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Commodities Trading Ideas & Charts

Targa’s longer-term growth picture over the next few years will be its Permian G&P position.

Business Strategy & Outlook

Targa Resources is primarily a gatherer and processor, or G&P, of natural gas with an attractive position in the Permian Basin and other key U.S. shale plays. The firm weathered a very difficult 2020 via sharply reduced capital spending, a nearly 90% dividend reduction, and expense cuts. With a more stable 2021, it reduced debt by $1 billion that year, which was a good move. With leverage now at reasonable levels, returning the dividend to $1.40 a share from $0.40 per share annually makes sense. Targa’s longer-term growth picture over the next few years will be its Permian G&P position (where it added substantial assets with Lucid), liquefied petroleum gas exports, and the ramp-up of the Grand Prix natural gas liquids pipeline. The long-term concerns about the G&P business, because the high level of competitive intensity within the Permian will keep returns extremely low. 

Targa is by no means particularly conservative on capital spending plans–its initial 2021 growth spending plans were twice to original expectations, as the rest of the midstream space hunkered down. While one has long expressed concerns about the leverage impact of the repurchase of the Stonepeak joint venture assets, Targa bought back the assets for $925 million, and then immediately sold off the Grand Coast Express stake for $857 million, essentially making the deal leverage neutral as management expected. Despite concerns about the G&P assets, were optimistic about the future of LPG exports and Grand Prix. LPG exports are largely under contract and sent mainly to Asian and Latin American markets. India remains a potentially attractive option under a government scheme designed to encourage LPG usage. Targa has wisely expanded its export capacity recently, and volumes are at record levels. The Grand Prix NGL pipeline will be a highly attractive asset that takes advantage of Targa’s position in the Permian Basin to move over 425,000 barrels per day of NGLs by the estimates in 2022 (expandable to 550,000 b/d) to Mont Belvieu, and links Targa assets at both ends of the pipe, giving it more control over the molecules and ability to earn multiple fees.

Financial Strengths

In 2020, Targa’s financial health was among the weakest in the midstream coverage universe. That has changed in a strong energy market in 2021 and Targa’s own efforts to fix its balance sheet. Targa has repaid $1 billion in debt in 2021, funded with strong earnings and lots of free cash by cutting the dividend and capital spending, and leverage fell to 3.2 times by year-end, a commendable accomplishment for a firm that has historically run well over 4 times leverage. Before the Lucid deal for $3.55 billion, the expected leverage to decline to below 3 times in 2022, but it will end up around 3.5 times. After many years of operating as non-investment grade, Targa finally earned investment-grade ratings in 2022. Still, Targa’s exposure to weaker customers is greater than peers’, as it disclosed that less than half of its revenue by the estimates is from investment-grade or letter of credit-backed customers. Peers tend to be around 75%-85% investment-grade or letter of credit-backed. Targa has boosted the dividend to $1.40 per share annually in November 2021, up from the $0.40 annually it paid out since March 2020. Previously, the payout was $3.64 annually. Share buybacks seem less likely after the Lucid deal, as Targa will not have any excess cash flow in 2022.

Bulls Say

  • Targa is leveraged to the high-growth Permian, and its Grand Prix pipeline has been an important growth engine. 
  • Targa has reduced debt by $1 billion in 2021, which is a good accomplishment for what has historically been a highly leveraged firm. 
  • Targa is a significant fractionation player at the attractive Mont Belvieu hub.

Company Description

Swatch Group’s biggest brands are Omega (number-two Swiss watch brand by sales after Rolex), Longines (the largest premium watch brand and number four by sales globally), Breguet, Tissot (the leader in mid range Swiss watches), and Swatch. Swatch group employs over 31,000 people, half of them in Switzerland. The Swatch Group makes about 28% of its sales from Omega, 18% from ultra luxury brands, 20% from Longines, 12% from Tissot, and 4% from Swatch. The Omega and Longines to be the group’s most profitable brands.

(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.

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Commodities Trading Ideas & Charts

NextEra Well Positioned for Renewable Energy Growth

Business Strategy & Outlook:   

NextEra Energy’s high-quality regulated utility in Florida and fast-growing renewable energy business give investors the best of both worlds: a secure dividend and industry-leading renewable energy growth potential. NextEra’s regulated utility, Florida Power & Light, benefits from constructive regulation that offers high allowed returns, little regulatory lag, and low customer rates. Florida’s strong economy and population growth through 2026. The utility plans to invest $32 billion to $34 billion from 2022-25, supporting 9% rate base growth. Growth opportunities include continued solar generation build out, storm hardening investments, and transmission and distribution infrastructure. The recent Florida rate case outcome supports our view that FP&L enjoys industry-leading constructive regulation. The outcome allows for a target 10.6% allowed return on equity, one of the highest among its peer group, with a range of 9.7%-11.7%. The rate case outcome also supports hydrogen, electric vehicle programs and storm hardening.

The company’s highly contracted competitive energy business, NextEra Energy Resources, has proved to be a best-in-class renewable energy operator and developer. The company was an early adopter of wind generation, building a competitive advantage by securing some of the country’s most desirable locations and locking in 20-year contracts with price escalator clauses. NextEra’s current plans shift the focus to solar. Roughly half its planned renewable energy growth through 2026 will be solar, with the remaining a mix of wind and energy storage. Higher costs could threaten near-term renewable energy development, but high fossil fuel costs have helped maintain renewable energy’s relative economic advantage. Management’s continued execution on its NEER development program gives us confidence that NextEra will deliver on its 28 gigawatts to 37 GW development target range in 2022-25. Investments in green hydrogen, transmission, and water utilities present additional growth opportunities.

Financial Strengths:  

We forecast that NextEra will invest over $90 billion through 2026, requiring it to be a frequent debt issuer. We expect NextEra to continue to tap project financing, including tax equity, to build out its renewable energy fleet. The company has manageable long-term debt maturities, and we anticipate that it will be able to refinance its debt as it comes due and maintain its debt/capital ratio. We expect the firm to tap the equity markets in line with its current capital structure. We expect total debt/EBITDA to remain near 5.0 times. Even with its large capital expenditure program, NextEra maintains a strong balance sheet, particularly for an integrated electric utility, and an investment-grade credit rating. We expect debt/capital to average 60% through our 2026 forecast. Interest coverage should average over 5.5 times. NextEra has ample cash liquidity and borrowing capacity available under its master revolving credit facility. We believe NextEra’s dividend is well covered with its regulated utilities’ earnings. We forecast 9% average dividend increases through 2026 with the payout ratio remaining around 60%.

Bulls Say:

  • FP&L operates in one of the most constructive regulatory environments with numerous capital investment opportunities.
  • NEER has benefited from renewable energy federal tax credits, but state renewable portfolio standards, corporate purchases, and attractive economics are now driving investments in renewable energy.
  • Management’s long runway of capital investment opportunities support our industry-leading 9% annual earnings growth outlook from 2022-26.

Company Description:  

NextEra Energy’s regulated utility, Florida Power & Light, distributes power to more than 5 million customers in Florida. FP&L contributes more than 60% of the group’s operating earnings. The renewable energy segment generates and sells power throughout the United States and Canada. Consolidated generation capacity totals more than 50 gigawatts and includes natural gas, nuclear, wind, and solar assets.

(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.

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Commodities Trading Ideas & Charts

Favorable Energy Markets Lift Vistra’s Near-Term Outlook

Business Strategy & Outlook:   

Vistra Energy’s emergence from the Energy Future Holdings bankruptcy in 2016 has been a success for the most part. The company has produced solid returns through volatile commodity markets while shifting its business mix toward retail and clean energy. The only significant bump in the road has been winter storm Uri that hit Texas in February 2021, causing more than $2 billion of gross losses. As an independent power producer and retail energy supplier, Vistra has a much different risk profile than most utilities. Vistra is subject to the whims of the U.S. electricity and natural gas markets. Energy market volatility and excessive leverage led EFH into bankruptcy just seven years after several high-profile investors closed a $45 billion leveraged buyout, the largest ever at the time. Even Warren Buffett reportedly lost nearly $900 million in the deal. Vistra’s clean post-bankruptcy balance sheet allowed it to acquire Dynegy in 2018 for $2.27 billion, more than tripling the size of its generation fleet and introducing Vistra to power markets outside Texas, notably the Midwest and Northeast. The rock-bottom price Vistra paid and cost synergies have made the deal value-accretive.

 Vistra produces substantial free cash flow before growth, given minimal core investment needs. Management is expanding the retail energy business to hedge its wholesale generation market exposure and is investing in clean energy projects like utility-scale solar and batteries. We expect this strategy to continue as Vistra tries to dilute its fossil fuel exposure. Retail supply earnings could climb to one third of consolidated earnings on a normalized basis after Vistra’s recent acquisitions and continued customer growth. This could result in more stable cash flows, a durable dividend, and regular share buybacks if management executes its strategy. Vistra’s largest shareholders, notably Brookfield and Apollo, were creditors as Vistra went through bankruptcy. Both started exiting their positions in 2018 and 2019, and we expect that selling to continue.

Financial Strengths:  

After the setback from the Texas winter storm losses in February 2021, Vistra’s quest to earn investment-grade credit ratings and reach 2.5 net debt/EBITDA stalled. However, the company remains in a solid financial position with plenty of liquidity. Management has shifted its focus toward returning capital to shareholders through stock buybacks and dividends rather than achieving investment-grade credit ratings immediately. Vistra’s $2 billion preferred issuance in 2021 with an 8% dividend floor all but ensures it will take several more years to earn investment-grade ratings. We think Vistra generates enough cash flow to execute management’s five-year, $6 billion stock-repurchase plan and dedicate $300 million annually for the dividend. However, we consider this a base plan that could change if Vistra sees small acquisition opportunities or needs financial flexibility to handle a downturn. The board authorized a $2 billion share-repurchase plan in late 2021, replacing a largely unused $1.5 billion plan from 2020. We also expect Vistra to invest nearly $2 billion in clean energy projects during the next few years. The combination of stock buybacks and a $300 million annual allocation to the dividend means the dividend could top $1.00 per share by 2025, up from $0.50 when the board initiated the dividend in 2019 and surpassing management’s initial 6%-8% annual growth target. Vistra exited bankruptcy in 2016 with just $4.5 billion of medium-term debt. Consolidated debt grew to $11 billion after the 2018 Dynegy acquisition before Vistra began reducing its leverage.

Bulls Say: 

  • Vistra’s debt reduction in 2019-20 gives it financial flexibility to repurchase stock, raise the dividend, and invest in growth projects in 2022 and beyond. 
  • Despite a recent surge in gas prices, Vistra’s relatively new, efficient gas fleet allows it to earn higher margins than its peers with older, less-efficient power plants. 
  • The retail-wholesale integrated business model reduces risk and market transaction costs, allowing Vistra to be a low-cost provider, especially in its primary Texas market.

Company Description:  

Vistra Energy emerged from the Energy Future Holdings bankruptcy as a stand-alone entity in 2016. Vistra is one of the largest power producers and retail energy providers in the U.S. It owns and operates 38 gigawatts of nuclear, coal, and natural gas generation in its wholesale generation segment after acquiring Dynegy in 2018. Its retail electricity segment serves 4.3 million customers in 20 states. Vistra’s retail business serves almost one third of all Texas electricity consumers. 

 (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
Commodities Trading Ideas & Charts

Littelfuse is a differentiated supplier of electrical protection into cars and industrial applications.

Business Strategy & Outlook

Lithium Americas aims to become a low-cost pure-play lithium producer. The company has no current lithium sales volumes but is developing three resources that should eventually enter production, with the first project to enter production by the end of 2022. Cauchari-Olaroz and Pastos Grandes are brine resources located in northwestern Argentina. Thacker Pass is the company’s clay resource in the U.S. state of Nevada. As electric vehicle adoption increases, the maintained double-digit annual growth for lithium demand. Lithium Americas should benefit as there should be more than enough demand for company’s three resources to enter production and expand capacity over time.

At Cauchari-Olaroz, Lithium Americas owns 44.8% of the project, while Ganfeng, one of the world’s largest lithium producers, owns 46.7%. The remaining 8.5% stake is owned by JEMSE, an Argentina state-owned mining company. Once Cauchari-Olaroz enters production and begins ramping up volumes, the project should have a similar cost position as other Argentinean brines, such as the resources of narrow-moat Livent and Orocobre. The project plans to bring an initial 40,000 metric tons of capacity later this year, with plans for additional expansions. LAC owns 100% of the Pastos Grandes project. Located close to the Cauchari-Olaroz project in Argentina, Pastos Grandes is currently under development. The project aims to produce 24,000 metric tons per year. LAC also owns 100% of the Thacker Pass resource. The project faces legal opposition from environmental groups that could cause delays, however, the project will eventually enter production. Thacker Pass would be the first clay-based lithium resource to enter production globally. Currently, all lithium is produced from either brine (primarily in South America) or hard rock mining that produces spodumene (primarily in Australia) Thacker Pass plans on bringing on an initial 40,000 metric tons of capacity, with additional expansion plans.

Financial Strengths

Lithium Americas is in a solid financial position. As of March 31, Lithium Americas had $290 million in total debt and $492 million in cash on its balance sheet. While debt levels remain low, Lithium Americas will need to contribute nearly $67 million for its share of capital expenditures to finish construction of the Cauchari-Olaroz project. However, the company has sufficient cash to manage these payments. Lithium Americas can also access $75 million in undrawn cash from its loan and credit facilities. LAC has refinanced its construction facility into convertible long-term debt. With a conversion rate of $47.10 per share, which is slightly above the value estimate, the financing term as favorable for existing shareholders. As Cauchari-Olaroz enters production in 2022, the project should begin to generate positive cash flows in subsequent years, allowing the project to fund capacity expansions. LAC should also be able to use some of its share of profits to invest in the construction of the Thacker Pass project. Management is exploring bringing in a partner on the project and applied to secure low-cost debt financing from the U.S. Department of Energy for 50% to 60% of the Phase 1 capital expenditures. If the company decides to remain the sole owner of the project and secures low-cost debt, it could be funded through equity issuances. As LAC progresses on developing the Pastos Grandes project, the company will likely have to issue additional equity or debt, or find a partner, in order to fund construction. In February, LAC announced the company is considering a separation into two companies, with assets divided based on geography. One company would hold the Argentina-based Cauchari-Olaroz and Pastos Grandes assets. The other company would hold the U.S.-based Thacker Pass assets. 

Bulls Say

  • Through the ownership of three large lithium resources, Lithium Americas should be able to enter the lithium industry and become a major producer globally with one of the lowest-cost lithium carbonate resources and one of the largest rock-based resources globally. 
  • As a lithium pure play, Lithium Americas is well positioned to increase profits from EV growth through lithium batteries. 
  • Lithium prices will remain well above the marginal cost of production through at least the remainder of the decade, leading to excess profits and return on invested capital for Lithium Americas.

Company Description

Lithium Americas is developing three lithium production assets, two brine resources located in northwestern Argentina and a clay resource in Nevada, U.S. While the company has no current lithium production, the first Argentina resource, Cauchari-Olaroz, to enter production in late 2022. The Nevada project, Thacker Pass, to enter production in the middle of the 2020s and the second brine resource, Pastos Grandes, to enter production in the late-2020s. Lithium Americas plans for all three resources to be fully integrated, selling into the lithium chemical market. The company is also exploring separating into two companies, with assets divided by geography, an Argentina company and a U.S. company.

(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
Commodities Trading Ideas & Charts

Enel’s Attractive Fundamentals are not Priced In

Business Strategy & Outlook:   

Enel has been suffering from high leverage stemming from the acquisition of Endesa at the top of the cycle in 2008. Sovereign debt crises in Spain and Italy and economic doldrums in these countries led to the implementation of adverse regulation for utilities. After 2014, the regulatory and economic backdrop in Enel’s core markets has stabilized, and a new strategy aiming to boost organic growth and streamline the group organization has been implemented. Management reduced costs while increasing growth investments in regulated networks and renewables and strengthened control of its fastest-growing Latin America and renewables businesses by delisting Enel Green Power in 2016 and buying out Latin America activities from its subsidiary Endesa. 

The energy crisis, which started in 2021 has put energy affordability at the forefront of the political agenda of European countries, increasing political risk. Nonetheless, measures mulled by the Spanish government in 2021 to tackle soaring energy prices have been significantly amended so their impact on Enel’s Spanish subsidiary Endesa will be fairly limited. Likewise, windfall taxes taken by the Italian government will have a limited impact on earnings as they will spare hedged power production and will be applied only above EUR 60/megawatt-hours. At end-2021, Enel had 50 gigawatts of installed renewable capacity, the highest among European utilities. The firm intends to increase its solar, wind, and batteries capacity by 19 GW by 2024, or 6.33 GW per year. Thanks to higher renewables generation, the firm intends to lower the cost of energy sold by enhancing its integrated model through the reduction of its short position. The group pledges a fixed dividend of EUR 0.4 and EUR 0.43 in 2023, implying an annual growth rate of 6.4%. In 2024, Enel targets a flat dividend of EUR 0.43. By assuming a 70% payout ratio in 2025 and 2026, forecast a 2021-26 dividend CAGR of 5.5%, in line with its earnings growth.

Financial Strengths:  

The forecasted net debt to increase from EUR 51.6 billion at end-2021 to EUR 57.6 billion at end-2022 on high investments and involving a net debt/EBITDA ratio of 3 times, in line with the guidance. The net debt shall peak at EUR 61 billion in 2023 before falling to EUR 55 billion in 2026, notably thanks to the EUR 7 billion disposals planned by the group. Net debt/EBITDA ratio would peak to 3.05 in 2023 before receding to 2.5 in 2026 on increasing EBITDA and a net debt decline. The projected ordinary EBITDA/net interest expense and net debt/equity to average 9.5 times and 1.25 times, respectively, through 2026. All said, posit Enel will be able to fund its investments and dividends without tapping the stocks market. In line with its 2022-24 business plan, factor in 2022, 2023 and 2024 dividends of EUR 0.4, EUR 0.43, and EUR 0.43, respectively. In 2025 and 2026, assumed a 70% payout ratio involving a 2026 dividend of EUR 0.5 and 2021-26 dividend CAGR of 5.5%.

Bulls Say: 

  • Enel’s diversified profile and leadership positioning in renewables and networks offers solid and visible earnings growth.
  • Strengthening of the Brazilian real and the U.S. dollar will support earnings.
  • Enel boasts higher returns on invested capital than its peer Iberdrola.

Company Description: 

Enel is a diversified energy company domiciled in Italy. Operations are concentrated in Italy, Spain, and Latin America. The firm’s primary activities are electric generation, electric networks, and gas and electricity marketing. Around 50% of the company’s EBITDA is derived from its regulated networks. Taking into account power sold through power purchase agreements in Latin America, around 70% of EBITDA is quasi-regulated. Enel is a giant in global power generation with 86 gigawatts of capacity, of which 39 GW is renewables, including a large share of hydro.

(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.

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Currencies Trading Ideas & Charts

Dollar’s Climb Stalls Amid Mixed Economic Signals

 The WSJ Dollar Index, which measures the greenback in opposition to a basket of sixteen currencies, is round 2% off its May height and fell 1.1% closing month. That decline broke a regular march that added the greenback to multidecade highs. 

The index rose 0.6% closing week, breaking a two-week dropping streak. Behind the slip has been a diffused shift withinside the financial landscape.

According to latest financial reports, American purchasers are nevertheless spending cash at a speedy tempo, whilst employers preserve including jobs, extending the developments that had helped elevate the greenback over the last one year or so. Yet there were symptoms and symptoms of weak spot elsewhere. 

Wage boom has moderated from closing year, and purchasers were Dollar’s Climb Stalls Amid Mixed Economic Signals

capable of preserve their spending simplest with the aid of using dipping into savings. 

The U.S. carrier sector, which incorporates eating place eating and travel, slowed its tempo of enlargement in May, and income of latest houses in April published their largest drop in 9 years. 

Overall, the facts has clouded a few asset managers` outlook of the U.S. economic system. They are actually cautious that the Federal Reserve would possibly should gradual the tempo of predicted hobby-fee will increase. That is probably welcomed with the aid of using inventory traders, who’re acutely privy to the dangers that growing charges pose for tremendously valued shares, however its which means could be murkier in foreign money markets.

Investors usually purchase currencies connected to international locations in which valuable banks are elevating hobby charges to rein in a warm economic system. Investors assume the Fed to raise charges with the aid of using a complete of a percent factor in June and July, however what’s going to observe is tougher to determine. As a result, buyers now contend that the greenback is extra touchy than typical to financial releases at the horizon. 

The muddied outlook represents a shift in markets, after traders’ wager that a speedy tempo of fee will increase could pressure the greenback better at some point of the year. 

Many predicted a sturdy greenback to harm U.S. multinationals, with the aid of using making their merchandise extra highly-priced for foreigners, with groups inclusive of Microsoft Corp. noting a sturdy greenback`s hit on sales in latest reports. 

JPMorgan analysts say the greenback`s upward push is hurting the U.S. production sector, that’s slowing hiring to catch up on fewer exports.

In the coming week, investors will scrutinize data on the American consumer and Friday`s inflation numbers for clues regarding the state of the economy and the trajectory of the stock market. Lower inflation numbers could ease pressure on stocks and hit the dollar more, presaging a more gradual approach from the Fed. 

The Bank of England sparked sharp declines in the pound by signaling caution when it raised rates in May. Investors are now watching U.S. data for signs of similar slowing. Last week, the Labor Department reported that the economy added 390,000 jobs in May—above the 328,000 expected by economists. Still, the unemployment rate did not drop to 3.5% as expected, but remained at 3.6%. The average hourly wage increased by 0.3% month-on-month, below the consensus forecast of 0.4%. The foreign exchange market was the most volatile in more than a decade after the $ 4,444 appreciation depreciated other currencies and central banks around the world curbed inflation. Due to the recent decline in the WSJ dollar index, this year’s profits have fallen to about 6%.

In particular, investors are looking to monitor the housing market and assess the impact of more severe credit conditions. There are signs that the US market is chilling as rising mortgage rates increase the cost of owning a home. 

According to Freddie Mac, the average interest rate on fixed-rate mortgages for 30 years was 5.09% last week, up from 3.1% at the beginning of the year. Stock market volatility affected investment accounts. Higher energy costs can curb personal consumption, hinder growth and hurt the dollar. Andrzej Skiba, Head of BlueBay U.S. The RBC Global Asset Management fixed income team is short of dollars and expects to fall against other currencies. But he believes that recent concerns about the recession are overkill and will buy a downturn.

(Source: https: //www.wsj.com/)

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
Currencies Trading Ideas & Charts

Reserve Bank of Australia hikes Cash Rate by a jumbo 50 basis point to 0.85 per cent

Governor Philip Lowe announced a second major hike in five weeks as the RBA continues to pull the country away from the suspension of emergency lending that has nurtured the economy during the pandemic on Tuesday.

The RBA was widely expected to announce its first consecutive rise in 12 years to ease inflationary pressures pushing up food, fuel and electricity costs. 

The only question left was how hard the Governor  Dr Lowe and his board were ready, and economists’ expectations fluctuated primarily between 25 or 40 basis point rises. 

Some had expected a 50 basis point increase, but the largest single interest rate increase since 2000 was still a surprise. 

The Australian stock market fell 1.7% in the news, but the Australian dollar temporarily soared to US $ 72.20. 

In his monthly statement, Dr. Lowe acknowledged inflation concerns as a factor behind the rate hike, but also cited a strong Australian economy, a strong labor market and a recovery in business investment as positive reasons. 

“Resilience of the economy and higher inflation mean that this special support is no longer needed.” 

He acknowledged that rising electricity and gas prices and recent rising gasoline prices mean that inflation could be higher in the short term than expected a month ago. 

“But today’s rise in interest rates will help inflation return to its target over time.” He said it shows that he is planning with a focus on returning to the goal. The extent and content of the employment market recovery to maintain higher interest rates. 

“They have identified slower growth in household consumption due to faster inflation and higher interest rates as the main risk of the outlook. 

Faster rate hikes contribute to this downside risk,” Langcake said. 

The RBA Board is in a delicate balance and needs to act fast enough to curb inflation without choking the economy. 

Last month, during the federal campaign, it rose from 0.1% to 0.35% and implemented its first-rate hike in more than 11 years. The shift was stronger than expected and Martin Place stepped on the gas again.

The move on Tuesday will continue what is expected to be a long cycle of rate hikes in the coming months, pushing up consumer prices while also pushing up mortgage costs. 

Many also expect borrowers to pass on some of this stress to their tenants. 

“The monthly repayment increase this month is relatively modest, but homeowners need to prepare for a significant increase in the coming months,” said Sally, Research Director at RateCity.com.au. 

Tindal says. “These rate hikes will not magically cure Australia’s inflation problem. 

The RBA will probably need to rise again next month, from which the RBA will continue to be tight and tight to curb inflation. It could rise sharply. 

Improvements in living expenses have been at the heart of Australia’s political situation for months, and Finance Secretary Jim Chalmers warned on Tuesday that the situation was “deteriorating before it got better.” did. 

“It doesn’t make sense to chop up words about it,” Chalmers said. 

“Our work as a government will be replaced by responsible long-term and sustainable living expenses relief in areas such as health care and childcare after some of this short-term living expenses have expired. Dr. Rowe says that the cause of uncertainty about the economic outlook is household spending and how it is maintained. 

The decline in recent months has been declining, but remains more than 25% higher than pre-pandemic levels, supporting household wealth and spending. Dr. Lowe. 

“The central scenario is strong household growth, but for this year’s old consumption, the Board pays close attention to these various implications for consumption when assessing the direction of appropriate monetary policy. 

Uncertainty continues with Covid 19 as well, especially in China.

(Source: https://www.news.com.au/)

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
Currencies Trading Ideas & Charts

Pain in Cryptocurrency Markets Creates Uncertainty and Risk for Coinbase

Business Strategy & Outlook:   

As the leading U.S.-based cryptocurrency exchange, Coinbase has positioned itself as the reliable on-ramp into the cryptocurrency space for new and experienced cryptocurrency traders alike. The company’s reputation, regulatory compliance, and track record as a custodian have allowed it to maintain transaction fees above many of its peers despite operating in a crowded field with hundreds of competing firms trying to grab market share in the rapidly growing space. Unlike traditional exchanges in the U.S., Coinbase fulfills multiple roles in the trading ecosystem by acting as an exchange, asset custodian, and broker. 

Coinbase has continued to branch off into adjacent businesses offering cryptocurrency collateralized loans, a crypto debit card, blockchain infrastructure support, and data analytics services. While these new businesses expand the company’s presence in the cryptocurrency space and add new revenue streams, the company still earns the majority of its income through the transaction fees traders pay when they trade on Coinbase’s platform. These fees are charged as a percentage of trade’s total value. Additionally, the bulk of Coinbase’s trading revenue comes from retail traders, who are drawn by strong cryptocurrency markets and repelled by weak ones. This creates a strong correlation between Coinbase’s trading fee revenue and the size cryptocurrency market. Due to its breadth of its service offerings and the connection between cryptocurrency prices and trading revenue, Coinbase’s short- and long-term results are deeply tied to the health and growth of cryptocurrencies as an asset class. Cryptocurrency adoption continues to rise but questions regarding the long-term viability of cryptocurrency, the role of speculation in current market prices remain unanswered. Furthermore, Coinbase has dramatically increased its spending in recent quarters, creating the prospect of a prolonged period of unprofitability should cryptocurrency prices and trading volume not recover in short order. Given the speculative nature of cryptocurrency prices, this reliance on market conditions will create considerable uncertainty in Coinbase’s results going forward.

Financial Strengths:  

Coinbase is in an excellent financial position, particularly after receiving an influx of capital from private-investment-in-public-equity investors coinciding with its direct listing on the Nasdaq exchange. Coinbase saw a spike in trading volume in 2021, leading the company to generate more net income in the first quarter of the year than in the entirety of 2020. As a result, the company ended March 2022 with more than $6 billion in cash and $1.3 billion in cryptocurrency against less than $3.4 billion in debt. The decision to keep strong cash reserves makes sense given how volatile the company’s revenue generation can be. Coinbase needs to keep sufficient financial reserves to protect itself in the event of a major market collapse. The company relatively unleveraged will be an important step in keeping the company financially secure in the long term through market cycles, particularly as the further losses are expected for Coinbase as cryptocurrency markets remain weak.

Bulls Say: 

  • Coinbase has established itself as the leading U.S. cryptocurrency exchange and established a strong reputation for security in an industry filled with risk for traders.
  • Coinbase has been able to accelerate the rate at which it lists new cryptocurrencies, giving the company more exposure to the growth of the asset class.
  • There is a global market for cryptocurrency. Regulatory approval from international regulators will allow Coinbase to expand its operations and increase its footprint globally.

Company Description:  

Founded in 2012, Coinbase is the leading cryptocurrency exchange platform in the United States. The company intends to be the safe and regulation-compliant point of entry for retail investors and institutions into the cryptocurrency economy. Users can establish an account directly with the firm, instead of using an intermediary, and many choose to allow Coinbase to act as a custodian for their cryptocurrency, giving the company breadth beyond that of a traditional financial exchange. While the company still generates the majority of its revenue from transaction fees charged to its retail customers, Coinbase uses internal investment and acquisitions to expand into adjacent businesses, such as prime brokerage, data analytics, and collateralized lending.

(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
Commodities Trading Ideas & Charts

Activists Sink AGL Energy’s Demerger

Business Strategy & Outlook:   

AGL is one of Australia’s largest integrated energy companies. We believe it has a narrow economic moat, underpinned by its low-cost generation fleet, concentrated markets, and cost-advantages from vertical integration. Earnings are dominated by energy generation (wholesale markets), with energy retailing about half the size. Strategy is heavily influenced by government energy policy, such as the renewable energy target. AGL has proposed a structural separation into two businesses; a multi-product energy retailer focusing on carbon neutrality and an electricity generator that will own AGL’s large fleet of coal fired power stations among other assets. It is expected to be completed in mid-2022. AGL’s consumer market division services over 4 million electricity and gas customers in the eastern and southern Australian states, representing roughly a third of available customers. Retail electricity consumption has barely increased since 2008, reflecting the maturity of the Australian retail energy market and declining electricity consumption from the grid. Despite deregulation and increased competition, the market is still dominated by AGL Energy, Origin Energy, and Energy Australia, which collectively control three fourths of the retail market.

AGL’s wholesale markets division generates, procures, and manages risk for the energy requirements of its retail business. The acquisition of Loy Yang A and Macquarie Generation means electricity production significantly outweighs consumption by its retail customers. Exposure to energy-price risks are mitigated by vertical integration, peaking generation plants and hedging. More than 85% of AGL’s electricity output is from coal-fired power stations. AGL Energy has the largest privately-owned generation portfolio in the National Electricity Market, or NEM

Financial Strengths:  

AGL Energy is in reasonable financial health though banks are increasingly reluctant to lend to coal power stations. From 1.4 times in 2020, we forecast net debt/EBITDA rises to 2.1 times in fiscal 2022. Funds from operations interest cover was comfortable at 12.8 times in fiscal 2021, comfortably above the 2.5 times covenant limit. AGL Energy aims to maintain an investment-grade credit rating. To bolster the balance sheet amid falling earnings and one-off demerger costs, the dividend reinvestment plan will be underwritten until mid-2022. Dividend payout ratio is 75% of EPS.

Bulls Say: 

  • As AGL Energy is a provider of an essential product, earnings should prove somewhat defensive.
  •  Its balance sheet is in relatively good shape, positioning it well to cope with industry headwinds. 
  • Longer term, its low-cost coal-fired electricity generation fleet is likely to benefit from rising wholesale electricity prices.

Company Description:  

AGL Energy is one of Australia’s largest retailers of electricity and gas. It services 3.7 million retail electricity and gas accounts in the eastern and southern Australian states, or about one third of the market. Profit is dominated by energy generation, underpinned by its low-cost coal-fired generation fleet. Founded in 1837, it is the oldest company on the ASX. Generation capacity comprises a portfolio of peaking, intermediate, and base-load electricity generation plants, with a combined capacity of 10,500 megawatts. 

(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
Commodities Trading Ideas & Charts

Initiating Coverage of Plug Power With No-Moat Rating

Business Strategy & Outlook

Plug Power seeks to be a leader in the green hydrogen economy. The company’s strategy is centered on its vertical integration approach to provide customers a complete hydrogen solution— from fuel cell technology to green hydrogen fuel. Green hydrogen as a fuel to decarbonize is in its infancy. Customers face numerous challenges with adopting hydrogen technology, including economics and lack of green hydrogen production and infrastructure. Within this context, Plug’s efforts to provide customers a one-stop-shop solution of technology and fuel is considered as an endeavor to lower the barriers for customer adoption. While this strategy brings greater capital intensity, it positions Plug as the only all-in-one provider within the industry. The ambition of Plug’s strategy stands out relative to peers who focus on simply providing fuel cell or electrolyzer solutions. 

Plug’s primary end market historically has been material handling (forklifts). The company recognized material handling offered the nearest route to market to prove hydrogen’s value case and established relationships with large companies such as Amazon and Walmart. While material handling comprises the bulk of sales today, the company’s long-term end market focus also includes on-road transport, stationary power, electrolyzers, and green hydrogen fuel. Plug has pursued a partnership approach to target many of its end markets and has several joint ventures with leading companies. These include Renault (light commercial vehicles), Acciona (green hydrogen production), SK (stationary power/electrolyzers), and Fortescue (electrolyzers). A potential partnership for the heavy-duty truck market is still pending, given this represents a sizable market opportunity. Plug has a global approach to its end markets, but the U.S. and Europe are its largest focus areas, particularly for establishing its green hydrogen network.

Financial Strengths

Plug Power’s financial strength has greatly improved in recent years following large equity capital increases. For much of Plug’s history the company’s cash and investments balance has been around $100 million, but stood at north of $4 billion as of Dec. 31, 2021. Current debt outstanding consists of $200 million of convertible notes maturing June 2025 and approximately $100 million under a term loan maturing October 2025. In addition, the company has approximately $200 million of financing obligations associated with sale leaseback financings. Plug Power’s strategic decision to produce green hydrogen greatly increases its future capital requirements. Based on the company’s long-term target of 1,000 tons per day of green hydrogen capacity, a capital requirement of over $4 billion is estimated based on the company’s approximate capital expenditure per ton guidance. While this represents a large use of capital, Plug is expected to raise debt against this business area given its nature. Plug’s operating cash flow is expected to inflect into positive territory around 2025, driven by continued revenue growth and an improvement in fuel margins as it in-sources hydrogen production.

Bulls Say

  • Plug’s partnerships with leading global companies provide validation of its differentiated strategy. 
  • By providing customers a bundled solution of technology and fuel Plug stands to capture a larger addressable market. 
  • Recent capital raises have dramatically improved the company’s financial strength; cash and investments totaled over $4 billion as of year-end 2021.

Company Description

Plug Power is building an end-to-end green hydrogen ecosystem – from production, storage and delivery to energy generation. The company plans to build and operate green hydrogen highways across North America and Europe. Plug will deliver its green hydrogen solutions directly to its customers and through joint venture partners into multiple end markets— including material handling, e-mobility, power generation, and industrial applications.

(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.

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