Tag: Australian Market

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Global stocks Shares

Recovery Plan of Qantas is constructive and is ahead of target

Investment Thesis:

  • Attractive way to play the Covid reopen trade for investors  
  • All segments delivering return on invested capital > weighted average cost of capital 
  • Strong position in the domestic market (Qantas Domestic and Jetstar continue to remain the two highest margin earning airlines in the domestic market)
  • Jetstar is well positioned for growth and rising demand in Asia 
  • Partnership with Woolworths for Loyalty bodes well for membership and earnings 
  • Oil price hedging in FY20 could contribute to performance 
  • Increased competition in the international segment
  • Relative to peers, strong balance sheet strength
  • Investment grade credit rating  

Key Risks:

  • Disasters that could hurt the QAN brand
  • Ongoing price led competition forcing QAN to cut prices affecting margins
  • Leveraged to the price of oil
  • Adverse currency movements result in less travel 
  • Labour strikes
  • Depressed economic conditions leading to less discretionary income to spend on travel

Key highlights:

  • QAN’s FY21 revenue declined 58% over pcp as the decline in international operations was partially offset by record performance by Qantas Freight, which combined with 49% fall in operating expenses and 71% decline in fuel expenses saw the Company deliver underlying EBIT loss of $1.5bn vs $395m profit in pcp
  • Covid levels in 2H21 while state borders were open generated enough cash from $6.4bn in 3Q21, with management forecasting net debt to be in target range of $4.5- 5.6bn by end of FY22
  • The Company’s cost-cutting program remained ahead of schedule, with $650m taken out of its cost base during FY21, remaining on track to deliver $850m by the end of FY22 and $1bn in FY23
  • Recent outbreaks and associated domestic and trans-Tasman border closures to have an impact in the order of $1.4bn on the Group’s Underlying EBITDA in 1H22
  • Group Domestic capacity to increase from 38% in 1Q to 53% of pre-Covid capacity in 2Q and rise to ~110% in 2H22
  • Recovery plan progress remains ahead of schedule: The Recovery Plan delivered $650m in savings in FY21, ahead of its $600m target and remains on track to deliver $850m by the end of FY22 and greater than $1bn in ongoing savings by the end of FY23
  • Liquidity boosted by securing a further $0.6bn
  • Balance sheet repair commenced, reducing net debt to $5.9bn by end of FY21 from $6.4bn in 3Q21, with further debt reduction remaining a priority
  • Investment grade credit rating of Baa2 from Moody’s maintained
  • Shareholder distributions scrapped until the Group’s earnings and balance sheet have fully recovered in accordance with the Financial Framework

Company Description: 

Qantas Airways Ltd (QAN) provides passenger and freight air transportation services in Australia and internationally. QAN also operates a frequent flyer loyalty program. QAN was founded in 1920 and is headquartered in Mascot, Australia support. 

(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
Funds Funds

Resolution Capital Global Property Securities Fund: A diversified portfolio of stocks of real estate sectors

wherein individual Portfolio Managers hold 25 to 35 stocks each. The Fund’s objective is to exceed the total returns of the Benchmark (FTSE EPRA/NAREIT Developed Index (AUD) Net TRI) after fees on a rolling 3-year basis.           

Downside Risks:

  • Deterioration in Global economy, especially the property market (deterioration of property prices and fundamentals). 
  • The Portfolio Manager/analysts miss-calculate their bottom-up valuation. 
  • Softening in bond yields negatively impacting pricing. 
  • Key person risks, i.e. Andrew Parsons, Marco Colantonio, Robert Promisel, Julian Campbell-Wood and members of the investment team.
  • risk.

Fund Performance & Current Positioning:

(%)FundBenchmarkOut-performance
1-month 2.64%1.90%+0.74%
3-months 14.10%12.29%+1.81%
1-year 26.67%34.93%-8.26%
3-year (p.a.)9.68%7.18%+2.50%
5-year (p.a.)8.65%6.16%+2.49%
Since Inception (p.a.)13.48%12.33%+1.15%

(Source: Resolution Capital)

Fund Positioning:

StockSectorListing% of portfolio*
PrologisIndustrialUS8.10%
Invitation HomesResidentialUS6.50%
WelltowerHealthcareUS4.70%
Kimco Realty CorporationRetailUS4.20%
EquinixData CentresUS4.10%
Essex Property TrustResidentialUS3.60%
Canadian Apartment PropertiesResidentialCanada3.10%
Kilroy Realty CorporationOfficeUS3.10%
CubeSmartSelf-StorageUS2.90%
Mitsubishi Estate CompanyOfficeJapan2.80%
Total43.10%

(Source: Resolution Capital)

Key Highlights:

  • Investment Team:

The investment team is well-resourced with strong credentials and investment experience and is appropriately aligned and remunerated. The PMs have strong credentials and lengthy experience in real estate: Andrew Parsons, Marco Colantonio, Robert Promisel, have at least 30 years industry experience whilst Julian Campbell-Wood has 17 years’ experience. Performance reviews are conducted twice per year and based on Investment performance of all client Funds strategies, Research analysis and outcomes, Compliance with mandate guidelines and Adherence to ESG policies.

  • Investment Philosophy and Process:

In our view, the Fund adopts the bottom-up stock picking fundamental process that most other peers typically follow. A key advantage in the fund’s investment process is the utilisation of their proprietary database to collate their research that enables cross comparisons among regions and sectors to highlight any discrepancies. 

  • Performance:

Although past performance is not an indicator for future performance, it is an indicator of whether the Fund’s strategy has worked in the past. Although the Fund has performed well on an absolute basis, the Fund has underperformed relative to its benchmark in the past year by -8.3%. Nevertheless, over 3- and 5-year, and since inception, the fund has performed well relative to the benchmark.

  • Association with Pinnacle is a positive: 

ASX-listed Pinnacle Investment Management holds a minority 44.5% stake in Resolution Capital whilst key staff own the remaining 55.5%. Pinnacle provides support via distribution and administration services, which is viewed as positive.

About the Fund:

The Resolution Capital Global Property Securities Fund (Unhedged) – Series II provides exposure to a diversified portfolio of stocks within a range of real estate sectors across developed markets (North America, U.K, Europe, and Asia Pacific). The Fund’s objective is to exceed the total returns of the Benchmark (FTSE EPRA/NAREIT Developed Index (AUD) Net TRI) after fees on a rolling 3-year basis.

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
Dividend Stocks Shares

Solid Year for Pendal; Strong Returns to Normalize, but The Hunt for New Money Is Picking Up

Business Strategy and Outlook

Pendal Group is one of Australia’s largest active fund managers, with AUD 139.2 billion in funds under management, or FUM. The business has diversified considerably since being spun out by Westpac in 2007, following the acquisition of U.K.-headquartered JO Hambro in October 2011. 

Pendal’s strategy centres on product, geographic, and asset class diversification. This positions it to capture FUM across various market cycles and fend off competitive pressures from low-cost passive products. It boasts a broad product suite across asset classes, including Australian and global equities, fixed interest and property. Pendal focuses on catering to growing investor needs with large addressable markets, and has seeded 14 funds per year, on average, over the last five years. It has an active pipeline of new products, more recently having launched multiple retirement income and ESG-themed funds. 

The group sources FUM from diversified institutional and adviser clients across Australia, U.S., U.K., and Europe. This provides higher growth opportunities and helps mitigate disruptions from a particular geography. Growth is supported by its strong distribution relationships in each of the region which it operates. Client concentration in its core FUM pool (excluding Westpac which accounts for 12% of total FUM) is relatively low. The 10 largest clients for JO Hambro account for just a third of its FUM. Institutional money currently represents 39% of FUM. 

Solid Year for Pendal; Strong Returns to Normalize, but The Hunt for New Money Is Picking Up 07 Nov 2021 

Pendal’s fiscal 2021 results were unsurprisingly solid, with underlying NPAT up 25% from the prior year to AUD 165 million. Strong markets, investment outperformance and net outflow reductions saw average funds under management, or FUM, grow 14% from the prior year to AUD 108 billion. Base fee margins were resilient at 0.48% and performance fees more than quadrupled. Dividends per share grew 11% to AUD 0.41, representing a payout ratio of 89%.An increasingly diversified clientele and product breadth expands its channels for new money, while relatively low fee margins should help it better withstand fee pressure. The strong performance in fiscal 2021 has improved the momentum of Pendal’s net flows–notably in its U.S. pooled and Australian wholesale channels.

Financial Strength 

Pendal is in sound financial health, with a net cash position of AUD 249 million as of Sep. 30, 2021. The firm has AUD 49 million worth of debt as of Sep. 30, 2021. This was used to fund the acquisition of Thompson, Siegel & Walmsley, or TSW, which has completed in the September quarter of 2021. It was poised to take on about AUD 200 million in debt to help fund TSW’s purchase. However, strong participation in Pendal’s capital raising for TSW has reduced the debt and balance sheet funding required to complete the acquisition. We forecast Pendal’s debt to be discharged within three years. Low capital investment requirements, strong free cash flow, and the balance sheet underpin a high payout of between 80% and 95% of underlying net profit after tax. We expect dividends to broadly match earnings per share growth. Dividends are not fully franked, given the large portion of overseas earnings.

Bulls Say 

  • The diversity of funds / strategies help Pendal grow and hold on to funds under management throughout various market conditions. 
  • The higher-margin overseas JOHCM and TSW businesses give Pendal a stronger organic growth profile than most Australian peers from opportunities in new and existing geographies. 
  • A focus on expanding its product offering with differentiated strategies allows Pendal to stay ahead of emerging investor needs and fend off competition from low-cost passive investments.

Company Profile

Pendal Group is one of Australia’s largest active fund managers. The business is split across three segments: Australian-based Pendal Australia; U.K.-headquartered JO Hambro Capital Management, or JOHCM, and U.S.-based Thompson, Siegel & Walmsley, or TSW. Pendal manages funds across several asset classes via a multiboutique structure. As of Sept. 30, 2021, funds under management, or FUM, stood at AUD 139.2 billion

(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
Daily Report Financial Markets

Australian Market Outlook – 05 November 2021

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.
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Categories
Daily Report Financial Markets

Australian Market Outlook – 04 November 2021

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Categories
Dividend Stocks Philosophy Shares Technical Picks

Quantitative Equities Continue to be a Drag on Janus Henderson’s Fund Flow Recovery

leaving them more dependent on market gains to increase their assets under management. With USD 419.3 billion in AUM at the end of September 2021, Janus Henderson has the size and scale necessary to be competitive in the industry and is structurally set up to hold on to assets regardless of market conditions, being somewhat diversified across its four main asset class segments–equities (two thirds of managed assets), fixed income (close to a fifth), multi-asset and alternatives (the remainder). 

During that same period, the firm’s organic growth rate averaged negative 5.1%, with a standard deviation of 2.4%, which was worse than the average of its publicly traded peers, with revenue growth and operating margins both trailing the average results for the U.S.-based asset managers. Janus Henderson’s organic growth to be in a negative 2%-4% range annually during 2021-25, with revenue growth and operating margins affected by industry fee compression and the need to spend more to enhance performance and distribution.

Financial strength

Janus Henderson entered 2021 with USD 300 million of 4.875% senior notes due in July 2025, leaving it with a debt/total capital ratio of around 6%, interest coverage of more than 50 times, and a debt/EBITDA ratio (by our calculations) of 0.4 times. The company also had a USD 200 million unsecured revolving credit facility (with a maturity date of February 2024). Under the credit facility, the company’s financing leverage ratio cannot exceed 3 times EBITDA. There were no borrowings under the credit facility at the end of September 2021. Should the firm close out the year in line with our expectations, Janus Henderson will enter 2022 with a debt/total capital ratio of around 6%, interest coverage of close to 70 times, and a debt/EBITDA ratio (by our calculations) of 0.3 times.

The company declared an initial quarterly dividend of USD 0.32 per share during the third quarter of 2017 and has since raised it to USD 0.38 per share. As for share repurchases, the company repurchased approximately 4.0 million shares for USD 100 million during 2018, another 9.4 million shares for USD 200 million during 2019, and during 2020 picked up 8.7 million shares for USD 180 million. In February 2021, Janus Henderson repurchased 8.0 million shares of common stock (which was distinct from its corporate buyback program) from Dai-ichi Life Holdings for USD 230 million. The firm has also repurchased 1.8 million shares for USD 75 million as part of its buyback program since the start of 2021.

Bulls Say’s

  • Janus Henderson is the only offshore-based global wealth manager listed on the Australian Securities Exchange. It provides investors exposure to a growing global wealth sector, with a high bias toward equity strategies.
  • Operating leverage is high, capital demands are low, and when free cash flow generation is strong investors can be rewarded with a good mix of growth and income returns. 
  • Janus Henderson carries added currency risk compared with listed Australian peers, given the primary listing is on the New York Stock Exchange and the base currency is the U.S. dollar.

Company Profile 

Janus Henderson Group provides investment management services to retail intermediary (49% of managed assets), self-directed (21%) and institutional (30%) clients under the Janus Henderson and Intech banners. At the end of September 2021, fundamental equities (56%), quantitative equities (9%), fixed-income (19%), multi-asset (13%) and alternative (3%) investment platforms constituted the company’s USD 419.3 billion in assets under management. Janus Henderson sources 56% of its managed assets from clients in North America, with customers from Europe, the Middle East, Africa and Latin America (30%) and the Asia-Pacific region (14%) accounting for the remainder. Headquartered in London, JHG is dual-listed on the New York Stock Exchange and the Australian Stock Exchange.

(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
Daily Report Financial Markets

Australian Market Outlook – 03 November 2021

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Daily Report Financial Markets

Australian Market Outlook – 02 November 2021

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Daily Report Financial Markets

Australian Market Outlook – 01 November 2021

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Daily Report Financial Markets

Australian Market Outlook – 29 October 2021

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