Investment Thesis:
- It is anticipated an improvement in radio advertising markets over the medium term and expect solid demand for radio as a medium for advertising agencies.
- Further cost outs, specifically significantly lower corporate overheads costs.
- Potential corporate activity given changes to media ownership rules.
- Upside to the valuation of Soprano (25% interest)
- Ongoing capital management initiatives.
- Solid balance sheet.
Key Risks:
- Decline in advertising dollars (radio and outdoor), especially if the retail sector in Australia comes under pressure.
- Radio experiences structural disruption.
- Increased competition from major player(s) on tenders.
- Execution risk with international expansion.
- Hong Kong could become a drag on group performance (Coronavirus or protests escalate).
- New and extensive Covid-19 related lockdowns are reintroduced nationwide.
Key highlights:
HT&E (HT1) delivered a strong FY21 result on the back of a solid performance by radio in the back half of CY21 despite lockdowns. Group revenue of $225m was up +16% YoY and EBITDA of $59.8m up +21% on the back of solid top line growth and good cost management. The Company also closed the acquisition of 46 radio stations focused on regional markets from Grant Broadcasters, with management calling out $6-8m of revenue opportunities in CY22. The resolution to the ATO matter over the year was also a positive.
- Driven by a resilient radio market, group revenue of $225m was up +15% YoY (or up +16% on a like-for-like basis). The Company saw improved ad spend in the second half of CY21 despite extended government-enforced lockdowns. On the back of strong top line growth and good cost management, HT1 delivered EBITDA of $59.8m up +21% and EBIT of $45.9m up +41%. Group NPAT of $28.8m was up +87% YoY.
- The Company declared a final dividend of 3.9cps, taking the full year dividend to 7.4cps fully franked. Management is committed to a dividend payout ratio of 60-80%, subject to market conditions.
- Balance sheet is in a strong position with net cash position of $189.1m. Debt of $67.2m and cash reserves were utilized to fund the acquisition of 46 radio stations from Grant Broadcasters in early January 2022. Subject to market conditions, management expects leverage to be below 1.0x by the end of CY22.
- Total segment revenue was up +12% to $195.6m, with Radio revenues were up +13% (maintaining its momentum) and Digital audio revenues up +48% (excluding disposed businesses) with podcasting the main driver. Segment costs were up +14% on a like basis driven by higher cost of sales on improved revenues, while people and operating expense came in at the low end of the guidance provided at the half year result.
Company Description:
HT&E Limited (HT1) is a media and entertainment company with operations in Australia, New Zealand and Hong Kong. The Company operates the following key segments: (1) Australian Radio Network (ARN) – metropolitan radio networks including KIIS Network, The Edge96.One and Mix106.3 Canberra; (2) Hong Kong Outdoor (Cody) – Billboard, transit and other outdoor advertising in Hong Kong, with over 300 outdoor advertising panels and in-bus multimedia advertising across 1,200 buses; and (3) Digital Investments – digital assets including iHeartRadio, Emotive and Conversant Media.
(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
- Sizeable market opportunity of US$28bn TAM (company estimates which is based on ground up model taking into account customer contract values).
- Established a solid foundation to build from – the Company has penetrated 68% of the Fortune 500 companies and whilst initial involvement with these companies may be small however it provides opportunity to scale up with these customers (approx. 10% of the Fortunes 500 customers have 100 or more licensed users).
- Structural tailwinds – ongoing migration to online with businesses looking to digitize manual, paper driven processes.
- Looking to become a platform.
- 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, especially the larger players like Adobe Inc and DocuSign
- 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.
Bulls Say’s
- Revenue excluding Connective of US$50.7m, was up +26%, and at the top end of the upgraded guidance range. Revenue including Connective was US$50.9m. Annual Recurring Revenue (‘ARR’) excluding Connective was US$40.1m, up +41% and in line with guidance (reaffirmed in October 2021 of US$39m – US$42m). ARR including Connective was US$46.2m, up +62%.
- Operating EBITDA loss excluding Connective was US$7.4m, and including Connective was US$7.6m, in line with the upgraded guidance range of US$7.5m – US$8.0m provided by the Company in January 2022, and significantly lower than the guidance range of US$11m – US$13m provided at the beginning of FY2021.
- NTO exceeded 1m active subscription PDF licences, reaching 1.1m at FY21-end.
- NTO executed 2.2m Nitro Sign eSignature requests excluding Connective eSignatures, up +102%, and more than 22m eSignature requests including Connective.
- NTO completed a A$140.0m capital raise and hence NTO retains a strong balance sheet with no debt and cash and cash equivalents of US$48.2m including Connective.
Company Profile
Nitro Software Ltd (NTO), founded in 2005 & listed in 2019, is a global document productivity software company. NTO offers integrated PDF productivity, eSignature and business intelligence (BI) tools through a horizontal SaaS and desktop-based software suite. The Company helps customers move to 100% digital document workflows, eliminating paper and accelerating business processes. NTO serves customers around the world and counts 68% of the Fortune 500 companies among its customers. In total, NTO has over 12,000 business customers (who are defined as having at least 10 licensed users) and across 155 countries.
(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
Ford is also focused on spending on the most profitable vehicles and the March 2022 split of combustion and BEV into their own segments (Ford Blue and Ford Model e) allows talent to focus on combustion hits like Bronco and F-Series as well as build on the success of the F-150 Lightning BEV and Mustang Mach-E. Restructuring in foreign markets is underway and as of year-end 2021, Ford projects up to $2.4 billion of EBIT charges in 2022, bringing total costs for its Global Redesign program to about $11 billion since 2018. Up to about $7 billion of cash may be spent to fund the restructuring, which includes downsizing in markets like Europe and Brazil, but all but about $1 billion of this cash will be spent across 2018-22. Ford Blue seeks about $3 billion in cost reductions.
Ford is building more models on common platforms, which should improve economies of scale. In 2007, Ford had 27 platforms but now has five flexible architectures across unibody, body on frame, and battery electric vehicles. This move allows Ford to switch production faster to meet changing demand while cutting costs via better economies of scale. In the past, Ford had a different platform in each segment for each part of the world, which wasted billions. Lincoln also entered China in fall 2014 and the Mustang Mach-E EV is bringing new customers in U.S. coastal markets, with 70% of its early buyers new to Ford. The F-150 Lightning BEV pickup has over 75% of its reservation holders new to Ford and it and the Transit BEV are on sale in 2022.
Financial Strength
Year-end 2021 global pension underfunding totaled only about $326 million compared with about $8.2 billion at year-end 2015, while salaried employee retiree healthcare added another $6 billion of shortfall. The entire pension underfunding is from pay-as-you-go plans (mostly from Germany and U.S. senior management plans) that are always unfunded and pay benefits paid from general corporate cash. Management guides funded plan contributions to be limited to annual service cost. 2022 contributions are guided at $600 million to $800 million, plus $390 million of benefits for unfunded plans. Unfunded plan benefit payments will likely be around $300 million to $400 million annually.
Automotive debt excluding legacy obligations at year-end 2021 was $20.4 billion, down from $34.4 billion at the end of 2009, but Ford did issue $8 billion in bonds in April 2020 to deal with the coronavirus fallout and we like that Ford redeemed $7.6 billion of expensive bond debt for $9.3 billion in December 2021. At the end of 2021, Ford had available automotive liquidity of $41.8 billion, excluding its 12% stake in Rivian, with $25.9 billion of that amount in cash and securities. In September 2021, Ford amended its credit lines to have a $10.1 billion line through September 2026, a $3.4 billion line in September 2024, and a $2 billion supplemental line also in September 2024. The lines have their rate partially tied to ESG metrics around the environment.
Bulls Say’s
- Ford’s turnaround will take lots of time due to many restructuring projects around the world but so far the international business seems to be getting better.
- Ford is focusing its investments where it gets the best return, which is why mostly exiting North American car segments and production in South America, is the right move, in our opinion.
- Ford has tried to remove some administrative layers, and we like CEO Farley’s aggressive moves into electric vehicles, something Ford had been slow to do in the past.
Company Profile
Ford Motor Co. manufactures automobiles under its Ford and Lincoln brands. In March 2022 the company announced that it will run its combustion engine business, Ford Blue, and its BEV business, Ford Model e, as separate businesses but still all under Ford Motor Company. The company has about 12.5% market share in the United States, about 6.5% share in Europe, and about 2.4% share in China including unconsolidated affiliates. We expect market share increases as inventory improves coming out of the chip shortage. Sales in the U.S. made up about 64% of 2021 total company revenue. Ford has about 183,000 employees, including about 56,000 UAW employees, and is based in Dearborn, Michigan.
(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.