buoyed by the recovery from current coronavirus-induced lows and solid performance from its core assets in Auckland and Adelaide. SkyCity’s Auckland and Adelaide properties underpin the firm’s narrow economic moat. SkyCity is the monopoly operator in both jurisdictions, with long-dated licences (exclusive licence for Auckland expires in 2048, and Adelaide licence expires in 2085 with exclusivity guaranteed until 2035). The quality of these assets, particularly SkyCity Auckland, has helped build the firm’s VIP gaming business.
SkyCity’s exposure to the volatile VIP gaming market is smaller than that of Australian rivals Crown Resorts and Star Entertainment. VIP revenue typically represents over 20% of Crown’s and Star’s sales, compared with SkyCity’s typical 10%-15%. While high rollers have no alternatives when in Auckland or Adelaide, SkyCity effectively competes as a destination casino on a global scale against locations such as The Star in Sydney and Crown Melbourne. This includes a NZD 750 million upgrade to SkyCity Auckland to be completed by the end of calendar 2024 and a AUD 330 million expansion for SkyCity Adelaide, a transformational project completed in fiscal 2021.
Financial Strength
Despite near-term earnings weakness, SkyCity’s balance sheet remains robust, bolstered by a NZD 230 million capital raise completed at the end of fiscal 2020 and extensions to new and existing debt facilities. As expected, SkyCity declared a final dividend in the second half of fiscal 2021, following the June 30, 2021 covenant testing date. We expect SkyCity’s balance sheet to continue to improve over coming years as earnings recover, with net debt/EBITDA dropping below 1.0 in fiscal 2024 as expansionary projects roll off and earnings recover.
Our fair value for SkyCity to NZD 3.80, from NZD 3.50, following the release of fiscal 2021 results. The raise on our fair value estimate is principally due to a more positive outlook on capital expenditure as SkyCity’s major expansion projects roll off and insurance payments are set to cover the majority of growth expenditure earmarked for the next three years. Despite New Zealand recently shifting back into stage 4 lockdown, SkyCity’s longdated and exclusive licences in Auckland and Adelaide create a regulatory barrier to entry, underpinning the firm’s narrow moat, and position the business well to participate in the recovery as restrictions ease.
The payout ratio is well-supported by SkyCity’s balance sheet. The completion of the NZD 330 million Adelaide expansion in fiscal 2021 takes some pressure off cash flows, and of the further NZD 500 million in capital expenditure flagged for the NZICC project, around NZD 380 million will be funded by insurance payments to be received following the NZICC fire. The NZD 750 million NZICC/Horizon Hotel project (which helped secure licensed exclusivity at the core Auckland casino) has been delayed by a fire, with completion now expected in late calendar 2024.
Bulls Say’s
- Long-dated exclusive licences to operate the only casino in Auckland and Adelaide allow SkyCity to enjoy economic returns in a regulated environment.
- We expect transformative capital expenditure at SkyCity’s Auckland and Adelaide casinos will lead to a sizable step-up in earnings.
- SkyCity is well positioned to benefit from the emerging middle and upper class in China.
Company Profile
SkyCity Entertainment operates a number of casino-hotel complexes across Australia and New Zealand. The flagship property is SkyCity Auckland, the holder and operator of an exclusive casino licence (expiring in 2048) in New Zealand’s most populous city. The company also owns smaller casinos in Hamilton and Queenstown. In Australia, the company operates SkyCity Adelaide (exclusive licence expiring in 2035).
(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 PNG oil and gas producer reported first-half 2021 underlying net profit after tax, up 460% to USD 139 million. Lower-than-expected operating costs were the driver of outperformance.
Net operating cash flow increased 52% to USD 308 million. This allowed group net debt to fall USD 254 million in the first half to USD 2.10 billion, excluding operating leases. Leverage (ND/(ND+E)) was 27% with annualized first-half net debt/EBITDA still somewhat elevated at 2.3, though likely to improve given stronger second-half LNG prices.
Oil Search declared an interim USD 3.30 cent dividend, up from zero in the previous corresponding period and ahead Oil Search maintained all 2021 guidance including production of 25.5-28.5 mmboe, unit production costs of USD 10.50-11.50 per boe, and investment expenditure of USD 250 million-350 million. The current AUD 6.10 Santos share price implies an Oil Search value of AUD 3.83 and Oil Search shares trade close to that mark.
Company’s Future Outlook
Oil Search shareholders will hope to achieve the ultimate value potential through Santos shares. It is forecasted a 70% increase in group production to 46 mmboe by late this decade, capturing PNG LNG expansion and the Papua LNG projects, but not yet inclusive of Alaska North Slope’s oil, pending Pikka front-end engineering and design, or FEED, outcome. This, regardless, drives an 11.8% 10-year group EBITDA CAGR to USD 1.85 billion by 2030, from a coronavirus-affected 2020 launch year.
Company Profile
Oil Search was founded in 1929 and operates all of Papua New Guinea’s oilfields. The PNG government holds a 10% interest. Oil Search had successfully run PNG oil fields since assuming operatorship from ExxonMobil in 2003. However, the tyranny of distance saw the large and high-quality gas fields largely stranded until 2014. The PNG LNG project is the first step to monetize those vast gas resources, again under the direction of ExxonMobil. First-stage construction is complete, with potential for expansion from two trains to five.
(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.
Even as revenue growth is likely to dip below 20% for the first time at some point in the next several years, ongoing margin expansion should continue to compound earnings growth of more than 20% annually for much longer. Sales force’s fair value estimate increased to $292.
Sales Cloud represents the original sales force automation product, which streamlined process management for sales leads and opportunities, contact and account data, process tracking, approvals, and territory tracking. Service Cloud brought in customer service applications, and Marketing Cloud delivers marketing automation solutions. Sales force Platform also offers customers a platform-as-a-service solution, complete with the App Exchange, as a way to rapidly create and distribute apps.
Sales force is widely considered a leader in each of its served markets, which is attractive on its own, but the tight integration among the solutions and the natural fit they have with one another makes for a powerful value proposition. To that end, more than half of enterprise customers use multiple clouds. Further, customer retention has gradually improved over time and is better than 90.
Financial strength
Salesforce.com is a financially sound company. The last traded price of Salesforce was 260.85 USD while its FVE (Fair value Estimate) is 292.00 USD, which shows that Salesforce has potential to grow.
Revenue is growing rapidly, while margins are expanding. As of Jan. 31, Salesforce.com had $12.0 billion in cash and investments, offset by $2.7 billion in debt, resulting in a net cash position of $9.3 billion. Further, Salesforce generated free cash flow margins in excess of 17% in each of the last four years, including 18% in fiscal 2021, which was negatively impacted by COVID-19. In terms of capital deployment, Salesforce makes acquisitions rather than pay a dividend or repurchase shares.
Bull Says
- Salesforce.com dominates the SFA space but still only controls 30% in a highly fragmented market that continues to grow double digits each year, suggesting there is still room to run.
- The company has added legs to the overall growth story, including customer service, marketing automation, e-commerce, analytics, and artificial intelligence.
- Salesforce.com’s margins are subscale, with a runway to more than 100 basis points of operating expansion annually for the next decade. Indeed, management has put more emphasis on expanding margins in recent quarters.
Company Profile
Salesforce.com provides enterprise cloud computing solutions, including Sales Cloud, the company’s main customer relationship management software-as-a-service product. Salesforce.com also offers Service Cloud for customer support, Marketing Cloud for digital marketing campaigns, Commerce Cloud as an e-commerce engine, the Sales force Platform, which allows enterprises to build applications, and other solutions, such as Mule Soft for data integration.
(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).
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.
