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Allspring Diversified Income Builder Fund – Class C: A fund providing high income

Fund Objective

The investment seeks long-term total return, consisting of current income and capital appreciation.

Approach

The strategy targets a yield of 4%-5% and allocates 60%-90% of assets in fixed income, with the remainder in stocks. The team may also employ tactical shifts, vetted by the firm’s tactical trading council, by trading currencies or equity sector indexes, but these can be difficult to execute well consistently. Since introducing a multisleeved approach in early 2018, this strategy has undergone three prospectus benchmark shifts that signal it continues to experiment with its profile. The most recent adjustment (February 2020) decreased the equity exposure by 10 percentage points to 25% in order to make room for a more diversified bond sleeve. Other adjustments include the removal of a REITs sleeve in September 2018, the addition of a securitized bond sleeve in March 2019, and the introduction of an options sleeve in January 2020.

Portfolio 

As fixed-income markets have proved richly priced, the portfolio managers cited more attractive capital appreciation and dividends in the equity space, prompting an uptick in the equity holdings to roughly 38% here by September 2021. Within that equity sleeve, technology stocks (Microsoft MSFT is a holding) and healthcare stocks (such as Bausch Health Companies BHC, DaVita DVA, and AbbeVie ABBV) occupied roughly 27% and 17% of assets, respectively. 

High-yield bonds dominate the fixed-income portion of the strategy (59% of the portfolio as of September 2021), and it is worth noting that these are more sensitive to equity markets than the investment-grade fare employed by many peers for downside protection in stressed markets. Other bond sleeves here are modest but diversifying relative to the portfolio’s historical profile and include municipal bonds (3%) and securitized bonds (2%).

People

Kandarp Acharya as co manager alongside Margie Patel, who was the sole manager since 2007 but is departing this strategy (though she remains on Allspring Diversified Capital Builder EKBYX) as of Dec. 13, 2021. This move is accompanied by the arrival of quantitative researcher Petros Bocray, a 15-year firm veteran and Acharya’s collaborator on Allspring Asset Allocation EAAIX.

Performance

Over the strategy’s short tenure with its new contours (January 2018 through November 2021), the 5.5% annualized return of its R6 share class modestly outpaced the 5.3% return of the Morningstar Conservative. Target Risk Index and trailed the 6.7% return of its custom benchmark (60% ICE BoA U.S. Cash Pay HY Index, 25% MSCI ACWI, and 15% Barclays Aggregate Index). From an absolute return perspective, the strategy also generated a higher return than the 5.0% median of its typical allocation–15% to 30% equity Morningstar Category peer.This strategy has a riskier profile than many strategies in the category, particularly during stress periods, resulting in risk-adjusted returns (as measured by the Sharpe ratio) that trail all comparative points (typical category peer and benchmark as well as custom benchmark) over the aforementioned period. In three recent stress periods (when energy prices plummeted from June 2015 to February 2016, the 2018 fourth-quarter high-yield sell-off, and the coronavirus-driven market panic of Feb. 20-March 23, 2020), the fund lagged its category index by more than double and trailed its typical peer.

Top 10 Holdings

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About the fund

The Fund seeks high current income from investments in income-producing securities. The Fund will normally invest at least 80% of its assets in income producing securities, including debt securities of any quality, dividend paying common and preferred stocks, convertible bonds, and  

derivatives. The strategy targets a yield of 4%-5% and allocates 60%-90% of assets in fixed income, with the remainder in stocks. The team may also employ tactical shifts, vetted by the firm’s tactical trading council, by trading currencies or equity sector indexes, but these can be difficult to execute well consistently.

(Source:Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Funds Funds

Touchstone Flexible Income Fund Class Y: A flexible Income fund providing income as well as capital appreciation

Approach

The strategy’s primary hunting grounds include U.S. investment-grade and high-yield corporates, preferred stock, municipal bonds, and U.S. Treasuries. The strategy gains exposure to high-yielding corporate and municipal bonds via closedend funds–an uncommon tactic–which compose 5% to 15% of assets. Within these positions, the team focuses on the fund’s discount and quality of cash flow rather than its underlying holdings. Unlike most peers, the team doesn’t invest in emerging-markets debt, nor do they take on any currency risk. The strategy is benchmark-agnostic and flexible in its construction across asset classes and credit quality. It can invest up to 40% in junk-rated debt, which had peaked near 30% (including non-rated debt) up until September 2020. As of October 2021, the strategy’s non-investment grade exposure stands at 45%, owing to the increase in nonrated debt over the last year. The strategy tends to be concentrated; it is common to see individual positions between 2% and 4% each.

Portfolio

 The strategy continued to maintain a high allocation to preferred securities (34% of assets as of October 2021), followed by structured credit (32%, mostly in commercial mortgage-backed securities). The team modestly added shorter term Treasuries and maintained a nominal allocation to cash and cash equivalents towards the end of 2020 due to near zero interest rates. However, in the first quarter of 2021, the portfolio cut its 9% allocation to Treasuries to zero as the long-end of the curve sold off and no desirable returns were seen in the short-end. Post the first quarter of 2021, the portfolio’s exposure to treasuries, mostly short-dated, has increased drastically to 16% as of October 2021, owing to the flat credit curve and the credit spreads for riskier securities having tightened to pre-pandemic levels. The team has also reduced the exposure to corporate credits, both investment-grade (3.7%) and high yield (6.4%), given tight credit spreads. The portfolio’s exposure to nonrated debt has increased and stood at 30% as of October 2021, an increase of roughly 18 percentage points from last year. Most of this exposure comprises multifamily MBS originated by Freddie Mac, but still carry some risk.

Performance

 Institutional share class has shown middling performance within its nontraditional Morningstar Category peer group, returning 3.8% annualized. From November 2018 through November 2021, the strategy’s I share class has gained 6.5% annualized, outpacing more than 65% of its category peers, and beating its typical rival by 60 basis points. The team has made good use of its flexible mandate by tilting towards Treasuries and high-quality securitized credit heading into 2020 which helped ease some pain as the markets tumbled during the coronavirus-led self-off from Feb. 20 to March 23, 2020. However, the strategy’s 14.2% loss over that stretch was still in line with its peers. As markets recovered, the strategy gained a swift 25.3% from March 24, 2020, through to the end of the year, owing to the addition of battered corporate credits that rebounded later that year

(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.

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Shares Technology Stocks

Xero Ltd. delivered strong results with improving key metrics

Modern financier with papers sitting in front of computer monitor with chart and graph of sales rate

Investment Thesis:

  • Competent leadership team with a proven track record of delivering strong growth (Strong top-line momentum driven by strong support of accountants and bookkeepers with annualised monthly recurring revenue increasing at CAGR 32% and strong subscriber growth with positive LTV (Lifetime Value) trends (over FY15-19, ANZ LTV grew at CAGR 48% and International LTV grew at CAGR 65%)). 
  • Solid product offering that is secure, scalable and efficient technology which is competing against competitors with technology that has legacy issues. We note that XRO’s small business platform is an ecosystem of more than 700 connected apps backed by a community of more than 50,000 users of XRO’s API developer tools. Going forward the Company could potentially increase its revenue by monetising its platform in other ways like charging third party app developers. 
  • Potential for meaningful acquisitions to fill gaps in product capability. In our view, the Company is well positioned to make acquisitions going forward (given its balance sheet and funding status). 
  • The Company continues to focus on cloud accounting, and we see significant upside potential in the sector given the fact that the current levels of small business cloud accounting adoption globally is estimated to be less than 20% of the total market or opportunity across English-speaking countries in which the Company operates.

Key Risks:

  • Decrease of migration to cloud software. 
  • Currency headwinds due to weakening of NZ$ relative to AUD, USD and Pound. 
  • Deteriorating sentiment if the economy and IT spending weakens. 
  • Excessive competition from other established players like Intuit leading to loss of market share. 
  • Inability to extract higher operational efficiencies as the Company scales up. 
  • Issues in gaining market share especially in markets with established incumbents.

Key highlights:

  • Improving trends in key metrics – (1) subscriber growth; (2) higher ARPUs (average revenue per user); and (3) lower churn.
  • A key catalyst for XRO’s share price going forward will be execution and growth in North America. 
  • Despite relatively mature markets in New Zealand and Australia, XRO’s subscriber growth in 1H22 in both markets (NZ +16% and Aus +22%) was a standout from our perspective.
  • The Company finished 1H22 with net cash position of NZ$125m and has total available liquidity of NZ$1.2bn.
  • Operating revenue was up +23% (or up +26% in constant currency) to NZ$505.7m, with total subscribers up +23% to 3.0m and ARPU (average revenue per user) up +5% to NZ$31.32
  • The financial position for different markets of Xero are as follows:
  • Australia: Segment revenue was up +22% to NZ$225m, with net additions up +24% and subscribers up +22% to 1.24m. 
  • New Zealand: Segment revenue was up +13% to NZ$72m, with net additions up +55% and subscribers up +16% to 480,000. 
  • United Kingdom: Segment revenue was up +33% to NZ$133m, with net additions up +160% and subscribers up +23% to 785,000. 
  • North America: Segment revenue was up +5% to NZ$30m, with net additions up +130% and subscribers up +23% to 308,000. 
  • Rest of World: Segment revenue was up +72% to NZ$46m. with net additions up +136% and subscribers up +48% to 201,000.

Company Description: 

Xero Ltd (XRO) is a software as a service (SaaS) company, engaged in the provision of a platform for online accounting and business services to small businesses and their advisors. The Company operates through two operating segments: Australia and New Zealand (ANZ), and International (UK + North America + Rest of the World).

(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
Sectors Technology Stocks

Aristocrat Leisure to gain strong boost through Playtech acquisition

Investment Thesis:

  • Fasting growing Digital business, with strong execution by management
  • Expectations of new product releases will gain significant traction with customers 
  • Increasing skew towards recurring revenue
  • Global gaming exposure
  • Growing market share in underpenetrated markets
  • Leveraged to a falling AUD
  • Strong balance sheet with ample liquidity provides management with significant flexibility to take advantage of value accretive acquisitions or pursue organic growth opportunities 

Key Risks:

  • Any further downside to the Japanese market
  • Low replacement/uptake in the US market
  • Competition risk
  • Loss in market share
  • Lack of product development
  • Adverse currency movements
  • Adverse outcome from any potential court case

Key highlights:

  • The proposed acquisition of Playtech is strategically and financially compelling. It will accelerate Aristocrat strategy and provide material scale in the already large and growing $70bn online RMG segment.
  • ALL’s share price has performed strongly and is up 34.9% over a one-year period
  • Enhanced market leading positions in gaming operations, measured by the number of machines and fee per day
  • Sustainable growth before share across key gaming outright sales markets globally
  • Further growth in Pixel United bookings with UA spend and expected to be within the recent range of 26% and 29% of overall Pixel United revenues, pending priming and success of new game launches during the year
  • Continued D%D investment to drive sustained long-term growth with investment likely to be modestly above the historical range of 11% to 12% of revenue
  • operating revenue of $4,736.1m was up +14.4% on a reported basis, or +24.8% in CC, whilst EBITDA of $1,542.9m was up +43% on a reported basis and +58% higher on a CC basis
  • ALL’s normalised profit after tax and before amortisation of acquired intangibles (NPATA) of $864.7m, was up +81% in reported terms, and +102% in constant currency (CC) relative to the prior corresponding period (pcp), driven by strong product and portfolio performance, and profitable growth across both Aristocrat Gaming and the Pixel United businesses

Company Description: 

Aristocrat Leisure Ltd (ASX: ALL) manufactures and sells gaming machines in Australia and globally, to casinos, clubs and hotels. In addition, ALL provides complementary products and services such as gaming systems and software, table gaming equipment and other related products.

(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
Dividend Stocks

Core business of Magellan Financial Group managed to grow despite a lesser outperformance

Investment Thesis:

  • Principal Investments could grow to become a meaningful contributor to group performance over the medium-to-long term
  • MFG no longer trades at a significant premium to its peer-group post the recent derating 
  • Acquisitions could pave growth runways, helping to ease the Company’s fund capacity constraints 
  • Average base management fee (bps) per annum (excluding performance fee) continues to be stable but there are risks to the downside from pressures on fees (which is an industry trend not specific to MFG alone)
  • Continued strong investment performances, especially in the global and infrastructure funds 
  • Growing levels of funds under management 
  • New strategies could significantly increase addressable market and help sustain earnings growth

Key Risks:

  • Decline in fund performance
  • Risk of potential funds outflow – both retail and institutional (loss of a large mandate)
  • Execution risk with the acquisitions
  • Significant key man risk around Hamish Douglass and key management or investment management personnel
  • New strategies fail to add meaningful earnings to the group

Key highlights:

  • MFG’s FY21 adjusted net profit of A$412.7m, declined -5.8% over pcp, which came in below consensus estimate of A$434m, as a year of trailing the market for MFG’s most important global equities strategy, the Magellan Global Fund, reduced the performance fee take for FY21 by -63% to $30.1m
  • The core business of funds management still managed to grow despite a lesser outperformance overall, and the Company reported management and service fees increasing +7% over pcp to $635.4m and average FUM increase of +9% to $103.7bn
  • The Board declared a final dividend of $1.141 a share taking FY21 dividend to $1.22 a share and announced a dividend reinvestment plan discounted at 1.5%
  • Management saw total Funds Management expenses declined -8.5% over pcp to $106.9m
  • Management has restructured three Global Equities retail funds into a single trust (Magellan Global Fund) with total FUN of $18bn

Company Description: 

Magellan Financial Group Ltd (MFG) is a specialist funds management business. MFG’s core subsidiary, Magellan Asset Management Ltd, manages ~$53.6bn of funds under management across its global equities and global listed infrastructure strategies for retail, high net worth and institutional investors.

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

Orora Ltd. reported solid operating earnings of $369.3m, up by 11.5%

Investment Thesis:

  • Trading on fair value relative to our valuation
  • Exposure to both developed and emerging markets’ growth 
  • Near-term headwinds should be in the price
  • Revised strategy following recent strategic review
  • Bolt-on acquisitions (and associated synergies) provide opportunity to supplement organic growth 
  • Leveraged to a falling AUD/USD 
  • Potential corporate activity
  • Capital management (current on-market share buyback plus potential for additional initiatives)

Key Risks:

  • Competitive pressures leading to margin erosion 
  • Input cost pressures which the company is unable to pass on to customers 
  • Deterioration in economic conditions in US, EM and Australia
  • Emerging markets risk 
  • Adverse movements in AUD/USD
  • Declining OCC prices

Key highlights:

  • ORA delivered a solid FY21 result, which came in ahead of consensus expectations – revenue of $3,538m was up +7.8% YoY
  • Operating earnings (EBITDA) of $369.3m was up +11.5% YoY
  • NPAT of $156.7m was up +34.1% YoY
  • EPS up +29% to 16.9cps (also driven by the on-market share buyback) and full year dividend of 14cps up +16.7% on pcp (representing a payout ratio of ~80% vs target range 60-80%)
  • Strong performance in the North America business, which delivered revenue growth of +8.2% and EBIT growth of +43.0% year-on-year (YoY) in constant currency
  • Leverage increased from 0.9x to 1.5x, driven by the impact of the on-market share buyback
  • With a strong balance sheet, the Company is looking to invest to drive growth
  • Australasia segment revenue was up +6.1% to $834
  • North America segment revenue was up +8.2% to US$2,019.8m and EBIT was up +43.0% to US$73.8m

Company Description: 

Orora Limited (ORA) provides packaging products and services. The Company offers fiber, glass and beverage can packaging materials in Australia and Asia and packaging distribution services in North America and Australia.

(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
Dividend Stocks

Hanesbrands’ Investments in Key Brands as Part of Its Full Potential Plan Support Its Narrow Moat

Business Strategy and Outlook

Hanesbrands is the market leader in basic innerwear (69% of its 2020 sales) in multiple countries. In May 2021, the firm unveiled its Full Potential plan to expand Global Champion, bring growth back to innerwear, improve connections to consumers (through greater marketing and enhanced ecommerce, for example), and streamline its portfolio.

As part of Full Potential, Hanes intends to build on Champion’s increasing popularity in North America, Asia, and Europe. Although COVID-19 and the discontinuation of the C9 label at Target hurt sales in 2020,it is believed that Champion will continue its growth path in 2021 as it and other activewear apparel have become more than just athletic apparel and are increasingly worn as lifestyle/fashion brands. Moreover, Hanes recently found a new home for C9 as an exclusive brand for wide-moat Amazon. Hanes’ management forecasts Champion will reach $3 billion in global sales in 2024, up from about $2 billion this year, which we see as an achievable goal.

Another key strategy for Hanes is to improve the efficiency of its supply chain. It has already made progress in this area, having achieved a 15% increase in manufacturing output over the past three years. Hanes, unlike many rivals, primarily operates its own manufacturing facilities. More than 70% of the more than 2 billion apparel units sold by the company each year are manufactured in its own plants or those of dedicated contractors. It is believed that the combination of strong pricing and production efficiencies allow Hanes to maintain operating margins above 20% for its American innerwear business despite somewhat inconsistent sales.

Morningstar analyst maintains per share fair value estimate of $26 after the release of Hanes’ 2021 third-quarter report.The fair value estimate implies 2022 adjusted price/earnings of 13 and enterprise value/adjusted EBITDA of 10.

Financial Strength 

Hanes is saddled with heavy debt from its acquisition spree in 2013-18 and closed September 2021 with $3.7 billion in debt. However, the firm also had nearly $900 million in cash and no borrowings under its revolving credit facilities of just over $1 billion. Moreover, it intends to refinance its $700 million in 5.375% 2025 senior notes at a lower interest rate to save about $35 million per year in interest costs. Hanes has a stated goal of bringing debt/EBITDA below 3 times by 2024.The company bought back significant amounts of stock in 2016 and 2017 and repurchased $200 million in shares in early 2020 before the virus spread. .Hanes, unlike many peers, did not suspend its dividend due to the virus. Its annual dividend has been set at $0.60 per share since 2017.Hanes may expand the business through acquisitions, although it has not made a major acquisition since 2018. We do not include acquisitions in our model due to uncertainty about timing, size, and profitability.

Bulls Say 

  • Hanes’ Champion is a contender in the hot but crowded athleisure space. The brand is already well known in North America and parts of Europe, and there is significant potential in China and other underpenetrated markets. 
  • Hanesbrands has successfully introduced brand extensions that have allowed it to expand shelf space and increase price points in the typically staid category of basic apparel. 
  • After a review, Hanesbrands announced a new strategic plan called Full Potential to boost growth and reduce expenses, which should benefit its brand strength.

Company Profile

Hanesbrands manufactures basic and athletic apparel under brands including Hanes, Champion, Playtex, Bali, and Bonds. The company sells wholesale to discount, midmarket, and department store retailers as well as direct to consumers. Hanesbrands is vertically integrated as it produces more than 70% of its products in company-controlled factories in more than three dozen nations. Hanesbrands distributes products in the Americas, Europe, and Asia-Pacific. The company was founded in 1901 and is based in Winston-Salem, North Carolina.

(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
Technology Stocks

Clover Shows How Fiserv Can Adapt

20025825 - closeup image of businessman drawing 3d graphics

Business Strategy and Outlook

Fiserv’s merger with First Data in 2019 kicked off a string of three similar deals that took place in short order. But it is believed that Fiserv’s move was not attractive relative to the other two, and the company materially didn’t strengthen its competitive position. However, there is a valid strategic rationale for these deals, and the introduction of First Data’s acquiring business should boost overall long-term growth, given the secular long-term tailwind the business enjoys.

First Data has been a laggard compared with peers over the past decade, as it was overwhelmed by an excessive debt load due to a leveraged buyout just before the financial crisis and the defection of a major bank partner. However, in recent years the company worked its leverage down to a more manageable level, and growth improved, suggesting its issues are not structural. With financial health no longer a concern, the stage could be set for First Data to narrow the growth gap with peers. While First Data remains relatively reliant on its banking partners, initiatives such as Clover suggest it is capable of adjusting to a changing industry. Clover, the company’s small-business solution that has similarities to Square’s offering, has seen strong growth, with volume running at an annualized rate of almost $200 billion. 

The COVID-19 pandemic did illustrate one negative of this merger: The acquiring business is significantly more macro-sensitive than Fiserv’s legacy operations. But payment volume has steadily improved and returned to year-over-year growth. Unless the pandemic takes a sharp negative turn, the long-term secular tailwind appears to be reasserting itself and the worst seem to be past the industry. Over the long term, the acquiring operations should be the company’s strongest engine for growth.

Financial Strength 

There are no major concerns about Fiserv’s financial condition. While the First Data merger was stock-based, debt/EBITDA was 4.1 at the end of 2020, as Fiserv absorbed First Data’s heavier debt load. This level is not excessive, considering the stability of the business. Management appears to be focused on debt reduction in the near term. The company enjoys strong and relatively stable free cash flow and doesn’t pay a dividend. This creates significant flexibility and should allow the company to pull leverage down to a level in line with the historical average fairly quickly. 

Bulls Say 

  • The bank technology business is very stable, characterized by high amounts of recurring revenue and long-term contracts. 
  • The ongoing shift toward electronic payments has created and will continue to create room for acquirers to see strong growth without stealing share from each other. 
  • First Data’s growth had accelerated before the merger as it worked past its financial issues, and the business now has access to greater resources under Fiserv’s roof.

Company Profile

Fiserv is a leading provider of core processing and complementary services, such as electronic funds transfer, payment processing, and loan processing, for U.S. banks and credit unions, with a focus on small and midsize banks. Through the merger with First Data in 2019, Fiserv now provides payment processing services for merchants. About 10% of the company’s revenue is generated internationally.

(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
Dividend Stocks Shares

Monash IVF Group Ltd reported solid dividend yield of 4.6%

Investment Thesis

  • High barriers to entry with unique expertise and assets. 40-year heritage of leadership in science and innovation in ARS and women’s imaging, coupled with the depth of experience from the doctors and clinical team which will continue to underpin MVF’s future growth and maintain treatment success rates. 
  • Ageing Australian population and increased age of mothers (especially with the trend of more females choosing career over family until their early thirties) will provide favorable demographic tailwinds. 
  • Improving balance sheet with flexibility to execute expansion strategies. Earnings increasingly become diversified as the Malaysian business gains momentum. 
  • Potential earnings diversification and growth via international expansion and increased presence in diagnostics. 
  • Demonstrated capacity to perform well in terms of cost out and earnings growth despite tough conditions (i.e., lower cycle volumes).
  • Transparent and detailed disclosures.

Key Risks 

  • Regulatory risk as changes in government funding may increase patient’s out-ofpocket expenses and thereby volume demand. 
  • Fluctuations in the availability and size of Medicare rebates may negatively influence the number of IVF cycles administered and overall industry revenue 
  • The Australian market does not rebound following this period of downturn. Population of males and females with fertility problems decline. 
  • Loss of key specialists. 
  • Loss of market share especially to low-cost providers, with one already appearing in Victoria.  
  • Weakening economic activity resulting in increased unemployment leading to less disposable income to be spent in IVF treatment. 
  • Execution of international forays into Malaysia goes poorly.

FY21 Result Highlights

  • Revenue was up +26.3% to $183.6m underpinned by market share gains and strong industry volumes. 
  • Adjusted EBITDA was up +37.1% to $47.7m, with margin improving to 26% (from 23.9%) despite a +12% increase in marketing expenditure and patient communication digitisation activities and ~$1.7m of further costs for suspension of Ni-PGT genetic testing program. 
  • Adjusted NPAT of $23.3m, was up +61.5% and ahead of profit guidance ($21m-$23m). Reported NPAT of $25.5m was up +116.9%. 
  • MVF Australian FY21 Stimulated Cycles (STIMS) was up +36.6% driven by industry growth of 31.1% and 0.6% market share gains to 21.0%. Management pointed out “in Q1FY21, Monash IVF serviced the pent-up demand/deferred treatment created by the initial COVID-19 related temporary suspension of IVF services. Notwithstanding on-going and sporadic COVID-19 related lockdowns, IVF services have been largely undisrupted and as a result, growth continued throughout the year. Market Share gains were achieved in Victoria, New South Wales, Queensland and Northern Territory whilst the exceptionally high level of market share in South Australia was maintained above 60%. STIM industry growth of 31.1% supported the strong volume growth across the Group bringing the 5-year annual CAGR to 5.6%”. 
  • International STIMS was up +25.1% or 208 cycles. 
  • The positive diagnostics ultrasound performance was driven by obstetrics growth and a shift of activity from public to privately owned clinics. Ultrasound scan volumes were up +12.9% to 92,776 and Non-invasive Pre-natal testing were up +17.8% to 15,877. 
  • MVF appointed five experienced Fertility Specialists and a Medical Director of Genetics. 
  • MVF is opening its Sydney CBD flagship clinic and has earmarked further new clinics in the pipeline for FY22.

Company Profile 

Monash IVF Group Ltd (MVF) offers assisted reproductive technology services, ultrasound services, gynecological services, in-vitro fertilization services, consultancy services and general clinical services to patients in Australia and Malaysia. MVF comprises 40 clinics and ultrasound practices and employs ~100 doctors and has a network of 650 associated health professionals.

(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
Technology Stocks

L3Harris Continues to Delivers on Merger-related Synergies

came about from the merger of equals between L-3 Technologies, a sensor-maker that operated a decentralized business focused on inorganic growth, and the Harris Corporation, a sensor and radio manufacturer that ran a more unified business. Underpinning the merger’s thesis was an assumption that additional scale would primarily generate cost synergies but that eventually, the firms would produce meaningful revenue synergies.

Cost synergies to a large extent drove the 30-year wave of consolidation across the defense industry, which has largely generated shareholder value. Arguably, L-3 was an ideal partner for a merger of equals because L-3 operated as a holding company and there are quite a few potential efficiencies from consolidating the firm into a more integrated firm. The three biggest firm-specific growth opportunities for L3Harris Technologies are the tactical radios replacement cycle, national security satellite asset decentralization, and electronic warfare capabilities.

Supply-Chain Issues Constrained L3Harris Q3 Sales, But booking remains same 

L3Harris reported a strong third quarter as sales were limited by supply chain issues. That noted, the shorter-cycle prime is showing its portfolio is well aligned in the decelerating funding environment, as the organic backlog of about $21 billion is up 9% from last year and 4% year to date. Many peer defense contractors have had declining backlogs in 2021. Revenue of $4.2 billion missed FactSet consensus by 6.6% but non-GAAP EPS of $3.21 beat FactSet consensus by 0.8%. Organic revenue declined 1.2% as a 5.2% organic revenue decline in communications systems due to supply chain difficulties and a 2.6% revenue decline in integrated mission systems due to the timing of contracts more than offset low single- digit growth in the firm’s other segments. Sales activity was strong, the firm posted book/bills above 1 in three of the firm’s four segments, indicating that the firm’s revenue pipeline remains robust.

Financial Strength

L3Harris is in solid financial shape. The firm increased debt by about $4.5 billion in 2015 to fund the acquisition of Exelis, a sensor-maker that was spun off from ITT and had been paying down debt since. The firm’s all-stock merger of equals with L-3 Technologies did not dramatically increase debt relative to size, and projecting a 2021 gross debt/EBITDA of roughly 2.1 times, which is quite manageable for a steady defense firm. 

While L3Harris has some exposure to commercial aviation (depending on definitions, roughly 5% -15% of sales), The firm will be materially affected by the downturn in commercial aviation. L3Harris produces a substantial amount of free cash flow and is not especially indebted, so we anticipate that the company would be able to access the capital markets at minimal cost if necessary. 

Bulls Say’s

  • There is substantial potential for cost synergies from the merger with L-3 due to the decentralized organizational structure of the pre-merger entity.
  • L3Harris is at the base of a global replacement cycle for tactical radios, which we think will drive substantial growth.
  • Defense prime contractors operate in an a cyclical business, which could offer some protection as the U. S. is currently in a recession.

Company Profile 

L3Harris Technologies was created in 2019 from the merger of L3 Technologies and Harris, two defense contractors that provide products for the command, control, communications, computers, intelligence, surveillance, and reconnaissance (C4ISR) market. The firm also has smaller operations serving the civil government, particularly the Federal Aviation Administration’s communication infrastructure, and produces various avionics for defense and commercial aviation.

(Source: Morningstar)

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