with adjusted net profit after tax up about 150% to USD 489 million. Adjusted EBIT nearly doubled to USD 844 million from USD 446 million, thanks to higher commodity prices, and was in line with the expectations. The company did a creditable job at offsetting inflationary pressures, primarily through cost reductions and efficiencies.
Dividends surprised on the upside, with South32 declaring a USD 3.5 cent final and USD 2.0 cent special, bringing the full year payout to USD 6.9 cents fully franked, ahead of our USD 6.0 cent forecast. Given South32 possessed about USD 400 million net cash at the end of June, the cash returned to shareholders seems to be worthy use of funds.. In addition, the outlook for commodity prices is probably looking better for the company in fiscal 2022.
Metallurgical coal has been one of the strongest performers of late, the price doubling in less than six months. At the divisional level, Cannington had a much better year, reflecting strong production and higher prices, with EBIT more than tripling to USD 350 million.
Company’s Future Outlook
South32 has increased the size of its ongoing on market share buyback by USD 120 million, with about USD 250 million remaining to be returned. Along with share repurchases, South32 continues to make incremental portfolio improvements. A more focused and streamlined portfolio should reduce South32’s expenditure requirements and allow capital to be directed to higher returning opportunities. Like many diversified mining peers, South32 is positioning itself for a carbon constrained world and expects the majority of its commodities to do better under that constraint, notably aluminium for light-weighting and nickel for batteries. The recent rebound in the coking coal price may provide an opportunity, which could be a good option.
Company Profile
South32 was born of the demerger of noncore assets from BHP in 2015. South32 comprises BHP’s former aluminium and manganese businesses and the South African energy coal and New South Wales metallurgical coal businesses. It also owns the Cannington silver/lead/zinc mine in northwest Queensland and the Cerro Matoso nickel mine in Colombia. Cannington silver mine and manganese operations deliver high returns but have relatively short reserve life. The company acquired Arizona Mining, which brings with it the high-grade and likely low-cost Hermosa deposit in the U.S.
(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.
operating supermarkets and discount department stores. Market capitalization is around AUD 50 billion, with annual sales of over AUD 50 billion. The fair value estimate for narrow-moat Woolworths is AUD 24. The board declared a fully franked dividend of AUD 1.08 for the full fiscal year 2021, equating to a payout ratio of 69%.
Woolworths has a narrow economic moat, characterized by an extensive supermarket store network, serviced by an efficient supply chain operation coupled with significant buying power. It operates in the very competitive supermarket and discount department store segments of the retail sector. Intense competition has taken its toll on margins. Management has reset prices lower to drive foot traffic and increase basket sizes. Volume growth is vital for maximizing supply chain efficiencies.
Australian food sales of over AUD 40 billion represented about 15% of total Australian retail sales in fiscal 2021. The percentage increases substantially if sales are strictly comparable.
Financial Strength
Woolworths is in a strong financial position with solid gearing metrics. At the end of fiscal 2021, the balance sheet was conservatively geared and EBITDA covered interest expenses 7 times. After the AUD 2 billion share buyback, Woolworth’s investment-grade credit rating is expected to be the same. Woolworths generates large cash flow with significant negative working capital. Cash flow comfortably finances capital expenditure. The balance sheet is robust, and acquisitions are generally bolt-on and funded with cash or existing debt facilities.
Woolworths is well positioned to withstand cyclically weak consumer spending. Woolworths is a defensive stock, with food retailing generating most of group revenue and profit, a solid balance sheet, and a narrow moat surrounding its economic profits. Woolworths last traded price was 40.99 AUD, whereas its fair value is 24 AUD, which makes it an overvalued stock. As per the analysts, the group’s operating earnings will shrink by about a quarter in fiscal 2022 with the demerger of Endeavour.
Bull Says
- Woolworths’ dominant position in the supermarket sector is entrenched and, coupled with first-class management, suggests that it can maintain leadership in the sector.
- Woolworths’ operating leverage could lead to a rebound in operating margins, driving cash generation that funds expansion and acquisitions while allowing capital-management initiatives.
- The refurbishing of the existing supermarket fleet and rollout of revised store formats, with significantly improved service, convenience and product offerings could increase store productivity and lead to higher sales growth.
Company Profile
Woolworths is Australia’s largest retailer. Operations include supermarkets in Australia and New Zealand, and the Big W discount department stores. The Australian food division constitutes the majority of group EBIT, followed by New Zealand supermarkets, while Big W is a minor contributor.
(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.
besting $1.0 billion estimate, as sales in the long-troubled mass beauty segment rebounded from the pandemic faster than expected. The strength was driven by Cover Girl, the cornerstone of the segment, which experienced its first full quarter of market share gains in five years, on the heels of the brand’s relaunch, supported by a new lineup of clean ingredient products and a robust marketing campaign.
While Coty’s net debt/adjusted EBITDA remains quite high at 5.3 times at the end of June, the firm closed its fiscal year with $2.3 billion in liquidity, which should be sufficient to meet its needs over the next year ($240 million in capital expenditures, $100 million in preferred dividends, and $25 million in debt maturities).
CEO Sue Nabi laid out her turnaround strategy last year, which calls for Coty to increase its exposure to high growth markets where it had been historically underexposed. But the firm has been able to improve quickly the trends, in the face of a global pandemic, nonetheless.
Company’s Future Outlook
For fiscal 2021, Coty’s adjusted operating margin was 8.8% compared with 6.9% in fiscal 2019, given positive mix shifts to more profitable channels (e-commerce and prestige) and categories (skincare), lower obsolescence charges, temporarily reduced marketing expenses, and over $330 million in permanent fixed cost reductions. Coty’s fiscal 2022 guidance also exceeds forecast, calling for low-teen organic sales growth, and $900 million in adjusted EBITDA, compared with estimates of 9% growth and $800 million in adjusted EBITDA. Although material increase in Coty’s intrinsic value is anticipated, its fair value is still under review, in order to revisit the long term forecast and the implications of its planned IPO of a stake in its Brazilian beauty business.
Company Profile
Coty is a global beauty company that sells fragrances (56% of fiscal 2020 revenue), color cosmetics (31%), and skin/body care (13%). The firm licenses brands such as Calvin Klein, Hugo Boss, Gucci, Burberry, and Davidoff for its prestige portfolio. Coty’s most popular color cosmetic brands are Cover Girl, Max Factor, Rimmel, Sally Hansen, and Kylie. Coty also holds a 40% stake in a salon and retail hair care business, including brands Wella, Clairol, OPI, and ghd. Francois Coty founded the firm in 1904 and it remained private until its 2013 IPO. It had focused on prestige fragrances and nail salon brands until the 2016 acquisition of Procter & Gamble’s beauty care business. This nearly doubled the firm’s revenue base, and launched it into mass channel cosmetics and professional hair care.
(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:
- PPT is a business having vast diversification, with earnings obtained from trustee services, financial advice and funds management.
- PPT has a chance to increase FUM (Funds Under Management) through its Global Share Fund, which has a strong performance track record over 1, 3 and 5-years and significant capacity.
- PPT maintains FUM in Australian equities, which is of maximum amount. This equates to levelled earnings growth unless PPT can attract FUM into international equities, credit and multi-asset strategies (and other incubated funds).
- Inflow of funds from retail and institutional investors are expected to be high especially from positive compulsory superannuation trend and Perpetual Private.
- Perpetual Private’s high potential to ramp up growth in funds under management and funds under advice.
- Process of cost improvements in Perpetual Private and Corporate Trust.
Key Risks:
- Probability of any significant underperformance across funds.
- Key man risk surrounding key management or investment management personnel.
- Probability of change in regulation (superannuation) with major interest on retirement income (annuities) than creation of wealth.
- The average base management fee (bps) annually (excluding performance fee) continues to be stable at ~70bps but there are risks caused due to drawbacks from pressures on fees.
- The provision of financial advice and Perpetual Private adjoins more regulation and compliance costs.
- Industry funds, which are building in-house capabilities (~15-20% of total PPT funds under management), have good exposure.
Key Highlights:
- The operating revenue increased +31% and underlying profit after tax was up +26% post the acquisition of Trillium and Barrow Hanley.
- Statutory NPAT decreased -9% because of the significant one-off costs.
- PPT’s assets under management increased by +246% over pcp (previous corresponding period) to $98.3bn, wherein significant amount of funds outperformed their respective benchmarks over the year.
- Fully franked final ordinary dividend of A$0.96 per share was declared, thereby amounting the total FY21 dividend to A$1.80 per share, which is up +16% over pcp.
- Perpetual Asset Management Australia delivered total revenue of A$165.7m, which was down -5% over pcp.
- Perpetual Asset Management International (new international division comprising the Trillium and Barrow Hanley businesses), had total revenue of A$139.2m and underlying profit before tax was A$40.7m.
- Perpetual Private delivered total revenue of $183.8m, relatively unchanged over pcp and underlying profit before tax of A$35m.
- Perpetual Corporate Trust delivered total revenue of $134.9m, up +7% over pcp and underlying profit before tax of A$63.8m, which was +9% higher over pcp.
Company Profile:
Perpetual Ltd (PPT) is an ASX-listed independent wealth manager with three core divisions in Perpetual Investments (one of Australia’s largest investment managers); Perpetual Private (one of Australia’s premier high net worth advice business); and Perpetual Corporate Trust (which provides trustee services). PPT looks after ~$98.3 billion in funds under management, ~$17.0 billion in funds under advice and ~$922.8 billion in funds under administration (as on 30 June 2021).
(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.