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Top pick within global listed property

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.

Approach

Resolution mixes top-down thematic and bottom-up fundamental research to arrive at a relatively

concentrated 40- to 60-stock portfolio with little resemblance to the benchmark. The first step filters the 450- plus stock universe down to a manageable size. Macroeconomic drivers play a part, based on the team’s company visitation schedule. Resolution also uses its proprietary screening database to filter out stocks with undesirable characteristics such as high debt/EBIT ratios and balance-sheet risk.

Portfolio

Resolution has managed global property since 2006, but this vehicle was founded in 2008 during the depths of the global financial crisis, when some low-quality REITs flirted with bankruptcy. Resolution didn’t avoid all the underperformers, but it did better than rivals at avoiding the worst offenders. Its focus on sustainability and corporate governance helped, as did the chosen UBS Global Investors Index, which focused more on rent collectors and less on risky development. Being brand new gave Resolution a clean slate, helping the team to buy quality REITs at bargain prices. The quality preference also keeps a lid on portfolio turnover, which oscillates between 30% and 55%–not as low as an index fund but lower than the average active strategy. However, Resolution has been willing to make occasional substantial portfolio shifts. In the first half of 2019, Resolution saw some industrial property such as Goodman as expensive and was underweight in this name, favouring industrial exposure through ProLogis and Segro. During the following 12 months (to 30 April 2021), Resolution preferred residential, data centre, and tower exposure, specifically in the US. The strategy managed AUD 14.4 billion as at 30 April 2021.

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.

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ETFs ETFs

The fund offers simple approach, portfolio, and low fee

but with some additional trade-offs of the listed structure, including brokerage costs and variable bid-ask spreads. The AsiaPacific investment strategy group and global asset-allocation committee are responsible for setting and reviewing the strategic asset allocation. The methodology starts by defining reasonable investment horizons for each portfolio and alloates to broad asset-class exposures such as equities and fixed interest based on the defensive/growth split. Then, subasset allocation within classes follows a market-cap-weighting approach, while allowing for behavioural biases and regulatory factors specific to each local market. The SAA determination is aided by the Vanguard Capital Markets Model, which forecasts asset-class returns through scenario analysis. An annual review may identify major structural shifts that can lead to a revised SAA, such as a change in the taxation of an asset class. Underlying sector exposures are realised through in-house index-tracking funds. Vanguard does not use tactical asset allocation and cites illiquidity, low transparency,

and cost as reasons for avoiding alternatives

Portfolio

Vanguard’s straightforward approach applies a strategic asset allocation that is updated periodically and broadly mirrors its equivalent unlisted fund range. Dynamic and tactical asset allocation are not used. Vanguard sticks to the traditional asset classes of equities, fixed interest, and cash, while avoiding alternatives and unlisted assets. The four diversified options are designed to suit different investor objectives and risk profiles. Vanguard Conservative has a defensive/growth split of 70/30, Balanced is 50/50, Growth is 30/70, and High Growth is 10/90. In-house index funds are relied on. Vanguard’s SAA, inclusive of both listed and unlisted vehicles, is strikingly similar to the Morningstar Category benchmarks. It hedges 30% of the international equities to keep the non-Australian-dollar exposure roughly steady. Since inception to June 2021, Vanguard’s multisector ETFs have on average traded with a bid-ask spread of 8-25 basis points, though it has elevated during bouts of volatility like most listed structures.

Performance

The Vanguard Diversified Index ETFs were launched in November 2017. Given the consistency in approach to the long-running unlisted iterations, we believe its extended track record is more informative. Vanguard’s inexpensive cost has been a key pillar in leading this strategy to strong medium-term return. Returns have historically closely mirrored the Morningstar Category benchmarks over time, typifying the limited opportunity to exceed the hurdle given the structural likeness between the two. In comparison to unlisted peers, all ETFs sit in the top quartile over a trailing three-year time period as at June 2021. Calendar-year results between 2018 and 2020 have been consistently in the first and second quartiles, surpassing the average manager in each year. Maintaining interest-rate duration has aided peer-relative performance, particularly in the more-defensive options. This structural stance also helped amid the crisis market environment in the first quarter of 2020. Albeit, the more-defensive ETFs lagged the category average over the last year to June 2021 because of its higher allocation to defensive assets relative to peers. Record-low interest rates globally suppressed returns from fixed-income securities over this period but favoured growth

assets, resulting in the more-growth oriented portfolios keeping pace with peers.

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.

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Shares Small Cap

Super Retail’s attractive loyalty program with 8 million member

Shot of elegant smart businesswoman explaining a project to his colleagues with statistics on the computer on coworking place.

Investment Thesis

  • Trading below our valuation and on attractive trading multiples and dividend yield. 
  • Strong tailwinds/fundamentals in SUL’s four core segment. For instance, sales for vehicle aftermarket continue to remain strong (with increase in secondhand vehicle sales (Supercheap); travelers seeking social distancing and hencemoving away from public transport (Supercheap); with Covid lockdown measures in forced, more people are spending their holidays domestically (BCF; macpac), utilising their vehicles (Supercheap); growing awareness of fit and healthy lifestyles (rebel). 
  • Solid capital position. 
  • Strong brands in BCF, macppac, rebel and Supercheap with solid industry positions in largely oligopolies and solid store network. 
  • Transitioning to an omni-channel business. Whilst previously the business has been modeled on like-to-like store numbers, management now thinks of business metrics based on club members and has been able to grow the active club membership much faster than store numbers (store numbers in last 5 years have grown +2% CAGR vs active club members at +10% CAGR), providing it with an opportunity to expand customer base and therefore revenue base without significant capex for investment in stores (most of the customers are omni channel). 
  • Management continues to push towards expanding its online sales (Covid-19 added to this tailwind), with online sales penetration of ~13-15% of total sales currently and expected to reach 20-25% over the next 5 years. 
  • Attractive loyalty members program, with over 8 million members.

Key Risks

  • Rising competitive pressures.des 
  • Any issues with supply chain,especially as a result of the impact of Covid-19 on logistics which affects earnings. 
  • Rising cost pressures eroding margins (e.g. more brand or marketing investment required due to competitive pressures). 
  • Disappointing earnings update or failing to achieve growth rates expected by the market could see the stock price significantly re-rate lower.

FY21 Results Highlights

  • Total Group sales of $3.45bn, up +22% (Group like-for-like sales growth of +23%).Online sales of $415.6m, up +43% and nowaccounts for ~12% of total sales. On the impact of Covid -19 lockdowns, management noted its “omni-retail capability enabled it to pivot to online channels to meet consumer demand through both Click & Collect and home delivery”.
  • Segment EBIT of $476.8m was up +80%. 
  • Segment normalised PBT of $435.8m, up +108%.
  • Normalised NPAT up +107% to $306.8m. Basic EPS up +139% to 133.4cps.
  • The Board declared a fully franked final dividend of 55.0cps, bringing the full year dividend to 88.0cps, significantly higher than 19.5cps in FY20. Dividend equates to 65%, which is in line with SUL’s 65% payout ratio policy.
  • Management guided capex in FY22 of $125m to fund expanded store development and investment in omni and digital capability.

Company Profile 

Super Retail Group (SUL) is one of Australasia’s Top 10 retailers. SUL comprises four core segments. (1) BCF: Australia’s largest outdoor retailer focused on selling Boating, Camping and Fishing products. (2) macpac: retailer of apparel and equipment with their own designs focused on outdoor adventurers. (3) rebel: retailer of branded sporting and leisure goods and equipment for casual and serious fitness enthusiast. (4) Supercheap Auto: specialty retail business which specialises in automotive parts and accessories. 

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.

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Global stocks Shares

OOh!media is strongly-positioned but shares are overvalued relative to our intrinsic assessment

In the nine years to 2019, advertising dollars flowing to the Australian outdoor medium increased at a CAGR of 9%.

Our view is based on three structurally related tailwinds:

 First, unlike other traditional media, the outdoor audience is increasing. 

Second, a key Achilles heel for the outdoor advertising industry was the lack of reliable audience measurement. However, with the 2010 launch of measurement of Outdoor Visibility and Exposure, or MOVE, the medium now has greater legitimacy and offers a more robust way for marketers to assess the return on money allocated to outdoor advertising. 

Third, in contrast to its debilitating impact on other traditional media, digital technology is a growth facilitator for the outdoor industry. We estimate converting a static site to a digital site can lift advertising revenue three- to four-fold, potentially doubling the margin and vastly lifting the return on capital. 

We view these drivers as long-dated, and will continue to be exploited by oOh!media. Management is investing in further technological, data, and analytics capability. While adding to near-term costs, these investments are designed to more effectively convince marketers of the benefits of outdoor advertising, in terms of greater sophistication in audience targeting, resulting in longer-term sustainability.

Our fair value estimate for oOh!media is AUD 1.40 per share, which implies fiscal 2021 enterprise/EBITDA of 11.9 times but Shares in oOh!media are trading 30% above our AUD 1.40 fair value estimate. We are not ignorant of the stock’s appeal to investors lusting after high-beta, COVID-19 recovery trades ahead of imminent reopening of the New South Wales and Victorian economies.

Bulls Say 

  • Outdoor advertising is a growth medium benefiting from structural tailwinds such as increasing audience, more reliable measurement, and conversion of inventory to digital.
  • Australian outdoor’s 5% share of the total advertising pie still lags Canada (8%), the U.K. (7%), and the global average of 6%-plus. 
  • OOOh!media may have failed in its attempt to merge with APN Outdoor in 2017, but it completed the acquisition of Adshel in September 2018 and there is an opportunity to extract sizable synergies from the combination.

Financial Strength

 At the end of June 2021, net debt/EBITDA was 1.1 times, pre AASB 16. We forecast this to fall to 0.7 by the end of 2021, within the renegotiated 3.25-3.50 covenant limit for 2021. The current dividend payout policy is reasonably conservative at between 40% and 60% of net profits after tax but before amortisation acquired intangibles, allowing further investment in inventory digitisation. However, due to the uncertain impact of the coronavirus outbreak, there were no dividends in 2020 and we forecast resumption of just AUD 0.04 in 2022.

Company Profile

OOh!media operates a network of outdoor advertising sites with a sizable share of the Australian market of around 30%, and has a presence in New Zealand. It boasts a diverse portfolio of locations to service the needs of outdoor advertisers, and is particularly strong in the roadside billboard and retail (such as shopping malls) segments. OOh!media offers these services by entering into lease arrangements with owners of outdoor sites–effectively an intermediary allowing site owners to monetise their visible space in high-traffic areas. In late September 2018, the group completed the acquisition of Adshel from HT&E for AUD 570 million, a deal that cements its competitive position in the face of industry consolidation.

 (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.

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Australian Brokers Call – 29 September 2021

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