Investment Thesis:
- Brambles serve as a market leader in its own segment, thereby making high barriers to entry for new participants.
- Conversion of white-wood users as well as the palletisation of emerging markets would offer a huge opportunity.
- The share price of Brambles would be supported by on-going on-market share buyback.
- Management of cost margins amidst cost pressures through strategic business efficiencies
- Strong management team
- Increase in volume in the US Pallet business and improving outlook for margin.
- Prominent position of Brambles is ensured by its scale, existing customer base and balance sheet
Key Risks:
- Margin erosion due to competitive pressures and inflation in prices, particularly in the North American market.
- The operations of the company are intensively driven by capital.
- Loss of large contracts may significantly reduce revenue and earnings.
- Lesser use of pallets may result from low consumption of FMCG products which may arise from weak economic conditions.
- Whitewood prices remain volatile.
- Large amount of currency and political risk exposure to the company.
- Widespread lockdowns to be repeated in key regions.
Key Highlights:
- Level of support for the share price is offered by an attractive valuation of BXB and the current on-market shares buyback (currently ~74% of A$2.4bn complete).
- Revenue of $5,209.8m was up 7% which was driven by 4% price growth and 3% volume.
- The revenue by segment are; CHEP Asia Pacific contributed 10% to the total revenue, CHEP Americas contributed 50% and that contributed by CHEP EMEA is 40%.
- Profit of $879.3m was up +8% driven by pricing, surcharge income, cost efficiencies and return on supply chain investments, partially offset by input-cost inflation, and other increases in costs driven by changes in network dynamics and demand patterns which are affected by both Covid-19 and Brexit.
- Profit split by segment are as follows; CHEP Asia-Pacific contributes 15% to the total profit, CHEP Americas contributes 39% whereas HEP EMEA contributes 46%.
- Profit after tax from continuing operations of $535.0m, up 5% driven by operating profit growth partially offset by 15% uplift in tax costs
- Final dividend of US10.5cps has been declared, which brings total dividends to US20.5cps, equating to payout ratio of 54%, in line with pcp and consistent with BXB’s dividend policy (of between 45% to 60%).
- Continued strong investment-grade credit ratings by agencies (Standard & Poor’s BBB+ and Moody’s Baa1).
- BXB’s financial ratios remain well within <2.0x financial policy and Net Debt / EBITDA is ~1.6x.
Company Profile:
Brambles Limited (ASX: BXB) is a supply-chain logistics company operating in more than 60 countries, primarily through the CHEP brands. Its headquarters are located in Sydney. Their largest operations are in North America and Western Europe. The company’s main segments are: pallets, reusable produce crate (RPCs) and containers. It provides services to customers in the fast-moving consumer goods industries space and also operates specialist container logistics businesses serving the automotive, aerospace, and oil and gas sectors. It employs more than 14,500 people and owns more than 550 million pallets, crates and containers through a network of more than 850 service centres.
(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.
Business Strategy and Outlook
Fortescue Metals is the world’s fourth-largest iron ore exporter. Margins are well below industry leaders BHP and Rio Tinto, and some way behind Vale, meaning Fortescue sits in the highest half of the cost curve. This is a primary driver of our no-moat rating. Lower margins primarily result from discounts from mining a lower-grade (57%- to 58%-grade) product compared with the benchmark, which is for 62%-grade iron ore. The lower grade is effectively a cost for customers, which results in a lower realised price versus the benchmark. In the five years ended June 2020, the company realised an approximate 26% discount, compared with the benchmark average for 62% iron ore fines.
Fortescue has done an admirable job of reducing cash costs materially versus peers. However, product discounts remain a competitive disadvantage. To this end, the company will add about 22 million tonnes a year of iron ore production from the 61%-owned Iron Bridge joint venture. Iron Bridge grades are much higher, around 67%, which should allow Fortescue to meet its goal to have most of its iron ore above 60%, assuming the company chooses to blend it with the existing products.
Financial Strength
Our fair value estimate for no-moat rated Fortescue Metals to AUD 13 per share from AUD 15.10 per share previously. The shares have gone ex-entitlement to the final dividend, an unusually large AUD 2.11 per share or 14% of our previous fair value estimate. The latest financial results were astoundingly strong for the iron ore miners, Fortescue included. Rio Tinto generated an annualised return on invested capital from its iron ore operations of more than 100% in the first half of 2021.
Despite being a relatively high cost producer, once product discounts are considered, Fortescue’s annualised return on invested capital for that same half was nearly 70%. This is part of the reason the iron ore price has fallen in recent times, but the price at nearly USD 150 per tonne is still well above the price required for the iron ore majors to make a reasonable return.
Fortescue Metals Group’s balance sheet is strong, thanks to the elevated iron ore price and accelerated debt repayments. Net debt peaked near USD 10 billion in mid-2013, roughly coinciding with the start of expanded production. By the end of 2020, net debt had declined to USD 0.1 billion. The operating leverage in Fortescue, and the cyclical capital requirements, there is a reasonable argument that Fortescue should run with minimal or no debt on average through the cycle.
Bulls Say’s
- Fortescue provides strong leverage to the Chinese economy. If growth in steel consumption remains strong, it’s also likely iron ore prices and volumes will too.
- Fortescue is the largest pure-play iron ore counter in the world and offers strong leverage to emerging world growth.
- Fortescue has rapidly cut costs and significantly narrowed the cost disadvantage relative to industry leaders BHP, Vale, and Rio Tinto. If steel industry margins fall in future, it’s likely product discounts will narrow significantly relative to historical averages.
Company Profile
Fortescue Metals Group is an Australia-based iron ore miner. It has grown from obscurity at the start of 2008 to become the world’s fourth-largest producer. Growth was fuelled by debt, now repaid. Expansion from 55 million tonnes in fiscal 2012 to about 180 million tonnes in 2020 means Fortescue supplies nearly 10% of global seaborne iron ore. However, with longer-term demand likely to decline, as China’s economy matures, we expect Fortescue’s future margins to be below historical averages.
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
- Positive thematic play on food supply for a growing global and domestic population.
- Berries, Mushrooms, Citrus, Tomato and Avocado are five major categories who leads market Positions via the recent acquisition.
- Near term challenges could persist a little while longer (e.g extreme weather and drought).
- Balance sheet risk has been removed with the recent capital raising.
- Continuation of execution of domestic berry growth program while china berry expansion is gaining momentum.
- Given the number of downgrades, management will likely need to rebuild trust with its guidance and execution.
Key Risks
- Weather conditions continue to deteriorate, putting pressure on earnings.
- Earnings could deteriorate further, putting the balance risk at risk once more.
- Weather-related crop damage or any significant increase in insurance costs. This risk is mitigated by CGC’s crop insurance (hail, wind, and fire) and structure insurance.
- Any power outage resulting in crop destruction per incident.
- Any significant increase in power costs, affecting earnings.
- Any operational disruption caused by health and safety issues.
- Any disruptions or problems with water, irrigation, or water recycling.
- Negotiations with supermarkets giants cole (wesfarmers), Woolworths and independent grocers results in erosion of margins.
- Increased costs due to lower water allocations.
- Pricing pressures arising from either competitors or insufficient demand.
1H21 Results Highlights
- Revenue of $612.4m was in line with the pcp (or up +1.7 percent in constant currency), driven by International sales, which were up +25 percent due to improved pricing and yield in both regions, offset by Produce revenue, which was down -6.9 percent due to negative impacts in Citrus (Colignan hailstorm damage) and lower Mushroom and Tomato production.
- EBITDA-S of $124.4 million increased by +4.3 percent. EBITDA-S increased by 9.7 percent in constant currency. Domestic berries outperformed the pcp, but this was offset by poor performance in Citrus, Tomato, and Mushroom, which was hampered by weather/production issues. Avocado performance fell short of expectations due to weak pricing following strong industry volumes.
- RNPAT-S of $44.4m increased by 3.0% (or 13% in constant currency). Interest costs fell by 13% due to lower base rates and average debt, but were offset by higher D&A (up 2%). CGC also recognised $2.5 million in direct Covid-19 costs.
- NPAT-S of $44.4m increased by 3.0% (or 13.0% in constant currency). Interest costs fell by 13% due to lower base rates and average debt, but were offset by higher D&A (up 2%). CGC also recognised $2.5 million in direct Covid-19 costs.
- Declared interim dividend of 4.0cps. Statutory NPAT of $37.5 million.
Company Profile
Costa Group Holdings Ltd (CGC) grows and markets fruit and vegetables and supplies them to supermarket chains and independent grocers globally. CGC has leading market positions in five core categories of Berries (Blueberries, strawberries and raspberries), Mushrooms, Citrus, Tomato and Avocado via the recent acquisition.
(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.
AUB brokers derive revenue from commissions paid by insurers, based on gross written premiums. AUB owns or has equity stakes in each broking business within the network.
A key value proposition over smaller brokers is AUB’s ability to negotiate more favourable policy wording and pricing. Scale also provides the capacity to spend more on technology, which helps facilitate greater analytical and processing capabilities, and marketing to help attract and retain customers. Other services such as claims support and premium funding support the value proposition. AUB’s underwriting agencies distribute insurance products but take no underwriting risk. Underwriting agencies act on behalf of insurers to design, develop, and provide specialised insurance products and services.
The earnings outlook is positive. Further insurance price rise is expected by the analysts over the medium term as insurers seek to cover claims inflation and weak investment income. This follows a weak pricing environment due to excess global reinsurance capacity, soft economic conditions, and elevated competition.
Financial Strength:
AUB is in sound financial health. It has strong cash flow generation with a high conversion of earnings to operating cash flow and a relatively high dividend payout ratio. Gearing ratio is reasonable, at 28.5% and below the firm’s maximum 45% ratio. AUB holds AUD 90 million in cash, which when included lowers gearing further. This is excluding customer cash for premium held by AUB but payable to insurers. EBITDA interest covers of over 16 times and the nature of its businesses being relatively low-risk. As per the analysts, AUB would be using operating cash flows to fund increased positions in existing broker partners, with provision to fund small acquisitions from cash on hand.
Bulls Say:
AUB’s scale and expertise in insurance products and services leave it well placed to benefit from higher insurance pricing.
BizCover and the Kelly+ Partners partnership see AUB placed to take market share in the smaller end of the SME market.
The firm’s acquisition strategy, both new investments and increased equity stakes, would boost EPS growth.
Company Profile:
AUB Group is the second-largest general insurance broker network in Australia and New Zealand. It has an ownership in 55 brokerage businesses, which collectively write over AUD 3 billion in premiums. It also owns equity stakes in 27 underwriting agencies. AUB derives revenue from commissions (from insurers, ultimately paid for by AUB’s customers) based on gross written premium, or GWP, from agencies it owns, and a share of profits from associates and joint ventures. GWP is split between personal (6%), small to medium enterprises (68%), and corporates (26%).
(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.
providing an ecosystem of products to address the operating challenges and regulatory requirements that these companies face. The company operates in two categories: Veeva Commercial Cloud, which entails vertically integrated customer relationship management (CRM) services and end-market data and analytics solutions; and Veeva Vault, a horizontally integrated content and data manager. Veeva’s CRM application supports real-time collaboration and regulatory oversight, and enables incremental add-on solutions. As a follow-on to the initial introduction of CRM, management introduced the Veeva Vault platform to broaden the portfolio that addresses the largely unmet needs of the life sciences industry outside of CRM.
Veeva’s effective technology and dominant position enables it to generate excess returns commensurate with a wide-moat company. The company’s strong retention, continued development of new applications, increasing penetration within existing customers, addition of new customers, and expansion into industries outside of life sciences should allow the company to extend its market leadership.
Veeva Beats Revenue and EPS Guidance; However, CRM Headwinds Could Dampen Short-Term Growth:
Veeva System reported strong quarterly results, with total revenue of $456 million and adjusted EPS of $0.94 slightly exceeding guidance ($450 million-$452 million and $0.85-0.86, respectively). Subscription services revenue grew 29% year over year, due to the addition of new CRM customers during the quarter, add-on module adoption, and strong Vault growth. The company reported the signing of its first top 20 pharma company to the Vault Safety platform and strong growth of other Vault modules during the quarter.
Despite the positive results and a nominal bump to fiscal 2022 revenue and EPS guidance, shares fell nearly 8% after trading hours, with investors likely overreacting to management’s commentary on macro trends impacting customer relationship management software (CRM) growth.
Financial Strength
Veeva enjoys a position of financial strength arising from its strong balance sheet (no debt) and leading position in a growing market. As of fiscal 2021 Veeva had over $1.6 billion in cash and short-term investments and no debt. It is assumed that the company will continue to use the cash it generates from operations to fund future growth opportunities.
During FY 2021, the firm reported revenue of USD Million 1,465 which is 32.7 % higher in relation to the previous year while its EBIT stood at USD Million 378.The free cash flow for the firm for the year 2021 was USD Million 342 while its diluted EPS was USD 2.94.
Bull Says
- Veeva’s best-of-breed vertical addressing unmet needs provides opportunities to further penetrate a highly fragmented market.
- The rapid adoption of the company’s new modules continues to entrench Veeva into mission-critical operations of customers, making it increasingly challenging for competitors to gain a foothold.
- Veeva’s institutional knowledge and co-development partnerships with customers enable the company to develop robust offerings addressing market needs.
Company Profile:
Veeva is a leading supplier of software solutions for the life sciences industry. The company’s best-of-breed offering addresses operating and regulatory requirements for customers ranging from small, emerging biotechnology companies to departments of global pharmaceutical manufacturers. The company leverages its domain expertise and cloud-based platform to improve the efficiency and compliance of the underserved life sciences industry, displacing large, highly customized and dated enterprise resource planning, or ERP, systems that have limited flexibility. As the vertical leader, Veeva innovates, increases wallet share among existing customers, and expands into other industries with similar regulations, protocols, and procedures, such as consumer goods, chemicals, and cosmetics.
( 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.
Investment Thesis
- Australia is still in the early stages of cloud adoption. The NBN’s implementation will drive demand from cloud providers for NXT’s asset follows more efficient and cheaper broadband.
- Extremely high-quality collection of sites.
- Tier 4 gold centers focus on the premium end where pricing is more stable.
- NXT has balance sheet capacity to handle more debt and self fund expansion through operating cash flow from the base building.
- Capital intensive nature of the sector provides a high barrier to entry.
- Government adoption of cloud and the subsequent need to outsource present an opportunity.
- Sticky customers are unlikely to churn which creates a strong customer ecosystem.
- The Company’s national footprint enables it to scale more effectively than competitors.
- Margin expansions demonstrate strong operating leverage.
- Additional capacity has been announced.
- Given the global demand for data, mergers and acquisitions are on the rise.
Key Risks
- There is no product diversification (NXT only operates data centres).
- NXT and competitors have significantly increased their supply of data centres.
- Delays in the construction or ramp-up of data centres have an impact on the earnings growth profile.
- Pressures from competitors (price discounting by NXT or competitors).
- Higher power densities in Australia as a result of increased average rack power utilization.
- Inadequate customer demand to generate a satisfactory return on investment.
- NXT’s ability to expand and pursue growth opportunities may be hampered if sufficient capital is not obtained on favourable terms.
- The risk of leasing (NXT does not own the land or building where its data centres are situated).
FY21 results highlights
- Data center service revenue was up +23% to $246.1million and at the bottom end of upgraded guidance of $246m to $251m.
- Underlying EBITDA increased by +29 percent to $134.5 million, exceeding the company’s revised guidance of $130 million to $133 million.
- Operating cash flow increased by 148% to $133.2 million.
- Capex was down -18% to $301 million, falling short of the $380-400 million range.
- NXT had $1.7 billion in liquidity (cash and undrawn debt facilities) at the end of the fiscal year, and its balance sheet strength is supported by $2.6 billion in total assets, indicating that it is well capitalised for growth.
- Contract utilisation increased by 8% to 75.5MW. (7) NXT’s customer base increased by 183 (or 13%) to 1,547.
- Interconnections grew 1,667 (or +13%) to 14,718, and now equates to ~7.7% of recurring revenue.
Company Profile
NEXTDC Limited (NXT) is a Data-Center-as-a-Service (DCaaS) provider offering a range of services to corporate, government and IT services companies. NXT has a total of five data centers located in major commerce hubs in Australia, with three more due to be completed within the next 2 years. These facilities are network-neutral, meaning they operate independently of telecommunication and IT service providers. Currently NXT has a total of 34.7 MW built for data and serving housing, with a target to reach 104.1MW by the end of 1H18.
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.