Categories
Dividend Stocks

WES reported 1H22 results reflecting earnings weaker relative to the pcp, with revenue of $17,758m

Investment Thesis:

  • Ongoing momentum in discretionary spend, driven by strength in housing prices. Diversified asset base with core assets continuing to grow (Bunnings).
  • Expect improved performance from Target and Industrials businesses.
  • On-going focus on shareholder return including attractive yield.
  • Strong management team.
  • Strong balance provides flexibility to take advantage of opportunities as they arise.
  • Potential capital management initiatives.

Key Risks:

  • Margin erosion due to competitive pressures. 
  • Disappointing earnings performance in Bunnings. 
  • Deterioration in the macro picture leading to lower retail sales activity and volumes. 
  • Deterioration in balance sheet metrics. 
  • Adverse movements in AUD/USD.

Key Highlights:

  • WES’s earnings were weaker relative to the pcp, with revenue of $17,758m largely flat relative to the pcp, but EBIT of $1,905, declined -12.3%, and NPAT of $1,213, was -14.2% weaker, with strong results in WesCEF and Industrial and Safety, up +36.3% and +10.8% respectively, more than offset by poor performance in Kmart and Officeworks, down -63.4% and -18.0% respectively.
  • Free cash flows of $949m was -51.7% weaker.
  • Net capex increased to $405m, up +66.7%.
  • WES’s balance sheet position deteriorated from the pcp as a result of a $2.3bn return of capital to shareholders in December, with net financial debt/cash reversing from a net cash position of $871m to $2,615m net financial debt position at the end of the half. Debt to EBITDA (excluding significant items) is now 2.0x versus 1.3x in the pcp.
  • The Board declared an interim dividend of 80cps, fully franked, -9.1% lower than the pcp.
  • Revenue was up +1.7% to $9,209m, whilst earnings dropped -1.2% to $1,259m. On the conference call, management noted “Bunnings remains well positioned for long-term growth, the near-term trading remains uncertain. With Covid continuing to add operational complexity and increased variability in trading patterns. In the second half, the business to benefit from customers continuing to spend more time at home and a sustained pipeline of residential building activity… to expect supply chain constraints and elevated team absenteeism to continue, creating operational complexity as well as cost pressures”.
  • Kmart Group: revenue fell -9.6% to $4,917m as earnings before significant items declined -63.4% to $178m. WES noted “combined Kmart and Target earnings declined 55.8% to $222m for the half, reflecting the significant impact of government-mandated store closures, which led to the loss of almost 25% of store trading days during the half, as well as higher costs and lower stock availability as a result of domestic supply chain disruptions”. On the call with management, WES also highlighted “looking forward to navigating near-term trading environments that remain uncertain volatile across both supply and demand, and with the addition of increasing all material costs”.
  • Officeworks: Revenue was up +3.7% to $1,580m, while earnings fell -18.0% to $82m, with sales growth driven by strong demand in technology and furniture, partially offset by declining sales in higher-margin office supplies and print & copy categories, which continued to be adversely impacted by Covid-related restrictions, including government-mandated temporary store closures.
  • Chemicals, Energy and Fertilisers: Revenue increased +29.8% to $1,077m as earnings increased +36.3% to $218m driven by higher global commodity prices, particularly for LPG, ammonia and ammonia-related products.
  • Industrial and Safety: Revenue was up +5.1% to $944m as earnings increased +10.8% to $41m driven by increased operating efficiencies at Blackwoods, growth in demand from Coregas’ industrial and healthcare customers.

Company Description:

Wesfarmers Limited (WES) has diverse business operations covering convenience stores, home improvement, office supplies, and department stores. The company also has an industrials division which includes businesses in chemicals and fertilizers, industrial and safety products and coal. Wesfarmers employs over 220,000 people.

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Property

Vicinity Centres (VCX) reported robust 1H22 results, reflecting a reversal with statutory net profit after tax of $650.2m

Mortgage, investment, real estate and property concept. Dollar money and house keys

Investment Thesis:

  • Ex Covid-19, stock trades on an attractive gross dividend yield.
  • The concern for VCX is that cap rates and asset valuations need to be adjusted for weak domestic economic data points around the consumer.
  • High quality property portfolio (high occupancy, stable rental growth etc.) with resilience to weakening retail sales environment through its portfolio repositioning.
  • Decent development pipeline to power growth at decent initial yield and IRR.
  • Retail environment remains challenging and expected to remain so over the next 12 months as households remain constrained by high debt levels & lack of wage growth despite stable unemployment in the eastern states.
  • Strong specialty growth across retail categories, especially Luxury stores (+30.2% over the 12 months to 31 December 2019).

Key Risks:

  • Corona virus affects consumer sentiment and retail stores, which affects VCX’s tenants.
  • Increase in interest rates adversely affecting the Company’s cost of debt and consumer spending in the retail sector.
  • Rise in unemployment, resulting in lower consumer retail spend and thereafter affecting rental growth and property valuations.
  • Inability to mitigate consequences that arise from a weak retail environment.
  • Weaker property fundamentals than expected.
  • Tenancy risk/retailer bankruptcies resulting in higher vacancies across the asset portfolio (e.g. Dick Smith) and adverse effect on earnings.
  • Development schedule delays and project cost blowouts.
  • Any reduction in investor interest for bond-proxy stocks.

Key Highlights:

  • Management provided earnings and distribution guidance in 1H22 which is positive considering VCX refused to do so at the FY21 results conference call with analysts. Management highlighted FY22 FFO per security expected to be in the range of 11.8-12.6 cents with AFFO per security expected to be in the range of 9.5-10.3 cents and Vicinity is targeting a full-year distribution payout range of 95-100% of AFFO. Management also noted “. The expected the impacts of COVID-19 on the business to continue over the coming months due to the emergence of Omicron in late December 2021. In January 2022, Omicron had a material impact on visitation particularly at the centres located on the east coast of Australia, however to see an upward trend in the first two weeks of February”.
  • Relative to the pcp: Statutory NPAT of $650.2m, a significant improvement relative to 1H21 which saw statutory net loss after tax of $394.1m.
  • Funds from operations (FFO) of $287.7m or 6.32cps, an improvement from 1H21 of $267.1m or 5.87cps. VCX reported an interim distribution of 4.7cps, reflecting a payout ratio of 84% of Adjusted FFO (AFFO). This was an improvement from 1H21: 3.4cps, payout ratio 62%.
  • VCX retained a strong balance sheet (low gearing of 26.3% and liquidity of $1.8bn).
  • VCX retained strong operating metrics: Occupancy maintained at 98.2%, due to resilient leasing activity (leasing 201 vacant stores during 1H22).
  • On an MAT basis, total portfolio retail sales were +7.3% higher on strong growth in Victoria, up +17.0%, and up +4.5% in Covid-unimpacted states.
  • According to VCX, collection of gross rental billings averaged 80% for 1H22, which is an improvement on the average cash collected for 1Q22. Net of estimated waivers in respect to 1H22 gross billings, cash collection averaged ~92% for the period.

Company Description:

Vicinity Centres Ltd (VCX) is a ASX listed REIT holding a quality retail portfolio and fully integrated asset management platform. VCX owns ~A$15.7 billion of retail assets. Some notable retail assets that Vicinity Centres owns or has an interest in: Chatswood Chase (NSW), Chadstone Shopping Centre (VIC), DFO South Wharf (VIC), Queens Plaza (QLD), Emporium Melbourne (VIC) and DFO Homebush (NSW). VCX is the result of the merger between Federation Centres and Novion Property Group.

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Commodities Trading Ideas & Charts

On-going focus on cost reduction and positioning of the business

Investment Thesis:

  • Currently undertaking a review, with management highlighting on the conference call: “this year it will seek to further optimize the portfolio, reducing gearing and future CapEx, and conduct a review of the capital management framework including returns to shareholders. This will ensure one is in the best position to provide returns for shareholders, reduce debt, invest in growth and invest in the energy transition”.
  • Leveraged to the oil price.
  • High quality assets which offer a number of core assets within its portfolio (no single asset risk).
  • On-going focus on cost reduction and positioning of the business for a lower oil price environment.
  • Strong balance sheet position.
  • High quality management team who are able to operate assets and extract synergistic value from the recent merger with Oil Search.

Key Risks:

  • Supply and demand imbalance in global oil/gas markets.
  • Lower oil / LNG prices.
  • Not meeting cost-out targets (e.g., reducing breakeven oil cash price).
  • Production disruptions (not meeting GLNG ramp up targets).
  • Strategic investors sell down their stake or block any potential M&A activity.

Key Highlights:

  •  Relative to the pcp: Production was up +3% to 92.1mmboe. Sales volume of 107.1mmboe, down -3%.
  • Product sales revenue of US$4.71bn, up +39%.
  • EBITDAX (earnings before interest, tax, depreciation, depletion, exploration, evaluation and impairment) of US$2.81bn, up +48%.
  • Record free cash flow of US$1.5bn and underlying profit of US$946m, driven by higher oil and LNG prices vs pcp due to a recovery in global energy demand and supply constraints across the industry due to lower capital investment through the pandemic.
  • STO was able to deliver a free cash flow breakeven of US$21 per barrel in 2021.
  • Reported NPAT of US$658m includes losses on commodity hedging and costs associated with acquisitions and one-off tax adjustments and is significantly higher relative to the pcp due to impairments included in FY20.
  • The Board declared a final dividend of US8.5 cents per share (franked 70%), up +70% relative to the pcp. This equates to 20% of full-year pro forma free cash flow for the merged entity less dividends paid in the first half by both companies and is in-line with STO’s sustainable dividend policy which targets a range of 10% to 30% payout of free cash flow. Management noted STO does not expect to generate franking credits for the next several years.

Company Description:

Santos Limited (STO) explores for and produces natural gas, liquefied natural gas, crude oil, condensate, naphtha and liquid petroleum gas. STO conducts major onshore and offshore petroleum exploration and production activities in Australia, Papua New Guinea, Indonesia, Vietnam. The company also transports crude oil by pipeline.

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.