Investment Thesis:
- High quality fundamentals and dividend yield but trading in line with the valuations.
- High quality assets, business model and management team. Both EDV’s Retail and Hotels segments have a moat ensuring stable earnings profile.
- EDV does have some pricing power to push through CPI increases to the end consumer.
- Leading market positions with key sites in higher population growth areas.
- Positively leveraged to the growth in population over time.
- Increasing digitization to remove more costs and increase the efficiency of the supply chain.
Key Risks:
- Margin pressure in the Retail or Hotels segment.
- Increasing competition.
- Changing consumer preference and consumption trends.
- More regulatory risks than expected in relation to EDV’s Hotel (relating to gaming) or Retail (relating to alcohol consumption).
- As a result of the demerger with Woolworths, several agreements between Woolworths and EDV were established encompassing logistics/supply chain, and strategy. Hence, any negative change in logistics agreements with Woolworths is a risk for EDV earnings.
Key Highlights: Relative to the pcp:
- Group sales of $11.6bn, was flat relative to the pcp. This was a good result, considering the volatile trading environment, which saw the EDV’s Hotels business impacted by the ongoing pandemic causing temporary hotel closures and restrictions, especially in 1H22, offset by the Retail business, as these closures created tailwinds with an elevated at-home market.
- Group EBIT of $924m, was up +2.8%. driven by the partial recovery of EDV’s Hotels segment and another strong performance in Retail, which delivered EBIT in line with FY21. Retail EBIT of $66m, was down -0.4%, whilst Hotels EBIT of $315m, was up +20.7%.
- Group NPAT of $495m, was up +11.2%.
- The Board declared a fully franked final dividend of 7.7cps, up +10%. This brings the full year dividend to 20.2cps and equates to 73.1% payout ratio.
- Performance Highlights by Segments. Relative to the pcp: Retail. Sales of $10,086m, was down -0.9% as the ongoing pandemic had a significant impact; EBITDA of $944m, was up +0.9%; EBIT of $666m, was down -0.4%. EBIT margin of 6.6% was up +3bps.
- Hotels. Sales of $1,511m, was up +6.6% as the impact of Covid-19 on 1H22 was more than offset by a strong recovery in 2H22 as pandemic related restrictions were lifted (The FY22 results represent 231 trading days when all EDV’s hotels were able to open, versus 195 days in FY21); EBITDA of $561m, was up +12.4%; EBIT of $315m, was up +20.7%. EBIT margin of 20.8% was up +243bps.
Company Description:
Endeavour Group Ltd (EDV) is an Australian retail drinks and hospitality business. The Company demerged from Woolworths in 2021 and operates the top-two retail drinks distribution in Australia (Dan Murphy’s and BWS), and the largest national hotel network.
(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.
Investment Thesis:
- Trading on 2-Yr forward blended PE-multiple of 11.0x and dividend yield of 6.0% represents good value at these levels.
- Macro conditions remain uncertain in key regions.
- Strong pipeline of infrastructure projects over the next 2 years is a positive but timing and execution is a risk.
- Solid balance sheet position provides some flexibility to the Company to pursue growth.
- Leading positions as a lime producer, concrete products producer and cement and clinker supplier.
- Outlook for lime looks relatively positive with higher infrastructure projects and resource sector activity
- Cost-out and vertical integration (cement) programs expected to deliver cost benefits that exceed cost headwinds of $10m in FY21.
Key Risks:
- Softer sales volume than expected.
- Loss of market share to competitors or imports and pressure on pricing.
- Softer than expected pricing increases.
- Higher than expected energy prices.
- Execution risk in relation to Company’s cost-out and vertical integration strategies.
- Deterioration of A$ relative to other currencies.
- Unfavorable weather impacts.
Key Highlights:
- Management did not provide any quantitative guidance, however, expects; Growth in underlying earnings for 2H22, driven by increased contributions from cement, concrete, aggregates, masonry, JV’s and recent business acquisitions.
- Demand for products from the residential, infrastructure, commercial and mining sectors to remain strong in 2H22.
- Further out-of-cycle price increases to help actively manage inflationary pressures, with pricing traction key to the ability to deliver.
- Strong demand for cement despite building and project completion timelines being extended due to materials and labour shortages.
- Lime volumes staying stable in 2H22 vs 1H22, however, lime pricing improving with new customers seeking reliable domestic supply due to supply chain disruptions experienced by importers.
- Strong demand for concrete and aggregates to the end of the year, and if weather abates in NSW, will be buoyed by the commencement of delayed projects and flood recovery works, however, softness in retail spending to impact masonry demand, with increased interest rates impacting household discretionary spend.
- FY22 capex investment (excluding business acquisitions) of ~$300m, including circa 40% for the Kwinana Upgrade project.
- Proceeds of >$20m for FY22 from land sales for Rosehill and Kewdale.
- Gross cost savings of circa $10m for FY22.
- Capital management. Net debt increased +34.5% YoY to $553.9m, representing a leverage ratio of 2x underlying EBITDA (vs 1.5x in pcp) and gearing of 43.2% (up +990bps), both towards the top-end of company’s credit metrics target range, however, well within banking covenants.
- Return on Funds Employed (ROFE) declined -170bps YoY to 9.3%, well below pre-tax WACC of 11.4%, with management expecting long-term ROFE improvement coming from Kwinana Upgrade project cost savings, development of downstream land investments, ongoing cost-outs and low-cost gas supply.
- The Board declared a fully franked interim dividend of 5cps, down -9.1% YoY and representing a payout ratio of 70.6% of underlying earnings (excluding property profits), within the Board’s target range of 65-75%.
- Inflation eating into margins. Despite the cost reduction program delivering $7.5m in gross savings for 1H22, ongoing cost headwinds in areas including pallets, shipping, labour, power, fuel and raw material prices, continued to eat into margins with EBITDA margin declining – 110bps YoY to 16.6%, as product repricing continues to lag cost inflation.
Company Description:
Adbri Ltd (ABC) is an Australia listed construction materials and liming producing company. ABC is Australia’s leading (1) lime producer in the minerals processing industry; (2) concrete products producer; and (3) cement and clinker importer. ABC is Australia’s number two cement and clinker supplier to the Australian construction industry and number four concrete and aggregates producer.
(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.
Investment Thesis:
- Energy margins bottom out and could potentially start to improve (higher customer and volume numbers).
- Strong cash flow business which provided flexibility to deploy cash in growth opportunities and capital management.
- On-going focus on costs and digitalization should support margins.
- Potential capital management initiatives (e.g., buyback).
- Demerger into AGL Australia and Accel may unlock shareholder value.
- Potential favorable changes to the regulatory environment.
- Potential M&A – AGL has already received a takeover bid at $7.50 per share which was rejected by the AGL Board.
Key Risks:
- Competitive pressures leading to margin erosion.
- Cost pressure and fuel supply issues lead to margin erosion.
- Increase in supply leading to depressed prices.
- Regulatory risk (policy uncertainty), such recent regulation in electricity markets [ Victorian Default Offer (VDO) and Default Market Offer (DMO)].
- Unscheduled shutdowns impacting earnings.
Key Highlights:
- Underlying EBITDA declined -27% YoY to $1.22bn and underlying NPAT declined -58% YoY to $225m, reflecting the expected step down in Trading and Origination Electricity earnings due to lower realized contracted and wholesale customer prices, increased costs of capacity to cover periods of peak electricity demand, absence of the Loy Yang Unit 2 insurance proceeds recognized in FY21, increased residential solar volumes and margin compression via customer switching.
- Net cash from operations declined -2% YoY to $1.227bn with lower underlying EBITDA partially offset by a strong working capital outcome which saw cash conversion improve +27% YoY to 123%, however, management warned of a hit to cash conversion rate in FY23.
- Capital management. Strong balance sheet with net debt declining -11.2% to $2,662m, reducing gearing by -590bps to 29.2%, giving company significant headroom to debt covenant of gearing <50%.
- Board declared a final unfranked dividend of 10cps, equating to total FY22 dividends of 26cps, down -65% YoY and equating to a payout ratio of 75% vs 87% pcp.
- Opex savings target exceeded. The Company saw opex (excluding D&A) decline -7.6% YoY as management delivered FY22 recurring savings of ~$158m (vs target of $150m), including initial benefits from structural review and reduction in corporate costs. However, management warned that it expects a small step up in operating costs for FY23, albeit being lower than CPI after adjusting for the non-recurring benefits in FY22.
- Outlook. Management announced it will provide FY23 guidance in late-September in conjunction with the initial outcomes of the review of strategic direction, however, expects FY23 earnings to remain resilient amidst the current challenging in the energy industry and market conditions, underscored by the strength of AGL’s large and diversified customer base, low-cost baseload generation position supported by strong fuel supply arrangements, robust risk management, with prudent margin management ensuring retail strength and stability in a highly volatile market, with the Company largely hedged for FY23 and well positioned from FY24 to benefit from sustained higher wholesale electricity pricing (Refer to Figure 4 for forward pricing curve) as historical hedge positions progressively roll-off.
Company Description:
AGL Energy Limited (AGL) is one of Australia’s leading integrated energy companies and the largest ASX listed owner, operator and developer of renewable energy generation in Australia. The company sells and distributes gas and electricity. Further, it also retails and wholesales energy and fuel products to customers throughout Australia. The business operates four main segments: Energy Markets, Group Operations, New Energy and Investments.
(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.