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Nanosonics Still Screens as Materially Overvalued

 as evidenced by penetration of over 75% in Australia and New Zealand and 40% in North America. Moreover, the device patent expires in 2025, leading to slower volume growth in the medium term. Moreover, the device patent expires in 2025, leading to slower volume growth in the medium term. In 2021 consumables contributed 63% of group revenue. 

Nanosonics primarily distributes via GE Healthcare, its partner across multiple geographies. We estimate consumables to roughly earn a gross margin of 85% and devices 65% by fiscal 2026. Outside of trophon, the company expects to launch a new product in flexible endoscope cleaning in 2023. Previously, management intimated the addressable market to be equivalent to trophon and there is greater awareness of the infection issue this product addresses. 

Financial Strength

Nanosonics is in a net cash position and free cash flow positive. The operating model does not require significant capital investment, with the key investments for growth stemming from ongoing R&D spending, building out a salesforce and working capital. Despite having 60-day terms from distribution partners, the current net investment in working capital runs at approximately 28% of revenue due to high inventory holding levels which average roughly 200 days in stock. phase. The company first posted a profit in fiscal 2016 and is yet to pay a dividend, nor do we expect it to in the future as it invests in underpenetrated markets and its pipeline product.

Our fair value for narrow-moat Nanosonics by 13% to AUD 3.50 following fiscal 2021 results. Roughly half of our upgrade is attributed to increasing consumable usage across the trophon installed base and the remainder due to a stronger USD. A clear highlight was second-half fiscal 2021 consumables revenue in North America, or NA, increasing 30% sequentially to AUD 33 million as ultrasound procedure volumes recovered. For the first time since fiscal 2016, new installations in NA increased year on year, with 2,490 trophon units added in fiscal 2021. 

While the second half added 1,360 new units in NA, the run-rate has significantly declined from 2,000 new installations in first-half fiscal 2017. Revenue in the region declined 1% sequentially to just AUD 3.6 million in the second half. Nanosonics is in a strong financial position with AUD 96 million in net cash at fiscal 2021 year-end. Nanosonics’ next major product, dubbed Coris, aims to automate flexible endoscope cleaning but has been delayed to calendar 2023. Details remain scant and we continue to expect uptake of Coris to mirror that of the trophon post-launch. This results in AUD 84 million in sales by fiscal 2031, or 23% of group revenue.

Bulls Say’s 

  • Nanosonics is the market leader in automated HLD of ultrasound probes with significant further market penetration potential in most regions.
  • Establishing its direct distribution model should increase the gross margins achieved by Nanosonics once it reaches critical mass.
  • The company has reached a pivotal point where higher margin consumables dominate the revenue stream. This revenue stream is also protected by patents and the installed trophon device base.

Company Profile 

Nanosonics is a single-product company and its trophon device provides high-level disinfection, or HLD, of ultrasound probes used in semi-critical procedures. The patented technology uses low temperature sonically activated hydrogen peroxide mist that is suitable for probes sensitive to damage. Automated HLD is increasingly being adopted as the standard of care globally as it is superior in preventing cross-infection across patients. Nanosonics’ revenue is made up of capital sales of trophon units, ongoing consumables sales, and service revenue. At June 2021, there were 26,750 trophon units installed globally. Market penetration rates range from over 75% in Australia and New Zealand, roughly 40% in the United States to low-single-digit penetration in EMEA and elsewhere in Asia-Pacific.

(Source: Morningstar)

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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.

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International Still a Drag, but Other Segments Mostly Positive for Scotiabank in Fiscal Q3

. Its domestic operations are more concentrated in mortgages and auto lending. The international exposure gives the bank the potential for higher growth and return opportunities compared with peers, but it also exposes the bank to more risks.

The bank is in the middle of rationalizing its many back-end systems and improving efficiency bankwide.The bank is continuously focusing in digitalisation and has been spending the most on its technology and communication expenses. These efforts will ultimately pay off in the form of improved operating efficiency, customer engagement, and internal sales coordination. This leads us to believe that returns on tangible equity near 15% are sustainable over the longer term for the bank.

International Still a Drag, but Other Segments Mostly Positive for Scotiabank in Fiscal Q3

Bank of Nova Scotia reported decent fiscal third-quarter earnings. Adjusted earnings per share were CAD 2.01, representing solid year-over-year growth which is higher than last quarter’s EPS of CAD 1.90. Provisioning continues to be a major driver of improved earnings. Credit costs remained solid and provisioning was low during the quarter while the bank is still holding excess reserves for future credit losses

Revenue growth continued to be lackluster for Scotiabank, up only 1% year over year as the bank’s international segment remains under some pressure and fee growth for the global markets segment faced tough year over year comps. It is expected that the international fees to continue to recover as the economic picture is improving in essentially all of Scotia bank’s Pacific .

Financial Strength:

Bank of Nova Scotia holds strong overall financial health with net revenue of CAD 30729 million and net income of CAD 6582 million in the year 2020. Nova Scotia’s reported common equity Tier 1 ratio of 12.2% as of July 2021 which remains satisfactory. This is above the 11.5% goal that management has targeted and leaves the bank well positioned to absorb the upcoming rise in credit costs. With dividend payout ratios at manageable levels between 40% and 50%, we expect its capital generation will continue to provide growth in its capital position, leaving room for future bolt-on acquisitions, increased capital return to shareholders, or both

Bulls Say

  • The Canadian market remains attractive; the government has placed barriers to entry that protect high returns.
  • The international segment’s exposure to higher growth emerging markets in Latin America will offset Scotia bank’s slower growth in its home markets and offer a runway for higher growth and returns compared with peers.
  • Scotiabank has consistently been one of the most efficient bankwide operators, and its higher relative level of spending on technology should allow this to continue.

Company Profile

Bank of Nova Scotia is a global financial services provider. The bank has five business segments: Canadian banking, international banking, global wealth management, global banking and markets, and other. It offers a range of advice, products, and services, including personal and commercial banking, wealth management and private banking, corporate and investment banking, and capital markets. The bank’s international operations span numerous countries and are more concentrated in Central and South America

(Source: Morningstar)

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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.

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Excellent Third-Quarter Results for Bank of Montreal; Raising Our FVE to CAD 130/USD 103

BMO has a well-established Canadian banking presence, an established U.S. retail operation in the Midwest, and growing commercial and capital markets capabilities. BMO has the second-largest amount of assets under management among the Canadian banks, with the largest proportion of its revenue coming from wealth-management. Additionally, BMO has the lowest relative exposure to residential mortgage loans among its peers

Bank of Montreal has taken a step up in 2021, improving operating efficiency while growing fees and managing its interest rate exposure. We expect that the bank will remain a more efficient operation going forward.

Excellent Third-Quarter Results for Bank of Montreal; Raising Our FVE to CAD 130/USD 103

Bank of Montreal reported excellent fiscal third-quarter earnings, with EPS of CAD 3.44 representing solid year-over-year growth compared with adjusted EPS of CAD 1.85 last year and higher than last quarter’s EPS of CAD 3.13. Provisioning continues to be a major driver of improved earnings, coming in at a net benefit of CAD 70 million.Bank of Montreal’s fees continue to come in better than expected. 

Net income continued to be exceptional in the bank’s capital markets segment during the third quarter, tracking above CAD 500 million yet again as investment banking remained healthy while global markets-related revenue came back down a bit. The wealth segment also continued to report excellent results, with net income up another 15% sequentially, although growth in assets under management is starting to slow, up less than 1% sequentially. The more traditional banking segments at Bank of Montreal have continued to do fine, with Canadian P&C essentially fully recovered and back to pre pandemic revenue levels while U.S. P&C is feeling a bit more pressure from a CAD perspective due to shifting exchange rates

Credit costs remained solid. Provisioning continued to decline during the third quarter while the bank continues to hold excess reserves for future credit losses. Formations of impaired loans remained subdued, and overall gross impaired loans declined once again. Higher-risk loans due to the COVID-19 pandemic remained at just under 5% of total loans, which is very manageable.

 After decreasing our credit cost projections for 2021, decreasing certain expense line items, increasing some noninterest income items, and making some additional improvements to our balance sheet growth and net interest margin outlook, we have increased our fair value estimate to CAD 130/$103 per share from CAD 115/$94

Bulls Say

  • Growth and opportunities in the bank’s U.S. markets will outweigh any slowdown in its native Canada as U.S. subsidiaries gain market share.
  • Compared with its peers, BMO has a lower exposure to the Canadian housing market.
  • BMO’s presence in the Canadian ETF market should pay off as passive investment options gain share in Canada over the next decade.

Company Profile

Bank of Montreal is a diversified financial-services provider based in North America, operating four business segments: Canadian personal and commercial banking, U.S. P&C banking, wealth management, and capital markets. The bank’s operations are primarily in Canada, with a material portion also 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.

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Medtronic Begins Fiscal 2022 in Solid Fashion; No Change to Our Fair Value Estimate

For the year 2020 the firms revenue was USD 30117 million and EBIT was USD 5210 Million. We’re holding steady on our fair value estimate as these early results are generally consistent with our full year projections. 

Medtronic’s organic quarterly revenue growth of 19% year over year was fairly broad based, marked by share gains in cardiac rhythm management and surgical innovations. The diabetes franchise remains the weak link as competitors have launched new products, while Medtronic is still navigating the domestic regulatory pathway for its next-gen 780g insulin pump and Synergy sensor. In the meantime, Tandem and Insulet both posted strong second-quarter pump growth of 58% and 16%, respectively. Medtronic’s typical fiscal quarter timing, includes July, which provides a better peek into however the rise of the Delta variant has damped procedure volume growth. 

The firms Spyral HTN On-Med pivotal study results, which may be released in November will be very interesting herein the firm anticipates an interim look at the data in the next couple of months. If the findings are as favorable as seen in the earlier feasibility trial, then we’re optimistic Medtronic’s renal denervation platform could be launched by early 2023. We project this market to reach $4.2 billion by 2030, and Medtronic continues to enjoy a two- to four-year head start over competitors. 

Company Profile

One of the largest medical device companies, Medtronic develops and manufactures therapeutic medical devices for chronic diseases. Its portfolio includes pacemakers, defibrillators, heart valves, stents, insulin pumps, spinal fixation devices, neurovascular products, advanced energy, and surgical tools. The company markets its products to healthcare institutions and physicians in the United States and overseas. Foreign sales account for almost 50% of the company’s total sales.

 (Source: Morningstar)

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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.

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Traffic is still a problem, but there is more than adequate money to get through another year of hard times.

Investment thesis

  • Recent takeover offers that have been rejected are currently supporting the share price.
  • Sydney International Airport is an appealing asset with a long-term lease, but earnings are currently being impacted by the pandemic.
  • Long-term growth in international tourism and domestic travel is expected post-Covid.
  • Prior to the pandemic, SYD delivered a consistent and growing dividend stream, which is expected to continue post-Covid.
  • New development initiatives (expand capacity & improve passenger experience).
  • Exposure to a falling dollar (cheaper to visit Australia).
  • Earnings can be increased by diversifying into hotels.
  • Potential new markets, such as India and new emerging markets, could drive growth.

Key Risks

The following are the key challenges to the investment thesis:

Bond yields (viewed as a bond proxy, rising bond yields will have a negative impact on SYD’s valuation)

  • A decline in Australian tourism.
  • A global disaster that reduces international travel.
  • Distribution growth, or lack thereof, disappoints.
  • Cost constraints / operational disruptions
  • International airlines are lowering their exposure to Australia.
  • Long-term competition from Western Sydney Airport.

Highlights of key FY21 results

  • Revenue of $341.6 million was -33.2 percent lower than the pcp. SYD had 6.0 million passengers, a -36.4 percent decrease, with domestic and global passenger numbers down by 91.0 percent and -3.1 percent, respectively.
  • Operating expenses were $74.2 million lower, a -7.8 percent decrease.
  • EBITDA was down -29.8 percent to $210.8 million.
  • SYD revealed a $97.4 million loss after income taxes. In terms of Covid-19 impacts, SYD recognised abatements and expected credit loss in the form of $77.0 million in rental abatements and $24.5 million in doubtful debt provision, and government assistance of $2.6 million in JobKeeper payments was recognised as an offset to employee benefits expense up to March 2021.
  • As of 30 June, SYD had a strong balance sheet with $2.9 billion in liquidity ($0.5 billion in available cash and $2.4 billion in undrawn bank debt facilities). On the conference call, management stated that SYD “continues to expect to remain compliant with its covenant requirements.” SYD’s credit rating remained unchanged, at BBB+/Baa1 by S&P/ Moody’s, with a negative outlook. Net debt fell to $7.5 billion from $9.1 billion in the first half of the year, with a cashflow cover ratio of 2.0x (down from 2.4x in the first half of the year) and a nett debt/EBITDA ratio of 14.0x (versus 9.3x at 1H20).

Company Description 

Sydney Airport (SYD) operates the Sydney International Airport (Kingsford Smith). The company develops and maintains the airport infrastructure and leases terminal space to airlines and retailers. The ASX listed stock consists of Sydney Airport Limited (SAL) and Sydney Airport Trust (SAT1). Shares and units in the Group are stapled.

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.