cola cans and advertisements praising the brand’s taste superiority over Coke. While, as of now PepsiCo is not only considered as beverage behemoth but its its business now extends beyond this industry, with Frito-Lay and Quaker products accounting for over half of sales and over 65% of profits. A diversified portfolio across snacks and beverages can be considered as competitive edge of PepsiCo.
After years of sluggish sales growth and underinvestment, Pepsi has committed to reinvigorating its top line. To that end, it has made significant investments in manufacturing capacity (for example, production lines to meet demand for reformulated packaging), system capacity (route optimization and sales technology), and productivity (harmonization and automation.
These investments can be considered as prudent as they will allow the company to strengthen its key trademarks such as Mountain Dew and Gatorade while deepening its presence in growth markets like sub-Saharan Africa, and also yielding enough cost savings to reinvest and widen profits. Pepsi’s growth trajectory is not without risk, as the company faces secular headwinds such as shifts in consumer behavior. Additionally, changing go-to-market dynamics, such as online commerce that encourages real-time price comparisons and obviates the extent of Pepsi’s retail distribution advantage, allow for more nimble and aggressive competition.
Financial Strength
Pepsi’s financial health can be considered as excellent. While leverage has ticked up due to recent acquisitions the company still has a strong balance sheet with manageable debt levels and robust free cash flow generation. Strong interest coverage ratios also lend credence to the firm’s health in this regard. For the year2020, PespiCo has reported revenue of USD Mil 70,372 while its estimated revenue for the year 2021 is USD Mil 76,632 which is up by 8.9% compared to the previous year. The firm in the year 20220 has reported EBIT of USD Mil 10,080 while its estimated EBIT in the year 2021 is USD Mil 11,746 which is 16.5% up compare to the previous year.The firm has reported free cash flow USD Mil 584 which is 83.8% down compared to the previous year. The major reason for the same is PepsiCo has ramped up strategic investments across the business and booked a slew of nonrecurring cash charge.
Bulls Say
- In still beverages- a category facing fewer secular challenges, particularly in the U.S.-Pepsi is a much more formidable competitor to Coca-Cola.
- Pepsi’s global dominance in salty snacks may be underappreciated; with volume share more than 10 times that of the next-largest competitor, the firm benefits from unparalleled unit economics and go-to market optionality.
- The firm’s consolidated beverage and snack distribution operations, combined with its direct store delivery capabilities, allow for better execution in merchandising.
Company Profile
PepsiCo is one of the largest food and beverage companies globally. It makes, markets, and sells a slew of brands across the beverage and snack categories, including Pepsi, Mountain Dew, Gatorade, Doritos, Lays, and Ruffles. The firm uses a largely integrated go-to-market model, though it does leverage third-party bottlers, contract manufacturers, and distributors in certain markets. In addition to company-owned trademarks, Pepsi manufactures and distributes other brands through partnerships and joint ventures with companies such as Starbucks. The firm segments its operations into five primary geographies, with North America (comprising Frito-Lay North America, Quaker Foods North America, and North America beverages) constituting over 60% of consolidated revenue
(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
- FMG’s price discount to the market benchmark Platts 62 percent CFR Index should continue to narrow as its sales mix shifts toward higher grade products.
- Global stimulus policies, both fiscal and monetary, are beneficial to global growth and FMG’s products.
- Capital management initiatives include increased dividends and potential share buybacks given the balance sheet’s strength.
- Exceptional cash flow generation.
- Management team for quality.
- Continues to be on the lower end of the cost curve in comparison to peers; with a continued focus on C1 cost reductions, earnings should be supported.
Key Risks
- Iron ore prices are falling.
- Cost overruns/production disruptions
- The cost-cutting strategy is ineffective.
- The company does not carry out adequate capital management initiatives.
- There is the possibility of regulatory changes.
- Vale SA supply returns to the market sooner than expected.
- Growth initiatives are being postponed.
Operational Performance Highlights
- Ore Mined of 226.9m tones, was up by 11 percent.
- FMG shipped a record 182.2m tones, up +2 percent and sold 181.1m tones up by 2 percent.
- The average revenue of US$135.32/dmt was increased by +72 percent.
- FMG saw C1 cost of US$13.93/wmt, increase by 8 percent but remains industry leading.
- Iron ore Shipment is 180 to 185m tone.
- C1 cost of US$15.00 to US$15.50/wmt.
- Capex (excluding FFI) of US$2.8 – US$3.2 billion (down from US$3,633 billion in FY21), including: US$1.1 billion in sustaining capital; US$200 million in hub development; US$250 – US$300 million in operational development; US$180 million in exploration and studies; and US$1.1 – US$1.4 billion in major projects (Iron Bridge and PEC).
Company Profile
Fortescue Metals Group Ltd (FMG) engages in the exploration, development, production, processing, and sale of iron ore in Australia, China, and internationally. It owns and operates the Chichester Hub that consists of the Cloudbreak and Christmas Creek mines located in the Chichester Ranges in the Pilbara, Western Australia; and the Solomon Hub comprising the Firetail and Kings Valley mines located in the Hamersley Ranges in the Pilbara, Western Australia. The Company was founded in 2003 and is based in East Perth, Australia.
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:
- Global re-open and vaccine roll-out acts as leverage for IDP Education.
- The company is expected to be benefitted from margin expansion (computer- based IELTS), network expansion (latest inclusion of IELTS test centres in Ireland, Poland, Chile and Peru and student placement offices in Pakistan and Canada).
- IDP’s English Language Testing stream (IELTS) has a strong reputation as the world’s most trusted English language test for study, work and migration.
- Solid margin and strong earnings/revenue growth/strong cashflow generation is maintained by IDP.
- Strong management team.
- Growth opportunities at global level due to international student population and education industry.
- Introduction and planned roll out of online IELTS delivery to provide opportunities for stronger growth.
- Strong balance sheet, with high liquidity.
- Substantial margin opportunity is unlocked by potential restructuring with British Council
Key Risks:
- Periodic growth cannot be predicted with IDP’s business model
- Future economic lock-downs to Covid-19
- Risk of currency conversion
- In order to justify the valuations, high growth rate should be met
- Threat of a new entrant or competition from the existing players
Key Highlights:
- FY21 Earnings were impacted by the pandemic, with adjusted EBIT of $71.8m, which was down by 31% over the pcp (previous corresponding period).
- IELTS volumes were up 5% despite ongoing disruptions at the operational level due to the on-going pandemic and government-imposed restrictions.
- The placement volumes of students to countries except Australia reduced by 12% relative to FY20 in spite of the uncertainties that were associated with travel and physical learning
- Digital Marketing revenue jumped 8% to $30m driven by institutional clients looking up to IDP’s global digital platform for marketing and data insights.
- Strategic acquisition in a growth market in British Council’s IELTS operation in India for £130m, which is highly strategic for IDP and provides several benefits like increased exposure to the high-growth Indian IELTS market; simplified distribution arrangements providing the opportunity to simplify and improve the delivery of IELTS to test takers in India.
- The highlights by segments are stated as below:
- English Language Testing: Revenue of $325.6m, which was up by 8%
- Student Placement: Revenue of $143.3, was 22% lower; for Australia, revenue was 34% weaker at $59.7m, due to border closures relating to Covid-19. For Multi-destination, revenue was -17% weaker at $83.5m.
- English Language Teaching: Revenue of $20.2m, which is -23% lower
- Digital Marketing and Events: Revenue of $36.4m, which is -2% lower
- Others: Revenue of $3.2m was -20% weaker
Company Profile:
IDP Education Ltd (IEL) offers: (i) Student placement: student recruitment/placement in 93 offices across 30 countries into approximately 600 universities, schools and colleges globally in 5 destination countries; and (ii) co-owner of IELTS, an English language proficiency test which foreigners must pass in order to obtain certain visas and permanent residency in Australia. IEL is 50% owned by Education Australia Ltd – a business in which 38 Australian universities own a 50.1% stake.
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:
- With over 16 million customers and over 98,000 retail partnerships, Afterpay have the benefit of being the first mover .
- APT and clients can profit from their data (potentially introduce data mining services).
- Vertical expansion.
- New revenue streams and new opportunities to drive revenue – Afterpay Money.
- International expansion – both the U.S. and the UK are off to a solid start. The addressable market for online shopping in the United States is $630 billion dollars, whereas the market in the United Kingdom is $130 billion dollars.
- Additional opportunities are anticipated to arise as a result of the recently announced partnerships with Visa, Squarespace, and Stripe.
- Strong management team.
Key Risks:
- High valuation will lead to de-rating and thereby creating miss expectation in growth rates.
- Expansion into new verticals disappoints management and market expectations.
- Execution risk with international expansion.
- Increased competition from major player(s).
- Increased regulation.
- Significant data breach.
- Deal with Square Inc fails to complete.
Key highlights of FY21: Relative to the pcp:( The abbreviation for p.c.p is previous corresponding period . Herein, the year 2020 is considered as p.c.p)
- Group total income was up by 78% to $924.7m, consisting of Afterpay up by 90% to $822.3m, Pay Now down by 16% to $13.8m and Other income up +29% to $88.6m.
- The gross loss of Afterpay as % of underlying sales unchanged at 0.9%in the year 2021.
- Group reported net margin of $443.3m which was up by 70%.
- Afterpay reported net margin of $434.1m up by 74 % while its net transaction loss margin was 0.6 % (up from 0.4 percent), and net margin as a percentage of underlying sales was 2.1 percent (down from 2.3 percent), impacted by lower margin from newer international regions that are still in the early stages of their lifecycle.
- Despite increased underlying sales and contribution from new territories, the Afterpay income margin of 3.9 percent remained steady over the pcp, with merchant income margins largely stable across all regions.
- Due to increased marketing and talent expenditure, the group’s underlying operating profitability (EBITDA) fell by 13 % to $38.7 million. The loss after tax increased to $159.4 million from $22.9 million owing principally to an increase in the valuation of the ClearPay UK minority investment.
- Management continues to invest heavily in the company in order to expand into new markets and raise brand awareness. Employment expenses increased by 75% year over year to $150.9 million, while operational expenses increased by 104 percent to $298.6 million.
- APT has plenty of cash, with management claiming that it has the capacity to support an additional $40 billion in underlying sales on top of its existing annualised run rate of $24 billion.
APT and Square Inc announced a Scheme Implementation Deed on August 2nd, under which Square Inc will purchase all of APT’s outstanding shares in a transaction valued at $39 billion at the time. . The deal is expected to finalise in the first quarter of FY22.
Company Profile
Afterpay Ltd (APT) is an Australian-based technology-driven payments company. The Afterpay and Touch products and businesses are part of APT. The company’s business model is “purchase now, take now, pay later.” Merchants sign up for Afterpay, which allows their retail customers to pay in four equal instalments, interest-free. APT pays merchants up front and assumes the credit and fraud risk upon themselves. Customers can pay with a debit or credit card (Visa/Mastercard) — as a result, APT views banks and credit card companies as collaborators rather than rivals. Merchants benefit because they may increase sales to customers who would otherwise be unable to afford large purchases in one go.
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.
