Investment Thesis
- Solid FY22 earnings guidance.
- Current share price is trading below the blended valuation and offers a >10% upside.
- 50% of the $100m buyback will be purchased in 2022, which should support IRE’s share price.
- Growing quantum of superannuation/pension bodes well for IRE’s clients, which bodes well for demand for IRE’s products.
- IRE’s products are firmly entrenched within Australia, UK and South African financial market players (i.e. IRESS terminals and XPLAN). For instance, in ANZ Wealth Management segment, increasing dynamic of self-licensing by practices, high client retention and increasing demand for integrated solutions, are all key revenue themes. Over 90% of revenue is recurring.
- Strong continuing momentum in the core growth markets of ANZ Wealth Management, and South Africa and the UK.
- New product roll-out providing growth opportunities.
- Solid balance sheet and capable management team.
Key Risks
- Less subscription due to declining sell-side and buy-side demand as well as financial planners.
- Competitive platforms/offering (new disruptive technology); improved features and innovation from competition.
- Associated risks in relation to system, technology and software.
- Regulatory and structural changes in the finance sector impacting clients and their needs.
- Deterioration in equity and debt markets which may have a negative impact on terminal demand.
- Further deterioration with its Canadian segment.
Key Highlights: Relative to the pcp and on a constant currency basis:
- Segment profit: excluding Mortgages, $160-165m, versus $151m in FY21, or including Mortgages $177- 183m, versus $166m in FY21.
- Underlying NPAT: excluding Mortgages, $61-67m, versus $47m in FY21, or including Mortgages $74-81m, versus $59m in FY21.
- NPAT: excluding Mortgages, $50-58m, versus $62m in FY21, or including Mortgages $63-72m, versus $74m in FY21.
- Pro forma revenue $600.2m, was up +3%.
- Pro forma segment profit $166.4m, was up +6%.
- Pro forma EPS of 30.9cps was up +12%.
- The final dividend is 30cps, franked to 15% bringing the full year 2021 dividend to 46.0 cents per share, franked at 38% (average weighted). Franking of interim dividend was high in context of EQT bid.
- IRE maintains conservative gearing levels and leverage remains below the neutral setting of 2.0x
segment profit (currently at 1.4x).
Company Description
IRESS Ltd (IRE) is an ASX-listed company that specialise in software for the finance industry, with a focus on financial markets, wealth management and superannuation. IRE operates in the Asia-Pacific, UK, South Africa and Canada.
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.
Investment Thesis
- Leveraged to the global reopen / vaccine roll-out trade.
- IEL is to benefit from margin expansion as IEL continues to roll out computer-delivered IELTS in preference over the traditional paper-based method of delivery;
- Network expansion, with the latest inclusion of IELTS test centres in Ireland, Poland, Chile and Peru and student placement offices in Pakistan and Canada.
- IDP’s English Language Testing stream (IELTS) has a strong reputation as the world’s most trusted English language test for study, work and migration.
- IEL maintains solid margin and strong earnings/revenue growth/strong cashflow generation.
- Good management team.
- Global growth opportunities in international student population and education industry.
- Opportunities for stronger growth with introduction and planned roll out of online IELTS delivery.
- Strong balance sheet, with ample liquidity.
- Potential restructure with British Council which unlocks significant margin opportunity.
Key Risks
- Sporadic growth is unpredictable with IEL’s business model and unable to forecast periods of slower growth.
- Further economic lock-downs to Covid-19.
- Currency conversion risk.
- High growth expectations need to be met to justify the valuation.
- Potential threat from a new or existing competition.
Key Highlights: Relative to the pcp and on a constant currency basis:
- Revenue of $397m, up +47% (or +49% in constant currency, CC), driven by strong volume increases in IELTS, up +79%, with growth recorded across the majority of countries where IDP administers the test. IEL also saw a +36% increase in Student Placement revenue to $$106.2m, driven by a +73% increase in multi-destination revenue. Digital Marketing and Events revenue climbed +16% to $23.8m as institutional clients turned to IDP to support their rebound strategies.
- EBIT of $77.9m, up +61% (adjusted EBIT of $80.7m, was up +64%.
- IEL successfully integrated the British Council’s Indian IELTS operations, following its acquisition.
- The Board declared interim dividend of 13.5cps.
- Performance by Key Segments.
- Relative to the pcp, and on a constant currency basis: English Language Testing revenue of $256.m was up +66% driven by strong volume increases rebounding to pre-pandemic levels, up +79%, with growth recorded across the majority of countries where IDP administers the test. IEL saw additional Indian volumes from 1 August following completion of its British Council acquisition.
- Student Placement revenue of $106m, was up +33%. Student placement revenue from multi-destination of $79.6m, was up +68%, as volumes were up 33% for the year, with a growing demand for Northern Hemisphere countries driving a 63% increase in multi-destination student placement volumes. Volumes from the UK, Canada and U.S up +37%, +71% and +640%, respectively were the drivers of revenue growth. However, revenue from Australian student placement of $26.6m, was down -18% with volumes remaining subdued, despite early signs of a rebound in interest, which coincided with relaxation of border restrictions, and an extension of post-study work rights.
- English Language Teaching revenue of $8.7m, was down -7% as Vietnam schools were down due to Covid, partially offset by higher Cambodian revenue.
- Digital Marketing and Events revenue of $23.8m was up +15%.
Company Description
IDP Education Ltd (IEL) offers 1) Student placement: student recruitment/placement in 93 offices across 30 countries into~600 universities, schools and colleges globally in 5 destination countries; and 2) co-owner of IELTS, an English language proficiency test which foreigners must pass in order to obtain certain visas and permanent residency in Australia. IEL is 50% owned by Education Australia Ltd – a business in which 38 Australian universities own a 50.1% stake.
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.
Investment Thesis
- Relative to major banks, BEN trades at fair value, on 12.1x one-year forward price to earnings, 0.8x price to book and dividend yield of 5.3%.
- 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.
- Funding pressure for deposits and wholesale funding.
Key Highlights: Relative to the pcp and on a constant currency basis:
- Cost to Income ratio: Despite near term revenue challenges, firmly fixed on a continued improvement in CTI.
- Investment spend: FY22 is expected to be $170m –$180m (FY21 $165m) with a similar level of capitalisation to FY21.
- Credit expenses: (i) Arrears rates remain benign; (ii) Modest credit expense expected for 2H22.
- Statutory net profit of $321.3m, up +31.7%. Cash earnings after tax of $260.7m, up 18.7%. Cash earnings per share of 47c, up +13.5%. Total income on a cash basis was $873.4m, up +2.9%.
- Net interest margin of 2.09%, down 14bps relative to 2H21
- Operating expenses were up 1.5% and in line with management expectations. Cost to income ratio declined for the third consecutive half to 59.3% (from 59.8% in 2H21 and 60.9% in 1H21), in line with management’s goal of towards 50% in the medium term.
- BEN retained a solid capital position with CET1 of 9.85%, up 49 basis points. The Board approved a new CET1 target range of between 9.5% and 10%. The Board declared a fully Franked Dividend of 26.5 cents per share and Dividend Reinvestment Plan with a 1.5% discount.
- BEN saw total lending of $73.8bn increase 2.1% in 2H21. BEN’s residential lending was 1.1x system up +8.4%. Total funding of $81.9bn was up +5.1% on 2H21, with customer deposits up 6.6% on 2H21.
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.
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.
Investment Thesis:
- Leading global market position, with high barriers to entry (very capital intensive).
- Attractive exposure to both developed markets and emerging markets’ growth.
- Clearly defined strategy to create shareholder value.
- Bolt-on acquisitions provide opportunities to supplement organic growth.
- Solid balance sheet.
- Leveraged to a falling AUD/USD.
- Benefits from the recently completed Bemis acquisition to start flowing through.
- Capital management initiatives – current share buyback of $600m.
Key Risks:
- Management failed to realize the synergies proposed in the Bemis transaction.
- Competitive pressures leading to margin erosion and potential balance sheet pressure (e.g. reduced earnings leading to potential debt covenant breaches).
- Input cost pressures in which the Company is unable to pass on to customers (even though the Company does pass through input costs).
- Deterioration in global economic growth.
- Value destructive acquisition.
- Emerging markets risk.
- Adverse movements in AUD/USD.
Key Highlights:
- AMC delivered solid 1H22 results, with revenue up +12% to $6.93bn, operating earnings (EBIT) up +5% to $769m and EPS up +9% to 35.8cps. Top line growth was assisted by approximately $650m driven by price increases highlighting AMC’s ability to pass through higher costs. Excluding pass through, organic sales were up +2% driven by higher volumes and favourable mix. AMC repurchased ~$300m shares in 1H22 and expects to repurchase a total of $600m in FY22. Group leverage (net debt / EBITDA) at the end of the period was 2.9x.
- Flexibles segment. Segment revenue was up +10% to $5.35bn, consisting of 2% organic growth (focusing on priority segments such as Healthcare, Coffee & Pet Food) and $480m boost from higher raw material costs recovery. Adjusted EBIT of $691m was up +7%, however margin eased -60bps to 12.9% but this was impacted by higher raw materials costs. Excluding this impact margin actually improved on pcp.
- Rigid Packaging segment. Segment revenue was up +17% to $1.58bn, however this includes +13% uplift from the pass through of higher raw material costs. Excluding pass through, segment revenue was up +4%. In North America, AMC saw solid underlying demand in the beverage business with volumes up +3% (accelerating to +6% in 2Q22). There was also solid volume growth in Isotonics (as well as Iced Tea categories) due to customer demand for 100% recycled PET bottles. Latin America saw double-digit volume growth driven by Argentina, Mexico, and Colombia. Segment adjusted EBIT of $117m was down -13%, with margin down -250bps to 7.4%. Earnings were adversely impacted in North America due to inefficiencies and higher costs from industry-wide supply chain disruptions.
- M&A quiet whilst Bemis is bedded down and Covid hinders DD process. AMC hasn’t been active with bolt-on acquisitions in recent history, a key part of AMC’s growth strategy. Management noted that they continue to assess opportunities in their space but in recent history have been busy trying to bed down the Bemis acquisition (largest in AMC’s history). Further, management is also finding it challenging to conduct due diligence on opportunities due to Covid-19. Management also noted that asset prices were also elevated at the moment.
- Outlook – reaffirmed previous guidance. Management expects adjusted EPS to grow by 7-11% in constant currency terms, adjusted free cash flow of $1.1 – 1.2bn, and approximately $600m allocated to share repurchase (increased from $400m previously).
Company Description:
Amcor Limited (AMC) is an international integrated packaging company offering packing and related services. Amcor primarily produces a wide range of packaging products which include corrugated boxes, cartons, aluminum and steel cans, flexible plastic packaging, PET plastic bottles and jars, and multi-wall sacks. The company has operations in Australasia, North America, Latin America, Europe and Asia.
(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.
Investment Thesis:
- Based on the valuation, ANN’s share price trades at a >10% discount to the DCF valuation.
- ANN is a quality business with global manufacturing capabilities.
- In 5-yr forward earnings estimates are on the conservative side and capture the moderating growth likely to be seen from the elevated levels experienced in FY21.
- FX translation should be positive for the Company.
- Raw material cost pressures can be shared with customers and suppliers.
- ANN has a strong balance sheet position with flexibility to return cash to shareholders or borrowing capacity for acquisitions.
Key Risks:
- Product recall.
- Trade wars escalate, leading to higher tariffs.
- Increase in competitive pressures.
- Adverse movements in AUD/USD.
- Emerging or developed market growth disappoints.
- Any worse or better prices for raw materials.
Key Highlights:
- Capital management. ANN has ample liquidity of ~$550m in cash and committed undrawn bank facilities, and conservative gearing profile (net debt/EBITDA of 1x vs 0.7x in pcp), despite net debt increasing +61.3% over pcp to $382.1m.
- The Board declared an interim dividend of US 24.25 cps, down -26.9% YoY, representing ~40% payout ratio.
- Cashflow. The Company delivered operating cash outflow of $22.1m (vs inflow of $12m in pcp) and cash conversion of 59.7% (after adjusting for short term incentives and insurance paid in half but relating to the full year), impacted by lower net receipts due to reduced profitability, higher working capital given lower payables as a result of timing and lower pricing from outsourced suppliers as well as payment of variable employee costs pertaining to FY21.
- 1H22 results summary. Sales increased +7.6% over pcp (+7.5% organic growth) to $1,009.2m as Healthcare GBU organic growth of +14.8% was partially offset by Industrial GBU organic sales decline of -2.9%.
- GPADE margins declined -860bps over pcp to 27.3% due to selling of high-cost Exam/SU inventory from outsourced suppliers at lower prices, Covid-19 related manufacturing disruptions and higher freight costs.
- EBIT declined -24.3% over pcp (-30.6% in CC) to $111m with margin declining -460bps to 11%, with decline in GPADE partially offset by reduced SG&A driven by continued cost discipline and lower variable employee costs.
Company Description:
Ansell Ltd (ANN) operates two global business units: (1) Ansell’s Industrial segment manufactures and markets multi-use protection solutions specific for hand, foot, and body protection, for a wide-range of industries such as automotive, chemical, metal fabrication; (2) Ansell’s Healthcare segment (Medical + Single Use) offers a full range of surgical and examination gloves covering all applications, as well as healthcare safety devices and active infection protection products. The segment also manufactures and markets single use hand protection. Ansell recently sold its Sexual Wellness Global Business Unit 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.
Investment Thesis:
- High quality property portfolio in childcare centres (85% of total) and medical centres (15%) with strong operating metrics (such as long weighted average lease expiries, triple net leases, and high-quality tenants) and outlook for childcare services and healthcare services (especially with aging population).
- Potential positive regulatory changes to childcare subsidies (i.e. increase in subsidies for childcare services from ~28 hours (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:
- Product recall.
- Trade wars escalate, leading to higher tariffs.
- Increase in competitive pressures.
- Adverse movements in AUD/USD.
- Emerging or developed market growth disappoints.
- Any worse or better prices for raw materials.
Key Highlights:
- Capital management. ANN has ample liquidity of ~$550m in cash and committed undrawn bank facilities, and conservative gearing profile (net debt/EBITDA of 1x vs 0.7x in pcp), despite net debt increasing +61.3% over pcp to $382.1m.
- The Board declared an interim dividend of US24.25cps, down -26.9% YoY, representing ~40% payout ratio.
- Cashflow. The Company delivered operating cash outflow of $22.1m (vs inflow of $12m in pcp) and cash conversion of 59.7% (after adjusting for short term incentives and insurance paid in half but relating to the full year), impacted by lower net receipts due to reduced profitability, higher working capital given lower payables as a result of timing and lower pricing from outsourced suppliers as well as payment of variable employee costs pertaining to FY21.
- 1H22 results summary. Sales increased +7.6% over pcp (+7.5% organic growth) to $1,009.2m as Healthcare GBU organic growth of +14.8% was partially offset by Industrial GBU organic sales decline of -2.9%.
- GPADE margins declined -860bps over pcp to 27.3% due to selling of high-cost Exam/SU inventory from outsourced suppliers at lower prices, Covid-19 related manufacturing disruptions and higher freight costs.
- EBIT declined -24.3% over pcp (-30.6% in CC) to $111m with margin declining -460bps to 11%, with decline in GPADE partially offset by reduced SG&A driven by continued cost discipline and lower variable employee costs.
Company Description:
Arena REIT (ARF) owns, develops and manages a portfolio of childcare properties and healthcare facilities.
(Source: Banyantree)
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