Investment Thesis
- High barriers to entry.Strong strategic position in the rapidly growing global smartphone market especially with high end consumers. Loyal consumer base resulting in lower competitive pressure, and higher pricing power.
- Large cash balance and strong free cash flow supporting share buyback and dividend payout.
- Leading positions in iPhone; iPads; and Macs.
- Services segment remains on track to double FY16 revenue by FY20.
- In terms of Other products (such as wearables and home products), AAPL seized the leading position off the back of a surge in smartwatch sales in a market expected to grow single digit till 2022 and double digit thereafter.
- Strong senior executive team reducing (not totally eliminating) key man risk.
Key Risks
- Geo-political tensions. The current trade war between the US and China pose a threat to the company’s future profits. AAPL currently obtains components from single or limited sources (mostly China), the Company is subject to significant supply and pricing risks. Also, Greater China is a major market contributing to approximately 21% (Q218) of total revenue and any retaliatory efforts from Beijing could impact those sales.
- Whilst there are only a handful of competitors, the competition is Intense from Android manufacturers. The most notable competitors in the smartphone market (which contributes 62% of Apple’s revenues) are the Korean giant Samsung and two rapidly growing Chinese smartphone players in Huawei and Xiaomi. On raw performance specs (i.e., camera, maps, screen size, charge time, etc.), one may assert that AAPL devices are technically inferior to a handful of Android devices.
- Movements in U.S. dollar (USD). The greenback’s strong gain recently (due to rise in U.S. interest rates and moderating growth in other parts of the globe) has seen it rise to the highest level in nearly seven months, meaning foreign currency earnings of AAPL can be worth less when translated back to USD. The weakness in foreign currencies relative to USD will have an adverse impact on net sales during 2018.
Key highlights to 4Q18 results
- 4Q18 revenue of $62.9bn, up +20% from the year-ago quarter, and quarterly diluted EPS of $2.91, up +41%, driven by record sales and strong momentum for iPhone, Wearables and Services. On the conference call, management highlighted “[revenue] was ahead of our expectations. That’s an increase of 20% over last year and our highest growth rate in three years”.
- Gross margin was 38.3%, flat sequentially, in line with management’s expectations, as leverage from higher revenue offset seasonal transition costs.
- International sales (61% of the quarter’s revenue) was strong, especially in Japan, up +34%, Rest of Asia Pacific, up +22%. The Americas (44% of revenue) saw revenue of $27.5bn, up +19%, whilst Europe at $15.4bn, was up +18% and China was up +16% at $11.4bn.
- Services revenue reached an all-time high of $10.0bn. Excluding a one-time favorable adjustment of $640m (in 4Q17), Services revenue grew from $7.9bn to $10bn, up +27% over the pcp.
- By product, iPhone, Services and Other products saw 29%, 17% and 31% sales growth, respectively, whilst disappointingly, iPad and Mac saw -15% and 3% sales growth respectively.
- iPhone ASP was $793 compared to $618 a year ago, driven by strong performance of iPhone X, 8 and 8 Plus, as well as the successful launch of iPhone XS and XS Max in the September quarter this year, while we launched iPhone X in the December quarter last year.
Company Profile
Apple Inc. (AAPL) designs and manufactures media devices and personal computers (Macs), and sells a variety of related software, services, accessories, networking solutions and third party digital content and applications. The company leads the world in innovation with iPhone, iPad, Mac, apple watch and Apple tv.
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
- Based on our blended valuation (consisting of DCF, PE-multiple & EV/EBITDA multiple), BHP is trading at fair value but on an attractive dividend yield.
- Commodities prices especially iron ore prices deteriorate on lower demand from China.
- Focus on returning excess free cash flow to shareholders in the absence of growth opportunities (hence the solid dividend yield).
- Quality assets with competitive cost structure and leading market position.
- Growth in China outperforms market expectations.
- Management’s preference for oil and copper in the medium to long-term.
- Solid balance sheet position.
- Ongoing focus on productivity gains.
Key Risks
- Poor execution of corporate strategy.
- Prolonged impact on demand if coronavirus is not contained.
- Deterioration in global macro-economic conditions.
- Deterioration in global iron ore/oil supply & demand equation.
- Deterioration in commodities’ prices.
- Production delay or unscheduled site shutdown.
- Movements in AUD/USD.
FY21 Results Highlights
- Profit from operations of US$25.9bn, up +80%; Underlying EBITDA of US$37.4bn (at a record margin of 64%); was driven by record volumes at Western Australia Iron Ore (WAIO), Goonyella and Olympic Dam, and Escondida maintained average concentrator throughput at record levels.
- Attributable profit of US$11.3bn.
- Underlying attributable profit of US$17.1bn, up +88%.
- Strong free cash flow of US$19.4bn, reflects higher iron ore and copper prices, and a strong operational performance.
- Capital and exploration expenditure at US$7.1bn was down -7% and within guidance; with BHP delivering first production at four major development projects, ahead of schedule and on budget, as well as BHP acquired an additional 28% working interest in Shenzi in November 2020.
- Net debt at US$4.1bn, compares favourably to US$12.0bn in FY20.
- The Board declared a final dividend of US$2.00 per share (which includes an additional amount of US$0.91 per share) and is above the 50% minimum payout policy. This equates to total dividends of US$3.01 per share, which equates to 89% payout ratio.
- Underlying return on capital employed strengthened to 32.5%.
- BHP reported a total income statement charge of US$1.2bn (after tax) for the Samarco dam failure in FY21 (recognising it as an exceptional item).
Company Profile
BHP Group Limited (BHP) is a diversified global mining company, with dual listing on the London Stock Exchange and Australia Stock Exchange. The company’s principal business lines are mineral exploration and production, including coal, iron ore, gold, titanium, ferroalloys, nickel and copper concentrate. The company also has petroleum exploration, production and refining.
(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.
The Altius Sustainable Bond Fund offers investors fixed interest investments, which are managed with the consideration of environment, social and corporate governance (ESG) principles. The Manager recently expanded its exclusion of companies engaged in thermal coal to all fossil fuels (or at least have revenue no greater than 10% sourced from these activities). The Fund is a credible offering. It is run by an investment team with strong credentials and lengthy investment experience in managed assets in the investment class (the team of six comprises three PMs all with at least 25 years’ experience and the remaining team members all with over 10 years’ experience).
Downside Risk:
- Interest rate risk (however the Fund’s total return focus should limit this).
- The Manager gets the thematic and top-down view wrong.
- Key man risk – Bill Bovingdon, Chris Dickman and Gavin Goodhand.
Investment Team:
The fund is managed by Australian Unity’s Cash and Fixed Interest team (Altius) consisting of experienced fixed interest investment professionals. The investment team is supported by a very experienced Investment Advisory Committee, which meet every quarter (formally). Below are the
- Bill Bovingdon – Executive Director, Chief Investment Officer
- Chris Dickman – Executive Director, Senior Portfolio Manager
- Gavin Goodhand – Senior Portfolio Manager
- Yen Wong – Head of Credit Research
- Kirsten Lee – Credit Analyst.
- Vincent Tang – Senior Portfolio Analyst
Performance:
| (%) | Fund | Benchmark** | Out-performance |
| 1-month | -0.11 | 0.35 | -0.46 |
| 3-months | 0.39 | 0.77 | -0.38 |
| 1-year (p.a.) | -0.55 | 0.32 | -0.23 |
| 3-years (p.a. | 1.42 | 2.49 | -1.07 |
| 5-year (p.a.) | 1.53 | 2.13 | -0.6 |
| Since inception (p.a.)* | 2.26 | 2.65 | -0.39 |
Fees Structure:
The Fund has lowered its management fees 0.56% p.a. to 0.37%p.a. The Fund charges no performance fee.
Fund Positioning:
Sector Allocation:
Top 10 Holdings:
About the fund:
The Altius Sustainable Bond Fund is an Australian fixed interest fund that invests in companies which conduct their business and apply capital responsibly, considering a range of environmental, social and governance (ESG) issues. The Fund aims to provide a total return approach, offering duration exposure at appropriate points in the cycle, as well as positioning the portfolio defensively in a rising rate environment and invests only in domestic assets, thus avoiding importation of global risks (e.g. currency) and offering a different risk profile.
(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.
