Investment Thesis
- Sizeable market opportunity – in the U.S. alone WSP TAM is US$4.7bn (WSP North American target markets) vs total U.S. CPaaS TAM of US$98bn.
- Established a solid foundation to build from – the Company has over 800 customers worldwide with leading brand names.
- Structural tailwinds – ongoing automation and digitization.
- Increasing direct sales penetration.
- Attractive recurring revenue base via subscriptions.
- Investment in R&D to continue developing the Company’s competitive position and enhance value proposition with customers
Key Risks
- Rising competitive pressures.
- Growth disappoints the market, given the company trades on high valuation multiples – growth in subscriptions, new customers and penetration of existing clients.
- Product innovation stalls and fails to resonate with customers.
- Emergence of new competitors and technology.
- Key channel partnerships breakdown.
1H22 Results Highlights. Relative to the pcp:
- Revenues of $39.4m, up +70.4% (CAGR of +37.7% since 1H19). Annualised Recurring Revenue (ARR) at $60.0m, up +26.6% (CAGR of +29.4% since 1H19). WSP saw significant contract wins in ANZ, Asia and North America which bodes well for future revenue growth.
- WSP achieved gross profit of $23.0m, up +64.9%. Gross margin declined from 60.4% to 58.4% due to a surge in transactional revenues, which grew from 66.6% to 80.6% of total revenue.
- Operating expenses jumped +75.0% to $29.9m, as WSP grew head count from 169 to 270 to service the growing business.
- WSP reported an EBITDA loss of $(4.6)m versus $(1.8)m in the pcp.
- WSP remains well-funded, with no debt and line of sight to cash flow breakeven.
- WSP remains on track to deliver on upgraded guidance for FY22.
- WSP remains well-funded, with no debt and line of sight to cash flow breakeven
Company Profile
Whispir Ltd (WSP), founded in 2001, is a global enterprise software-as-a-service (SasS) company. WSP provides a communications workflow platform that automates interactions between businesses and people. The Company has over 800 customers, operates in 60 countries and more than 200 staff globally. WSP operates in an emerging subset of the enterprise communications SaaS market known as Workflow Communications-as-a-Service (WCaaS). WSP currently solves two communication problems: (1) Operational Messaging – engaging with employees; and (2) External Messaging – engaging with customers. WSP operates in 3 key markets – Operational messaging (size $8bn), API messaging (size $32bn) and Marketing messages (size $66bn).
(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 dividend yield of 5.2%.
- Market-leading position in New Zealand. Dominant market share in Mobile, Broadband and is the leader in IT Services.
- Strong capacity for growth demonstrated across all segments, with IT expected to continue to be a key driver as more consumers and businesses migrate to the Cloud.
- Investments in Broadband and the roll-out of 4.5G should see its lagging broadband segment improve.
- Multi-product offerings provide interesting points of differentiation from other telco providers.
- Implementation of “Agile” leading to further cost reductions and operating efficiencies.
- Increasing customer demand for higher-margin cloud-based services.
- Increases in ARPU growth and connections despite weak industry conditions
- SPK still commands a strong market position and has the ability to invest in technologies and areas which could provide room for growth.
Key Risks
- Unsuccessful migration of copper wire customers resulting in earnings drag in May due to weather conditions.
- More competition in its Mobile and Broadband segments leading to aggressive margin contraction, especially as products become commoditized.
- Risk of cost blowout (for instance in network upgrades or maintenance).
- Churn risk.
- Balance sheet risk (including credit ratings risk) should earnings decline due competitive and structural risks.
- Reduced flexibility and increased net debt if unable to fund total dividend by earnings per share
- Any network disruptions/outages.
1H22 results summary. Relative to the pcp:
- Revenue increased +5.2% to $1,890m, driven by +5% growth in Mobile Services (secured ~60% of total market), +3.2% growth in Cloud, security, and service management (driven by demand for public cloud and growth in the health sector), +27.5% growth in Procurement revenue (driven by national health software licence contract), +7% increase in Others (investment behind future markets continued to gain momentum and Spark IoT connections increased +31% to 623,000), partially offset by -3.9% decline in Broadband (amid competitive market intensity) and -5.2% decline in Voice.
- Opex increased +4.3% to $1,352m as increase in product costs driven by higher procurement volumes and growth in cloud and collaboration and increase in net labour costs (talent scarcity) was partially offset by precision marketing savings.
- EBITDAI increased +7.6% to $538m with margin improving +70bps to 28.5% and management remains on track to achieve 31%.
- NPAT increased +21.8% to $179m, driven by EBITDAI growth, a reduction in finance expense and lease liability interest, and lower D&A.
- FCF increased +61.9% to $183m with cash conversion of 110%, driven by improvement in working capital, EBITDAI growth and lower tax.
- Capex increased +14.7% to $218m, driven by uplift in mobile RAN investment in support of accelerated 5G rollout and increased investment in IT systems.
- Net Debt declined -1.4% to $1,380m leading to net debt to EBITDAI ratio declining -0.15x to 1.2x, within internal threshold of 1.4x and consistent with S&P A- credit rating.
- The Board declared a 100% imputed interim dividend of 12.5cps.
Spark TowerCo subsidiary announced
Management announced plans to transfer its passive mobile tower assets, spanning ~1,500 mobile sites, into a separate subsidiary, Spark TowerCo, to improve utilisation through coverage expansion and increased tenancy, while delivering cost efficiencies as the Company expands coverage across Aotearoa. Management also intends to commence a process in 2H22 to explore the introduction of third-party capital into Spark TowerCo, with more information expected to be revealed in 2H22.
Company Profile
Spark New Zealand Ltd (SPK) is a New Zealand based telecommunications company. SPK’s key services are the provision of telephone lines, mobile telecommunications, broadband services and IT services. Its key product offerings are Spark Home, Mobile & Business, Spark Digital, Spark Ventures, and Spark Connect. The Company operates four main segments: (1) Spark Home, Mobile & Business; (2) Spark Digital; (3) Spark Connect & Platforms; and (4) Spark Ventures & Wholesale.
(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.
Business Strategy and Outlook
California will always present political, regulatory, and operating challenges for utilities like Edison International. But California’s aggressive clean energy goals also offer Edison more growth opportunities than most utilities. Policymakers know that meeting the state’s clean energy goals, notably a carbon emissions-free economy by 2045, will require financially healthy utilities.
It is foreseen Edison will invest at least $6 billion annually, resulting in 6% annual earnings growth at least through 2025. Edison already has regulatory and policy support for most of these investments, which address grid safety, renewable energy, electric vehicles, distributed generation, and energy storage. Wildfire safety investments alone could reach $4 billion during the next four years. It is seen state policies will force regulators to support Edison’s investment plan and earnings growth. In August 2021, regulators approved nearly all of Edison’s 2021-23 investment plan. Regulatory proceedings in 2022 will address wildfire-specific investments and Edison’s $6 billion investment plan for 2024.
Operating cost discipline will be critical to avoid large customer bill increases related to its investment plan. Edison faces regulatory scrutiny to prove its investments are producing customer benefits. It also must resolve the balance of what could end up being $7.5 billion of liabilities related to 2017-18 fires and mudslides. Large equity issuances in 2019 and 2020–in part to fund the company’s $2.4 billion contribution to the state wildfire insurance fund and a higher equity allowance for ratemaking–weighed on earnings the last two years. Edison now has most of its financing in place to execute its growth plan and continue its streak of 18 consecutive annual dividend increases. It is anticipated Edison to retain a small share of unregulated earnings, but those are more likely to come from low-risk customer-facing or energy management businesses wrapped into Edison Energy.
Financial Strength
Edison’s credit metrics are well within investment-grade range. California wildfire legislation and regulatory rulings in 2021 removed the overhang that threatened Edison’s investment-grade ratings in early 2019.Edison has kept its balance sheet strong with substantial equity issuances since 2019. It is not projected Edison will have any liquidity issues as it resolves 2017-18 fire and mudslide liabilities while funding its growth investments. Edison issued $2.4 billion of new equity in 2019 at prices in line with Amnalysts fair value estimate. This financing supported both its growth investments and half of its $2.4 billion contribution to the California wildfire insurance fund. The new equity also allowed Southern California Edison to adjust its allowed capital structure to 52% equity from 48% equity for rate-making purposes, leading to higher revenue and partially offsetting the earnings dilution.Edison’s $800 million equity raise in May 2020 at $56 per share was well below analysts fair value estimate but was necessary to support its growth plan in 2020 and early 2021. Edison also raised nearly $2 billion of preferred stock in 2021 and might issue more preferred stock to limit equity dilution as it finances its growth program. In particular, it is likely Edison will have to raise equity to finance its $1 billion energy storage project in 2022.It is held dividends to grow in line with SCE’s earnings. The board approved a $0.15 per share annualized increase, or 6%, for 2022, its 18th consecutive annual dividend increase. Management has long targeted a 45%-55% payout based on SCE’s earnings, but the board appears to be comfortable going above that range based on the 2021 and 2022 dividends that implied near-60% payout ratios. As long as Edison continues to receive regulatory support, it is held the board will keep the dividend at the high end of its target payout range.
Bulls Say’s
- With Edison’s nearly $6 billion of planned annual investment during the next four years, analysts project 6% average annual average earnings growth in 2022-25.
- Edison has raised its dividend for 18 consecutive years to $2.80 in 2022, a 6% increase from 2021. Management appears comfortable maintaining a payout ratio above its 45%-55% target.
- California’s focus on renewable energy, energy storage, and distributed generation should bolster Edison’s investment opportunities in transmission and distribution upgrades for many years.
Company Profile
Edison International is the parent company of Southern California Edison, an electric utility that supplies power to 5 million customers in a 50,000-square-mile area of Southern California, excluding Los Angeles. Edison Energy owns interests in nonutility businesses that deal in energy-related products and services. In 2014, Edison International sold its wholesale generation subsidiary Edison Mission Energy out of bankruptcy to NRG Energy.
(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:
- High quality assets, which are difficult to replicate.
- The quality of APA’s assets; the Company will always retain its M&A appeal. Last takeover bid (by CKI) was at $11.00 per share.
- Attractive and growing distribution yield.
- Highly credit worthy customers.
- Currently assessing international opportunities – USA focus.
- Organic growth pipeline of >$1.4bn.
- Growth through acquisitions.
- Diversified customer base by sector.
- Largest owner of gas transmission pipelines in Australia.
- Opportunity to grow its renewable business.
- Management announced their ambition to achieve.
Key Risks:
- Negative market/investor sentiment towards “bond-proxies”.
- Future regulatory changes by pipeline regulators.
- Large portion of businesses are exposed to the energy sector.
- Infrastructure issues such as explosions or ruptures.
- Adverse decision from COAG reviews transmission costs.
- Shorter contract terms on existing capacity.
Key Highlights:
- Revenue (excluding pass-through) increased +4.3% to $1,117.7m, with growth across all segments including Victorian Transmission System, Diamantina Power Station and Asset Management driven by favourable tariff escalation given exposure to Australian and US inflation indices.
- Underlying opex increased +4.5% to $257.6m, driven by higher bidding costs associated with corporate development activities, higher insurance premiums, and enhancements across technology, partially offset by ongoing discipline in management of operations & maintenance.
- Underlying EBITDA increased by +4.5% to $859.8m as higher revenue was partly offset by increased investments in capability and strategic projects.
- NPAT (excluding significant items) declined -2.2%, as higher EBITDA and a decline in interest expense due to lower average interest costs due to liability management exercise completed in March 2021 was more than offset by higher D&A and tax expense. NPAT (including significant items) was $155.6m compared to loss of $15.5m in pcp, largely due to a non-cash impairment of $249.3m in pcp against the Orbost Gas Processing Plant.
- FCF increased +22.6% to $515.1m, primarily due to higher earnings and lower interest paid.
- Total capex increased +27% to $314.4m (growth capex down -41.7% and stay-in-business capex down -16%), primarily due to IT capex increasing +77.5% and corporate real estate capex of $7.9m.
- The Board declared an interim distribution of 25cps (20.12cps from APT + 4.88cps from APTIT), up +4.2% over pcp and equating to payout ratio of 57.3%. APA reaffirmed FY22 DPS of 53cps, an increase of +3.9% over pcp.
Company Description:
APA Group Limited (APA) is a natural gas infrastructure company. The Company owns and/or operates gas transmission and distribution assets whose pipelines span every state and territory in mainland Australia. APA Group also holds minority interests in energy infrastructure enterprises. APA derives its revenue through a mix of regulated revenue, long-term negotiated contracts, asset management fees and investment earnings.
(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:
- Trading below our valuation.
- Potential for solid growth in Europe and Japan, substantial opportunities, that the Company is positioned to take advantage of.
- Strong market position in all of DMP’s existing geographies.
- DMP is ahead of the curve with the use of technology and innovative offerings for its customers.
- Acquisition in Europe to bring in top line revenue growth.
- Strong management team.
- Improving margin outlook (i.e., operating leverage benefits).
Key Risks:
- Acquisition integrations not going to plan.
- Missing market expectations on sales and earnings growth.
- Dietary concerns that drive customers to healthier alternatives.
- Increased cost in ingredients and labor.
- Market pressures from the competition.
- Departure of key management personnel.
- Corporate office having to increase financial support to struggling franchisees.
- Any further negative media articles especially around underpayment of wages at the franchisee level.
- Any emerging concerns around store rollout (such as cannibalization or demographics not supportive of new stores).
- Increase in commodity prices due to ongoing Russia-Ukraine conflict.
Key Highlights:
- Trading update: For first 6 weeks of 2H22, Network Sales up +6.0% (+1.7% on a same store sales basis) vs +20.9% (+10.1% on same store basis) in pcp and new organic store additions of 23 (vs 11 in pcp) with the Company remaining on track to expand its network by +500 during FY22 (including Taiwan acquisition).
- Food inflation anticipated in 2H22.
- FY22 same store sales growth slightly below 3–5-year outlook of +3-6%.
- 3–5-year annual outlook of +3-6% same store sales growth, +9-12% new organic store additions and ~$100-150m net capex remains intact.
- Group milestone of 6,650 stores by 2033 with total opportunity of 2.1x current market size (Europe milestone of 3,050 stores by 2033 with total opportunity of 2.3x current market size, ANZ store target of 1200 by 2025-2028 with total opportunity of 1.4x current market size, and Asia milestone of 2,400 stores by 2033 with total market opportunity of 2.3x current market size).
- Australia region Highlight includes Network Sales grew +6.4% over pcp to $689.6m (same store sales up +1.7%), however, EBIT declined -6.1% over pcp to $60.3m with margin declining -180bps to 15%, reflecting investment in franchisees (Project Ignite ~$6m) and full & partial temporary store closures arising from Covid-19 (NZ was closed for 4 full weeks during August with Auckland stores closed for a more extended period of time). Online penetration grew with online sales growing +9.7% over pcp to $545.1m and online now representing 79% of total network sales, up +230bps over pcp. The Company opened 3 new stores increasing total store count to 863.
Company Description:
Domino’s Pizza Enterprises Limited (DMP) operates retail food outlets. The Company offers franchises to the public and holds the franchise rights for the Domino’s brand and network in Australia, New Zealand, Europe and Japan.
(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.
