alto, California, firm operates and sells on a global scale, with about half its revenue from the United States, through direct sales, distributors, and partnerships.
(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.
CGF is trading on fair valuation, with a 2-yr forward PE-multiple of 14.3x and price-to-book value of 1.0x.
Exposure to an attractive retirement income market, with strong long-term growth tailwinds.
Near-term challenges are likely to be priced in at current valuations, in our view, with investor expectations reset lower.
Solid capital position.
Further cost initiatives leading to reduction in the already low cost-to-income ratio.
Two complementary businesses both with leading market positions.
Key Risks
Weaker than expected annuity sales growth within its Life (annuity) segment.
Structural and reputational detriments from the Royal Commission lasting longer than anticipated.
Any increase in competition from major Australian banks in annuities.
Weaker than expected net inflows for the Funds Management segment (possibly from lower interest levels from financial planners/advisers/investors).
Weaker than expected performance of boutique funds within its Funds Management segment.
Lower investment yields.
Uncertainty over capital requirements of deferred lifetime annuities.
Fund Management
EBIT increased +28% to $45m driven by +26.4% increase in FUM-based fee income with average FUM up +26% and a steady FUM-based margin of 16.7bps, partially offset by -50% decline in performance fees and +15% increase in expenses. Funds Management ROE increased +600bps to 33.8%.
FUM increased by +20% to $109bn, with net flows reaching $900m, reflecting a strong contribution from retail clients, with momentum continuing into the start of 2H22 with the business securing a GBP1bn UK fixed income mandate.
Investment performance remained strong with 92%, 96% and 94% of FUM outperforming the benchmark over 3 years, 5 years and since inception, respectively.
Company Profile
Challenger Ltd (CGF) is an Australian-based investment management firm managing $78.4 billion in assets as of December 2018. CGF operates two core segments: (1) a fiduciary Funds Management division; and (2) APRA-regulated Life division. Challenger Life Company Ltd (Challenger Life) is Australia’s largest provider of annuities.
(Source: BanyanTree)
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.
MP1 is a global Software Defined Network provider, focusing on cloud connectivity. As such, the Company is leveraged to the rapid growth of global cloud and data centres and is in a strong position to benefit from the rollout to new cloud and data centre regions. Key macro tailwinds behind MP1’s sector: (1) adoption of cloud by new enterprises; (2) increased level of investment and expenditure by existing customers; and (3) more and more enterprises looking to use multiple cloud products/providers, which works well with MP1’s business model.
MP1 has a scale advantage over competitors. MP1 has over 600 locations around the globe. MP1 has significant scale advantage over competitors and whilst replicating this scale is not necessarily the difficult task, it will take several years to do so during which time MP1 will continue to add locations and customers using the scale advantage.
Strong R&D program ensuring MP1 remains ahead of competitors.
Strong cash balance of $104.6m.
Strong relationship with data centres (DC). MP1 has equipment installed in 400 data centres, so MP1 is a customer of data centres. MP1 also drives DCs interconnection revenue. Whilst several data centres like NEXTDC, Equinix provide SDN (Software Defined Network) services, it is unlikely data centres will look to change their relationship with (or restrict) MP1 given they are designed to be neutral providers to network operators. Further, given MP1’s existing customer base and connections with cloud service providers, it would be very difficult for data centres (without significant disruption to customers/cloud service providers) to change the rules for MP1.
Key Risks:
High level of execution risk (especially with respect to development).
Revenue, cost and product synergies fail to eventuate from the InnovoEdge acquisition.
Heavy reliance on third party partners (especially data centre providers and cloud service providers).
Data centres like NEXTDC, Equinix provide SDN services and decide to restrict MP1 in providing their services.
Disappointing growth (in terms of expanding data centre footprint, customers, ports, Megaport Cloud Router).
Key highlights:
(1) Revenue increased +42% over pcp to $51.2m, driven by increased usage of services across all regions, with North America delivering strongest growth across all regions, increasing +55% over pcp, followed by Europe (+35% over pcp) and Asia Pacific (+28% over pcp). Monthly recurring revenue (MRR) increased +46% over pcp to $9.2m, driven by strong customer growth compounded with a 5% increase over pcp in services per customer.
(2) Profit after direct costs improved +69.4% over pcp to $30.9m, driven by revenue growth and a controlled network cost.
(3) Opex increased +42% over pcp with employee costs increasing +40% over pcp amid investment in headcount to support business growth (employee costs as a percentage of revenue declined -100bps over pcp to 55%), marketing (+126% over pcp) and travel (+1481% over pcp) costs increasing amid a gradual return of travel and conference activities following global easing of Covid-19 restrictions, and IT costs increasing +106% over pcp due to expensing of Software as a Service (SaaS) costs, previously capitalised, following a change in accounting policy.
(4) The Company achieved 2,455 customers (up +7.4% over 2H21) across 768 Enabled Data Centres (420 located in North America, 208 in EMEA and 140 in Asia Pacific).
(5) The Company ended the half with cash and equivalents position of $104.6m, down -23.2% over 2H21.
Company Description:
Megaport Ltd (MP1) is a software-based elastic connectivity provider – that is, it is a global Network as a Service (NaaS) provider. MP1 develops an elastic connectivity platform providing customers interconnectivity and flexibility between other networks and cloud providers connected to the platform.
(Source: Banyantree)
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.
The philosophy of the team is to identify mispricing within sectors and securities, allocating active risk in areas in which it has conviction while ensuring the portfolio remains diversified to avoid singular themes being pervasive through the portfolio. The team takes account of global macro insight from the global investment strategy committee and overlays its domestic market knowledge to come up with a base-case expectation looking forward six to nine months depending upon its conviction. In addition to this, the team develops multiple upside and downside scenarios as a risk-management framework. Based on the base case, the team engages in quantitative and qualitative analysis to determine sector allocation. The quant component is where the team will look at historical and relative spread comparison within and across sectors. The outcomes of this analysis are then overlaid by qualitative insight considering technical demand, credit, and liquidity dynamics. The culmination of this analysis in conjunction with the base-case expectation guides the actual portfolio positions. The fund looks to invest across government, semi government, supranational, credit, inflation-linked bonds, securitised assets, and cash. The team is clear about allocating only active positions where it has a high degree of conviction and an expected positive reward profile. Holdings are disclosed daily. BNDS runs as a separate vehicle to the flagship unlisted fund and has some additional restrictions on the amount of residential mortgage-backed securities it can hold owing to requirements on holdings being issued by a listed entity.
Portfolio:
The portfolio can invest across government, semi government, supranational, credit, securitised assets, inflation-linked bonds, and cash. As of November 2021, more than 40% of the portfolio was invested in investment-grade corporate bonds, around 25% in semi government issues, 20% in government, 10% in supranational, with a small amount of mortgage-backed and asset-backed securities. This allocation has been relatively consistent over time, and cash levels have been low, generally a few percentage points, even in times of stress like the early-2020 market plummet. Relative to the Bloomberg AusBond Composite Index, the fund has been long underweight in government bonds, choosing instead to invest more broadly across spread assets. Given the fund’s constraints, the overall portfolio remains high-quality, with 35% of assets in AAA rated issues, no allocation below investment-grade, and a weighted average credit rating of AA-. Portfolio manager Anthony Kirkham and the Western team have historically been opportunistic within their mandate, though duration is kept within plus or minus 1.0 year relative to the benchmark. Active duration moved short relative to the benchmark around mid-2021 but came back in line with the index around yearend. Like most Australian bond managers, they entered 2021 overweight in credit, indicative of their opportunistic profile. Susquehanna Financial Group is the primary market maker, and bid-ask spreads have remained respectable over its relatively short life, moderately higher than passive Australian bond ETFs, which is to be expected. This vehicle contained about AUD 190 million in February 2022 and can be used as a core defensive allocation.
People:
The fund is managed by a seasoned team of investors who remain dedicated to this strategy. The team is led by Anthony Kirkham, who has had more than 30 years of wider experience, including nearly two decades at Western Asset Management, and leading this strategy since 2002. Kirkham has credit analyst, dealer, and portfolio manager experience working for Commonwealth Bank, Metway Bank, RACV Investments, and Citigroup. He is supported by Damon Shinnick, who is a portfolio manager with a focus on credit portfolios. Shinnick has 22 years of experience within the industry including 11 years at the firm. Shinnick has also held an array of portfolio manager roles previously at Challenger Financial, Lehman Brothers, Pension Corporation LLP, and HSBC. Craig Jendra is also a key member of the team, joining Western in 1996 and being promoted to portfolio manager in 2000. Jendra has 25 years of industry experience with previous roles at Citigroup and JPMorgan. The three portfolio managers are supported by analyst Sean Rogan, who joined in 2002 and has 32 years’ industry experience; dedicated investment dealer Anthony Francis; and portfolio analyst Lawrence Daly, who ensures risk characteristics are maintained and adhered to. Together, the group boasts more than 25 years’ industry experience and is among the most impressive in its peer group.
Performance:
BNDS began in November 2018. It has closely tracked its equivalent unlisted fund strategy, Western Asset Australian Bond, over that span. The long-running unlisted fund has done well over the long term, especially compared with peers. It has delivered returns above the Bloomberg AusBond Composite Index, net of fees, over the past decade. That is ahead of its target return of 75 basis points (gross of fees) over the benchmark and market cycle. A tracking error of 100 basis points is targeted. Perhaps more impressive, though, is that these results put the strategy’s flagship A share class in the first quartile of its Morningstar Category over the trailing three, five, and 10 years to December 2021. Sector allocations and credit exposure continue to drive performance. Most of the outperformance has stemmed from the fund’s allocation to higher-spread assets in lieu of government bonds, especially credit. To put this into context, the portfolio has had around 40%-50%exposure within credit since 2002. Adding the strategy’s allocation to supranationals to the mix, this exposure goes up to almost 60%. While this increases the strategy’s exposure to wider credit spreads, it remains high quality, and the majority of it is shorter-dated to control for spread risk. Owing to the mandate restrictions, the fund can’t and doesn’t take large-duration bets. Duration was the second largest contributor to the portfolio in 2021, but has been a small negative attributor over the long term, largely a result of the fund’s short-duration bias in an environment of shrinking bond yields.
(Source: Morningstar)
Price:
It’s critical to evaluate expenses, as they come directly out of returns. The share class on this report levies a fee that ranks in its Morningstar category’s middle quintile. That’s not great, but based on our assessment of the fund’s People, Process and Parent pillars in the context of these fees, we think this share class will still be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Analyst Rating of Silver.
(Source : Morningstar)
About Funds:
BetaShares Western Asset Aus Bd ETF BNDS is a compelling choice for domestic fixed-interest exposure owing to its best-in-class team and straightforward approach. BNDS provides daily holdings to the market and has grown steadily since it began in November 2018 with active external market makers. Anthony Kirkham, head of investment/portfolio manager, is the leader of this strategy, and we have high regard for his investment knowledge and skills. Kirkham is supported by an experienced investment team, consisting of Craig Jendra and Damon Shinnick, co-portfolio managers, and Sean Rogan, research analyst. The stability of this group and quality of the research are impressive. There’s appeal to the strategy’s simplistic and relatively conservative investment process, which seeks mispriced domestic fixed-interest securities within various sectors. Sector and issuer limits are applied to help damp volatility in different environments. Still, sector allocation and issuer selection has been strong over the past decade, emphasising the team’s rigourous analysis in these areas. However, this can be a hindrance if yields rise unexpectedly. That said, the portfolio’s active duration was moved around judiciously and contributed strongly in 2021, a testament to the team’s ability to interpret and capitalise on shifting economic conditions. The track record here has also been consistent and solid over multiple time frames, and the annual 0.42% fee is competitive relative to peer
(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.
Lead manager Joe Higgins continues the thoughtful relative value approach that has been in place both here and on his other charge, TIAA-CREF Core Bond TIBDX. This strategy earns an Above Average Process Pillar rating. Higgins has the ultimate authority in ensuring what holdings go into the portfolio but draws heavily on the strength and expertise offered by the sector managers, analysts, and macroeconomic strategists in identifying relative value opportunities across the fixed-income universe. The strategy can invest in everything from corporate bonds and mortgages to municipal bonds and emerging-markets debt, with the higher-risk sectors like high-yield bonds, bank loans, and emerging-markets debt ranging between 10% and 30% depending on the team’s outlook and risk appetite. The strategy has avoided taking extreme positions in any of those areas and has generated its alpha from a variety of sources instead of relying on any one area. This approach has benefited investors through steady-as-it-goes performance rather than wild swings based on drastic portfolio shifts, and it has worked through a variety of market environments.
Portfolio:
As of December 2021, the portfolio’s largest exposures were to investment-grade corporate bonds (24.2% of assets), agency mortgage-backed securities (18.6%), and emerging-markets debt (10.2%). The emerging markets exposure rarely if ever broke double-digit threshold, but its allocation has been on the upswing since March 2020 given the portfolio managers’ belief in its ability to outperform over the long term. The emerging markets’ relative lack of direct correlation to domestic corporate moves, as well as premium on offer from new issuance, make them attractive. This overweighting also makes sense to the managers in context of a rising rate environment, as they seek refuge in assets that are not hypersensitive to rate increases. That 10.2% stake in emerging-markets debt is almost 4 times the category peer median, though, and about half of it is rated below-investment-grade. Coupled with 5.6% in high-yield corporates, 4.3% in nonagency mortgages, and 2.7% in senior loans, the “plus” sector exposure of this portfolio amounted to 22.7% at the end of December 2021. This edges toward the higher half of the 10%-30% “plus” budget and represents increased credit risk, but the strategy’s yield (a proxy for risk) has hugged quite closely to the peer median in the past couple of years, indicating a reasonable level of risk-taking.
People:
Joe Higgins, who replaced long time lead manager Bill Martin at the end of 2020, is a seasoned and capable manager supported by three experienced comanagers and a robust analyst team. The strategy earns an Above Average People Pillar rating. Higgins had been leading the Core strategy since 2011, has been with the firm since 1995, and was previously sector lead on asset-backed securities and commercial mortgage-backed securities. He is supported by the same trio of comanagers that backed Bill Martin: government specialist John Cerra, high-yield leader Kevin Lorenz, and emerging-markets expert Anupam Damani. They are backed by a robust investment team that continues to expand following the legacy Nuveen and Symphony merger. The organization now boasts considerable firepower, with 43 portfolio managers and 60 analysts spread across the fixed-income platform. Even though Higgins has the ultimate decision-making power for this strategy, he draws on the strength and expertise of the sector managers in allocating capital to portfolios per mandate requirements. As such, the whole team provides input to help with portfolio construction, and often the managers’ portfolios will rhyme with each other. Additionally, the introduction of an investment committee and strategy groups provided more formalized structures for manager discussions and viewpoint sharing.
Performance:
The strategy under Joe Higgins’ tenure has bested almost 70% of distinct peers in the intermediate core-plus bond category, keeping up with the record his predecessor Bill Martin set during his tenure from September 2011 to December 2020. Over that period, the Institutional share class returned 4.5% annualized and outpaced roughly two thirds of peers. While lagging performance punctuated this record at various points, most notably in March 2020, by and large “measured consistency” was the characteristic on display for this strategy’s performance. Following the rough showing in early 2020 when the strategy lost 8%, almost 200 basis points more than the peer group median, the strategy experienced more bumps all throughout 2021 as rate volatility had a negative impact on mortgage holdings. On the plus side, the strategy had an underweighting in agency mortgages relative to the benchmark (18.6% versus 27.4% at year-end) so the hit was less severe, and an overweighting in high-yield corporates relative to the bogy (5.6% versus 0%) proved rewarding given robust economic conditions.
(Source: Morningstar)
Price:
It’s critical to evaluate expenses, as they come directly out of returns. The share class on this report levies a fee that ranks in its Morningstar category’s cheapest quintile. Based on our assessment of the fund’s People, Process and Parent pillars in the context of these fees, we think this share class will be able to deliver positive alpha relative to the category benchmark index, explaining its Morningstar Analyst Rating of Bronze.
(Source : Morningstar)
About Funds:
TIAA-CREF Core Plus Bond has an experienced lead manager and the solid process remains intact, while the expansive supporting cast has only broadened. The strategy’s Institutional and Advisor share classes earn a Morningstar Analyst Rating of Silver, while the more-expensive share classes are rated Bronze. The W share class, which does not charge a fee, is unrated. Veteran manager Joe Higgins, who has led the sibling strategy TIAA-CREF Core Bond TIBDX since 2011, took over this strategy at the end of 2020 when long time lead manager Bill Martin retired. Higgins was a natural replacement given that he had been running a similar, more-conservative mandate. He is supported by the same trio of comanagers that backed Martin: government specialist John Cerra, high-yield leader Kevin Lorenz, and emerging-markets expert Anupam Damani. All told, Nuveen’s robust taxable fixed-income group boasts more than 100 portfolio managers, analysts, and traders that help Higgins fulfil his mandate. The strategy’s solid process remains unchanged and peppered with measured risk-taking. Higgins and team execute a relative value process that incorporates a broad opportunity set, with the bulk of assets in investment-grade securities and a smaller subset in higher-risk “plus” sectors like high-yield bonds, bank loans, and emerging-markets debt that will typically amount to 10%-30% of assets depending on Higgins’ outlook and allocation decisions.
(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.
The concept of 5G network with magnifying glass on modern circuit board, high-speed mobile internet and new generation networks technology background
Investment Thesis:
MP1 is a global Software Defined Network provider, focusing on cloud connectivity. As such, the Company is leveraged to the rapid growth of global cloud and data centres and is in a strong position to benefit from the rollout to new cloud and data centre regions. Key macro tailwinds behind MP1’s sector: (1) adoption of cloud by new enterprises; (2) increased level of investment and expenditure by existing customers; and (3) more and more enterprises looking to use multiple cloud products/providers, which works well with MP1’s business model.
MP1 has a scale advantage over competitors. MP1 has over 600 locations around the globe. MP1 has significant scale advantage over competitors and whilst replicating this scale is not necessarily the difficult task, it will take several years to do so during which time MP1 will continue to add locations and customers using the scale advantage.
Strong R&D program ensuring MP1 remains ahead of competitors.
Strong cash balance of $104.6m.
Strong relationship with data centres (DC). MP1 has equipment installed in 400 data centres, so MP1 is a customer of data centres. MP1 also drives DCs interconnection revenue. Whilst several data centres like NEXTDC, Equinix provide SDN (Software Defined Network) services, it is unlikely data centres will look to change their relationship with (or restrict) MP1 given they are designed to be neutral providers to network operators. Further, given MP1’s existing customer base and connections with cloud service providers, it would be very difficult for data centres (without significant disruption to customers/cloud service providers) to change the rules for MP1.
Key Risks:
High level of execution risk (especially with respect to development).
Revenue, cost and product synergies fail to eventuate from the InnovoEdge acquisition.
Heavy reliance on third party partners (especially data centre providers and cloud service providers).
Data centres like NEXTDC, Equinix provide SDN services and decide to restrict MP1 in providing their services.
Disappointing growth (in terms of expanding data centre footprint, customers, ports, Megaport Cloud Router).
Key highlights:
(1) Revenue increased +42% over pcp to $51.2m, driven by increased usage of services across all regions, with North America delivering strongest growth across all regions, increasing +55% over pcp, followed by Europe (+35% over pcp) and Asia Pacific (+28% over pcp). Monthly recurring revenue (MRR) increased +46% over pcp to $9.2m, driven by strong customer growth compounded with a 5% increase over pcp in services per customer.
(2) Profit after direct costs improved +69.4% over pcp to $30.9m, driven by revenue growth and a controlled network cost.
(3) Opex increased +42% over pcp with employee costs increasing +40% over pcp amid investment in headcount to support business growth (employee costs as a percentage of revenue declined -100bps over pcp to 55%), marketing (+126% over pcp) and travel (+1481% over pcp) costs increasing amid a gradual return of travel and conference activities following global easing of Covid-19 restrictions, and IT costs increasing +106% over pcp due to expensing of Software as a Service (SaaS) costs, previously capitalised, following a change in accounting policy.
(4) The Company achieved 2,455 customers (up +7.4% over 2H21) across 768 Enabled Data Centres (420 located in North America, 208 in EMEA and 140 in Asia Pacific).
(5) The Company ended the half with cash and equivalents position of $104.6m, down -23.2% over 2H21.
Company Description:
Megaport Ltd (MP1) is a software-based elastic connectivity provider – that is, it is a global Network as a Service (NaaS) provider. MP1 develops an elastic connectivity platform providing customers interconnectivity and flexibility between other networks and cloud providers connected to the platform.
(Source: Banyantree)
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.
Laverne Securities Pty Ltd, ACN 629 216 477, T/As Investor Desk, is a Corporate Authorised Representative of Laverne Capital Pty Ltd (AFSL 482937). This service is administered by OpenInvest Limited ACN 614 587 183 via the OpenInvest Portfolio Service ARSN 628 156 052. This website provides factual information about the service, and any general advice contained does not take into account your objectives, financial situation or needs. Before making any investment decision, please review the PDS and Target Market Determination available at https://www.investordesk.com.au/key-documents/. Should you require assistance in determining whether an investment in the service is right for you, you may wish to seek personal advice from an appropriately licensed financial adviser.
