Category: Technology Stocks

Tech stocks refer to any stock involved in the technology sector, from semiconductor producers to software providers. Tech stocks are often a leading indicator for the economy and the stock market. Technology stocks generally follow the pattern of more innovation in the market & new development of product.

Categories
Technology Stocks

NXT retains a strong medium-term earnings growth outlook from ongoing cloud adoption

Young woman trading stock market by touching.

Investment Thesis

  • Australia is still in the early stages of cloud adoption. More efficient and cheaper broadband following the NBN’s implementation will drive demand from cloud providers for NXT’s assets. 
  • Extremely high-quality collection of sites. 
  • Focus on the premium end where pricing is more stable – Tier 4 gold centres. 
  • NXT has the balance sheet capacity to handle more debt and self-fund expansion through operating cash flow from the base buildings. 
  • Capital intensive nature of the sector provides a high barrier to entry. 
  • Government adoption of cloud and the subsequent need to outsource presents an opportunity.
  • Strong customer ecosystem creates a ‘sticky’ customer base who are unlikely to churn. 
  • National footprint allows Company to scale better than competitors. 
  • Margin expansions highlighting strong operating leverage. 
  • Additional capacity announced. 
  • M&A activity given the global demand for data.

Key Risks

  • No product diversification (NXT only operates data centres). 
  • Significant new supply of data centres by NXT and competitors. 
  • Delays in data centre build or ramp up, impacting earnings growth profile. 
  • Competitive pressures (price discounting by NXT or competitors).
  •  Higher power densities as a result of increasing average rack power utilization in Australia. 
  • Insufficient customer demand to achieve a satisfactory return on investments. 
  •  Failure to obtain sufficient capital on favourable terms may hinder NXT’s ability to expand and pursue growth opportunities. 
  •  Lease risk (NXT does not own the land or building where its data centres are situated).

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

  • Data centre services revenue of $144.5m was up +19%. 
  •  Underlying EBITDA of $85.0m, up +29%. 
  • Operating cash flow increased +9% to $69.5m. 
  • NPAT of $10.3m was a significant improvement from the $17.8m net loss in the pcp. 
  • NXT retained a strong liquidity position of $2.1bn, including undrawn debt facilities of $1.4bn at 1H22-end. Gearing (Net debt / (net debt + equity) increased to 16.6% from 7.3%. 
  •  Contracted utilisation increased 10.0MW, or +14% to 81.0MW. 
  • Customer numbers grew by 144, or +10% to 1,569.
  • Interconnections was up 1,968, or +14% to 15,879, and now equates to 7.3% of recurring revenue.

Company Description

NEXTDC Limited (NXT) is a Data-Center-as-a-Service (DCaaS) provider offering a range of services to corporate, government and IT services companies. NXT has a total of five data centers located in major commerce hubs in Australia, with three more due to be completed within the next 2 years. These facilities are network-neutral, meaning they operate independently of telecommunication and IT service providers. Currently NXT has a total of 34.7 MW built for data and serving housing, with a target to reach 104.1MW by the end of 1H18.

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

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

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate. Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities. Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

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

Categories
Technology Stocks

For PBH the Australian business performance was solid, whilst the U.S. business was awarded provisional license for Kansas

Investment Thesis

  • U.S. growth opportunity – the U.S. online sports betting market continues to open following the 2018 supreme court ruling which legalizes the industry. Market growth estimates forecast the industry to grow to US$51bn by 2033. 
  • Strong management team with a solid track record – the ability to grow market share in a competitive and mature market of Australia gives us some confidence the management team has the right strategy in place to build share in the U.S. 
  • Proprietary technology stack – The speed and usability are key differentiating factors. PBH operates proprietary technology, which it developed inhouse. This means new modifications and updates are easier to implement (i.e., more control) with inhouse tech versus outsourced (i.e., having to go to an external provider each time with an update). 
  • Cross sell opportunities with iGaming – PBH’s recently launched iGaming product (online casino) is already highlighting cross-sell opportunities to its customers.

Key Risks

  • Rising competitive pressures. 
  • Adverse regulatory change in key operating jurisdictions (Australia / U.S.). 
  • Loss of market share in key regions or growth rate fails to meet market expectations.
  • Higher than expected costs – especially around investment in sales & marketing to drive market share. 
  • Trading on high PE-multiples / valuations means the Company is more prone to share price volatility.
  •  Cyber-attack on PBH’s platform. 
  • Deeply discounted capital raising.

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

  • The Group’s net win for the year was $309.4m and net revenue of $296.5m, which was up +52% YoY.
  • Group gross profit of $121.6m was up +39% YoY, however gross profit margin was down to 41% from 45% due to a lower gross profit margin in the Australian trading business due to higher taxes and product fees, including an increase in the point of consumption tax in Victoria from 1st of July 2021. Also impacting margin was product mix with a higher contribution of revenue from betting events which attract higher product fees. 
  • Group sales and marketing expenses were up +38.7% YoY to $236.8m, with U.S. marketing up +36% to $162.6m, Australia up +20% to $61.5m and $12.8m for Canada. Management highlighted that they saw an aggressive uplift in competitor marketing spend in the US. In FY23, management does not expect U.S. marketing expense to exceed FY22 levels in the U.S. and will look to regionalize marketing expense and reduce spend in some of the less targeted acquisition channels. In Australia, FY23 marketing expense is expected to be slightly higher than FY22 levels. In Canada, FY23 marketing expense is expected to run annually at a quarterly rate similar to the Q422 marketing expense of C$7m. 
  • The Australian trading business reported net revenue of $195.2m, up +30% YoY and EBITDA of $7.7m was down -16.3% due to lower gross profit margins and higher marketing expense. 
  • U.S. trading business reported net revenue of $98.7m, up +133% YoY, and an EBITDA loss of $197.4m versus loss of $149.6m in the pcp, which was primarily driven by the U.S. marketing expense as PBH expanded operations across 10 U.S. states and grow U.S. based team. Management noted the progress they made during the year.
  • Corporate costs of $25.6m were significantly higher than $12.4m in the pcp due to higher employee benefits, listing costs, capital raising costs and start-up costs for Canada.
  • Group normalized EBITDA loss over FY22 was $243.6m versus a loss of $156.1m in the pcp – that is down – 56% YoY. Loss for the year was $266.9m versus $164.9m in the pcp. 
  • Balance sheet – the Company raised $400m via equity raising and a strategic placement of $94.2m to SIG Sports Investment Corp in Jun-22. The Company is adequately funded to execute on its strategy in the near term with a cash balance as at 30 Jun-22 of $473m.

Company Description

PointsBet Holdings Ltd (PBH), founded in 2015, is a corporate bookmaker with operations in Australia and the United States (New Jersey, Iowa, Illinois and Indiana). PointsBet has developed a scalable cloud-based wagering platform which offers customers sports and racing wagering products. PBH’s key products include fixed odds sports, fixed odds racing and Points Betting.

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

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

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate. Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities. Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

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

Categories
Technology Stocks

Pact Group reported disappointing FY22 results, despite the Company seeing increasing demand for recycled content

Investment Thesis

  • Solid market share in Australia and growing presence in Asia. Hence provides attractive exposure to both developed and emerging markets’ growth. 
  • Valuation is fair on the forward estimates. 
  • Management appears to be less focused on acquired growth going forward, which means there is a less of a chance for the Company to make a value destructive acquisition.
  • Reinstatement of the dividend is positive and highlights management’s confidence in future earnings growth. 
  • Focusing on sustainable packaging in an environmentally friendly market.

Key Risks

  • Competitive pressures leading to further margin erosion. 
  • Input cost pressures which the company is unable to pass on to customers. 
  • Deterioration in economic conditions in Australia and Asia. 
  • Emerging markets risk.
  •  Poor acquisitions or not achieving synergy targets as PGH moves to reduce its dependency on packaging for food, diary, and beverage clients to more high growth sectors such as healthcare.
  •  Adverse currency movements (purchased raw materials in U.S. dollars)

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

  • Revenue of $1,838m was up +4%, driven by solid demand for sustainable packaging and recycled products.
  •  FY22 underlying EBIT was in line with guidance provided at 1H22. However, underlying EBIT of $156m, was down -15%, with EBIT from Packaging & Sustainability of $110m, up +5% more than offset by declines in Material Handling & Pooling underlying EBIT of $50m, down -8%, and Contract Manufacturing underlying EBIT, which saw a loss of -$4m (versus $24m in the pcp).
  • Underlying NPAT of $70m was down -25% largely due to the absence of one-off revenue in the Contract Manufacturing segment recorded in FY21. Reporting NPAT of $12m was significantly down – 86%. 
  • The Board declared a final dividend of 1.5cps, franked to 65%, which brings FY22 total dividend to 5cps, down -55% and equates to a payout ratio of 25% of underlying NPAT. 
  • PGH acquired Synergy Packaging for ~$20m which adds to sustainable health and beauty packaging. 
  • PGH began operations at Circular Plastics Australia (PET) recycling facility in Albury-Wodonga with international food grade certification in place and producing recycled resin for joint venture partners. 
  • PGH maintained gearing of 2.7x, within its target range, with net debt at $561m, $24m lower than pcp, and operating cash conversion of $253m. 
  • Packaging and Sustainability. The segment achieved reported revenue of $1.209 billion, up +7% and underlying EBIT of $110m, up +5%, despite tough trading conditions, driven by strong results in the New Zealand dairy and fresh food businesses, large format industrial packaging in Australia, and contract wins in the Asian closures business. 
  • Materials Handling and Pooling. The segment saw reported revenue of $354m, up +3% but a decline in underlying EBIT of -8% to $50m. A strong performance in Pooling which saw volume growth against the backdrop of supply chain challenges, and growth in Infrastructure business was offset by a slowdown in activity in Sulo mobile garbage bin business as local councils delayed tenders for bin contracts.
  • Contract Manufacturing. As previously advised in 1H22 by management, the segment reported a decline in revenue of -5% to $306m and underlying EBIT loss of $4m, with the segment impacted negatively in 2H22 by elevated raw material pricing, supply chain costs, and lower volumes.

Company Description

Pact Group Holdings Ltd (PGH) was established by Raphael Geminder in 2002 (Mr. Geminder remains a major shareholder with ~44% and is the brother-in-law of Anthony Pratt, Chairman of competitor Visy). Pact has operations throughout Australia, New Zealand and Asia and conceives, designs, and manufactures packaging (plastic resin and steel) for many products in the food (especially dairy and beverage), chemical, agricultural, industrial and other sectors.

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

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

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate. Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities. Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

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

Categories
Technology Stocks

Iress Ltd (IRE) reported FY21 Results in line with management’s earnings guidance

Investment Thesis

  • Solid FY22 earnings guidance. 
  • Current share price is trading below the blended valuation and offers a >10% upside. 
  • 50% of the $100m buyback will be purchased in 2022, which should support IRE’s share price. 
  • Growing quantum of superannuation/pension bodes well for IRE’s clients, which bodes well for demand for IRE’s products.
  • IRE’s products are firmly entrenched within Australia, UK and South African financial market players (i.e. IRESS terminals and XPLAN). For instance, in ANZ Wealth Management segment, increasing dynamic of self-licensing by practices, high client retention and increasing demand for integrated solutions, are all key revenue themes. Over 90% of revenue is recurring. 
  • Strong continuing momentum in the core growth markets of ANZ Wealth Management, and South Africa and the UK. 
  • New product roll-out providing growth opportunities. 
  • Solid balance sheet and capable management team.

Key Risks

  • Less subscription due to declining sell-side and buy-side demand as well as financial planners. 
  • Competitive platforms/offering (new disruptive technology); improved features and innovation from competition. 
  • Associated risks in relation to system, technology and software. 
  • Regulatory and structural changes in the finance sector impacting clients and their needs.
  • Deterioration in equity and debt markets which may have a negative impact on terminal demand. 
  • Further deterioration with its Canadian segment.

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

  • Segment profit: excluding Mortgages, $160-165m, versus $151m in FY21, or including Mortgages $177- 183m, versus $166m in FY21. 
  • Underlying NPAT: excluding Mortgages, $61-67m, versus $47m in FY21, or including Mortgages $74-81m, versus $59m in FY21. 
  • NPAT: excluding Mortgages, $50-58m, versus $62m in FY21, or including Mortgages $63-72m, versus $74m in FY21. 
  • Pro forma revenue $600.2m, was up +3%. 
  • Pro forma segment profit $166.4m, was up +6%.
  • Pro forma EPS of 30.9cps was up +12%. 
  • The final dividend is 30cps, franked to 15% bringing the full year 2021 dividend to 46.0 cents per share, franked at 38% (average weighted). Franking of interim dividend was high in context of EQT bid. 
  • IRE maintains conservative gearing levels and leverage remains below the neutral setting of 2.0x

segment profit (currently at 1.4x).

Company Description

IRESS Ltd (IRE) is an ASX-listed company that specialise in software for the finance industry, with a focus on financial markets, wealth management and superannuation. IRE operates in the Asia-Pacific, UK, South Africa and Canada.

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

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

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

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

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

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

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

Categories
Technology Stocks

ANN’s operations in 1H22 were adversely impacted by Covid-19 including manufacturing shutdowns

Finance and Economy Chart for Dollar Gold Euro Currencies Trading View

Investment Thesis:

  • Based on the valuation, ANN’s share price trades at a >10% discount to the DCF valuation.
  • ANN is a quality business with global manufacturing capabilities.
  • In 5-yr forward earnings estimates are on the conservative side and capture the moderating growth likely to be seen from the elevated levels experienced in FY21.
  • FX translation should be positive for the Company.
  • Raw material cost pressures can be shared with customers and suppliers.
  • ANN has a strong balance sheet position with flexibility to return cash to shareholders or borrowing capacity for acquisitions.

Key Risks:

  • Product recall.
  • Trade wars escalate, leading to higher tariffs.
  • Increase in competitive pressures.
  • Adverse movements in AUD/USD.
  • Emerging or developed market growth disappoints.
  • Any worse or better prices for raw materials.

Key Highlights:

  • Capital management. ANN has ample liquidity of ~$550m in cash and committed undrawn bank facilities, and conservative gearing profile (net debt/EBITDA of 1x vs 0.7x in pcp), despite net debt increasing +61.3% over pcp to $382.1m.
  • The Board declared an interim dividend of US 24.25 cps, down -26.9% YoY, representing ~40% payout ratio.
  • Cashflow. The Company delivered operating cash outflow of $22.1m (vs inflow of $12m in pcp) and cash conversion of 59.7% (after adjusting for short term incentives and insurance paid in half but relating to the full year), impacted by lower net receipts due to reduced profitability, higher working capital given lower payables as a result of timing and lower pricing from outsourced suppliers as well as payment of variable employee costs pertaining to FY21.
  • 1H22 results summary. Sales increased +7.6% over pcp (+7.5% organic growth) to $1,009.2m as Healthcare GBU organic growth of +14.8% was partially offset by Industrial GBU organic sales decline of -2.9%.
  • GPADE margins declined -860bps over pcp to 27.3% due to selling of high-cost Exam/SU inventory from outsourced suppliers at lower prices, Covid-19 related manufacturing disruptions and higher freight costs.
  • EBIT declined -24.3% over pcp (-30.6% in CC) to $111m with margin declining -460bps to 11%, with decline in GPADE partially offset by reduced SG&A driven by continued cost discipline and lower variable employee costs.

Company Description:

Ansell Ltd (ANN) operates two global business units: (1) Ansell’s Industrial segment manufactures and markets multi-use protection solutions specific for hand, foot, and body protection, for a wide-range of industries such as automotive, chemical, metal fabrication; (2) Ansell’s Healthcare segment (Medical + Single Use) offers a full range of surgical and examination gloves covering all applications, as well as healthcare safety devices and active infection protection products. The segment also manufactures and markets single use hand protection. Ansell recently sold its Sexual Wellness Global Business Unit group.

(Source: Banyantree)

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

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

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

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

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

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

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

Categories
Technology Stocks

Danaher continues to prune its portfolio of businesses

Business Strategy & Outlook

Through the Danaher Business System, Danaher aims for continuous improvement of its scientific technology portfolio by seeking out attractive markets and then making acquisitions to enter or expand within those fields and divest assets that are no longer seen as core. After acquisitions, Danaher aims to accelerate core growth at acquired companies by making R&D and marketing-related investments. It also implements Lean manufacturing principles and administrative cost controls to boost operating margins. Overall, Danaher’s strategic moves are appreciable, which have pushed it into attractive end markets with strong growth prospects and sticky, recurring revenue streams. For example, recurring revenue could reach about 80% of sales after the pending environmental and applied solutions (EAS) group divestiture in late 2023.

Danaher’s acquisition-focused strategy has contributed to it becoming a top-5 player in the highly fragmented and relatively sticky life science and diagnostic tool markets less than 20 years after its first acquisition in the space (Radiometer in 2004). Recent life science and diagnostic acquisitions have included Beckman Coulter, Pall, and Cepheid. In early 2020, Danaher completed the acquisition of GE Biopharma, now called Cytiva, which fills in some gaps for Danaher within the biopharmaceutical development and manufacturing tool market. Within the life sciences field, the end market is particularly attractive given its strong growth trajectory, high margins, and high switching costs associated with regulatory and reproducibility concerns of end users. Management has started making more acquisitions in that space, such as Aldevron, and expects more tuck-in acquisitions in this and other end markets. Danaher also continues to prune its portfolio of businesses. The planned EAS group divestiture is just the latest for the company that distributed shares in the now publicly traded Fortive Corp (industrials) in 2016 and Envista (dental) in 2019 directly to shareholders. More divestitures are possible in the future, as well.

Financial Strengths

Danaher’s acquisition-focused strategy makes financial flexibility and capital market access important. In recent years, the company has issued debt to make significant acquisitions, such as Beckman Coulter (2011), Pall (2015), Cepheid (2016), and Cytiva (2020) before deleveraging to more manageable levels again. At the end of 2021, gross leverage stood at just 2 times, including COVID-19-elevated profits. Danaher has expressed a desire to maintain its investment-grade status, and it should be achievable. However, the company is highly acquisitive, and future acquisitions could significantly boost leverage from current levels before the company aims to return to more manageable levels.

Bulls Say

  • The Danaher Business System focuses on continuous improvement, including the acceleration of core growth and margin expansion through marketing initiatives and innovation, which appears positive for Danaher’s long-term prospects. 
  • Danaher’s shift to healthcare markets has created a less cyclical business in attractive markets with high barriers to entry and impressive recurring consumables revenue streams. 
  • Danaher has plenty of opportunities to consolidate and improve performance in its targeted life science and diagnostic end markets.

Company Description

In 1984, Danaher’s founders transformed a real estate organization into an industrial focused manufacturing company. Through a series of mergers, acquisitions, and divestitures, including the Fortive separation in 2016, Danaher now focuses primarily on manufacturing scientific instruments and consumables in three segments: life sciences, diagnostics, and environmental and applied solutions. In late 2019, Danaher separated from its dental business through an initial public offering process, and in early 2020, it acquired GE’s Biopharma business, now called Cytiva, which added to its life sciences segment.

(Source: Morningstar)

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

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

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

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

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

Categories
Technology Stocks

Xero Ltd (XRO) delivered strong top-line growth in FY22 driven by YoY growth

Modern financier with papers sitting in front of computer monitor with chart and graph of sales rate

Investment Thesis

  • Competent leadership team with a proven track record of delivering strong growth (Strong top-line momentum driven by strong support of accountants and bookkeepers with annualised monthly recurring revenue increasing at CAGR 32% and strong subscriber growth with positive LTV (Lifetime Value) trends (over FY17-22, ANZ LTV grew at CAGR 34% and International LTV grew at CAGR 49%). 
  • Solid product offering that is secure, scalable and efficient technology which is competing against competitors with technology that has legacy issues. XRO’s small business platform is an ecosystem of more than 700 connected apps backed by a community of more than 50,000 users of XRO’s API developer tools. Going forward the Company could potentially increase its revenue by monetising its platform in other ways like charging third party app developers. 
  • Potential for meaningful acquisitions to fill gaps in product capability. The Company is well positioned to make acquisitions going forward (given its balance sheet and funding status). 
  • The Company continues to focus on cloud accounting, and there’s a significant upside potential in the sector given the fact that the current levels of small business cloud accounting adoption globally is estimated to be less than 20% of the total market or opportunity across English-speaking countries in which the Company operates. 

Key Risks

  • Decrease of migration to cloud software. 
  • Currency headwinds due to weakening of NZ$ relative to AUD, USD and Pound. 
  • Deteriorating sentiment if the economy and IT spending weakens. 
  • Excessive competition from other established players like Intuit leading to loss of market share.
  • Inability to extract higher operational efficiencies as the Company scales up. 
  • Issues in gaining market share especially in markets with established incumbents 

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

  • Operating revenue grew +29% YoY (+30% in CC) to $1.1bn, with Core accounting revenue up +23% driven by subscriber growth (up +19% YoY to 3.3 million) and ARPU increases (driven by price increases) and Platform revenue up +113% (to account for 11% of total operating revenue) driven by growth in payments, payroll and revenues from recently acquired businesses including Planday. 
  • Gross profit increased +31% YoY to $957.4m with margin improving +130 bps to 87.3% (includes the operations of Planday), largely due to efficiency gains in customer support teams and hosting costs for cloud-based products.
  • Total operating expenses, inclusive of acquisition integration costs, increased +39% YoY, reflecting greater investment in product design and development and sales and marketing expenses as travel cost resumed, resulting in -32% YoY decline in operating profit to $42m. 
  • Net loss was $9.1m vs net profit of $19.8m in FY21, impacted by a fair value revaluation gain on contingent consideration of $38.9m, a new revenue incentive with Planday management resulting in a $10.5m expense and goodwill impairment relating to the acquisition of Waddle of $20.4m. 
  • Free cash flows declined -96% YoY to $2.1m as +8% YoY increase in operating cash flow was more than offset by +117% YoY increase in investments. XRO has $150m of undrawn committed debt facilities. 
  • Total LTV increased +43% YoY to $10.9bn in FY22 (equating to 5-year CAGR of +34% for ANZ and +49% for International), equating to LTV/CAC (LTV/customer acquisition cost) of 6.9x (up +0.5x YoY), driven by good progress on subscriber growth, a marked improvement in average revenue per user (ARPU) of +7% YoY (+9% in CC), along with a -11bps YoY decline in monthly churn to 0.90%, which remained consistently below pre-Covid pandemic level. 

Company Description

Xero Ltd (XRO) is a software as a service (SaaS) company, engaged in the provision of a platform for online accounting and business services to small businesses and their advisors. The Company operates through two operating segments: Australia and New Zealand (ANZ), and International (UK + North America + Rest of the World).

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

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

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

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

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

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

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

Categories
Technology Stocks

Driven by strong top line revenue growth, WTC increasing organization-wide efficiencies and acquisition synergies

Male gamer in headphones holds joystick and playing videogame on console or desktop PC, gaming lifestyle, cybersport. Computer games player in his room with neon light, streamer

Investment Thesis

  • 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 noted 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.

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

  • 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 12 bps. CargoWise’s 1H22 EBITDA margin of 58% represents an increase of 4pp on 1H21.
  • Underlying NPAT of $77.3m, up +77%. 
  • WTC generated 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 Description

WiseTech Global (WTC), founded in October 1994, is a leading provider of software to the logistics services industry globally. WTC develops, sells and implements 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.

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

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

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

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

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

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

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

Categories
Technology Stocks

Elastic’s strong net retention rate—close to 130%—is evidence of the upselling strategy’s success

Business Strategy & Outlook

Elastic’s prospects in the full-stack monitoring, security, and search markets looks positive. The firm’s products benefit from secular tailwinds driving an accelerating increase in data for enterprises to secure, search through, and monitor. The firm’s sticky product portfolio, broad swath of products that enable clients to conduct a variety of mission-critical tasks, and increased penetration in the enterprise market have enabled Elastic to form a narrow economic moat around its business. As the volume of data increases, so does its impact on an enterprise’s decisions. More data brings greater complexity, nefarious activity, and search-oriented use cases. This increase in data, and the corresponding complexity, is driven by an uptick in cloud migrations and digital transformations. These secular trends enable a long runway for growth for Elastic. Elastic’s products are critical for its clients as they allow them to gather insights, detect and triage nefarious activity, and improve their IT stack efficiency. While Elastic is well entrenched in search, full-stack monitoring and analysis and security are the key growth verticals for the firm. Elastic has plenty of greenfield opportunities to exploit in these two verticals in the near to medium term. To this end, the firm has been investing heavily in its sales and research divisions, a strategy that is sound. In addition, with different use cases enabled by its three end markets, Elastic has a big cross-selling opportunity ahead of it.

As Elastic lands and expands its customer base, the benefits of the cross-selling opportunity at play. As a client adopts a multiproduct offering, Elastic’s entrenchment in that client’s ecosystem increases. This entrenchment subsequently results in a higher client lifetime value. The firm’s strong net retention rate—close to 130%—is evidence of the upselling strategy’s success. With the ability to consistently add new customers and subsequently upsell them, Elastic has strong long-term growth prospects.

Financial Strengths

Elastic’s financial position is healthy. Elastic ended fiscal 2022 with more than $860 million in cash and cash equivalents. While the firm has since taken on debt of more than $500 million recently, Elastic’s cash generation over the forecast will far outstrip its commitments over the same period. Elastic is to generate strong free cash flow margins, increasing its operating leverage while driving its top line forward. This trend is typical within the high-growth software space as investments in sales and research in the near term reap rewards in terms of durable cash flows in the later years. There’s no material change in Elastic’s capital structure. The firm is to raise capital by either issuing more equity or taking advantage of low interest rates and issuing debt.

Bulls Say

  • Elastic has strong secular tailwinds as the FSMA and security markets are expected to grow rapidly.
  • Elastic’s multi prong product strategy, including its search, security, and FSMA offerings, can offer different points of entry into potential clients’ IT ecosystems.
  • Elastic is competing in markets that are filled with greenfield opportunities.

Company Description

Elastic is a software company based in Mountain View, California, focusing on search-adjacent products. Its search engine allows it to process both structured and unstructured data while gleaning insights from that data. The firm’s primary focus is on enterprise search, observability, and security.

(Source: Morningstar)

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

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

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

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

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

Categories
Technology Stocks

Pact Group (PGH) reported disappointing FY22 results, despite the Company seeing increasing demand for recycled content

Investment Thesis

  • Solid market share in Australia and growing presence in Asia. Hence provides attractive exposure to both developed and emerging markets’ growth. 
  • Valuation is fair on the forward estimates. 
  • Management appears to be less focused on acquired growth going forward, which means there is a less of a chance for the Company to make a value destructive acquisition. 
  • Reinstatement of the dividend is positive and highlights management’s confidence in future earnings growth. 
  • Focusing on sustainable packaging in an environmentally friendly market.

Key Risks

  • Competitive pressures leading to further margin erosion. 
  • Input cost pressures which the company is unable to pass on to customers. 
  • Deterioration in economic conditions in Australia and Asia. 
  • Emerging markets risk. 
  • Poor acquisitions or not achieving synergy targets as PGH moves to reduce its dependency on packaging for food, dairy, and beverage clients to more high growth sectors such as healthcare.
  • Adverse currency movements (purchased raw materials in U.S. dollars)

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

  • Revenue of $1,838m was up +4%, driven by solid demand for sustainable packaging and recycled products. 
  • FY22 underlying EBIT was in line with guidance provided at 1H22. However, underlying EBIT of $156m, was down -15%, with EBIT from Packaging & Sustainability of $110m, up +5% more than offset by declines in Material Handling & Pooling underlying EBIT of $50m, down -8%, and Contract Manufacturing underlying EBIT, which saw a loss of -$4m (versus $24m in the pcp).
  • Underlying NPAT of $70m was down -25% largely due to the absence of one-off revenue in the Contract Manufacturing segment recorded in FY21. Reporting NPAT of $12m was significantly down – 86%. 
  • The Board declared a final dividend of 1.5cps, franked to 65%, which brings FY22 total dividend to 5cps, down -55% and equates to a payout ratio of 25% of underlying NPAT.
  • PGH acquired Synergy Packaging for ~$20m which adds to sustainable health and beauty packaging. 
  • PGH began operations at Circular Plastics Australia (PET) recycling facility in Albury-Wodonga with international food grade certification in place and producing recycled resin for joint venture partners. 
  • PGH maintained gearing of 2.7x, within its target range, with net debt at $561m, $24m lower than pcp, and operating cash conversion of $253m.

Company Description

Pact Group Holdings Ltd (PGH) was established by Raphael Geminder in 2002 (Mr. Geminder remains a major shareholder with ~44% and is the brother-in-law of Anthony Pratt, Chairman of competitor Visy). Pact has operations throughout Australia, New Zealand and Asia and conceives, designs, and manufactures packaging (plastic resin and steel) for many products in the food (especially dairy and beverage), chemical, agricultural, industrial and other sectors.

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

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

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

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

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

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

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