Investment Thesis:
- Leveraged to the oil price.
- High quality assets which offer a number of core assets within its portfolio (no single asset risk).
- On-going focus on cost reduction and positioning of the business for a lower oil price environment.
- Strong balance sheet position.
- High quality management team who are able to operate assets and extract synergistic value from the recent merger with Oil Search.
Key Risks:
- Supply and demand imbalance in global oil/gas markets.
- Lower oil / LNG prices.
- Not meeting cost-out targets (e.g. reducing breakeven oil cash price).
- Production disruptions (not meeting GLNG ramp up targets).
- Strategic investors sell down their stake or block any potential M&A activity.
Key highlights:
- Management highlighted lower unit costs, our focus on safe, low-cost and efficient operations delivered a free cash flow breakeven of $21 per barrel in 2021.
- EBITDAX was up 48% to $2.8bn driven by higher oil prices and lower unit costs. Underlying profit was up 230% to a record $946m.
- Production was up +3% to of 92.1mmboe. Sales volume of 107.1mmboe, down -3%
- Product sales revenue of US$4.71bn, up +39%
- Record free cash flow of US$1.5bn and underlying profit of US$946m, driven by higher oil and LNG prices vs pcp due to a recovery in global energy demand and supply constraints across the industry due to lower capital investment through the pandemic
- Reported NPAT of US$658m includes losses on commodity hedging and costs associated with acquisitions and one-off tax adjustments and is significantly higher relative to the pcp due to impairments included in FY20
- Reported NPAT of US$658m includes losses on commodity hedging and costs associated with acquisitions and one-off tax adjustments and is significantly higher relative to the pcp due to impairments included in FY20
Company Description:
Santos Limited (STO) explores for and produces natural gas, liquefied natural gas, crude oil, condensate, naptha and liquid petroleum gas. STO conducts major onshore and offshore petroleum exploration and production activities in Australia, Papua New Guinea, Indonesia, Vietnam. The company also transports crude oil by pipeline.
(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:
- Cloud products are growing at attractive growth rates as the Company continues to innovate.
- Exposure to the fast growing online gaming segment.
- New product release and updates to existing suite of products.
- Solid free cash flow generation and strong balance sheet.
- Strong management team.
Key Risks:
- Competitive & macro pressures in key markets – if the growth rate for Azure slows the market would view this as a negative in our view.
- New product releases or updates fail to resonate with customers leading to product switching to competitors.
- U.S. trade war with China escalates, given MSFT uses parts from China.
- Value destructive acquisition(s).
- Adverse movements in currency (USD).
- Intellectual property theft and piracy.
- There is significant optimism priced into MSFT’s share price (the stock is well owned by investors), and as such any disappointment on growth or strategic misstep could see the stock disproportionately de-rate lower.
Key highlights:
- Driven by rising digital shift by enterprises, MSFT’s cloud growth continued to exceed management’s expectations (Intelligent cloud revenues came in at $18.3bn in 2Q22, up +26% YoY
- Management also announced an extension of infrastructure to the 5G network edge. As the demand for cloud infrastructure services continues to surge in the post Covid-19 era, benefiting from organisations upgrading their legacy IT infrastructure and migrating to cloud-based workloads
- Well positioned to strengthen its market leadership in cloud computing (as of FY21 MSFT’s cloud revenues grew at a higher rate than top player AMZN, with a 3-year average of +70% compared to +39.8% for AMZN), aided by growth in on-premise amid its large enterprise partner ecosystem
- Public-cloud infrastructure, in-turn driving the overall margin expansion for the Company (large fixed costs should continue to get better diluted with the rapid increase in revenues, driving segment’s operating income at a higher rate than revenue).
- Management announced the acquisition of Activision Blizzard for $68.7bn. The acquisition remains the last piece in the puzzle for MSFT to exert dominance in Metaverse, with the Company now owning the hardware, cloud services and content to dominate gaming industry.
Company Description:
Microsoft Corp (MSFT) develops, manufactures, licences, sells and supports software products. Microsoft offers operating system software, server application software, business and consumer applications software, software development tool and Intranet / Internet software. The Company has three main segments: (1) Productivity and Business Processes; (2) Intelligent Cloud; and (3) More Personal Computing.
(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 at a slight premium to NTA which does not capture the full value of CQE, in our view.
- Solid dividend yield.
- Quality assets with strong property fundamentals such as 100% occupancy and WALE of 14.6 years.
- Majority of leases are triple-net leases.
- CQE is a play on (1) population growth; (2) increasing awareness of early childhood education; (3) increasing the number of families with both parents working and hence demand for childcare services. CQE has increased its portfolio weighting towards social infrastructure assets.
- CQE’s tenants possess strong financials
- Strong history of delivering continuing shareholder return and dividends.
- Solid balance sheet position.
- Strong tailwinds for childcare assets and social infrastructure assets.
Key Risks
- Regulatory risks.
- Deteriorating property fundamentals.
- Concentrated tenancy risk, especially around Goodstart Early Learning.
- Sentiment towards REITs as bond proxy stocks impacted by expected cash rate hikes.
- Broader reintroduction of stringent lockdowns across Australia due to Covid-19.
Performance of Property portfolio
- Statutory profit of $207.7m, up $150.4m relative to the PCP. Operating earnings of $30.8m, was up +5.8% and equates to 8.5cpu, up +6.3%.
- Distribution of 8.4cpu, was up +12.0% on PCP.
- CQE’s gross assets of $1.9bn, is up +28.2% since Jun-21. NTA of $3.78 per unit is up +16.3% since June 2021.
- CQE retained a strong balance sheet with gearing of 30.0% (and look-through gearing of 30.8%), investment capacity of $200m, and no debt maturity until January 2025.
- CQE retained a long WALE of 14.6 years, 100% occupancy with lease expiries within the next five years equating to a minimal 3.9% of portfolio income. 75% of CQE’s leases are now on fixed rent reviews resulting in a forecast WARR of 3.0%.
- CQE acquired 24 assets for $192.7m with an average yield of 4.5% and average WALE of 13.4 years.
Company Profile
Charter Hall Social Infrastructure REIT (formerly Charterhall Education Trust) (ASX: CQE) is an ASX listed Real Estate Investment Trust (REIT). It is the largest Australian property trust investing in early learning properties within Australia and New Zealand but recently widen its mandate to also invest in social infrastructure properties.
(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:
- Leveraged to the oil price.
- High quality assets which offer a number of core assets within its portfolio (no single asset risk).
- On-going focus on cost reduction and positioning of the business for a lower oil price environment.
- Strong balance sheet position.
- High quality management team who are able to operate assets and extract synergistic value from the recent merger with Oil Search.
Key Risks:
- Supply and demand imbalance in global oil/gas markets.
- Lower oil / LNG prices.
- Not meeting cost-out targets (e.g. reducing breakeven oil cash price).
- Production disruptions (not meeting GLNG ramp up targets).
- Strategic investors sell down their stake or block any potential M&A activity.
Key highlights:
- Management highlighted lower unit costs, our focus on safe, low-cost and efficient operations delivered a free cash flow breakeven of $21 per barrel in 2021.
- EBITDAX was up 48% to $2.8bn driven by higher oil prices and lower unit costs. Underlying profit was up 230% to a record $946m.
- Production was up +3% to of 92.1mmboe. Sales volume of 107.1mmboe, down -3%
- Product sales revenue of US$4.71bn, up +39%
- Record free cash flow of US$1.5bn and underlying profit of US$946m, driven by higher oil and LNG prices vs pcp due to a recovery in global energy demand and supply constraints across the industry due to lower capital investment through the pandemic
- Reported NPAT of US$658m includes losses on commodity hedging and costs associated with acquisitions and one-off tax adjustments and is significantly higher relative to the pcp due to impairments included in FY20
- Reported NPAT of US$658m includes losses on commodity hedging and costs associated with acquisitions and one-off tax adjustments and is significantly higher relative to the pcp due to impairments included in FY20
Company Description:
Santos Limited (STO) explores for and produces natural gas, liquefied natural gas, crude oil, condensate, naptha and liquid petroleum gas. STO conducts major onshore and offshore petroleum exploration and production activities in Australia, Papua New Guinea, Indonesia, Vietnam. The company also transports crude oil by pipeline.
(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:
- Cloud products are growing at attractive growth rates as the Company continues to innovate.
- Exposure to the fast growing online gaming segment.
- New product release and updates to existing suite of products.
- Solid free cash flow generation and strong balance sheet.
- Strong management team.
Key Risks:
- Competitive & macro pressures in key markets – if the growth rate for Azure slows the market would view this as a negative in our view.
- New product releases or updates fail to resonate with customers leading to product switching to competitors.
- U.S. trade war with China escalates, given MSFT uses parts from China.
- Value destructive acquisition(s).
- Adverse movements in currency (USD).
- Intellectual property theft and piracy.
- There is significant optimism priced into MSFT’s share price (the stock is well owned by investors), and as such any disappointment on growth or strategic misstep could see the stock disproportionately de-rate lower.
Key highlights:
- Driven by rising digital shift by enterprises, MSFT’s cloud growth continued to exceed management’s expectations (Intelligent cloud revenues came in at $18.3bn in 2Q22, up +26% YoY
- Management also announced an extension of infrastructure to the 5G network edge. As the demand for cloud infrastructure services continues to surge in the post Covid-19 era, benefiting from organisations upgrading their legacy IT infrastructure and migrating to cloud-based workloads
- Well positioned to strengthen its market leadership in cloud computing (as of FY21 MSFT’s cloud revenues grew at a higher rate than top player AMZN, with a 3-year average of +70% compared to +39.8% for AMZN), aided by growth in on-premise amid its large enterprise partner ecosystem
- Public-cloud infrastructure, in-turn driving the overall margin expansion for the Company (large fixed costs should continue to get better diluted with the rapid increase in revenues, driving segment’s operating income at a higher rate than revenue).
- Management announced the acquisition of Activision Blizzard for $68.7bn. The acquisition remains the last piece in the puzzle for MSFT to exert dominance in Metaverse, with the Company now owning the hardware, cloud services and content to dominate gaming industry.
Company Description:
Microsoft Corp (MSFT) develops, manufactures, licences, sells and supports software products. Microsoft offers operating system software, server application software, business and consumer applications software, software development tool and Intranet / Internet software. The Company has three main segments: (1) Productivity and Business Processes; (2) Intelligent Cloud; and (3) More Personal Computing.
(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
BorgWarner is well positioned to capitalize on industry trends arising from global clean air legislation, consumers’ demand for fuel economy, and the popularity of sport utility and crossover vehicles around the world. The company benefits from its ability to continuously innovate, a global manufacturing footprint, highly integrated long-term customer ties, high customer switching costs, and moderate pricing power from new technologies. BorgWarner is well positioned for the trends in the auto sector that will result in revenue growth in excess of the growth in global automobile demand.
Turbochargers, one of BorgWarner’s products for which it commands an industry-leading market share and accounted for 24% of 2020 revenue, are a cost-effective way for OEMs to improve engine efficiency. Fuel-injection technology from the Delphi acquisition also improves efficiency. Combined, both technologies increase fuel economy, lowering tailpipe emissions. Dual-clutch transmissions, which contain eight or more gears, compared with older technology automatic transmissions equipped with four gears, can generate 5%-15% in fuel savings. Torque transfer devices enable all-wheel drive and four-wheel drive for globally popular sport utility and crossover vehicles.
Financial Strength
BorgWarner maintains a solid balance sheet and liquidity that, relative to many other parts suppliers, makes for strong financial health. Despite being acquisitive, the company has pursued a conservative capital strategy as total debt/total capital has averaged less than 15% over the past 10 years. Total adjusted debt/EBITDAR, which takes into consideration operating leases and rent expense, averaged less than 1 times over the same period. However, we think the company could have taken more advantage of the benefits of financial leverage without incurring the pitfalls of excessive debt.
The company refinanced a $251 million senior note that was due in September 2020. BorgWarner maintains a $2.0 billion multicurrency revolver that matures in March 2025. The company’s unsecured commercial paper program allows up to an aggregate $2.0 billion in principal amount outstanding. Total combined drawn borrowing between the revolver and commercial paper program is not permitted to exceed $2.0 billion. With the completed all-stock deal to acquire Delphi Technologies, trailing 12-month pro forma debt/EBITDA was 3.0 times. However, excluding the dramatic COVID-19 impacted second quarter and using the trailing 12-months EBITDA ending with the first quarter, BorgWarner proforma debt/EBITDA was 1.7 times, a relatively healthy result.
Bulls Say’s
- Global clean air legislation enables BorgWarner’s top-line growth to exceed worldwide growth in demand for light vehicles.
- The popularity of sport utility and crossover vehicles around the globe supports growth in BorgWarner’s torque transfer technologies.
- Volkswagen, Ford, and Hyundai are BorgWarner’s three largest customers and, on average, make up about one third of revenue.
Company Profile
BorgWarner is a Tier I auto-parts supplier with four operating segments. The air management group makes turbochargers, e-boosters, e-turbos, timing systems, emissions systems, thermal systems, gasoline ignition technology, powertrain sensors, cabin heaters, battery heaters, and battery charging. The e-propulsion and drivetrain group produces e-motors, power electronics, control modules, software, automatic transmission components, and torque management products. The two remaining operating segments are the eponymous fuel injector and aftermarket groups. The company’s largest customers are Ford and Volkswagen at 13% and 11% of 2020 revenue, respectively. Geographically, Europe accounted for 35% of 2020 revenue, while Asia was 34% and North America was 30%.
(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:
- Leveraged to the structural growth story of electronics payments globally.
- Difficult to replicate technology platform which provides an element of high barrier to entry to new entrants.
- Largely defensive earnings and strong market position (second largest payments network globally).
- Expansion into new markets / segments provides upside potential
- Value accretive acquisitions. Management aims for all acquisitions to be value-accretive by the third year of the transaction.
- Capital management initiatives
Key Risks:
- Adverse currency movements and regulatory changes (data privacy / protection, governments’ intervention/protection policies).
- Security and technology risks (including cyber-attacks).
- Increased competition, potentially from new forms of payment systems.
- Value destructive acquisition(s).
- Macroeconomic conditions globally deteriorate, impacting consumer spending and business activity, especially given the coronavirus outbreak.
- Significant change at the senior management level.
- Company fails to meet market/investor expectations leading to analysts’ earnings downgrade – the stock is likely to come under selling pressure.
- Outstanding litigation risk.
Key highlights:
- MA’s FY21 results came in above consensus estimates with revenue of $18.9bn (up +23%) vs estimate of $18.8bn and EPS of $8.76 (up +38%) vs estimate of $8.43 amid a spending rebound, with management forecasting YoY growth in FY22 as cross-border travel continues to improve.
- MA’s fundamentals remain strong with highly defensible and recurring revenue streams, high incremental margins and superior Free Cash Flow (FCF) generation, and remains well positioned to capture management’s targeted $255 trillion in new payment flows. The impact of potential sanctions on Russia and broader valuation declines of tech stocks amid monetary policy tightening weigh on investor sentiment.
- Secular growth should remain strong from ongoing global shifts toward card-based and electronic payments with MA’s innovations and acquisitions to strengthen Buy Now Pay Later (BNPL), crypto currency and account-to-account payments providing further boost.
- Management sees significant opportunity by expanding in payments and has upgraded its total addressable market size estimate to $255 trillion, up +8.5% over prior estimate driven by driving growth in person to merchant payments through new wins across the globe, capturing new payment flows, including commercial, B2B accounts payable, bill pay and cross-border remittances, and leaning into payment innovation in areas like instalments, contactless acceptance and crypto currencies.
Company Description:
Mastercard Inc is a technology company in the global payments industry that connects consumers, financial institutions, merchants, governments, digital partners and businesses, enabling them to use electronic forms of payment instead of cash and cheques. The Company provides payment solutions and services through brands such as Mastercard, Maestro and Cirrus.
(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 at a slight premium to NTA which does not capture the full value of CQE, in our view.
- Solid dividend yield.
- Quality assets with strong property fundamentals such as 100% occupancy and WALE of 14.6 years.
- Majority of leases are triple-net leases.
- CQE is a play on (1) population growth; (2) increasing awareness of early childhood education; (3) increasing the number of families with both parents working and hence demand for childcare services. CQE has increased its portfolio weighting towards social infrastructure assets.
- CQE’s tenants possess strong financials
- Strong history of delivering continuing shareholder return and dividends.
- Solid balance sheet position.
- Strong tailwinds for childcare assets and social infrastructure assets.
Key Risks
- Regulatory risks.
- Deteriorating property fundamentals.
- Concentrated tenancy risk, especially around Goodstart Early Learning.
- Sentiment towards REITs as bond proxy stocks impacted by expected cash rate hikes.
- Broader reintroduction of stringent lockdowns across Australia due to Covid-19.
Performance of Property portfolio
- Statutory profit of $207.7m, up $150.4m relative to the PCP. Operating earnings of $30.8m, was up +5.8% and equates to 8.5cpu, up +6.3%.
- Distribution of 8.4cpu, was up +12.0% on PCP.
- CQE’s gross assets of $1.9bn, is up +28.2% since Jun-21. NTA of $3.78 per unit is up +16.3% since June 2021.
- CQE retained a strong balance sheet with gearing of 30.0% (and look-through gearing of 30.8%), investment capacity of $200m, and no debt maturity until January 2025.
- CQE retained a long WALE of 14.6 years, 100% occupancy with lease expiries within the next five years equating to a minimal 3.9% of portfolio income. 75% of CQE’s leases are now on fixed rent reviews resulting in a forecast WARR of 3.0%.
- CQE acquired 24 assets for $192.7m with an average yield of 4.5% and average WALE of 13.4 years.
Company Profile
Charter Hall Social Infrastructure REIT (formerly Charterhall Education Trust) (ASX: CQE) is an ASX listed Real Estate Investment Trust (REIT). It is the largest Australian property trust investing in early learning properties within Australia and New Zealand but recently widen its mandate to also invest in social infrastructure properties.
(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.