Investment Thesis:
- Scrap volumes have been improved
- Scrap prices across key regions have been improved
- Significant earnings could be obtained from cloud recycling over the long run
- Investment in improving scrap quality should improve SGM’s competitive position
- Undemanding valuation relative to its own historical average and ASX200 Industrials Index
- Earnings could be supported by self-help initiatives
- Return on Capital (ROC) of >10% in comparison to 8.6% in FY19 is targeted by the management
- On-market share buyback of $150m
Key Risks:
- Global economy facing substantial downside
- Escalation of trade war between China and the U.S.
- Key areas experiencing weaker scrap prices
- Decrease in volumes
- Changes in regulatory affairs – especially China’s anti-pollution policies.
- Group margins impacted by cost pressures
Key Highlights:
- Strong FY21 results by Sims Ltd., which were ahead of market estimates
- Revenue of $5,916.3m, which is up +20.5%
- Underlying EBIT of $386.6m, which was a significant turnaround from -$57.9m in FY20, affected by volume growth, margin expansion year on year, and material improvement in market prices
- Achievement of fixed cost savings of $75m
- Final dividend declaration of 30.0cps, 50% franked, which brings FY21 total dividends to 42.0cps reflects a significant improvement from 6.0cps in FY20 but at a lower payout ratio
- SGM entered a JV with 50% ownership interest (at a $4.8m cost) with acquisition of assets from JED renewable landfill gas to energy facility near Orlando, Florida.
- The ongoing or announced stimulus spending, particularly in the USA and China, would increase demand for steel-intensive infrastructure spending and drive additional retail consumption. Additional retail consumption will thereby increase post-consumption scrap. These drivers are positive for both ferrous and non-ferrous metal recycling.
- Company will conduct a $150m on-market share buyback
Company Profile:
Sims Ltd (SGM) collects, sorts and processes scrap metal materials which are recycled for resale. SGM’s segments include ferrous recycling, non-ferrous recycling, secondary processing of non-ferrous metals and plastics, international trading of metal commodities and the merchandising of steel semi-fabricated products.
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
- WPR currently trade in line with its NTA and our valuations.
- Solid distribution yield
- A quality $2.94 billion asset portfolio (427 properties, 74% metro, 26% regional) with a Weighted Average Lease Expiry (WALE) of 10.5 years and two lease expiries before 2026 (0.6 percent of income) and annual increases of 3.0 percent bodes well for valuation uplift.
- Due to high barrier to entry it becomes difficult to replicate assets portfolio.
- Solid capital management with gearing that allows for future acquisitions.
- Potential property network expansion through earnings accretive acquisitions.
- Waypoint REIT leases to Viva Energy, which has an Alliance Agreement/Site Agreement with Coles Express and a Shell brand Licence Agreement.
- Majority of assets on triple net leases, where tenant is responsible for all property outgoings.
Key Risks
- Tenant concentration risk.
- The alliance agreement with Coles Express has been terminated.
- Other branded service stations compete.
- The rising cost of fuel is putting a strain on tenants.
- The portfolio’s rental income has been reduced due to the sale of properties.
- Excess supply of service stations has the potential to affect portfolio valuations and other property metrics.
1H21 Results Highlights
- Statutory net profit of $251.9 million, up +83.9 percent.
- Distributable earnings of $61.3m up 6.1 percent. The Translate to distributable earnings per security 7.81 percent, up +5.4%.
- Net tangible assets security as of June 2021 was $2.75, up $10.4% since December 2020.
- WPR saw a $189.8 million increase in gross revaluation in 1H21, with the portfolio weighted average capitalisation rate falling 19 basis points to 5.37 percent. WPR has sold 37 non-core assets for a total of $132.0 million, representing a +10.8 percent premium over WPR’s current carrying value.
- WPR’s gearing at 1H21 end was +27.3% (or pro forma gearing of 28.7%) and remains at the bottom end of WPR’s 30-40% target range.
Company Profile
Waypoint REIT Ltd (WPR) is an Australian listed REIT that owns a portfolio of service stations across all of Australia’s states and territories. It currently owns 469 service stations in its portfolio. Its service stations are leased on a long term basis to Viva Energy Australia who has licence and brand agreements with Shell and Coles Express. Average value by property is ~ A$2.94bn.
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
- Management provides strong FY22 guidance.
- Sole will result in significant increases in production and free cash flow.
- Sole’s volumes are mostly contracted out, providing greater certainty at a lower risk of price fluctuations. Sixty-one percent of COE’s 2P reserves (Proved and probable reserves) are undertake-or-pay contracts, with uncontracted gas primarily beginning in 2024.
- Upside from CEO’s exploration activity Gippsland and Otway Basin.
- Over 25 years Industry/Developing LNG Project with companies such as BG Group, Woodside petroleum and Santos Ltd which leads by CEO/MD David Maxwell with strong management team.
- Favorable industry on the east coast gas market – with tight supply could lead to higher gas prices.
- Recent De- Rating Considered as a Potential Merger & Acquisition activity.
Key Risks
- Execution Risk – Drilling and exploration risk.
- Commodity Price Risk – movement in oil & gas price will impact uncontracted volumes.
- Regulatory Risk – such as changes in tax regimes will adversely impact profitability.
- M&A Risk – value destructive acquisitions in order to add growth assets.
- Financial Risk – potentially deeply discounted equity raising to fund operating & exploration activities should debt market tighten up due external macro factors.
FY21 Results Highlights
- COE achieved record sales and revenue sales volume up +69 percent to 3.01 MMboe and revenue up to +69 percent to $132 million.
- COE achieved record production of 2.63 MMboe up to +69 percent.
- COE’s sole gas sales agreement was a significant milestone driving, 2H21 revenue and earnings.
- Sound balanced sheet maintained with debt adjustments finalized.
Company Profile
Cooper Energy Ltd (COE) is an oil & gas exploration company focusing on its activities in the Cooper Basin of South Australia. The Company’s exploration portfolio includes six tenements located throughout the Basin. Gas accounts for the major share of the Company’s sale revenue, production and reserves. COE’s portfolio includes: (1) gas production of approximately 7PJ p.a. from the Otway Basin, most of which comes from the Casino Henry gas project which it operates. (2) COE is developing the Sole gas field to supply 24 PJ of gas p.a. from 2019. (3) Oil production of approximately of 0.3 million barrels p.a. from low cost operations in the Cooper Basin.
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
- Any stabilisation in the generic category (competition or pricing) will be considered as a positive.
- New product releases and a solid development pipeline are on the horizon.
- While generic brands are currently experiencing a difficult business environment, the long-term picture remains favourable, as consumers and regulators alike rely on a vibrant generics market to keep drug prices low.
- Positioning the product portfolio to include higher-margin items.
- Potential industry consolidation on lower growth outlook.
- Leveraged to a falling AUD/USD.
Key Risk
- There is a lot of competition from new products.
- A decrease in demand.
- New product releases do not meet market expectations for growth.
- Changes in the law.
- Litigation.
- Currency fluctuation that is unfavourable.
Key financial highlights of 21
- During the underlying period the firm reported revenues of $400.8m, declined by12% over the previous year, impacted by the Covid-19 pandemic and on-going challenges in the U.S. retail generic sector.
- The firm mainly has four divisions namely – Generic Products Division (GPD), Specialty Products Division (SPD), Metrics Contract Services (MCS) and Mayne Pharma International (MPI).
- During the year Generic Products Division (GPD) operating revenue was US$152.8m declined by 10% over pcp, Specialty Products Division (SPD) revenue increased by 1% over pcp to US$53.3m, Metrics Contract Services (MCS) revenues increased by 10% over pcp to US$61.3m and Mayne Pharma International (MPI) revenue were $42.8m up by 1% over pcp.
- All segments other than the Generic Products segment contributed to growth, with reported EBITDA of $66.1 million down by 18 % over pcp ( by 5 % in CC) and underlying EBITDA of $86.5 million (excluding NEXTSTELLIS set-up expenses) down by 10 % in cc.
- The non-cash intangible asset impairments of the generic portfolio in 1H21 resulted in a net loss after tax of $208.4 million (vs $92.8 million in pcp).
- The Company achieved positive net operating cash flow of $58.9m (down by 48% over pcp) and free cash flow of $9.6m (down by 83% over pcp). Excluding the movement in working capital and tax, net operating cash flow was $61.7m, down by 5% over pcp.
- The Board scrapped the final dividend.
- Possess strong financial position with net debt fell by 4.4 % to $248.8 million, and the company is in compliance with all bank covenants, with a leverage ratio of 2.6x (covenant 3.75x) and an interest cover of 7.9x.
Significant opex reduction: Through supply chain optimization, reconfiguration of the dermatology sales force, and discontinuance of non-viable generic medicines, management continued to streamline operations and decrease spend, delivering an opex savings of 13 percent /$18 million over pcp in CC.
Management entered into four new supply agreements with leading pharma companies to launch up to 11 dermatology products across FY22 targeting addressable markets of $500m.
NEXTSTELLIS successfully launched: The Company launched NEXTSTELLIS in June 2021 in the US and Australia and reached more than 60% of priority prescriber targets within 6 weeks of launch. Furthermore, over 37,000 NEXTSTELLIS samples have been provided to physician offices. Around 5,000 women are currently undergoing NEXTSTELLIS trials. The management is seeking a 2% market share (by volume) of the CHC market with peak net sales potential of more than US$200 million per year.The CHC market is valued at US$3.5 billion, with more than 60 million prescriptions written each year.
Company Profile
Mayne Pharma Group (MYX) is a specialist pharmaceutical firm focusing on commercialising branded and generic medications using its drug delivery capabilities. Mayne Pharma works with over 100 clients throughout the world to provide contract development and manufacturing services. Mayne Pharma has a diverse portfolio of branded and generic medications in areas such as women’s health, oncology, dermatology, and cardiology.
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.
