Tag: Australian Market
Investment Thesis
- Trades on an attractive dividend yield.
- PTM is in a position to attract net inflows as value oriented strategies may make a sustained comeback.
- Recent decision to reduce fees from 1.35% to 1.54%, represents ~9% decline in revenue. In our view, we expect further pressure on the funds management industry and fees (as a result of industry and super funds building inhouse capabilities and passive investing with significantly lower fees/asset allocators becoming more of the norm).
- Significant key man risk. Particularly poignant as Kerr Neilson has stepped down from CEO, and whilst he has not signaled plans to leave altogether, it remains a possibility.
- New distribution channels present growth runways for PTM’s core funds.
- Transition risk as the new CEO takes over.
Key Risks
- Trades on an attractive dividend yield.
- PTM is in a position to attract net inflows as value oriented strategies may make a sustained comeback.
- Recent decision to reduce fees from 1.35% to 1.54%, represents ~9% decline in revenue. In our view, we expect further pressure on the funds management industry and fees (as a result of industry and super funds building inhouse capabilities and passive investing with significantly lower fees/asset allocators becoming more of the norm).
- Significant key man risk. Particularly poignant as Kerr Neilson has stepped down from CEO, and whilst he has not signaled plans to leave altogether, it remains a possibility.
- New distribution channels present growth runways for PTM’s core funds.
- Transition risk as the new CEO takes over.
1H22 result highlights
- Fee revenue increased +2% over pcp to $133.6m, with Management fee revenues increasing +3% over pcp due to the increase in average FUM and changes in product mix (average fee up amid higher portion of retail FUM) partially offset by -32% over pcp decline in Performance fee revenues to $2.5m. Other income declined from a $35.7m gain in pcp to a $4.9m loss due to unrealized losses on seed investments.
- Expenses increased +15.8% to $43.2m, primarily driven by +39.6% YoY increase in share-based payments expense as share-based payments expenses normalized after being relatively low in pcp due to rights forfeited during that period, and +42.3% increase in business developments costs mainly due to advertising and the launch of the Platinum Investment Bond.
- NPAT declined -33.6% over pcp to $60m, primarily driven by unrealized losses on seed investments, including share of associates losses, which contributed losses before tax of $7.4m compared to income before tax of $35m in pcp. Excluding gains and losses on seed investments (net of tax), underlying NPAT declined -1.2% over pcp to $65.1m.
- FUM declined -6.4% over 2H21 to $22bn (down -7% over pcp), driven by net outflow of $900m and negative investment returns of $500m primarily from the Asia ex-Japan investment strategy ($400m).
- The Board declared a fully franked interim dividend of 10cps, down -16.7% over pcp and equating to annualized yield of ~7.4% (using 31 December 2021 share price of $2.70).
Company Profile
Platinum Asset Management (PTM) is an ASX-listed, Australian based fund manager which specializes in investing in international equities. PTM currently manages ~A$23.6bn.
(Source: Banyantree)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Investment Thesis
- Trades below our valuation and represents >10% upside to current share price.
- PPT is a diversified business with earnings derived from trustee services, financial advice and funds management.
- PPT has an opportunity to increase FUM via its Global Share Fund, which has a strong performance track record over 1, 3 and 5-years and significant capacity, whilst PPT continues to maintain FUM in Australia equities which is near maximum capacity. This equates to flattish earnings growth unless PPT can attract FUM into international equities, credit and multi-asset strategies (and other incubated funds).
- Retail and institutional inflow of funds is expected to be solid especially from positive compulsory superannuation trend and flow from Perpetual Private.
- Potential for Perpetual Private to drive growth in funds under management and funds under advice.
- Cost improvements in Perpetual Private and Corporate Trust.
Key Risks
- Any significant underperformance across funds.
- Significant key man risk around key management or investment management personnel.
- Potential change in regulation (superannuation) with more focus on retirement income (annuities) than wealth creation.
- Average base management fee (bps) per annum (excluding performance fee) continues to be stable at ~70bps but there are risks to the downside from pressures on fees.
- More regulation and compliance costs associated with the provision of financial advice and Perpetual Private.
- Exposure to industry funds which are building in-house capabilities (~15-20% of total PPT funds under management).
1H22 Results Summary :
- Operating revenue increased +37% to A$384.9m, primarily driven by the full contribution of Barrow Hanley Global Investors (Barrow Hanley), strong relative investment performance, higher average equity markets and continued growth in both Perpetual Corporate Trust and Perpetual Private.
- Underlying expenses increased +31% to A$275.3m, mainly due to the addition of expenses relating to newly acquired businesses Jacaranda Financial Planning, Laminar Capital and a full six months of Barrow Hanley, as well as higher variable remuneration and investment in technology.
- Underlying profit after tax (UPAT) increased +54% to A$79.1m, which combined with +16% increase in significant items (comprised of transaction and integration costs associated with the acquisition/establishment of Barrow Hanley, Trillium and other acquisitions, as well as the amortisation of acquired intangibles) delivered +113% growth in NPAT to A$59.3m.
- The Company ended the half with cash of A$130.9m, down -24%, primarily due to reduction in FCF (resulting from international expansion, tax and interest payments) and investment in growth initiatives/acquisitions. Liquid investments increased +16% to A$154.8m, reflecting an increase in seed fund investments relating to ETFs and mutual funds.
- Borrowings increased +13% to A$248.1m, reflecting the draw-down of debt to fund strategic initiatives with additional capacity remaining for further investment, leading to gearing ratio (debt/debt+equity) increasing +150bps to 21.5%.
- The Board declared a fully franked interim dividend of 112cps, up +33% and representing a payout ratio of 80%, in line with Company’s dividend policy of 60-90% of UPAT on an annualised basis.
Company Profile
Perpetual Ltd (PPT) is an ASX-listed independent wealth manager with three core segments in (1) Perpetual Investments which is one of Australia’s largest investment managers; (2) Perpetual Private which is one of Australia’s premier high net worth advice business; and (3) Perpetual Corporate Trust which provides trustee services. PPT manages ~$98.3 billion in funds under management, ~$17.0 billion in funds under advice and ~$922.8 billion in funds under administration (as at 30 June 2021.
(Source: Banyantree)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Investment Thesis
- Experienced management team and senior staff with a track record of delivering earnings growth.
- Strong balance sheet with little leverage.
- Strong presence and brands in the Australian aftermarket segment.
- Growing presence in Europe and Middle East and potential to grow Exports.
- Growth via acquisitions
- Current trading multiples adequately price in the near-term growth opportunities.
Key Risks
- Higher than expected sales growth rates.
- Any delays or interruptions in production, especially in Thailand which happens on an annual basis.
- Increased competition in the Australian Aftermarket especially with competitors’ tendency to replicate ARB products.
- Slowing down of demand from OEMs.
- Poor execution of R&D.
- Currency exposure
1H22 result highlights
Relative to the pcp:
- Sales of $359m, up +26.5%, underpinned by solid customer demand across all segments. Sales Margin was maintained.
- Profit after tax of $68.9m, and NPAT of $92.0m, were both up +27.6% relative to the pcp.
- The Board declared an interim fully franked dividend of 39.0cps compared with 29.0cps fully franked last year. Dividend payout ratio of 46% was higher than the 43% ratio in the pcp.
- Net cash provided by operating activities of $28.6m in 1H22, was driven by the profit after tax of $68.9m, offset by higher inventory holdings of $40.5m, as ARB sought to increase inventories in a challenging supply chain environment to facilitate continued sales growth.
- ARB retained a cash balance of $58.3m, a decrease of $26.4m from the June 2021 financial year end mainly due to expansionary capital purchases of PP&E for $27.0m and dividends paid to shareholders in October 2021 of $25.4m.
Company Profile
ARB Corporation Ltd (ARB) designs, manufactures, distributes, and sells 4-wheel drive vehicle accessories and light metal engineering works. It is predominantly based in Australia but also has presence in the US, Thailand, Middle East, and Europe. There are currently 61 ARB stores across Australia for aftermarket sales.
(Source: Banyantree)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Investment Thesis:
- Trading below our valuation.
- Potential for solid growth in Europe and Japan, substantial opportunities, that the Company is positioned to take advantage of.
- Strong market position in all of DMP’s existing geographies.
- DMP is ahead of the curve with the use of technology and innovative offerings for its customers.
- Acquisition in Europe to bring in top line revenue growth.
- Strong management team.
- Improving margin outlook (i.e., operating leverage benefits).
Key Risks:
- Acquisition integrations not going to plan.
- Missing market expectations on sales and earnings growth.
- Dietary concerns that drive customers to healthier alternatives.
- Increased cost in ingredients and labor.
- Market pressures from the competition.
- Departure of key management personnel.
- Corporate office having to increase financial support to struggling franchisees.
- Any further negative media articles especially around underpayment of wages at the franchisee level.
- Any emerging concerns around store rollout (such as cannibalization or demographics not supportive of new stores).
- Increase in commodity prices due to ongoing Russia-Ukraine conflict.
Key Highlights:
- Trading update: For first 6 weeks of 2H22, Network Sales up +6.0% (+1.7% on a same store sales basis) vs +20.9% (+10.1% on same store basis) in pcp and new organic store additions of 23 (vs 11 in pcp) with the Company remaining on track to expand its network by +500 during FY22 (including Taiwan acquisition).
- Food inflation anticipated in 2H22.
- FY22 same store sales growth slightly below 3–5-year outlook of +3-6%.
- 3–5-year annual outlook of +3-6% same store sales growth, +9-12% new organic store additions and ~$100-150m net capex remains intact.
- Group milestone of 6,650 stores by 2033 with total opportunity of 2.1x current market size (Europe milestone of 3,050 stores by 2033 with total opportunity of 2.3x current market size, ANZ store target of 1200 by 2025-2028 with total opportunity of 1.4x current market size, and Asia milestone of 2,400 stores by 2033 with total market opportunity of 2.3x current market size).
- Australia region Highlight includes Network Sales grew +6.4% over pcp to $689.6m (same store sales up +1.7%), however, EBIT declined -6.1% over pcp to $60.3m with margin declining -180bps to 15%, reflecting investment in franchisees (Project Ignite ~$6m) and full & partial temporary store closures arising from Covid-19 (NZ was closed for 4 full weeks during August with Auckland stores closed for a more extended period of time). Online penetration grew with online sales growing +9.7% over pcp to $545.1m and online now representing 79% of total network sales, up +230bps over pcp. The Company opened 3 new stores increasing total store count to 863.
Company Description:
Domino’s Pizza Enterprises Limited (DMP) operates retail food outlets. The Company offers franchises to the public and holds the franchise rights for the Domino’s brand and network in Australia, New Zealand, Europe and Japan.
(Source: Banyantree)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
