Tag: Street Talks

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LICs LICs

VGI enters exclusivity and signs a merger term sheet with Regal Funds Management

VGI Partners Limited (VGI:ASX, “VGI”) announces that it has  entered exclusivity and signed a non-binding term sheet with specialist alternative investment manager Regal Funds Management Pty Limited (“Regal”) in relation to  the proposed merger  of  VGI  and Regal  (the “Proposed Merger”).  The Proposed  Merger  would combine two of Australia’s most recognised and successful hedge fund managers and create a market-leading provider of alternative investment strategies with total funds under management of over A$6 billion.

The Proposed Merger, which would be subject to VGI shareholder approval, would involve VGI acquiring 100%of Regal in consideration for  the issue  of  new  ordinary  shares  in  VGI  to  existing  Regal  shareholders.  The anticipated shareholding of the merged entity at completion of the Proposed Merger, after adjusting for cash,liquid assets and other investments being respectively contributed, being approximately 60% current Regal shareholders and 40% current VGI shareholders. It   is anticipated that VGI would be renamed and its ticker changed to reflect the combined businesses on or after completion of the Proposed Transaction.

Entering into a definitive agreement remains subject to each of VGI and Regal completing confirmatory due diligence, the negotiation of  the  terms  of  a  binding  merger  implementation  agreement,  and  final  board approvals of each of VGI and Regal.

If   a merger implementation agreement is entered into, it is currently anticipated that conditions to completion of  the Proposed Merger  contained in  that  agreement  would include  VGI  shareholder  approval  by  way  of ordinary resolution for the purposes of section 611 item 7 of the Corporations Act 2001 (Cth) and any applicable ASX Listing  Rules,  an independent  expert  concluding that  the  Proposed Merger  is  reasonable for  VGI shareholders, and no material adverse change occurring in relation to either party.

Potential benefits  

If   the Proposed Merger proceeds, it has the potential to deliver several attractive benefits for VGI shareholders, including the following:

  • The creation of a market-leading alternative investment manager with over A$6 billion in funds undermanagement, with exposure to a diversified and growing platform of hedge fund, private market and real asset investment strategies for institutional, high net worth and retail investors in Australia and offshore
  • Combining  the  deep industry  experience,  networks,  and  the  long  investment  track  records  of  two industry leaders – Robert Luciano and Philip King – and their respective investment teams, coupled with  the management  teams  of  VGI  and Regal  and  their  history  in  creating innovative and well-regarded alternative investment products1 Includes institutional investors, family offices, charities, private investors and employees. 
  • Leveraging  complementary  client  profiles  and  relationships  across  the combined  group,  including existing long-term relationships with high net worth individuals and family offices within VGI and Regal, alongside a  combined retail  investor  base of  over  20,000 investors  across  VGI  Partners  Global Investments (ASX:VG1), VGI Partners Asian Investments (ASX:VG8) and the Regal Investment Fund(ASX:RF1)
  • Accessing  Regal’s  highly  developed corporate  platform and business  support  network,  including  a well-established marketing  and  distribution  capability,  to  provide a  refreshed approach  to  sales, marketing and communication activities across the merged entity and reduce non-investment related activities undertaken by Robert Luciano and the VGI team
  • Provide  an opportunity  for  Robert  Luciano  and  the  VGI  investment  team  to  leverage  additional resources from the merged group, including Regal’s extensive investment capability and track record investing in Asian equity markets and private unlisted investments.

Governance

The non-binding term sheet entered into by  VGI  and Regal  contemplates  that  following completion  of  the Proposed Merger, the merged entity will have a Board consisting of six Directors, with two nominated by each of VGI and Regal in addition to the appointment of two external independent directors. Neither Robert Luciano nor Philip King will be on the Board of the merged entity given their investment focussed roles. An executive committee for the merged entity will be drawn from both VGI and Regal.

Exclusivity 

VGI has granted Regal a period of six weeks of exclusivity on customary binding terms which include no shop,no talk, and no due diligence restrictions (subject to required customary fiduciary exceptions), and an obligation for VGI to notify Regal if it receives a competing proposal. Details of the exclusivity arrangements are set out in Annexure A to this announcement.

About VGI Partners

VGI Partners Limited is a high conviction global equity manager that was founded in 2008 to invest capital for high net worth individuals and family offices. Today, VGI is also the Manager for two Listed Investment Companies: VGI Partners Global Investments Limited (ASX:VG1) and VGI Partners Asian Investments Limited (ASX:VG8). Listed on the Australian Securities Exchange since 2019, VGI has offices in Sydney, New York and Tokyo.

 (Source: FWarena)

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
LICs LICs

AMCIL Limited – Closed Ended Investment Fund

AMCIL is a medium to long-term investor in the Australian equity market. Its investment approach is to construct a focused portfolio in which large and small companies can have an equally important impact on investment returns. The market perception of AMCIL’s future earnings potential and dividend. Supply and demand for shares at any one time can fluctuate because of the liquidity in the shares, investor sentiment and expected future performance. Their consistent after tax paid investment returns achieved over the long term. 

Portfolio Holdings 

Investment Team 

The group has and experience board of directors and consisting members which are portfolio manager Kieran kennedy, David Grace, Brett McNeil and Financial Analyst are jaye Guy, olga Kosciucyzt, stuart Low, Nga Lucas. AMCIL’s corporate objective is to provide shareholders with returns that exceed the market over the medium to long term through through strong capital growth in the portfolio over the medium to long term together with the generation of dividend income.

Company Profile 

AMCIL Limited is an investment company. The Company invests in various sectors, which include energy, materials, industrials, consumer discretionary, consumer staples, banks, other financials and real estate, telecommunications, healthcare, information technology and utilities.

(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.

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Funds Funds

Fidelity Australian Equities Fund – Fidelity International offers world class investment solutions and retirement expertise

Investment Objective

The investment objectives of the Fund are to achieve returns in excess of the S&P/ASX 200 Accumulation Index over the medium to long term, a core holding which invests in a diversified selection of around 30 – 50 Australian companies, uses a bottom-up stock-selection approach that focuses on undiscovered earnings potential, value and growth and to conducts regular company, factory and competitor visits to assess business strength, earnings quality and long-term growth outlook.

Approach of sustainable investing

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The approach to sustainable investing has three-fold

  1. The use of proprietary sustainability ratings, input from large specialist ESG team and external analysis and ratings to inform of a company’s ESG performance.
  2. The approach demands direct dialogue with companies and stakeholders on issues such as shareholder rights, modern slavery, supply chain management, bribery and corruption and climate change/risk. Where necessary they use proxy voting and shareholder resolutions to help improve practices.
  3. They work closely with external ESG-related bodies in Australia and around the world that seek to improve the way industries are regulated, how companies are managed, and to promote sustainable investing and social development.

Engagement is at the heart of the approach to sustainability. As active stewards of investors’ capitals that one should be making a positive impact on those companies in which one invests. The rigorous bottom-up research process means to understand ESG issues at a company level and believe that companies focused on these issues are more resilient and are more likely to perform better over the long-term.

Portfolio

Investment Team 

At Fidelity, one understands the value of connected networks. Their 400+ investment experts share their insights in real time across asset classes, sectors and regions, connected by one powerful global research platform. From London to Mumbai, Shanghai to Sydney, the unique local insights from team of more than 170 research professionals around the world to identify unique market patterns and trends and find the best global investment opportunities for you.

Fund Performance and Pricing

Past performance is not a reliable indicator of future results. The value of investments and the income from them can go down as well as up and investors may not get back the amount invested. Data shown does not take into account any Initial Charge that may apply. Fluctuations in currency exchange rates may affect the value of an investment. Please note that the shares are denominated in their respective share class currency and that the currency conversion provides an indicative price only.

About the Fund

The value of your investment may fall as well as rise and you may get back less than you originally invested. The use of financial derivative instruments may result in increased gains or losses within the fund. This fund invests in a relatively small number of companies. This can make the fund more volatile than other funds that are more diversified. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall.

(Source: Fidelity International and Investing.Com)

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

Equity Residential Should Continue to Report High Revenue Growth While Inflation Remains Elevated

Business Strategy & Outlook: 

Equity Residential has repositioned its portfolio over the past decade to focus on owning and operating high-quality multifamily buildings in urban, coastal markets with demographics that allow the company to maintain high occupancies and drive strong rent growth. The company has sold out of inland and southern markets and increased its operations in high-growth core markets: Los Angeles, San Diego, San Francisco, Washington, D.C., New York, Boston, and Seattle. These markets exhibit traits that create demand for apartments, like job growth, income growth, decreasing homeownership rates, high relative cost of single-family housing, and attractive urban centers that draw younger people. The company regularly recycles capital by selling non core assets or exiting markets and using the proceeds for its development pipeline or acquisitions with strong growth prospects, a strategy that has produced strong returns. While Equity Residential has repositioned its portfolio into markets with strong demand drivers, it is advised to be cautious on its long-term growth prospects, given that many markets have historically seen high supply growth. The urban, luxury end of the apartment market where Equity Residential traditionally operates has seen the highest amount of new supply, competing directly with the company’s portfolio. Additionally, the pandemic has caused many millennials to consider moves to the suburbs, either into suburban apartments or their own single-family homes, though demand for new urban apartments has remained resilient. Equity Residential has created significant shareholder value through development, though rising interest rates may cut into the expected return on new projects. However, high inflation has driven revenue significantly higher as apartment leases are generally only a year long, allowing Equity Residential to push rate growth that has matched inflation. While revenue growth is expected to decelerate as inflation growth is brought under control and also expect a period of higher than normal expense growth, the company’s funds from operations per share are already above pre pandemic levels and continued same-store growth is expected to push FFO even higher

Risk and Uncertainty: 

Demand for multifamily assets in urban, coastal markets has benefited over the past decade from demographic trends such as a falling homeownership rate, the rising relative cost of single-family housing, and urban gentrification. Millennials have been driving many of these trends, and as the generation acquires enough capital to own single-family homes or if tastes change significantly, these trends could reverse and hurt demand for apartments. The company’s portfolio is also sensitive to any changes to the economies of its core markets. If job growth slows or industries experience significant layoffs, then demand for apartments falls. The Northern California and Seattle markets have seen significant job and income growth generated by the technology industry, which has created substantial apartment demand. A downturn in this industry would significantly affect the economies of these markets and affect the fundamentals for Equity Residential’s assets. Many of Equity Residential’s markets are seeing significant new supply. While the current level of supply is expected to be absorbed by existing demand growth and help moderate the market, increased new supply will pressure operations and asset values. Equity Residential has around $860 million in development project commitments scheduled for delivery over the next few years. The economics of these projects have marginal room for error and will depend heavily on market conditions at delivery meeting today’s expectations.

Bulls Say:

  • Equity Residential’s portfolio of high quality assets should see relatively consistent levels of demand long term from high-income earners and will likely see just a small hit to fundamentals during the current pandemic as most residents have not experienced job losses. 
  • Equity Residential has a history of finding accretive development opportunities to bolster its growth prospects. 
  • While current supply deliveries are near peak levels, rising construction costs and tighter lending standards should lead to lower supply growth. 

Company Description:

Equity Residential owns a portfolio of 308 apartment communities with around 80,000 units and is developing five additional properties with 1,361 units. The company focuses on owning large, high-quality properties in the urban and suburban submarkets of Southern California, San Francisco, Washington, D.C., New York, Seattle, and Boston. 

(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

ACCC Hangs Up on TPG-Telstra Regional Deal

Stock market digital graph chart on LED display concept. A large display of daily stock market price and quotation. Indicator financial forex trade education background.

Business Strategy & Outlook: 

TPG Telecom is grappling with structural changes in the Australian telecommunications industry. Rollout of the national broadband network, or NBN, and take-up of high-traffic products such as internet protocol television and video streaming, will increase the demand for broadband and backhaul capacity. However, the NBN will also force TPG Telecom to become a reseller, impacting its consumer broadband margins. TPG Telecom’s price-leader strategy still sees the company delivering solid subscriber and market share performance. Product bundling has also become a key segment in the market, with all players using broadband as a lead-in product and cross-selling voice, mobile, pay-TV, and digital streaming services. The ownership of submarine cable between Australia and Guam offers the group broader cost advantages. Pricing is mainly a function of demand and supply, available capacity, and the length of cable. Economies of scale play a large part in pricing where costs are measured on per unit of volume. A longer cable results in increased material and maintenance costs, meaning cost per unit is higher. Cables with large capacity reduce costs per unit, as costs such as fixed construction and rollout costs are spread across a larger base. A sharp price decline in international traffic remains a risk. Contracts are structured in typical 15-year leases, providing some certainty in revenue. Clients are allocated a fixed bandwidth and have the right to on-sell capacity. The 2020 merger with Vodafone Australia (the third-ranked mobile player in the country) is one way TPG Telecom is trying to limit the impact of the NBN. Mobile offers a critical strategic path to future-proof the group in the face of onslaught from the NBN. The government entity is already wreaking havoc on the narrow-moat-rated group’s retail fixed-line broadband and could even potentially impact the lucrative enterprise segment

Risk and Uncertainty: 

The strategic imperative of the combination is clear, not only in ensuring a clear mobile pathway for TPG in an increasingly mobile-centric world, but as a route to bypass the National Broadband Network’s debilitating economics longer term. However, the merged entity is not without risks. It is expected that synergy benefits could take time to realise, with elimination of duplicated costs, benefits from leveraging each other’s infrastructure and economies of scale easier done on a spreadsheet than in the dynamic real world. More importantly, the nimble, entrepreneurial modus operandi of TPG (previously ruled with an iron fist by executive chairman David Teoh) does not mesh neatly with the traditional “corporate” customs of Vodafone Australia (presided over by Inaki Berroeta, who is the managing director and CEO of the merged entity). This view was vindicated by the sudden resignation of Chairman David Teoh from the board in March 2021. In terms of ESG risks, data privacy and security are the biggest issues facing TPG Telecom. The company receives, stores, and processes large volumes of sensitive customer data. This triggers exposure to data privacy and security breaches, which may result in regulatory actions, litigation, public scrutiny or loss of customer trust. It is seen that the probability of significant and prolonged breaches in these areas as less than 25%. If a breach does occur, limited materiality to the fair value estimate for TPG Telecom, as rectification response would be swift. Investments in network integrity and cybersecurity are also being stepped up post the merger between TPG Telecom and Vodafone Australia.

Bulls Say:

  • Cross-selling opportunities remain for both consumer and corporate markets. 
  • The merger with Vodafone Australia increases the scale of the combined entity and allow it to better compete against Telstra and Optus in the Australian market. 
  • Further rollout of its fibre network also boosts growth, while incremental cost from an additional user is small. 

Company Description:

TPG Telecom is Australia’s third-largest integrated telecom services provider. It offers broadband, telephony, mobile and networking solutions catering to all market segments (consumer, small business, corporate and wholesale, government). The group has grown significantly since 2008, both via organic growth and acquisitions, and in July 2020 merged with Vodafone Australia. It owns an extensive stable of infrastructure assets. 

(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
Commodities Trading Ideas & Charts

Hess’ track record for efficiently allocating capital and generating value has been steadily improving for several years

Business Strategy & Outlook

Hess’ track record for efficiently allocating capital and generating value has been steadily improving for several years. This had been a source of frustration for shareholders in the past. Before 2012, the firm was struggling with persistent budget overruns and costly exploration failures, and the eventual collapse in its share price led to a heated proxy fight with an activist investor (which it lost). Subsequently, the board was reshuffled and management began streamlining the company, selling midstream and downstream assets and rationalizing its upstream portfolio. The current portfolio is substantially more competitive, but the development cost requirements are heavily front-loading. Currently, Hess is one of the largest producers in the Bakken Shale. This includes a large portion in the highly productive area near the Mountrail-McKenzie county line in North Dakota.

Management believes this acreage still contains at least 2,000 incremental drilling opportunities and hopes to develop this asset with a four-rig program in the long run (giving it well over 10 years of potential drilling inventory). Four rigs would optimize the usage of its infrastructure and keep production flat at around 200 mboe/d. Hess also holds a 30% stake in the Exxon-operated Stabroek block in Guyana, which will be the firm’s core growth engine going forward and has been a game changer for the company, due to its large scale and exceptional economics. Current guidance indicates six development phases will come online by 2027, culminating in gross volumes of over 1 mmb/d. But with over 20 confirmed discoveries already, this feels very conservative. Four developments have been sanctioned to date, with a fifth expected shortly, and two of them are already producing at full capacity. Management has hinted at 10 phases in the ultimate development. Total gross recoverable resources in the region are a moving target, but the latest estimate is over 11 billion barrels of oil equivalent.

Financial Strengths

Hess’ Guyana assets are capital-intensive (it must pay 30% of the development costs, which run to $1 billion-$2 billion for each sanctioned phase of development; a total of six are currently planned and more than that are likely eventually). And these commitments are heavily front-loading. As a result, capital spending has significantly exceeded cash flows in the last few years. However, the firm has made the best of very strong commodity prices recently, while enjoying peer-leading revenue growth due to its ongoing expansion in Guyana. As a result, the firm’s leverage ratios are already below historical norms, and are likely to decline further given that all of Hess’ assets are now generating net cash flows. At the end of the last reporting period, debt/capital was 48%, while net debt/EBITDA was 0.9 times. In addition, the firm’s liquidity backstop is very strong. The firm has a $2.4 billion cash war chest, and there is more than $3 billion available on its credit facility as well. In addition, the term structure of the firm’s debt is fairly well spread out, and there are no maturities before 2024. The firm does have a covenant requiring it to keep debt/capital above 0.65, though it isn’t expected to get close to that level even in a downturn scenario, because in the associated debt agreement capital is defined to exclude impairments.

Bulls Say

  • The Stabroek block (Guyana), in which Hess has a 30% stake, is a huge resource, with at least 10 billion barrels of oil equivalent recoverable. 
  • The first phase of the Liza development is profitable at around $30/bbl (Brent), making it competitive with the best shale. Management expects similar economics from subsequent projects in Guyana. 
  • Hess’ activity in Guyana provides geographic diversification and insulates it from domestic issues (like anti fracking regulations).

Company Description

Hess is an independent oil and gas producer with key assets in the Bakken Shale, Guyana, the Gulf of Mexico, and Southeast Asia. At the end of 2021, the company reported net proved reserves of 1.3 billion barrels of oil equivalent. Net production averaged 315 thousand barrels of oil equivalent per day in 2021, at a ratio of 69% oil and natural gas liquids and 31% natural gas.

(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

(CAR) reported strong 1H22 results reflecting look-through revenue growth of +30%

Investment Thesis:

  • Leading market position in online car classifieds.
  • Overseas expansion provides new growth opportunities from the challenging core Australian market. Heavily reliant on two growth stories (South Korea and Brazil).
  • Diversified geographic coverage.
  • Bolt-on acquisitions provide opportunities to supplement organic growth.
  • The Company can sustain high single-digit and low double-digit revenue growth.
  • CAR’s move into adjacent products and industries.
  • Increasing pricing in South Korea to boost margins. Looking to take more of the car buying experience online with dealers (i.e. increasing its total addressable market).

Key Risks:

  • Rich and demanding valuation.
  • Competitive pressures, that is car dealer driven substitute platform or the No. 2 & 3 player gain ground on CAR.
  • Motor vehicle sales remain subdued.
  • Value destructive acquisition / execution risk with international strategy.
  • Not immune from broader downturn in economy (consumer likely to delay a significant purchase in time of uncertainty).

Key Highlights: Relative to the pcp:

  • Look-through revenue of $282m, up +30% and Look-through EBITDA was up +15% to $149m, driven by strong domestic results in the Private and Media segments, growth in Encar in South Korea and good cost discipline.
  • Adjusted NPAT of $89m up 20% and adjusted EPS of 31.4c.
  • CAR reported strong cash flow with Reported EBITDA to operating cash flow conversion of 100%. 
  • The Board declared a fully franked interim dividend of 25.5cps, consistent with longstanding dividend payout policy of 80%.
  • Performance highlights by segments. Relative to the pcp: 
  • carsales Australia. Achieved adjusted Revenue growth of 16% on pcp and Adjusted EBITDA growth of 9% on pcp, excluding wage subsidies. Management noted traffic on carsales.com.au was up a strong +23% and remains elevated versus pre-pandemic levels.
  • Dealer. +1% adjusted Revenue growth, despite impacts from lockdowns in NSW and VIC in 1Q22.
  • Private. Revenue growth of 38%, driven by higher private ad volume.
  • Media. Revenue grew +11% as advertising conditions improved.
  • Data, Research & Services. Adjusted Revenue grew +1%, despite the impact of Covid lock downs and continued inventory challenges for dealers.
  • Carsales International. Look-through revenue and EBITDA growth of +76% and +72%, respectively, driven inclusion of Trader Interactive since September.
  • South Korea. Revenue and EBITDA up +19% and +7%, respectively, driven by strong product penetration growth across Guarantee, Dealer Direct and Encar Home. EBITDA margin was affected as CAR invested $4.7m in Dealer Direct marketing to drive future growth.
  • U.S. Revenue and EBITDA growth of +12% and +19% respectively was driven by solid performance across all four key verticals. Management is anticipating further upside as inventory levels continue to improve, particularly in trucks and powersports.
  • Brazil. Revenue and EBITDA growth of 20% and 19% respectively, was driven by continued dealer subscription growth, improving inventory levels and increasing dealer yield.

Company Description:

Carsales.com Ltd (CAR), founded in 1997, operates the largest online automotive, motorcycle and marine classifieds business in Australia. Carsales is regarded as one of Australia’s original disruptors and has expanded to include a large number of market leading brands. The Company employs over 800 and develops world leading technology and advertising solutions in Melbourne. CAR has also expanded to numerous global markets, such as South Korea, Brazil, and other countries in Latin America. 

(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

ABC saw 1H22 revenue increase +8% YoY driven primarily by strong construction

Investment Thesis:

  • Trading on 2-Yr forward blended PE-multiple of 11.0x and dividend yield of 6.0% represents good value at these levels.
  • Macro conditions remain uncertain in key regions. 
  • Strong pipeline of infrastructure projects over the next 2 years is a positive but timing and execution is a risk.
  • Solid balance sheet position provides some flexibility to the Company to pursue growth.
  • Leading positions as a lime producer, concrete products producer and cement and clinker supplier.
  • Outlook for lime looks relatively positive with higher infrastructure projects and resource sector activity
  • Cost-out and vertical integration (cement) programs expected to deliver cost benefits that exceed cost headwinds of $10m in FY21. 

Key Risks:

  • Softer sales volume than expected. 
  • Loss of market share to competitors or imports and pressure on pricing. 
  • Softer than expected pricing increases. 
  • Higher than expected energy prices. 
  • Execution risk in relation to Company’s cost-out and vertical integration strategies.
  • Deterioration of A$ relative to other currencies. 
  • Unfavorable weather impacts. 

Key Highlights:  

  • Management did not provide any quantitative guidance, however, expects; Growth in underlying earnings for 2H22, driven by increased contributions from cement, concrete, aggregates, masonry, JV’s and recent business acquisitions.
  • Demand for products from the residential, infrastructure, commercial and mining sectors to remain strong in 2H22.
  • Further out-of-cycle price increases to help actively manage inflationary pressures, with pricing traction key to the ability to deliver.
  • Strong demand for cement despite building and project completion timelines being extended due to materials and labour shortages.
  • Lime volumes staying stable in 2H22 vs 1H22, however, lime pricing improving with new customers seeking reliable domestic supply due to supply chain disruptions experienced by importers.
  • Strong demand for concrete and aggregates to the end of the year, and if weather abates in NSW, will be buoyed by the commencement of delayed projects and flood recovery works, however, softness in retail spending to impact masonry demand, with increased interest rates impacting household discretionary spend.
  • FY22 capex investment (excluding business acquisitions) of ~$300m, including circa 40% for the Kwinana Upgrade project.
  • Proceeds of >$20m for FY22 from land sales for Rosehill and Kewdale.
  • Gross cost savings of circa $10m for FY22. 
  • Capital management. Net debt increased +34.5% YoY to $553.9m, representing a leverage ratio of 2x underlying EBITDA (vs 1.5x in pcp) and gearing of 43.2% (up +990bps), both towards the top-end of company’s credit metrics target range, however, well within banking covenants.
  • Return on Funds Employed (ROFE) declined -170bps YoY to 9.3%, well below pre-tax WACC of 11.4%, with management expecting long-term ROFE improvement coming from Kwinana Upgrade project cost savings, development of downstream land investments, ongoing cost-outs and low-cost gas supply.
  • The Board declared a fully franked interim dividend of 5cps, down -9.1% YoY and representing a payout ratio of 70.6% of underlying earnings (excluding property profits), within the Board’s target range of 65-75%. 
  • Inflation eating into margins. Despite the cost reduction program delivering $7.5m in gross savings for 1H22, ongoing cost headwinds in areas including pallets, shipping, labour, power, fuel and raw material prices, continued to eat into margins with EBITDA margin declining – 110bps YoY to 16.6%, as product repricing continues to lag cost inflation. 

Company Description:

Adbri Ltd (ABC) is an Australia listed construction materials and liming producing company. ABC is Australia’s leading (1) lime producer in the minerals processing industry; (2) concrete products producer; and (3) cement and clinker importer. ABC is Australia’s number two cement and clinker supplier to the Australian construction industry and number four concrete and aggregates producer. 

(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
Commodities

(AKE) reported positive FY22 results despite the ongoing impacts of Covid-19

Investment Thesis:

  • Strong and solid fundamentals with robust lithium demand and prices to persist. As expected, lithium demand growth to support pricing and be driven by: (1) long lead times for lithium mines and hence potential short-term supply constraints; and (2) growth in new electric vehicle and hybrid vehicle sales especially in China. 
  • High quality assets operated by a solid management team with appropriate expertise. 
  • Expansion of Olaroz is expected to significantly increase capacity of lithium carbonate, resulting in strong cash flow generation. 
  • Improving production and operational efficiency at Mt Cattlin in the short term should result in significant cash flow generation. 
  • Development of Sal de Vida, as the asset could add more than $3.40 per share to AKE’s value.
  • Development of the James Bay lithium pegmatite project in the long term.
  • Solid balance sheet. 

Key Risks:

  • Commodity price volatility. There is no formal market for lithium with the pricing of lithium products determined by private negotiation between producer and end user. 
  • AUD/USD movement. Prices for lithium products are denominated in US dollars, so earnings translation into Australian dollars can be affected by wide fluctuations US/A$ cross rate. 
  • Adverse weather impacts. The Company’s projects are located in areas that can be subjected to severe weather events such as snow falls, which may adversely impact the company’s operations and earnings. Lack of exploration success. Despite AKE already successfully identifying resources and reserves, geological complexities may arise that may inhibit the future inclusion of further resources and reserves.
  • Metal processing issues. Any issues with the metallurgical processing equipment may impact the company’s earnings.
  • Stability of government policy. Whilst the political climate where AKE assets are based are currently stable, to remain cognizant of any changes especially nationalization of assets and increased taxes. Moreover, the VAT refund received by AKE.
  • Execution risk/processing issues. Any issues with the pond’s system, processing or execution risks may impact the company’s earnings. 

Key Highlights:

  • Relative to the pcp and in US$: Despite the ongoing impacts of Covid-19, revenue of $769.8m was driven by record annual production volumes and operating profits at Mt Cattlin and Olaroz, improved and higher prices, strong cost control, and the merger with Galaxy Resources. Olaroz contributed $292.8m, whilst Mt Cattlin (in 10-months), added $451.9m in revenue.
  • Mt Cattlin saw record revenue from sales of 200,715 dry metric tons (dmt) of spodumene concentrate at an average price of $2,221/tone CIF2 for the period from 25 August 2021. Gross cash margin of 80%.
  • AKE achieved record revenue from Olaroz, up +341% to $293m on sales of 12,512 tons of lithium carbonate with average pricing increasing by 370% to $23,398/t FOB4. The gross profit margin was 82%.
  • EBITDAIX of $513.1m and consolidated NPAT of $337.2m (versus net loss of $89.5m in FY21). NPAT includes one off charges of $12.8m for Galaxy acquisition costs, an inventory uplift on purchase price allocation related to the merger of $12.4m, $13.4m related to amortization of customer contracts due to purchase price allocation, gains of $32.0m from financial instruments, and foreign exchange losses of $9.6m. Net finance costs were $13.8m.
  • Net assets increased to $3,081m as at FY22- end (vs $725m at FY21-end) including cash balances of $664m (vs $258m in FY21). The increase in net assets and cash of $2,356m and $406m was due to the Galaxy merger transaction.
  • Management highlighted strong cash generation and existing cash balance is expected to fully fund development projects. Total capex totalled $261.4m (vs $97.6m in FY21) and the Mizuho Stage 1 and Pre-export loan facilities were reduced by ~$33.7m.
  • Development Highlights. Olaroz Stage 2 reached over 91% completion and first production remains anticipated for late 2H CY22. Management stated, “successful completion of this project will deliver material new production from H2 FY23 onwards”.
  • Construction of the Naraha lithium hydroxide plant in Japan was completed, with first production expected in early 4Q CY22. Management expects that once product qualification is complete, this plant will provide AKE with exposure to the high value lithium hydroxide market. 
  • Construction at Sal de Vida began in January 2022, with first production expected by 2H CY23.
  • Feasibility Study and Maiden Ore Reserve for James Bay was released in December 2021. 

Company Description:

Allkem Ltd (AKE), was formed following the merger of ASX-listed lithium AKE operates as a specialty lithium chemicals company with lithium brine and borax operations in Argentina, a hard-rock lithium operation in Australia and a lithium hydroxide conversion facility in Japan. 

(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

NXT retains a strong medium-term earnings growth outlook from ongoing cloud adoption

Young woman trading stock market by touching.

Investment Thesis

  • Australia is still in the early stages of cloud adoption. More efficient and cheaper broadband following the NBN’s implementation will drive demand from cloud providers for NXT’s assets. 
  • Extremely high-quality collection of sites. 
  • Focus on the premium end where pricing is more stable – Tier 4 gold centres. 
  • NXT has the balance sheet capacity to handle more debt and self-fund expansion through operating cash flow from the base buildings. 
  • Capital intensive nature of the sector provides a high barrier to entry. 
  • Government adoption of cloud and the subsequent need to outsource presents an opportunity.
  • Strong customer ecosystem creates a ‘sticky’ customer base who are unlikely to churn. 
  • National footprint allows Company to scale better than competitors. 
  • Margin expansions highlighting strong operating leverage. 
  • Additional capacity announced. 
  • M&A activity given the global demand for data.

Key Risks

  • No product diversification (NXT only operates data centres). 
  • Significant new supply of data centres by NXT and competitors. 
  • Delays in data centre build or ramp up, impacting earnings growth profile. 
  • Competitive pressures (price discounting by NXT or competitors).
  •  Higher power densities as a result of increasing average rack power utilization in Australia. 
  • Insufficient customer demand to achieve a satisfactory return on investments. 
  •  Failure to obtain sufficient capital on favourable terms may hinder NXT’s ability to expand and pursue growth opportunities. 
  •  Lease risk (NXT does not own the land or building where its data centres are situated).

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

  • Data centre services revenue of $144.5m was up +19%. 
  •  Underlying EBITDA of $85.0m, up +29%. 
  • Operating cash flow increased +9% to $69.5m. 
  • NPAT of $10.3m was a significant improvement from the $17.8m net loss in the pcp. 
  • NXT retained a strong liquidity position of $2.1bn, including undrawn debt facilities of $1.4bn at 1H22-end. Gearing (Net debt / (net debt + equity) increased to 16.6% from 7.3%. 
  •  Contracted utilisation increased 10.0MW, or +14% to 81.0MW. 
  • Customer numbers grew by 144, or +10% to 1,569.
  • Interconnections was up 1,968, or +14% to 15,879, and now equates to 7.3% of recurring revenue.

Company Description

NEXTDC Limited (NXT) is a Data-Center-as-a-Service (DCaaS) provider offering a range of services to corporate, government and IT services companies. NXT has a total of five data centers located in major commerce hubs in Australia, with three more due to be completed within the next 2 years. These facilities are network-neutral, meaning they operate independently of telecommunication and IT service providers. Currently NXT has a total of 34.7 MW built for data and serving housing, with a target to reach 104.1MW by the end of 1H18.

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.