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Technology Stocks

Veeva’s CRM Application Propelled It to Become Leading Solution Of It’s Niche Market

Business Strategy and Outlook

Veeva is the leading provider of cloud-based software solutions tailored to the life sciences industry, providing an ecosystem of products to address the operating challenges and regulatory requirements that these companies face. Its highly specialized offerings for the life science industry allow companies to improve operational efficiency to get products to market faster while ensuring regulatory compliance and ultimately sell more effectively. Its effective technology and dominant position enable Veeva to generate excess returns commensurate with a wide-moat company. Its strong retention, continued development of new applications, increasing penetration with existing customers, addition of new customers, and expansion into industries outside of life sciences should allow the company to extend its market leadership, in Analysts view. 

The company operates in two categories. Commercial solutions entail vertically integrated customer relationship management services and end-market data and analytics solutions. R&D solutions is a horizontally integrated content and data manager. Veeva’s CRM application supports real-time collaboration and regulatory oversight and enables incremental add-on solutions. The incremental functionality is critical to improving marketing programs while remaining in compliance with mandated antikickback laws and statutes. This service has been well received by the life sciences industry and has propelled Veeva to become the leading solution with the lion’s share (approximately 80%) of this niche market. As a follow-on to the initial introduction of CRM, management introduced R&D solutions to broaden the portfolio that addresses the largely unmet needs of the life sciences industry outside of CRM. Each module offers features and functionality targeting four key areas in life sciences: clinical (trial management), regulatory (compliance), quality of manufacturing, and safety.

Financial Strength

It is held Veeva enjoys a position of financial strength arising from its strong balance sheet (no debt) and leading position in a growing market. As of fiscal 2022, Veeva had over $2.4 billion in cash and short-term investments and no debt. It is likely the company will continue to use the cash it generates from operations to fund future growth opportunities. From Analysts perspective, management has been disciplined about M&A and taking on debt. The 2019 acquisition of Crossix was the firm’s largest to date, at approximately $430 million. It is anticipated the company will continue make small tuck-in acquisitions and fund them through available cash and cash flow from operations. Even in this scenario, increasing liquidity is foreseen, as the firm’s reserve of cash should continue to increase.

Bulls Say’s

  • Veeva’s best-of-breed vertical addressing unmet needs provides opportunities to further penetrate a highly fragmented market. 
  • The rapid adoption of the company’s new modules continues to entrench Veeva in mission-critical operations of customers, making it increasingly challenging for competitors to gain a foothold. 
  • Veeva’s institutional knowledge and codevelopment partnerships with customers enable the company to develop robust offerings addressing market needs.

Company Profile 

Veeva is a leading supplier of software solutions for the life sciences industry. The company’s best-of-breed offering addresses operating and regulatory requirements for customers ranging from small, emerging biotechnology companies to departments of global pharmaceutical manufacturers. The company leverages its domain expertise and cloud-based platform to improve the efficiency and compliance of the underserved life sciences industry, displacing large, highly customized and dated enterprise resource planning systems that have limited flexibility. As the vertical leader, Veeva innovates, increases wallet share at existing customers, and expands into other industries with similar regulations, protocols, and procedures, such as consumer goods, chemicals, and cosmetics. 

(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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Expert Insights Technology Stocks

More Than 90% Of Fortune 100 Firms Could Be Using Splunk’s Offerings As A Vote Of Confidence In Its Enterprise Product Lineup

Business Strategy and Outlook

Splunk is a leader in ingesting, indexing, and analyzing machine generated data, and it alleged the company will maintain its leadership status for the foreseeable future. It is held machine data to become more pervasive, impacting every part of an enterprise’s operations. With more data to ingest, index, and analyze, it is foreseeen narrow-moat Splunk has a long runway for growth as it seeks to continue to dominate the enterprise market. Splunk’s offerings primarily target two broad use cases: security and full-stack monitoring & analysis (FSMA). On the security front, Splunk’s SIEM, or security information and event management, operates as a well-refined alert system, putting out alerts if any nefarious activity appears on a client’s network. Splunk’s security orchestration, automation, and response, or SOAR, software is geared toward triaging these issues automatically. SIEM and SOAR software, working in tandem, allow an enterprise’s IT team a reprieve by using artificial intelligence to triage security issues, thereby leading to a substantially lower number of alerts that need to be manually dealt with. 

The FSMA space is nascent, springing into existence as a method of unifying and coalescing disparate parts of an enterprise’s monitoring framework. Splunk’s FSMA offering seeks to give enterprises a one-stop shop to monitor their entire IT stack, ranging from application performance to logs to end user experience. Splunk’s offering allows enterprise customers to remove these data silos and monitor the entire IT stack from one consolidated platform. 

It is held Splunk warrants a narrow economic moat thanks to high customer switching costs. It is foreseen more than 90% of Fortune 100 firms using Splunk’s offerings as a vote of confidence in its enterprise product lineup. Further, it is impressing, Splunk’s strong cloud dollar-based net retention (DBNR) that has consistently remained above 120%. With the ability to land big customers and consistently upsell them, analysts remain confident in Splunk’s long-term growth prospects.

Financial Strength

It is anticipated Splunk’s financial position is healthy. Splunk ended fiscal 2022 with $1.43 billion in cash and current investments. This is juxtaposed with the company’s convertible senior notes of $3.14 billion at the end of fiscal 2022. While debt exceeds cash-in-hand currently, it is likely Splunk’s cash and cash generation over the next five years will far outstrip its commitments over the same time period. As the company undergoes the cloud transition, its effect on free cash flow has been evident. The company’s FCFE (free cash flow to equity) margins from 2014 to 2019 were comfortably in the double-digits. However, with the cloud transition dampening revenue and increasing operating spend, free cash flow margins have been significantly lower than before. However, it is alleged these transitory costs to allay and project that Splunk will achieve consistent double-digit FCFE margins starting fiscal 2025. It isn’t likely for any major shifts in Splunk’s capital structure. It is foreseen the company raising capital in the future by issuing more equity or taking advantage of low interest rates and issuing debt.

Bulls Say’s

  • Splunk has secular tailwinds behind its back as the security and FSMA markets are expected to grow rapidly. 
  • Splunk’s products are incredibly sticky, offering the company an opportunity to increase cross-selling velocity as customers increase their usage of Splunk’s platform. 
  • Many of Splunk’s enterprise customers are undergoing digital transformations. This shift should bode well for Splunk as these efforts typically include leveraging technology such as Splunk’s for efficiency gains.

Company Profile 

Splunk is a cloud-first software company that focuses on analyzing machine data. The company is a major player in two markets: security and full-stack monitoring & analysis. Splunk is currently undergoing a cloud transition as the company weans its on-premises customers over to its cloud products that are delivered as software-as-a-service. The firm’s top line consists of the sale of software licenses, cloud subscriptions, and maintenance and support. 

(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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Technology Stocks

Sonic Healthcare up to $500m on market buyback supportive at current share price levels

Investment Thesis

  • As the Covid pandemic subsides, near-term earnings may underwhelm but longer term, we don’t doubt the quality of SHL’s assets, which is geographically diversified, and high quality management team.
  • Ageing population requires more diagnostic tests, especially as Medicine focuses on preventative medicine.
  • Market leading positions in pathology (number one in Australia, Germany, Switzerland, and UK number three in the US). Second leading player in Imaging in Australia.
  • High barriers to entry in establishing global channels.
  • Ongoing bolt-on acquisitions to supplement organic growth and potentially improve margin from cost synergies.
  • Leveraged to a falling dollar. 
  • Globally diversified.

Key Risks

  • Disruptive technology leading to reduced diagnostics costs.
  • Competitive threats leading market share loss.
  • Deregulation resulting in new pathology collection centres.
  • Adverse regulatory changes (fee cuts).
  • Disappointing growth.
  • Adverse currency movements (AUD, EUR, USD).

Bulls Say’s

  • Revenue of $4,757m, up +7%. 
  • EBITDA of $1,540m, up +18%.
  • Net Profit of $828m, up +22%.
  • Cash generated from operations of $1,041m, up +28%, reflecting EBITDA growth and lower interest payments. SHL achieved 85% conversion of EBITDA to gross operating cash flow.
  • Earnings per share of 170.8cps, up +21%.
  • SHL retained a strong balance sheet position, with gearing at record low level of 12.9% (vs 12.5% in the pcp) and below covenant at <55%, interest cover of 44.9x (vs 33.8x in the pcp and above covenant limit of >3.25x) and debt cover of 0.3x (vs 0.4x in the pcp and covenant limit of <3.5x), and with ~$1.4bn of available liquidity.
  • SHL maintained its progressive dividend policy, with the Board declaring an increase of 4 cents (or up +11%) to 40 cents (100% franked) for the FY2022 Interim Dividend.

Company Profile 

Sonic Healthcare (SHL) is a medical diagnostics company with operations in Australia, New Zealand, and Europe. The company provides a comprehensive range of pathology and diagnostic imaging services to medical practitioners, hospitals and their patients along with providing administrative services and facilities to medical practitioners. SHL has three main segments: (1) Pathology/clinical laboratory services based in Australia, NZ, UK, US, Germany, Switzerland, Belgium and Ireland. (2) Diagnostic imaging services in Australia; and (3) Other which includes medical centre operations (IPN), occupational health services (Sonic HealthPlus) and laboratory automation development (GLP Systems).

(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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Technology Stocks

PayPal Holdings Inc. : FY21 Revenue of $25.37bn Largely in Line With Consensus Forecast of $25.35bn

Investment Thesis:

  • Leveraged to the structural growth story of electronics payments and e-commerce globally.
  • Strong market position (largest payments platforms in North America) and increasing global market share.
  • Sophisticated technology platforms which have been incrementally improved via R&D and acquisitions. PYPL’s technology stack are difficult to replicate and impose high barriers to entry to new competitors.
  • Value-accretive acquisitions.
  • Incoming strategic partnerships to further unlock payment efficiency and access to wider markets (e.g. Instagram, Uber, Paymentus).
  • Strong free cash flow generation gives way to capital management initiatives.

Key Risks:

  • Global macro-economic conditions deteriorate, impacting consumer spending and business activity.
  • Pricing pressures from emerging competitors and alternatives to PayPal. Leading banks or tech giants such as Amazon may develop their own payment platforms to cannibalize sales from Paypal (e.g. Apple Pay).
  • U.S.-China geopolitical tensions impeding cross-border e-commerce transactions.
  • Adverse currency movements and regulatory changes (data privacy / protection, governments’ intervention/protection policies).
  • Security and technology risks (including cyber-attacks).
  • Value destructive acquisition(s).

Key highlights:

PYPL FY21 revenue of $25.37bn was largely in line with consensus forecast of $25.35bn, however, GAAP EPS of $3.52 missed forecast of $3.60. The Company added 49 million NAAs (net active accounts) bringing total active accounts to 426 million, up +13%, leading to TPV growing +33% to $1.25 trillion with management forecasting TPV to reach $1.5 trillion in FY22. Management announced a pivot in strategy to shift emphasis more towards engagement and driving higher value NNAs, leading to scrapping of the 750 million accounts target by 2025. However, management remains confident of new strategy driving higher ROI

  • Pivot in strategy – Management has pivoted their strategy and is shifting emphasis more towards engagement and driving higher value NNAs (consumers who are more engaged, drive incremental sales for merchants which drive growth at much higher margins and ROI) rather than just focusing on generating account creation (over time the Company still expect to grow net new actives, but more in line with pre-pandemic levels), leading to management scraping their target of growing active accounts to 750 million by 2025.
  • eBay headwinds in the rearview – last revenue pressure in 2Q22. eBay’s migration of payments away from PYPL led to 1100bps headwind on top-line in FY21, however, the Company remains at final stage of transition with no pressure past 2Q22 and a final ~400bps revenue headwind in FY22 (concentrated in 1H22).
  • Capital management. Given strong cash flow generation (cashflow from operations up +8% over pcp to $6.3bn and FCF up +9% over pcp to $5.4bn) and strong balance sheet with ample liquidity of $16.3bn in cash, equivalents and investments, management continued shareholder return initiatives, returning $3.4bn in the year via repurchase of ~15.4m shares of common stock.
  • Growing proportion of private label sales. Own brand sales percentage increased across all segments, with Bapcor Trade delivering 29.6% (up +50bps over 2H21), Retail delivering 33.9% (up +120bps over 2H21), Speciality Wholesale delivering 54.6% (up +130bps over 2H21) and New Zealand delivering 30.3% (up +40bps over 2H21), with the Company remaining on track to reach its 5-year targets to supplement market leading brands with BAP’s own brand products, which should be a positive for margins.
  • Revenue growth of ~15-17% Revenue growth of ~15-17% on a spot and FXN basis (excluding eBay to grow ~19-21%) vs prior guidance of high-teens, as spending remains impacted by omicron, inflationary pressures, and lack of stimulus.

Company Description:

PayPal Holdings Inc (NASDAQ: PYPL) is an American company in the global payments industry that acts as a payment gateway between merchants and customers, enabling electronic forms of payment instead of cash and cheques. The Company also provides an online payment system that allows individual persons to send and receive money between PayPal accounts. As of 2021, PayPal has 426 million active users and facilitates transactions across more than 200 countries and 25 currencies.

(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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Dividend Stocks

Bank Of America Corp Revenue Growth Outpaced Expense Growth

Investment Thesis:

  • Attractive valuation versus Analysts price target. 
  • Leveraged to the improving economic conditions and activity in the U.S. 
  • Efficiency gains at the expense line exceeds market expectations. 
  • Significant leverage to the yield curve steepening in the U.S.
  • Cost out program to support earnings over the long-term. 
  • Revenue growth driven by consumer and business. 
  • Credit quality is very strong, with further reserve releases possible.  
  • Capital position is well above requirement level and management’s desired buffer, which opens up capital management initiatives.  

Key Risks:

  • Further decline in net interest margins from low yields and U.S. Fed interest rate cuts.
  • Intense competition to loan growth.
  • Subdued economic growth. 
  • Funding pressures for deposits and wholesale funding. 
  • Political and regulatory changes affecting the banking legislation.
  • Credit risk with potential default of mortgages, personal and business loans and credit cards.
  • Efficiency gains disappoint relative to market expectations.

Key highlights:

BAC’s FY21 results beat consensus on both top and bottom line, as revenue growth outpaced expense growth YoY to deliver positive operating leverage, which combined with the benefit from share repurchases delivered EPS of $3.57 (vs estimate of $3.44), equating to ROE of 12.2% (up +544bps over pcp) and ROTCE of 17% (up +752bps over pcp). Asset quality continued to improve, and shareholder returns remained strong. Maintain Buy – improvement in NII (loan growth + interest rate hikes) combined with management’s outlook of flat costs growth should drive operating leverage, with long term margin expansion coming from investment in technology leading to competitive and cost advantages. 

  • FY22 outlook – robust YoY growth expected in NII. Robust YoY NII growth (1Q to be up about “a couple of hundred million” QoQ and grow each subsequent quarter) driven by high-single-digit YoY loan growth and aided by interest rate increases (+100bps parallel shift in the interest rate yield curve is estimated to benefit net interest income by $6.5bn), particularly if short-term rates rise more and sooner than expected given higher balance sheet sensitivity to short end interest-rate (~2x compared to 3Q15, middle of last rate cycle). Flat expenses compared to pcp. Effective tax rate of 10-12%. 
  • Strong asset quality with loss rate at historical lows. Asset quality improved significantly with net charge-offs continuously declining through FY21 to historic low of $362m (down -59% over pcp) resulting in a historically low net charge-off ratio of 15bps (down -23bps over pcp), which combined with improving macroeconomic conditions, led to provision for credit loss benefit of $489m (down by $542m over pcp), reflecting a net reserve release of $851m.
  • Changes to NSF fees and overdraft fees – $750m headwind in FY22. Management announced elimination of NSF (non-sufficient funds) fees and -71.4% YoY reduction in overdraft charge per occurrence to $10 in FY22, which is expected to see -75% YoY decline in fees to ~$250m in FY22.
  • Strong shareholder returns with $7.5bn in share repurchases equating to $25.1bn for the year and $1.7bn in dividends equating to $6.6bn for the year.

Company Description: 

Bank of America (BAC) is one of the largest banks in the U.S., serving consumers, small and middle-market businesses, and large corporations with a full range of banking, investing, asset management, and other financial and risk management products and services.

(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
Technology Stocks

Fineos Shares Remain Disconnected to Fair Value

Two businesswomen working late in office look at documents

Business Strategy and Outlook

Fineos is a core software vendor to the global life, accident, and health, or LA&H, insurance industry. The firm generates revenue mainly from subscriptions and product implementation services. Fineos help insurers streamline workflow, save costs, and win new business. Fineos is currently migrating customers to a cloud-based offering (from on-premise products). This makes it easier to rollout new features and support at lower marginal costs, while also providing more recurring subscription revenue. 

The firm executes a classic land and expand strategy. Building on its leadership in claims and absence products, Fineos aims to cross-sell its broader product set including payments, billing, data and more. It intends to expand the use of the Fineos platform across multiple jurisdictions with existing multinational clients. Higher customer expectations cost pressures, regulatory requirements, or increasing competition are prompting insurers to switch from clunky internal systems to external software like that from Fineos. 

There is ample room for Fineos to deploy new modules to existing customers and grow penetration over time. This further increases switching costs..Fineos has built multiple reference accounts from doing business with large insurers, who help with additional business wins. Risks include competition from larger competitors, and customer concentration, which may limit price hikes. These may be offset by Fineos’ high switching costs and the risk aversion of insurer clients in changing core systems. Fineos’ product switching costs are contingent on the group continuing to invest (such as in product development) to add value to customers.

Fineos Shares Remain Disconnected to Fair Value

Fineos had good top line growth in first-half fiscal 2022. Revenue grew 24% from the previous corresponding period, or pcp, to EUR 65 million. Morningstar analysts have lowered its fair value estimate to AUD 4.80 from AUD 5.10. But Fineos shares remain at a discount to Morningstar analysts estimate of intrinsic value. Morningstar analysts think the market is underpricing: 1) the inherent switching cost in Fineos’ products, stemming from the risk aversion of its customers to switching providers; and 2) the trend of insurers migrating their business administration processes to the cloud, providing opportunity for Fineos to take share. These drivers underscore Morningstar analysts expectation that Fineos will keep growing market share, noting around 55% of insurers still use legacy systems that have limited functionality and higher operating costs

Financial Strength

Fineos’ balance sheet is appropriately sound. As of Dec. 31, 2021, Fineos has cash and equivalents of EUR 48.6 million and no debt. But current earnings quality is weak. Cash flows have historically been maintained by equity raises, rather than from the ordinary course of business. Cash conversion (operating cash flows to EBITDA) has been irregular. Investing cash flows frequently outstrip operating cash flows due to constant reinvestments, such as for product development or acquisitions. Net cash should grow as the business scales. Morningstar analysts estimate Fineos can generate sustainable positive free cash flows by fiscal 2026-27. Until Fineos reaches scale, however, prospective business acquisitions over the next five years will likely require equity raises. Alternatively, FINEOS can drawdown debt for acquisitions, but this could result in gearing levels and debt coverage deteriorating quickly. Longer-term, we expect Fineos to realise operating leverage via a combination of revenue growth and the scaling of fixed costs. This should help maintain growth in earnings and help the firm become more cash generative. 

Bulls Say

  •  Fineos has low penetration in a sleepy industry that’s ripe for disruption. Operating metrics are solid and trending positively. 
  • Switching costs are high. A competitor who creates a better product only wins half the race. The other half is to build credible reference accounts and convince insurers to switch, which can be lengthy ordeals. 
  • Morningstar analysts believe Fineos will remain the leader in its niche space, as it continues to reinvest in its products or pursue acquisitions, bolstering its capabilities, increase the switching costs of its product suite and expand the modules on offer.

Company Profile

Fineos Corp Holdings PLC is an Irish company engaged in providing software solutions that include management and administration of policies and claims to the life, accident, and health insurance industry. The company’s platform, Fineos AdminSuite, comprises Fineos Absence, Fineos Billing, Fineos Claims, Fineos Payments, and Fineos Provider, among other solutions.

(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

Tabcorp holdings remain challenged in their wagering & Media

Business Strategy and Outlook

  • 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.

Financial Strength

  • 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. 

Bulls Say’s

  • 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.
  • Gearing (gross debt / EBITDA) of 2.5x is at the lower end of target range of 2.5 – 3.0x.
  • Revenues of $1,073m were -9.8% weaker, with EBITDA of $148m down -34.8% on pcp as margin declined -530bps driven by higher generosities (due to highly competitive market) and advertising spend. Covid-19 related retail closures impacted wagering turnover (retail was down -36% vs digital up +2%) & revenue and media subscription revenues. Increased investment and Advertising & Promotion (A&P) expenses also impacted segment earnings.

Company Profile 

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)

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

Telstra Ltd delivered strong earnings growth with declining NBN headwinds; Resulting in increased shareholder returns

Investment Thesis

  • Solid FY22 earnings guidance with management flagging a turning point as it expects mid to high single digit growth in FY22.
  • Solid dividend yield in a low interest rate environment. 
  • On market buyback of $1.35bn (post sale of part of Towers business), expected to be completed by end of FY22, should support its share price.
  • Additional cost measures announced to support earnings.
  • InfraCo provides optionality in the long-term. 
  • Despite intense competition, subscriber growth numbers remain solid. 
  • Company looking to monetize $2.0bn of assets. 
  • In the long-term, the introduction of 5G provides potential growth, however we continue to monitor the ROIC from the capex spend. 
  • TLS still commands a strong market position and has the ability to invest in growth technologies and areas (e.g., Telstra Ventures) which could provide room for growth.
  • Industry consolidation leading to improved pricing behavior by competitors. 
  • The Company continues to deliver strong underlying earnings growth which combined with declining NBN headwinds could see the Company increase shareholder returns via increased dividends which combined with the remaining 60% of the current buybacks should support the share price

Key Risk

  • Further cuts to dividends.
  • Further deterioration in the core mobile and fixed business.  
  • Management fails to deliver on cost-out targets and asset monetisation. 
  • Any increase in churn, particularly in its Mobile segment – worse than expected decrease in average revenue per users (or any price war with competitors).
  • Any network disruptions/outages.
  • More competition in its Mobile segment. Merger of TPG Telecom and Vodafone Australia creates a better positioned (financially and resource wise) competitor
  • Quicker than expected deterioration in margins for its Fixed segment.
  • Risk of cost blowout in upgrading network and infrastructure to 5G.

Key highlights 1H22                        1H22 Results Highlights. 

  • On a reported basis, total income declined -9.4% over pcp to $10.9bn, amid declines of ~$450m in one off nbn receipts and ~$200m in nbn commercial works. 
  • Operating expenses on an underlying basis declined -8.5% over pcp, with underlying fixed costs declining -8.9% over pcp enabled by ongoing drive to digitise and simplify processes, move to an agile workforce and continued migration of fixed customers to the nbn network as well as focus on rationalising 3rd party vendors and services. 
  • Underlying EBITDA increased +5.1% over pcp to $3.5bn driven by strong growth in Mobile. 
  • Net finance costs declined -22.5% over pcp to $238m, primarily due to a reduction in interest on borrowings and financing items relating to contracts with customers. 
  • Underlying EPS was up +55% over pcp to 6.2 cents per share, representing a strong start against T25 ambition for underlying EPS target of high teens CAGR from FY21-25. 
  •  Net cash provided by operating activities declined -5.7% over pcp to $3,246m mainly due to a $1,193m decline in receipts from customers, partly offset by a $955m reduction in payments to suppliers and employees. FCF (after lease payments) declined -9.1% over pcp to $1,675m

Company Profile

Telstra Corporation (TLS) provides telecommunications and information products and services. The company’s key services are the provision of telephone lines, national local and long distance, and international telephone calls, mobile telecommunications, data, internet and on-line. Its key segments are Mobile, Fixed, Data & IP, Foxtel, Network applications and services and Media

(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
Shares Small Cap

MVF reported solid 1H22 results; Growing above industry growth resulting in market share of 20.8% in key domestic markets

Investment Thesis

  • High barriers to entry with unique expertise and assets. 40-year heritage of leadership in science and innovation in ARS and women’s imaging, coupled with the depth of experience from the doctors and clinical team which will continue to underpin MVF’s future growth and maintain treatment success rates.
  • Aging Australian population and increased age of mothers (especially with the trend of more females choosing career over family until their early thirties) will provide favourable demographic tailwinds.
  • Improving balance sheet with flexibility to execute expansion strategies. Earnings increasingly become diversified as the Malaysian business gains momentum. 
  • Potential earnings diversification and growth via international expansion and increased presence in diagnostics.
  • Demonstrated capacity to perform well in terms of cost out and earnings growth despite tough conditions (i.e., lower cycle volumes).
  • Transparent and detailed disclosures.

Key Risk

  • Low growth environment impacting earnings.
  • Regulatory risk as changes in government funding may increase patient’s out-of-pocket expenses and thereby volume demand. 
  • Fluctuations in the availability and size of Medicare rebates may negatively influence the number of IVF cycles administered and overall industry revenue 
  • The Australian market does not rebound following this period of downturn. Population of males and females with fertility problems decline.
  • Loss of key specialists.
  • Loss of market share especially to low-cost providers, with one already appearing in Victoria.
  • Weakening economic activity resulting in increased unemployment leading to less disposable income to be spent in IVF treatment.
  • Execution of international forays into Malaysia goes poorly.

1H22 results summary:  Relative to the pcp:

  • Revenue increased +11.2% to $101m, largely driven by domestic stimulated cycles growth of +6.6% and average ARS revenue per stimulated cycle growth of +4.4%, partially offset by decline in ultrasound scan volumes. 
  • Adjusted EBITDA of $26.8m, increased +8.5% with volume leverage gained from increased domestic IVF activity partly offset by short-term margin declines in Ultrasound and Kuala Lumpur, pandemic related costs and $1m increase in medical malpractice and D&O liability insurance reflecting appropriate insurance policies in the current settings. 
  • Adjusted NPAT of $13.4m increased +11.7% and came in +3.1% ahead of management’s guidance. Reported NPAT declined -17.6% to $12.2m, primarily due to receipt of Job Keeper subsidies in pcp. 
  • FCF (excluding job keeper subsidy receipts in pcp) increased +51.6% to $9.7m, driven by 83% cash conversion of EBITDA to pre-tax operating cash flows and a decline of -42% in capex to $3.6m. 

Growing above industry growth and gaining market share

IVF industry fundamentals remain attractive including advanced maternal age and stable and continued government funding, which saw positive industry momentum continue in the half with industry volume growth at +3.6% and MVF recording above-industry growth of +6.6% resulting in market share gains of +70bps to an overall market share of 20.8% in key domestic markets. 

Company Profile

Monash IVF Group Ltd (MVF) offers assisted reproductive technology services, ultrasound services, gynecological services, in-vitro fertilization services, consultancy services and general clinical services to patients in Australia and Malaysia. MVF comprises 40 clinics and ultrasound practices and employs ~100 doctors and has a network of 650 associated health professionals. 

(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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Dividend Stocks

Brambles reported 1H22 results reflecting group revenue of US$ 2,766.4m, up +8%

Investment Thesis:

  • High quality company with a history of earnings and dividend growth.
  • Massive opportunity to convert white-wood users as well as the palletisation of emerging markets.
  • On-going on-market share buyback should support its share price.
  • Strong management team with proven ability to maintain cost margins amidst cost pressures through strategic business efficiencies.
  • Volume growth in the US Pallet business and improving outlook for margin.
  • BXB’s scale, existing customer base and balance sheet will ensure it remains a market leader in the mid-to-long term.
  • M&A activity

Key Risks:

  • Competitive pressures and cost inflation leading to margin erosion, particularly in the North American market. 
  • Operations are very capital intensive. 
  • Any further loss of large contracts significantly reducing revenue and earnings.
  • Weak economic conditions will lead to less consumption of FMCG, and hence less use of pallets.
  • Volatile whitewood prices.
  • Exposed to a wide range of currency and political risks. 
  • Reintroduction of widespread lockdowns in key regions.

Key Highlights 1H22 Results:

  • Group revenue of US$2,766.4m, +8% YoY in constant currency terms with contribution from all three reporting segments. Key components of top line growth: price realisation across all regions to recover inflation and cost-to-serve pressures contributed +8%; new contract wins contributed +2%; and like-for-like volume growth was down -2% due to the strong Covid-19 related demand in the previous corresponding period and pallet availability constraints during this year.
  • Underlying profit of US$481.2m was up +4%. Key components of group profit drivers over the half: impact of US$85m due to inflation across the group; US$93m impact from fuel and transport inflation across the group; US$35m impact from higher losses / lower returns (primarily in the U.S.); and US$24m costs associated with the transformation program.
  • Underlying EPS of US21.3cps was driven by higher operating earnings and benefit from the share buy-back programme. The Company declared an interim dividend of US10.75cps (or AUD15.06cps), representing a payout ratio of 50% (within target range of 45-60%).
  • Free cash flows after dividends over the half deteriorated by US$311.7m to an outflow of US$147.9m due to: (i) US$115m impact from the reversal of FY21 timing benefits comprising the US$80m of pallet purchases deferred from the prior year and US$35m relating to the timing of FY21 tax payments; (ii) capital expenditure jumped significantly due to lumber inflation of $270m and US$80m of additional pallet purchases (which were deferred from the prior year.
  • BXB’s financial ratios remain well within <2.0x financial policy, with net debt / EBITDA at 1.37x vs 1.18x in pcp.

Company Description: 

Brambles Limited is a supply-chain logistics company operating in more than 60 countries, primarily through the CHEP brands. Headquartered in Sydney, its largest operations are in North America and Western Europe. The company’s main segments are: pallets, reusable produce crate (RPCs) and containers. It services customers in the fast-moving consumer goods industries and also operates specialist container logistics businesses serving the automotive, aerospace, and oil and gas sectors. It employs more than 14,500 people and owns more than 550 million pallets, crates and containers through a network of more than 850 service centres.

(Source: Banyantree)

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