Business Strategy and Outlook
Bega has transformed from a dairy processor with a focus on business to business operations to a branded consumer food company with a more diversified earnings base and less exposure to volatile milk prices. While dairy will remain a key category for Bega Cheese, the focus will be on high value products such as cream cheese and infant formula. In January 2021, Bega finalised the acquisition of Lion Dairy and Drinks from Kirin Group for AUD 534 million. As part of the acquisition, Bega acquired leading brands in milk-based beverages and yoghurt, white milk, and plant-based beverages, in addition to 13 manufacturing sites and Australia’s largest national cold chain distribution network.
Revenue from the branded segment, which includes spreads, grocery products and Lion’s Dairy and Drinks portfolio, to expand at a CAGR of 18% to fiscal 2026, underpinned by new product innovation and bolt-on acquisitions. Bega Cheese has made limited investment in its brands, particularly in Australia where Fonterra is the licensee of the Bega brand, however since acquiring the spreads and grocery business in 2018, marketing spend as proportion of revenue has increased to 3% from 1% and it is anticipated to remain the higher level.
Financial Strength
Our fair value estimate is AUD 5.20 per share. Bega’s balance sheet is sound. Leverage, measured as net debt/EBITDA improved to 2.3 at June 30, 2021, from 2.4 at the prior period and comfortably below covenants. This is a pleasing position post the major acquisition of Lion Dairy and Drinks in fiscal 2021 which was funded through AUD 267 million of new and extended debt facilities and a AUD 401 million equity raising. It is expected that further deleveraging in coming years as acquisition synergies are achieved, earnings improve and noncore assets are divested, with net debt/EBITDA falling below 2.0 by 2023. Bega has the capacity to pursue smaller acquisitions while maintaining a dividend payout ratio of 50% normalised EPS. The group’s fiscal 2022 EBITDA guidance of AUD 195 million to AUD 215 million has necessitated an 11% downgrade to our fiscal 2022 EBITDA forecast to AUD 215 million.
Bulls Say’s
- Bega is shifting investment to the spreads and grocery business, which we view as less commoditised and higher margin than dairy, with strong niche positions in Vegemite and peanut butter
- External factors outside of Bega’s control, such as the weather, can adversely impact supply and demand dynamics. This can impact commodity prices, inputs costs and the firm’s supply chain and lead to volatile earnings
- Changing consumer trends toward dairy-free and vegan diets could lead to declines in per-capita dairy and cheese consumption, weighing on the majority of Bega’s earnings
Company Profile
Bega Cheese is an Australian based dairy processor and food manufacturer of well-known brands including Bega Cheese and Vegemite. Bega Cheese operates two segments: the branded segment which produces consumer packaged goods primarily sold through the supermarket and foodservice channels and the bulk segment which produces commodity dairy ingredients primarily sold through the business-to-business channel.
(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.
The company is engaged in installing, maintaining, and managing assets and technology solutions on an end-to-end outsourced basis for banks, financial institutions, organized retail and e-commerce companies in India.
The IPO comprises of offer for sale of equity share amounting to Rs. 1,100 crore. The CMS Info Systems IPO open date is Dec 21, 2021, and the close date is Dec 23, 2021. The issue may list on Dec 31, 2021. The mininimum lot size comprises of 69 shares at a price band of Rs.205-216 per equity share. A retail-individual investor can apply for up to 13 lots (897 shares or ₹193,752).The IPO will be listed both on NSE as well as BSE .
The IPO aims to raise funds for the following objectives;
- To carry out an offer for sale of equity shares by promotors aggregating upto Rs. 11,000 million.
- To achieve the benefits of listing the equity shares on the stock exchanges.
CMS Info System Limited IPO has got 50 per cent reserved for qualified institutional buyers (QIBs), 35% reserved for retail investor and 15 per cent reserved for non-institutional investors (NIIs).
CMS Info Systems IPO Subscription Status (Bidding Detail)
The offering received 7,32,71,721 applications versus 3,75,60,975 shares on offer, resulting in a 1.95-to-1 subscription ratio. The part earmarked for retail bidders was subscribed 2.15 times, according to BSE data, while the institutional quota garnered 1.45 times offers. So far, the HNI section has been subscribed to 1.98 times.
Company Profile
As of March 31, 2021, CMS Info Systems Limited was India’s largest cash management firm in terms of ATM and retail pick-up points. The company instals, maintains, and manages assets and technological solutions for banks, financial institutions, organised retail, and e-commerce companies in India on an end-to-end outsourced basis.
The company is divided into three segments: 1. cash management services, 2. managed services (such as banking automation product sales, common control systems, and software solutions, and so on), and 3. others (such as financial card issuance for banks and card personalisation services). It has a network of 3,965 cash vans and 238 branches and offices covering all of India’s states and union territories as of August 31, 2021.
(Source: CMS Info Systems IPO DRHP)
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
Oz Minerals is a midtier Australian miner, primarily exposed to copper and, to a lesser extent, gold. Prominent Hill and Carrapateena mine is fully owned by Oz Minerals Ltd.
Expected fiscal 2021 annual production at Prominent Hill of less than 70,000 tonnes of copper and 120,000 ounces of gold is globally small-scale. Barring a significant new discovery, life at Prominent Hill is likely to extend only incrementally with exploration. Cash costs have consistently been at competitive levels below USD 1.00 per pound since 2015, below the industry average. Prominent Hill output is likely to fall as the company processes stockpiles where grades are set to decline and eventually as those stockpiles exhaust around 2023-24. Regional exploration acreage around Prominent Hill is extensive and the company has focused on near mine areas with some success.
The Carrapateena mine, also in South Australia, produces about 70,000 tonnes of copper a year and is likely to expand to just over 110,000 a year from around 2028. Carrapateena comes with an approximate 20 year reserve life and a similar competitive position to Prominent Hill.
Oz Minerals has targeted acquisition of advanced-stage exploration plays, development projects, or operatingmines. The company has built an encouraging pipeline of projects. Management developed Carrapateena to deliver a vastly more attractive project than initially planned. The acquisition of Brazil-based Avanco is a modest addition. Longer-term output hinges on successful acquisitions and/or exploration and development.
Higher Copper Price and Futures a Tailwind for Oz Minerals, but Shares Remain Overvalued
The fair value estimate as per Morningstar analyst remains at AUD 16.60 and the current near-record high copper price means the shares remain substantially overvalued.
We expect Oz Minerals to continue to benefit from near term strength in copper prices. This augments an already strong balance sheet with net cash. It is expected that copper prices will remain elevated at an average of USD 3.70 per pound to the end of 2024 and prices to wane longer-term to USD 2.50 per pound from 2025 as the strong economic growth and post COVID-19 stimulus abate.
Financial Strength
The balance sheet is sound with modest net cash at the end of March 2021. Single-commodity miners should have a conservative balance sheet and is considered as appropriate as per the viewpoint of Morningstar analyst. Longer-term, Oz Minerals could again start to generate significant excess cash flow, though if the company decides to push ahead with some of the potential development projects it has, this cash could largely be put to work and the firm could carry modest net debt at some points through our 10-year forecast period. The company is likely to further invest in Carrapateena, potentially develop the West Musgrave nickel/copper mine and some of the copper/gold assets acquired with Avanco Resources, as well to build and advance the company’s project pipeline. If an acquisition is made, the balance sheet might temporarily be more highly geared, but it seems unlikely Oz Minerals would buy a large new mine while it has so many internal development options.
Bulls Say
- Oz Minerals brings leverage to copper, a key metal for the emerging economies of China and India.
- Carrapateena extends Oz Minerals’ production of copper at a low operating cost. Successful development increases the likelihood nearby deposits could become economically viable.
- Oz Minerals holds significant exploration acreage around Prominent Hill and Carrapateena, with potential for life extensions and new discoveries. Management has done a creditable job of building a large and diverse pipeline of development options at different stages of maturity.
Company Profile
Oz Minerals is a midtier copper/gold producer. Prominent Hill produced about 100,000 tonnes of copper in 2020 with cash costs well below the industry average. The mine is a very small contributor to total global refined output of about 24 million tonnes in 2020. Finite reserves are a challenge, but management has extended life at Prominent Hill, albeit at a lower production rate. Life extension comes with development of the nearby Carrapateena mine, which started in 2020. Carrapateena should initially ramp up to produce at about 70,000 tonnes a year before expanding to just over 110,000 a year from around 2028. The acquisition of Brazil-based Avanco Resources adds volumes but the scale is smaller than the Australian assets, costs are higher and growth is likely to be incremental.
(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 strategy
The Fund uses a multi-step investment process for constructing the Fund’s investment portfolio that combines top-down sector allocation with bottom-up individual stock selection. Top-down sector allocation is determined through a systematic evaluation of listed and direct property market trends and conditions. Bottom-up stock selection is driven by proprietary analytical techniques to conduct fundamental company analysis, which provides a framework for security selection through an analysis of individual securities independently and relative to each other. Investment return objective The Fund aims to outperform (after management costs) the S&P/ASX 300 Property Accumulation Index over rolling three year periods.
Investment return objective
The Fund aims to outperform (after management costs) the S&P/ASX 300 Property Accumulation Index over rolling three year periods.
Downside Risks
- Deterioration in the Australian economy especially the property market (fundamentals deteriorate). Rising bond yields negatively impacting pricing.
- The Portfolio Manager/analysts miss-calculate their bottom-up valuation
- Key person risks in Mr. Pica (however, the CBRE investment team is relatively large and capable of succession planning).
Fund Performance (as at 31 May 2021)
(Source: UBS)
Fund Positioning: Top 5 Holdings – Overweights & Underweights (as at 31 May 2021)
(Source: UBS)
Investment Process
The Fund uses an investment process that combines in-depth top-down and bottom- up fundamental market research with a disciplined and systematic approach to portfolio construction and risk management. The Portfolio Manager’s bottom-up approach integrates both quantitative and qualitative research to identify individual securities where the real estate is undervalued and represents the most compelling investment opportunities. The securities research process incorporates several factors including:
- Property visits – the Portfolio Manager utilises its local presence to gauge the quality and location of the real estate, assessing properties and capital expenditure needs at the property level.
- Management meetings – the Portfolio Manager assesses the management team’s alignment with shareholders; determines the depth and experience of the team; and judges their ability to articulate and execute their strategy.
- Modelling – the Portfolio Manager generates cash flow earnings projections; performs net asset value analysis; and analyses the capital structure.
About the fund
The UBS Property Securities Fund (portfolio managed by CBRE while Distributed by UBS) is a portfolio of mainly Australian Real Estate Investment Trusts that the investment team believes are being undervalued by the market, based on the in-house assessment of the company’s future cashflows. The Fund aims to outperform (after management costs) the S&P/ASX 300 Property Accumulation Index over rolling five-year periods
(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.
