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Global stocks Shares

ARB Corporation Ltd reported strong 1H22 results, reflecting strong sales and earnings growth

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Investment Thesis

  • Experienced management team and senior staff with a track record of delivering earnings growth.  
  • Strong balance sheet with little leverage.
  • Strong presence and brands in the Australian aftermarket segment.
  • Growing presence in Europe and Middle East and potential to grow Exports.
  • Growth via acquisitions
  • Current trading multiples adequately price in the near-term growth opportunities.

Key Risks

  • Higher than expected sales growth rates. 
  • Any delays or interruptions in production, especially in Thailand which happens on an annual basis.
  • Increased competition in the Australian Aftermarket especially with competitors’ tendency to replicate ARB products.
  • Slowing down of demand from OEMs. 
  • Poor execution of R&D.
  • Currency exposure

1H22 result highlights

Relative to the pcp: 

  • Sales of $359m, up +26.5%, underpinned by solid customer demand across all segments. Sales Margin was maintained. 
  •  Profit after tax of $68.9m, and NPAT of $92.0m, were both up +27.6% relative to the pcp. 
  • The Board declared an interim fully franked dividend of 39.0cps compared with 29.0cps fully franked last year. Dividend payout ratio of 46% was higher than the 43% ratio in the pcp. 
  • Net cash provided by operating activities of $28.6m in 1H22, was driven by the profit after tax of $68.9m, offset by higher inventory holdings of $40.5m, as ARB sought to increase inventories in a challenging supply chain environment to facilitate continued sales growth. 
  • ARB retained a cash balance of $58.3m, a decrease of $26.4m from the June 2021 financial year end mainly due to expansionary capital purchases of PP&E for $27.0m and dividends paid to shareholders in October 2021 of $25.4m.

Company Profile

ARB Corporation Ltd (ARB) designs, manufactures, distributes, and sells 4-wheel drive vehicle accessories and light metal engineering works. It is predominantly based in Australia but also has presence in the US, Thailand, Middle East, and Europe. There are currently 61 ARB stores across Australia for aftermarket sales.

(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.

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Global stocks

Caesars Continues to See Strong U.S. Physical and Digital Demand, but Not Enough to Warrant a Moat

Business Strategy and Outlook

As a result of the acquisition of the legacy Caesars business by Eldorado (closed July 2020), we estimate Caesars holds more than a 10% revenue share of the domestic casino gaming market; this represents around 100% of the company’s total EBITDA. Caesars has realized over $1 billion in combined revenue and cost synergies from its merger with Eldorado, representing around a 30% increase to pro forma 2019 EBITDAR. Despite this successful acquisition record, Morningstar analysts don’t believe Las Vegas and other U.S. gaming regions contribute to a moat for Caesars. U.S. gaming demand is lower than in Asian regions like Macao and Singapore, where the propensity to gamble is much higher. Also, the 1,000 commercial and tribal casinos in the U.S. serve a total population of 330 million, well in excess of the 41 and 2 casinos found in Macao and Singapore, respectively, with Chinese and Singaporean populations of 1.4 billion and 5.9 million, respectively. Further, supply growth in U.S. gaming is increasing in 2021-23, with two resorts opening in Las Vegas that add a mid-single-digit percentage to market room supply. This compares with negligible additions in either Macao or Singapore, where we see no additional licenses for the foreseeable future.

That said, Caesars’ U.S. casinos are positioned to benefit from the multi-billion-dollar sports betting and iGaming market. Caesars plans to invest around $1 billion in its digital assets in the next few years, which supports Morningstar analysts forecast for about 8% of the company’s total revenue to be generated from this segment in 2026.

After reviewing Caesars’ fourth-quarter results, Morningstar analyst have decreased its fair value estimate to $108 per share from $113, driven by increased digital spend. Morningstar analyst’s valuation places a 10 times enterprise value/EBITDA multiple on analysts’ 2023 EBITDAR forecast. Drivers of forecast remain anchored in revenue and EBITDAR margins across the company’s Las Vegas and regional assets.

Financial Strength 

Caesars’ debt levels are elevated. In 2019, excluding financial lease obligations, legacy Caesars’ debt/adjusted EBITDA measured a hefty 7.8 times, while legacy Eldorado came in at 3.7 times. Morningstar analysts see Caesars’ debt/adjusted EBITDA reaching 7.9 times in 2022 and then 6.4 times in 2023 as global leisure and travel market demand continue to recover from the pandemic, aided by company cost and revenue synergies that analysts estimate to total over $1 billion. Morningstar analysts expect the $7.5 billion in free cash flow in 2022-26 as focused on reducing debt levels and investing in the digital sports and iGaming markets, with share repurchases and dividends not occurring until 2025. Caesars has no meaningful debt maturity until 2024, when $4.8 billion is scheduled to come due. 

Bull Says

  • Caesars’ best-of-breed management stands to generate cost and revenue synergies from its merger with Eldorado. 
  • Caesars has the largest property (around 50 domestic casinos versus roughly 20 for MGM) and loyalty presence (65 million members versus MGM’s roughly high-30 million), which presents cross-selling opportunities. 
  • Morningstar analysts see Caesars’ domestic properties as well positioned to benefit from the $6.2 billion U.S. sports betting revenue opportunity in 2024.

Company Profile

Caesars Entertainment includes around 50 domestic gaming properties across Las Vegas (50% of 2021 EBITDAR before corporate and digital expenses) and regional (63%) markets. Additionally, the company hosts managed properties and digital assets, the latter of which produced material EBITDA losses in 2021. Caesars’ U.S. presence roughly doubled with the 2020 acquisition by Eldorado, which built its first casino in Reno, Nevada, in 1973 and expanded its presence through prior acquisitions to over 20 properties before merging with legacy Caesars. Caesars’ brands include Caesars, Harrah’s, Tropicana, Bally’s, Isle, and Flamingo. Also, the company owns the U.S. portion of William Hill (it plans to sell the international operation in early 2022), a digital sports betting platform.

 (Source: Morningstar)

General Advice Warning

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

Categories
Global stocks Shares

MetLife’s Elevated 2021 Variable Investment Income Not Likely to Last

Young woman trading stock market by touching.

Business Strategy & Outlook:

MetLife, like other life insurers, has its financial results tied to interest rates. It’s unlikely that interest rates will return to pre-financial-crisis levels, and MetLife has forecasted to face this headwind for the future. The returns of equity just shy of 10% over the next five years. MetLife has taken steps to simplify its business. In 2017, it spun off Brighthouse, its retail arm focused on variable annuities. MetLife also is divesting its property and casualty insurance (auto) business, which makes sense as there is minimal strategic benefit to having a small auto insurance business in its portfolio.

MetLife’s business is relatively undifferentiated. Whether sold individually or to employers, the pricing is the primary driver for MetLife’s customers. Given the relatively low fixed costs of an insurer’s income statement, this does not lend itself to MetLife having a competitive advantage. Some of MetLife’s entries into new markets (such as pet insurance and health savings accounts) are potentially more differentiated, but these are unlikely to be material in the near to medium term. In 2012, MetLife launched MetLife Investment Management, which currently manages $181 billion of institutional third-party client assets, a fraction of the $669 billion managed through the general account and a fraction of what some of its peers manage. Asset management is viewed as potentially moaty, but given the size of MetLife’s third-party asset management, it is viewed as material to the firm’s overall financial results.

Financial Strength:

The life insurance business model typically entails significant leverage and potentially exposes the industry to outlier capital market events and unanticipated actuarial changes. MetLife is not immune to these risks, and during the financial crisis, its returns on equity decreased. Overall, MetLife has generally been prudent, but the risks inherent to the industry should not be ignored. 

Equity/assets (excluding separate accounts) was 11.6% at the end of 2021, higher than the 11.1% average since 2010. In Japan, MetLife’s solvency margin ratio was 911% (as of Sept. 30, 2021), well above the 200% threshold before corrective action would be required. The solvency margin ratio measures an insurer’s ability to pay out claims in unfavorable conditions.

Bulls Says:

  • MetLife’s international operations, particularly Asia and Latin America, provide opportunities for growth.
  • MetLife’s reorganization will lead to a more transparent entity that produces steadier cash flow.
  • If interest rates were to rise, MetLife would benefit through higher reinvestment yields.

Company Profile:

MetLife–once a mutual company before the 2000 demutualization–is the largest life insurer in the U.S. by assets and provides a variety of insurance and financial services products. Outside the United States, MetLife operates in Japan and more than 40 countries in Latin America, Asia-Pacific, Europe, and the Middle East.

(Source: Morningstar)

General Advice Warning

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

Categories
Expert Insights Technology Stocks

DocuSign Inc. Sales Execution & Post Covid-19 Normalization Drive Light Guidance; FVE Down to $130

Business Strategy & Outlook:

As the leader in electronic signatures and contract life cycle management software, DocuSign has a long runway for growth through viral adoption in greenfield opportunities. The existing customers adopting more use cases and expanding seats over time, and also moving to the Agreement Cloud platform. DocuSign’s vision is to modernize the contracting process by taking it from a disjointed and paper-based manual sequence of steps to an automated digital and collaborative system. The company has mastered the “sign” step of the process and has used it to build the Agreement Cloud around, but there’s more to DocuSign than just e-signatures. The Agreement Cloud is a platform that includes tools to help users prepare contracts using intuitive drag and drop forms, negotiate, e-sign using a variety of enhanced security and identification means, automate agreement workflows for satisfying contract elements post-execution, allow for payment collections, and centralize account management.

As use cases expand, it is expected that the current primary driver of growth, the e-signature solution, to continue to grow rapidly thanks to the company’s entrenched leadership position and the more unpenetrated market. Underlying the larger picture is that the company still offers free trials and self-service for pain-free test drives. There’s visibility of strong adoption in more than one million paid customers, with 88% involving a sales rep, and hundreds of customers already driving annual contract value in excess of $300,000 annually. In the meantime, net dollar retention rates have been strong, about 120%, which is very good and is in line with other self-service, viral adoption models in our coverage. Based on a bottom-up analysis, management estimates that DocuSign has a total addressable market of $50 billion, half of which is e-signatures alone, while Agreement Cloud is the next largest piece, with other services making up a smaller opportunity. 

Financial Strengths:

DocuSign is a financially sound company with a solid balance sheet, improving margins, and rapidly growing revenue. Capital is generally allocated to growth efforts and acquisitions, with no dividends or buybacks on the horizon. As of fiscal 2022, DocuSign had $803 million in cash and marketable securities, compared with $718 million in long-term debt. The company generated non-GAAP EBITDA of $593 million in fiscal 2022, representing gross leverage of 1.2 times. DocuSign generated free cash margins of 15% in fiscal 2021 and 21% in fiscal 2022. It is expected that free cash flow margins to continue to expand during the next five years. The debt relates to convertible notes due in 2024. DocuSign can satisfy its obligations while continuing to fund normal operations.

The company has made a variety of relatively small acquisitions, including Seal, totaling in excess of $400 million over the last several years. Company view these as feature additions or product extensions that are additive to the company’s product development efforts. While it is acknowledge the timing and size of potential future acquisitions may vary, nonetheless model a modest level of acquisitions annually.

Bull Says:

  • DocuSign is the market leader in e-signatures and is expanding to a broader contract life cycle management solution.
  • The free trial, easier implementation, and rapid return on investment for DocuSign customers make for a compelling sales pitch. The company is also enjoying success moving upstream to larger customers.
  • DocuSign’s market consists of considerably more greenfield space than is typical within software.

Company Profile:

DocuSign offers the Agreement Cloud, a broad cloud-based software suite that enables users to automate the agreement process and provide legally binding e-signatures from nearly any device. The company was founded in 2003 and completed its IPO in May 2018.

(Source: Morningstar)

General Advice Warning

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

Categories
Shares Technology Stocks

Whispir Ltd reported strong 1H22 results ; Focus on increasing platform usage and onboarding new customers

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Investment Thesis 

  • Sizeable market opportunity – in the U.S. alone WSP TAM is US$4.7bn (WSP North American target markets) vs total U.S. CPaaS TAM of US$98bn.
  • Established a solid foundation to build from – the Company has over 800 customers worldwide with leading brand names.  
  • Structural tailwinds – ongoing automation and digitization. 
  • Increasing direct sales penetration.
  • Attractive recurring revenue base via subscriptions. 
  • Investment in R&D to continue developing the Company’s competitive position and enhance value proposition with customers

Key Risks

  • Rising competitive pressures.
  • Growth disappoints the market, given the company trades on high valuation multiples – growth in subscriptions, new customers and penetration of existing clients. 
  • Product innovation stalls and fails to resonate with customers. 
  • Emergence of new competitors and technology.
  • Key channel partnerships breakdown. 

1H22 Results Highlights. Relative to the pcp: 

  • Revenues of $39.4m, up +70.4% (CAGR of +37.7% since 1H19). Annualised Recurring Revenue (ARR) at $60.0m, up +26.6% (CAGR of +29.4% since 1H19). WSP saw significant contract wins in ANZ, Asia and North America which bodes well for future revenue growth. 
  •  WSP achieved gross profit of $23.0m, up +64.9%. Gross margin declined from 60.4% to 58.4% due to a surge in transactional revenues, which grew from 66.6% to 80.6% of total revenue. 
  • Operating expenses jumped +75.0% to $29.9m, as WSP grew head count from 169 to 270 to service the growing business. 
  •  WSP reported an EBITDA loss of $(4.6)m versus $(1.8)m in the pcp. 
  •  WSP remains well-funded, with no debt and line of sight to cash flow breakeven. 
  • WSP remains on track to deliver on upgraded guidance for FY22.
  • WSP remains well-funded, with no debt and line of sight to cash flow breakeven

Company Profile

Whispir Ltd (WSP), founded in 2001, is a global enterprise software-as-a-service (SasS) company. WSP provides a communications workflow platform that automates interactions between businesses and people. The Company has over 800 customers, operates in 60 countries and more than 200 staff globally. WSP operates in an emerging subset of the enterprise communications SaaS market known as Workflow Communications-as-a-Service (WCaaS). WSP currently solves two communication problems: (1) Operational Messaging – engaging with employees; and (2) External Messaging – engaging with customers. WSP operates in 3 key markets – Operational messaging (size $8bn), API messaging (size $32bn) and Marketing messages (size $66bn). 

(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.

Categories
Dividend Stocks Philosophy Technical Picks

Spark New Zealand reported strong 1H22 results;Announced plans to establish Spark TowerCo

Investment Thesis 

  • Attractive dividend yield of 5.2%. 
  • Market-leading position in New Zealand. Dominant market share in Mobile, Broadband and is the leader in IT Services.
  • Strong capacity for growth demonstrated across all segments, with IT expected to continue to be a key driver as more consumers and businesses migrate to the Cloud. 
  • Investments in Broadband and the roll-out of 4.5G should see its lagging broadband segment improve.
  • Multi-product offerings provide interesting points of differentiation from other telco providers.
  • Implementation of “Agile” leading to further cost reductions and operating efficiencies.
  • Increasing customer demand for higher-margin cloud-based services.
  • Increases in ARPU growth and connections despite weak industry conditions
  • SPK still commands a strong market position and has the ability to invest in technologies and areas which could provide room for growth.

Key Risks

  • Unsuccessful migration of copper wire customers resulting in earnings drag in May due to weather conditions. 
  • More competition in its Mobile and Broadband segments leading to aggressive margin contraction, especially as products become commoditized.
  • Risk of cost blowout (for instance in network upgrades or maintenance).
  • Churn risk. 
  • Balance sheet risk (including credit ratings risk) should earnings decline due competitive and structural risks. 
  • Reduced flexibility and increased net debt if unable to fund total dividend by earnings per share
  • Any network disruptions/outages.

1H22 results summary. Relative to the pcp: 

  • Revenue increased +5.2% to $1,890m, driven by +5% growth in Mobile Services (secured ~60% of total market), +3.2% growth in Cloud, security, and service management (driven by demand for public cloud and growth in the health sector), +27.5% growth in Procurement revenue (driven by national health software licence contract), +7% increase in Others (investment behind future markets continued to gain momentum and Spark IoT connections increased +31% to 623,000), partially offset by -3.9% decline in Broadband (amid competitive market intensity) and -5.2% decline in Voice. 
  •  Opex increased +4.3% to $1,352m as increase in product costs driven by higher procurement volumes and growth in cloud and collaboration and increase in net labour costs (talent scarcity) was partially offset by precision marketing savings. 
  •  EBITDAI increased +7.6% to $538m with margin improving +70bps to 28.5% and management remains on track to achieve 31%. 
  •  NPAT increased +21.8% to $179m, driven by EBITDAI growth, a reduction in finance expense and lease liability interest, and lower D&A. 
  •  FCF increased +61.9% to $183m with cash conversion of 110%, driven by improvement in working capital, EBITDAI growth and lower tax. 
  •  Capex increased +14.7% to $218m, driven by uplift in mobile RAN investment in support of accelerated 5G rollout and increased investment in IT systems. 
  •  Net Debt declined -1.4% to $1,380m leading to net debt to EBITDAI ratio declining -0.15x to 1.2x, within internal threshold of 1.4x and consistent with S&P A- credit rating. 
  • The Board declared a 100% imputed interim dividend of 12.5cps. 

Spark TowerCo subsidiary announced

Management announced plans to transfer its passive mobile tower assets, spanning ~1,500 mobile sites, into a separate subsidiary, Spark TowerCo, to improve utilisation through coverage expansion and increased tenancy, while delivering cost efficiencies as the Company expands coverage across Aotearoa. Management also intends to commence a process in 2H22 to explore the introduction of third-party capital into Spark TowerCo, with more information expected to be revealed in 2H22. 

Company Profile

Spark New Zealand Ltd (SPK) is a New Zealand based telecommunications company. SPK’s key services are the provision of telephone lines, mobile telecommunications, broadband services and IT services. Its key product offerings are Spark Home, Mobile & Business, Spark Digital, Spark Ventures, and Spark Connect. The Company operates four main segments: (1) Spark Home, Mobile & Business; (2) Spark Digital; (3) Spark Connect & Platforms; and (4) Spark Ventures & Wholesale. 

 (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.

Categories
Dividend Stocks

Edison’s Financing In Place To Support 18 Consecutive Dividend Growth Plans

Business Strategy and Outlook

California will always present political, regulatory, and operating challenges for utilities like Edison International. But California’s aggressive clean energy goals also offer Edison more growth opportunities than most utilities. Policymakers know that meeting the state’s clean energy goals, notably a carbon emissions-free economy by 2045, will require financially healthy utilities. 

It is foreseen Edison will invest at least $6 billion annually, resulting in 6% annual earnings growth at least through 2025. Edison already has regulatory and policy support for most of these investments, which address grid safety, renewable energy, electric vehicles, distributed generation, and energy storage. Wildfire safety investments alone could reach $4 billion during the next four years. It is seen state policies will force regulators to support Edison’s investment plan and earnings growth. In August 2021, regulators approved nearly all of Edison’s 2021-23 investment plan. Regulatory proceedings in 2022 will address wildfire-specific investments and Edison’s $6 billion investment plan for 2024. 

Operating cost discipline will be critical to avoid large customer bill increases related to its investment plan. Edison faces regulatory scrutiny to prove its investments are producing customer benefits. It also must resolve the balance of what could end up being $7.5 billion of liabilities related to 2017-18 fires and mudslides. Large equity issuances in 2019 and 2020–in part to fund the company’s $2.4 billion contribution to the state wildfire insurance fund and a higher equity allowance for ratemaking–weighed on earnings the last two years. Edison now has most of its financing in place to execute its growth plan and continue its streak of 18 consecutive annual dividend increases. It is anticipated Edison to retain a small share of unregulated earnings, but those are more likely to come from low-risk customer-facing or energy management businesses wrapped into Edison Energy.

Financial Strength

Edison’s credit metrics are well within investment-grade range. California wildfire legislation and regulatory rulings in 2021 removed the overhang that threatened Edison’s investment-grade ratings in early 2019.Edison has kept its balance sheet strong with substantial equity issuances since 2019. It is not projected Edison will have any liquidity issues as it resolves 2017-18 fire and mudslide liabilities while funding its growth investments. Edison issued $2.4 billion of new equity in 2019 at prices in line with Amnalysts fair value estimate. This financing supported both its growth investments and half of its $2.4 billion contribution to the California wildfire insurance fund. The new equity also allowed Southern California Edison to adjust its allowed capital structure to 52% equity from 48% equity for rate-making purposes, leading to higher revenue and partially offsetting the earnings dilution.Edison’s $800 million equity raise in May 2020 at $56 per share was well below analysts fair value estimate but was necessary to support its growth plan in 2020 and early 2021. Edison also raised nearly $2 billion of preferred stock in 2021 and might issue more preferred stock to limit equity dilution as it finances its growth program. In particular, it is likely Edison will have to raise equity to finance its $1 billion energy storage project in 2022.It is held dividends to grow in line with SCE’s earnings. The board approved a $0.15 per share annualized increase, or 6%, for 2022, its 18th consecutive annual dividend increase. Management has long targeted a 45%-55% payout based on SCE’s earnings, but the board appears to be comfortable going above that range based on the 2021 and 2022 dividends that implied near-60% payout ratios. As long as Edison continues to receive regulatory support, it is held the board will keep the dividend at the high end of its target payout range.

Bulls Say’s

  • With Edison’s nearly $6 billion of planned annual investment during the next four years, analysts project 6% average annual average earnings growth in 2022-25. 
  • Edison has raised its dividend for 18 consecutive years to $2.80 in 2022, a 6% increase from 2021. Management appears comfortable maintaining a payout ratio above its 45%-55% target. 
  • California’s focus on renewable energy, energy storage, and distributed generation should bolster Edison’s investment opportunities in transmission and distribution upgrades for many years.

Company Profile 

Edison International is the parent company of Southern California Edison, an electric utility that supplies power to 5 million customers in a 50,000-square-mile area of Southern California, excluding Los Angeles. Edison Energy owns interests in nonutility businesses that deal in energy-related products and services. In 2014, Edison International sold its wholesale generation subsidiary Edison Mission Energy out of bankruptcy to NRG Energy. 

(Source: MorningStar)

General Advice Warning

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

Categories
Dividend Stocks

APA Group – The Board declared an interim distribution of 25cps and reaffirmed FY22 DPS of 53cps, up +3.9% over pcp

Investment Thesis:

  • High quality assets, which are difficult to replicate. 
  • The quality of APA’s assets; the Company will always retain its M&A appeal. Last takeover bid (by CKI) was at $11.00 per share. 
  • Attractive and growing distribution yield. 
  • Highly credit worthy customers.
  • Currently assessing international opportunities – USA focus.
  • Organic growth pipeline of >$1.4bn.
  • Growth through acquisitions.
  • Diversified customer base by sector.
  • Largest owner of gas transmission pipelines in Australia. 
  • Opportunity to grow its renewable business. 
  • Management announced their ambition to achieve.

Key Risks:

  • Negative market/investor sentiment towards “bond-proxies”.
  • Future regulatory changes by pipeline regulators.
  • Large portion of businesses are exposed to the energy sector.
  • Infrastructure issues such as explosions or ruptures.
  • Adverse decision from COAG reviews transmission costs. 
  • Shorter contract terms on existing capacity.

Key Highlights:

  • Revenue (excluding pass-through) increased +4.3% to $1,117.7m, with growth across all segments including Victorian Transmission System, Diamantina Power Station and Asset Management driven by favourable tariff escalation given exposure to Australian and US inflation indices.
  • Underlying opex increased +4.5% to $257.6m, driven by higher bidding costs associated with corporate development activities, higher insurance premiums, and enhancements across technology, partially offset by ongoing discipline in management of operations & maintenance.
  • Underlying EBITDA increased by +4.5% to $859.8m as higher revenue was partly offset by increased investments in capability and strategic projects.
  • NPAT (excluding significant items) declined -2.2%, as higher EBITDA and a decline in interest expense due to lower average interest costs due to liability management exercise completed in March 2021 was more than offset by higher D&A and tax expense. NPAT (including significant items) was $155.6m compared to loss of $15.5m in pcp, largely due to a non-cash impairment of $249.3m in pcp against the Orbost Gas Processing Plant.
  • FCF increased +22.6% to $515.1m, primarily due to higher earnings and lower interest paid.
  • Total capex increased +27% to $314.4m (growth capex down -41.7% and stay-in-business capex down -16%), primarily due to IT capex increasing +77.5% and corporate real estate capex of $7.9m.
  • The Board declared an interim distribution of 25cps (20.12cps from APT + 4.88cps from APTIT), up +4.2% over pcp and equating to payout ratio of 57.3%. APA reaffirmed FY22 DPS of 53cps, an increase of +3.9% over pcp.

Company Description:

APA Group Limited (APA) is a natural gas infrastructure company. The Company owns and/or operates gas transmission and distribution assets whose pipelines span every state and territory in mainland Australia. APA Group also holds minority interests in energy infrastructure enterprises. APA derives its revenue through a mix of regulated revenue, long-term negotiated contracts, asset management fees and investment earnings.

(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.

Categories
Global stocks

Domino’s Pizza Enterprises food inflation anticipated in 2H22

Investment Thesis:

  • Trading below our valuation. 
  • Potential for solid growth in Europe and Japan, substantial opportunities, that the Company is positioned to take advantage of.
  • Strong market position in all of DMP’s existing geographies.
  • DMP is ahead of the curve with the use of technology and innovative offerings for its customers.
  • Acquisition in Europe to bring in top line revenue growth.
  • Strong management team.
  • Improving margin outlook (i.e., operating leverage benefits).

Key Risks:

  • Acquisition integrations not going to plan.
  • Missing market expectations on sales and earnings growth. 
  • Dietary concerns that drive customers to healthier alternatives.
  • Increased cost in ingredients and labor.
  • Market pressures from the competition. 
  • Departure of key management personnel. 
  • Corporate office having to increase financial support to struggling franchisees.  
  • Any further negative media articles especially around underpayment of wages at the franchisee level.
  • Any emerging concerns around store rollout (such as cannibalization or demographics not supportive of new stores).
  • Increase in commodity prices due to ongoing Russia-Ukraine conflict.

Key Highlights:

  • Trading update: For first 6 weeks of 2H22, Network Sales up +6.0% (+1.7% on a same store sales basis) vs +20.9% (+10.1% on same store basis) in pcp and new organic store additions of 23 (vs 11 in pcp) with the Company remaining on track to expand its network by +500 during FY22 (including Taiwan acquisition).
  • Food inflation anticipated in 2H22.
  • FY22 same store sales growth slightly below 3–5-year outlook of +3-6%.
  • 3–5-year annual outlook of +3-6% same store sales growth, +9-12% new organic store additions and ~$100-150m net capex remains intact.
  • Group milestone of 6,650 stores by 2033 with total opportunity of 2.1x current market size (Europe milestone of 3,050 stores by 2033 with total opportunity of 2.3x current market size, ANZ store target of 1200 by 2025-2028 with total opportunity of 1.4x current market size, and Asia milestone of 2,400 stores by 2033 with total market opportunity of 2.3x current market size).   
  • Australia region Highlight includes Network Sales grew +6.4% over pcp to $689.6m (same store sales up +1.7%), however, EBIT declined -6.1% over pcp to $60.3m with margin declining -180bps to 15%, reflecting investment in franchisees (Project Ignite ~$6m) and full & partial temporary store closures arising from Covid-19 (NZ was closed for 4 full weeks during August with Auckland stores closed for a more extended period of time). Online penetration grew with online sales growing +9.7% over pcp to $545.1m and online now representing 79% of total network sales, up +230bps over pcp. The Company opened 3 new stores increasing total store count to 863. 

Company Description:

Domino’s Pizza Enterprises Limited (DMP) operates retail food outlets. The Company offers franchises to the public and holds the franchise rights for the Domino’s brand and network in Australia, New Zealand, Europe and Japan. 

(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.

Categories
LICs LICs

Keybridge Capital Limited Announces Proposed Takeover Bid Over for WAAM Active Limited

Keybridge Capital Limited (KBC)has announced its intention to make an off-market takeover bid for WAM Active (WAA)for an all scrip consideration of 1.16 x $1.00 Keybridge convertible redeemable promissory notes (CRPN) for each WAA share. This equates to a value of $1.16 per WAA share, an 8.4% premium to the share price at the COB on the day of the announcement (7 February 2021) and a 13.6% premium to the most recently released post-tax NTA. The Offer values WAA at $85.6m, currently a market cap of $79.0m. The Offer is subject to Keybridge shareholder approval.

Keybridge have outlined the following key terms for the CRPN:

  • Face value of $1.00
  • Maturity Date of 10 years from the issue date.
  • Will be categorised as an equity instrument for tax purposes.
  • A gross running yield of 2.0% p.a., fully franked. The CRPN will pay a fully franked dividend of 1.4 cents per note, paid annually.
  • A dividend stopper on Keybridge ordinary shares if a CRPN interest payment remains outstanding.
  • Upon maturity, the CRPN may be redeemed for the face value in cash or converted into Keybridge ordinary shares at a 5% discount to the VWAP.

The Keybridge CRPN is intended to be ASX-listed.

There is a bit of history with regards to Keybridge and WAA. In 2020, WAA made a takeover bid for Keybridge which was unsuccessful. The two parties also went to court regarding the block of shares held by WAA, in which costs were awarded against Keybridge. In the event Keybridge obtains control of WAA, it intends to dispose of WAA’s shares in Keybridge within 12-months. WAA and associated entities of the Wilson Asset Management Group hold a 44.5% interest in Keybridge.

Company Profile

Keybridge is an ASX-listed investment and financial services group (ASX: KBC) with a portfolio of listed and unlisted investments/loan assets in the life insurance (New Zealand), property and funds management sectors and strategic holdings in HHY Fund (ASX: HHY), Yowie Group Ltd (ASX: YOW), Metgasco Limited (ASX: MEL) and Molopo Energy Limited. At 31 December 2021, Keybridge had Net Assets of $18.36m. Keybridge currently holds a 6.0% interest in WAA.

(Source: FNArena)

  • Relative to the pcp: (1) 

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