Stock Research - Investor Desk

Coca – Cola cash flow generation improved with ongoing FCF of $661m and cash realisation of 124.7%

Post author By lvc-admin
Post date December 21, 2021
No Comments on Coca – Cola cash flow generation improved with ongoing FCF of $661m and cash realisation of 124.7%

Coal is excavated at the Jim Bridger Mine, owned by energy firm PacifiCorp and the Idaho Power Company, outside Point of the Rocks, Wyoming March 14, 2014. West Virginia mined 120 million tons (109 metric tons) of coal in 2012, second to Wyoming, or about 12 percent of total U.S. production. Kentucky was third with about 9 percent of output, according to the National Mining Association. REUTERS/Jim Urquhart (UNITED STATES - Tags: ENERGY BUSINESS) - RTR3H5NY

Investment Thesis

Currently under a takeover target.
Structural challenges – consumers moving away from carbonated soft drinks (CSD).
Increased competitive pressures from other beverage companies or margin pressure/erosion from supermarket chains.
Cost pressure eroding margins, including the NSW container deposit scheme.
CCL not being able to push through price increases to clients.
CCL has a strong global brand portfolio with diversified product offering.
Strong growth in NZ, Indonesia and PNG.
Management is focused on cost out and reinvestment, growing efficiency and margins as a result.

Key Risks

CCL unable to sustain the turnaround especially in International segments.
Company meets or exceeds its full year guidance.
Increased competitive pressures.
Cost pressure eroding margins, including the NSW container deposit scheme.
CCL not being able to push through price increases to clients.
International segment unable to deliver growth.

Key Financial Results

Volumes for the year were down -4.2% over pcp and revenue declined -3.5% to $2.94bn with a more pronounced decline in ongoing EBIT (down -14.7% to $362.6m with margin down -170bps to 12.3%) due to changes in channel and pack mix (multi-serve PET and multipack cans increasing and demand for immediate consumption offerings decreasing) as consumer behaviour responded to Covid-19 lockdown measures. Management have seen a recovery in volumes starting 2H20, with strong momentum carried into January 2021 trading.
The Company was able to achieve market share gains in the non-alcohol ready to drink (NARTD) market which grew during the year, delivering NARTD volume share gains of +0.7% with Coca-Cola Trademark increasing its volume share by +0.4%.

Company Profile

Coca-Cola Amatil (CCL) manufactures, distributes and sells carbonated soft drinks along with still and mineral waters, fruit drinks, ready-to-drink coffee and tea and flavoured milk drinks. CCL also rents and services commercial refrigeration equipment to food/beverage manufacturers.

(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.

Tags Australian Market

Daily Report Financial Markets

Australian Market Outlook – 21 December 2021

Post author By Aayushi Swami
Post date December 21, 2021
No Comments on Australian Market Outlook – 21 December 2021

Australian-Market-Outlook-21-December-2021 Download

Tags Australian Market

Financial Markets Sectors Technology Technology Stocks

Alphabet Inc. earnings momentum to continue driven by Cloud Business and focus on AI and Machine Learning

Post author By Aayushi Swami
Post date December 21, 2021
No Comments on Alphabet Inc. earnings momentum to continue driven by Cloud Business and focus on AI and Machine Learning

The concept of 5G network with magnifying glass on modern circuit board, high-speed mobile internet and new generation networks technology background

Investment Thesis:

Commands a strong market position in online advertising and online eyeballs.
Search advertising increasing its share of advertising spend.
Leveraged to online video steaming and advertising via YouTube.
Strong balance sheet with over US$130bn in cash, which gives flexibility to invest in growth options or undertake capital management initiatives.
Focus on innovation across advertising businesses, which should help to sustain growth.
Strong management team.
Value accretive acquisitions in existing and new growth areas.
Recent disclosure suggests GOOGL’s Cloud business building good revenue momentum.

Key Risks:

Threat of increased regulatory scrutiny, including concerns around consumer privacy and personal data.
Regulatory changes which impacts the way GOOGL does business (e.g. forced changes to products).
Expenses such as TAC (traffic acquisition costs) increase ahead of expectations and which the company is unable to pass onto customers.
Deterioration in economic conditions, which would put pressure on the advertising revenue.
Competition from companies like Facebook Inc., Amazon etc. could put pressure on margins.
Potential return from investment on new, innovative technology fails to yield adequate results.

Key highlights:

GOOGL reported a very strong quarter, with revenues of $61.9bn up +61.6% (or up +57% in constant currency).
Total Google Services revenues of $57.1bn was up +63%, with Google Search & Other up +68.1% (led by strong growth in retail), YouTube ads up +83.7% (driven by brand and direct response) and Google advertising up +60.4% (driven by Ad Manager and AdMob)
Google Cloud revenue was up +53.9% to $4.6bn, driven by growth in infrastructure and platform services. GOOGL’s total cost of revenues of $26.2bn was up +41%, driven by growth in TAC (traffic acquisition costs), which was up +63% to $10.9bn. Group operating income was up +203.3% to $19.4bn (with margin expanding to 31.3% from 16.7% in pcp), driven predominantly by Google Services (up +134.2% to $22.3bn).
GOOGL continues to spit out significant amount of cash from operations, reporting free cash flow of $16.4bn in 2Q21 and $58.5bn over the trailing 12 months.
At the end of the quarter, the balance sheet had $136bn cash (& equivalent). The Board has amended the existing $50bn stock repurchase program to permit the repurchase of both Class A and Class C shares.

Company Description:

Alphabet Inc is headquartered in Mountain View, California, and provides online advertising services across the globe. It offers performance and brand advertising services through Google and Other Bets segments. The Google segment offers products, such as Ads, Android, Chrome, Google Cloud, Google Maps, Google Play, Hardware, Search, and YouTube, as well as technical infrastructure. This segment also offers digital content, cloud services, hardware devices, and other miscellaneous products and services. The Other Bets segment includes businesses, including Access, Calico, CapitalG, GV, Verily, Waymo, and X, as well as Internet and television services.

(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.

Tags Recommendations

Global stocks

Johnson Matthey PLC diversified global stock with good financial health

Post author By lvc-admin
Post date December 21, 2021
No Comments on Johnson Matthey PLC diversified global stock with good financial health

Business Strategy and Outlook

Johnson Matthey is a U.K.-based specialty chemical company with unique expertise in catalysts, chemicals, and manufactured products derived from platinum group metals, or PGMs. Sales are fairly concentrated in developed markets, particularly Europe and North America. China, growing fast, now accounts for 15% of sales. Roughly 60% of sales are targeted at the automobile sector.

The clean air segment is the company’s largest (51% of EBIT) and is the foundation of narrow moat rating. The segment, a global leader in a highly concentrated market, manufactures auto catalysts for cars and heavy-duty trucks that reduce emissions and improve air quality. Success is primarily dependent on increasingly stringent environmental legislation, which allows the company to develop novel solutions that can be sold at premium prices. While the advent of electric vehicles will ultimately cause auto catalysts to move into secular decline, it is still seen to have more than a decade of high returns for the business.

Other core segments include efficient natural resources and health, which contribute 44% and 5% of EBIT, respectively. Efficient natural resources manufacture industrial catalysts for the chemical and oil and gas sectors, licenses technology for chemical processing, and includes the precious metals refining and manufacturing business. EBIT should fall in the next few years as high PGM prices normalize, but the overall outlook for the segment remains solid. The health segment is a global leader in manufacturing active pharmaceutical ingredients, or APIs, for controlled substances like opiates and amphetamines. Growth will depend on success of the pipeline of new APIs, which is still a few years away.

The company also offers fuel cells, technology for blue hydrogen production, and components for green hydrogen plants

Financial Strength

Johnson Matthey is in good financial health. The model-driven credit risk assessment is moderate. The company targets a net debt (including post-tax pension deficits) to EBITDA ratio of 1.5-2 times. As of September 2020, the ratio stood at 1.6 times. The company’s debt maturity profile is balanced, with a good portion of borrowings having maturity dates more than five years and no major refinancing due in 2020 or 2021.

Bulls Say’s

The pipeline of increasing global environmental legislation targeting vehicle emissions remains full for the foreseeable future.

Johnson Matthey’s expertise in hydrogen and fuel cells should enable the company to be a meaningful player when these markets develop.

Johnson Matthey is positioned to benefit from current megatrends such as increasing environmental concerns and rising wealth in emerging markets.

Company Profile

Based in the U.K., Johnson Matthey is a global leader in production of emissions catalysts for automobiles and trucks. The company also manufactures industrial catalysts for the chemicals and oil and gas sectors, and a variety of other industrial products derived from platinum-group metals.

(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.

Tags European Market

Dividend Stocks

Magellan Financial Group Ltd Loses Largest Mandate; FVE reduced to AUD 38

Post author By lvc-admin
Post date December 21, 2021
No Comments on Magellan Financial Group Ltd Loses Largest Mandate; FVE reduced to AUD 38

Business Strategy and Outlook

Magellan is an active manager of listed equities and infrastructure. The firm has had considerable success in growing funds under management, or FUM, owing to its superior track record of outperformance, product expansion initiatives, and strong distribution capabilities.

The firm has a fundamental, high-conviction investment approach. Its flagship Global strategy has historically tilted toward IT, e-commerce platforms, and consumer franchises; preferring large, developed market multinationals. FUM have been attracted by consistently achieving excess returns with lower volatility and drawdowns relative to peers.Magellan’s products are well-distributed. Its funds are featured across platforms, included in model portfolios, and are well-rated.

There is a focus on targeting retail investors, with product expansion an increasingly common driver of growth. As per Morningstar analyst, Magellan has built the foundations for ongoing earnings growth, supported by its economic moat, product variety, and historically strong track record. Regardless, the potential earnings upside from these positive traits will take time to manifest.

Magellan Loses Largest Mandate, but Sell-Off Way Overdone

Morningstar analyst reduced its fair value estimate for Magellan Financial Group by 25% to AUD 38 per share, following client the termination of its mandate with its largest client, St James’s Place, or SJP. As per the viewpoint of Morningstar analyst, most of Magellan’s institutional clients hired the group to deliver returns of about 10% per year and focus on downside protection. It is an investment undertaking Magellan has always communicated to the market, and a hurdle it consistently surpassed, with institutional returns averaging 18% per year over the last five years. As Magellan’s recent underperformance has only begun since November 2020, it was believed that institutional clients would negotiate for lower fees rather than terminate Magellan. Regretfully, this has not transpired in SJP’s case.

Financial Strength

Magellan is in sound financial health.The firm has a conservative balance sheet with no debt, with its financial position also boosted by solid operating cash flows. As of June 30, 2021, Magellan had cash and equivalents of about AUD 212 million and financial investments with a net fair value of around AUD 453 million mainly invested in its own unlisted funds and listed shares. This should provide it with enough liquidity to cope with most market conditions. Its high dividend payout ratio of: (1) 90%-95% of the net profit after tax of its core funds management business before performance fees; and (2) annual performance fee dividend in the range of 90%-95% of net crystallised performance fees aftertax reflects the capital-light nature of asset management.

Bull Says

The majority of Magellan’s earnings come from a few large funds, meaning it has a high reliance on key investment personnel and the performance of its main funds. Should key people leave, or its main funds underperform for a sustained period, outflows could be material.
There is increasing competition from other active international equity managers and new international equity funds from incumbents.
The firm faces fee pressure from the increasing popularity of lower-cost alternatives, such as indextype products and ETFs.

Company Profile

Magellan Financial Group is an Australia-based niche funds manager. Established in 2006, the firm specialises in the management of equity and infrastructure funds for domestic retail and institutional investors. Magellan has been particularly successful in winning mandates from global institutional investors. Current FUM is split across global equities, infrastructure and Australian equities

(Source: Morning Star)

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.

Tags Australian Market

Technology Stocks

Omicron Buoys Sonic Healthcare Coronavirus Testing but Our Long-Term View Stands

Post author By lvc-admin
Post date December 21, 2021
No Comments on Omicron Buoys Sonic Healthcare Coronavirus Testing but Our Long-Term View Stands

Business Strategy and Outlook

Sonic’s “medical leadership” model recognises the importance of the referring doctor as the company seeks to differentiate itself on service levels. Success in the model is evidenced by organic growth consistently tracking ahead of the market, suggesting market share gains. Sonic’s organic volume growth in its core laboratories segment has typically ranged between 3% and 4% and we forecast a similar rate over our 10-year forecast period. The volume growth is underpinned by population growth, aging demographics in developed markets, higher incidence of diseases and wider adoption of preventative diagnostics to manage healthcare costs.

Laboratory medicine, or pathology, has a high fixed cost of operation and thus benefits from volume growth to drive lower cost per test outcomes. Sonic benefits from cost efficiencies by maximising throughput through its network of labs and collection centres. Higher testing volumes result in a lower cost per test as labour, equipment, leases, transportation and overhead costs are all leveraged.

Financial Strength

Sonic is in a strong financial position. Free cash flow conversion of earnings prior to acquisition spend has averaged 98% over the last 10 years and has allowed Sonic to quickly repay the debt funding its acquisitions. At the end of fiscal 2021, Sonic reported AUD 921 million in net debt representing net debt/EBITDA of only 0.4 times, below the 2.0 to 2.7 times range targeted by management, and well below the 3.5 times covenant. Sonic also has a progressive dividend policy which is communicated as a minimum of an equal dividend per share to the prior year.

Our AUD 33 fair value estimate factors in 4% group revenue growth in a typical year and a midcycle operating margin of 14%. It is estimated that the deliver EPS growth of roughly 5% in a typical year. Partly offsetting this was the Australian government cutting the reimbursement rate for private providers to AUD 72.25 per test from AUD 85 prior, which is in place until June 30, 2022. The deal broadens Sonic’s existing U.S. footprint by instantly adding annualised revenue of roughly USD 110 million, or 7% of Sonic’s fiscal 2021 U.S. laboratory revenue.

Bulls Say’s

Sonic boasts leading market positions in most of its geographies and benefits from cost advantage derived from scale.
Pathology and diagnostic imaging are highly defensive industries that influence the majority of treatment decisions.
Free cash flow conversion prior to acquisition spend has averaged 98% of earnings over the preceding 10 years and forecast to remain high, allowing Sonic ample flexibility to reinvest in the business.

Company Profile

Sonic Healthcare is a global pathology provider. It is the largest private operator in Australia, Germany, Switzerland and the U.K., the second largest in Belgium and New Zealand and the third largest in the U.S. In addition to pathology, which contributes roughly 85% of group revenue, Sonic is the second largest player in diagnostic imaging in Australia and the largest operator of medical centres in Australia. The company typically earns about 40% of group revenue in Australia and New Zealand, 25% in the U.S. and 35% in Europe

(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.