Tag: Australian Market

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Global stocks Shares

CGC reported solid FY 21 results driven by International segment to grow its revenue by 30%

Investment Thesis 

  • Improving momentum at the operational level and the stock is trading well below our valuation.
  • Positive thematic play on food supply for a growing global and domestic population.
  • Leading market positions in five core categories (Berries, Mushrooms, Citrus, Tomato and Avocado via the recent acquisition).
  • Near-term challenges could persist a little while longer (e.g. extreme weather and drought)
  • Execution of domestic berry growth program continues, while China berry expansion is gaining momentum. 
  • Balance sheet risk has been removed with the recent capital raising.
  • Given the number of downgrades, management will likely need to rebuild trust with its guidance and execution.

Key Risks

  • Further deterioration in weather conditions leading to pressure on earnings.
  • Further deterioration in earnings could put the balance risk at risk again.  
  • Weather affecting crops or any significant increase in insurance expense. This risk is mitigated as CGC has crop insurance (hail, wind, fire) and structure insurance.
  • Any power outage causing crops to be destroyed per incident.
  • Any significant increase in costs of power, affecting earnings.
  • Any disruption to operations from health and safety issues.
  • Any disruptions or issues associated with water, irrigation and water recycling.
  • Negotiations with supermarket giants Coles (Wesfarmers), Woolworths and independent grocers result in erosion of margins.
  • Pricing pressures arising from either competitors, or insufficient demand.
  • Increased costs due to lower water allocations. 

1H22 Results Highlights                

Relative to the pcp:   

  • Revenue increased +4.8% to $1220.6m, driven by International up +30% (+40% in CC) with both regions performing strongly with production and pricing improvements. 
  •  EBITDA-S increased +10.6% (+14% in CC) to $218.2m, with International up +33.9% (+49.2% in CC) underpinned by strong China pricing and additional production from increased footprint and yield, partially offset by -1.3% decline in Farms & Logistics segment amid Covid-19 lockdowns impacting foodservice/market industry. 
  •  NPAT-S increased +16% (+25% in CC) to $64m with higher D&A amid major capex programs going-live and impact of acquisitions was more than offset by reduced tax expense amid increased contribution from China. Statutory NPAT declined -32% (-28% in CC) to $41.4m. 
  •  Operating cashflow of $114.6m declined -16.8%, amid increased working capital in 2H21 (consistent with normal cycle) and $23.1m tax payments. 
  •  Operating capex increased +51% to $43.2m (expect CY22 to be $55-60m) and growth capex of $84.4m increased +68% amid continuation of international expansion. 
  •  Net debt increased +108% to $299.2m leading to leverage increasing +0.86x to 1.85x, still within target range of 1.5-2x. 
  •  The Board declared a fully franked final dividend of 5cps bringing FY21 payout to 9.0cps (flat over pcp). 

Company Profile

Costa Group Holdings Ltd (CGC) grows and markets fruit and vegetables and supplies them to supermarket chains and independent grocers globally. CGC has leading market positions in five core categories of Berries (Blueberries, strawberries and raspberries), Mushrooms, Citrus, Tomato and Avocado via the recent acquisition.

(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.

Categories
Global stocks

Coles Group reported 1H22 results reflecting modest sales growth despite cycling elevated sales

Investment Thesis

  • Strong market position in supermarkets, with significant scale and penetration providing a competitive advantage.
  • Increasing private labels penetration – COL recently reiterated its target of 40% penetration.
  • Relatively defensive earnings (food tends to be largely non-discretionary).
  • Undemanding valuation relative to main domestic competitor Woolworths. 
  • Improved focus and capital allocation now that the Company is demerged. 
  • Supply chain automation and upgrades should lead to efficiency gains.
  • In our view, the deal with Ocado puts Coles in a leadership position for online delivery. 
  • Flybuys is a highly attractive asset which could be monetized. 

Key Risks

  • Significant competitive pressures (including the emergence of new players) could erode margins. 
  • Management resets earnings base at the upcoming Strategy update in June 2019.
  • Online disruption (full online offering).
  • Automation and supply chain upgrades will require significant capital expenditure, cost of which has not been fully identified. 
  • Balance sheet could be stretched once adjusted for leases. 
  • Cost inflation runs ahead of top line growth. 

1H22 Results Highlights 

  • Sales revenue growth of +1.0% to $20.6bn and +9.2% on a two-year basis despite cycling elevated Covid-related sales in the pcp.
  • EBITDA of $1,762m was down -2.2%, and EBIT of $975m, was down -4.4% and impacted by higher Covid-19 disruption costs, related travel restrictions on Express’ earnings and transformation project costs. EBIT margin of 4.7%, was down -27bps.
  • NPAT of $549m, was down -2.0%.
  • Smarter Selling benefits in excess of $100m in 1H22; On track to deliver over $200m of benefits in FY22.
  • Cash realisation of 117% and a strong balance sheet (leverage ratio of 2.7x) with a net cash position of $54m (excluding lease liabilities). COL retained solid investment grade credit ratings with S&P and Moody’s.
  • The Board declared a fully franked interim dividend of 33.0cps and retained an annual target dividend payout ratio of 80% to 90%.
  • In February 2020, Coles conducted a review into the pay arrangements for all team members who received a salary and were covered by the General Retail Industry Award 2010 (GRIA). To date COL has incurred $13m of remediation costs.

Company Profile 

Coles Group Ltd (COL) is an Australian retailer (supermarket and liquor), demerged from Wesfarmers (WES) which acquired the business in 2007. As at 30 June 2018, Coles processed more than 21 million customer transactions on average each week, employed over 112,000 team members and operated 2,507 retail outlets nationally. The Company has three main operating segments: Supermarkets, Liquor and Convenience. The Company will also retain a 50% ownership stake in flybuys loyalty programs. 

(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.

Categories
Global stocks Shares

G8 Education Ltd Long term Outlook remains positive with growing population; Announced share buyback

Two young women talking together with a tablet in the living room. They sit spaced apart to prevent the virus.

Investment Thesis

  • Trading below our valuation. 
  • Long-term outlook for childcare demand remains positive with growing population (organic and net immigration). 
  • Greater focus on organic growth as well as acquired growth. 
  • National footprint allows the Company to scale better than competitors and mum and dad operators.
  • Potential takeover target by a global operator. 
  • Leverage to improving occupancy levels – (rough estimates) a 1.0% improvement in occupancy equates to $10-11m revenue and approx. $3m EBIT benefit.

Key Risk

  • Execution risk with achieving its operating leverage and occupancy targets.
  • Increased competition leading to pricing pressure. 
  • Increased supply in places leading to reduced occupancy rates. 
  • Value destructive acquisition(s). 
  • Adverse regulatory changes or funding cuts to childcare.
  • Recession in Australia.
  • Dividend cut   

CY21 Results Highlights Given the disruption to CY20 results, comparing the CY21 results to pre-Covid CY19 results. 

  • Group core revenue of $828m was down -6.9% (or down ~$62m) vs CY19 due to lower occupancy (down 2.1% vs CY19) impacting revenue by ~$50m and a $48m impact from the centers divested since CY19. Partly offsetting these were higher average net fees of $16m and $20m of temporary government support relating to Covid-19. 
  •  Core centre NPBT of $137.8m was down -7.7% on CY19, however core centre NPBT margin of 16.6% was mostly flat on CY19 (16.8%) driven by cost management (effective booking and attendance levels; roster optimization) and removal of negative or low margin centers through lease surrender or divestment. 
  •  Group’s cash conversion of 107% was higher vs CY19 101% despite lower overall operating cash flows (driven by lower EBITDA), in part driven by the benefits of lower interest payments (refinance and lower net debt levels). 
  •  GEM finished the year with a strong balance sheet, with a net debt position of $26m and leverage (net debt / EBITDA) of 0.2x. 
  • The Board declared a fully franked dividend of 3cps, representing a payout ratio of 56% and within the target payout ratio range of 50-70% of NPAT. The Company also announced an on-market buyback “to be determined by appropriately balancing between shareholder returns and leverage levels, the uncertain earnings recovery outlook driven by Covid-19, the funding of strategic priorities including the improvement program and the property investment program and other funding needs included for wage remediation and network optimization.”

Company Profile

G8 Education Limited (GEM) owns and operates care and education services in Australia and Singapore through a range of brands. The Company initially listed on the ASX in December 2007 under the name of Early Learning Services, but later merged with Payce Child Care to become G8 Education.

(Source: Banyantree)

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.

Categories
Global stocks

Cochlear Limited’s net profit was up +26% to $158m, driven by strong sales growth & improved gross margin.

Investment Thesis:

  • Attractive market dynamics – growing population requiring hearing aids, improving health in EM providing more access to devices such as hearing aids and relatively underpenetrated market. There remains a significant, unmet and addressable clinical need for cochlear and acoustic implants that is expected to continue to underpin the long‐term sustainable growth of COH. 
  • Market leading positions globally.
  • Direct-to-consumer marketing expected to fast track market growth.
  • Best in class R&D program (significant dollar amount) leading to continual development of new products and upgrades to existing suite of products.
  • New product launches driving continued demand in all segments.
  • Attractive exposure to growth in China, India and more recently Japan.
  • Solid balance sheet position.
  • Potential benefit from Australian tax incentive. Subject to successful passage of legislation, the patent box tax regime for medical technology and biotechnology should encourage development of innovation in Australia by taxing corporate income derived from patents at a concessional effective corporate tax rate of 17%, with the concession applying from income years starting on or after 1 July 2022.

Key Risks:

  • Product recall.
  • Sustained coronavirus outbreak which delays recommencement of hospital operations in China.
  • R&D program fails to deliver innovative products.
  • Increase in competitive pressures.
  • Change in government reimbursement policy.
  • Adverse movements in AUD/USD.
  • Emerging market does not recoup – significant downside to earnings. 

Key Highlights:

  • Revenue increased +12% to $815m driven by demand for sound processor upgrades and new acoustic implant products, despite Cochlear implant revenue continuing to be impacted by Covid‐related restrictions which caused lower overall operating theatre capacity. Cochlear implant units increased +7% to 18,598.
  • Statutory net profit of $169m includes $12m in innovation fund gains after‐tax. Underlying net profit was up +26% to $158m, driven by strong sales growth and improved gross margin, with some benefit from lower‐than‐expected operating expenses.
  • The Board declared an interim dividend of $1.55 per share, up +35% and equates to a payout of 65% of underlying net profit (up from 61% in the pcp). Management expects dividend payout to be around 70% for the full year, in line with our target payout.
  • COH’s balance sheet remains strong with net cash of $506m and operating cash flows sufficient to fund investing activities and capex.
  • Cochlear implant units increased +7% to 18,598 units, driven by strong growth in emerging markets (up +30%), offsetting a decline in developed markets (down -2%). Revenue was up +2% to $457.9m, with a mix shift to the emerging markets.
  • For the emerging markets, unit volumes overall increased around +30% with a strong recovery from Covid‐related surgery deferrals experienced across most countries. Surgeries in a few countries, including China, are trading above pre‐Covid levels. India and Brazil are recovering well although volumes are still materially below pre‐Covid levels.
  • In service segment revenue increased +21% to $256.5m, driven by a growing recipient base. Sound processor upgrade revenue saw a strong growth due to pent-up demand following the restricted access to clinics during Covid lockdowns.
  • In acoustics segment Revenue increased +40% to a record $100.9m, reflecting strong demand for new products and a recovery from Covid‐related surgery delays.

Company Description:

Cochlear Ltd (COH) researches, develops and markets cochlear implant systems for hearing impaired people. COH’s hearing implant systems include Nucleus and Baha and are sold globally. COH has direct operations in 20 countries and 2,800 employees. 

(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.

Categories
Global stocks Shares

QBE FY21 statutory NPAT improve to $750m, as premiums shot up by an average of 9.7% during the year

Sydney, Australia - March 14, 2013: The Australia Stock Exchange big board viewed from the sidewalk in front of the exchange building in Sydney. The ASX board displays real-time stock information for companies listed on the exchange.

Investment Thesis 

  • New CEO announced could bring a fresh perspective and potential rebasing of earnings. 
  • As a global insurer, QBE’s operations are much more diversified than domestic peers which means insurance risk is more spread out. 
  • Solid global reinsurance program should insulate earnings from catastrophe claims.
  • Expected prolonged period of lower interest rates (which does not benefit QBE’s investment portfolio).
  • Committed to the share buyback program.
  • Undertook a simplification process and sold non-core operations.

Key Risks

  • New CEO announced could bring a fresh perspective and potential rebasing of earnings. 
  • As a global insurer, QBE’s operations are much more diversified than domestic peers which means insurance risk is more spread out. 
  • Solid global reinsurance program should insulate earnings from catastrophe claims.
  • Expected prolonged period of lower interest rates (which does not benefit QBE’s investment portfolio).
  • Committed to the share buyback program.
  • Undertook a simplification process and sold non-core operations.

1H22 Results Highlights                

Relative to the pcp:   

  • Statutory NPAT improved to $750m from a loss of $1,517m in pcp, reflecting a material turnaround in underwriting profitability. Adjusted net cash profit after tax improved to $805m from a loss of $863m in pcp and equated to ROE of 10.3%. 
  •  GWP grew +22% to $18,457m reflecting the strong premium rate environment (average group-wide rate increases averaged +9.7%) as well as improved customer retention and new business growth across all regions with growth in Crop exceptionally strong at 51% due to the significant increase in corn and soybean prices coupled with targeted organic growth. Excluding Crop, GWP increased +18%, or +10% in excess of premium rate increases, up +600bps over pcp, including growth in excess of rate of +15%, +7% and +11% in North America, International and Australia Pacific, respectively. 
  • Combined operating ratio improved -10.5% over pcp to 93.7% as pcp was significantly impacted by Covid-19 claims and adverse prior accident year claims development. North America Crop business reported a combined operating ratio of 92.7%, declining -550bps over pcp. 
  •  Statutory expense ratio declined -140bps over pcp to 13.6% amid operational efficiencies, remaining on track to reach 13% by 2023. 
  • Catastrophe claims were $905M (6.6% of net earned premium vs 5.8% in pcp), up +31.5% over pcp and 90bps above the Group’s increased allowance. 
  • Investment income declined -46% over pcp to $122m amid negative mark-to-market impact of higher risk-free rates on fixed income portfolio. 
  •  Capital position strengthened with indicative pro-forma APRA PCA multiple increasing +0.03x to 1.75x, at the higher end of 1.6–1.8x target range and pro-forma gearing (debt/capital) declining -170bps to 24.1%, within the 15–30% target range. 
  •  Probability of adequacy (PoA) of net outstanding claims reduced -80bps to 91.7% but remained towards the top end of our 87.5–92.5% target range. 

Company Profile

QBE Insurance Group Ltd (QBE) is a global general insurer that underwrites commercial and personal policies across North America, Australia and New Zealand, Europe and emerging markets. QBE’s Equator Re segment is its captive reinsurer, providing reinsurance protection to the entire Group’s operating divisions.

 (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.