Investment Thesis:
- WBC is trading on an undemanding valuation, with 1.2x Price to Book (P/B) and dividend yield of 5.1%.
- All else being equal, WBC is offering an attractive dividend yield on a 2-yr (5.6%) and 3-Yr (6.2%) view.
- Strong oligopoly position in Australia (along with three other major banks in CBA, ANZ, NAB).
- Strong management team and Board.
- Macro environment to be both a tailwind and headwind – We expect a rising interest rates environment to be both positive and negative in that while it will enable banks to charge more for loans, it also could result in deterioration in asset quality, slower loan growth, as well as higher inflation and wage growth to be detrimental to costs expense.
- Strong franchise model with management pushing towards lowering the bank’s cost to income ratio.
- Improving loan growth profile and potential to grow above system growth.
- Better than expected outcome on net interest margin (NIM).
- Excess capital presents the potential for additional capital management (buybacks).
- Strong provisioning coverage.
- A well-diversified loan book.
Key Risks:
- Intense competition for loan growth.
- Margin pressure.
- Ongoing remediation expenses.
- Housing market stress.
- Increase in bad and doubtful debts or increase in provisioning.
- Funding pressure for deposits and wholesale funding (increased funding costs).
- Any legal fees, settlements, loss or penalties.
Key Highlights:
- Statutory net profit of $3,280m, down -5%.
- Cash earnings of $3,095m, down -12%. Cash EPS of 85.4cps, down -12%. According to management, the decline in cash earnings over the year was mostly due to competitive pressures on net interest margins and returning to an impairment charge after having benefits last year. Further, WBC noted asset quality has improved, and most credit quality metrics are back to pre-COVID levels, however increased overlays in provisions for supply chain issues, inflation, expectations of higher interest rates and recent floods.
- Revenue down 8% to $10,230m.
- Costs (excluding notable items) were down 10% to $5,373m, driven by a reduction in headcount of more than 4000. WBC is on track towards its target of an $8bn cost base by FY24.
- Net interest margin down 15 basis points to 1.91%.
- WBC’s balance sheet remains sound and allowed WBC to complete its off-market share buy-back, reset capital range and increase dividend per share.
- The Board declared a fully franked interim dividend of 61cps.
- Cash earnings of $132m was up +13, however excluding notable items cash earnings were -41% lower. This decline was due to businesses sold, lower life insurance income and a lower impairment benefit. Costs declined -6% excluding sold businesses.
- Cash earnings of $1,646m was down -15% due to lower net interest margin (25bps lower due to competition and portfolio mix change), and reduced credit impairment benefits. Operating expenses were lower due to higher use of digital and a reduction in network costs.
- The Board declared a 1”.
Company Description:
Westpac Banking Corp (WBC) is one of the major Australian Banks. The bank services individuals and businesses such as SMEs, corporations, and institutional clients. The bank’s core segments include Retail Banking, Business Banking, Institutional Banking, Consumer Banking and its wealth management business, BT Financial Group (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.
Investment Thesis:
- Trading below the updated valuation and the risk reward looking more attractive post the recent share price correction.
- Strong brands in Smiggle and Peter Alexander.
- Expectations of significant growth of Smiggle and Peter Alexander in UK, Asia and Eurozone.
- PMV controls its own brands (design, sourcing and distribution) rather than distributing other brands.
- Strong online sales presence, which allows the company to compete with the likes of Amazon and eBay, as these online platforms cannot sell PMV brands.
- Significant exposure to the consumer overseas (UK, Europe & Asia), as opposed to be 100% leveraged to Australian sales.
- Strong management team, including Chairman Solomon Lew and incoming CEO Richard Murray (ex CEO JB Hi Fi).
- Strong balance sheet with net cash position provide buffer in hard time and flexibility in times of growth.
Key Risks:
- Increase in competitive pressures (reported entry of Amazon into the Australian market).
- Increase in cost of doing business.
- Loss in brand equity for the key brands – Smiggle and Peter Alexander.
- Store roll-out strategy stalls or new stores cannibalise existing stores.
- The Company unable to arrest the sales decline in its more mature brands.
- Adverse currency movements.
Key Highlights:
- Retail sales of $769.9m, up +0.6% YoY or up +5.2% over 1H20, or on a like-for-like basis, global sales were up +8.9%. This was driven by record online sales of $195.4m up +27.3% relative to the pcp or up +101.1% over 1H20, and record Peter Alexander sales of $227.4m, up +11.4% on 1H21 and up +57% on 1H20, whilst Smiggle continues to show positive sales momentum, up +5.6%.
- Premier Retail Gross Profit of $507.2m was up +1.4% relative to the pcp or up +10.8% over 1H20. Gross Margin were up 54bps on 1H21 and up 334bps on 1H20. Total cost of doing business declined 67bps on 1H21 and by 430bps on 1H20.
- PMV retains a strong capital position with all operating debt repaid during 1H22 and now has cash on hand of $468.6m at 1H22-end. PMV retains a 26.2% stake in Breville Group (BRG), with investment at a market value of over $1bn at 29 January 2022 (balance sheet value of $289.3m). PMV retains a 19.9% in Myer worth $69m.
- The Board declared a record interim dividend of 46cps fully franked, up +35.3% on 1H21.
- In Europe, Smiggle’s sales performance in 1H22 exceeded expectations, particularly around the key “back to school” periods, however, in Asia, numerous Covid related disruptions were experienced in 1H22, including school closures and lack of tourists due to international border closures.
- The Board declared a 1”.
Company Description:
Premier Investments Ltd (PMV) wholly owns retail conglomerate the Just Group and also holds a 27.5% stake in listed electrical consumer products manufacturer Breville Group Ltd (BRG) and 10.8% stake in listed department store, Myer Holdings (MYR). The Company has the following brands in its portfolio: Smiggle, Portmans, Just Jeans, dotti, Jacqui-E, Jay Jays and Peter Alexander. The Company operates in Asia, Europe, the UK and 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.
Business Strategy & Outlook
CME has suffered from little to no revenue growth more recently as all its futures complexes reported lower trading volume in 2021 than in 2019, with the notable exception being its equity futures platform, which remains well above prepandemic levels. The most significant headwind for the company has been the impact that low short-term interest rates has had on its interest rate complex, which is its largest source of revenue. When interest rates are expected to stay low there is less need for interest rate hedging and less incentive for speculation, creating a drag on CME’s trading volume. With interest rates now rising, though, this drag has been removed and the company’s results have improved so far in 2022. After a couple years of meager revenue growth, CME enjoying more favorable market conditions in the near term.
CME has benefited in the past from increased retail interest in equity markets. Equity markets saw a surge in trading volume in 2020, with equity derivative products seeing a larger and more maintained increase. CME’s equity index futures business produced impressive performance as a result. The expected revenue from CME’s equity derivatives to partially normalize over time as retail interest in equity markets fades. That said, the rise of $0 commissions, changes in investor behavior, and the availability of futures on retail brokerage platforms will provide a permanent tailwind to CME’s equity business, so one cannot foresee a full retracement. Additionally, as global commodity markets remain volatile, CME’s energy and agricultural futures to see continued interest. Beyond 2022, CME should see steadier growth in revenue and earnings. CME has a dominant position in many of the contracts that trade in its exchange and is well diversified across multiple product lines. In the long term, the anticipate that the company will continue to benefit from secular growth in the need to hedge commodity, energy, and interest rate exposure. CME also has a history of generating incremental growth through the introduction of new futures contracts, like the micro-E-mini S&P 500 contract and bitcoin futures.
Financial Strengths
CME Group has a strong balance sheet that would serve as a buffer if a market disruption occurs The balance sheet also provides the company with the flexibility needed to invest more capital into organic investments or acquisitions if it chooses to do so. At the end of 2021, the company had equity of $27 billion against $3.4 billion in debt. The company’s balance sheet is managed conservatively, with a targeted EBITDA to debt ratio of 1 time and a firm goal to keep $700 million in cash on hand at any given time. CME is well above this goal, with more than 2.8 billion on hand at the end of 2021, giving it a rock-solid balance sheet. As a clearinghouse, CME is obligated to cover the losses of its clearinghouse members in the event of a default. However, CME’s share of potential losses as a clearinghouse is capped at $250 million and the company’s balance sheet has more than sufficient liquidity to cover the potential credit risk that comes from the firm’s clearinghouse activities. In recent years, CME has returned most of its operating cash flow in the form of dividend payments. The company does this through a combination of a regular quarterly dividend and a special discretionary distribution it typically makes once per year. The company to maintain its regular dividend for the foreseeable future but note that the size of the special dividend can fluctuate from year to year based on the company’s result for the year and what cash it has on hand. Should the company make another major acquisition, like the purchase of NEX, the discretionary portion of CME’s dividend to shrink or be eliminated outright.
Bulls Say
- CME has assembled a diverse set of derivative products in interest rates, equities, commodities, metals, and foreign currency. Weakness in one product is often offset by strength in another.
- CME has been able drive trading volume growth by successfully introducing new futures contracts, like the micro-E-mini-S&P 500 and Bitcoin futures.
- CME stands to be a beneficiary of rising rates as increased volatility drives more trading volume in its interest rate futures contracts.
Company Description
Based in Chicago, CME Group operates exchanges giving investors, suppliers, and businesses the ability to trade futures and derivatives based on interest rates, equity indexes, foreign currencies, energy, metals, and commodities. The CME was founded in 1898 and in 2002 completed its initial public offering. Since then, CME Group has consolidated parts of the industry by merging with crosstown rival, CBOT Holdings in 2007 before acquiring Nymex Holdings in 2008 and NEX in 2018. In addition, the company has a 27% stake in S&P/Dow Jones Indices LLC, making the Chicago Mercantile Exchange the exclusive venue to trade and clear S&P futures contracts. Through CME’s acquisition of NEX in 2018 it has also expanded into cash foreign exchange, fixed income trading, and collateral optimization.
(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.
Business Strategy & Outlook
Hannover Re is a property and casualty, and life and health reinsurer with property and casualty contributing a little over two thirds of the business’ profits to shareholders. Hannover Re has a slightly less than double-digit market share in both these divisions. This is a business that is characterized by underwriting and carving the deep expertise in niche areas. While this may sound a bit woolly, is that some of this underwriting difference comes from the overall ownership of the underwriting process by Hannover Re’s underwriters. To conceptualize this through lenses of decision-making and responsibility. Whereas in other reinsurance firms, underwriters may need to defer back to a head of risk or perhaps even the c-suit, underwriters at Hannover Re have the authority, experience, and expertise to make and take those decisions more directly. With more of these decisions being made closer to the front line this leads to better standards of underwriting. Furthermore, as per anticipate this leads to stronger client relationships. Because underwriters are client-facing and thus renewals a reiterative negotiation, with Hannover Re’s underwriters in the position to directly negotiate and discuss client needs without the need for constant deferral, clients feel and are more connected to Hannover Re and this drives stronger retention rates. As stronger retention drives lower commission and acquisition costs.
In addition to the culture of excellence in underwriting with a proven reputation for expertise in specialist lines, Hannover Re benefits from an expense advantage and these two benefits are aligned. For example, with deeper and stronger expertise in underwriting, Hannover Re retrocedes less than comparable European reinsurance companies. As the business has the institutional capacity to absorb this internally with regard to its frontline, coupled with the lower levels of internal referrals outlined, Hannover Re supports more premium per employee than other comparable. The outcome of this is tangible with the business benefiting from at least a 100-basis-point expense ratio advantage.
Financial Strengths
The Hannover Re has a relatively decent balance sheet. Leverage is quite low with debt standing at around EUR 3.4 billion. That stands in contrast to equity owned by shareholders of EUR 10.9 billion. Admittedly, of that EUR 2.3 billion is attributable to gains on securities classified as available for sale. One has already touched on where Hannover’s balance sheet is weakest with the largest part of Hannover’s market risk attributable to default and spread risk. As dig a bit deeper, one can see that this relates to Hannover’s allocation to credit. Of the EUR 14.2 billion held in corporate bonds, EUR 7.8 billion is held around investment-grade. The shape of the government and semi-government bond portfolios is much more appealing. Hannover has also substantially increased its allocation to equities. Goodwill is however nice and low. Overall, this is a balance sheet that has room for quite a bit of improvement. First and foremost, the allocation to equities very opportunistic. This does not fit in with the typical corporate culture at Hannover Re. The quality of the credit portfolio is also a little light. But in the main this is a business that is not highly leveraged and is very financially disciplined.
Bulls Say
- Hannover Re has a strong culture of expertise and experience in specialist underwriting.
- Hannover Re is a cost leader with one of the lowest proportional amounts spent on administrative expenses.
- Hannover Re focuses on organic growth rather than acquisitions. This not only comes through in its lean structure and lower expenses, but also in its approach to capital management and returning capital to shareholders.
Company Description
Hannover Re is a German-based reinsurance company with a strong reputation in writing specialist lines of reinsurance and also a low-cost operating model. The business and its management team are highly disciplined, rarely ever making an acquisition and favoring a strategy of specials over a commitment to a buyback when looking to return excess capital to shareholders. The business to be innovative in finding alternative and unearthed profit sources.
(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.
