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Pfizer strong pipeline development increasingly sets ups near term growth

Business Strategy and Outlook

Pfizer’s size establishes one of the largest economies of scale in the pharmaceutical industry. In a business where drug development needs a lot of shots on goal to be successful, Pfizer has the financial resources and the established research power to support the development of more new drugs. Also, after many years of struggling to bring out important new drugs, Pfizer is now launching several potential blockbusters in cancer, heart disease, and immunology. Pfizer’s vast financial resources support a leading salesforce. 

Pfizer’s commitment to postapproval studies provides its salespeople with an armamentarium of data for their marketing campaigns. Further, Pfizer’s leading salesforces in emerging countries position the company to benefit from the dramatically increasing wealth in nations such as Brazil, Russia, India, China, and Turkey. Pfizer’s recent decision to divest its off-patent division Upjohn to create a new company (Viatris) in combination with Mylan should drive accelerating growth at the remaining innovative business at Pfizer. With limited patent losses and fewer older drugs, Pfizer is poised for steady growth.

Financial Strength

Pfizer holds a very strong financial position with a large degree of flexibility. As of the end of 2020, debt/capital stood at 39% and debt/EBITDA was 2.9, which suggests that Pfizer remains on solid financial footing. With the majority of its cash flow derived from a diverse portfolio of products, it’s not expects a high degree of volatility with future earnings. After a deep dive on several of Pfizer’s pipeline drugs combined with continued strong data for COVID-19 treatment Paxlovid, it has increased our projections for several key drugs leading to a fair value estimate increase to $48 from $45.50. The strong pipeline increasingly supports our wide moat rating for the firm. For the core business of Pfizer, it is expected to close to 6% annual sales growth between 2020 and 2025 as new drugs offset generic competition. 

Bulls Say’s 

  • Bega is shifting investment to the spreads and grocery business, which we view as less commoditised and higher margin than dairy, with strong niche positions in Vegemite and peanut butter 
  • External factors outside of Bega’s control, such as the weather, can adversely impact supply and demand dynamics. This can impact commodity prices, inputs costs and the firm’s supply chain and lead to volatile earnings 
  • Changing consumer trends toward dairy-free and vegan diets could lead to declines in per-capita dairy and cheese consumption, weighing on the majority of Bega’s earnings

Company Profile 

Pfizer is one of the world’s largest pharmaceutical firms, with annual sales close to $50 billion (excluding COVID-19 vaccine sales). While it historically sold many types of healthcare products and chemicals, now, prescription drugs and vaccines account for the majority of sales. Top sellers include pneumococcal vaccine Prevnar 13, cancer drug Ibrance, cardiovascular treatment Eliquis, and immunology drug Xeljanz. Pfizer sells these products globally, with international sales representing close to 50% of its total sales. Within international sales, emerging markets are a major contributor.

(Source: Morningstar)

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
Fixed Income Fixed Income

PIMCO ESG Global Bond Fund: A Fund providing exposure to core bond holding with ESG bias

The Fund provides exposure to investment grade securities from around the globe while incorporating PIMCO’s ESG screening framework. The strategy can be used as a core bond holding in client portfolios who have an ESG bias. The PIMCO Global Bond Fund is in attraction due to the well-resourced / experienced investment team and PIMCO’s well established investment process. PIMCO’s ESG framework involves three stages: (1) Exclude (restrictions on certain sectors). (2) Evaluate (best in class ESG issuers + prime engagement candidates). (3) Engage (engage issuers to improve ESG related business practices).

Downside Risk

  • Interest rate risk (bond prices and yields are inversely related). 
  • Credit risk (the risk of downgrades or even default) & inflation risk. 
  •  Personnel risk – significant turnover among the 3 lead PMs.

Fund Performance (As at Aug, 2021)

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Investment Process

PIMCO applies a wide range of strategies including Duration analysis, Credit analysis, Relative Value analysis, Sector Allocation and Rotation and individual security selection. The Manger looks to make active decisions with a long-term focus and avoid extreme swings in duration or maturity with a view to creating a steady stream of returns. The Manager has designed and structured a global investment process that includes both top-down and bottom-up decision-making. The first and most important step in the firm’s process is to get the long-term view correct. The figure below provides a summary of the key elements in the investment process.

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Secular analysis: The Manager considers its secular analysis as critical to the investment process, with the firm devoting three days every year to a “Secular Forum”. At this forum, the firm formulates PIMCO’s outlook for global bond markets over the next three to five years. Selected members of the investment staff are assigned secular topics to monitor, including monetary and fiscal policy, inflation, demographics, technology, productivity trends, and global trade. Secular researchers tackle their subjects on a global basis and approach them over a multi-year horizon. At the forum the researchers present their findings to all of the firm’s investment professionals. 

Decision making: Post Secular and Economic Forums, the Investment Committee (senior portfolio managers) develop major strategies that serve as a model for all portfolios using a consensus-based approach. The IC utilises top-down analysis provided by the forums as well as bottom-up input from specialists who focus on various fixed income sectors and the regional portfolio committees. The Investment Committee sets targets for portfolio characteristics such as duration, yield curve exposure, convexity, sector concentration and credit quality and ensures themes are consistently applied across all portfolios. The portfolio management group including the PIMCO Global Strategy team, through the incorporation of the Investment Committee’s model portfolio characteristics, will then construct the Fund.

About the fund

 The ESG Global Bond Fund is an actively managed portfolio of global fixed interest investment which incorporates PIMCO’s ESG screening. The portfolio predominantly invests in governments, corporate, mortgage and other global fixed interest securities.

(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
Fixed Income Sectors

Bentham Professional Global Income Fund: Strong Multi-strategy Credit Approach

Fund Objective

The Fund aims to provide exposure to global credit markets and to generate income with some potential for capital growth over the medium to long term. The Fund aims to outperform its composite benchmark over the suggested minimum investment timeframe.

Fund Strategy

The Fund is actively managed and focused on generating stable investment income by providing a diversified exposure to domestic and global credit markets while managing interest rate risk and currency risk. Bentham seeks to add value through actively managing asset allocations across different credit sectors, trading individual securities and managing its interest rate and currency risk. Bentham manages the Fund on a top-down basis.

Approach

Bentham Global Income holds a range of investments, including Australian and global hybrids, high-yield debt, investment-grade credit, collateralised loan obligations, and cash. Although not currently utilized, Aberdeen Asset Management manages a European convertible component from London. At least 50% of securities must be investment-grade, while Bentham can short credit to a maximum of 35%. Duration is actively managed and usually below the Bloomberg Ausbond Composite Bond Index; it may even be negative. Bentham’s investment in risk-monitoring systems is important in keeping tabs on the array of complex instruments held and the resulting credit and currency exposures.

Portfolio 

The strategy offers a diverse range of fixed-interest asset classes, with the asset mix varying greatly since inception. Syndicated loans (42%), cash (14%), CLOs (12%), and bank capital securities (16%) were the four largest allocations as of October 2021. Capital securities and corporate investment-grade were the largest gainers over the past year at 3.1% and 4.7%, respectively. 

Portfolio Bentham.png

People 

Encouragingly, Bentham retains a formal connection to Credit Suisse’s Credit Investments Group, one of the most deeply resourced groups in the market. This provides welcome global information sharing and asset selection, especially in the loan space. Nik Persic is the other key person and now has 16 years of working with Quin after joining Credit Suisse in 2005 from Commonwealth Bank of Australia, where he held roles in equity capital markets and institutional research.

Performance

Long-term performance has been excellent, despite the contrarian duration positioning in 2014-16. A prolonged negative duration call was an anchor on performance before Bentham aggressively reversed it during 2019. The year 2020 has enabled the team to highlight its flexibility, rotating its portfolio significantly whilst also trading high levels of credit default swap hedges–an almost 2% contribution. Synthetic credit delivered a similar benefit. Loans unsurprisingly have been the backbone of the strategy, delivering solid long-term performance with almost all physical credit being additive over three, five, and seven years.

Bentham Performance .png

(Source: Morningstar)

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
Shares Small Cap

Bega Cheese economic moat required to sustainably generate economic profits

Business Strategy and Outlook

Bega has transformed from a dairy processor with a focus on business to business operations to a branded consumer food company with a more diversified earnings base and less exposure to volatile milk prices. While dairy will remain a key category for Bega Cheese, the focus will be on high value products such as cream cheese and infant formula. In January 2021, Bega finalised the acquisition of Lion Dairy and Drinks from Kirin Group for AUD 534 million. As part of the acquisition, Bega acquired leading brands in milk-based beverages and yoghurt, white milk, and plant-based beverages, in addition to 13 manufacturing sites and Australia’s largest national cold chain distribution network. 

Revenue from the branded segment, which includes spreads, grocery products and Lion’s Dairy and Drinks portfolio, to expand at a CAGR of 18% to fiscal 2026, underpinned by new product innovation and bolt-on acquisitions. Bega Cheese has made limited investment in its brands, particularly in Australia where Fonterra is the licensee of the Bega brand, however since acquiring the spreads and grocery business in 2018, marketing spend as proportion of revenue has increased to 3% from 1% and it is anticipated to remain the higher level.

Financial Strength

Our fair value estimate is AUD 5.20 per share. Bega’s balance sheet is sound. Leverage, measured as net debt/EBITDA improved to 2.3 at June 30, 2021, from 2.4 at the prior period and comfortably below covenants. This is a pleasing position post the major acquisition of Lion Dairy and Drinks in fiscal 2021 which was funded through AUD 267 million of new and extended debt facilities and a AUD 401 million equity raising. It is expected that further deleveraging in coming years as acquisition synergies are achieved, earnings improve and noncore assets are divested, with net debt/EBITDA falling below 2.0 by 2023. Bega has the capacity to pursue smaller acquisitions while maintaining a dividend payout ratio of 50% normalised EPS. The group’s fiscal 2022 EBITDA guidance of AUD 195 million to AUD 215 million has necessitated an 11% downgrade to our fiscal 2022 EBITDA forecast to AUD 215 million.

Bulls Say’s 

  • Bega is shifting investment to the spreads and grocery business, which we view as less commoditised and higher margin than dairy, with strong niche positions in Vegemite and peanut butter 
  • External factors outside of Bega’s control, such as the weather, can adversely impact supply and demand dynamics. This can impact commodity prices, inputs costs and the firm’s supply chain and lead to volatile earnings 
  • Changing consumer trends toward dairy-free and vegan diets could lead to declines in per-capita dairy and cheese consumption, weighing on the majority of Bega’s earnings

Company Profile 

Bega Cheese is an Australian based dairy processor and food manufacturer of well-known brands including Bega Cheese and Vegemite. Bega Cheese operates two segments: the branded segment which produces consumer packaged goods primarily sold through the supermarket and foodservice channels and the bulk segment which produces commodity dairy ingredients primarily sold through the business-to-business channel.

(Source: Morningstar)

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
Funds Funds Research Sectors

UBS Property Securities Fund: The fund which aims to outperform the S&P/ASX 300 Property Accumulation Index

Investment strategy 

The Fund uses a multi-step investment process for constructing the Fund’s investment portfolio that combines top-down sector allocation with bottom-up individual stock selection. Top-down sector allocation is determined through a systematic evaluation of listed and direct property market trends and conditions. Bottom-up stock selection is driven by proprietary analytical techniques to conduct fundamental company analysis, which provides a framework for security selection through an analysis of individual securities independently and relative to each other. Investment return objective The Fund aims to outperform (after management costs) the S&P/ASX 300 Property Accumulation Index over rolling three year periods.

Investment return objective 

The Fund aims to outperform (after management costs) the S&P/ASX 300 Property Accumulation Index over rolling three year periods.

 Downside Risks

  • Deterioration in the Australian economy especially the property market (fundamentals deteriorate). Rising bond yields negatively impacting pricing. 
  • The Portfolio Manager/analysts miss-calculate their bottom-up valuation 
  • Key person risks in Mr. Pica (however, the CBRE investment team is relatively large and capable of succession planning). 

Fund Performance (as at 31 May 2021)

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(Source: UBS)

Fund Positioning: Top 5 Holdings – Overweights & Underweights (as at 31 May 2021)

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(Source: UBS)

Investment Process

The Fund uses an investment process that combines in-depth top-down and bottom- up fundamental market research with a disciplined and systematic approach to portfolio construction and risk management. The Portfolio Manager’s bottom-up approach integrates both quantitative and qualitative research to identify individual securities where the real estate is undervalued and represents the most compelling investment opportunities. The securities research process incorporates several factors including: 

  • Property visits – the Portfolio Manager utilises its local presence to gauge the quality and location of the real estate, assessing properties and capital expenditure needs at the property level. 
  • Management meetings – the Portfolio Manager assesses the management team’s alignment with shareholders; determines the depth and experience of the team; and judges their ability to articulate and execute their strategy. 
  •  Modelling – the Portfolio Manager generates cash flow earnings projections; performs net asset value analysis; and analyses the capital structure. 

About the fund

The UBS Property Securities Fund (portfolio managed by CBRE while Distributed by UBS) is a portfolio of mainly Australian Real Estate Investment Trusts that the investment team believes are being undervalued by the market, based on the in-house assessment of the company’s future cashflows. The Fund aims to outperform (after management costs) the S&P/ASX 300 Property Accumulation Index over rolling five-year periods 

(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.