Tag: Australian Market

Categories
Property

BWP reported as expected and in line FY22 results, as usual, BWP’s total income of $153.3m, was up 0.7% on pcp

Property investment, savings money for buy new home concepts. A man hand holding coin over small residence house, stack of coins and money bag with blurred real estate. A sustainable investment.

Investment Thesis:

  • Stable and sustainable distribution yield.
  • Strong and experienced management team.
  • WES stake in BWP (24.75%) provides security against risk of non-renewal of leases by Bunnings. 
  • High quality property portfolio with long weighted average lease expiry, strong lease covenants, and high occupancy.
  • Low interest rate environment is encouraging for the housing industry and hardware sales however any sudden increase in interest rates provides risk to both revenue and debt financing costs. 
  • Solid balance sheet with low gearing levels. 
  • Risk of poor execution in redevelopment of assets vacated by Bunnings to other uses.

Key Risks:

  • Any slowdown in demand and net absorption for hardware space.
  • Persistent lower inflation (and deflation) affecting retailers.
  • Economic conditions affect property fundamentals such as values (cap rates and rental growth), vacancies, retail activity (and hence demand for space at big-box retail sites). 
  • Risk of non-renewal of leases by Bunnings Group. 

FY22 Results Highlights. Relative to the pcp: BWP declared final distribution of 9.2cpu, which brings full-year ordinary distribution to 18.29cpu, and in line with the previous year. 

  • BWP conducted 14 market rent reviews (including 10 Bunnings Warehouse properties) which saw rents broadly in line with the market. 
  • BWP saw like-for-like rental growth of 3.3% which takes into account average inflation on Consumer Price Index (“CPI”) linked leases of 3.3%.
  • Weighted average cost of debt of 3.0% for the year, 2.7% at FY22-end. 
  • Weighted average lease expiry (“WALE”) of 3.9 years at FY22-end.
  • BWP’s portfolio remains 97.5% leased.
  • BWP’s portfolio achieved net revaluation gains on the property investment portfolio of $371.9m for FY22. Net tangible assets of $3.87 per unit at 30 June 2022 (versus $3.29 per unit in FY21), up 17.6% on the previous year. 
  • Gearing (debt/total assets) is at 15.1% at FY22-end, versus 17.7% in FY21, and is below the BWP Board’s preferred range of 20 to 30%. The interest cover ratio (earnings before interest /interest expense) was 9.6x (versus 8.8x in FY21).
  • Property portfolio update. BWP’s property portfolio continues to retain solid operating metrics. Key highlights include: BWP’s entire portfolio was revalued at 31 December 2021 and again at 30 June 2022, including 24 property revaluations performed by independent valuers – The value of the portfolio increased $365.1m to $3,001.2m, post capex of $6.0m and revaluation gains of $371.9m, after adjusting for the straight-lining of rent of $1.7m and less net proceeds from divestments of $14.5m. Net revaluation gain was mainly a result of rental income growth and average decrease in capitalisation rates across the portfolio. BWP’s weighted average capitalization rate was 5.04% (versus December 2021: 5.11%; June 2021: 5.65%).
  • BWP’s portfolio was 97.5% leased.
  •  During FY22, 81 leases in the portfolio had annual fixed or CPI increases, resulting in an average increase of 3.2% in the annual rent for these tenancies.
  •  There were no properties acquired during FY22 but management did highlight that BWP made offers to purchase a number of properties. 
  •  In terms of developments: (i) Lismore, NSW: BWP committed to acquire adjoining land for $1.5m and expand its Lismore Bunnings Warehouse at a cost of $11.3m. (ii) Coburg, Victoria: BWP committed to expand its Coburg Bunnings Warehouse, Victoria at a cost of $3.5m.

Company Description:

BWP Trust (BWP) is a real estate investment trust focused on operating, owning, and divestments and acquisitions of large format retailing properties, in particular, Bunnings Warehouses, leased to Bunnings Group Ltd (‘Bunnings’). Bunnings is the leading retailer of home improvement products in Australia and New Zealand and is a major supplier to builders and trades people in the housing industry. BWP is managed by an external responsible entity, BWP Management Ltd who is paid an annual fee based on the gross assets of BWP. Both Bunnings and BWP Management Ltd are wholly-owned subsidiaries of Wesfarmers (WES), one of Australia’s largest listed companies. WES owns ~24.75% of BWP. Currently, BWP is the largest owner of Bunnings Warehouse sites, with a portfolio of ~80 stores. Eight properties have adjacent retail showrooms leases to other retailers.  BWP also owns one stand-alone showroom property. The assets have a current value of ~$2.9bn, WALE of ~4 to 5 years, 97.5% occupancy rate.

(Source: Banyantree)

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

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

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

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

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

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

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

Categories
Global stocks

TPW is well positioned to benefit from the structural tailwind behind the migration of offline to online sales in the homewares and furniture ($16bn market) category

Investment Thesis

  • Operates in a large addressable market – B2C furniture and homewares category is approx. $16bn. 
  • Structural tailwinds – ongoing migration to online in Australia in the homewares and furniture segment. At the moment less than 10% of TPW’s core market is sold online versus the U.S. market where the penetration rate is around 25%.  
  • Strong revenue growth suggests TPW can continue to win market share and become the leader in its core markets. 
  • Active customer growth remains strong, with revenue per customer also increasing at a solid rate. 
  • Successful execution in new growth pillars – Trade & Commercial (B2B) and Home Improvement. 
  • Management is very focused on reinvesting in the business to grow top line growth and capture as much market share as possible. Whilst this comes at the expense of margins in the short term, the scale benefits mean rapid margin expansion could be easily achieved. 
  • Strong balance sheet to take advantage of any in-organic (M&A) growth opportunities, however management is likely to be very disciplined. 
  • Ongoing focus on using technology to improve the customer experience – TPW has invested in merging the online with the offline experience through augmented reality (AR). 

Key Risks

  • Rising competitive pressures.
  • Any issues with the supply chain, especially because of the impact of Covid-19 on logistics, which affects earnings / expenses. 
  • Rising cost pressures eroding margins (e.g., more brand or marketing investment required due to competitive pressures).
  • Disappointing earnings updates or failing to achieve growth rates expected by the market could see the stock price significantly re-rate lower. 
  • Trading on high PE-multiples / valuations means the Company is more prone to share price volatility. 

Key Highlights

  • Group revenue was up +31 to $426m, driven by an increase in active customers (up +21% to 940k) and revenue per active customer (up +6%). Revenue per active customer growth was a function of both growth in average order values and the repeat rate. Group EBITDA of $16.2m was down -21% YoY and represented a margin of 3.8% which came in at the high end of management’s guidance range of 2-4%.
  • The Management called out that macro conditions did deteriorate during the 4Q22 and they are expecting a challenging FY23
  • TPW will be cycling strong previous trading periods which were the beneficiaries of lockdowns, especially the first half, hence expect a “bumpy start to this financial year.” Jul-22 trading was down -21% YoY and YTD Aug-22 trading is down 17%. However, management noted that the current trading YTD is ahead of their internal estimates (despite being down YoY) and expect the business to return to double digit growth in FY23 once lapping the extraordinary Covid lockdowns periods.
  • Management upgraded their FY23 EBITDA guidance from 2-4% range to 3-5% (effectively by 2% at the midpoint). This profitability range is after TPW’s investment in thebuild.com.au, which management noted highlights the increasing operating leverage in the core business

Company Description

Temple & Webster Group (TPW) is a leading online retailer in Australia, which offers consumers access to furniture, homewares, home décor, arts, gifts, and lifestyle products. 

(Source: Banyantree)

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

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

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

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

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

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

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

Categories
Global stocks Shares

IAG has reported weak but expected FY22 results

Investment Thesis

  • Trading on fair value and trading multiples (based on the numbers).
  • Strong FY23 guidance and outlook, but signs of management execution can be seen before upgrading recommendation.
  • Strong capital position with CET1 ratio of 0.97 (within benchmark range of 0.9-1.1).
  • Prospect of an uplift in margins from cost-out programmes.
  • Portfolio rationalisation potentially yields better business performance. 
  • Potentially higher returns from investment portfolio should market conditions move in favour of current positioning. 

 Key Risks

  • Any adverse catastrophe claims without warning with inadequate reinsurance results in lower          combined operating ratios.Benefits and targets from cost-out initiatives not achieved. 
  • Adverse regulatory changes impacting capital positions or dividend payout ratios. 
  • Lower return from investment portfolios. 

Key Highlights

  • Strong FY23 guidance and outlook. Management guided “strong underlying business performance expected in FY23. IAG is forecasting mid-to-high single digit GWP growth and a reported Insurance margin of 14% to 16%. The FY23 guidance aligns to the aspirational goals to achieve a 15% to 17% insurance margin and a reported ROE of 12 to 13% over the medium term.
  • These goals encompass the ambitions around increasing customer base by 1m to 9.5m by FY26, an insurance profit of at least $250m by FY24 in the Intermediated Australia business, further simplification and efficiencies to maintain the Group’s cost base at $2.5bn, $400m in value from DIA claims and supply chain cost reductions on a run rate basis from FY26, and higher customer interactions through the company’s digital channels”.
  • Gross Written Premiums (GWP) of $13,317m was up +5.7%, driven by rate increases to offset inflationary pressures in the supply chain and natural perils, and improvement in retention rates across FY22. GWP growth in the Direct Insurance Australia business was +4.6%, accelerating in 2H22 to +5.8%, while its underlying margin remained strong at 20.5%. Management noted solid performance from Intermediated Insurance Australia business with GWP growth at +6.0% (versus +5.6% in FY21) while underlying insurance margin of +5.0% was better than the +3.9% in FY21. IAG’s NZ business saw +7.0% NZ currency GWP growth, up from +2.8% in FY21 on growth across its commercial insurance and direct brands with a volume increase in commercial motor. 
  • Net Earned Premiums of $7,909m was up +5.8%.

Company Description

Insurance Australia Group (IAG) is one of the two largest general insurance underwriters in Australia   and New Zealand. IAG core insurance product categories are in Consumer (Motor, Home, Compulsory Third Party (CTP)) and Business (predominantly SME, Specialty Lines, Workers’ Compensation) across Australia, NZ, 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.

Categories
Global stocks Shares

Nib holdings Ltd (NHF) reported a solid set of FY22 results despite the ongoing Covid-19 pandemic

Investment Thesis:

  • Given Australia’s growing and ageing population, there will be increased demand for health care services. This will add additional pressure on Australia’s public health care system and the Federal budget and an increased dependence on private health care insurers. NHF offers exposure to the business model of providing a funding mechanism for the high-growth health care sector. Healthcare spending is expected to grow at 5-10% per annum, so without significant tax hikes, the government cannot afford for people to shift back to the public healthcare system.
  • Given underlying increases in average premium rates of around 5 – 6% p.a., some policyholder growth (especially at the 30-34-year-old segment), and exposure to upstart investments, the NHF offers close to double-digit underlying growth in the medium term.
  • Solid management team.
  • Cost-out strategy which improves the company’s expense ratio. 
  • Incentives and benefits encourage PHI take-up. They include 1. Tax benefits and penalties for Australian residents (via Lifetime Health Cover, Medicare Levy Surcharge and means tested rebate); and 2. Shorter wait times, a choice of specialist doctor/hospital and coverage of ancillary health services support.
  • Growth runways through the JV with Tasly Holdings Group, and also international expansion, through product offerings like NISS.

Key Risks:

  • Intensifying competition between top 6 players, putting policy growth targets at risk and any Increases in expected marketing spend going forward will no doubt add further strain on earnings growth.
  • Policyholders decline unexpectedly despite the encouraging incentives and the Australian Government struggling with the rapid increase in healthcare spending and health services demand.
  • Registered health insurers cannot increase premium rates without approval from the Government/Minister for Health/PHIAC/APRA. This leaves NHF’s ROE and margins exposed to a political process and pressures if the company is deemed too profitable.
  • Regulatory changes especially relating to any changes to tax incentives and benefits which encourage take up of PHI. 
  • Higher than expected lapse rates and claims inflation as a result of poor insurance policy design, aging population, and costs of new medical equipment, procedures and treatments.
  • Poor negotiations with healthcare providers such as private hospital operators leading to unfavourable contractual terms.
  • Lower than expected investment returns.

Key Highlights:

  • Outlook. On the conference call with analysts, management did not provide specific quantitative earnings guidance. However, the Company did provide the following commentary: Australian Residents Health Insurance (arhi). “Net policyholder growth 3-4%; Claims experience expected to remain subdued for 1H23; Gradual movement towards net margin target of 6-7% over time”.
  •  International Inbound Health Insurance (iihi). “Worker’s outlook positive with continued demand for skilled migration; Strong return of student market expected, although margins will take time to recover; Continued improving profitability outlook”. 
  •  nib Travel. “Continuing improvement in profitability in FY23; Return to pre COVID conditions by FY24, but on recent demand trends this may occur in FY23”. 
  •  NZ. “Net policyholder growth 34% for core health book; Return to net margin target 8-10% over time, although unlikely in FY23 due to systems investment”.
  • FY22 Results Highlights. Relative to the pcp: Group underlying revenue $2.8bn, up +7.2%, driven by arhi membership which grew +3.2% with over 20,000 additional members, and International inbound health insurance and nib travel which both returned to profitability in 2H22. Group claims expense of $2.1bn, was up +4.0%. Group underlying operating profit of $235.3m, was up +14.8%. 
  • NPAT of $133.8m, down -16.6%, mainly due to investment losses.
  •  Statutory earnings per share 29.6 cents, down 15.9%.
  •  The Board declared a final dividend of 11.0 cents per share fully franked, which came in below FY21 final of 14.0 cps. The total dividend of 22.0cps for FY22 was down -8.3% YoY.
  • Performance Highlights by Segments. Relative to the pcp: arhi. Premium revenue of $2,286.2m, was up +5.2% despite premium deferrals. Risk equalisation payments of $206.1m, fell -7.1% due to reduced industry claiming. Claims fell -3.1% to $1,525.8m as NHF observed that Covid-19 lockdowns affected both members’ willingness and ability to access surgery and healthcare, and clinical providers’ capacity to accommodate treatment.
  •  iihi. Premium revenue was up +7.1% to $123.7m, on growth in international worker members and premium increases. Despite reporting a full year loss (UOP) of $1.1m, it was an improvement on a loss of $5.9m in FY21. The Company noted that 2H22 results were solid, posting a UOP of $6.3m against a loss of -$7.4m in 1H22.
  •  NZ. The segment saw strong premium growth of +12.8% to $291.8m. Policyholder numbers grew strongly to 156,275 from 120,148 in FY21, including life and living insurance.
  •  Nib Travel. Management noted a strong recovery in 4Q22, reducing the full year underlying operating loss to $7.4m compared to a loss of -$13.6m in FY21. 

Company Description:

Nib Holdings Limited (NHF) is the Australian private health insurer. NHF operates in four divisions which are private health insurance, life insurance, travel insurance and related health care activities.

(Source: Banyantree)

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

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

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

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

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

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

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

Categories
Property

LLC is currently trading large Earnings, remains unchanged in line with its long-term average

Graphic of investment stock market data analysis business

Investment Thesis:

  • The Engineering and Services Business sale process is underway – this removes one downside risk to the stock.  
  • Balance sheet remains in solid position and even with the latest provision the Company has headroom available and is within its banking covenants. However, gearing is expected to rise to ~20% as development ramps up to FY23.
  • Robust development outlook with demand for both commercial and residential especially with strong level of apartment pre-sales. 
  • Outlook for new infrastructure projects to be tendered in Australia in the next 2 years remains attractive. 
  • New management team will likely bring a fresh perspective and strategy.
  • Proposed cost out program of $160m should be supported by earnings in a tough trading environment. 
  • Valuation appears undemanding.  

Key Risks:

  • Further provisions to the existing problem projects.
  • New projects are mispriced from a risk perspective.
  • Cut to dividends. 
  • Sudden increases in interest rates.
  • Increase in apartments default rate.
  • Any delays or execution problems in development and construction that sees margin being affected.
  • Any net outflows from its investment management business.

Key Highlights:

  • FY23 outlook: Improved financial performance in FY23, however, risks including inflation, supply chain and interest rates remaining headwind, leading to Group ROE target of 8-11% being achieved from FY24 along with 
  • ROIC target for the Development segment of 10-13% driven by more than $8bn completion target in FY24. ROIC for the Investments segment of 6-7.5% (vs target of 6-9%), including $73m pre-tax from the further sale of 13% of the Military Housing asset management income stream, with FUM target of >$70bn by FY26 remaining intact.
  • ROIC for the Development segment of 4-6% (vs target of 10-13%) with higher commencements and a record amount of WIP driving a recovery in both completions and profit. 
  • EBITDA margin for the Construction segment of 1.5-2.5% vs target of 2-3%, due to risks including ongoing Covid-19 disruption, cost pressures and supply chain constraints.
  • Savings target of >$160m per annum exceeded. Management continued to simplify the Group by exiting non-core businesses with the divestment of Services and reducing the cost structure, achieving recurring annualized operating cost savings of $172m, surpassing target of >$160m, incurring restructuring charges of $170m (pre-tax) and an impairment expense of $289m (pre-tax) amid change in strategy on a small number of underperforming development projects. 
  • Financial position. (1) Liquidity position remained strong at $3.944bn, down -20% YoY, including $1.3bn in cash, down -23.5% YoY primarily due to $1.6bn investment cash outflow. (2) Net debt increased +52.5% YoY to $1.06bn, leading to gearing increasing +230bps YoY to 7.3%, however, remaining within the target range of 10-20%. (3) Investment grade credit rating of Baa3/BBB- and stable outlook by Moody/Fitch. 
  • FY22 results summary. (1) Core operating profit after tax declined -26.8% YoY to $276m, with lower Development segment earnings in part due to a revised approach to JV arrangements, more than offsetting a strong recovery in the Investments segment, and core operating EPS declined -26.8% YoY to of 40.1cps, representing a ROE of 4%, down -140bps YoY and below management’s target range of 8-11%. (2) Statutory loss after tax was $99m vs profit of $222m in pcp, as investments segment revaluations of $70m were more than offset by Development impairment expense of $223m, restructuring costs of $119m and intangible impairments relating to digital activities of $55m. (3) Distribution per security of 16cps (final distribution of 11cps), declined -40.7% YoY, representing payout ratio of 40%, down -900bps YoY and at lower end of target range of 40-60%. (4) The Group formed ~$11bn of investment partnerships that will underpin strong growth in FUM and ended the year with a record WIP of $18.4bn.  

Company Description:

Lend Lease Corporation (LLC) is a global property developer with three key segments in (1) Development: involves development of communities, inner city mixed use developments, apartments, retirement, retail, commercial assets and social infrastructure (with earnings derived from development margins, development management fees received from external co-investors and origination fees for infrastructure PPPs) (2) Construction: involves project management, design, and construction service, predominately in infrastructure, defence, mixed use, commercial and residential sectors (with earnings derived from project and construction management fees and construction margin); and (3) Investments: involves wholesale investment management platform, LLC’s interests in property and infrastructure co-investments, Retirement and US military housing (with earnings derived from funds management fees as well as capital growth and yield from co-investments and returns from LLC’s retirement portfolio and US military housing business). LLC operates predominantly in Australia, but also in the UK and US and with a smaller contribution to earnings derived from the Asia Pacific.

(Source: Banyantree)

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

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

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

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

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

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

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

Categories
Global stocks Shares

Blackmores has seen strong growth in its international segment

Business Strategy & Outlook

Blackmores’ customer profiles are very different in its two key markets, Australia and China. Vitamin-taking Australians tend to be older or females either before or during pregnancy, while in China the market is dominated by young, online shoppers who view international vitamin and dietary supplements as luxury purchases. Nonetheless, the importance of perceived product quality—largely

an extension of brand positioning—is common to both customer groups. Blackmores’ brand intangible assets support its narrow economic moat. Blackmores’ position within the core Australian market as stable and the market as well penetrated. Actual performance in Australia is clouded by informal exports of products purchased for the daigou channel and sent to China. In fiscal 2021, roughly 9% of ANZ sales were ultimately sent to China. While this contribution remaining below 10% due to coronavirus and regulatory changes requiring daigous to register as businesses and pay taxes, this will be offset by growth in the direct China segment.

China presents a large opportunity for Blackmores as it is the second-largest global VDS market after the U.S, and it will contribute roughly 30% of group revenue at mid-cycle. Other than the informal daigou trade, Blackmores primarily distributes into China via cross-border e-commerce where the product is sold on online platforms. Further opportunity lies in establishing a sizable offline retail business, but this hinges on the company obtaining regulatory approval. Blackmores has seen strong growth in its international segment, which now contributes more to earnings than the China segment

and is forecast to remain larger. The segment is largely composed of regions in Southeast Asia including Malaysia, Thailand and Indonesia. Blackmores aims to continue the momentum after entering India in 2021 and gaining halal accreditation to serve Muslim consumers, particularly in Indonesia.

Financial Strengths

Blackmores is in a solid financial position with net cash of AUD 92 million as at June 2022. It should maintain its net cash position over the forecast period and afford a 45% dividend payout ratio. Free cash flow conversion of net income has averaged 102% over the preceding five years (before acquisitions), above the average 54% dividend payout ratio. Free cash conversion of net income to average 93% over the next five years.

Bulls Say

  • A reputation for quality is fundamental in the VDS market and Blackmores’ reputation is untarnished.
  • Bar fiscal 2020, the company has earned returns on invested capital well above its single-digit cost of capital, demonstrating its brand strength and associated pricing power.
  • Blackmores’ new CEO brings experience in navigating international brand sales and distribution in Asian markets which should allow the company to progress its business outside of Australia.

Company Description

Blackmores is a leading Australian vitamin and health supplement manufacturer and is the larger of two major vitamin brands by market share in Australia. Overseas sales also contribute a significant amount to earnings, particularly from Southeast Asia and the Chinese market via both formal (cross-border e-commerce) and informal (daigou) sales channels.

(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.