narrow moat ratings after Category 4 Hurricane Ida impacted significant portions of Entergy’s service area, including the New Orleans area. On Aug. 29, Entergy disclosed that Hurricane Ida caused all eight transmission lines that provide power to New Orleans to fail. This subsequently caused a load imbalance causing all generation to cease operations.
While it is too early to estimate any financial impact from Hurricane Ida, the storm has drawn comparisons to Hurricane Katrina, the last Category 4 hurricane to impact the area. The combination of damage from Hurricane Katrina and Hurricane Rita, which struck the region shortly after Katrina, led to $1.5 billion total restoration costs for the repair of Entergy’s electric and gas facilities. This excluded lost revenue due to customer outages and Entergy’s inability to recover fixed costs through base rates.
Near-term liquidity constraints following Katrina and Rita led Entergy’s subsidiary, Entergy New Orleans, to file voluntary Chapter 11 bankruptcy. The subsidiary exited bankruptcy in May 2007 and eventually recovered most of the restoration costs through insurance proceeds and regulatory approval of storm restoration cost securitization, which was authorized by state law.
Company’s Future outlook
Entergy’s last traded price was 111.69 USD, whereas its fair value estimate is 110.00 USD, which makes it an overvalued stock. Entergy New Orleans contributed $49 million of Entergy’s $1.1 billion consolidated net income in 2020. It is estimated that every $250 million of disallowed restoration costs reduces fair value estimate $1 per share. Entergy New Orleans had roughly $1 billion in total rate base at year-end 2020, representing approximately 3.5% of Entergy’s $28 billion rate base. Hurricane Ida increases Entergy’s regulatory risk as regulators likely will scrutinize the company’s storm response and restoration costs.
Company Profile
Entergy is an integrated utility with approximately 22 gig watts of regulated utility-owned power generation capacity. It has shrunk its merchant generation business and plans to retire its remaining operating merchant nuclear unit in Michigan in 2022. Its five regulated integrated utilities generate and distribute electricity to about 3 million customers in Arkansas, Louisiana, Mississippi, and Texas.
(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.
However, third-quarter guidance was mixed but largely in line and implied fourth-quarter guidance shows a steeper deceleration in top line growth than anticipated as a result of increasing churn and lower customer’s additions in the online channel that focuses on smaller customers.
Zoom has been guiding to deceleration as the year progresses, even as it has been beating expectations and raising full year expectations over the last three quarters. There is a long runway for growth as the company gains traction with Zoom Phone and evolves its main application to a communication platform. Along these lines, management will focus on expanding its platform to feature a wider array of revenue generating products as hyper growth normalizes.
Current remaining performance obligations, or cRPO, grew 58% year over year in the quarter, compared with 54% revenue growth. While this is generally a positive indicator for revenue over the next year, management was careful to point out that billings cycles are growing increasingly concentrated in the April quarter and that therefore both cRPO and deferred revenue are to decrease sequentially in the third quarter.
Company’s Future outlook
Zoom Vedio Communication’s last traded price was 347.50 USD, whereas its fair value estimate is 252.00 USD, which makes it a highly overvalued stock. Revenue grew 54% year over year to $1.021 billion, which topped the high end of guidance of $990 million. Direct and channel business was strong, with enterprise customers doing larger deals but taking more time to evaluate the solution and being more strategic in their approach. Up sells of Zoom Phone and a pickup in Zoom Rooms helped drive larger deals. New customers accounted for 74% of revenue, which is unusually high for a software company of Zoom’s size. Zoom Phone momentum continued during the quarter, with the company reaching 2 million seats. Net dollar expansion remains strong at 130%,
Company Profile
Zoom Video Communications provides a communications platform that connects people through video, voice, chat, and content sharing. The company’s cloud-native platform enables face-to-face video and connects users across various devices and locations in a single meeting. Zoom, which was founded in 2011 and is headquartered in San Jose, California, serves companies of all sizes from all industries around the world.
(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.
The company boasts well-known, highly respected brands and cost advantages over the long tail of smaller players in the highly fragmented death care industry, underpinning our wide economic moat rating. Death is one of few certainties in life, supporting steady demand for InvoCare’s services. Death rates can fluctuate from year to year. For instance, social distancing and increased hygiene focus in the wake of the COVID-19 pandemic led to a virtually non-existent flu season and significantly lower mortality rates in calendar 2020. However, death rates are very consistent over the long run.
While the program created some near-term disruption as venues closed or were otherwise impaired while undergoing refurbishments, InvoCare to capture an increasingly large portion of market share, given its dominant position, brand strength, and refreshed service offering following the venue refurbishments. Customers, typically the family of the deceased, are relatively price-insensitive, given the highly emotional context surrounding death care.
Financial Strength
InvoCare’s balance sheet is in a strong position following the AUD 274 million equity raising in calendar 2020. Leverage, measured as net debt/adjusted EBITDA, improved to 1.3 at fiscal year-end 2020, from 2.4 in fiscal 2019, comfortably below covenant levels of around 3.5. As earnings improve, net debt to fall below 1.0 times EBITDA by fiscal 2022. Underlying operating income lifted 46% on the coronavirus-ravaged prior corresponding period, or PCP, to AUD 39 million, still around 10% below the first half of fiscal 2019. Pricing bounced back during the period as restrictions on funeral attendances eased and pricing recovered—a demonstration of the strength of the underlying business.
Australia’s hardline approach to minimising COVID-19 cases with social distancing, lockdowns, and an increased focus on hygiene is leading to the second consecutive year of virtually no flu. InvoCare’s Australian funeral volumes in the first half were flat on the prior corresponding period and down approximately 3% on the prepandemic first half of fiscal 2019. The number of deaths to grow at an average CAGR of around 3% per year for the next decade, accelerating beyond 2030 due to demographics. The last traded price of Invocare Ltd was 12.15 AUD while it’s Fair Value Estimate 15.30 AUD which shows that InvoCare has potential to Grow.
Bulls Say’s
- InvoCare consistently generates return on invested capital above its weighted average cost of capital, reflective of its pricing power due to its market position, reputation, and strong brand equity.
- Industry volumes are immune to economic factors and will steadily grow as the population increases.
- Prepaid funerals effectively lock in future sales and provide InvoCare with a low-cost source of funding.
Company Profile
InvoCare is the largest funeral, cemetery, and crematorium operator in Australia and New Zealand. We estimate InvoCare enjoys over a third of revenue share in Australia, and around a fifth in New Zealand, and is the number one player in both countries. Australia contributes the vast majority of consolidated earnings. InvoCare owns a portfolio of over 60 brands, including three flagship national Australian brands: White Lady, Simplicity Funerals, and Value Cremations, and owns and operates 290 funeral homes, along with 16 cemeteries and crematoria.
(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:
- For WBCPK, the final distribution margin has been decided at 2.9%, which is more than BBSW (Bank Bill Swap Rate) in comparison to pre-book build range of 2.9- 3.1%.
- The WBCPK securities are similar to the value declared by the recently offered MBLPD (Macquarie Bank Ltd.) securities but offer a healthy premium margin to other major banks’ AT1 securities.
- WBCPK offers a gross running yield of 2.0% and yield-to-first call maturity of 4.1%.
- Westpac Bank has a powerful business and is a regular issuer of debt- instrument in the market.
- Westpac is also offering an opportunity to reinvest (“Reinvestment Offer”) into the new WBCPK securities to all current WBCPG (Westpac Capital Notes 4) holders since the first call date (20 Dec-21) of WBCPG is approaching.
- WBCPG investors have been given the option of reinvesting some or all of their holdings into WBCPK. If WBCPG investors hold it until 20 Dec-21, Westpac has disclosed that the Company plans to redeem any outstanding notes for face value of $100 per security.
Key Risks:
- The current market price of WBCPK would be volatile on account of different factors that may impact the financial and economic conditions. Interest Rate is likely to fluctuate along with the change in the market rate.
- Economic distress to the Australian economy, including an extended declining phase in the Australian economy.
- Risk of dividends not being paid, given that they are discretionary.
- WBCPK are anticipated to be converted into ordinary shares on the Scheduled Conversion Date, unless mentioned otherwise on or before that date.
- Risk of non-occurrence of conversion on the scheduled conversion date because of the inability of fulfilment of the scheduled conversion conditions due to a large fall in the Ordinary Share price relative to the Issue Date VWAP (Volume Weighted Average Price), or if ordinary shares stop from being quoted on ASX or have been limited from trading for a specific period.
- The price of the Ordinary Shares may be impacted by transactions affecting the Westpac Bank share capital, such as rights issues.
- Westpac Bank’s financial performance and position may affect the market price of WBCPK (and the ordinary shares into which they are expected to be converted).
Security Description:
WBCPK securities are fully paid, non-cumulative, convertible, redeemable, perpetual, and unsecured, which is subject to a capital trigger event and non-viability trigger event, subordinated, listed securities. Its current price is $100 and the coupon rate that it would be offering would be 2.90%. Its issue date is 15th September, 2021. The securities have been scheduled to be converted into ordinary shares on 21 June 2032 (only on account of conversion conditions being fulfilled).
Company Profile:
Westpac is one of Australia and New Zealand’s leading financial services provider, operating under multiple brands, with a low presence in Europe, North America and Asia. As on 31st March 2021, Westpac and its controlled entities had total assets of approximately $889 billion.
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.