Business Strategy and Outlook
As the largest telecom carrier in Latin American, America Movil provides broad exposure to rising demand for access to the internet and other data services across the region. That exposure comes with significant political, regulatory, and economic uncertainty, but it is anticipated Movil’s strong competitive position in most of the markets it serves, and its strong balance sheet will create value for shareholders over the long term.
The Mexican business is Movil’s most important, accounting for about 40% of service revenue. Despite regulatory and competitive changes that hit in 2014-15, Movil has remained the dominant Mexican wireless carrier with more than 60% market share. Wireless competition has subsided recently, with Telefonica essentially exiting the industry and AT&T focused elsewhere, allowing pricing to stabilize. While the market isn’t as attractive as a decade ago, it remains highly profitable and should deliver stable growth. Movil also serves about half of the Mexican internet access market. Competitors are investing aggressively in fixed-line infrastructure, especially cable companies Groupo Televisa and Megacable and fiber provider TotalPlay. These three firms are capturing most of the growth in the broadband market, forcing Movil to upgrade its network.
It is alleged Movil’s extensive network assets and deep financial resources will enable it to maintain its dominance in Mexico. However, the firm and its primary shareholders, the Slim family, are likely to garner regulatory scrutiny in Mexico from time to time as officials seek to increase network investment and service adoption. In Brazil, Movil’s second-largest market at about 30% of service revenue, the firm has assembled a solid set of assets as the second-largest wireless carrier and largest cable company in the country. Economic weakness and a challenging competitive environment have limited the firm’s ability to earn attractive returns on these assets. The planned carve-up of Oi among Movil, TIM, and Vivo, if approved by regulators, should improve the competitive situation, allowing for better pricing. Consolidation in the fixed-line market is likely, but this process may be painful.
Financial Strength
America Movil’s financial position is sound, in analysts view. The firm has long had a stated leverage target of 1.5 times EBITDA, but it hasn’t been able to approach that goal until recently, as the devaluation of the Mexican peso has offset efforts to trim debt denominated in other currencies. Reported consolidated net debt had hovered around 2 times EBITDA over the past several quarters. However, the sale of Tracfone to Verizon in late 2021 generated proceeds of $3.6 billion in cash and 57.6 million Verizon shares (worth about $3 billion). Movil has also used its stake in Dutch carrier KPN, worth about $2.7 billion, to issued low-cost euro debt exchangeable into KPN shares.With the Tracfone sale, debt net of cash and investments declined to MXN 400 million ($19 billion) at the end of 2021 from MXN 538 million ($27 billion) the year before, putting net leverage at 1.2 times EBITDA after lease expense. Large telecom firms elsewhere in the world often operate with significantly higher leverage. The composition of Movil’s debt load has also improved. The firm has trimmed its U.S. dollar-denominated debt to $8.5 billion from $16 billion since the end of 2014. The Verizon shares should provide a partial hedge against future currency moves. Additionally, Movil has reduced its euros-denominated debt to EUR 8.5 billion from EUR 11.2 billion at the end of 2019. In addition to the hedge the KPN stake provides, about 30% of this borrowing held at Telekom Austria, which Movil consolidates on its financial statements. Share-repurchase activity has been modest in recent years, and shareholders have had the option of taking dividends in scrip rather than cash. With total debt trending lower, though, Movil has ramped up shareholder returns. The firm added a MXN 25 billion ($1.2 billion) share repurchase authorization in March 2021 and another MXN 26 billion in November 2021, repurchasing a total of MXN 37 billion ($1.8 billion) during the year.
Bulls Say’s
- America Movil has unmatched scale in the Latin American telecom market. It serves far more wireless customers in the region than nearest rival Telefonica and holds the leading share in Mexico, Colombia, and Argentina and the second-largest share in Brazil.
- A sharp reduction in U.S. dollar-denominated debt recently, combined with continued stable cash flow, should enable Movil to maintain a strong financial position while steadily increasing shareholder returns.
- Movil has deep experience dealing with the political and regulatory nuances of the Latin American market.
Company Profile
America Movil is the largest telecom carrier in Latin America, serving about 280 million wireless customers across the region. It also provides fixed-line phone, internet access, and television services in most of the countries it serves. Mexico is the firm’s largest market, providing about 40% of service revenue. Movil dominates the Mexican wireless market with about 63% customer share and also serves about half of fixed-line internet access customers in the country. Brazil, its second most important market, provides about 30% of service revenue. Movil sold its low-margin wireless resale business in the U.S. to Verizon in 2021 and now owns a 1.4% stake in the U.S. telecom giant. The firm also holds a 51% stake in Telekom Austria and a 20% stake in Dutch carrier KPN.
(Source: MorningStar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Business Strategy and Outlook
Post has a unique portfolio of businesses. After spinning off its majority stake in the fast-growing BellRing Brands in March 2022, nearly half of its sales mix is cereal, which is highly profitable, but experiencing declining volumes. The other half of its portfolio consists primarily of egg and potato products, which possess a better growth profile, but carry low profit margins. It is alleged a competitive edge remains elusive, as Post has not demonstrated strong brand equities, preferred relationships with customers, or a cost advantage, which are the most likely moat sources for a packaged food company.
The cereal business has been experiencing declining per capita consumption (prior to the pandemic) as consumers have shifted away from processed, high-sugar, high-carbohydrate fare. Adding to the challenge, no-moat Post, the third-largest player, has had to compete for ever-decreasing shelf-space with market leaders narrow-moat General Mills and wide-moat Kellogg. That said, Post’s cereal business is very profitable, with EBITDA margins around mid-20% and low-30% for the U.S. and European businesses, respectively.
The refrigerated segments (52% of 2021 sales, with 32% food service and 20% retail) consists primarily of egg and potato products, but also side dishes, cheese, and sausage sold under brands such as Bob Evans and Simply Potatoes. While this business has more attractive growth prospects than cereal (growing 1%-2% versus cereal’s modest declines), agricultural commodities are difficult to differentiate and therefore generally do not command a price premium. As a result, this business has relatively low EBITDA margins (16%-18%) and does not offer the firm a competitive advantage, in analysts view.
Financial Strength
Post has a unique capital allocation strategy, preferring to carry a heavier debt load than most packaged food peers. Net debt/adjusted EBITDA has averaged 5.3 times the last 10 years, increasing following acquisitions and gradually declining as the firm uses free cash flow to pay down debt. Leverage stood at 5.5 times at the end of fiscal 2021 including BellRing Brands, and it is being modelled that the ratio remains above 5 times for the duration of experts forecast. Post’s legacy domestic cereal business generates significant free cash flow (about 12% of revenue, above the 10% peer average), although after acquiring the refrigerated foods, BellRing, and private brands businesses, this metric fell to a mid- to high-single-digit average in 2013 and beyond, now slightly below the peer average. Post’s interest coverage ratio (EBITDA/interest expense) has averaged 2.5 times over the past three years, compared with the 7 times peer average. While this ratio is quite tight, the firm has ample access to liquidity (even considering the uncertain environment caused by the pandemic), including $1.2 billion cash and $730 million available via on its credit revolver as of December 2021. Post has no intention to initiate a dividend. Instead, the firm plans to balance debt repayments, share repurchase, and acquisitions. Although it is likely that the firm will acquire additional businesses over the next several years, given the numerous uncertainties regarding these transactions, experts have opted to model free cash flow being used instead for share repurchase, which is foreseen as a good use of capital assuming it is executed at a value below analysts assessment of its intrinsic value.
Bulls Say’s
- The refrigerated foods segment, half of Post’s business, is benefiting from consumers’ evolving preference for fresh, unprocessed high-protein eggs, and fresh and convenient side dish options.
- Although growth in the cereal business has been stagnant, it reports attractive profits and cash flows.
- Despite inflation and the uncertain economic environment that could ensue, demand for Post’s products should be relatively stable.
Company Profile
Post Holdings operates in North America and Europe. For fiscal 2021 (restated for the separation of BellRing Brands), 47% of the company’s revenue came from cereal, with brands such as Honeycomb, Grape-Nuts, Pebbles, Honey Bunches of Oats, Malt-O-Meal, and Weetabix. Refrigerated food made up 52% of sales and services the retail (20% of company sales) and food-service channels (32%), providing value-added egg and potato products, prepared side dishes, cheese, and sausage under brands Bob Evans and Simply Potatoes. Post also holds a 60% stake in 8th Avenue, a private brands entity and a 14% stake in BellRing Brands, with protein-based products under the Premier Protein and Dymatize brands. Post launched a special purpose acquisition corp in 2021, but has not yet executed a transaction.
(Source: MorningStar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Approach
This fund uses full physical replication to capture the performance of the S&P 500 Total Return Index. The fund owns–to the extent that is possible and efficient–all the underlying constituents in the same proportion as its benchmark.
Portfolio
The S&P 500 is a free-float-adjusted market-capitalisation-weighted index of 500 US companies that offers both large- and mid-cap exposure. With a total value of over USD 40 trillion, the index covers around 80% of the free-float-adjusted market capitalisation of the US equity market. The US Index Committee maintains the S&P 500 and meets monthly. It aims to minimise index membership turnover. If a constituent no longer meets the entrance requirements, the committee will not remove the member immediately if it deems the change temporary. The index rebalances quarterly in March, June, September, and December. The largest sector exposure is information technology (29%), followed by healthcare (13%) and financials (12%). With the inclusion of Tesla TSLA and the continued success of many of the largest stocks in the index over 2020, the top 10 now represent over one fourth of the index. That said, concentration risk concerns remain subdued as the top 10 companies traditionally drive around 20% of the return, a fair attribution for many market-cap-weighted strategies.
Performance
Funds that track the S&P 500 Net Return Index have consistently outperformed the category average by a range of 0%-4% on a yearly rolling basis, making a strong investment case for low-cost passive instruments such as this when seeking broad US equity exposure. Further evidence is found in the superior risk-adjusted return profile of the S&P 500 relative to the average peer in the category. Passive funds in this category have generally had better or equal Sharpe ratios over short and long periods. In fact, this strategy has routinely captured more of the upside and less of the downside. Tracking error has also generally been tight, sitting at around 3-5 basis points. Valuations between large and small caps have shown some dispersion as US large caps rerated significantly following the volatility that markets saw in first-quarter 2020, suggesting that outperformance of larger companies over the last few years has come with steeper degrees of price risk.
Top Holdings of the fund
About the fund
The Fund employs a passive management – or indexing – investment approach, through physical acquisition of securities, and seeks to track the performance of the S&P 500 Total Return Index.The Index is comprised of large-sized company stocks in the US.
The Fund attempts to:
- Track the performance of the Index by investing in all constituent securities of the Index in the same proportion as the Index. Where not practicable to fully replicate, the Fund will use a sampling process.
- Remain fully invested except in extraordinary market, political or similar conditions.
(Source:Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Investment Thesis
- Trades below our valuation and represents >10% upside to current share price.
- PPT is a diversified business with earnings derived from trustee services, financial advice and funds management.
- PPT has an opportunity to increase FUM via its Global Share Fund, which has a strong performance track record over 1, 3 and 5-years and significant capacity, whilst PPT continues to maintain FUM in Australia equities which is near maximum capacity. This equates to flattish earnings growth unless PPT can attract FUM into international equities, credit and multi-asset strategies (and other incubated funds).
- Retail and institutional inflow of funds is expected to be solid especially from positive compulsory superannuation trend and flow from Perpetual Private.
- Potential for Perpetual Private to drive growth in funds under management and funds under advice.
- Cost improvements in Perpetual Private and Corporate Trust.
Key Risks
- Any significant underperformance across funds.
- Significant key man risk around key management or investment management personnel.
- Potential change in regulation (superannuation) with more focus on retirement income (annuities) than wealth creation.
- Average base management fee (bps) per annum (excluding performance fee) continues to be stable at ~70bps but there are risks to the downside from pressures on fees.
- More regulation and compliance costs associated with the provision of financial advice and Perpetual Private.
- Exposure to industry funds which are building in-house capabilities (~15-20% of total PPT funds under management).
1H22 Results Summary :
- Operating revenue increased +37% to A$384.9m, primarily driven by the full contribution of Barrow Hanley Global Investors (Barrow Hanley), strong relative investment performance, higher average equity markets and continued growth in both Perpetual Corporate Trust and Perpetual Private.
- Underlying expenses increased +31% to A$275.3m, mainly due to the addition of expenses relating to newly acquired businesses Jacaranda Financial Planning, Laminar Capital and a full six months of Barrow Hanley, as well as higher variable remuneration and investment in technology.
- Underlying profit after tax (UPAT) increased +54% to A$79.1m, which combined with +16% increase in significant items (comprised of transaction and integration costs associated with the acquisition/establishment of Barrow Hanley, Trillium and other acquisitions, as well as the amortisation of acquired intangibles) delivered +113% growth in NPAT to A$59.3m.
- The Company ended the half with cash of A$130.9m, down -24%, primarily due to reduction in FCF (resulting from international expansion, tax and interest payments) and investment in growth initiatives/acquisitions. Liquid investments increased +16% to A$154.8m, reflecting an increase in seed fund investments relating to ETFs and mutual funds.
- Borrowings increased +13% to A$248.1m, reflecting the draw-down of debt to fund strategic initiatives with additional capacity remaining for further investment, leading to gearing ratio (debt/debt+equity) increasing +150bps to 21.5%.
- The Board declared a fully franked interim dividend of 112cps, up +33% and representing a payout ratio of 80%, in line with Company’s dividend policy of 60-90% of UPAT on an annualised basis.
Company Profile
Perpetual Ltd (PPT) is an ASX-listed independent wealth manager with three core segments in (1) Perpetual Investments which is one of Australia’s largest investment managers; (2) Perpetual Private which is one of Australia’s premier high net worth advice business; and (3) Perpetual Corporate Trust which provides trustee services. PPT manages ~$98.3 billion in funds under management, ~$17.0 billion in funds under advice and ~$922.8 billion in funds under administration (as at 30 June 2021.
(Source: Banyantree)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Investment Thesis:
- The stock is trading below our valuation and represents >10% upside to the current share price.
- Proven and market leading technology (management believes they are 24 months ahead of competitors), with PME’s product commanding a price premium.
- New contract wins (more win rates plus higher value per contract) and increasing usage by existing clients.
- New product launches – Enterprise Imaging solutions and moving into other “ologies” such as cardiology and ophthalmology. Developing artificial intelligence (AI) capabilities.
- Leveraged to the digital health data thematic and industry’s transition to cloud.
- Expansion into new geographies.
- Potential M&A activity.
Key Risks:
- High valuation which subjects the stock price to more volatility.
- Timing (long lead time to close contracts) and scale of new contract wins disappoints relative to market expectations.
- Contract renewals (pricing pressure) and potential budget cuts at hospitals leading to the delay of software upgrades / investment.
- Increasing competitive pressures (from large scale players and new entrants with innovative technology).
- Systems reliability – data breach or drop in quality.
- Regulatory / funding changes – reimbursement changes leading to lower imaging volumes.
Key Highlights:
- Pro Medicus Ltd (PME) reported strong 1H22 results reflecting earnings (net profit) of $20.68m, up +52.7% relative to the pcp.
- Revenue was up +40.3% to $44.33m driven by contract wins and renewals in the U.S. and an extension of a European contract to cover new regions.
- Underlying profit before tax $28.8m, up +53.5%
- Net profit of $20.68m, up +52.7%.
- PME retained a strong balance sheet with cash reserves of $76.17m, up $14.91m and remains debt-free.
- PME reported key contract wins which bodes well for future earnings: Novant Health (A$40m, 7-year contract), a community-based integrated delivery network that spans three U.S. states; Contract renewal with Allegheny Health (A$12m, 5-year), a health network in Pittsburgh, Pennsylvania; and extension of German government hospital to a fourth site.
- Management also highlighted PME made progress with all key implementations being on or ahead of schedule, including Intermountain and UCSF.
- The Board declared a fully franked interim dividend of 10c per share, up +42.9%.
Company Description:
Pro Medicus Ltd (PME) was founded in 1983 and provides a full range of radiology IT software and services to hospitals, imaging centers and health care groups globally. In Jan-09, PME purchased Visage Imaging, which has become a global provider of leading-edge enterprise imaging solutions, pioneering the best-of-breed, or Deconstructed PACSSM enterprise imaging strategy. Visage 7 technology delivers fast, multi-dimensional images streamed via an intelligent thin-client viewer. The company offers a leading suite of RIS, PACS and e-health solutions constituting one of the most comprehensive end-to-end offerings in radiology. Pro Medicus has global offices in Melbourne, Berlin (R&D) and San Diego (Sales).
(Source: Banyantree)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Investment Thesis:
- Attractive assets which are strategically located.
- Leveraged to improving economic growth (e.g., commodity markets, new passenger vehicle sales).
- Additional project work in future years, leading to improved margins.
- Successful ramp up of Moorebank Logistics Park and offering logistics services at incremental margins.
- Technological advances (and automations) at its ports and operations leading to better cost outcomes and improved margins.
- Potential bolt-on acquisitions to supplement organic growth.
- Sound balance sheet position.
Key Risks:
- Downturn in the domestic economy (or key end markets such as agriculture, retail), leading to excess capacity and pricing pressure.
- Margin pressure due to cost pressures.
- Potential direct and indirect impacts from coronavirus outbreak.
- Value destructive acquisition (dilutive to earnings and a distraction for management).
- Competitive pressures leading to margin erosion – Logistics industry is a highly competitive market.
- QUB does not meet market expectations in achieving capacity utilization at Moorebank Logistics Park.
Key Highlights:
- Underlying revenue increased +27.6% to $1.2bn and underlying earnings (EBITA) increased +18.9% to $110.9m, despite pcp including ~$16.8m in JobKeeper benefits, driven by organic growth as well as the contribution from acquisitions and growth capex completed in the prior and current periods.
- Underlying NPATA increased +16.9% to $96.8m and underlying earnings per share pre-amortisation (EPSA) increased +15.9% to 5.1 cents.
- Despite ongoing impacts from Covid-19, global supply chain disruptions and some industrial relations challenges, as the Company managed to mitigate cost pressures through contractual protections, benefits of scale and operating efficiency and proactive engagement with customers to review and optimize broader supply chain activities.
- Capex (gross) was $440.4m with ~74% spent in the Operating Division and the balance in the Property Division.
- Operating Division was the largest driver of 1H22 result, generating underlying EBITA of $126.4m (+19.4%), with Logistics & Infrastructure activities contributing underlying EBITA of $69.9m (+36.8%), benefitting from high levels of container volumes across transport and container park operations, Ports & Bulk activities contributing underlying EBITA of $70.4m (+4.3%), driven by contribution from new contracts secured in the current and prior periods.
- Property Division delivered underlying revenue of $8.9m (-27.6%). QUB receiving total up-front proceeds of $1.36bn with another $300m deferred consideration expected to be received after construction of Stage 1 of the MLP Interstate Terminal.
- Patrick (50% share) delivered underlying contribution of $23.5m NPAT and $28.9m NPATA, an increase of +12.4% and +14.7%, respectively, and included QUB’s share of interest income ($6.1m post-tax) on the shareholder loans provided to Patrick.
- The Board declaring a fully franked interim dividend of 3cps (up +20% over pcp) and approving capital management initiatives of up to $400m commencing 2H22.
Company Description:
Qube Holdings Limited (QUB) is a diversified logistics and infrastructure company providing logistics services for clients in both import and export cargo supply chains. The Company operates three main divisions: Ports & Bulk (integrated port services, bulk material handling and bulk haulage), Logistics (largest integrated third-party container logistics provider in Australia), and Strategic Assets (investing and developing future infrastructure).
(Source: Banyantree)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.