Business Strategy & Outlook
Beach Energy produces oil, gas, and gas liquids from multiple wholly owned projects and joint ventures in the onshore Cooper, Perth, and Eromanga basins, and offshore in the Otway, Bass, and Taranaki basins. Beach merged with Cooper Basin joint-venture partner Drillsearch Energy in March 2016, which increased equity production to about 10 million barrels of oil equivalent. This is now more than doubled to 23 million boe following the purchase of Lattice from Origin Energy in 2018. Lattice’s scale enhancing incorporation, expanding Beach’s footprint across multiple basins and production hubs, resulted in an increase in EBITDA margins to over 70% from pre-Lattice 50% levels. Despite Lattice’s advantages, Beach does not have sufficient resource life beyond 15 years.
Beach’s goal to double production and reserves in five years was achieved via the AUD 1.6 billion acquisition of Lattice, rather than from organic growth. But the priority remains to expand output from existing reserves, mainly in the Perth and Cooper/Eromanga basins. Beach also sees huge potential for unconventional shale gas in the Cooper and elsewhere. The new target is for 34-40 mm boe of production in the next five years. Most recently a final investment decision was taken for the Waitsia Stage 2 expansion project. The Waitsia project has become an inaugural accessor of North West Shelf Project liquefaction capacity of up to 1.5Mtpa to 2029. Beach’s 50% Waitsia Stage 2 gas expansion to 250 TJ per day (100% basis) is equivalent to around 1.6 Mtpa of LNG. Beach’s estimated share of the upfront development capital expenditure is AUD 350-400 million and Waitsia Stage 2 alone could increase Beach’s equity production by 7.5 mmboe or around 27% on current production levels. Also implicit in Beach’s production growth target is improvement in facility reliability, renewed Cooper Basin growth efforts and Otway gas plant production increase by around 35% to around 57 PJ by fiscal 2023 from around 42 PJ in fiscal 2019.
Financial Strengths
Beach typically has a healthy balance sheet and cash flow, though field life on current reserves is only just approaching 15 years. Beach ended the period to June 2022 with USD 120 million in net cash. The strong unleveraged balance sheet remains a key appeal of Beach Energy. A maintenance of an unleveraged balance sheet in fiscal 2023 despite increased development expenditure is expected. Even with anticipated expenditures, including on Waitsia project development, hence an unleveraged balance sheet by as soon as fiscal 2023 is anticipated, all else equal. An unleveraged balance sheet is the appropriate position for a small company in a world of energy supermajors requiring capital reinvestment to maintain life. Despite growth plans for production of 34-40 mmboe in the next five years, Beach targets a near zero net debt position due to strong free cash flows. Cash flow projections are underpinned by strong long-term gas contracts and repricing. The current net cash position is in stark and favorable contrast to mid-fiscal-2018 annualized net debt/EBITDA levels near 2.0.
Bulls Say
- Beach has healthy cash flow and reasonable field reserve life.
- Net operating cash flow per share has proved resilient.
- The effective net cost of reserve additions has been minimized by well-timed asset sales.
Company Description
Beach produces oil, gas, and gas liquids from numerous joint ventures in the onshore Cooper and Eromanga basins. Beach merged with Cooper Basin joint-venture partner Drillsearch Energy Limited in March 2016, which increased equity production to about 10 million barrels of oil equivalent. This is now more than doubled to 23 million barrels of oil equivalent following the successful purchase of Lattice from Origin Energy in 2018. The average field life is 10 years based on forecast production and 313 mmboe of proven and probable reserves. A credit life of nearly 15 years, assuming substantial conversion of 2C contingent resources into reserve category with drilling. Shale gas resources are blue-sky.
(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
Credit Corp is a major purchased debt ledger, or PDL, acquirer in Australia, with long-term share of 35%. It is also currently the fourth-largest player in the PDL market with a share of around 12% in fiscal 2022. PDLs are mainly acquired from banks and financial institutions, and are mostly unsecured credit card debt that are at least six months in arrears and already been through a collection process. Other forms of debt purchases include outstanding telephone or utility bills. Earnings are generated by recovering more than its capital outlay. The firm targets returns on equity of 16%-18% and aims to recover double the price paid for PDLs. Prices range from AUD 0.05 to slightly over AUD 0.20 on the dollar of the debt’s face value, averaging between AUD 0.12 and AUD 0.13 on the dollar. Credit Corp does this by acquiring PDLs at sensible prices, and collecting mainly via payment plans. It has historically succeeded in collecting PDLs over the entirety of their typical six-year lives, with actual collections consistently exceeding initial projections.
The firm’s consumer-facing products include impaired consumer loans, auto lending, buy now-pay later, and appliance leasing. It generally lends to credit-impaired consumers who do not have access to primary lenders. These businesses should continue growing, as the banks generally do not service this market. Operating efficiencies are achieved by leveraging off the common overheads and systems of its core Australian PDL operations in both its U.S. PDL and consumer lending businesses, offshoring and digitization. NPAT is to grow at a 5.5% CAGR through to fiscal 2027. However, a lower ROEs can be projected averaging 12% per year from fiscal 2023 to 2027, on anticipation of future returns possibly being structurally lower, with greater mix shift to the more competitive U.S. market. Competition for PDLs will likely heat up as COVID-19 stimuli fade off and competition resumes. Longer term, a combination of low industry barriers to entry, an expectation for governments to bail out consumers during adverse credit events, and greater operational efficiency among peers will likely encourage more aggressive price bidding for PDLs.
Financial Strengths
Credit Corp is currently in sound financial health. Its gearing ratio, measured as net debt divided by carrying value of PDLs and loans, was 12% as of June 30, 2022. Gearing at end of the COVID-19-plagued fiscal 2020 was also zero with no covenants breached, albeit this was supported by a AUD 155 million equity raise. Excluding the capital raising from Credit Corp’s net cash as of fiscal 2020 would result in a gearing ratio of around 23%. This would still be below its target range of 25%-30%, as well as bank covenants of 60% (for its corporate debt facility) and 50% (for its warehouse facility), respectively. Credit Corp has historically been prudent in acquiring PDLs and not outbid its competitors when tender prices for PDLs are excessive. This mitigates the value destruction during a severe credit event which leads to higher defaults/impairments, or breaches of covenants due to insufficient cash. A case in point, its ASX-listed competitors Collection House and Pioneer Credit were both hit by material losses in fiscal 2020, and faced capital constraints or compliance issues due to their prior aggressive growth. Meanwhile, Credit Corp had a 5% net profit margin, though it was also bolstered by an equity raising. It subsequently purchased Collection House’s Australian PDL book–which had ongoing payment arrangements of almost AUD 200 million in face value–for AUD 160 million in fiscal 2021. Credit Corp subsequently bought Collection House’s New Zealand PDL book for AUD 12 million, while also extending the firm AUD 7.5 million working capital loan in early fiscal 2022. When Collection House fell into administration in June 2022, Credit Corp acquired its remaining business and all outstanding shares for AUD 11 million.
Bulls Say
- A relatively prudent business model allows for better countercyclical investment and cash collections, which helps fund more purchases and issue more loans. This also supports continued funding and prevents excessive potential value destruction.
- Credit Corp has a leaner cost base than its U.S. peers, and is supported by common overheads and technology centered in Australia. This helps it tender for PDLs at a similar footing as its larger competitors.
- Credit Corp’s growing track record in the U.S. has made it a viable choice for local firms seeking to diversify their debt collectors.
Company Description
Credit Corp operates in the distressed consumer debt market. In its core business, it acquires purchased debt ledgers, or PDLs, in Australia and is expanding this business globally by buying PDLs in the United States. These PDLs consist of unsecured debt that are at least six months in arrears and have already been through a collection process. Since 2012, Credit Corp also diversified its business into providing consumer credit to customers who are unable to gain access to credit from primary sources such as banks because of a poor credit history. Its consumer credit business is gaining scale but is also subject to increased regulatory scrutiny.
(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
About three-fourths of General Dynamics is a defense prime contractor and the other fourth a business jet manufacturer. Defense primes rely on defense spending for revenue, and companies with tangible growth profiles through a steady stream of contract wins, ideally to contracts that are fulfilled over decades are favorable. General Dynamic’s crown jewel of long-cycle contracts, the Columbia-class submarine, exemplifies this with planned procurement through 2042. Regulated margins, mature markets, customer-paid research and development, and long-term revenue visibility allow the defense primes to deliver a lot of cash to shareholders, which is positive because there’s no substantial growth seen in this industry. Defense primes are implicitly a play on the defense budget, which is ultimately a function of both a nation’s wealth and a nation’s perception of danger. As the U.S. budget is looking increasingly bloated with pandemic relief, there’s a near-term slowdown in defense spending to flat or even negative growth, but the contractors will be able to continue growing due to sizable backlogs and think that defense budget growth is likely to return. There is a substantial political uncertainty in the budget, but it will be difficult to materially decrease the defense budget due to structural geopolitical changes that make great-power conflict more salient. It is to be noted that one of the most common budgetary compromises of the previous decade has been more nondefense spending for more defense spending.
General Dynamics’ business jet segment primarily produces long-range wide-cabin business jets. This market is low volume, at roughly 200 global deliveries each year and many repeat customers. New, quality, product drives demand in this segment, so the company must continuously convince customers that it has built a better aircraft. Gulfstream dominates volume in this segment, with roughly 50% market share, which leads to superior margins due to progression along the learning curve. It can be anticipated that the introduction of the G700, G800, and G400 in 2022, 2023, and 2025, respectively will be major sales drivers.
Financial Strengths
General Dynamics historically has one of the best balance sheets among defense primes, and this is a proper business strategy as the company is somewhat more cyclical than peers. General Dynamics issued some debt in 2020 due to pandemic-related uncertainties, and gross debt/EBITDA stood at 2.3 times at the end of 2021. General Dynamics had a sizable debt maturity in 2021, and has a much more manageable maturity schedule over the rest of the forecast period. Over the medium term, the company will bring gross debt/EBITDA to its normal historical levels below a single turn. Hence it makes sense for General Dynamics to generally carry a lower debt burden than peers because they have a highly cyclical business jet segment in addition to the acyclical defense prime contracting business. General Dynamics produces a substantial amount of cash flow to service any debt burden and the company would be able to access the capital markets at minimal cost if necessary.
Bulls Say
- General Dynamics’ Gulfstream franchise has top-tier volume share and margin in the large-cabin business jet market and has successfully transitioned to the G500 and G600, and G650. Business jets are in a postpandemic cyclical upswing.
- General Dynamics’ marine segment has decades of revenue visibility, thanks to the long-cycle nature of shipbuilding.
- Defense prime contractors operate in an acyclical business, which could offer some protection if the U.S. enters a recession
Company Description
General Dynamics is a defense contractor and business jet manufacturer. The firm’s segments include aerospace, combat systems, marine, and technologies. The company’s aerospace segment creates Gulfstream business jets. Combat system produces land-based combat vehicles, such as the M1 Abrams tank. The marine subsegment creates nuclear-powered submarines, among other things. The technologies segment contains two main units, an IT business that primarily serves the government market and a mission systems business that focuses on products that provide command, control, computers, intelligence, surveillance, and reconnaissance capabilities to the military.
(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.
