Tag: Australian Market
Business Strategy & Outlook
QBE Insurance is an international property and casualty insurance company with around USD 20 billion of annual gross written premiums. It writes about 25% of its annual premiums in its home region of Australia and New Zealand, which accounts for more than half of the groups underwriting profit. Other key markets include North America, Europe, and Asia Pacific. QBE is predominantly focused on specialty insurance lines, but the offering is extremely wide ranging across property, auto insurance, agriculture, public/product liability, professional indemnity, workers compensation, marine, energy and aviation, and accident and health. The size and diversity of insurance is built on the back of hundreds of acquisitions made over decades. The extended period of global growth via acquisition failed to deliver the cost-synergies or scale benefits management had hoped. The strategy has rightfully shifted, and progress is being made in turning the business around. The balance sheet has been strengthened and operational efficiency improving. The way senior management has reshaped insurance portfolios, cut costs, tightened underwriting standards and increased accountability across the group is likable. In addition to divesting several businesses, a greater focus on returns has led to group wide improvement in attritional claims. While reducing premiums, decisions to reduce exposure to certain areas–for example, large commercial properties, and properties in higher risk areas–has improved profitability and reduced volatility.
The performance of investment markets brings another element of volatility to earnings. QBE manages a sizable investment portfolio of about USD 27 billion as of June 30, 2022, being both policyholder and shareholder funds. Around 90% is held in cash and fixed-interest investments, with the remainder spread across equities and alternatives. Consequently, the group’s profitability is at risk from changes in interest rates, credit spreads, and–to a lesser extent–equity market. The returns are to remain suppressed in the short-term but will gradually recover as global cash rates normalize.
Financial Strengths
QBE Insurance is in sound financial health. After a multi decade strategy of growth by acquisition, a much-needed period of consolidation has included the exit from Latin America, North American personal lines, a number of Asian markets where the group lacks scale, and underwriting agencies and travel insurance in Australia and New Zealand. QBE Insurance held USD 3 billion in gross debt with a debt/equity ratio of 32.4% at June 30, 2022. Debt/total capital of 24.5% is within management’s 15%-30% target. QBE’s prescribed capital amount, or PCA, multiple is 1.77 times, at the top of the group’s 1.6-1.8 times target range.
Bulls Say
- Rising insurance premiums, underwriting discipline, productivity initiatives, and focus on profitable growth, to drive consistent excess returns.
- The U.S. operations have significant upside potential. There could be few years of disappointment to eventually lead to premium rates reflective of the underlying insured risks.
- The strong balance sheet and positive premium pricing supporting dividend growth and the return of surplus capital to shareholders.
Company Description
QBE Insurance is an international property and casualty insurance company. It writes about 25% of its annual gross written premiums in its home region of Australia and New Zealand, which accounts for more than half of the group’s underwriting profit. Other key regions include North America and Europe. QBE Insurance offers a number of personal, commercial, and specialty lines, including property, auto insurance, agriculture, public/product liability, professional indemnity, workers compensation, marine, energy and aviation, and accident and health.
(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
The COVID-19 pandemic has wreaked havoc on the global airline industry. Lockdowns, border restrictions, and social distancing measures have clipped Qantas’ wings. Stringent Australian entry requirements for international arrivals and an effective ban on noncitizen, nonpermanent resident arrivals decimated passenger revenue, and despite aggressive cost-cutting, operating deleverage led to significant after-tax losses in 2021 and 2022. Qantas remains well-positioned to participate in the recovery as skies gradually reopen. A continued easing of international border restrictions will lead to a boon in tourism. The domestic business, of which Qantas typically captures around two thirds market share, to exceed pre-COVID-19 levels around fiscal 2023. The international recovery is to be more gradual. Prior to the international border reopening in February 2022, Qantas’ international business was virtually grounded. While there is room for optimism over loosening restrictions and pent-up demand, it is believed the recovery will prove protracted, and expect Qantas’ international flying business to exceed pre-COVID-19 levels around fiscal 2024.
The Qantas’ loyalty program, Qantas Frequent Flyer, to some extent cushion earnings volatility in the flying business. Despite a lack of flying activity, the loyalty business is to remain profitable and deliver stable cash flows. Qantas Frequent Flyer is essentially a capital-light business attached to a capital-intensive flying business. Consumers want to earn loyalty points when they fly, and status benefits are important to corporate passengers. The program generates earnings from the sale of points to hundreds of partners, including banks, supermarkets, telephone companies, and department stores. This offers more ways to redeem and earn points, attracting more customers, which in turn attracts new partners–a network effect but not enough to warrant a moat for the group.
Financial Strengths
Qantas’ balance sheet is in a strong position, bolstered by an equity raising in June 2020. While the dilutive impact of the raising has negative consequences for shareholder value, the additional capital positions the company in a comfortable position to navigate near-term challenges. Qantas boasts a cash balance of AUD 3.3 billion at the end of June 2022, a debt book with no covenants, and a further AUD 1.3 billion in undrawn facilities. Qantas has aggressively cut operating costs to weather the coronavirus storm, targeting AUD 15 billion in cost savings over the three years to fiscal 2023–largely temporary savings in rightsizing and operating costs amid a lack of flying activity. Qantas’ freight and loyalty have also cushioned earnings volatility. There’s a return to profitability and a reinstatement of dividends in late-fiscal 2023.
Bulls Say
- Qantas’ earnings are highly leveraged to improving macroeconomic conditions and unrestricted air travel.
- The two-brand Qantas and Jetstar strategy provides flexibility to align capacity and costs with prevailing demand and economic conditions, without affecting the Qantas brand and service perception.
- The Qantas Frequent Flyer program continues to deliver strong earnings and cash flow, underpinning dominant domestic market share.
Company Description
Qantas Airways is Australia’s largest domestic airline with typically a two thirds market share, effectively competing in a duopoly with Virgin. The company operates a multibrand strategy, with low-cost carrier Jetstar complementing the full-service Qantas brand. Its frequent-flyer loyalty program continues to expand with new partnerships, which are integral to retaining customer loyalty for its core airline business.
(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
News Corp operates in an industry undergoing significant changes, with the traditional print-based publishing business model being dismantled by proliferating news and information outlets in the digital space. This is compounded by ever improving means for consumers to access them, driven by mobility and continuing device innovation. Consequently, News Corporation faces enormous structural headwinds, with consumers migrating from newspapers to the digital arena and advertisers following suit. Having said that, News Corporation is better placed than peers in the publishing space to transition its print business to the digital age. It has some of the most venerable masthead brands in the industry (The Wall Street Journal, The Times), and boasts significant editorial resources, especially compared with those of its rivals, which have been dwindling. The company’s financial position is solid, having split in 2013 from Twenty-First Century Fox, with no debt on the balance sheet. Even with the recent consolidation of Foxtel’s debt and a string of acquisitions, News boasts sufficient financial strength to transition the business to the digital age while also exploring opportunities to diversify away from the traditional newspaper business. Recent efforts to simplify the group are also positive, while a USD 1 billion buyback was announced in August 2021.
While News Corporation deals with the structural challenges facing its publishing business, the company was partly shielded by its Australian pay-television operations in 65%-owned Fox Sports and Foxtel. Unfortunately, these two businesses are also coming under severe pressure from digital streaming alternatives to pay TV. On the positive side, the 61%-owned REA Group’s growth outlook remains robust in the online real estate classifieds space and the Move (acquired in November 2014) is making strong progress in the U.S. digital property
Financial Strengths
News Corporation is in solid financial health. It currently has a net debt position of just USD 1.2 billion, or 0.7 times EBITDA. Furthermore, the legacy newspaper publishing business is still generating solid free cash flow, albeit at a declining rate, augmented by resilient earnings from REA Group. Consequently, the company is well placed financially as it attempts to transition the publishing business model to the digital age, while also exploring opportunities to diversify away from it. In November 2021, management began a share buyback. Even after closing several acquisitions in 2022, News can repurchase up to USD 1 billion worth of shares and still keep net debt/EBITDA below 1.5. However, the last time News instituted a buyback in 2013 due to a “lazy” balance sheet, it only repurchased 14% of the USD 500 million program, even though the stock price was much lower during that time.
Bulls Say
- News Corporation’s strong financial position and still-solid free cash generation separate the company from its s
- The solid balance sheet provides management with critical flexibility, as it attempts to navigate the treacherous
- News Corporation also boasts a number of resilient online property classified assets in Australia and the U.S., ones that add to its cash flow profile and provide a template for the kind of businesses that management wishes to acquire as part of a diversification strategy.
Company Description
News Corporation is a diversified media conglomerate with a large presence in the U.S, the U.K., and Australia. Key brands include The Wall Street Journal, Herald Sun, and The Times. The company also has a strong presence in the Australian pay-TV market through Fox Sports and Foxtel (both 65%- owned), while its 62%-owned REA Group is the dominant real estate classified business in Australia. In addition, it owns HarperCollins, one of the largest book publishers globally, and also has a substantial digital property advertising business (Move) in the U.S.
(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.
