Tag: Street Talks

Business Strategy & Outlook

U.S. Bancorp is one of the strongest and best-run regional banks. Few domestic competitors can match its operating efficiency, and for the past 15 years the bank has consistently posted returns on equity well above peers and its own cost of equity. U.S. Bancorp’s exposure to moaty nonbank businesses and its consistently excellent core banking operations make us like the company’s positioning for the future. If one was to have a complaint, it would be that the bank was already on top of its game years ago, making it difficult for the firm to further optimize efficiency and returns, while peers seem to be gradually “catching up” over time. U.S. Bancorp has an attractive mix of fee-generating businesses, including payments, corporate trust, investment management, and mortgage banking. The payments and trust businesses tend to be highly efficient and scalable due to relatively fixed cost structures. Barriers to entry tend to be high as the initial investment and scale necessary to compete are prohibitive, although competition within payments has heated up in the last several years as software and technology offerings are increasingly important. 

The USB has generally made the necessary investments in technology, leading to more integrated back-end systems, a competitive payments platform, and a leading presence in the push toward omnichannel banking. The continued secular trend of the increasing digitization of payments should provide further growth opportunities, and the importance of scale and technology should favor the largest banks, including U.S. Bancorp, over time. Payment’s volumes are coming back for the bank as its merchant acquiring and commercial payments businesses are set to turn a corner in 2022 as economic activity improves. The upcoming acquisition of Union Bank favorably and I think the cost savings alone should add some value for shareholders. U.S. Bancorp has one of the best deposit market share concentrations under the coverage, which strengthens the efficiency and profitability of its traditional banking segments. Managers in the bank are also required to have 5% cost-cutting plans ready at any time if needed.

Financial Strengths

The U.S. Bancorp is in good financial health. The bank weathered the 2016 energy downturn well, and energy loans currently make up only 1% of the loan book. The bank also performed admirably through the pandemic driven downturn. Most measures of credit strain remain quite manageable, and the bank’s history of prudent lending–and the fact that the makeup of its loan book has not changed that much over time–gives us comfort with the risks here. One does not have significant concerns about capital. U.S. Bancorp had a common equity Tier 1 ratio of 9.7% as of June 2022. This is well within a reasonable range. The capital-allocation plan remains standard for the bank, with roughly 40% of earnings devoted to dividends, internal investments prioritized, and then the remainder devoted to buybacks.

Bulls Say

• Strong fee revenue in moaty businesses, such as payments, helps insulate U.S. Bancorp from a flatter yield curve environment and drive higher returns on equity. 
• The bank’s upcoming acquisition of MUFG Union Bank should provide additional revenue growth, expense synergies, and value for shareholders. 
• As payments-related balances and fees come back in 2022, it should provide another earnings growth lever for U.S. Bancorp.

Company Description

As a diversified financial-services provider, U.S. Bancorp is one of the nation’s largest regional banks, with branches in well over 20 states, primarily in the Western and Midwestern United States. The bank offers many services, including retail banking, commercial banking, trust and wealth services, credit cards, mortgages, and other payments capabilities.

(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.

Business Strategy and Outlook 

Reckitt’s portfolio is well positioned in categories that benefit from secular growth drivers across consumer health and hygiene, which should translate into growth ahead of its peer group in the midterm. The acquisition of Mead Johnson has added to its portfolio a leadership position in infant nutrition–a segment with pricing power and generally sound margins. However, the timing of the transaction, ahead of a period of declining birth rates and intensified competition in China, posed significant challenges and has dampened revenue growth in the last few years. Management sold the infant nutrition business in China in 2021, and the future of the remaining core infant nutrition business remains uncertain. While the segment’s, reduced size presents an opportunity for management to refocus on faster-growing businesses–positioning them for longer-term success past the peaks in demand generated by the coronavirus pandemic–further secular declines in birth rates in the U.S. could continue to be a drag to the company’s mid-single-digit growth ambitions. Nonetheless, the worst is behind the company. Reckitt’s pricing muscle will also be its strongest test in the current highly inflationary environment. Its cautious about price decisions that are too aggressive and could impact the consumption of some of its products, but believe the company is well positioned to deliver superior price/mix through its portfolio of strong brands and its advantaged category mix.

Further supporting top-line growth, the productivity program started in 2020 that now stands at GBP 2 billion over four years has enabled management to reinvest around GBP 1 billion so far in key areas such as research and development, or R&D, and e-commerce. These investments were necessary as Reckitt was at risk of falling behind peers in its customer acquisition investments. No large portfolio can be seen restructuring as part of its strategy in the near term. Reckitt is to continue to make marginal portfolio adjustments, acquiring fast-growing brands that complement its existing portfolio, especially in the consumer health sector.

Financial Strength

Prior to the Mead Johnson acquisition in 2017, Reckitt had a strong balance sheet with debt/EBITDA of around 1 time. It significantly increased its leverage to finance the $18 billion Mead Johnson acquisition, which lead to a peak net debt/EBITDA of 6 times in 2017. Since then, it has been diligent in reducing its leverage and closed 2021 with net debt/EBITDA of 2.6 times, a slight increase compared with the 2020 level of 2.4 times, but closer in line with its peer group. From a cash perspective, this level of debt is manageable for the company given EBITDA covered interest expense about 12 times in 2021. In future, it can see continued debt reduction, which should enable Reckitt to start increasing dividends again or pursue slightly larger bolt-on acquisitions in the medium term. Dividends have amounted to GBP 1.2 billion per year for the last three years and no meaningful growth can be seen in the near term as Reckitt is targeting a dividend cover closer to 2 times before reinitiating dividend increases.

Bulls Say’s

• Reckitt’s portfolio is well positioned in categories with long-term structural growth potential, and the turnaround initiated by new management in 2020 is progressing well. 
• The disposal of the infant nutrition business in China will free up management’s focus and enable Reckitt to refocus its efforts on its faster-growing segments. 
• The additional investment in the business financed by the GBP 2 billion productivity program should translate into accelerated growth through penetration gains and increased e-commerce contributions to net revenue.

Company Profile 

Reckitt Benckiser was formed in 1999 through the merger of the British firm Reckitt & Colman and Dutch-based Benckiser. Recently rebranded under the corporate name Reckitt, it sells a portfolio that includes a variety of household and consumer health brands, such as Lysol, Finish, Durex, and Mucinex, many of which hold the number-one or -two positions in their categories globally. Reckitt has repositioned its portfolio and has entered the infant formula market through the acquisition of Mead Johnson in 2017, expanded its consumer health presence by acquiring Schiff Nutrition, K-Y, and Biofreeze, and has exited the food industry. The firm operates in 60 countries and sells products in more than 200, generating around 35% of sales from emerging markets.

(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 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 Laverne and Banyan Tree.

Business Strategy & Outlook

As one of the largest pharmaceutical and vaccine companies, GSK has used its vast resources to create the next generation of healthcare treatments. The company’s innovative new product lineup and expansive list of patent-protected drugs create a wide economic moat. The magnitude of GSK’s reach is evidenced by a product portfolio that spans several therapeutic classes. The diverse platform insulates the company from problems with any single product. Additionally, the company has developed next-generation drugs in respiratory and HIV areas that should help mitigate both branded and generic competition. The GSK to be a major competitor in respiratory, HIV, and vaccines over the next decade. On the pipeline front, GSK has shifted from its historical strategy of targeting slight enhancements toward true innovation. Also, it is focusing more on oncology and the immune system, with genetic data to help develop the next generation of drugs. 

The benefits of these strategies are showing up in GSK’s early-stage drugs. This focus will improve approval rates and pricing power. In contrast to respiratory drugs, treatments for cancer indications carry much strong pricing power with payers. From a geographic standpoint, GSK is strategically branching out from developed markets into emerging markets. Its vaccine segment positions the firm well in these price-sensitive markets. While this strategy is likely to create some challenges, like the potential legal violations that arose in early 2013 in China, one can believe the fast-growing emerging markets will help support long-term growth and diversify cash flows beyond developed markets. GSK’s decision to divest its consumer business will likely unlock value over the long run. GSK divested its consumer group (called Haleon) in July 2022. Given the strong valuations of consumer healthcare companies, this unit will yield a stronger valuation than what is implied within the GSK structure before the divestment.

Financial Strengths

GSK remains on fairly stable financial footing, with debt/EBITDA at 2.8 as of the end of 2021 and with Haleon taking on close to GBP 10 billion of GSK’s debt, the remaining GSK balance sheet is improved. With the improving balance sheet and steady projections of cash flows, the GSK will increasingly make more acquisitions to augment its internal research and development pipeline. Additionally, with the divestment of the consumer division in July 2022, the new dividend of GSK to be secure and likely grow at a pace similar to earnings over the next five years.

Bulls Say

• GSK’s next-generation respiratory drugs and HIV drugs look poised for strong growth over the next five years. 
• GSK faces relatively minor near-term patent losses, setting up steady long-term growth. 
• The firm’s well-positioned Shingrix vaccine should support strong long-term growth based on excellent efficacy and limited competition.

Company Description

In the pharmaceutical industry, GSK ranks as one of the largest firms by total sales. The company wields its might across several therapeutic classes, including respiratory, cancer, and antiviral, as well as vaccines. GSK uses joint ventures to gain additional scale in certain markets like HIV.

(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.

Business Strategy & Outlook

Swiss Re has a history of overly aggressive expansion and typically too much leverage. The first example of this can be seen in the acquisition of General Electric Insurance Solutions in the earlier part of the new millennium. This was financed through a combination of debt and share issuance, a historic and largest Swiss Re acquisition in that period. Furthermore, Swiss Re continued down a path of building out its reinsurance securitization offering, structuring pools of credit, mortality and natural catastrophe risk. This did not work out well because the Swiss Re increased correlation and dependence and when financial markets fell so did the value of these securities. Swiss Re’s leverage position and problems with its securitization program led the business to complete a capital raise and take on Berkshire as a preferential terms investor.

This investment built on a previously established relationship where Berkshire reinsured substantially all of Swiss Re’s yearly renewable-term United States mortality book, another area where Swiss Re had run into difficulties. The latest round has been aggressive expansion for commercial insurance and this came back to bite the business. What one can see now is a business that is still overleveraged and one where the levels of debt do need to be addressed. However, from an operational perspective one can see a company that is focusing on building a cleaner and more traditional reinsurance business, one that focuses on underwriting and shifts away from reliance on investment returns to fund unprofitable long-tailed lines of underwriting. A turnaround in corporate solutions starting to come to fruition and the nascent stronger move into more specialist lines of business and find the management team to be a lot more disciplined. However, one would like to see the business reign in its buybacks and concentrate more on building out the long-term profitability of this business.

Financial Strengths

Swiss Re does not have a particularly strong balance sheet. It would help the business immensely if management chose to pay down more debt. Swiss Re has around $11.2 billion of debt. The majority of this is long term, and the most substantial portions don’t mature for a few years. The shape of the debt isn’t well balanced, with the vast majority issued as subordinated. This means there are some pockets of very high interest rates and this is reflected in the broader group’s interest. Swiss Re pays an annual dividend that it intends to grow annually in line with long-term earnings growth and maintain the prior year’s dividend as a minimum level. The business also actions buybacks, though given the macro uncertainty it would be prudent if the business held off over the next few years from doing this.

Bulls Say

• Swiss Re looks to be on the cusp of producing consistent results in the long term under the performing commercial insurance division. 
• One can believe the quality of Swiss Re’s investment portfolio is high. 
• Swiss Re pays a good dividend.

Company Description

Swiss Re was established in 1863 in Zurich. Since then, the business appears to have cycled through quite a few strategies. Namely in the early part of the millennium Swiss Re took on an investment banker who eventually led the business. Over the next 10 years CEO Jacques Aigrain built Swiss Re’s financial solutions into a powerhouse and helped the company complete its first securitization, finalized in 2005 for credit reinsurance. This division became a leader for Swiss Re but then disaster struck during the global financial crisis. Swiss Re mothballed this unit and approved a CHF 5 billion capital raise. Now the business concentrates more fundamentally on property and casualty, life and health reinsurance. Swiss Re also has a good commercial insurance offering named corporate solutions.

(Source: Morningstar)

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

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

Business Strategy & Outlook

SL Green Realty is a real estate investment trust engaged in the acquisition, development, repositioning, ownership, and management of commercial real estate properties, principally office properties. Most of the companies’ properties are in the Manhattan area. The company held interests in approximately 35 million SF, which includes ownership interests in 26.7 million SF in Manhattan buildings and 7.2 million SF securing debt and preferred equity investments. The strategy of the company is to maintain a high-quality portfolio of buildings in desirable locations and focus on creating value through new developments, capital recycling, and joint venture investments. As an instance, SL Green’s $3 billion megaproject One Vanderbilt was completed amidst the pandemic and has already achieved high occupancy rates. The economic uncertainty emanating from pandemic recovery and the remote work dynamic have created a challenging environment for office owners. 

Employees are still hesitant in returning to the office as office utilization remains around 45% of the pre-pandemic level. The vacancy rate for office spaces in Manhattan was recorded at 21% in first-quarter 2022, which is roughly 1000 basis points higher than pre-pandemic levels. On the supply side, approximately 17 million SF of office space, which amounts to around 4% of the total inventory, is currently under construction in Manhattan and would be added to the market in upcoming years. This additional supply to further pressure fundamentals in the market. The Manhattan net absorption rate remains negative as of first-quarter 2022 and rental growth figures are disappointing especially given the highly inflationary environment. Having said this, an increasing number of companies require their employees to return to the office. In the long run, one can believe that remote work and hybrid remote work solutions will gain increasing acceptance, but offices will continue to be the centerpiece of workplace strategy and will play an essential role in facilitating collaboration, harnessing innovation, and maintaining the company culture.

Financial Strengths

SL Green has relatively more debt compared with other office REITs especially after considering its share of debt in unconsolidated joint ventures. The firm owns a majority of its properties through unconsolidated JVs and these properties are significantly more leveraged than the firm’s balance sheet. However, the unconsolidated JV debt is secured by the portfolio assets and has limited recourse to the parent company. The company’s share of debt which also includes its share of unconsolidated JV debt was $9.9 billion as of the end of first-quarter 2022, resulting in a debt/EBITDA ratio of 13.1 times. The current debt/EBITDA ratio is also high because of a lower base in the current challenging environment. The figure should come down slightly over the next few years as fundamentals recover and EBITDA sees healthy growth. Having said this, SL Green’s higher leverage implies a higher financial risk for the firm. The weighted average interest rate on the company’s debt was 3.11% and the debt maturity schedule shows that the maturities are adequately spread. Approximately 77% of the total debt is fixed-rate debt with the other 23% being floating rate debt. The debt service coverage ratio which is a ratio of EBITDA divided by interest and principal payments was 2.2 times as of the end of first-quarter 2022. The fixed-charge coverage ratio, which is a ratio of EBITDA divided by all fixed expenses (including interest) was 1.9 times as of the end of first-quarter 2022. The debt and fixed-charge coverage ratios are 3.8 times and 2.9 times, respectively, if one can consider only consolidated figures. As a REIT, SL Green is required to pay out at least 90% of its income as dividends to shareholders. The FAD payout ratio which is a ratio of dividends to funds available for distribution was reported at 70% for the year 2021. This shows the firm is generating sufficient cash to cover its fixed expenses and payout dividend.

Bulls Say

• SL Green’s midtown focus allows it to access one of the most vibrant business districts in the world. In addition to this, the company’s high-quality office buildings with good amenities should benefit from the flight to quality trend. 
• The development pipeline of the company is poised to drive significant net operating income growth for SL Green 
• SL Green attracts the highest-quality tenants with the deepest pockets, greatly reducing risk across its portfolio.

Company Description

SL Green is one of the largest Manhattan property owners and landlords, with interest in around 35 million square feet of wholly owned and joint venture office space. The company has additional property exposure through its limited portfolio of well-located retail space. It operates as a real estate investment trust.

(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.

Business Strategy & Outlook

A confluence of several issues–poor relative active investment performance, the growth and acceptance of low-cost index-based products, and the expanding power of the retail-advised channel–has made it increasingly difficult for active asset managers to generate organic growth, leaving them more dependent on market gains to increase their assets under management. While there will always be room for active management, the advantage for getting and maintaining placement on platforms will go to managers that have greater scale, established brands, solid long-term performance, and reasonable fees. With $955 billion in managed assets before the Oppenheimer Funds acquisition, Invesco already had the size and scale to be competitive, but that deal has raised the firm to a different level, with the company holding $1.390 trillion in assets under management at the end of June 2022, making it the 13th-largest global asset manager and the seventh-largest in the U.S. retail channel. That said, size is not always a guarantor of organic growth (which is a function of performance and fees) and above-average profitability, as demonstrated by Invesco’s historical shortcomings.

During 2012-21, the firm’s organic growth rate averaged 0.9% annually with a standard deviation of 3.7%, leaving it on much better footing than most of its equity-heavy active management peers. Having seemingly put its merger-related outflows (which added to depressed organic growth during 2018-20) behind it, Invesco has now generated seven straight quarters of positive long-term flows as of the end of March 2022. The firm’s adjusted GAAP operating margins, which rose to 24%-26% following contributions from merger synergies from the Oppenheimer Funds deal and cost-cutting efforts, to deteriorate in the near term in the face of fee compression and rising costs (necessary to improve investment performance and enhance product distribution), even when considering the company’s product and channel mix as well as its recent return to positive organic growth.

Financial Strengths

Invesco entered 2022 with $2.1 billion of debt on its books, composed of $600 million of 3.125% notes due November 2022, $600 million of 4.000% notes due January 2024, $500 million of 3.75% notes due January 2026, and $400 million of 5.375% notes due November 2043. The company also has a $1.25 billion floating-rate credit facility (maturing in April 2026) at its disposal. Should the firm close out the year in line with the expectations, and roll over its debt due later this year, it would enter 2023 with a debt/total capital ratio of 11%, a debt/EBITDA ratio of 1.4 times, and an EBITDA interest coverage ratio of 16.3 times. While Invesco has traditionally dedicated much of its excess cash to seed investments, dividends, and share repurchases, the issuance of $4.0 billion of 5.9% perpetual noncumulative preferred stock as part of its financing of the 2018-19 Oppenheimer Funds acquisition is eating up cash, as the firm pays out $236 million annually to service the interest obligation. The size and scope of the Oppenheimer Funds deal means that future deals are likely to be smaller, bolt-on acquisitions aimed at plugging holes in the firm’s product mix and/or geographic reach. One had not expected the company to cut the quarterly dividend by 50% to $0.155 per share at the start of the second quarter of 2020, but given the challenges presented by the COVID-19 pandemic, as well as the commitment to the preferred dividend, it was not too surprising. The firm did, however, raise the quarterly dividend 10% to $0.17 per share during 2021 and lifted it by another 10% in early 2022 to $0.1875 per share. Even so, one cannot expect the dividend to return to pre-pandemic levels for some time, with the firm likely to maintain a payout ratio of 30%-35% longer term. One does not expect much in the way of share repurchases in the near term unless the shares are trading at a significant discount to intrinsic value.

Bulls Say

• The Oppenheimer Funds deal lifted AUM closer to the $1.5 trillion mark, putting Invesco on a slightly better footing with industry giants like BlackRock and Vanguard, each of which oversees more than $5 trillion. 
• Invesco’s organic AUM growth has turned positive, with the firm picking up an average of $12.8 billion in net inflows quarterly over the past eight calendar quarters compared with negative $11.9 billion the previous eight quarters. 
• Oppenheimer Funds’ slightly higher AUM realization rate should help offset some of the impact of industry wide fee compression on Invesco’s top line.

Company Description

Invesco provides investment-management services to retail (67% of managed assets) and institutional (33%) clients. At the end of June 2022, the firm had $1.390 trillion in assets under management spread among its equity (47% of AUM), balanced (5%), fixed-income (22%), alternative investment (14%), and money market (12%) operations. Passive products account for 31% of Invesco’s total AUM, including 55% of the company’s equity operations and 12% of its fixed-income platform. Invesco’s U.S. retail business is one of the 10 largest nonproprietary fund complexes in the country. The firm also has a meaningful presence outside the U.S., with close to one third of its AUM sourced from Canada (2%), the U.K. (3%), continental Europe (11%), and Asia (15%).

(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.

Business Strategy & Outlook:   

Westpac Bank is the second-largest of Australia’s four major banks. The bank provides a range of banking and financial services to retail and business customers, including mortgages, consumer finance, credit cards, business loans, and term deposits. Following the divestment of its financial planning and advice business, even its wealth arm–BT Financial Group–is likely to go. Under new leadership, most non banking units are being divested, including general, life, and mortgage insurance. Westpac’s strategy is anchored in its commitment to conservatively manage risk across all business areas, following its near-death experience in the early 1990s. The multi-brand, customer-focused strategy aims to capture an increasing share of business from its Australian and New Zealand banking and wealth management customer base. 

Westpac established itself as an integrated financial services group in the early 2000s with its expansion into wealth management, acquiring Rothschild, BT Financial Services, and Hastings. The company diversified domestically by acquiring St. George Bank in 2008, providing access to a broader customer base and adding scale. Westpac has a 22% share of home lending. While risks directly related to coronavirus have abated, wage pressures, labor, and supply chain challenges, and high inflation pose challenges as the cash rate increases. The main current influences on earnings growth are modest credit growth and widening margins as the banks reprice lending rates in a rising cash-rate environment. Operating expenses should continue to fall as the bank resets its cost base after completing a number of remediation and technology projects. The bank has suffered from slow approval times in home lending, but expects increased resources and digital investments to improve service levels. After enjoying super-low impairment charges pre-2020, large loan losses expected due to COVID-19 resulted in large provisions in fiscal 2020.The expected return to midcycle levels around 0.18% in fiscal 2025.

Financial Strengths:  

Westpac comfortably meets APRA’s common equity Tier 1 ratio benchmark of 10.5%. The bank’s common equity Tier 1 ratio was 11.3% as at March. 31, 2022, with the bank’s target range of 11% to 11.5%. This is based on APRA’s globally conservative methodology and a top-quartile internationally comparable 17.4%. The risk of higher loan losses is viewed and credit stress inflating risk-weighted assets as the greatest threat to the bank’s capital position in the near term. In the past three years, the proportion of customer deposits to total funding is about 60% to 65%, reducing exposure to volatile funding markets. After completing an AUD 3.5 billion share buyback in February 2022 Westpac has AUD 3.8 billion in excess capital as at March 31, 2022.

Bulls Say: 

• Improving economic conditions underpin profit growth from fiscal 2021. Productivity improvements are likely from fiscal 2023.
• Cost and capital advantages over regional banks and neo-banks provide a strong platform to drive credit growth.
• Consumer banking provides earnings diversity to complement the more volatile returns generated from business and wholesale banking activities.

Company Description: 

Westpac is Australia’s oldest bank and financial services group, with a significant franchise in Australia and New Zealand in the consumer, small business, corporate, and institutional sectors, in addition to its major presence in wealth management. Westpac is among a handful of banks around the globe currently retaining very high credit ratings. The bank benefits from a large national branch network and significant market share, particularly in home loans and retail deposits.

(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.