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Dividend Stocks

Aurizon Holdings Ltd operates an integrated heavy haul freight railway in Australia

Investment Thesis

  • Undemanding valuation relative to the market. 
  • Higher (and stabilizing) commodity prices should translate into improving volumes. 
  • Better than expected performance on the cost out. 
  • Attractive dividend yield 
  • Mostly defensive earnings backed by contracts, providing stability in shareholder returns.
  • The Company does have long-term plans to reduce exposure to coal. 
  • Divestment of ECR at an attractive valuation. 

Key Risks

  • Significant decline in commodity prices leading to mine closures or reduced volumes from customers. Any potential declines in iron ore prices.
  • Structural decline in some commodities (e.g., coal). 
  • High costs impacting margins.
  • Contract repricing resulting in longer term revenue loss.
  • Pricing pressure to increase.
  • Potential cuts to dividends given the elevated payout ratio.
  • Weather related impacts. 
  • Divestment of ECR business is not completed at a valuation in line with market expectations. 

Key Highlights

  • Revenue of $3,075m was +2% higher. 
  • Underlying EBITDA of $1,468m, -1% lower. FY22 earnings were driven by: (i) Network business achieved EBITDA of $801m, a -6% decline, due to lower volumes, lower historical or catch-up revenue from the Wiggins Island Rail Project (WIRP) and lower Goonyella to Abbot Point Expansion (GAPE) fees. (ii) Bulk business EBITDA declined -7% to $130m, on lower volumes caused by major flooding events, Covid-19 related disruptions and customer-specific reductions in production. (iii) Coal EBITDA was up +1% to $541m due to the benefits of cost management, higher CPI favorably impacting contract rates and higher revenue yield, despite above rail coal tonnes being down by 4%.
  • Underlying EBIT of $875m, down -3%. 
  • Underlying NPAT was $525m, down -2%, while Statutory NPAT declined -15% to $513m, primarily due to one-off benefits recorded in FY2021 (tax benefit from the sale of interest in Aquila) and transaction costs for the acquisition of One Rail Australia (ORA) incurred in FY2022.
  • Return On Invested Capital (ROIC) of 10.3% down by 0.4ppt. 
  • Free cash flow increased +13% to $664m.
  • The Board declared a fully franked final dividend of 10.9cps, which represents 75% payout ratio of underlying NPAT and brings total dividend for FY22 to 21.4cps, down -26%.

Company Description

Aurizon Holdings Ltd (AZJ) operates an integrated heavy haul freight railway in Australia. It transports various commodities, such as mining, agricultural, industrial and retail products; and retail goods and groceries across small and big towns and cities, as well as coal and iron ore. The Company also operates and manages the Central Queensland Coal Network that consists of approximately 2,670 kilometers of track network; and provides various specialist services in rail design, engineering, construction, management, and maintenance, as well as offers supply chain solutions. In addition, it transports bulk freight for customers in the resources, manufacturing, and primary industries sectors. The Company was formerly known as QR National Limited and changed its name to Aurizon Holdings Limited in December 2012. AZJ is headquartered in Brisbane, Australia.

(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.

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Dividend Stocks

UNH delivered earnings beat at both top and bottom line with 2Q22 revenue of $80.332bn

Investment Thesis

  • Well positioned to benefit from positive healthcare trends and demographics. 
  • Optum offers a sustainable cost edge with predictive data and analytics. Management is expecting to achieve a further 20-40bps cost efficiencies through automation and machine learning.
  • Consistent top line growth with revenues growing at CAGR ~14% and operating earnings growing at CAGR ~17%. The Company has a very diversified portfolio which seemingly benefits in every market (with the insurer serving employers, individuals, Medicare, and state and local governments).
  • Excessive expansion of international business giving UNH some protection from increasing regulations in the U.S. The global business is now earning revenue of ~US$10bn.
  • Competent management team.
  • Generating very significant cash flow (growing at a CAGR ~15%) and returning a fair amount of that cash flow back to shareholders via a growing dividend (DPS grew at a CAGR 22% over FY15-18) and share repurchase program.

Key Risks

  • Slowdown in customer acquisition if health insurance tax comes back in 2021. 
  • Headwinds from potential regulatory reforms like Medicare for all. 
  • Value destructive M&A.
  • Key-man risk due to management changes.
  • Increased competition (pricing pressure & innovative products) from new entrants or existing players like Anthem and Humana.
  • Cyber-attacks or other privacy or data security incidents resulting in security breaches.
  • Legal proceedings leading to substantial penalties or damage to reputation.

Key Highlights

  • Group revenues of $317-320bn. 
  • Operating profit margin of 8.5% at the midpoint. 
  • EPS of $20.45-20.95 per share vs prior forecast of $20.2-20.7 per share and adjusted EPS of $21.4-21.9 per share (vs prior guidance of $21.1-21.6 per share), translating to growth of +13.8% y/y at the midpoint, +80bps higher than the lower end of management’s long-term target of 13-16%.
  • Cash flows from operations of ~24bn. 
  • Medicare Advantage customer growth of 800,000 with ~3/4 in individual and group Medicare Advantage and the remainder in Dual Special Needs Plans.

Company Description

UnitedHealth Group (NYSE: UNH) is a diversified health care company offering a broad spectrum of products and services through two distinct platforms: UnitedHealthcare, which provides health care coverage and benefits services and includes UnitedHealthcare Employer & Individual, UnitedHealthcare Medicare & Retirement, UnitedHealthcare Community & State, and UnitedHealthcare Global businesses; and Optum, which provides information and technology-enabled health services through its OptumHealth, OptumInsight and OptumRx businesses.

(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.

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Technology Stocks

Arista is well positioned as a pioneer in the new age of software-defined networking and will continue to be a leader in next-generation switches and routers

Business Strategy and Outlook 

Arista Networks has solidified its market presence through data center switching and software-based networking innovation, and customers will remain loyal to the firm’s Extensible Operating System software and peripheral products. Arista’s initial growth came from high-frequency trading firms that found value in its low-latency switches and EOS. By remaining at the forefront of switching and routing speeds, Arista became a key networking supplier to giant cloud operators, service providers, and enterprises. EOS’ novelty lies in its single software image that provides a consolidated view of device activity from end to end and its ability to centrally upgrade the entire network. EOS contains leading software-defined networking features while remaining intuitive and fully programmable. Additional software offerings like CloudVision expand functionality and interoperability across networks. Arista uses merchant silicon for its hardware, which allows the company to focus on its core competencies.

Arista works closely with its core customers to optimize their networking ecosystems, which can strengthen its customer switching costs. To expand its customer base beyond the data centers of hyperscale cloud providers, enterprises, service providers, and financial institutions, Arista entered into the campus market. The adjacent move is due to requests from existing customers desiring one software platform across networking locations, and Arista has bolstered its clout with wireless and security capabilities. Even with current customer concentration risk, hence Arista is growing alongside key customers and that new ventures have expanded from core competencies. Arista is well positioned as a pioneer in the new age of software-defined networking and will continue to be a leader in next-generation switches and routers.

Financial Strength

Arista is in a financially healthy position; its zero debt balance and $3.4 billion in cash, cash equivalents, and marketable securities as of the end of 2021 provide flexibility for the future. With no stated plans to return capital to shareholders, the company’s investment plan is fixated on developing products and expanding sales. The company’s financial health will remain stable and that cash could be deployed for growth via bolt-on products or technologies.

Bulls Say’s

  • Demand for EOS continuity across networks should proliferate Arista’s installation base. Installation base growth causes new customers to consider Arista during upgrades. 
  • Arista has been a first mover on its path to rapid profitable growth. Upcoming industry disruptions that Arista may lead include 400 Gb Ethernet switching and campus market splines. 
  • Instead of relying on partnerships to plug portfolio gaps, Arista might be able to make accretive acquisitions in adjacent markets that could catalyse growth in areas such as analytics, access points, and security.

Company Profile 

Arista Networks is a software and hardware provider for the networking solutions sector. Operating as one business unit, software, switching, and router products are targeted for high-performance networking applications, while service revenue comes from technical support. Customer markets include data centers, enterprises, service providers, and campuses. The company is headquartered in Santa Clara, California, and generates most of its revenue in the Americas. It also sells into Europe, the Middle East, Africa, and Asia-Pacific.

(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 is 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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Technology Stocks

Verisign will continue to meet its contractual obligations and for the registry agreements to renew into perpetuity

Business Strategy and Outlook 

Verisign provides registry services for several top-level domains, or TLDs, and infrastructure essential to the functioning of the Internet. Verisign plays a vital role in supporting the Domain Name System, or DNS, which is akin to a massive address book that matches human friendly domain names to the accompanying numbers-based Internet Protocol, or IP, address. This allows an end user to browse the Internet and access requested content via a network of interconnected servers. The company operates software and infrastructure globally to support the translation of domain names to IP addresses for its assigned domains, including managing zone files and registration and policies for the specified domain. Verisign also provides root zone maintenance services, operates two of the world’s 13 roots servers that are foundational to the DNS, and manages a shared registration system that allows registrars to query the availability of and manage second level domains. Verisign has exclusive registry rights for two of the world’s most popular TLDs, .com and .net, under renewable contracts with the Internet Corporation for Assigned Names and Numbers, or ICANN. The lucrative contracts run for six years and have a presumptive right of renewal provided Verisign meets its contractual obligations. The .com and .net contracts are up for renewal in 2024 and 2023, respectively. 

Per the current contract terms, Verisign may raise .com pricing by up to 7% per year for the last four years of the contract and .net by up to 10% per year. Verisign currently charges $8.39 per year for a new or renewed .com domain and $9.02 for .net domain. Verisign will maximise price increases for .com within the limits of the contract, the company can still generate attractive returns in the event of tighter pricing controls. Verisign will continue to meet its contractual obligations and for the registry agreements to renew into perpetuity, underpinning the wide moat rating. The company has provided uninterrupted DNS services for over 25 years and continues to invest in infrastructure and cybersecurity measures to mitigate the risk of service disruptions.

Financial Strength

Verisign is in a sound financial position. As of year-end fiscal 2021, the company had a net debt position of about $580 million and reported $1.79 billion of long-term debt from senior unsecured notes. The company also has access to at least $200 million of liquidity under an unsecured revolving credit facility. Under these agreements, Verisign is subject to certain operating and financial covenants and must not exceed certain gearing ratios. Verisign will remain compliant with these covenants and meet interest and maturity payments on outstanding debt over the forecasted period. Verisign does not pay dividends but instead returns capital to shareholders through a substantial share repurchase program. The company has returned about $3.5 billion of capital to shareholders over the five years to fiscal 2021, which was funded through the company’s strong free cash generation and debt. As of February 2022, Verisign’s board has authorized an additional $1 billion of share repurchase, with no expiration.

Bulls Say’s

  • Verisign is to maximise price increases for the .com domain within the contractual limits, supporting further margin expansion. 
  • Verisign’s relationship with ICANN continues to strengthen as the company’s powerful track record of performance extends. 
  • While Verisign faces competitive pressure from competing TLDs, it is expected that .com is to remain the world’s most popular TLD.

Company Profile 

Verisign is the sole authorized registry for several generic top-level domains, including the widely utilized .com and .net top-level domains. The company operates critical Internet infrastructure to support the domain name system, including operating two of the world’s 13 root servers that are used to route Internet traffic. In 2018, the firm sold off its Security Services business, signalling a renewed focus on the core registry business.

(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 is 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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