Business Strategy and Outlook
AMP plans to simplify Australian Wealth Management, or AWM. It is focused on retaining larger, more profitable practices; so it can minimise compliance costs and regulatory breaches. Tighter compliance and education requirements are being enforced. The firm aims to retain its share of advisers through offering superior adviser support services, and aims to increase distribution via external advisers. Its extensive product suite will be reduced and made more cost-competitive to help attract future fund flows. AMP Bank has been merged with AWM as part of the group’s restructure.
Management intends to demerge, simplify and list AMP Capital’s unlisted real estate and infrastructure business. The directly-managed component of its listed investments business, known as Global Equities and Fixed Income, or GEFI, will be sold to Macquarie. The unlisted infrastructure debt business has also been sold to Ares. AMP’s immediate earnings outlook is subdued. Ongoing negative connotations to the AMP brand and higher education standards will prompt more advisers to leave AWM and deter prospective joiners into the AMP network–thus narrowing its distribution reach.
Financial Strength
AMP’s financial position is sound. AMP has consistently maintained a capital buffer above minimum regulatory requirements, or MRR, to help manage any unwelcome surprises in costs and navigate through periods of fluctuating earnings. AMP’s eligible capital resources as at Dec. 31, 2021, exceeds MRR and its internal target by about AUD 1.2 billion and AUD 383 million, respectively. The eligible capital/MRR ratio over the past five years has averaged 2.2 times. The lowest, however, was in 2021 with 1.9 times. AMP Bank is in sound financial health, with a common equity Tier 1 ratio of 10.4% as at Dec. 31, 2021. Another positive is a progressive increase in the deposit/loan ratio to 81% in December 2021, versus about 63% in 2015.
The stable capital and funding positions provide comfort that it should be able to manage a potential increase in loan losses. However, there are risks that may impact AMP’s financial health. With ASIC and APRA expected to regulate AMP more aggressively, there is a possibility for further compliance costs, fines, remediation payments or class actions. The high execution risks in implementing its new strategy in the face of ongoing structural changes in the Australian financial advice industry is why there is limited scope for the board to return funds to shareholders in the near term.
Bulls Say’s
- AMP remains the second-largest adviser network in Australia and can leverage scale to offer its services at a relatively lower cost to customers.
- AMP is well positioned to capture inflows from investors, notably the ageing demographic. People tend to seek out financial advice and be more concerned with retirement savings the closer they get to retirement.
- AMP should benefit from the progressive increase in the superannuation guarantee contribution rate to 12% by July 1, 2025.
Company Profile
At its roots, AMP is a wealth manager, providing financial advice via Australia’s second-largest network of aligned financial advisers. It has a vertically integrated business model: AMP advisers can invest client funds into superfunds and non-super investments manufactured by AMP through the firm’s own platforms, though advisers are free to recommend non-AMP products and third-party platforms to their clients. The firm also has a small wealth presence in New Zealand with about 53 advisers. In addition, AMP has an investment management business, servicing both AMP’s adviser clients and external investors (such as institutional clients); and a retail banking business focused on deposit taking and residential mortgages.
(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.
- Fundamentals for the vehicle aftermarket continue to remain strong (with increase in secondhand vehicle sales; travelers seeking social distancing and hence moving away from public transport; with Covid lockdown measures in forced, more people are spending their holidays domestically utilizing their vehicles).
- Significant opportunities within BAP to drive growth (expanding network; increase market share by leveraging BAP’s Victorian DC; enhance supply chain efficiencies; driven own brand growth).
- Strong earnings growth profile.
- Further opportunity to grow gross profit margins from better buying terms with tier one and two suppliers.
- Significant distribution network across Australia to leverage from.
- Ongoing bolt on acquisitions and associated synergies.
- Growing BAP’s own brand strategy, which should be a positive for margins. BAP is on track to reach their 5-year targets to supplement market leading brands with BAP’s own brand products.
- Weak macro story of leveraged Australian consumer and lower growth environment persisting.
- Thailand represents a meaningful opportunity in our view.
Key Risks
- Rising competitive pressures.
- Value destructive acquisition.
- Rising cost pressures eroding margins (e.g. more brand or marketing investment required due to competitive pressures).
- Given the high trading multiples the stock trades at, a disappointing earnings update could see the stock price significantly re-rate lower.
- Integration (and therefore synergies) of recent acquisitions underperform market expectations.
- Execution risk around Thailand.
Key Highlights
- The Board declared a fully franked interim dividend of 10cps, up +11.1% over pcp.
- The balance sheet remained strong with ample liquidity with cash increasing +101.5% over 2H21 to $79.8m and net debt of $203M (up +23.7% over 2H21) leading to a leverage ratio of 1.0x, providing the Company with significant financial flexibility to be able to respond rapidly to acquisition opportunities and continue to invest in high returning projects.
- Management continued investments in locations to support Truckline and Autobarn networks, expanded geographic footprint with BAP now having a presence in over 1,100 locations throughout Australia, New Zealand and Thailand, and signed 2 acquisitions adding annualised revenue of $50m at mid-single digit EBITDA multiples (pre-synergies).
- The Board
Company Profile
Bapcor Ltd is Australasia’s leading provider of aftermarket parts, accessories and services. The core businesses of BAP are: (1) Trade – Burson Auto Parts is a trade focused parts professional supplying workshops with all their parts and accessories. (2) Retail – Autobarn is the premium retailer of auto accessories and Opposite Lock specializes in 4WD accessory specialists. (3) Independents – supporting the independent parts stores via the group’s extensive supply chain capabilities and through brand support. (4) Specialist Wholesaler – the number 1 or 2 industry category specialists in parts supply programs. (5) Services – experts at car servicing through Midas and ABS.
(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:
Mobility demand continued to approach pre-pandemic levels, which further attracted drivers and stabilized prices for riders, expanding the adjusted EBITDA margin, displaying the platform’s strong network effect moat source. The firm’s ability to further monetize the platform via advertising and other verticals is also appealing.
It appears that normalcy after the pandemic includes not only spending more time out of home and traveling, but also still ordering food and other products online for delivery or pickup as delivery continued to grow. While the mobility take rate dipped, the delivery take rate increased 60 basis points from last quarter and around 5 percentage points year over year.
A slowdown in the decline in air travel is witnessed, which we believe indicates that Omicron has already peaked and demand for travel and therefore airport rides and overall mobility demand may accelerate again. As Uber’s strong network effect continues to attract consumers, advertisers have begun to spend more on the firm’s marketplace platform.
Financial Strength:
Management guided to first-quarter year-over-year gross bookings growth deceleration due to a slight impact from omicron, which appears to have already peaked. Uber generated $25.9 billion in total gross bookings during the quarter, up 51% year over year, with contributions from mobility (up 67%), delivery (34%), and freight, which spiked 245% from last year due to the acquisition of Transplace. Mobility gross bookings hit 84% of pre-pandemic levels during the quarter, up from 79% in the third quarter. While the mobility take rate dipped, the delivery take rate increased 60 basis points from last quarter and around 5 percentage points year over year. Net revenue of $5.8 billion during the quarter was up 105% from 2021. Mobility net revenue grew 55%, while delivery net revenue went up 78%. Monthly active platform users increased 27% from last year to 118 million. Trip requests came in at 1.77 billion (up 23% year over year); however, due to omicron, frequency, or trips per user, declined nearly 10% from last year but stayed within the 14-15 trips range.
Company Profile:
Uber Technologies is a technology provider that matches riders with drivers, hungry people with restaurants and food delivery service providers, and shippers with carriers. The firm’s on-demand technology platform could eventually be used for additional products and services, such as autonomous vehicles, delivery via drones, and Uber Elevate, which, as the firm refers to it, provides “aerial ride-sharing.” Uber Technologies is headquartered in San Francisco and operates in over 63 countries with over 110 million users that order rides or foods at least once a month. Approximately 76% of its gross revenue comes from ride-sharing and 22% from food delivery.
(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:
Despite the top-line miss, both user growth and revenue per user was impressive, as the firm continues to capitalize on the growing demand for brand and direct response advertising. Twitter’s effort to focus more on advertising opportunities is believed to mix well with its balanced brand and direct response revenue base in the long run, allowing the firm to capture more small- and medium-size business ad revenue and tap further into ecommerce growth. the firm has taken the right steps to focus on generating growth in advertising revenue. Following the sale of MoPub, the firm properly reallocated investment into direct response and commerce offerings, which should allow it to attract more small- and medium-size businesses and balance brand advertising. In addition, Twitter’s efforts to provide easier contextual advertising options combined with further user personalization and improvements to user experience in the app could attract even more brand advertising dollars. With the continuing user growth, it is expected that Twitter’s subscription products to slightly reduce its dependency on advertising.
On the commerce front, Twitter for Professionals profile options will attract more businesses as usage of the platform’s Shop module, which allows businesses to highlight their products to be purchased on Twitter, will drive transaction volume higher. However, the firm does face significant competition on this front, including from the likes of Facebook, Pinterest, and, of course, Amazon.
Financial Strength:
Total revenue came in at $1.6 billion, up 22% from last year, with growth in both advertising revenue (22%) and data licensing and other revenue (15%), bringing total revenue for the year to $5.1 billion in 2021. The firm’s user count increased 13% year over year to 217 million, with U.S. and international users up 3% and 16%, respectively. Management claims user numbers improved because of Twitter’s new single sign on feature and improved notifications that attracted former users to return to the platform. n the fourth quarter, costs and expenses totaled $1.4 billion, an increase of 35%, mainly due to increased investment in research and development as well as sales and marketing. The firm generated operating income of $167 million (11% margin) compared with operating income of $252 million (20% margin) last year
Company Profile:
Twitter is an open distribution platform for and a conversational platform around short-form text (a maximum of 280 characters), image, and video content. Its users can create different social networks based on their interests, thereby creating an interest graph. Many prominent celebrities and public figures have Twitter accounts. Twitter generates revenue from advertising (90%) and licensing the user data that it compiles (10%)
(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.