Categories
Technology Stocks

Computershare Ltd (ASX: CPU)

  • Two main organic growth engines in mortgage servicing and employee share plans should lead to organic EPS growth.
  • Expectations of margin improvement via cost reductions program.
  • Leveraged to rising interest rates on client balances, corporate action and equity market activity.
  • Potential for earnings derived from non-share registry opportunities due to higher compliance and IT requirements.
  • Solid free cash flow and deleveraging balance sheet.

Key Risks

  • Increased competition from competitors such as recently listed Link and Equiniti which affect margins.
  • Cost cuts are not delivered in accordance with market expectations.
  • Sub-par performance in any of its segments, especially mortgage servicing (Business Services) as a result of higher regulatory and litigation risks; Register and Employee Share Plans as a result of subdued activity.
  • Exchanges such as ASX are exploring block chain solution to upgrade its clearing and settlement system (CHESS). This distributed ledger technology can bring registry businesses in-house and disrupt CPU.

FY21 results by segments

Compared to pcp and in CC(constant currency): Issuer Services delivered revenue growth of +9% to $975.1m, with Register Maintenance up +3.2% amid a recovery in shareholder paid fees, new client wins and increased market share, Corporate Actions up +35.3% with volumes increasing in all major regions as a result of clients raising capital, improved IPO markets, especially in Hong Kong, and strong M&A activity, Stakeholder Relationship Management up +45.7%, Governance Service up +90.7% and Margin income down -44.3%. Management EBITDA gained +5.1% to $273.9m (with margin down -100bps to 28.1%), however, Management EBIT ex Margin Income was up +26.3% to $227.1m with margin expansion of +240bps to 24.4%, with management anticipating organic revenue ex MI growth of 0-3% p.a. and EBIT ex MI growth of 0-5% p.a. in medium term. Employee Share Plans saw revenue increase +6.3% to $308.5m, driven by Fee revenue (+4%), Transactional revenue (+15.8%) as equity markets rallied and units under administration grew +13% over pcp to $27bn as more companies issued equity deeper into their organisations, Margin Income (-4.8%) and Other revenue (-64.3%). Management EBITDA of $78.1m was up +40% (margins up +610bps to 25.3%), with Management EBIT ex MI of $69m up +68.3% (margins up +790bps to 22.6%), with management anticipating revenue ex MI growth of +3-6% p.a. and EBIT ex MI growth of +4-8% p.a. in medium term.  Mortgage Services saw revenue fall -9.5% to $574.8m driven by UK Mortgage Services (-36.6%) and Margin income (-84.7%), partially offset by US Mortgage Services (+7.7%). Management EBITDA of $103.3m was down -18.9% (margins down -200bps to 18%), with Management EBIT ex Margin Income a loss of $4.2m, with management expecting recovery in FY22 anticipating revenue ex MI and EBIT ex MI growth of 5-10% p.a. in medium term. Business Services delivered revenue decline of -15% to $207.1m, driven by Corporate Trust (-0.5%), Class Action (-30.6%) and Margin income (-48.8%), partially offset by Bankruptcy (+36.6%), Management EBITDA of $51m was down -42.2% (margins down -1160bps to 24.6%) and Management EBIT ex Margin loss of $20.4m decreased -34.4% with margin decline of -510bps to 11.5%, however, management anticipating revenue ex MI growth of 3-5% and EBIT ex MI growth of 2-5% in medium term.

Company Description  

Computershare Ltd (CPU) is a global market leader in transfer agency and share registration, employee equity plans, mortgage servicing, proxy solicitation and stakeholder communications. CPU also operates in corporate trust, bankruptcy, class action and a range of other diversified financial and governance services. 

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.

Categories
Funds Funds

Fidelity Asia Fund

and draws on the research capabilities of Fidelity’s analysts based on the ground in Asia.The Fund aims to achieve returns in excess of the MSCI AC Asia ex-Japan Index NR over the suggested minimum investment time period of five to seven years.

Our Opinion

Our rating is based on the following key drivers:

Capable PM/team:

The Fund’s star portfolio manager, Anthony Srom, and his supporting cast of analysts in high regard. Mr. Srom is well-supported by 50 on-the-groundanalysts in Asia and Fidelity’s global researchteam of 180 analysts and 400 investmentprofessionals worldwide. This makes the team one of the largest buyside firms. Nevertheless, we question the extent at which ongoing and deep research can be maintained in order to beat the index –in our view, it is increasingly difficult no matter how large an investment team is,to beat a benchmark of an efficient, liquid and well researched market.

Well-resourced and access to Company management

Relative to peers, the investment team is well resourced with additional access to third party research and consultants to conduct deep investment research as well as a thorough company visitation schedule (as a result of the investment firm’s reputation). Fidelity conducts more than 15,000company meetings a year, in order togain better insights andknowledge, to make investment decisions.

Sensible investment process rooted in bottom-up research, high conviction, highly concentrated and low turnover

The Fund conducts fundamentals bottom-up stock selection to build a high conviction and highly concentrated portfolio of 20–35 stocks based in the Asia Pacific ex Japan region. There is no deliberate portfolio management style bias, although new positions typically exhibit a contrarian/value bias. Mr. Srom is willing to take a long-term view on a stock, resulting in a low turnover strategy (40%–70%). This translates to a holding period of 18–24 months, but there are stocks that have been held for more than three years.

Downside Risk

Asian economic conditions deteriorate, leading to earnings downgrades at the company level. High quality companies underperform especially in stocks where the Fund has a relative overweight position.
Key-man risk should Portfolio Manager, Mr. Anthony Sromdepart.
The Fund invests in emerging markets which can be more volatile than other more developed markets.
The Fund invests in a relatively small number of companies and so may carry more risk than fundsthat are more diversified.

(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.

Categories
Technology Stocks

Megaport Ltd (ASX: MP1)

  • to the rapidly growth of global cloud and data centres and is in a strong position to benefit from the rollout to new cloud and data centre regions. Key macro tailwinds behind MP1’s sector: (1) adoption of cloud by new enterprises; (2) increased level of investment and expenditure by existing customers; and (3) more and more enterprises looking to use multiple cloud products/providers, which works well with MP1’s business model.
  • MP1 has a scale advantage over competitors. MP1 is over 600 locations around the globe. MP1 has significant scale advantage over competitors and whilst replicating this scale is not necessarily the difficult task, it will take a number of years to do so during which time MP1 will continue to add locations and customers using the scale advantage.
  • Strong R&D program ensuring MP1 remains ahead of competitors
  • Strong cash balance of $136.3m at year end and a reducing cash burn profile puts the Company in a strong position.
  • Strong relationship with data centres (DC). MP1 has equipment installed in 400 data centres, so MP1 is a customer of data centres. MP1 also drives DCs interconnection revenue. Whilst several data centres like NEXTDC, Equinix provide SDN (Software Defined Network) services, it is unlikely data centres will look to change their relationship with (or restrict) MP1 given they are designed to be neutral providers to network operators. Further, given MP1’s existing customer base and connections with cloud service providers, it would be very difficult for data centres (without significant disruption to customers/cloud service providers) to change the rules for MP1.

      Key Risks

  • High level of execution risk (especially with respect to development).
  • Revenue, cost and product synergies fail to eventuate from the InnovoEdge acquisition.
  • Heavy reliance on third party partners (especially data centre providers and cloud service providers).
  • Data centres like NEXTDC, Equinix provide SDN services and decide to restrict MP1 in providing their services.
  • Disappointing growth (in terms of expanding data centre footprint, customers, ports, Megaport Cloud Router).

FY21 Results Highlights

Relative to the pcp: (1) Revenue of $78.28m, up +35%. EBITDA breakeven. Net loss for FY21 was $55.0m. (2) MRR of $7.5m, was an increase of $1.8m, or +32% (annualises to $90m). (3) Customers grew to 2,285, or up 443 or +24%. (4) Installed Data Centres increased by 39, or +11% to 405. (5) Enabled Data Centres increased by 92, or +14% to 761. (6) Ports increased 1,922, or 33% to 7,689. (7) Average revenue per port was down $2 to $978. (8) At year-end, MP1’s cash position was $136.

Company Description 

Megaport Ltd (MP1) is a software-based elastic connectivity provider – that is, it is a global Network as a Service (NaaS) provider. MP1 develops an elastic connectivity platform providing customers interconnectivity and flexibility between other networks and cloud providers connected to the platform.

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.

Categories
Technology Stocks

JB Hi-Fi Ltd (ASX: JPH) Updates

  • Being a low-cost retailer and able to provide low prices to consumers (JB Hi-Fi & The Good Guys) puts the Company in a good position to compete against rivals (e.g. Amazon). 
  • The acquisition of The Good Guys gives JBH exposure to the bulky goods market.
  • Market leading positions in key customer categories means suppliers ensure their products are available through the JBH network.  
  • Clear value proposition and market positioning (recognized as the value brand). 
  • Growing online sales channel. 
  • Solid management team – new CEO Terry Smart was previously the CEO of JBH (and did a great job and is well regarded) hence we are less concerned about the change in senior management. 

Key Risks

  • Increase in competitive pressures (reported entry of Amazon into the Australian market). 
  • Roll-back of Covid-19 induced sales will likely see the stock de-rate. 
  • Increase in cost of doing business. 
  • Lack of new product releases to drive top line growth.
  • Store roll-out strategy stalls or new stores cannibalize existing stores. 
  • Execution risk – integration risk and synergy benefits from The Good Guys acquisition falling short of targets). 

FY21 group Summary

Group sales were up +12.6% to $8.9bn, consisting of JB Hi-Fi Australia up +12.0%, JB Hi-Fi NZ up +17.4% (NZD) and The Good Guys up +13.7%. The Company saw strong demand for consumer electronics and home appliances during the period. Operating earnings (EBIT) followed strong top line growth, with group EBIT up +53.8% to $743m – driven by JB Hi-Fi Australia up +33.6% and The Good Guys up +90.2%. Group EBIT margin expanded +233bps to 8.33%, highlighting the strong operating leverage in the business. The Company declared a final dividend of 107cps (up +18.9% YoY), taking the full year dividend to 287cps (up +51.9% YoY).

Company Description  

JB Hi-Fi Ltd (JBH) is a home appliances and consumer electronics retailer in Australia and New Zealand. JBH’s products include consumer electronics (TVs, audio, computers), software (CDs, DVDs, Blu-ray discs and games), home appliances (white goods, cooking products & small appliances), telecommunications products and services, musical instruments, and digital video content. JBH holds significant market-share in many of its product categories. The Group’s sales are primarily from its branded retail store network (JB Hi-Fi stores and JB Hi-Fi Home stores) and online.

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.

Categories
Property

GPT Group (ASX: GPT)

Close up young business woman holding house model on hands with free copy space. Real estate loan banking concept. Building and construction.
  • Diversified with Funds Management business generating income.
  • Balance sheet strength with gearing ratio at 24.5%, well below target range of 25-35%.
  • Strong tenant demand for the GPT east coast assets.
  • Conducting a buyback of up 5% of issued capital.

Key Risks

  • Breach of debt covenants.
  • Inability to repay debt maturities as they fall due.
  • Deterioration in property fundamentals, especially delays with developments.
  • Environment of expected interest rate hikes.
  • Downward asset revaluations.
  • Retailer bankruptcies and rising vacancies.
  • Outflow of funds in the Funds Management business reducing GPT’s income.
  • Tenant defaults as economic landscape changes.

1H21 results summary

NPAT of $760.5mvsnet loss of $520.4m in pcp million), with investment property valuation increases of +3.3% ($471.7m) with portfolio WACR firmed +10bps to 4.85%. FFO of $302.3m (+23.6%) resulting in FFO per security of 15.64 cents, an increase of +24.6%, reflecting the improved performance and the reduction in securities from the on-market buy-back. Total 12-monthreturn was 10.2%vs-0.1% in pcp amid investment property revaluation gains driving an increase in NTA per stapled security of +29% to $5.86. Operating cash flow increased +41.6% over PCP to $289m and FCF increased +40.2% to $255.1m. Completed 32 Smith and Queen & Collins Office developments valued at $ 780m, and 4 Logistics developments on track to complete in 2 H21 with a combined expected end value of $170m.

Company Description  

GPT Group (GPT) owns and manages a portfolio of high-quality Australian property assets; these include Office, Business Parks and Prime Shopping Centres. Whilst the core business is focused around the Retail, Office and Logistics, it also has a Funds Management (FM) business that generates income for the company through funds management, property management and development management fees. GPT’s FM business has the following funds, GPT Wholesale Office Fund (GWOF – A$6.1b) launched in July 2006, GPT Wholesale Shopping Centre Fund (GWSCF – A$3.9b) launched in March 2007 and GPT Metro Office fund (GMF – A$400m) launched in 2014.

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.

Categories
Technology Stocks

Carsales.com Ltd (ASX: CAR)

  • Heavily reliant on two growth stories (South Korea and Brazil).
  • Diversified geographic coverage.
  • Bolt-on acquisitions provide opportunity to supplement organic growth.
  • The Company can sustain high single-digit and low double-digit revenue growth. 
  • CAR’s move into adjacent products and industries. 
  • Increasing pricing in South Korea to boost margins.
  • Looking to take more of the car buying experience online with dealers (i.e. increasing its total addressable market).

Key Risks

 We see the following key risks to our investment thesis:

  • Rich and demanding valuation.
  • Competitive pressures, that is car dealer driven substitute platform or the No. 2 & 3 player gain ground on CAR.
  • Motor vehicle sales remain subdued.  
  • Value destructive acquisition / execution risk with international strategy.
  • Not immune from broader downturn in economy (consumer likely to delay a significant purchase in time of uncertainty).

FY22 Earnings Guidance:- 

CAR provided no quantitative guidance but provided outlook commentary (which excluded the impact of acquiring Trader Interactive). 

  • Consolidated Outlook: “in FY21… While current lockdowns and retail closures are having an impact on leads and private ad volumes, if our experience is consistent with prior lockdowns, the business is well placed to recover all or most of the declines once retail re-opens. On this basis we would expect to deliver solid growth in Group Adjusted revenue, Adjusted EBITDA and Adjusted NPAT1 in FY22. Depending on the duration and frequency of lockdowns in the first half, financial performance is likely to be more heavily weighted to the second half than usual”. 
  • Australia. Dealer: “Outside the states impacted by lockdowns, underlying market conditions remain solid”. Private: “Private listing volumes are growing strongly on pcp excluding NSW; tyresales has operated at lower volume levels in July 2021 due to the lockdowns in NSW and Victoria”. Media and new car market: “The new car market continues to demonstrate signs of improvement as evidenced by the solid performance in new car sales volumes over the last six months. This has resulted in an improvement in media revenue run rate, providing confidence that we can deliver growth in this segment in FY22”. Domestic Core expenses: “Anticipating core expenses to be higher in FY22 compared to FY21 largely reflecting the absence of wage subsidies”. 
  • International. (i) Korea: “In FY22 we expect strong growth in revenue and strong growth in EBITDA excluding the potential for continued marketing investment in Dealer Direct”. (ii) Brazil: “We expect strong growth in revenue and EBITDA in FY22”. (iii) U.S: “In July 2021, financial performance continues to be strong. We will provide guidance on Trader Interactive at the AGM in October-21”.

Company Description  

Carsales.com Ltd (ASX:CAR), founded in 1997, operates the largest online automotive, motorcycle and marine classifieds business in Australia. Carsales is regarded as one of Australia’s original disruptors and has expanded to include a large number of market-leading brands. The Company employs over 800 and develops world leading technology and advertising solutions in Melbourne. CAR has also expanded to numerous global markets, such as South Korea, Brazil, and other countries in Latin America.

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.

Categories
Global stocks Shares

Baby Bunting Group (ASX: BBN)

  • BBN has the largest presence in Australia amongst specialty baby goods retailers.
  • Low risk that online sales threaten high service business model of brick-and- mortar stores to showcase goods and in-store advice.
  • Solid growth story via new store openings (targeting 100+ stores network).
  • Strong market shares (currently sits at 30% in a highly fragmented market).
  • NZ’s $450m addressable market represents another opportunity.

Key Risks

  • Retail environment and general economic conditions in addressable markets may deteriorate.
  • Competition may intensify especially from online retailers such as Amazon, specialty retailers, department stores, and discounted department stores.
  • Customer buying habits/trends may change. Rapid changes in customer buying habits and preferences may make it difficult for the Company to keep up with and respond to customer demands.
  • Higher operating and occupancy costs. Any increase in operating costs especially labour costs will affect the Company’s profitability.
  • Poor inventory control and product sourcing may be disrupted.
  • Management performance risks such as poor execution of store rollout especially into ex-metro areas.

FY21 result highlights

Sales of $468.4m were up +15.6%, with same-store comparable sales up +11.3%. Online sales grew by +54.2% and now make up 19.4% of total sales (vs. 14.5% in PCP). Gross profit of $173.7m was up +18.3% on PCP, with GP margin up +83bps to 37.1%. Cost of doing business (CODB) as a percentage of sales improved 14bps to 27.8%, aided by store expense leverage and warehouse volume leverage (cost fractionalization). Operating earnings (EBITDA) were up +29.2% to $43.5m (with EBITDA margin up +100bps to 9.3%) and NPAT was up +34.8% to $26.0m.Operating cash flow was weaker versus pcp, driven by higher working capital – driven by an increase in inventories and also cycling particularly low levels in the pcp. 

 The Company declared a final dividend of 8.3cps, taking the full year dividend to 14.1cps (up +34.1% on PCP). The Board continues to target a payout ratio in the range of 70-100% pro forma NPAT. Private label sales were up +31.1% vs pcp and now make up 41.4% of group sales (vs. 36.5% in FY20). The Company remains on target to achieve 50%of sales from private sales. Outlook guidance: Similar to last year, no earnings guidance was provided for FY22 due to Covid-19 related uncertainty. However, year-to-date trading update suggest the Company is feeling the impacts of the current lockdowns – comparable store sales are down -6.4% YTD (impacted by stay at home orders), online sales are up a healthy +32.6% however much lower than pcp and excluding the most impacted state (NSW) comparable sales are up a subdued +1.0%.

Company Description

Baby Bunting Group Limited (BBN) is Australia’s largest nursery retailer and one- stop-baby shop with 42 stores across Australia. The company is a specialist retailer catering to parents with children from newborn to 3 years of age. Products include Prams, Car Seats, Carriers, Furniture, Nursery, and Safety, Baby wear, Manchester, Changing, Toys, Feeding and others.

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.

Categories
Property

Arena REIT (ASX: ARF)

  • Potential positive regulatory changes to childcare subsidies (i.e. increase in subsidies for childcare services from 28hours (or 3 days) to 4 days) and incentives for parents to work.
  • Increasing macro trends of increased female labour participation rates as a key driver for ELC demand.
  • Potential upside from its development pipeline in childcare centres.
  • Solid balance sheet with low gearing.  
  • Strong and experienced management team.
  • Strong tenant profile.

Key Risks

  • Property portfolio fundamentals risks. Assets in the portfolio are subject to risks from deterioration in the property fundamentals such as cap rates, rents received from tenants and rental growth, expense risks, net asset values, occupancy rates, tenancy risk and costs, weighted average lease expiry. Deteriorating economic and demographic trends (such as lower population growth or lower GDP growth) will impact assets.
  • Development risks. Poor execution or delays of development or redevelopment of existing properties may affect the rental income and value of assets of the Company.
  • Adverse interest rate movements affect bond-proxy stocks. Deterioration in credit markets may result in changes to the availability of borrowings, impact gearing levels and debt covenants and the interest rates charged by lenders resulting in the Company borrowing at higher interest rates, thereby affecting distributions.
  • Management performance risks. The Company relies on the expertise of managers to manage assets, asset recycling (acquisitions and divestments), and to execute the strategy.

FY21 Results Highlights

Statutory net profit $165.4m, up 116%. Net operating profit (distributable income) of $51.9m, up 18.5%. Earnings per security of 15.2 cents, up 4.5%.  Distributions per security of 14.8 cents, up +6%. Total Assets of $1,151.5m, up +14%. Net Asset Value (NAV) per security of $2.56, up +15%. Gearing 19.9%, increased from 14.8% at FY20.  100% of contracted rent was collected in FY21. ARF guided to FY22 DPS guidance of 15.8 cents per security, which implies growth of +6.8% on FY21.

Company Description  

Arena REIT (ARF) owns develops and manages a portfolio of childcare properties and healthcare facilities. 

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.

Categories
Commodities Trading Ideas & Charts

Steel and Scrap Metal Markets: a Sunny F.Y. 22 Outlook for Sims

Steel prices remain elevated as a result of robust demand from the automotive and construction sectors amid the global economic recovery from the corona virus shock of 2020. 

Both ferrous and non-ferrous scrap metal prices have improved substantially from their COVID-19-induced lows of April 2020. In turn, rising scrap prices drove continued improvement in Sims’ scrap volumes in the second half of fiscal 2021. The initial outbreak of the pandemic also weighed on scrap market volumes and prices in early fiscal 2021. 

Sims’ balance sheet remains well positioned amid the rough and tumble of scrap metal markets. Rising scrap prices and intake volumes drove working capital to its highest level in a decade. Nonetheless, Sims finished the year with an AUD8 million net cash position.

Company’s Future Outlook

With the conductive conditions expected to hold in steel and scrap metal markets into fiscal 2022, the company raise fiscal 2022 EBIT estimate by a sizable 145% to AUD 625 million. However, with appreciably lower scrap prices, and correspondingly lower operating margins anticipated longer-term, no change to AUD 11.50 per share FVE. It is expected that the scrap volumes to grow at a robust 20% in fiscal 2022 amid the current cyclical upswing. It is anticipated that Sims’ working capital balance to increase further during fiscal 2022—as a result of rising scrap volumes and buoyant scrap prices.

Company Profile

Sims Limited (ASX: SGM) was created from the 2008 merger of two leading metal-recycling companies: Australia’s Sims Group and America’s Metal Management. The company is the world’s largest publicly traded metal and electronics recycler, with roughly half of its revenue generated in North America and the balance split between Australasia and Europe.

 (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.