- High quality portfolio composition with stronger weighting towards Melbourne and Sydney urban areas minimizing risk from submarket weakness from Brisbane.
- MGR has secured 90% of expected Residential EBIT for FY22.
- Strong pipeline of residential projects to come, delivering earnings growth by FY22.
- Solid balance sheet. Gearing at 22.8% (at lower end of target range of 20%-30%).
- Continuing recovery in weak retail sales especially for supermarkets.
- Strong management team.
Key Risks
- Deterioration in property fundamentals for Office, Industrial and Retail portfolio, such as delays with developments or lower than expected rental growth causing downward asset revaluations.
- Tenant defaults as the economic landscape changes (increasingly competitive retail sector especially from online retailers such as Amazon). For instance, retailer bankruptcies causing rising vacancies in the retail portfolio.
- Generally softening outlook on the broader retail market.
- Residential settlement risk and defaults.
- Higher interest rates impacting debt margins.
- Consumer sentiment towards impact of higher interest rates and effect on retail and residential businesses.
FY21 Results Summary
Operating profit of $550m was down -9% over pcp and operating EBIT of $704m declined -12% over pcp, negatively impacted by lower development profit and higher unallocated overheads, partially offset by growth in NOI (especially growth in Integrated Investment Portfolio NOI following newly completed office asset developments).However, statutory profit was up +61% to $901m and EPS of 14cpss exceeded management’s earnings guidance of greater than 13.7cpss.
AFFO declined -23% over PCP, reflecting the lower operating earnings together with increased tenant incentives and normalization of maintenance capex. Total distribution was $390m, representing a DPS of 9.9cpss, an increase of +9%, funded from operating cash flows which increased +41% over pcp to $635m, driven by final fund through receipts following capitalization of Older fleet, lower development spend and stronger cash collection from the investment portfolio. Net tangible assets (NTA) per stapled security increased +5% over PCP to $2.67.
The Company extended its development pipeline, ending the year with $28bn across mixed use, office, industrial, residential and build to rent. Balance sheet remained strong with cash and undrawn debt facilities of $867m, investment grade credit ratings of A3/A- by Moody’s/Fitch, gearing of 22.8% (lower end of target range of 20-30%). The Company saw cost of debt decline -60bps over PCP to 3.4%, with management expecting further reduction in FY22.
Company Description
Mirvac Group Ltd (ASX: MGR) is a real estate investment and development company. The company operates in Residential and Commercial & Mixed Use space within the real Estate sector. Mirvac Group Ltd is headquartered in Sydney, Australia.
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.
in line with our expectations and in the middle of the guidance range. Earnings are expected to fall again in fiscal 2022 as management has been flagging for some time. Guidance is for underlying NPAT of AUD 220 million to AUD 340 million, with the midpoint down 48% in 2021. AGL’s cheap coal supply underpins its competitive advantage.
Competitors with shorter dated coal supply contracts should start to be hurt by high coal prices in coming years, potentially forcing them out of the market and pushing electricity prices higher. EBITDA fell 21% to AUD 1.6 billion in fiscal 2021 on lower electricity prices and higher gas supply costs. Headwinds from low electricity prices continue into fiscal 2022, and management is focused on reducing operating costs and maintenance capital expenditure through efficiency initiatives.
EBITDA rose 16% to AUD 337 million on cost savings and higher retail gas prices. The retail business has made a few interesting acquisitions recently to expand its geographic footprint to the West Coast, widen its service offering to include telecommunications and solar installations, and benefit from economies of scale. This should generate good returns.
Company’s Future Outlook
It is estimated that NPAT bottoms in fiscal 2023 at AUD 231 million before recovering back to AUD 442 million by 2026. The stock materially undervalued on a long-term view. Based on the current share price, it is forecasted to have a PE ratio of about 10 by 2026. Far more important is the expected recovery in electricity prices, given AGL is a huge producer of electricity through its three coal-fired power stations. It is expected that AGL’s financial position is sound; though there is modest risk given, banks are making life difficult by trying to reduce lending to coal power stations.
Company Profile
AGL Energy Ltd (ASX: AGL) is one of Australia’s largest retailers of electricity and gas. It services 3.7 million retail electricity and gas accounts in the eastern and southern Australian states, or about one third of the market. Profit is dominated by energy generation, underpinned by its low-cost coal-fired generation fleet. Founded in 1837, it is the oldest company on the ASX. Generation capacity comprises a portfolio of peaking, intermediate, and base-load electricity generation plants, with a combined capacity of 10,500 megawatts.
(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.
Categories
Telstra Corporation updates
- Solid dividend yield in a low interest rate environment.
- On market buyback of $1.35bn (post sale of part of Towers business) should support its share price.
- Additional cost measures announced to support earnings.
- InfraCo provides optionality in the long-term.
- Despite intense competition, subscriber growth numbers remain solid.
- Company looking to monetize $2.0bn of assets.
- In the long-term, the introduction of 5G provides potential growth, however we continue to monitor the ROIC from the capex spend.
- TLS still commands a strong market position and has the ability to invest in growth technologies and areas (e.g. Telstra Ventures) which could provide room for growth.
- Industry consolidation leading to improved pricing behavior by competitors.
Key Risks
We see the following key risks to our investment thesis:
- Further cuts to dividends.
- Further deterioration in the core mobile and fixed business.
- Management fail to deliver of cost-out targets and asset monetisation.
- Any increase in churn, particularly in its Mobile segment – worse than expected decrease in average revenue per users (or any price war with competitors).
- Any network disruptions/outages.
- More competition in its Mobile segment. Merger of TPG Telecom and Vodafone Australia creates a better positioned (financially and resource wise) competitor
- Quicker than expected deterioration in margins for its Fixed segment.
- Risk of cost blowout in upgrade network and infrastructure to 5G.
FY21 Results Highlights
Relative to the pcp:
- On a reported basis, total income fell -11.6% to $23.1bn (within FY21 guidance of $22.6bn to $23.2bn); EBITDA declined -14.2% to $7.6bn; NPAT increased +3.4% to $1.9bn.
- Underlying EBITDA of $6.7bn was within FY21 guidance of $6.6bn to $6.9bn. Underlying EBITDA, which includes an estimated $380m Covid impact fell -9.7% on a guidance basis including an in-year nbn headwind of $650m. Excluding the in-year nbn headwind, underlying EBITDA declined by ~$70m. (3) TLS FY21 underlying earnings were $1,191m while net one-off nbn receipts were $561m versus underlying earnings of $1,224m and net one-off nbn receipts of $1,075m in FY20.
- Capex of $3,020, was -6.6% lower, but within FY21 guidance of $2.8bn to $3.2bn.
- Free cashflow of $4,887m, was up +21.1%. Free cashflow after operating lease payments of $3.8bn beat FY21 guidance of $3.3bn to $3.7bn. (6) Basic EPS of 15.6 cents, was up +2%.
Company Description
Telstra Corporation (TLS) provides telecommunications and information products and services. The company’s key services are the provision of telephone lines, national local and long distance, and international telephone calls, mobile telecommunications, data, internet and on-line. Its key segments are Mobile, Fixed, Data & IP, Foxtel, Network applications and services and Media.
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 food-service market has nearly fully recovered, with sales at 95% of prepandemic levels as of the summer of 2021, and Sysco has emerged as a stronger player, with $2 billion in new national account contracts (3% of prepandemic sales) and 13,000 new independent restaurant customers. The plan should allow Sysco to grow 1.5 times faster than the overall food-service market by fiscal 2024. Sysco is investing to eliminate customer pain points by removing customer minimum order sizes while maintaining delivery frequency and lengthening payment terms. It improved its CRM tool, which now uses data analytics to enhance prospecting, rolled out new sales incentives and sales leadership, and is launching an automated pricing tool, which should sharpen its competitive pricing while freeing up time for sales reps to pursue more value-added activities, such as securing new business.
Further, Sysco has switched to a team-based sales approach, with product specialists that should help drive increased adoption of Sysco’s specialized product categories such as produce, fresh meats, and seafood. Lastly, Sysco is launching teams that specialize in various cuisines (Italian, Asian, Mexican) that should drive market share gains in ethnic restaurants. Looking abroad, Sysco has a new leadership team in place for its international operations, increasing our confidence that execution will improve.
Financial Strength
Sysco’s solid balance sheet, with $5 billion of cash and available liquidity (as of June) relative to $11 billion in total debt, positions the firm well to endure the pandemic. Sysco has a consistent track record of annual dividend increases (even during the 2008-09 recession), and in May 2021 it announced an increase in its dividend, taking the annual rate to $1.88. Sysco has historically operated with low leverage, generally reporting net debt/adjusted EBITDA of less than 2 times. Leverage increased to 2.3 times after the fiscal 2017 $3.1 billion Brakes acquisition, and to 3.7 times in fiscal 2021, given the pandemic. But we expect leverage will fall back below 2 by fiscal 2023, given debt paydown and recovering EBITDA.
In May 2021, Sysco shifted its priorities for cash in order to support its new Recipe for Growth strategy. It’s new priorities are capital expenditures, acquisitions, debt reduction when leverage is above 2 times, dividends, and opportunistic share repurchase. Its previous priorities were capital expenditures, dividend growth, acquisitions, debt reduction, and share repurchases. In fiscal 2022-2024, as it invests to support accelerated growth, Sysco should spend 1.3%-1.4% of revenue on capital expenditures (falling to 1.1% thereafter).
Bulls Say’s
- As Sysco’s competitive advantage centers on its position as the low-cost leader, we think Sysco should be able to increase market share in its home turf over time.
- Sysco has gained material market share during the pandemic, allowing it to emerge a stronger competitor.
- Sysco’s overhead reduction programs should make it more efficient, enabling it to price business more competitively, helping it to win new business, and further leverage its scale.
Company Profile
Sysco is the largest U.S. food-service distributor, boasting 16% market share of the highly fragmented food-service distribution industry. Sysco distributes over 400,000 food and nonfood products to restaurants (62% of revenue), healthcare facilities (9%), travel and leisure (7%), retail (5%), education and government buildings (8%), and other locations (9%) where individuals consume away-from-home meals. In fiscal 2020, 81% of the firm’s revenue was U.S.-based, with 8% from Canada, 5% from the U.K., 2% from France, and 4% other.
(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.