Business Strategy & Outlook
Bio-Techne is a market leader in proteins for the pharma, biotech, academic, and diagnostic markets and maintains strong market positioning in antibodies and testing controls for diagnostic partners. The firm’s market leadership in proteins has not come at the expense of pricing, and Bio-Techne is often the highest-priced provider of proteins and antibodies. Bio-Techne is likely to capitalize on current high growth of biologics in the 6%-8% range, which have been outpacing the mid-single-digit growth of traditional small molecules. Cell and gene therapies require protein inputs, and Bio-Techne’s reputation for quality in a market with few regulatory quality minimums help Bio-Techne win new business despite relatively robust competition. To have long-term success, Bio-Techne needs to maintain a dominant position in proteins, and at the same time expand its presence in genomics, without compromising on quality standards across the firm’s large protein
portfolio.
Bio-Techne’s strategy involves prioritizing top line growth with manufacturing capacity investment and large-scale customer deals, while complementing organic growth with meaningful
acquisitions. The company is heavily focused on gaining a foothold in genomics, and has seen some early success with Applied Cell Diagnostics’ RNA-ish and Exosome’s liquid biopsy ExoDx, two technologies that are in the process of being scaled to the market after being acquired within the last five years.
Though the coronavirus pandemic initially depressed sales, with lab closures early in 2020 and uncertainty on academic research funding, Bio-Techne has also seen some upside. The firm offers
direct-to-home liquid biopsy tests and has seen high demand for proteins used for COVID-19 vaccines and treatments. The recent approval of the ExoDx biopsy was well-timed, given that the test
can be sent directly to a patient’s home for urine collection following approval from a telehealth doctor. While the ongoing pandemic has been a net negative, expanded capacity of COVID-19 testing and high demand for protein inputs have mostly offset temporary headwinds of lab shutdowns and research cuts.
Financial Strengths
Bio-Techne has solid financial strength. Though leverage had temporarily increased from acquisitions, and debt/adjusted EBITDA reached a multiyear high of 2.25 times in 2019, Bio-Techne now has net debt leverage of about zero. Barring any large acquisitions, leverage to remain well below 2.0 times over the coming years. Bio-Techne’s healthy interest coverage ratio also indicates an appropriate level of debt, with the firm maintaining an operating income/interest expense ratio in the high-single digits, with the ratio ending 2020 at around 15 times. The interest coverage well above 20 times over the next five years. Bio-Techne’s primary source of funding for acquisition activity is a $600 million revolving credit facility, established in August 2018. This credit facility can be extended to an additional $200 million, and the company also took out a term loan of $250 million, with both facilities set to mature in August 2023. As of year-end 2020, Bio-Techne had $344 million of long-term debt, split between the term loan and revolving facility. The additional lending capacity of the credit agreement gives Bio-Techne an appropriate level of flexibility to make capital allocation decisions, and lenders appear to have high confidence in the firm’s ability to pay interest and principal on the debt, with the credit agreement allowing for a maximum interest rate of 75 basis points over Libor for standard lending.
Bio-Techne has generated good levels of operating cash, with consistent operating cash flow above $120 million in each of the last nine years, and the cash flow averaging $442 million in the next five years. We also expect free cash flow to average $353 million over that period.
Bulls Say
- While private payers currently do not cover the ExoDx biopsy test, getting reimbursement approvals along with expanded indications could allow for product revenue upward of $100 million, compared with under $50 million currently.
- Bio-Techne is set to benefit from high market growth of biologics, which require protein inputs, and regulatory approvals of biosimilars could be an additional tailwind for protein growth.
- Funding for academic health research through the National Institutes of Health could increase in a post pandemic world, and could offset state budget cuts in academia.
Company Description
Based in Minnesota, Bio-Techne is a life sciences manufacturer supplying consumables and instruments for the pharma, biotech, academic, and diagnostic markets. The company reports in two segments, protein sciences (75% of revenue), and diagnostics and genomics (25%). The protein-focused segment makes equipment and associated consumables for protein characterization and analysis and sells antibodies for research and clinical purposes. In diagnostics, Bio-Techne provides controls and calibrators for diagnostic manufacturers and has a portfolio of diagnostic oncology assays. The United States accounts for about 55% of revenue, and the firm also has operations in EMEA (20% of sales), the U.K. (5%), and APAC (15%), with the rest of the world accounting for the remaining 5%.
(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
ANZ Bank is the smallest of Australia’s four major banks by market value and the largest bank in New Zealand and the Pacific, offering a full range of banking and financial services to the consumer, small business and corporate sectors. Like the other major banks, ANZ Bank has a well-recognized and trusted bank brand, large advertising and marketing budget, and customer fulfillment capacity (branches, systems, funding capacity) to capitalize on this brand equity. The firm’s strategy to simplify and focus on its highly profitable core banking operations is logical.
Tight underwriting standards, lender’s mortgage insurance, low average loan/valuation ratios, a high incidence of loan prepayment, full recourse lending, a high proportion of variable rate home loans, and the scope for interest-rate cuts by the Reserve Bank of Australia, or RBA, combine to mitigate potential losses from mortgage lending. The main current influences on earnings growth are modest credit growth, with strong demand for home loans partially offset by high saving rates and businesses still cautious on making large investments given the uncertain economic outlook. As the RBA lifts the cash rate, banks will reprice loans by more than funding costs rise, and margins will gradually recover. Operating expenses are increasing due to regulatory and compliance project spend, as well as investments to make the bank more efficient and competitive on home lending approval times.
Despite high expectations, the “super-regional” strategy has been de-emphasized as returns failed to match expectations. ANZ is now specifically targeting large clients and has walked away from lending to small businesses. Given ANZ would have no competitive advantage against local (and much larger) lenders, they support the revised strategy.
Financial Strengths
ANZ Bank is in good financial health, with a common equity Tier 1 capital ratio of 18% at March 31, 2022, based on internationally harmonized Basel III rules. Based on APRA’s stricter rules, ANZ Bank’s common equity Tier 1 capital ratio at March 31, 2022, was 11.5%, comfortably above the regulator’s 10.5% minimum.
The proportion of customer deposits to total funding is above 60%, reducing exposure to volatile funding markets. Issuance of covered bonds will incrementally diversify the funding base. Total liquid assets exceed total offshore wholesale debt, and ANZ Bank could theoretically afford to retire all its offshore wholesale debt in the event that these debt markets close and the maturing debt cannot be rolled. This would be disruptive, but at least the bank would be solvent.
ANZ has AUD 4.5 billion in excess capital, or AUD 1.60 per share as at Dec. 31, 2021. Assuming a target common equity Tier 1 ratio of 11% the bank has around AUD 2.3 billion in surplus capital after completion of its AUD 1.5 billion share buyback.
Bulls Say
- Good progress overhauling the group by selling noncore businesses and renewing the focus on retail, commercial and institutional banking in Australia and New Zealand. This should improve earnings quality.
- ANZ Bank is still best placed among peers to capitalize on long-term growth in trade and investment flows with Asia.
- Non-bank lenders reliant on wholesale funding and equity markets may cede market share back to the major banks in a rising rate environment.
Company Description
ANZ Bank is one of Australia’s four major banks and provides retail, business, and institutional banking services to customers in Australia, New Zealand, and Asia-Pacific. The super-regional Asian strategy was de-emphasized, with management focusing on the higher-returning businesses in Australia and New Zealand. ANZ Bank still retains a tilt to its Asia-centric strategy, but is now more balanced, better capitalized and a simpler bank.
(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:
APA Group is Australia’s premier gas infrastructure company. Limited regulation, scale, and a superior skills base help it capitalizes on gas demand growth and generate competitive advantages that warrant a narrow economic moat. However, gas market reform will weaken its competitive advantages. Fair value uncertainty is medium, as secure revenue is balanced by high gearing and limited transparency over customer contracts. Infrastructure, primarily gas transmission and distribution, is the core business, generating more than 90% of group EBITDA. The rest comes from part-owned investments and asset management. The investments division owns stakes in smaller gas infrastructure companies, providing solid returns and giving some influence. The asset management division provides management, operating, and maintenance services to most part-owned companies, leveraging APA Group’s skills base to generate good returns outside the regulatory framework.
The vast majority of revenue within the core infrastructure business is unregulated. Unregulated assets and auxiliary services like storage operate under long-term contracts with energy retailers, LNG exporters, and major industrial/mining companies. Returns are traditionally 100-200 basis points above regulatory returns to compensate for higher demand risk, though this has likely increased as regulatory returns have fallen markedly in recent years. APA Group’s core strategy during the past decade has been to create an integrated east-coast gas transmission grid connecting multiple gas sources to multiple markets. This is now complete following numerous acquisitions and the firm is progressing a similar strategy in Western Australia, connecting to remote mine sites and towns. Expansion creates economies of scale and synergies from linking pipes together into a network with one manager. Further acquisitions of transmission pipelines are unlikely given competition concerns, but organic expansion is ongoing.
Financial Strengths:
APA Group is in sound financial health. It carries a lot of debt, but this should be manageable given highly secure revenue. Net debt/EBITDA was 5.7 times in fiscal 2021, which is considered reasonable. The net debt/EBITDA to fall to 5.5 times in fiscal 2023 as development projects complete and earnings start to flow. The firm’s average interest rate is around 4.6%, down substantially in recent years following the issue of the cheap debt to fund the WGP acquisition and refinancing other debt. Average debt maturity is long at more than seven years, and 100% of interest rates are fixed or hedged.
Bulls Say:
- APA Group owns and operates an excellent portfolio of gas infrastructure assets. Its large footprint ensures it is at least partially exposed to growth anywhere in the country.
- The east-coast gas grid provides improved reliability, greater flexibility, a wider range of services, and economies of scale over single pipelines.
- Limited regulation allows stronger returns on investment than regulated peers, particularly from organic expansion. However, gas market reform will reduce its advantage.
- Strong returns are possible from organic growth.
Company Description:
APA Group is Australia’s largest gas infrastructure company with an extensive portfolio of transmission pipelines, distribution networks, and storage facilities. It is internally managed and has direct operational control over all assets. It owns minority stakes in a few smaller gas infrastructure companies and manages operations for most of these. The stapled securities comprise a unit in Australian Pipeline Trust and in APT Investment Trust.
(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:
Genworth has a 50-year history in providing lenders mortgage insurance in Australia but has only been listed on the ASX since May 2014. Global U.S.-based insurer Genworth Financial Inc. listed it and completely sold out in 2021. It is likely Genworth will find it challenging to grow its LMI business in the face of increased competition. The entrance of Arch Capital Group, and increased tendency of lenders to self-insure, will see Genworth cede further share over time. LMI protects a lender against a potential gap between the outstanding loan amount plus costs and the sale proceeds from the mortgaged property. While it’s the lender who is protected and decides whether to purchase LMI, the premium is paid by the borrower.
The low growth in high loan/value ratio, or HLVR, loans, due to low systemwide home loan growth, as well as banks being more risk-averse after the Royal Commission and tightening of lending standards. An economic backdrop where Australians are holding historically high levels of home-loan debt, and wage growth is low, makes strong credit growth and a significantly stronger appetite for loans with higher LVRs unlikely. Management is rolling out optionality for borrowers to pay premiums in monthly instalments and paying LMI upfront at a discount (instead of capitalized on the loan). While initiatives such as these are important to address borrower challenges in saving a deposit, they can lead to Genworth earning less on an average policy, and by not receiving premiums upfront, reduces funds available for Genworth’s investment portfolio. Unless Genworth’s larger customers integrate these offering into their systems, take up will likely be low. In June 2021 Genworth’s largest customer, Commonwealth Bank, issued a request for proposal relating to its LMI requirements. While the agreement was renewed for another three years, it highlighted the risk to the insurer’s outlook given its reliance on Commonwealth Bank. The bank accounts for around 65% of Genworth’s GWP.
Financial Strengths:
Genworth is regulated by APRA to maintain a certain prescribed capital level, or PCA. Genworth’s PCA is driven primarily by its LMI concentration risk charge (which is mainly based on its probable maximum loss based on a three-year economic or property downturn of an APRA determined 1-in-200-year severity level) and insurance risk charge (the risk that net insurance liabilities are greater than the value determined by the actuary). Genworth targets a regulatory capital base of 1.32 times-1.44 times its PCA, which it has been consistently above. The PCA as at Dec. 31, 2021, is a healthy 2 times. Genworth announced a share buyback of AUD 100 million as a first step in moving the solvency ratio closer to the board’s target range. With AUD 3.7 billion in cash and investments, and reinsurance covering AUD 800 million of claims above AUD 1.65 billion, the insurer has adequate coverage for a severe economic recession.
Bulls Say:
- Fiscal and monetary stimulus cushion an economic downturn in Australia, resulting in a rise in delinquencies but allows Genworth to remain profitable.
- A sound balance sheet provides the capacity to continue to institute capital management initiatives, including special dividends and buying back more shares.
- The recent relaxation of some macro-prudential measures and low cash rates may spur lenders to issue more investor and HLVR home loans, which Genworth is well positioned to benefit from.
Company Description:
Genworth Mortgage Insurance Australia listed on the Australian Securities Exchange in 2014 after its U.S.-based parent, Genworth Financial Inc. (NYSE: GNW), sold down its stake. It has since exited. With a history spanning over 50 years, Genworth Australia is a provider of lenders’ mortgage insurance, or LMI, in Australia. In Australia, LMI is predominantly purchased on loans with a loan/value ratio, or LVR, above 80%. LMI protects a lender against a potential loss (gap) between the outstanding loan amount and sale proceeds on a delinquent loan property. LMI does not protect the borrower, however the premium is paid by the borrower. It’s regulated by the Australian Prudential Regulation Authority, or APRA, which requires it to meet minimum regulatory capital requirements.
(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.
