Categories
Technology Stocks

There is ample room for Fineos to deploy new modules to existing customers and grow penetration over time

Business Strategy & Outlook: 

Fineos is a core software vendor to the global life, accident, and health, or LA&H, insurance industry. Customers are primarily large multinationals and midmarket insurers. The firm generates revenue mainly from subscriptions and product implementation services. About 80% of revenue is generated from the U.S., the rest from Asia Pacific and Europe. Fineos help insurers streamline workflow, save costs, and win new business. Benefits of Fineos’ products to insurers include automating/unifying work processes, centralizing data, reducing the time to market for new products, and enabling greater user interface, assisting business wins and client retention. Fineos is currently migrating customers to a cloud-based offering (from on-premise products). This makes it easier to roll out new features and support at lower marginal costs, while also providing more recurring subscription revenue. 

The firm executes a classic land and expansion strategy. Building on its leadership in claims and absence products, Fineos aims to cross-sell its broader product set including payments, billing, data and more. It intends to expand the use of the Fineos platform across multiple jurisdictions with existing multinational clients. Higher customer expectations, cost pressures, regulatory requirements, or increasing competition are prompting insurers to switch from clunky internal systems to external software like that from Fineos. There is ample room for Fineos to deploy new modules to existing customers and grow penetration over time. This further increases switching costs. To date, more than half of insurers globally still use inhouse legacy systems with limited functionality and high operating costs. Fineos has built multiple reference accounts from doing business with large insurers, who help with additional business wins. Risks include competition from larger competitors, and customer concentration, which may limit price hikes. These may be offset by Fineos’ high switching costs and the risk aversion of insurer clients in changing core systems. Fineos’ product switching costs are contingent on the group continuing to invest (such as in product development) to add value to customers.

Financial Strengths: 

Fineos’ investment efficacy was exemplary on grounds that it consistently prioritized higher returning investments and has a sound track record of execution. This gives us confidence that its future investments will be value accretive. Fineos secured a dominant position in the life, accident and health, or LA&H, insurance industry–a less contested space than the property and casualty, or P&C, industry–at the get go. The firm had a short stint in the more competitive P&C space several years back, but promptly pulled out from this low-returning pursuit. The focus on selling a comprehensive module to existing insurer customers (and in the process entrenching itself within more mission critical functions) is strategically sound. This strengthens switching costs, and may turn customers into credible reference accounts that assist Fineos with new business wins. While there’s need to grow its client base, Fineos will be selective and note that it has so far gone for larger insurers (who also write more annual premiums), putting it in a position of strength relative to vendors to mid-down-market insurers. In contrast, Fineos wouldn’t command much of a switching cost if it was distracted with winning deals rather than capturing more touch points within an existing insurer customer. The move to migrate clients to the cloud is also sensible. Rather than relying on licensing and services fees that can be volatile, this initiative creates a more recurring subscription revenue stream that is also higher-margin. Hosting its products on the cloud allows for a more seamless and rapid deployment of product features and upgrades. This enhances the value added to clients, and increases switching costs. While investments are sound, there are concerns on Fineos’ weak earnings quality, which may expose shareholders to further equity dilution or gearing risk. Fineos might generate positive free cash flows long term before it is comfortable in its balance sheet strength to both withstand a material downside event and self-fund its growth. The need to invest in product development or make feature-driven acquisitions meant that investing cash flows often outstripped operating cash flows, necessitating capital raises. Fiscal 2021’s cash balance barely moved from fiscal 2018 levels despite revenue doubling over the three years to fiscal 2021. Prospective business acquisitions over the next five years will likely require equity raises. However, Fineos is deploying capital sensibly to strengthen its economic moat and operating metrics are trending in the right direction. 

Bulls Say:

  • Fineos has low penetration in a sleepy industry that’s ripe for disruption. Operating metrics are solid and trending positively. 
  • Switching costs are high. A competitor who creates a better product only wins half the race. The other half is to build credible reference accounts and convince insurers to switch, which can be lengthy ordeals. 
  • Fineos will remain the leader in its niche space, as it continues to reinvest in its products or pursue acquisitions, bolstering its capabilities, increasing the switching costs of its product suite and expanding the modules on offer.

Company Description:

Fineos Corp Holdings PLC is an Irish company engaged in providing software solutions that include management and administration of policies and claims to the life, accident, and health insurance industry. The company’s platform, Fineos AdminSuite, comprises Fineos Absence, Fineos Billing, Fineos Claims, Fineos Payments, and Fineos Provider, among other solutions.

(Source: Morningstar)

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

This document is provided by Laverne Securities Pty Ltd T/as Investor Desk. 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 Investor Desk 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, Investor Desk 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.

Investor Desk and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Investor Desk 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 Investor Desk and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Investor Desk 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 Investor Desk 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. Investor Desk and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and is 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 Investor Desk and Banyan Tree.

Categories
Shares Small Cap

Zip Shares Still Cheap After Walking Away from Sezzle, But Its Fundamentals Are Getting Murkier

Business Strategy & Outlook:    

Zip’s focus is on maximizing its addressable market. Its business is more diversified than single-product buy now, pay later, or BNPL, players, with varieties in financing options, transaction limits, and repayment schedules. Customers enjoy simple sign-up and checkouts, high acceptance by retailers and flexible financing solutions to help better manage their cash flows. Merchant partners may benefit from increased conversion rates, basket sizes, and transaction frequencies. Zip has a revolving credit business in Australia. ZipPay finances up to AUD 1,000, and ZipMoney AUD 1,000 and above. It also boasts a broader merchant base including retail, home, electronics, health, auto, and travel. Around 70% of revenue is derived from customers, mainly from account fees and interest. Meanwhile, Zip Business provides unsecured loans of up to AUD 500,000 to small and midsize enterprises. 

Zip adopts an installment financing model overseas, helping it scale up faster and keep up with competition in the underpenetrated global BNPL landscape. The acquisition of U.S. based Quad Pay materially boosts its growth prospects. It also operates in the U.K., Canada, Europe, Mexico, and the Middle East. Zip enhances customer stickiness via ongoing product add-ons. It has a Pay Anywhere function that lets users transact at a wide variety of avenues without being confined to merchant partners. Users also benefit from promotional offers, cash-back deals, or free credits. Newer features include crypto trading, credit reporting, and savings accounts. For merchant partners, Zip invests in co-marketing to help them acquire new customers. Zip has strong earnings prospects, but its margins will be increasingly under pressure and it will not achieve the same penetration and transaction frequency overseas as it had domestically. While it benefits from the growth of e-commerce and increasing preference for more convenient/cheaper forms of financing, anticipated heightened competition to its products. The capital-intensive domestic business cannot scale up as quickly, its fee structure potentially creates friction for customers, and its product offering in the U.S lacks clear differentiation.

Financial Strengths:  

While credit stress is creeping up, Zip remains overall in reasonable financial health. As of March 2022, the net bad debt ratio for its core ANZ business sits at 3.40% of receivables, while arrears are at 2.29%. But as a reprieve, Zip’s current financial position would be bolstered by: 1) its March equity raise; and 2) avoiding absorbing Sezzle’s net losses. Its debt/capital ratio is 56%, while the ratio of equity/receivables has improved to 52% in fiscal 2021 from 8.1% in fiscal 2017. Zip’s bad debts should stay manageable in a major credit event. Unlike some peers, Zip conducts a greater degree of background check before onboarding customers, such as collecting bank statements and pulling in information from a credit bureau. Soft credit checks are similarly performed when onboarding new customers overseas. This helps compensate for the fact that its receivables are higher-risk due to them having longer repayment periods and higher transaction value (notably for Zip Money) or it having a Pay Anywhere model. Its installment businesses have shorter turnover periods and lower transaction values, meaning it can know much earlier (relative to credit cards) if customers have trouble making payments and can therefore amend its risk controls accordingly. Most its Australian receivables are funded by its asset-based securitization program, with undrawn facilities totaling AUD 401.9 million as of March 2022. It also has USD 168.1 million and AUD 119.5 million of undrawn facilities to fund U.S and Zip Business’ receivables, respectively.

Bulls Say:  

  • Zip is well placed to continue growing its transaction volume, given its variety in financing options and retailer base, as well as its Pay Anywhere model which provides a greater avenue to spend using its products.
  • Zip benefits from an accelerated shift to e-commerce, increased adoption of cashless payments, and a growing need among merchants for effective marketing amid a challenging retail backdrop.
  • Zip faces lower regulatory risks than its BNPL rivals, as it already conducts a greater degree of background checks and ZipMoney is already regulated by the National Credit Act.

Company Description: 

Zip is a diversified finance provider, offering consumer financing via a line of credit (via ZipPay and ZipMoney) and installment-based finance (via Quad Pay, Spotii, Twisto, and PayFlex); as well as lending to small to midsize enterprises (via Zip Business). Zip’s fortunes are largely tied to the buy now, pay later, or BNPL, industry. Most of its products–ZipPay, Quad Pay (Zip U.S.), and PayFlex–do not charge interest based on outstanding balances. Around 60%-70% of Zip Pay’s/Zip Money’s revenue is derived from customers, mainly via account fees and interest. Meanwhile, its installment businesses primarily generate revenue by receiving a margin from merchants, which compensates it for accepting all nonpayment risk and for encouraging consumers to transact more frequently.

(Source: Morningstar)

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

This document is provided by Laverne Securities Pty Ltd T/as Investor Desk. 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 Investor Desk 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, Investor Desk 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.

Investor Desk and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Investor Desk 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 Investor Desk and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Investor Desk 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 Investor Desk 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. Investor Desk and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and is 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 Investor Desk and Banyan Tree.

Categories
Technology Stocks

CRISPR Therapeutics’ Pipeline Continues to Make Progress; FVE Remains $119; Shares Very Undervalued

Business Strategy & Outlook: 

CRISPR Therapeutics is a gene editing company focused on the development of CRISPR/Cas9-based therapeutics. The company’s proprietary platform specializes in Clustered Regularly Interspaced Short Palindromic Repeats (CRISPR)/Cas9, which precisely cuts DNA to disrupt, delete, correct, and insert genes to treat genetically defined diseases. CRISPR’s emerging technology has led to a new class of therapies, which are well suited for targeting rare diseases or other disorders that are caused by genetic mutations. CRISPR/Cas9 works by having CRISPR (pieces of DNA sequences) guide Cas9 (an enzyme that can cut and edit DNA) to edit, alter, or repair genes. The company’s proprietary technology has the potential to build blockbusters in rare diseases with limited treatment options available. CRISPR Therapeutics currently has no approved drugs and a largely early-stage pipeline, so to refrain from awarding the company an economic moat. CRISPR Therapeutics is focused on developing and commercializing novel therapies to treat severe, genetic diseases and currently possesses a sizeable, yet mostly early-stage pipeline. Its lead candidate, CTX001, is being developed in collaboration with narrow-moat Vertex Pharmaceuticals for the treatment of transfusion-dependent beta-thalassemia (TDT) and sickle cell disease (SCD). CRISPR Therapeutics and Vertex plan to file for regulatory approval by the end of 2022. The rest of CRISPR Therapeutics’ pipeline is either in early (Phase 1) or pre-clinical stages of development. While CRISPR Therapeutics does not currently have approved products, the company provides long-term investors with pure play exposure to gene editing.

Financial Strengths: 

To assign CRISPR Therapeutics a Standard capital allocation rating. Analysis evaluates what to determine to be the three key facets of management decision-making from the perspective of shareholders: balance sheet strength, investment efficacy, and distributions. The Standard rating results from a sound balance sheet, fair investment strategy, and an assessment of shareholder distributions as appropriate. CRISPR Therapeutics’ revenue cyclicality possesses a medium rating and its operating leverage has a low rating. To assess the company’s balance sheet as sound due to management’s demonstrated ability to maintain little to no debt and run a fairly lean operation despite heavily investing in R&D as it works to advance its pipeline candidates. As of year-end 2021, CRISPR Therapeutics had nearly $2.4 billion in cash and investments.

CRISPR Therapeutics’ investment decisions were fair. As an early-stage biotechnology company, it invests heavily in R&D since it’s focusing on developing its pipeline. CRISPR Therapeutics is investing in its gene editing technology to treat a diverse range of severe, genetic diseases. The validation of the company’s gene editing technology through FDA approvals will be crucial as it competes with other companies also entering the gene editing space. If approved, CRISPR Therapeutics’ drugs could be quite lucrative due to high unmet medical needs leading to pricing power. Finally, to assess overall shareholder distributions as appropriate. Even though the company does not currently pay a dividend, to view this as appropriate since CRISPR Therapeutics is investing in its pipeline to help build value for shareholders. CRISPR Therapeutics is led by Dr. Samarth Kulkarni, who joined the company in 2015 initially as Chief Business Officer. Prior to joining CRISPR Therapeutics, Kulkarni was a partner at McKinsey & Company in the Pharmaceutical and Medical products practice. While at McKinsey, he co-led the biotech practice, where he focused on strategy and operations, and led initiatives in areas such as personalized medicine and immunotherapy.

Bulls Say:

  • Partnerships allow CRISPR Therapeutics to receive milestones and economic benefits from drug candidate progression while offsetting some of the clinical development costs. 
  • CRISPR Therapeutics’ CRISPR/Cas9 platform has the potential to develop highly efficacious and potentially curative treatments for rare, genetic diseases with high unmet needs, which will likely lead to pricing power.
  • To view the company’s pipeline as possessing strengthening intangible assets and assign it a positive moat trend.

Company Description:

CRISPR Therapeutics is a gene editing company focused on the development of CRISPR/Cas9-based therapeutics. CRISPR/Cas9 stands for Clustered Regularly Interspaced Short Palindromic Repeats (CRISPR)/CRISPR-associated protein 9 (Cas9), which is a revolutionary technology for precisely altering specific sequences of genomic DNA. The company is focused on using this technology to treat genetically defined diseases. CRISPR’s most advanced pipeline candidate, CTX001, is in collaboration with Vertex Pharmaceuticals and targets sickle cell disease and transfusion-dependent beta-thalassemia, which have high unmet medical needs. The company is progressing additional gene editing programs for immuno-oncology, as well as a stem cell-derived therapy for the treatment of Type 1 diabetes.

(Source: Morningstar)

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

This document is provided by Laverne Securities Pty Ltd T/as Investor Desk. 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 Investor Desk 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, Investor Desk 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.

Investor Desk and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Investor Desk 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 Investor Desk and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Investor Desk 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 Investor Desk 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. Investor Desk and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and is 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 Investor Desk and Banyan Tree.

Categories
Funds Funds

Zurich Australian Property Securities Fund: is a portfolio of Australian property securities

Investment Objective

To provide investors with an income stream and capital growth over the medium to long term. The Fund aims to outperform the S&P/ASX 300 AREIT Accumulation Index over a period of five years.

Investment Process

The Fund uses a detailed and rigorous investment process with the Managers employing an active, value-based investment style, characterized by incorporating bottom-up investment research into individual securities, with a particular focus on analyzing and forecasting the present and potential future income generation of each underlying property investment. The process consists of two fundamental stages as depicted in the diagram below:

The investment objective of the strategy is two-fold: 

  1. Research – The investment team gathers information through property inspections, company visits, industry analysis, macro-economic analysis and using relevant external research (research from stockbrokers and real estate research houses), before creating financial models of each stock in detail to determine the current and potential future income and to analyse its financial condition. The outputs from the models are then used in Renaissance Property Securities’ proprietary Value Ranking Model.
  2. Portfolio Construction – In this stage the Portfolio Managers meet regularly to determine the size of the active positions to be taken in each stock. The factors which determine the size of active positions within the portfolio include the following: (1) The relative value of each security versus other securities, as determined by Renaissance Property Securities’ Value Ranking Model; (2) Stock specific risks; (3) Size and liquidity of individual stocks; (4) Portfolio risk and; (5) Strength of conviction of the portfolio managers on each individual stock recommendation.

Portfolio

Investment Team 

Zurich Investments provides exclusive access to specialist managers recognised as being amongst the best in their area of expertise. The Company appointed Renaissance Property Securities Pty Ltd (Renaissance) as the strategic investment partner for the fund in November 2005, which is owned by two experienced investment professionals who directly manage the Zurich Australian Property Securities Fund. With over 45 years’ combined experience, investors benefit from the Fund Managers’ successful track record and focused expertise in Australian property securities investing. Below are the provided the bios of Portfolio Managers.

  • Carlos Cocaro – Portfolio Manager. Carlos has over 30 years of experience in managing, analyzing, and researching listed property securities. He began analysing listed property securities in 1986 as part of Armstrong Jones’ Australian equities team and joined Rothschild Australia Asset Management in 1994 as a specialist in listed property securities analysis and portfolio management. In 1997 he was promoted to Director, heading up the growing property securities team, a position he held until he formed Renaissance Property Securities in 2003.
  • Damien Barrack – Portfolio Manager. Damien has over 20 years’ experience managing, analyzing and researching listed property companies. Damien joined Carlos Cocaro in the Rothschild property securities team in 1998 where they worked together until 2003. Damien co-founded Renaissance Property Securities in 2003.

Fund Performance and Positioning 

Asset Allocation

About Fund

The Zurich Australian Property Securities Fund is a portfolio of Australian property securities, spread across retail, commercial and industrial property sectors, with an objective to provide investors with an income stream and capital growth over the medium to long term. The Fund aims to outperform the S&P/ASX 300 Property Trusts Accumulation Index over a period of five years.

(Source: Banyantree and Investment centre)

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

This document is provided by Laverne Securities Pty Ltd T/as Investor Desk. 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 Investor Desk 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, Investor Desk 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.

Investor Desk and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Investor Desk 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 Investor Desk and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Investor Desk 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 Investor Desk 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. Investor Desk and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and is 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 Investor Desk and Banyan Tree.

Categories
Dividend Stocks

FIS Is Trying to Get Back on Track

Business Strategy & Outlook: 

Fidelity National Information Services’ acquisition of Worldpay in 2019 was one of three similar deals that took place in short order. It is not believed that the move was especially attractive relative to the other two, and not believed the company materially strengthened its competitive position as a result. However, it is thought there is a valid strategic rationale for these deals, and the introduction of Worldpay’s acquiring business should boost overall long-term growth, given the ongoing shift toward electronic payments. The integration of Worldpay seems to have been completed without any major hiccups, with the company achieving its stated cost synergy targets. However, the COVID-19 pandemic illustrated one negative of the merger, in that the acquiring business is significantly more macro-sensitive than FIS’ legacy operations. Although cost synergies from the acquisition appear to have helped the company maintain its margins, the pandemic resulted in a modest organic revenue decline in 2020. But results from FIS and peers suggest payment volume has steadily improved and has bounced back fairly quickly, as the long-term secular tailwind appears to be reasserting itself and the worst seem to be past the industry. That said, if the economic environment takes a sharp negative turn, new headwinds could appear in the near term. Moreover, FIS’ performance has lagged peers a bit, suggesting the company may need to make some changes and increase investment to get back on track. From a long-term perspective, the pandemic could benefit the industry, as it appears to have accelerated consumers’ shift away from cash. Additionally, it may be plausible that a part of the rationale for the acquisition was to strengthen the company’s position in online payments. This area has become too large to ignore, and the pandemic has only reinforced the importance of capabilities in this area. Overall, while the company’s near term issues are recognized, the long-term picture of FIS looks good. The company’s segments could all be characterized as industry leaders with attractive margins and fairly stable revenue, and limited capital needs should allow FIS to generate strong free cash flow.

Risk and Uncertainty

Any weaknesses in the banking sector could lead banks to defer technology purchases, hurting FIS’ top line, and any dramatic changes in the structure of the banking industry could have hard-to-predict consequences for FIS. Aging core processing systems and increased needs for system flexibility could lead to higher replacement rates and erode the company’s moat. The payment processing industry is evolving, and while the position of the acquirers within the current dominant framework is well established, disruption could lessen the profitability the industry can generate or cut the acquirers out altogether. As the company’s revenue is directly tied to revenue at its merchant customers, FIS’ acquiring operations are sensitive to macroeconomic conditions. It is seen that the company’s largest environmental, social, and governance risk as data security. Historically, the industry has experienced significant system breaches at times, which creates event risk. The risk of breaches is likely higher on the acquiring side, but a breach on the bank technology side could have greater consequences. Finally, management has historically been aggressive when it comes to mergers and acquisitions, which can lead to integration risk and high financial leverage at certain points.

Bulls Say:

  • The bank technology business is very stable, characterized by high amounts of recurring revenue and long-term contracts. 
  • The shift toward electronic payments will continue to create room for acquirers to see strong growth without stealing share from each other.
  • With healthy operating margins and limited reinvestment needs, FIS throws off a good amount of free cash flow and actively returns it to shareholders

Company Description:

Fidelity National Information Services’ legacy operations provide core and payment processing services to banks, but its business has expanded over time. By acquiring Sungard in 2015, the company now provides recordkeeping and other services to investment firms. With the acquisition of Worldpay in 2019, FIS now provides payment processing services for merchants and holds leading positions in the United States and United Kingdom. About a fourth of revenue is generated outside North America.

(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.

Categories
Dividend Stocks

Endeavour Group (EDV) reported its first earnings result as an independently listed entity

Investment Thesis:

  • High quality fundamentals and dividend yield but trading in line with the valuations. 
  • High quality assets, business model and management team. Both EDV’s Retail and Hotels segments have a moat ensuring stable earnings profile.
  • EDV does have some pricing power to push through CPI increases to the end consumer.
  • Leading market positions with key sites in higher population growth areas.
  • Positively leveraged to the growth in population over time.
  • Increasing digitization to remove more costs and increase the efficiency of the supply chain. 

Key Risks:

  • Margin pressure in the Retail or Hotels segment. 
  • Increasing competition. 
  • Changing consumer preference and consumption trends.
  • More regulatory risks than expected in relation to EDV’s Hotel (relating to gaming) or Retail (relating to alcohol consumption). 
  • As a result of the demerger with Woolworths, several agreements between Woolworths and EDV were established encompassing logistics/supply chain, and strategy. Hence, any negative change in logistics agreements with Woolworths is a risk for EDV earnings. 

Key Highlights: Relative to the pcp:

  • Group sales of $11.6bn, was flat relative to the pcp. This was a good result, considering the volatile trading environment, which saw the EDV’s Hotels business impacted by the ongoing pandemic causing temporary hotel closures and restrictions, especially in 1H22, offset by the Retail business, as these closures created tailwinds with an elevated at-home market.
  • Group EBIT of $924m, was up +2.8%. driven by the partial recovery of EDV’s Hotels segment and another strong performance in Retail, which delivered EBIT in line with FY21. Retail EBIT of $66m, was down -0.4%, whilst Hotels EBIT of $315m, was up +20.7%.
  • Group NPAT of $495m, was up +11.2%.
  • The Board declared a fully franked final dividend of 7.7cps, up +10%. This brings the full year dividend to 20.2cps and equates to 73.1% payout ratio. 
  • Performance Highlights by Segments. Relative to the pcp: Retail. Sales of $10,086m, was down -0.9% as the ongoing pandemic had a significant impact; EBITDA of $944m, was up +0.9%; EBIT of $666m, was down -0.4%. EBIT margin of 6.6% was up +3bps.
  • Hotels. Sales of $1,511m, was up +6.6% as the impact of Covid-19 on 1H22 was more than offset by a strong recovery in 2H22 as pandemic related restrictions were lifted (The FY22 results represent 231 trading days when all EDV’s hotels were able to open, versus 195 days in FY21); EBITDA of $561m, was up +12.4%; EBIT of $315m, was up +20.7%. EBIT margin of 20.8% was up +243bps. 

Company Description:

Endeavour Group Ltd (EDV) is an Australian retail drinks and hospitality business. The Company demerged from Woolworths in 2021 and operates the top-two retail drinks distribution in Australia (Dan Murphy’s and BWS), and the largest national hotel network.

(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
Technology Stocks

SoFi has used a mixture of internal development and external partnerships to rapidly expand the services offered to its clients

Business Strategy & Outlook

SoFi targets young, high-income individuals who may be underserved by traditional full-service banks. The company is purely digital and engages with its clients exclusively through its mobile app and website. Unlike existing digital banks, which generally have limited product offerings, SoFi offers a full suite of financial services and products that includes everything from student loans to estate planning. The intent is that this will allow its customers to structure the entirety of their finances around SoFi, and the company’s reward structures are designed to encourage its clients to do so. By acting as a one-stop shop for its customers’ finances, SoFi intends to create powerful cross-selling advantages that will reduce its cost of acquisition and give it a competitive advantage. In order to meet this goal, SoFi has used a mixture of internal development and external partnerships to rapidly expand the services offered to its clients. The use of partnerships has allowed SoFi to build out its product offerings with impressive speed, transforming SoFi from being a student and personal loan company into a one-stop shop for financial services in just a few years.

While SoFi has offered its clients banking services for some time, the company itself has only recently become a true bank. Having successfully gained a national banking charter in early 2022, SoFi is now able to retain deposits into its SoFi Money accounts and use them to support its lending operations. Prior to SoFi obtaining a charter, deposits into these accounts were swept out to SoFi’s partner banks, leaving SoFi to finance its lending arms entirely though external financing. Access to these lower-costs funds will give SoFi the opportunity to drive net interest income growth as the firm leans into its unique model for digital banking. Since receiving its charter, SoFi’s deposit base and loan book have grown rapidly, with total deposits reaching over $4.9 billion at the end of September 2022 from just over $1 billion at the end of March 2022. SoFi’s success in deposit gathering has supported significant net interest income growth, helping to offset the negative impact of student loan forbearance.

Financial Strengths

With a strong balance sheet and modest credit risk from its lending operations, SoFi is in a good financial position. During its SPAC merger, SoFi raised $1.2 billion through PIPE financing, which came in addition to the $800 million in liquidity that the company acquired during the SPAC merger itself. At the end of September 2022, the firm had over $1.1 billion in unrestricted cash and investment securities, giving it ample financial resources. SoFi does not pay a dividend or make any kind of shareholder returns. This is expected given where SoFi is in its corporate life cycle. SoFi will not commit itself to making dividend payment or to repurchase shares at any point in the immediate future as the company is far more likely to reinvest any excess capital into its business. Additionally, the company’s financial reserves should be more than sufficient to cover any credit losses it may experience. SoFi either sells or securitizes the loans it originates. While historically SoFi has retained some of the securitizations it has made, recently the company has moved away from this practice and many of the loans it has on its books are “float” from its lending business. In other words, loans that have been made but not yet sold through. Because these loans are recently originated, SoFi experiences limited credit losses, and the company’s write-off expense is low relative to the size of its balance sheet. With low credit losses and substantial financial assets at its disposal SoFi is in a good position financially and should have plenty of flexibility to invest in its business as it sees fit. While SoFi is unprofitable and will likely remain so for the near future, the firm is in a good financial position to withstand future losses.

Bulls Say

  • SoFi has managed to rapidly launch an impressive array of products and services, and the company remains the only firm offering a digital full-service model.
  • SoFi has enjoyed rapid growth driven by the introduction of new products and broader adoption of digital banking.
  • The company’s acquisition of Galileo was likely a major win as the number of accounts using Galileo’s platform has risen sharply since the purchase.

Company Description

SoFi is a financial services company that was founded in 2011 and is currently based in San Francisco. Initially known for its student loan refinancing business, the company has expanded its product offerings to include personal loans, credit cards, mortgages, investment accounts, banking services, and financial planning. The company intends to be a one-stop shop for its clients’ finances and operates solely through its mobile app and website. Through its acquisition of Galileo in 2020 the company also offers payment and account services for debit cards and digital banking.

(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.

Categories
Technology Stocks

Cochlear Ltd (COH) reported strong 1H22 Results

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 programs fail 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: Relative to the pcp and on a constant currency basis: 

  • 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 the 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 developed markets, volumes were down -2%, but overall are tracking ahead of pre‐Covid levels with continuing variability in performance across countries in response to Covid. 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. 
  • 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. 
  • Revenue increased +40% to a record $100.9m, reflecting strong demand for new products and a recovery from Covid‐related surgery delays. The Cochlear Osia 2 System achieved CE Mark accreditation in 2H21 and is being rolled out across Western Europe in 1H22. The Cochlear Baha 6 Max Sound Processor was launched in 4Q21 and is driving strong demand for sound processor upgrades across all regions.

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.

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
Dividend Stocks

WOW saw strong 2H22 sales growth improved for all segments except NZ Food

Investment Thesis

  • High quality fundamentals but trades on fair value considering trading multiples, valuations and dividend yield. 
  • High quality assets, business model and management team. 
  • Leading market positions with key sites in higher population growth areas. 
  • Positively leveraged to the growth in population over time. 
  • Increasing digitisation to remove more costs and increase the efficiency of the supply chain. 
  • Key leading indicators (such as basket size / items per basket) are improving for the core Australian Food segment. 
  • Transaction growth and customer metrics are showing improving trends.
  •  Capital management post Endeavour transaction.

Key Risks

  • Further margin pressure in the Food & Petrol business. 
  • Increasing competition in retail and changing consumer preference and consumption trends 
  • Deterioration in balance sheet metrics due to earnings decline. 
  • Adverse movements in AUD/USD (international sourcing).

Key Highlights: Relative to the pcp and on a constant currency basis: 

  • Group sales of $60,849m, up +9.2% and +10.5% in 2H22. WOW saw strong 2H22 sales growth improved for all segments except NZ Food, which was impacted by Covid-related disruptions to availability and a market slowdown. 
  • Group gross margin was up +35 bps due to an increase in Australian Food of 74 bps offsetting a BIG W decline of 28 bps. 
  • Group CODB increased 89 bps, impacted by supply chain and team availability issues impacting efficiency in stores and DCs and the impact of BIG W’s sales decline in 1H22 due to store closures. 
  • EBIT of $2,690m, declined -2.7%, but made a strong recovery in 2H22, up +8.1%, driven by an +9.7% increase in 2H22 Australian Food EBIT. 
  • NPAT of $1,514m, was up +0.7%. 
  • The Board declared a final dividend of 53cps, down -3.6% (or excluding Endeavour Group, 53cps, up +3.9%). This brings FY22 dividend per share to 92cps, up +1.1%. 
  • Australian Food. Sales of $45,461m, was up +4.5% with comparable sales for the year increasing 3.5% (5.1% ex Tobacco). EBIT of 2,420m, was up +0.3%. EBIT margin of 5.3% was down -22bps.
  • Australian B2B. Both sales of $3,963m, and EBIT of 42m, was significantly up from the pcp, reflecting the acquisition of PFD and inclusion of Endeavour Group revenue under the partnership agreements for the first time. EBIT margin of 1.1% was up 6bps. 
  • NZ Food. Sales of $7,092m was up +6.6%. EBIT of 2,420m, was up +0.3%. EBIT of $316m was down -11.9% impacted by challenging trading conditions, such as supply chain disruptions caused by a three-day strike in late November, widespread Omicron community transmission, and global shipping challenges. 1H22 sales increased +8.3%, due to lockdowns in mid-August which resulted in higher in-home consumption, however, the Omicron outbreak in March caused significant team absenteeism and disruption to the supply chain and stores which negatively impacted sales (2H22 sales growth slowed to 3.1% and 2.3% in Q4 with higher selling prices partially offset by lower volumes. EBIT margin of 4.2% was down 87bps. 
  • Big W. Sales of $4,431m was down -3.3%. EBIT of 2,420m, was up +0.3%. EBIT of $55m, was down -68.2%, as a result of store closures in 1H22, offset by sales in 2H22, which increased +4.0% to $2,083m. Q3 sales were impacted by limited customer mobility caused by Omicron early in the quarter but Q4 sales growth strongly recovered to +11.9% due to festive events (Easter, Mother’s Day and Toy Mania events) and cycling lockdown impacts in some Victorian stores in the prior year. EBIT margin of 1.2% was down -251bps.

Company Description

Woolworths Limited (WOW) operates supermarkets, specialty and discount department stores, liquor and electronics stores throughout Australia. Woolworths also manufactures processed foods, exports and wholesales foods and offers petrol retailing. The company also operates hotels which includes pubs, food, accommodation, and gaming operations.

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
Dividend Stocks

PPT delivered strong earnings growth for FY22 with underlying PBT 19 percent yy

Investment Thesis

  • Trades below the 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).

Key Highlights: Relative to the pcp and on a constant currency basis: 

  • The company entered into a binding Scheme Implementation Deed to acquire 100% of shares in Pendal Group, targeted to be implemented by late CY22/early CY23 and Pendal shareholders receiving 1 PPT share for every 7.50 Pendal shares plus $1.976 cash/Pendal share (implying an offer price of $6.54/Pendal share), with acquisition expected to;
  •  Realise $60m of annual pre-tax synergies within the first two years and deliver double digit EPS accretion for PPT in the 12 months post implementation, with one-off costs to achieve synergies of $110m phased with majority incurred over 18 months and other transaction costs of $40m.
  • Create greater scale with $1.4bn in revenue and ~$456m in UPBT driven by increased economies of scale, and combined AUM of >$201bn, covering Global, US, UK, European and Australian equities, Multi Asset and Cash and Fixed Income strategies, significantly improving market position and brand recognition. 
  • Expanded team with employees across 16 locations around the globe and enhanced global distribution network. Management expects to fund the cash component of the offer totalling $757m via a new debt facility, which will also re-finance Perpetual’s existing debt facility and include undrawn headroom for liquidity management purposes and expects pro forma leverage to be ~1.7x gross debt/pro forma EBITDA (~1.3x Net Debt/pro forma EBITDA) with de-leveraging occurring in year 3 post-implementation given the strong cash flow generation of the combined businesses with a clear pathway to 1.2x Gross Debt/pro forma EBITDA (~0.8x Net Debt).
  • The Board declared a fully franked final dividend of 97cps, resulting in a total dividend for the full year of 209cps, an increase of +16% y/y, representing a payout ratio of 80%, in line with company’s payout range of 60-90% UPAT on an annualised basis. 
  • ROE improved +44bps y/y to 16.2%.

Company Description

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).

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.