Investment Thesis:
- Attractive way to play the Covid reopen trade for investors
- All segments delivering return on invested capital > weighted average cost of capital
- Strong position in the domestic market (Qantas Domestic and Jetstar continue to remain the two highest margin earning airlines in the domestic market)
- Jetstar is well positioned for growth and rising demand in Asia
- Partnership with Woolworths for Loyalty bodes well for membership and earnings
- Oil price hedging in FY20 could contribute to performance
- Increased competition in the international segment
- Relative to peers, strong balance sheet strength
- Investment grade credit rating
Key Risks:
- Disasters that could hurt the QAN brand
- Ongoing price led competition forcing QAN to cut prices affecting margins
- Leveraged to the price of oil
- Adverse currency movements result in less travel
- Labour strikes
- Depressed economic conditions leading to less discretionary income to spend on travel
Key highlights:
- QAN’s FY21 revenue declined 58% over pcp as the decline in international operations was partially offset by record performance by Qantas Freight, which combined with 49% fall in operating expenses and 71% decline in fuel expenses saw the Company deliver underlying EBIT loss of $1.5bn vs $395m profit in pcp
- Covid levels in 2H21 while state borders were open generated enough cash from $6.4bn in 3Q21, with management forecasting net debt to be in target range of $4.5- 5.6bn by end of FY22
- The Company’s cost-cutting program remained ahead of schedule, with $650m taken out of its cost base during FY21, remaining on track to deliver $850m by the end of FY22 and $1bn in FY23
- Recent outbreaks and associated domestic and trans-Tasman border closures to have an impact in the order of $1.4bn on the Group’s Underlying EBITDA in 1H22
- Group Domestic capacity to increase from 38% in 1Q to 53% of pre-Covid capacity in 2Q and rise to ~110% in 2H22
- Recovery plan progress remains ahead of schedule: The Recovery Plan delivered $650m in savings in FY21, ahead of its $600m target and remains on track to deliver $850m by the end of FY22 and greater than $1bn in ongoing savings by the end of FY23
- Liquidity boosted by securing a further $0.6bn
- Balance sheet repair commenced, reducing net debt to $5.9bn by end of FY21 from $6.4bn in 3Q21, with further debt reduction remaining a priority
- Investment grade credit rating of Baa2 from Moody’s maintained
- Shareholder distributions scrapped until the Group’s earnings and balance sheet have fully recovered in accordance with the Financial Framework
Company Description:
Qantas Airways Ltd (QAN) provides passenger and freight air transportation services in Australia and internationally. QAN also operates a frequent flyer loyalty program. QAN was founded in 1920 and is headquartered in Mascot, Australia support.
(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.
wherein individual Portfolio Managers hold 25 to 35 stocks each. The Fund’s objective is to exceed the total returns of the Benchmark (FTSE EPRA/NAREIT Developed Index (AUD) Net TRI) after fees on a rolling 3-year basis.
Downside Risks:
- Deterioration in Global economy, especially the property market (deterioration of property prices and fundamentals).
- The Portfolio Manager/analysts miss-calculate their bottom-up valuation.
- Softening in bond yields negatively impacting pricing.
- Key person risks, i.e. Andrew Parsons, Marco Colantonio, Robert Promisel, Julian Campbell-Wood and members of the investment team.
- risk.
Fund Performance & Current Positioning:
| (%) | Fund | Benchmark | Out-performance |
| 1-month | 2.64% | 1.90% | +0.74% |
| 3-months | 14.10% | 12.29% | +1.81% |
| 1-year | 26.67% | 34.93% | -8.26% |
| 3-year (p.a.) | 9.68% | 7.18% | +2.50% |
| 5-year (p.a.) | 8.65% | 6.16% | +2.49% |
| Since Inception (p.a.) | 13.48% | 12.33% | +1.15% |
(Source: Resolution Capital)
Fund Positioning:
| Stock | Sector | Listing | % of portfolio* |
| Prologis | Industrial | US | 8.10% |
| Invitation Homes | Residential | US | 6.50% |
| Welltower | Healthcare | US | 4.70% |
| Kimco Realty Corporation | Retail | US | 4.20% |
| Equinix | Data Centres | US | 4.10% |
| Essex Property Trust | Residential | US | 3.60% |
| Canadian Apartment Properties | Residential | Canada | 3.10% |
| Kilroy Realty Corporation | Office | US | 3.10% |
| CubeSmart | Self-Storage | US | 2.90% |
| Mitsubishi Estate Company | Office | Japan | 2.80% |
| Total | 43.10% |
(Source: Resolution Capital)
Key Highlights:
- Investment Team:
The investment team is well-resourced with strong credentials and investment experience and is appropriately aligned and remunerated. The PMs have strong credentials and lengthy experience in real estate: Andrew Parsons, Marco Colantonio, Robert Promisel, have at least 30 years industry experience whilst Julian Campbell-Wood has 17 years’ experience. Performance reviews are conducted twice per year and based on Investment performance of all client Funds strategies, Research analysis and outcomes, Compliance with mandate guidelines and Adherence to ESG policies.
- Investment Philosophy and Process:
In our view, the Fund adopts the bottom-up stock picking fundamental process that most other peers typically follow. A key advantage in the fund’s investment process is the utilisation of their proprietary database to collate their research that enables cross comparisons among regions and sectors to highlight any discrepancies.
- Performance:
Although past performance is not an indicator for future performance, it is an indicator of whether the Fund’s strategy has worked in the past. Although the Fund has performed well on an absolute basis, the Fund has underperformed relative to its benchmark in the past year by -8.3%. Nevertheless, over 3- and 5-year, and since inception, the fund has performed well relative to the benchmark.
- Association with Pinnacle is a positive:
ASX-listed Pinnacle Investment Management holds a minority 44.5% stake in Resolution Capital whilst key staff own the remaining 55.5%. Pinnacle provides support via distribution and administration services, which is viewed as positive.
About the Fund:
The Resolution Capital Global Property Securities Fund (Unhedged) – Series II provides exposure to a diversified portfolio of stocks within a range of real estate sectors across developed markets (North America, U.K, Europe, and Asia Pacific). The Fund’s objective is to exceed the total returns of the Benchmark (FTSE EPRA/NAREIT Developed Index (AUD) Net TRI) after fees on a rolling 3-year basis.
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
Pendal Group is one of Australia’s largest active fund managers, with AUD 139.2 billion in funds under management, or FUM. The business has diversified considerably since being spun out by Westpac in 2007, following the acquisition of U.K.-headquartered JO Hambro in October 2011.
Pendal’s strategy centres on product, geographic, and asset class diversification. This positions it to capture FUM across various market cycles and fend off competitive pressures from low-cost passive products. It boasts a broad product suite across asset classes, including Australian and global equities, fixed interest and property. Pendal focuses on catering to growing investor needs with large addressable markets, and has seeded 14 funds per year, on average, over the last five years. It has an active pipeline of new products, more recently having launched multiple retirement income and ESG-themed funds.
The group sources FUM from diversified institutional and adviser clients across Australia, U.S., U.K., and Europe. This provides higher growth opportunities and helps mitigate disruptions from a particular geography. Growth is supported by its strong distribution relationships in each of the region which it operates. Client concentration in its core FUM pool (excluding Westpac which accounts for 12% of total FUM) is relatively low. The 10 largest clients for JO Hambro account for just a third of its FUM. Institutional money currently represents 39% of FUM.
Solid Year for Pendal; Strong Returns to Normalize, but The Hunt for New Money Is Picking Up 07 Nov 2021
Pendal’s fiscal 2021 results were unsurprisingly solid, with underlying NPAT up 25% from the prior year to AUD 165 million. Strong markets, investment outperformance and net outflow reductions saw average funds under management, or FUM, grow 14% from the prior year to AUD 108 billion. Base fee margins were resilient at 0.48% and performance fees more than quadrupled. Dividends per share grew 11% to AUD 0.41, representing a payout ratio of 89%.An increasingly diversified clientele and product breadth expands its channels for new money, while relatively low fee margins should help it better withstand fee pressure. The strong performance in fiscal 2021 has improved the momentum of Pendal’s net flows–notably in its U.S. pooled and Australian wholesale channels.
Financial Strength
Pendal is in sound financial health, with a net cash position of AUD 249 million as of Sep. 30, 2021. The firm has AUD 49 million worth of debt as of Sep. 30, 2021. This was used to fund the acquisition of Thompson, Siegel & Walmsley, or TSW, which has completed in the September quarter of 2021. It was poised to take on about AUD 200 million in debt to help fund TSW’s purchase. However, strong participation in Pendal’s capital raising for TSW has reduced the debt and balance sheet funding required to complete the acquisition. We forecast Pendal’s debt to be discharged within three years. Low capital investment requirements, strong free cash flow, and the balance sheet underpin a high payout of between 80% and 95% of underlying net profit after tax. We expect dividends to broadly match earnings per share growth. Dividends are not fully franked, given the large portion of overseas earnings.
Bulls Say
- The diversity of funds / strategies help Pendal grow and hold on to funds under management throughout various market conditions.
- The higher-margin overseas JOHCM and TSW businesses give Pendal a stronger organic growth profile than most Australian peers from opportunities in new and existing geographies.
- A focus on expanding its product offering with differentiated strategies allows Pendal to stay ahead of emerging investor needs and fend off competition from low-cost passive investments.
Company Profile
Pendal Group is one of Australia’s largest active fund managers. The business is split across three segments: Australian-based Pendal Australia; U.K.-headquartered JO Hambro Capital Management, or JOHCM, and U.S.-based Thompson, Siegel & Walmsley, or TSW. Pendal manages funds across several asset classes via a multiboutique structure. As of Sept. 30, 2021, funds under management, or FUM, stood at AUD 139.2 billion
(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.
