Investment Thesis
- Strong market position in supermarkets, with significant scale and penetration providing a competitive advantage.
- Increasing private labels penetration – COL recently reiterated its target of 40% penetration.
- Relatively defensive earnings (food tends to be largely non-discretionary).
- Undemanding valuation relative to main domestic competitor Woolworths.
- Improved focus and capital allocation now that the Company is demerged.
- Supply chain automation and upgrades should lead to efficiency gains.
- In our view, the deal with Ocado puts Coles in a leadership position for online delivery.
- Flybuys is a highly attractive asset which could be monetized.
Key Risks
- Significant competitive pressures (including the emergence of new players) could erode margins.
- Management resets earnings base at the upcoming Strategy update in June 2019.
- Online disruption (full online offering).
- Automation and supply chain upgrades will require significant capital expenditure, cost of which has not been fully identified.
- Balance sheet could be stretched once adjusted for leases.
- Cost inflation runs ahead of top line growth.
1H22 Results Highlights
- Sales revenue growth of +1.0% to $20.6bn and +9.2% on a two-year basis despite cycling elevated Covid-related sales in the pcp.
- EBITDA of $1,762m was down -2.2%, and EBIT of $975m, was down -4.4% and impacted by higher Covid-19 disruption costs, related travel restrictions on Express’ earnings and transformation project costs. EBIT margin of 4.7%, was down -27bps.
- NPAT of $549m, was down -2.0%.
- Smarter Selling benefits in excess of $100m in 1H22; On track to deliver over $200m of benefits in FY22.
- Cash realisation of 117% and a strong balance sheet (leverage ratio of 2.7x) with a net cash position of $54m (excluding lease liabilities). COL retained solid investment grade credit ratings with S&P and Moody’s.
- The Board declared a fully franked interim dividend of 33.0cps and retained an annual target dividend payout ratio of 80% to 90%.
- In February 2020, Coles conducted a review into the pay arrangements for all team members who received a salary and were covered by the General Retail Industry Award 2010 (GRIA). To date COL has incurred $13m of remediation costs.
Company Profile
Coles Group Ltd (COL) is an Australian retailer (supermarket and liquor), demerged from Wesfarmers (WES) which acquired the business in 2007. As at 30 June 2018, Coles processed more than 21 million customer transactions on average each week, employed over 112,000 team members and operated 2,507 retail outlets nationally. The Company has three main operating segments: Supermarkets, Liquor and Convenience. The Company will also retain a 50% ownership stake in flybuys loyalty programs.
(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
Ardent Leisure’s underlying fundamentals is moderated by the wider macroeconomic factors that influence its operations and the current restructuring efforts to restore earnings after the recent upheavals. Of greater concern is the near-term impact of the coronavirus on Ardent’s operations and its financial position, especially theme parks. But cost-cutting and government assistance measures have provided relief. RedBird’s USD 80 million investment in June 2020 for an initial 24.2% preferred equity interest in Main Event secures the U.S. family entertainment chain’s funding position. Furthermore, RedBird has the option to acquire an additional 26.8% interest at a future date, with the valuation to be based upon 9.0 times EBITDA at the time of exercising the option, subject to a minimum equity floor price.
Beyond the current coronavirus crisis, Ardent Leisure possesses solid leisure and entertainment assets that all operate in intensely competitive markets. These assets compete for the leisure dollars of consumers who are spoilt with alternatives, especially in this online digital world, where most traditional entertainment activities can now be enjoyed in a virtual setting. Furthermore, most of the group’s businesses are relatively capital-intensive, particularly as Main Event expands its venue footprint and as Ardent strives to keep up with competing leisure options and stay fresh in consumers’ minds. The situation is exacerbated by cyclical factors, with consumer discretionary spending highly leveraged to swings in general economic conditions.
Financial Strength
Ardent has AUD 119 million of net debt on the balance sheet, as at the end of December 2021. This comfortable position with AUD 93 million in available liquidity for Main Event is mainly thanks to Redbird’s USD 80 million (AUD 100 million) capital injection into the U.S. business, in return for a 24.2% preferred equity stake. The Queensland government’s recent tourism-friendly three-year AUD 64 million loan package (plus AUD 3 million grant) also means the Australian theme parks unit now has AUD 18 million of available liquidity.
Bulls Say’s
- COVID-19 has inflicted significant damage on Ardent Leisure’s businesses and the first and foremost question is how long it will take for businesses to return to pre-pandemic levels.
- Ardent Leisure’s businesses provide consumers with affordable leisure and entertainment destinations, although demand dynamics are highly leveraged to discretionary spending patterns.
- Competition is fierce for the group’s operations, with proliferating alternatives competing for consumers’ leisure dollars.
Company Profile
Ardent Leisure is an owner and operator of leisure assets. Its theme park operations are situated in Australia, including Dreamworld and WhiteWater World on the Gold Coast. The group also runs Main Event, a growing portfolio of family entertainment operations in the United States, offering bowling, arcade and various other leisure activities.
(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
- Trading below our valuation.
- Long-term outlook for childcare demand remains positive with growing population (organic and net immigration).
- Greater focus on organic growth as well as acquired growth.
- National footprint allows the Company to scale better than competitors and mum and dad operators.
- Potential takeover target by a global operator.
- Leverage to improving occupancy levels – (rough estimates) a 1.0% improvement in occupancy equates to $10-11m revenue and approx. $3m EBIT benefit.
Key Risk
- Execution risk with achieving its operating leverage and occupancy targets.
- Increased competition leading to pricing pressure.
- Increased supply in places leading to reduced occupancy rates.
- Value destructive acquisition(s).
- Adverse regulatory changes or funding cuts to childcare.
- Recession in Australia.
- Dividend cut
CY21 Results Highlights Given the disruption to CY20 results, comparing the CY21 results to pre-Covid CY19 results.
- Group core revenue of $828m was down -6.9% (or down ~$62m) vs CY19 due to lower occupancy (down 2.1% vs CY19) impacting revenue by ~$50m and a $48m impact from the centers divested since CY19. Partly offsetting these were higher average net fees of $16m and $20m of temporary government support relating to Covid-19.
- Core centre NPBT of $137.8m was down -7.7% on CY19, however core centre NPBT margin of 16.6% was mostly flat on CY19 (16.8%) driven by cost management (effective booking and attendance levels; roster optimization) and removal of negative or low margin centers through lease surrender or divestment.
- Group’s cash conversion of 107% was higher vs CY19 101% despite lower overall operating cash flows (driven by lower EBITDA), in part driven by the benefits of lower interest payments (refinance and lower net debt levels).
- GEM finished the year with a strong balance sheet, with a net debt position of $26m and leverage (net debt / EBITDA) of 0.2x.
- The Board declared a fully franked dividend of 3cps, representing a payout ratio of 56% and within the target payout ratio range of 50-70% of NPAT. The Company also announced an on-market buyback “to be determined by appropriately balancing between shareholder returns and leverage levels, the uncertain earnings recovery outlook driven by Covid-19, the funding of strategic priorities including the improvement program and the property investment program and other funding needs included for wage remediation and network optimization.”
Company Profile
G8 Education Limited (GEM) owns and operates care and education services in Australia and Singapore through a range of brands. The Company initially listed on the ASX in December 2007 under the name of Early Learning Services, but later merged with Payce Child Care to become G8 Education.
(Source: Banyantree)
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
- Upside potential to NEC’s share price from investors ascribing a higher value for Stan, NEC’s subscription video of demand (SVOD). Stan is now cash flow positive and profitable, with margins having the potential to surprise on the upside.
- Relatively attractive dividend yield of ~4%.
- NEC is now a much more diversified business, with revenue not dominated by traditional FTA TV but also attractive digital platforms and assets.
- Cost out strategy – looking to remove $230m in structural costs.
- Corporate activity given NEC’s strategic assets.
- Trading below our valuation.
Key Risks
- Competitive pressure in Free to Air (FTA) TV and SVOD.
- Stan growth (subscriber numbers or breakeven point) disappoints market expectations.
- Structural decline in TV audiences continues to impact sentiment towards the stock.
- Deterioration in advertising markets.
- Cost blowouts in obtaining new programming/content.
- Increased competition from Netflix and Disney.
1H22 result highlights.
- Group revenues of $1.33bn was up +15% on pcp and group operating earnings (EBITDA) of $406.3m was also up +15% on pcp, driven by ongoing momentum in advertising and subscription businesses. Group NPAT of $212.9m was up + 20% on pcp.
- EPS of 12.5cps was up +20% and the Company declared a fully franked dividend of 7cps (up +40% YoY), which equates to 56% of NPAT.
- NEC retains a very strong balance sheet with net leverage (wholly owned) of 0.1x and net debt of $63m.
- Management noted that CY22 has started strongly across all platforms and advertisers, across all major categories. NEC retains a strong balance sheet, with a (wholly owned) leverage ratio of 0.1x, which in as per analyst view at some point will provide management with the option to undertake value accretive inorganic growth initiatives or additional capital management.
- Positive on the medium-term earnings outlook for NEC and are attracted to a diverse asset base (including Stan / Domain). With the stock trading on a reasonable dividend yield of ~5% (fully franked) and below our valuation, and thus maintain Buy recommendation by banyantree analysts.
Company Profile
Nine Entertainment Co (NEC), through its subsidiaries, broadcast news and current affairs, sporting events, comedy, entertainment and lifestyle programs. Nine Entertainment serves customers throughout Australia. NEC has repositioned itself from a linear free-to-air broadcaster, to a creator and distributor of cross-platform, premium content. While the channel Nine Network remains core, it is now complemented by subscription video on demand (SVOD) provider Stan, a live streaming and catch-up service 9Now, digital network nine.com.au and array of digital content.
(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
Since 2007, MongoDB has amassed millions of users of its document-based database, as workload shifts to the cloud has accelerated data collection growth as a whole and thus the need for architectures to store such data (particularly NoSQL variants like document-based databases). MongoDB appears to be doing anything but losing steam, as its database technology has remained the most desirable database (both SQL and NoSQL included) for professional developers to learn globally over the last four years, according to Stack Overflow. It is seen such interest will persist as MongoDB’s more recent cloud database-as-a-service and data lake offerings help ensure MongoDB’s rich features transform to meet new technological needs.
The database market is booming–growing exponentially as a result of migrations to the cloud. Once enterprise workloads are on the cloud, scaling, collecting, and analyzing data becomes easier because of how effortless it is to scale data storage in the cloud. As a result, it is likely that the amount of data collected and analytical computations on such data in the cloud will continue to dramatically increase, in turn, benefiting many database providers, particularly MongoDB. It is anticipated MongoDB is considered the premier document-based DB, with extremely rich features–from in-database data transformation to instant interoperability on multiple cloud platforms. It is alleged the majority of this net new data to be stored is largely for hefty analysis, thus requiring a NoSQL database, like MongoDB, due to its ability to store unindexed or “unknown categories” of data.
With significantly more opportunity to go in converting customers to its cloud database-as-a-service product, Atlas, which represents 50% of all revenue and brand new opportunity for the company’s just-released data lake offering, it is likely MongoDB is well set to grow at a robust pace and profit from such scale. It is held also believe that MongoDB has a sticky customer base and could eventually merit a moat down the road.
Financial Strength
It is alleged MongoDB is financially stable given the early stages of the company, as analysts are confident the company will generate positive free cash flow in the long term. MongoDB had cash and cash equivalents of $1.83 billion at the end of fiscal 2022 with $1.14 billion in convertible debt on its balance sheet–due in both 2024 and 2026. It is foresee that MongoDB will become free cash flow positive in fiscal 2026 after which is believed MongoDB will continue to invest heavily back into its business rather than distributing dividends or completing major repurchases of its stock. Analysts model minor acquisitions in analysts explicit 10-year forecast, though it is held MongoDB will continue to focus primarily on in-house R&D.
Bulls Say’s
- MDB’s document-based database is best equipped to remove fear of vendor lock-in and is poised for a strong future.
- MongoDB’s new data lake could gain significant traction, making MongoDB even stickier, as it is alleged data lakes have even greater switching costs than databases. In turn, this could further boost returns on invested capital.
- MongoDB could eventually launch its own data warehouse offering, which would further increase customer switching costs.
Company Profile
Founded in 2007, MongoDB is a document-oriented database with nearly 33,000 paying customers and well past 1.5 million free users. MongoDB provides both licenses as well as subscriptions as a service for its NoSQL database. MongoDB’s database is compatible with all major programming languages and is capable of being deployed for a variety of use cases.
(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.
