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Broadridge Is Benefiting From Retail Investor Boom

Broadridge’s regulated proxy and interim business is its crown jewel, and a disproportionate amount of the firm’s net income comes from its fiscal third and fourth quarter during proxy season. In addition, Broadridge generates about 30% of its fee revenue and profit from its global technology and operations or GTO segment, which provides securities processing solutions. Operationally, Broadridge entered into an IT-services agreement with IBM in 2010 to increase efficiency. Expanding on its mailing, data security, and processing capabilities, Broadridge has completed numerous acquisitions.

Since 2010, Broadridge has completed at least 25 acquisitions. Notable acquisitions include DST’s North American customer communications business for $410 million in 2016 and RPM Technologies for $300 million in 2019. The NACC business provides print and digital communication solutions, content management, postal optimization, and fulfillment to a variety of sectors, including financial-services firms, utilities, and healthcare firms.

RPM Technologies provides enterprise wealth management software solutions and services. In March 2021, Broadridge announced it would acquire Itiviti, a provider of order and execution management trading software and order routingnetworking and connectivity solutions, for $2.5 billion. During its December 2020 investor day, Broadridge laid out its three-year per year goals including recurring revenue growth of 7%-9% (organic: 5%-7%), adjusted operating margin expansion of 50 basis points, and adjusted EPS growth of 8%-12%.

Financial Strength

Broadridge’s financial health is sound, in our view. As of June 30, 2020, Broadridge had long-term debt of approximately $1.8 billion. Broadridge’s adjused net leverage ratio was 1.6 times EBITDAR and its gross leverage ratio was 2.0 times EBITDAR. Of the $3.2 billion in fee revenue that Broadridge generated in fiscal 2020, over 90% was classified as recurring. Also, during the last financial crisis, equity proxy position count was flat to slightly negative and mutual fund/ETF positions grew.

Given the stability of Broadridge’s business and the modest leverage, we believe Broadridge’s debt load is very manageable and that it could increase its debt for M&A if it wanted to, like it will for its acquisition of Itiviti. The acquisition is expected to add about $2.55 billion in a term credit facility. Broadridge expects a gross leverage ratio of about 3.6 times at closing, and then expects to deleverage to its updated 2.5 times target over the following two years.

Bulls Say’s

Broadridge has a dominant market share position on delivering proxies and interims to beneficial shareholders.
During the financial crisis, Broadridge’s equity position count was down only 2% in 2009, indicating that its business model is close to recession-proof.
Broadridge’s investor communication solutions and global technology and operations businesses are sticky, with retention rates near 98%.

Company Profile

Broadridge, which was spun off from ADP in 2007, is a leading provider of investor communications and technology-driven solutions to banks, broker/dealers, asset managers, wealth managers, and corporate issuers. Broadridge is composed of two segments: investor communication solutions and global technology and operations.

(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
IPO Watch

Sapphire Foods IPO: Another KFC, Pizza Hut operator files draft papers with SEBI to raise funds

Sapphire Foods’ initial public offering (IPO) consists of 1,75,69,941 equity shares and is a full offer for sale by shareholders. QSR Management Trust (QMT) owns 8.5 lakh equity shares, Sapphire Foods Mauritius owns 55,69,533 equity shares, and WWD RUBY owns 48,46,706 equity shares, Amethyst has 39,61,737 equity shares, AAJV Investment Trust has 80,169 equity shares, Edelweiss Crossover Opportunities Fund has 16,15,569 equity shares, and Edelweiss Crossover Opportunities Fund – Series II has 6,46,227 equity shares.

Sapphire Foods’ potential IPO was initially reported by Moneycontrol on December 17. Sapphire Foods, which is backed by Samara Capital, raised Rs 1,150 crore from private equity investors Creador, NewQuest Capital Partners, and TR Capital earlier this week. As of March 2021, Sapphire Foods runs 437 restaurants in India, Sri Lanka, and the Maldives under the KFC, Pizza Hut, and Taco Bell brands. Investors such as Samara Capital affiliates, Goldman Sachs, CX Partners, Creador, and Edelweiss are backing an omnichannel restaurant operator.

Due to the increased demand for delivery and takeaway services as a result of the Covid-19 outbreak, and depending on market dynamics and adjacent catchments, the company is contemplating smaller formats for new restaurants in order to cut down on one of the company’s biggest expenses – rent. 

Colonel Harland D Sanders started KFC in Corbin, Kentucky, in 1939; the first Pizza Hut restaurant opened in Wichita, Kansas, in 1958; and the first Taco Bell restaurant opened in Downey, California, in 1962. YUM! and its franchisees operated more than 50,000 locations worldwide as of December 31, 2020.

The book running lead managers for Sapphire Foods’ IPO are JM Financial, BofA Securities India, ICICI Securities, and IIFL Securities. Devyani International, another KFC, Pizza Hut, and Costa Coffee quick service restaurant operator, recently collected Rs 1,838 crore through a public offering that was oversubscribed 116.7 times.

Company Profile 

SAPPHIRE FOODS INDIA PRIVATE LIMITED COMPANY, is an entity incorporated on 10 November 2009 under Ministry of Corporate Affairs (MCA). SAPPHIRE FOODS INDIA PRIVATE LIMITED COMPANY is also an entity listed under Class as a Private organization having Registration Number for the Company or Limited Liability Partnership as 197005. SAPPHIRE FOODS INDIA PRIVATE LIMITED COMPANY is a Non-govt company and further SAPPHIRE FOODS INDIA PRIVATE LIMITED COMPANY is Classified as a Company limited by Shares. The concerned entity is incorporated and registered under its relevant statute by the Registrar of Companies (i.e. R.O.C), RoC-Mumbai. The official address for the Registered office of the organization in question i.e. SAPPHIRE FOODS INDIA PRIVATE LIMITED COMPANY is 131, 13th Floor Free Press House Building Mumbai Mumbai City MH 400021 IN.

(Source: Fact Set)

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

Charter Hall Long WALE REIT(CLW) updates

  • Strong history of delivering continuing shareholder return and dividends.
  • Solid balance sheet position.
  • Strong property portfolio metrics.
  • Selective asset acquisitions.
  • Expiry risk is relatively low in the near-term. 
  • Attractive yield in the current low interest rate environment.

Key Risks

We see the following key risks to our investment thesis:

  • Regulatory risks.
  • Deteriorating property fundamentals, including negative rent revisions. 
  • Deterioration in economic fundamentals leading rent deferrals etc. 
  • Sentiment towards REITs as bond proxy stocks impacted by expected cash rate hikes.
  • Deterioration in funding costs.

Portfolio highlights.

 $5.6bn property portfolio, up from $3.6bn, driven by $1.4bn of property acquisitions and $523m net property revaluation uplift. NTA of $5.22 per security, is a +16.8% increase from FY20. The acquisitions are broken down as follows:

  • $638m of Retail: 50% interest in David Jones, Sydney CBD flagship store with a 20-year triple net lease to David Jones; bp NZ Portfolio of 70 convenience retail properties on triple net leases to bp Oil New Zealand for 20-year WALE; 33.3% interest in Myer Bourke Street Mall, Melbourne flagship store with a 10-year net lease to Myer; Bunnings property to be developed in Caboolture, Brisbane and established Bunnings property in Baldivis Perth; 50% interest in The Parap Tavern, Darwin and Terrey Hills Tavern, Sydney, leased to Endeavour Group on initial 15-year triple net leases and 100% interest in Ampol travel centre in Redbank Plains, Brisbane.   
  • ( ii) $361m of Social Infrastructure: Telco Exchange property at 76-78 Pitt Street, Sydney with 10-year triple net lease to Telstra and 50% interest in life sciences property leased to Australian Red Cross in Sydney, with 9.6-year lease remaining. 
  • $311m of Office: 50% interests in Commonwealth Government properties, comprising A-grade office building in Tuggeranong, Canberra, leased to Services Australia and two A-grade office towers in Box Hill and Albury, Victoria majority leased to Australian Tax Office.
  • $83m of Industrial & Logistics: 100% interest in prime industrial property in Carole Park, Brisbane leased to Simon National Carriers on a 15-year net lease.

Company Description  

Charter Hall Long WALE REIT (ASX: CLW) is an Australian REIT listed on the ASX and investing in high quality Australasian real estate assets (across office, industrial, retail, agri-logistics and telco exchange) that are predominantly leased to corporate and government tenants on long term leases. CLW is managed by Charter Hall Group (ASX: CHC).

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

GrainCorp’s Fortunes Rely on a Normalized Crop Growing Year over the Long Term

handling, and port elevation services along the eastern seaboard of Australia. Earnings are heavily affected by seasonal conditions, but the diversification into oilseed crushing and refining reduces earnings volatility and provides growth opportunities. However, the firm has carved an economic moat, and forecast returns on invested capital to trail the firm’s cost of capital over the long run.

GrainCorp’s core Australian grain storage and logistics business is heavily reliant on favorable weather patterns. Beyond storage and logistics, the grain marketing segment competes domestically and internationally against other major commodities trading houses such as Cargill and Glencore. 

Outside of the agribusiness segment, it is forecasted roughly 2% organic annual growth in the processing segment top line after adjusting for a planned sale of Australian bulk liquid storage assets, combined with slight profitability expansion following recently completed restructuring. As such, project overall group revenue growing at a low-single-digit average annual pace past fiscal 2020, while EBIT margins rise to roughly 3.3%. We use a 9.5% weighted average cost of capital to discount future cash flows.

Financial Strength

Graincorp Ltd (ASX: GNC) capital structure is reasonable. It comprises debt and equity, with noncore debt associated with the funding of grain marketing inventory. As a result of swings in crop prices, GrainCorp’s cash flow and working capital requirements can be volatile, so the company will need to drawdown on debt on demand. The primary metrics are its net debt/capital gearing ratio and EBITDA/interest ratio. Gearing ratios can be volatile, given the swings in inventory levels.  Management doesn’t disclose the minimum EBITDA/interest ratio. In fiscal 2020, this ratio was about 4 times on an adjusted basis. We expect improvement to an average of around 19 times over the next five years, as EBITDA rebounds and interest expense remains low.

Bull Says

  • With strategic processing, storage, and transportation assets, GrainCorp’s size gives the company scale advantages over regional competitors.
  • Global thematic, such as increased food demand, particularly in Asia, should benefit agribusinesses such as GrainCorp. 
  • Despite divesting the malt business, GrainCorp has entered into a new grains derivative contract which assists with smoothing out earnings through the cycle.

Company Profile

Graincorp Ltd (ASX: GNC) is an agribusiness with an integrated business model operating across three divisions. The company operates the largest grain storage and logistics network in eastern Australia. GrainCorp provides grain marketing services to all major grain-producing regions in Australia, as well as to Canadian and U.K. growers. The company has also 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
Property

Goodman Group (GMG) Updates

  • Strong property fundamentals which should see valuation uplifts. 
  • With more than 50% of earnings derived offshore we expect GMG to benefit from FX translation and a prolonged period of lower rates.
  • Transitioning to longer and larger projects in development
  • Strong performances in Partnerships such as Cornerstone.
  • GMG’s solid balance sheet providing firepower and access to expertise to move on opportunities in key gateway cities with demand for logistics space (and supply constraints) and diversify risk by partnering (i.e. growth in funding its development pipeline) or co-investment in its funds and or make accretive acquisition opportunities. 
  • Expectations of continual and prolonged lower interest rate environment globally (albeit potential rate hikes in the US) should benefit GMG’s three key segments in Investments, Development and Management.

Key Risks

We see the following key risks to our investment thesis:

  • Any negative changes to cap rates, net property income.
  • Any changes to interest rates/credit markets.
  • Any development issues such as delays.
  • Adverse movements in multiple currencies for GMG such as BRL, USD, EUR, JPY, NZD, HKD and GBP.
  • Any downward revaluations.
  • Poor execution of M&A or development pipeline.
  • Key man risk in CEO Greg Goodman.

By segments

 (1) Property investment: – GMG’s portfolio retained strong property fundamentals driven by “the prolonged impacts of the global pandemic [which] continue to accelerate consumers’ propensity to shift to online shopping. Logistics and warehousing has provided critical infrastructure to enable distribution of essential goods to time-sensitive consumers through this period”. GMG’s portfolio had high occupancy at 98.1%, weighted average lease expiry of 4.5 years, and like-for-like NPI growth at 3.2%. 3.9m sqm of leasing equated to $517.1m of annual rental property income. 

(2) Development: – GMG was able to grow WIP to $10.6bn, up +63% on FY20 (across 73 projects with a forecast yield on cost of 6.7%). According to management, 81% of current WIP is being undertaken within Partnerships and GMG commenced $6.6bn in new developments with 57% committed. Management noted “metrics across the workbook remain robust as we maintain our focus on infill target markets, resulting in high levels of pre-commitment at 70% with a 14-year WALE”. 

(3) Management: – GMG saw strong uplift in revaluations of $5.8bn driving growth in total AUM to $57.9bn (up +12%). GMG expects development WIP will organically grow AUM (which management expects to exceed $65bn in FY22). Weighted average cap rate (WACR) compressed 55bps to 4.3% during FY21. Average Partnership gearing is 17.5%. Average total return in the Partnerships of 17.7% driven by strong development performance. 

Company Description  

Goodman Group Ltd (GMG) own, manage, develop industrial, warehouse and business park property in Australia, Europe, Asia and Americas. GMG actively seeks to recycle capital with development properties providing stock for ownership by either the trust or third party managed funds, with fees generated at each stage of the process.

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.