- Strong franchise model with funding predominately by way of deposits.
- Expected low levels of impairment charges (especially as a low interest rate environment helps customers and arrears).
- Continued strong cost discipline, improving efficiency and boosting performance.
- Advanced accreditation in progress (which may improve ROE).
- Potential pressure on net interest margins as competition intensifies, with major banks in a low interest rate environment.
- Leading in terms of customer satisfaction and net promoter metrics, which are increasingly key in a period where trust is paramount.
Key Risks
- Intense competition for loan growth, combined with further discounting.
- Volatility in Home safe earnings.
- Increase in bad and doubtful debts or increase in provisioning. We continue to monitor the asset quality of Rural Bank and Great Southern portfolios.
- Funding pressure for deposits and wholesale funding.
FY21 Results Summary
Relative to the PCP: Statutory net profit of $524.0m was up +172%. Cash earnings after tax of $457.2m, was up +51.5%. Net interest margin of 2.26%, was down 7 bps. Total income on a cash basis of $1,702.5m, was up +4.5%, with BEN exceeding system lending growth. Bad and doubtful debts were $18.0m, which equates to 2bps of gross loans.
Excluding the provision release of $19.4m announced on 5 August 2021, bad and doubtful debts equate to 5bps of gross loans. Operating expenses of $1,027.4m were up +0.6% over the PCP, on increased investment in transformation. Excluding transformation, operating costs were -2.5% lower. BEN’s cost to income ratio of 60.3% was down 240bps relative to the PCP, but remains above BEN’s medium target of a sustainable cost to income ratio 50%. CET 1 of 9.57% was up 32 bps, and remains above APRA’s ‘unquestionably strong’ benchmark. Cash earnings per share were 85.6 cents per share (cps), up +43.4%.
The Board declared a final dividend of 26.5cps which brings the total fully franked dividend of 50.0 cps for the full year, with DRP discount of 1.5%. The dividend payment equates to 58.4% of cash earnings. BEN saw growth in market share in lending (up to 2.41% from 2.24% in FY20) and deposits with total lending of $72.2bn, up +10.6%, driven by residential lending (at a rate of 2.8x system or up +14.8%), and total deposits of $78.0bn, up +15.2%, with customer deposits up +14.2%
Company Description
Bendigo and Adelaide Bank Ltd (BEN) offers a variety of banking and other financial services including internet banking, housing finance, retail and business banking, commercial finance, funds management, treasury and foreign exchange services, superannuation and trustee 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.
- The share price has de-rated from a recent high by ~18% (which is valid), provides a buying opportunity in our view.
- The acquisition of Lattice Energy provides a stable mix of producing assets.
- The Company is currently on a 5-year capital expenditure program. The execution and delivery of this program could see upside risks to consensus estimates.
- Favorable industry conditions on the east coast gas market over the long-term –i.e. tight supply could lead to higher gas prices.
- Strong balance sheet
- Potential M&A activity.
Key Risks
- Execution risk – Drilling and exploration risk. Unable to resolve the issue at Western Flank, leading to long-term downgrades to key estimates for the project.
- Commodity price risk – movement in oil & gas price will impact unconstructed / re-contracting volumes.
- Regulatory risk – such as changes in tax regimes which adversely impact profitability.
- M&A risk – value destructive acquisition in order to add growth assets.
- Financial risk – potentially deeply discounted equity rising to fund operating & exploration activities should debt markets tighten up due external macro factors.
- Currency risk
FY21 Results Highlights
NPAT of $317m impacted by $117m non-cash, pre-tax impairment Underlying NPAT of $363m. Underlying EBITDAX of $1,010m and underlying EBITDA of $953m, underpinned by favourable arbitral outcome for the carbon liability associated with a Kupe GSA. BPT retained a strong balance sheet with net debt of $48m, net gearing of 1.5% and liquidity of $402m at 30 June 2021. Management highlighted BPT is in net cash position as of 13 August 2021. The Board declared a final dividend of 1.0 cps, fully franked
Company Description
Beach Energy Ltd (BPT) is an oil & natural gas exploration and production company. BPT has both onshore and offshore operations in five basins (Perth, Cooper, Victoria, and Tasmania & NZ) across Australia and New Zealand. The Company is a key supplier of gas into the Australian east coast gas market. The Company also owns strategic oil and gas infrastructure (Moomba processing facility & Otway Gas Plan
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.
Insurers putting up rates to improve their own margins provides a nice tailwind for the resilient insurance broking industry. Steadfast will pay AUD 411.5 million for Coverforce, an EBITA multiple of 11 times after cost synergies. While the multiple is higher than the 9-10 times often paid for broker businesses, given Steadfast is funding the purchase with expensive shares, the deal is still attractive. Coverforce is the largest privately owned broker business in the network, overseeing AUD 530 million of GWP in fiscal 2021. Losing this group would not have been a good look for Steadfast.
The acquisition is straight from the playbook that has served Steadfast well. Owners often look to sell all or part of their broking business to release equity or as part of a succession plan. A share purchase plan to raise an additional AUD 20 million will also be offered. The SPP price will be set at the lower of the institutional placement price or 1% discount to the VWAP of Steadfast shares over the five trading days to September 13, 2021. Around 60% of Steadfast’s EBITA growth was organic, both volume and price increases. The remainder, from acquisitions and increased equity holdings in brokers within its network. The growth strategy reinforces the businesses competitive advantages and strengthens customer switching costs.
With insurers generating poor returns on capital, we expect premium rate increases to continue at around 5% per annum in fiscal 2022, but moderate to 2-3% per annum longer-term. The acquisition of Coverforce lifts Steadfast’s equity ownership in brokers within the network to 37% from 32%, leaving a long tail of investment opportunities over the long-term. Our forecasts assume annual NPAT growth of 14% per annum over the five-years to fiscal 2026.
Steadfast’s Future Outlook
Our forecast sits above the range, with NPAT of AUD 174 million. We think management guidance is conservative given the price increases insurers are pushing to improve their own returns. We increase our fair value estimate 8% to AUD 4.00 per share as we incorporate the acquisition of Coverforce. We assume a 12% increase in shares on issue to fund the acquisition. We think the acquisition is likely to be a success. We do not recommend participating in the share purchase plan given the issue price is set at a floor of AUD 4.35 per share, a 9% premium to our fair value estimate. Steadfast is a good business, but expensive.
Back on the result, one aspect that missed our expectations was GWP on the Steadfast Client Trading Platform, or SCTP. Premiums on the platform increased 24% in fiscal 2021, but still make up less than 8% of broker GWP. Being more profitable for Steadfast, success here will provide an additional tailwind to earnings. e assume around 40% of GWP is written on the platform by fiscal 2026, down from our prior forecast of 50%, as it is taking longer than expected for insurers to integrate products onto the new platform.
Company Profile
Steadfast Group is the largest general insurance broker network in Australia and New Zealand, with over 450 brokers and 2,000 offices in Australia, New Zealand, Singapore, and London. Steadfast operates as both a broker and a consolidator via equity interests in insurance broker businesses, generating close to AUD 10 billion of network broker gross written premium annually. Steadfast also co-owns and consolidates underwriting agencies and other complementary businesses.
(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.
GPT has some major developments in the pipeline, particularly in the office and industrial space, and as these complete, we expect rental income to become a larger portion of revenue over time. Its office portfolio includes stakes in Sydney’s Australia Square and Governor Phillip Tower, Brisbane’s One One One Eagle St and the neighbouring Riverside Centre, and numerous properties in and around Collins St in Melbourne’s CBD. Retail property remains a large exposure, making up about 40% of GPT’s directly held property and one third of its funds management assets.
GPT has not been acquiring retail properties lately, limiting investments to refurbishments or redevelopments. The group has several development opportunities, with the most significant being an as yet uncommitted redevelopment of Darling Park and Cockle Bay, which we expect will create an entirely new precinct above Sydney’s western distributor. GPT has moderate exposure to industrial property, and launched its first industrial property funds management vehicle in 2020. Ownership of industrial property has been an increased focus.
Financial Strength
GPT is in solid financial health, with gearing (net debt to assets) of 24.5%, as at June 30, 2021. This is slightly below the group’s targeted range of 25%-35%. We expected gearing would rise based on further acquisitions and development, however, its a possibility that GPT will save its ammunition until the outlook improves further. Gearing is also likely to rise due to further devaluations in the office and retail portfolio. GPT is likely to be able to rollover the debt, given its interest cover ratio was roughly eight times, based on the June 2021 accounts. The weighted average debt maturity is 7.4 years, and two thirds of debt is hedged, reducing interest-rate risk. The weighted average cost of debt of 2.7% which fell from 3.1% in December 2020.
GPT Group made a decent comeback in the first half of fiscal 2021, driven by a recovery in rental collections, leasing activity, and retail sales. Funds from operations per security grew 25% on pcp, to AUD 15.6 cents, in line with our expectations. GPT announced an interim dividend of AUD 13.3 cents per share which is on track to meet our full year estimate of AUD 25 cents per share. GPT bought back 32 million securities at an average price of AUD 4.54, which was moderately below the market price, and well below our fair value estimate.
Our cost of capital assumptions for GPT are unchanged but we factor in savings from a remarkably low average cost of debt of 2.7% that is locked in for more than seven years. Our long-term thesis remains intact with expectations that GPT will recover to prepandemic levels in fiscal 2022, delivering an FFO per security of AUD 32 cents per share. GPT’s prime office portfolio is well placed to capture employers looking to make upgrades to prime-grade offices better accommodated to flexible working.
Bulls Say’s
- GPT has several development plans that are near shovel-ready. Unlike rivals, GPT’s strong balance sheet means it has the flexibility to proceed with these projects when it chooses to.
- GPT’s office, industrial and funds management businesses diversify income sources, meaning it should see the benefits of an eventual post-COVID-19 recovery.
- Demand for quality real estate remains from the likes of pension funds, sovereign wealth funds and other offshore investors, which should drive buying in the direct property market and limit valuation falls.
Company Profile
GPT Group was listed in 1971 and is Australia’s oldest listed property trust. The business strategy is not particularly differentiated from peers, other than through its particularly conservative gearing and modest emphasis on development activity. The portfolio weighting to industrial is a major growth area for the firm, but is still minor at about 20% of total revenue. GPT remains dominated by retail malls that generate about a third of its revenue, and another quarter from office.
(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.