Categories
Technology Stocks

IRE offers a defensive earnings profile and trades on a solid dividend yield of ~4%

Investment Thesis:

  • Solid FY22 earnings guidance.
  • 30% of the $100m buyback remains to be complete, which should support IRE’s share price.
  • Growing quantum of superannuation/pension bodes well for IRE’s clients, which bodes well for demand for IRE’s products.
  • IRE’s products are firmly entrenched within Australia, UK and South African financial market players (i.e. IRESS terminals and XPLAN). For instance, in ANZ Wealth Management segment, increasing dynamic of self-licensing by practices, high client retention and increasing demand for integrated solutions, are all key revenue themes. Over 90% of revenue is recurring.
  • Strong continuing momentum in the core growth markets of ANZ Wealth Management, and South Africa and the UK.
  • New product roll-out providing growth opportunities.
  • Solid balance sheet and capable management team.

Key Risks:

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

Key Highlights:

  • FY22 Guidance reaffirmed but expected to be at lower-end. “IRESS affirms the guidance range for full year 2022 of segment profit of $177m – $183m. 2022 segment profit is expected to increase by 7% – 10% versus the pcp. Results are now expected to be at the lower end of the range due to investment in fund registry as part of investment infrastructure, and delayed growth in the UK”. 
  • Segment profit for the year is expected to grow by around +7%.
  • Underlying NPAT (excludes $13-15m pre-tax of investment in IRESS’ single technology platform and significant one-off items in 2021) is expected to grow by around +25% for the year.
  • Underlying EPS is expected to be 40-44cps on a constant currency basis. 
  • Key assumptions: $13-15m (pre-tax) of investment in IRESS’ single technology platform expected in 2022 as disclosed in July 2021. Effective tax rate (ETR) is expected to be in the range of 23-26%. Guidance is presented on a constant currency basis using average 2021 FX rates. Guidance does not include the impact of any potential M&A activity in 2022.
  • 1H22 Results Highlights. Relative to the pcp: (1) underlying revenue of $306.4m, up +6%; reported revenue of $308.2m, +6%. (2) Underlying segment profit of $80.3m, up +6%; reported segment profit of $80.7m, up +7%. (3) Underlying NPAT of $31.8m, up +29%; reported NPAT of $30.6m, down -25%. (4) Underlying ROIC of +9.6%, up +140 basis points or reported ROIC 9.4%, down -110 basis points. (5) Underlying EPS of 17.1cps, up +32% or reported EPS of 16.4cps, down -23%. (6) The Board declared an interim dividend of 16 cents per share, 25% franked.
  • Performance Highlights by Segments. 1H22 Constant Currency Segment Profit up +6%, Underlying NPAT up +29%. (1) IRE saw strong performance in APAC trading & market data and financial advice with revenue of $135.6m, up +8%. APAC trading & market data total revenue growth of +9% to $71.0m, and financial advice growth of +7% to $64.6m, both outperformed the Company’s medium term target (total revenue growth of ~5% per annum). Management noted Xplan user numbers in financial advice are stable. (2) IRE also saw revenue growth of +9% $23.6m as management highlighted recurring revenue is on track to medium term targets, growing +17%, driven by ESSSuper and GuildSuper going live. IRE’s medium term target revenue growth is +18% per annum. (3) U.K saw total revenue of $64.3m, up +2%, driven by Private Wealth management, which outperformed the medium-term targets in 1H22 – recurring revenue up +25% to $10.3m. This was offset by Retail Wealth not meeting expectations, and partly being impacted by changes in specific clients’ business models. IRE’s medium term target total revenue growth is +7% per annum. (4) Mortgages performed well, seeing total revenue increase +18% to $16.1m in 1H22 vs 1H21.

Company Description:

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

(Source: Banyantree)

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

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

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

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

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

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

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

Categories
Global stocks

Keurig Dr Pepper appears poised to augment the positioning of its cold business 60% of sales

Business Strategy & Outlook

The merger of Keurig Green Mountain and Dr Pepper Snapple into Keurig Dr Pepper created a North American beverage behemoth with strong brands and supply chain positioning. Despite being only one third and one sixth the size of Coke and Pepsi, respectively, Keurig Dr Pepper appears poised to augment the positioning of its cold business (60% of sales). However, it will have a more difficult time navigating various structural headwinds plaguing its hot business. Across soft drinks, the firm should be able to maintain a top-three position in its core categories. Although it’s disproportionately exposed to the beleaguered soda category, innovation will continue to resonate, owing to a core consumer gleaning a higher marginal benefit from consumption, affording continued pricing tailwinds. Moreover, the breadth of Keurig Dr Pepper’s selling apparatus facilitates exposure to high-growth segments, as smaller brands (like Polar Seltzer) leverage the firm for manufacturing or distribution.

Merger synergies have fuelled Keurig Dr Pepper’s strategic initiatives, with $600 million in cost savings (around 5% of sales) to be realized by 2022 via consolidated distribution, procurement leverage, and administrative streamlining. Management noted at the 2021 investor day that these savings would be used to fund initiatives surrounding customer acquisition and company-owned delivery. Competition remains robust across Keurig Dr Pepper’s core categories, and growth prospects outside of North American markets are encumbered by the firm’s lack of ownership rights to key trademarks internationally. Still, its resonant brands, distribution prowess, and partner networks will allow the company to maintain its positioning.

Financial Strengths

KDP’s financial position is manageable, though far from stellar. Keurig was considered the acquirer from an accounting perspective for the merger and funded the purchase of DPS’ assets with roughly 60% debt. The net debt/adjusted EBITDA for the combined entity rose above 8 times in 2018 after the merger, precariously higher than peers. Still, the stability of its industries, in conjunction with its profitability and management team, has allowed the company to manage its debt load, which will continue. KDP’s net debt/adjusted EBITDA ratio fell to 2.9 times as of December 2021, completing management’s goal of sub-3 times by 2021. Leadership aims to remain above the investment-grade threshold, and the material reduction in Keurig’s debt levels subsequent to being taken private lends credence to its ability in this regard. Though business prospects remain bright despite COVID-19, management used the opportunity to restructure its debt profile through extended maturities and lower rates, which gives us even greater confidence that the firm will be able to maintain its investment-grade credit rating (Moody’s also upgraded the debt outlook from negative to stable in

February 2021). Liquidity should also not be an issue, as in addition to over $550 million in cash (as of June 2022), the firm has ample access to short-term liquidity by way of commercial paper and its structured payables program.

Bulls Say

  • Cost synergies realized from the merger are allowing the company to invest in customer acquisition and other strategic assets like company owned distribution.
  • The firm still touts the dominant ecosystem in the North American single-serve coffee category, which yields several self-perpetuating advantages.
  • With a formidable distribution system, KDP is able to gain exposure to secularly advantaged categories through partnerships with upstart brands.

Company Description

Keurig Dr Pepper, the product of a 2018 merger between Dr Pepper Snapple and Keurig Green Mountain, is the third-largest non-alcoholic beverage company in North America. In addition to the eponyms, the firm’s flagship brands include 7UP, Canada Dry, Schweppes, Mott’s, and Bai. The company situates itself at different positions of the value chain depending on the segment (it reports four operating segments) and the product. It is primarily a brand owner in its beverage concentrates and Latin America beverages segments, as well as for the single-serve brewers within its coffee systems segment, and owns integrated production and distribution operations in its packaged beverages segment as well as for its K-cup pods.

(Source: Morningstar)

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

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

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

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

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

Categories
Technology Stocks

TPG Telecom’s price-leader strategy still sees the company delivering solid subscriber and market share performance

price of btc is going to breakout

Business Strategy & Outlook

TPG Telecom is grappling with structural changes in the Australian telecom industry. Rollout of the national broadband network, or NBN, and take-up of high-traffic products such as internet protocol

television and video streaming, will increase the demand for broadband and backhaul capacity. However, the NBN will also force TPG Telecom to become a reseller, impacting its consumer broadband margins. TPG Telecom’s price-leader strategy still sees the company delivering solid subscriber and market share performance. Product bundling has also become a key segment in the market, with all players using broadband as a lead-in product and cross-selling voice, mobile, pay-TV, and digital streaming services.

The ownership of submarine cable between Australia and Guam offers the group broader cost advantages. Pricing is mainly a function of demand and supply, available capacity, and the length of cable. Economies of scale play a large part in pricing where costs are measured on per unit of volume. A longer cable results in increased material and maintenance costs, meaning cost per unit is higher. Cables with large capacity reduce costs per unit, as costs such as fixed construction and rollout costs are spread across a larger base. A sharp price decline in international traffic remains a risk. Contracts are structured in typical 15-year leases, providing some certainty in revenue. Clients are allocated a fixed bandwidth and have the right to on-sell capacity. The 2020 merger with Vodafone Australia (the third-ranked mobile player in the country) is one-way TPG Telecom is trying to limit the impact of the NBN. Mobile offers a critical strategic path to future-proof the group in the face of onslaught from the NBN. The government entity is already wreaking havoc on the narrow-moat-rated group’s retail fixed-line broadband and could even potentially impact the lucrative enterprise segment.

Financial Strengths

TPG Telecom’s financial health is solid. Historically, management has used debt to finance acquisitions and demonstrated a capacity to pay it down in due course. As at the end of June 2022, net debt/EBITDA was 2.0 times, below the covenant limit of 3.5 times.

Bulls Say

  • Cross-selling opportunities remain for both consumer and corporate markets.
  • The merger with Vodafone Australia increases the scale of the combined entity and allow it to better compete against Telstra and Optus in the Australian market.
  • Further rollout of its fiber network also boosts growth, while incremental cost from an additional user is small.

Company Description

TPG Telecom is Australia’s third-largest integrated telecom services provider. It offers broadband, telephony, mobile and networking solutions catering to all market segments (consumer, small business, corporate and wholesale, government). The group has grown significantly since 2008, both

via organic growth and acquisitions, and in July 2020 merged with Vodafone Australia. It owns an extensive stable of infrastructure 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.