Business Strategy & Outlook:
To reaffirm the $86 per share fair value estimate for Con Ed after incorporating updates from the company’s annual environmental, social, and governance investor presentation. To reaffirm the no-moat and stable moat trend ratings. Management raised its 10-year capital investment outlook to $72 billion from $68 billion, supporting that Con Ed will continue to find attractive energy transition investments. To reaffirm the $15.7 billion capital investment forecast for 2022-24 and 6% average annual earnings growth estimate, in line with management’s budget. About one third of Con Ed’s investment plan is allocated to helping New York eliminate energy sector carbon emissions by 2040. This transition likely will result in rapid growth at its electric business but shrinking gas and steam demand. Management estimates by 2050 electricity demand on its system could climb 40% while gas demand falls 60% and steam demand falls 20%-40%. Decarbonizing buildings and transportation is the biggest immediate growth opportunity. The expected Con Ed will spend more than $7 billion on building electrification and EV charging by 2030. New York City recently banned gas service in new small buildings in 2024 and new large buildings in 2027. The state plans to ban new gasoline car sales by 2035.
Electric transmission and rate-regulated renewable energy projects could be incremental growth opportunities beyond 2025 but are too uncertain to incorporate now. Con Ed likely would have to win competitive bids and regulators would have to change ratemaking structures for Con Ed to benefit from the $40 billion of estimated capital investment that will be required for New York to reach its 70% renewable energy target by 2030. To think, management made a good capital allocation decision to sell its renewable energy business in October to eliminate near-term equity needs. The outcome of Con Ed’s 2023-25 electric rate review will be a key signal of regulatory support.
Financial Strengths:
Total debt/EBITDA peaked at over 5 times in 2020, but expect it to decline to around 4 times by 2025. Although this ratio currently is somewhat elevated, I believe it is acceptable due to the favorable New York regulatory framework. The $6.8 billion clean energy business sale effectively pre-finances Con Ed’s utility growth investments, which support the 6% annual earnings growth forecast. This removes the risk that ConEd will have to issue large amounts of equity and debt in potentially volatile markets during the next few years. The clean energy business sale also eliminates the $400 million of annual capital expenditures the expected Con Ed to invest to develop its clean energy pipeline. The estimated ConEd can finance its $15 billion of planned utility investments in 2023-25 without issuing new equity. The expected Con Ed would have to issue around $1.5 billion of equity during the next three years to fund its utility and non-utility growth plan. It issued 10.1 million shares in July 2021.
Bulls Say:
- Con Ed received a good price for its renewable energy business and now has the capital it needs to execute its three-year utility investment growth plan.
- Con Ed has increased its dividend for 48 straight years. The expected dividend growth to accelerate from its 3% pace the last few years.
- New York’s regulatory framework for electricity and natural gas provides for forward-looking rate cases and usage-decoupled customer rates, significantly reducing earnings and cash flow variability.
Company Description:
Con Ed is a holding company for Consolidated Edison of New York, or CECONY, and Orange & Rockland, or O&R. These utilities provide steam, natural gas, and electricity to customers in southeastern New York—including New York City—and small parts of New Jersey. The two utilities will generate nearly all of Con Ed’s earnings once it closes the sale of its clean energy business to RWE. Con Ed’s clean energy business owns the second-largest portfolio of utility-scale solar projects in the U.S. Following the sale, Con Ed’s only non-utility earnings will come from investments in gas and electric transmission.
(Source: Morningstar)
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.
Business Strategy & Outlook:
Enbridge’s 2023 outlook was more mixed than anything else. 2023 EBITDA guidance of a midpoint of CAD 16.2 billion is close to the unchanged expectations of CAD 16.3 billion. However, interest expense is expected to increase to CAD 3.9 billion, materially above earlier forecast, and capital spending of CAD 6 billion is CAD 1 billion above the estimates. The higher spending is reducing near-term cash flows and thus caused us to modestly reduce the fair value estimates. The estimated value is now CAD 52 ($38) per share, down from CAD 53 ($39). The narrow moat rating is unchanged. Enbridge also increased the dividend 3% as expected. While Enbridge highlighted plans to buy back stock potentially, one doesn’t expect excess cash flow from the firm until 2026, implying buybacks are likely to increase debt levels. Growth in 2023 across the business is weighted heavily toward liquids pipelines, gas transmission, and gas distribution. The growth should allow Enbridge to come close to meeting its leverage guidance of below 4.75 times in 2023, as the model is about 4.8 times. Enbridge also announced that it is working toward developing a carbon dioxide sequestration hub in Corpus Christi with Oxy Low Carbon Ventures, which adds to its energy transition credentials.
Financial Strengths:
Enbridge carries higher levels of leverage, at levels between 4.5 to 5 times, than most high-quality North American midstream firms, which are typically below 4 times. However, this higher degree of leverage is supported by the protected nature of its earnings stream. Further, it should also decline over the next few years and Enbridge’s core capital spending profile shifts to CAD 3 billion to CAD 4 billion in spending compared with prior years of CAD 6 billion-plus. Notably, Enbridge has outlined plans to spend up to an incremental CAD 2 billion annually on debt reduction or share buybacks. Enbridge’s dividend is prized by both investors and the management team. After averaging 14% annual growth from 2013-20, one only expects growth to be about 3% annually for the foreseeable future. The shift reflects a recognition of the slower growth across Enbridge’s business but also a preference by investors toward generating free cash flow after capital spending and dividends. Enbridge’s outlined capital spending plans already reflect substantial free cash flows available for higher capital returns to shareholders via buybacks or debt reduction with CAD 2 billion earmarked for this effort annually. This profile is markedly better than most U.S. midstream peers, which in many cases are still struggling to balance a large committed dividend or distribution payouts to shareholders alongside reasonable levels of capital spending.
Bulls Say:
- Enbridge is the liquids-focused version of gas-oriented Williams in terms of an attractive, highly regulated utility like earnings profile.
- Enbridge offers a highly secure dividend that can increase 3% annually for the foreseeable future.
- The cancellation of Keystone XL puts Enbridge in a leading position to capture new organic pipeline expansions to serve the unmet need from producers.
Company Description:
Enbridge owns extensive midstream assets that transport hydrocarbons across the U.S. and Canada. Its pipeline network consists of the Canadian Mainline system, regional oil sands pipelines, and natural gas pipelines. The company also owns and operates a regulated natural gas utility and Canada’s largest natural gas distribution company. Finally, the firm has a small renewables portfolio primarily focused on onshore and offshore wind projects.
(Source: Morningstar)
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
- NAB is trading on an undemanding valuation, with 1.6x Price to Book (P/B) and dividend yield of 5.4%.
- All else being equal, NAB is offering an attractive dividend yield on a 2-yr (5.6%) and 3-Yr (5.8%) view.
- Strong oligopoly position in Australia (along with three other major banks in CBA, ANZ, WBC).
- Strong management team and Board.
- Macro environment to be both a tailwind and headwind –a rising interest rates environment to be both positive and negative in that while it will enable banks to charge more for loans, it also could result in deterioration in asset quality, slower loan growth, as well as higher inflation and wage growth to be detrimental to costs expense.
- Well capitalized after the capital raising.
- Though management has been cautioned to expect cost to increase, highlight NAB’s strong franchise model with management capable of improving below a 40% cost to income ratio (however do not factor in management’s long-term target of 35%).
- Potential pressure on net interest margins as competition intensifies with other major banks. Though these pressures are to slightly alleviate as it moves into a higher interest rate environment.
- Improving return on equity with management proving their abilities in recent times to manage profitability in a low interest rate environment.
- Strong provisioning coverage.
- A well-diversified loan book.
Key Risks
- Impacts from Covid-19 are more severe than already provisioned for.
- Low growth environment impacting earnings.
- Potential cuts or reduction to dividends due to low earnings growth.
- Intense competition for loan and deposit growth.
- Normalizing / increase in bad and doubtful debts or increase in provisioning.
- Funding pressure for deposits and wholesale funding (increased funding costs).
- Any legal fees, settlements, loss or penalties associated with ASIC or US-based law suits.
Key Highlights: Relative to the pcp and on a constant currency basis:
- Cash earnings up +8.3% to $7,104m. Statutory net profit up +8.3% to $6,891m. Net interest margin (NIM) declined 6bps to 1.65%.
- Group Common Equity Tier 1 (CET1) ratio of 11.51%, down 149 bps from September 2021 mainly due to the impact of the on-market share buy-back in FY22 totalling $3.9bn (94 bps), and Citi consumer business acquisition (30 bps). Leverage ratio (APRA basis) was 5.1%. Liquidity coverage ratio (LCR) quarterly average of 137%. Net Stable Funding Ratio (NSFR) of 119%.
- The Board declared a fully franked final dividend of 78cps, up 5cps from the pcp, and brings full year dividend to 151cps, up +18.9%.
- Business and Private Banking. Cash earnings of $3,013m, was up an impressive +21.5%, driven by higher revenue (on stronger volume growth and higher margins), and lower credit impairment charges, partly offset by higher operating expenses for additional bankers and resources to support growth, LanternPay acquisition and investment in technology.
- Personal Banking. Cash earnings of $1,591m, declined -3.6%, mainly due to the impact on margins from intense home lending competition, a lower level of credit impairment writebacks, partly offset by lower operating costs.
- Corporate and Institutional Banking. Cash earnings of $1,628m improved an impressive +34.9% on higher revenue from strong volume growth and higher margins, and lower credit impairment charges.
- New Zealand Banking. Cash earnings of $1,403m was up +14.1% on higher revenue due to growth in volumes and higher margins, partly offset by higher credit impairment charges and operating expenses.
Company Description
National Australia Bank Limited (NAB) is one of Australia’s largest banks, with majority of their financial service businesses operating in Australia and New Zealand. The bank also has a presence in Asia, UK and the US. NAB offers banking services, credit and access card facilities, leasing, housing and general finance, international and investing banking, wealth and funds management, life insurance and custodian, trusts and nominee 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:
- JHG is a truly global asset manager with US$299.7bn in FUM and significant distribution capabilities.
- Trading on undemanding multiples – 9.1x PE-multiple and 7.2% dividend yield.
- US$200m share buyback should support share price.
- Improving flow in the higher margin retail segment.
- Significant cost selling opportunities and a broader product offering, including new product development.
- continue to see consolidation at the industry level as an important theme. Trian Partners has taken a 16.7% position in JHG, with the Company appointing two of Trian’s Directors Nelson Peltz and Ed Garden to the JHG Board. From understanding Trian’s partners have been on the record noting the need for industry consolidation. Trian Partners also have a significant shareholding in Invesco Ltd.
- Current CEO Dick Weil is retiring, and a new CEO could bring a fresh perspective and strategy to the firm.
Key Risks:
- Funds underperform versus their respective benchmarks.
- Funds outflow – both retail and institutional (loss of a large mandate).
- Shift to passive investing accelerates.
- Loss of key management or investment management personnel.
- Change in regulatory guidelines plus potential downside from UK’s exit from European Union.
- Unfavourable currency movements.
- Change in CEO could result in uncertainty over the strategic direction.
Key Highlights:
- Adjusted operating income of $328.1 was -30% lower. Adjusted operating margin of 36.2% was weaker than the 42.0% in 1H21. 2Q22 relative to 1Q22 and 2Q21, and in $: JHG achieved solid investment performance, with 50%, 60%, 65%, and 76% of assets under management outperforming relevant benchmarks on a 1yr-, 3yr- , 5yr-, and 10-yr basis, respectively, as at 2Q22-end.
- AUM declined -17% to $299.7bn, due to tough global markets, FX (US dollar appreciation), and net outflows of $(7.8) bn (due to a significant slowdown in intermediary gross sales and investment underperformance in key strategies).
- 2Q22 operating income of $143.9m was improved versus $124.6m in 1Q22 but weaker than $225.0m in 2Q21. 2Q22 adjusted operating income (adjusted for one-time, acquisition and transaction related costs) of $149.3m declined from $178.8m in 1Q22 and $269.3m in 2Q21.
- 2Q22 diluted EPS of $0.56, improved from $0.47 in 1Q22 and $0.79 in the 2Q21. $0.63 on an adjusted basis was lower than the $0.75 in 1Q22 and compared to $1.16 in 1Q21.
- JHG completed $56m of share buybacks during 2Q22. (6) The Board declared a quarterly dividend of $0.39 per share (which is equivalent to 1Q22).
- Capital management update. On 27 July 2022, the Board declared a 2Q22 dividend (for the three months ended 30 June 2022) of US$0.39 per share. Further, as part of the US$200m on-market buyback programme approved by the Board in May 2022, JHG purchased ~2.1m of its ordinary shares on the New York Stock Exchange and its CHESS Depositary Interests on the Australian Securities Exchange in 2Q22, for US$56m.
Company Description:
Janus Henderson (JHG) is an independent global asset manager, specializing in active investment. JHG was formed via a merger between Janus Capital Group and Henderson Group. JHG offers expertise across all major asset classes including equities, quantitative equities, fixed interest, multi-asset and alternatives. The group manages approximately $371bn, has over 2,000 employees and is dual listed on the New York Stock Exchange and the Australian Stock Exchange.
(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.
