Investment Thesis:
- Leading market position in online car classifieds.
- Overseas expansion provides new growth opportunities from the challenging core Australian market. Heavily reliant on two growth stories (South Korea and Brazil).
- Diversified geographic coverage.
- Bolt-on acquisitions provide opportunities to supplement organic growth.
- The Company can sustain high single-digit and low double-digit revenue growth.
- CAR’s move into adjacent products and industries.
- Increasing pricing in South Korea to boost margins. Looking to take more of the car buying experience online with dealers (i.e. increasing its total addressable market).
Key Risks:
- Rich and demanding valuation.
- Competitive pressures, that is car dealer driven substitute platform or the No. 2 & 3 player gain ground on CAR.
- Motor vehicle sales remain subdued.
- Value destructive acquisition / execution risk with international strategy.
- Not immune from broader downturn in economy (consumer likely to delay a significant purchase in time of uncertainty).
Key Highlights: Relative to the pcp:
- Look-through revenue of $282m, up +30% and Look-through EBITDA was up +15% to $149m, driven by strong domestic results in the Private and Media segments, growth in Encar in South Korea and good cost discipline.
- Adjusted NPAT of $89m up 20% and adjusted EPS of 31.4c.
- CAR reported strong cash flow with Reported EBITDA to operating cash flow conversion of 100%.
- The Board declared a fully franked interim dividend of 25.5cps, consistent with longstanding dividend payout policy of 80%.
- Performance highlights by segments. Relative to the pcp:
- carsales Australia. Achieved adjusted Revenue growth of 16% on pcp and Adjusted EBITDA growth of 9% on pcp, excluding wage subsidies. Management noted traffic on carsales.com.au was up a strong +23% and remains elevated versus pre-pandemic levels.
- Dealer. +1% adjusted Revenue growth, despite impacts from lockdowns in NSW and VIC in 1Q22.
- Private. Revenue growth of 38%, driven by higher private ad volume.
- Media. Revenue grew +11% as advertising conditions improved.
- Data, Research & Services. Adjusted Revenue grew +1%, despite the impact of Covid lock downs and continued inventory challenges for dealers.
- Carsales International. Look-through revenue and EBITDA growth of +76% and +72%, respectively, driven inclusion of Trader Interactive since September.
- South Korea. Revenue and EBITDA up +19% and +7%, respectively, driven by strong product penetration growth across Guarantee, Dealer Direct and Encar Home. EBITDA margin was affected as CAR invested $4.7m in Dealer Direct marketing to drive future growth.
- U.S. Revenue and EBITDA growth of +12% and +19% respectively was driven by solid performance across all four key verticals. Management is anticipating further upside as inventory levels continue to improve, particularly in trucks and powersports.
- Brazil. Revenue and EBITDA growth of 20% and 19% respectively, was driven by continued dealer subscription growth, improving inventory levels and increasing dealer yield.
Company Description:
Carsales.com Ltd (CAR), founded in 1997, operates the largest online automotive, motorcycle and marine classifieds business in Australia. Carsales is regarded as one of Australia’s original disruptors and has expanded to include a large number of market leading brands. The Company employs over 800 and develops world leading technology and advertising solutions in Melbourne. CAR has also expanded to numerous global markets, such as South Korea, Brazil, and other countries in Latin America.
(Source: Banyantree)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.
The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Business Strategy & Outlook
In January 2016, ACE acquired Chubb in a deal valued at about $28 billion and assumed its name. The deal looked fairly valued and there were meaningful cost benefits involved, with management eventually exceeding its initial targets. However, from a long-term perspective, the fact that the combination created a moaty international insurer with exposure across most insurance lines for the first time, marking Chubb as potentially the most attractive long-term core holding in the space from a fundamental point of view. In 2020, the coronavirus affected the industry’s and Chubb’s results, and the company’s COVID-19 losses were roughly in line with peers’ as a percentage of premiums. However, the impact at Chubb and peers was manageable and well within the range of events that the industry has successfully absorbed in the past. The future looks relatively bright.
Pricing momentum picked up in primary lines in 2019, and this positive trend only accelerated in 2020. More recently, pricing has started to level off, but the industry has enjoyed the highest increases it has seen since 2003. While higher pricing is necessary to some extent to offset a rise in social inflation and other claims trends, pricing increases appear to be more than sufficient to offset these factors. As a result, Chubb and peers are experiencing a positive trend in underlying underwriting profitability, and the potential for a truly hard pricing market, similar to the period that followed 9/11. In this scenario, narrow-moat and highly disciplined operators such as Chubb are positioned to earn very attractive returns. However, the industry remains well capitalized, which could put something of a lid on the magnitude and duration of any excess returns.
Financial Strengths
Equity/assets was 30% at the end of 2021, and while the company has a large amount of goodwill on its balance sheet, its balance sheet structure is reasonable and roughly in line with peers on a tangible basis. Like all property and casualty insurers, the company’s earnings and capital in any particular year could take a material hit due to catastrophes or securities market movements that affect its investment portfolio. However, the company’s insurance operations are well diversified, and it has a history of superior underwriting profits, a large catastrophe year to significantly degrade its capital position is not expected. The firm also retains a fairly conservative investment portfolio, which is concentrated in government debt, municipal bonds, and highly rated corporate securities.
Bulls Say
- Chubb is one of the few companies with the global footprint that large corporate insurance customers demand. Its network has created a barrier to entry for potential competitors.
- Chubb is a large insurer with leading positions in the most moaty areas of the P&C insurance industry.
- Chubb’s international operations benefit from significant growth opportunities.
Company Description
ACE acquired Chubb in the first quarter of 2016 and assumed the Chubb name. The combination makes the new Chubb one of the largest domestic property and casualty insurers, with operations in 54 countries spanning commercial and personal P&C insurance, reinsurance, and life insurance.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Investment Thesis:
- Near-term outlook remains uncertain in Australia with higher costs and supply chain constraints.
- BLD is a much cleaner business operations following several divestments, which increased focus.
- Boral is expected to benefit from proposed infrastructure projects.
- Better realization of price increases, whilst volumes remain solid.
- Focused on the Australian market.
- Proceeds from divestments could be returned to shareholders.
- Large cornerstone shareholder – Seven Group Holdings (owns approx. 70%) – may provide shareholder turnover stability.
Key Risks:
- Concentrated earnings, focused on just the Australian Construction market.
- Indirect and direct effect of coronavirus on operations.
- Potential delays to infrastructure assets leading to a volume gap in the market.
- Cost pressures continue to exceed price increases.
- Unfavourable weather impacts.
- BLD is now majority owned by Seven Group Holdings (approximately 70% of outstanding shares) which means minority shareholders’ interest may not always be a priority when making key strategic decisions around capital structure, shareholder returns and strategic initiatives.
Key Highlights: Relative to the pcp:
- Revenue of $1.5bn was up +1% (or up +3% on a comparable basis), driven by activity in detached house, A&A (alterations & additions) and R&B (roads, highways, subdivisions & bridges) and despite there being disruptions from lockdowns. The Company did see solid volumes in concrete (up +1%) and quarries (up +4%). Further, management noted that concrete like-for-like prices were steady and up +2% in quarries.
- Operating earnings (EBIT) of $78m were down -23% (with EBIT margin declining to 5.8% from 6.8%), which was largely driven by the impact from Covid-19 related construction shutdowns (which adversely impacted earnings by $33m) and expenses (energy + other costs). Partially providing some buffer to EBIT was higher volume (up $22m) and $22m from the cost out program (Transformation program), which includes the $24m of cost inflation.
- Operating cash flow from operations of $86m was down -22%, reflecting
- lower EBITDA performance due to construction shutdowns.
- Capital return of $2.72 per share. Given the completion of disposal of BLD’s North American
- Building Products and Fly Ash, and Australian Building Products businesses (Timber and Roofing & Masonry) for more than $4bn, the Company will return $3bn surplus capital to
- shareholders via a $2.65 capital reduction and 7cps unfranked dividend.
- Capital structure. Following the divestments of its non-core assets and expected capital return to shareholders, BLD on a pro forma basis is expected to have net debt of less than $400m. Management is targeting net debt of $900m to $1.1bn (including leases) and leverage (net debt / EBITDA) of 2 – 2.5x.
- FY22 outlook comments. Management did not provide overly specific guidance but noted the following: 2H22 revenue is expected to be above 1H22, driven by out-of-cycle national price increases effective Jan/Feb 2022. However, this is expected to offset the impact of higher energy costs, which will remain a headwind in 2H22.
- No construction shutdowns in 2H22 ($33m impact in 1H22) are expected to be offset by typical 2H seasonality due to 6 fewer trading days.
Company Description:
Boral Ltd (BLD) is the largest integrated construction materials company in Australia, producing and selling a broad range of construction materials including quarry products cement, concrete, asphalt and recycled materials. The Company has a portfolio of assets consisting of upstream and downstream assets. BLD employs approximately 10,300 employees and contractors and has 367 construction materials sites across Australia.
(Source: Banyantree)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.
The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Business Strategy & Outlook
Compass Minerals holds an enviable portfolio of cost-advantaged assets. Its Goderich rock salt mine in Ontario benefits from unique geology, and with access to a deep-water port, it can deliver deicing salt to customers at a lower cost than competitors. Additionally, the company controls one of only three naturally occurring brine sources that produces the specialty fertilizer sulfate of potash, or SOP. These operations at the Great Salt Lake in Utah can produce SOP at a lower cost than marginal cost producers who convert standard potash. The majority of Compass’ salt sales are to highway deicing customers. Sales volumes are determined during the winter months and are strongly linked to the number of snow days per season. As such, weather has a big impact on Compass’ year-to-year results. The deicing salt business also exposes Compass to climate change risk. One effect of climate change is increased snowfall volatility from year to year, which affects Compass’ annual results. However, winter weather has shown mean reversion tendencies over longer periods of time.
Pricing for deicing salt is also linked to winter weather. However, prices have historically been relatively stable compared with other commodities. Deicing salt has a low value/weight ratio, creating regional markets, and transportation costs make up a significant portion of total costs to the customer. With mines close to waterways like the Great Lakes and the Mississippi River, Compass has a transportation cost advantage over its competitors. Compass also produces SOP, which is used for high-value crops that are sensitive to the chloride in standard potash (muriate of potash). While marginal producers use MOP and sulfuric acid to produce SOP, Compass makes most of its SOP directly from salt brines at a lower cost. Compass also plans to produce magnesium chloride, used for fire retardants to combat wildfires, and lithium as byproducts from the brine after extracting SOP. Compass will enter the fire-retardant market in the Western U.S. through its 45% equity investment in Fortress. Lithium demand will grow over 6 times during this decade due to higher electric vehicle adoption.
Financial Strengths
As of Sept. 30, Compass Minerals had roughly $900 million in net debt. A net debt/adjusted EBITDA ratio of 4.4, well above management’s long-term target of 2.5 times. The company’s leverage has been elevated since adding about $600 million in debt in 2016 to help fund the Produquimica acquisition that has since been divested. Leverage ratios have remained high even after Compass completed the divestiture of two noncore assets in order to pay down debt due to cost inflation weighing on salt profits. the company’s leverage ratio will decline in fiscal 2023 as salt prices increase and costs inflation stabilizes, restoring EBITDA and increasing free cash flow. This should allow the company pay down debt over the next couple of years. Additionally, management cut its annual dividend to $0.60 per share from $2.88, which should save the company an estimated $80 million a year. Much of the future savings will go toward paying down debt over the next several years. Finally, Compass raised $252 million in equity from Koch Industries. Of the proceeds, $200 million will be used to fund the majority of the initial phase of the company’s lithium project, while the remainder will be used to pay down debt. As Compass generates higher EBITDA and cash flows and pays down debt, Compass’ net leverage ratio will fall closer to management’s long-term target of 2.5 times over the next several years. While headline credit metrics will fluctuate in the coming years according to variations in winter weather and fertilizer prices, leverage is to remain, on average, at manageable but elevated levels.
Bulls Say
- Compass holds a portfolio of cost-advantaged assets, including the Ontario rock salt mine and brine operations at the Great Salt Lake in Utah.
- Highway deicing salt prices are relatively stable, and Compass’ average selling prices in this area have increased over time.
- Compass’ plans to enter the lithium and fire-retardant markets will create long-term value as strong demand growth in these industries should lead to incremental profit growth.
Company Description
Compass Minerals currently produces two primary products: salt and specialty potash fertilizer. The company’s main assets include rock salt mines in Ontario, Louisiana, and the United Kingdom and a salt brine operation at the Great Salt Lake in Utah. Compass’ salt products are used for deicing and also by industrial and consumer end markets. The firm also sells sulfate of potash, which is used by growers of high-value crops that are sensitive to standard potash. Compass is expanding its portfolio and plans to enter the fire-retardant market, with its magnesium chloride-based product used to combat forest fires. The company also plans to enter the lithium market. Compass will produce magnesium chloride and lithium as byproducts from its sulfate of potash operation in Utah.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
