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Dividend Stocks

MyState Uncertainty Rating upgraded to Medium

Business Strategy & Outlook:  

MyState Ltd is one of Australia’s smallest listed banks, commanding a tiny 0.26% of the mortgage market. A key point of difference though is MyState’s large exposure to housing, and in particular, owner occupied and low loan/value ratio loans. Housing loans make up around 95% of MyState’s total loan book, in comparison to roughly 65% (on average) for the major banks. This contributes to the bank’s sound credit quality, with the lowest arrears and bad debts in the industry. Due to its size, MyState struggles to generate comparable margins to the majors, mainly due to its much smaller customer base and higher funding and operating costs. 

The bank is focused on growing its loan book to increase scale, with its recent track record demonstrating its ability to grow both loans and deposits well above system. It is progressively expanding and diversifying its loan book outside Tasmania, utilizing mortgage brokers to grow in the Australian eastern states. However, with MyState continuously repricing mortgage rates to win customers, solid loan growth has not been matched by income growth. As a result, return on equity has averaged 9% to 10% over the last five years. Digitisation, marketing and operational efficiency remain the key areas of focus. Technological advancements will continue to be integrated into daily operations to keep cost growth down and enhance customer experiences. MyState’s cost/income ratio should improve over time as it leverages increasing scale, have more automated systems and processes and rationalizes the branch network. MyState is banking on digitization and marketing for continued customer growth; but these initiatives as “must-dos” to keep up with competition, rather than differentiating factors to drive significant growth in loans or deposits. There is scope for MyState to grow its loan book further, given its low penetration in Australia’s eastern seaboard.

Financial Strengths: 

The bank is in sound financial health, with comfortable regulatory capital levels (total capital ratio of 13.8% and common equity Tier 1 ratio of 11.6% as at December 2021). MyState’s board has set a minimum total capital ratio of 12.5%. The capital structure and solid balance sheet provide comfort that it can manage a potential increase in mortgage loan losses. Customer deposits roughly represent two thirds of total funding requirements. Access to residential mortgage-backed securitization funding is supporting the wholesale funding requirement. However, ongoing access to RMBS markets is dependent on changing, and at times unpredictable, capital market conditions. MyState has approximately 13% of its funding from securitization, a relatively high exposure to RMBS markets compared with its larger peers.

Bulls Say:  

  • Low credit costs associated with mortgages provides more consistent earnings in comparison to larger more diversified lenders.
  • Customer deposits provide 75% of funding, helping reduce demand for more expensive wholesale funding.
  • The bank is increasing its loan book above system with increasing broker channel distribution, leading improved geographic diversification and scale.

Company Description:

MyState Limited is a Tasmania-based financial company that provides banking, trustee, and funds management services. The company generates the vast majority of its profit from its banking business, which provides a range of financial services including home and personal loans, credit and debit cards, and other financial products. Home loans account for the vast majority of its loan book. The funds management segment provides trustee and funds management services through the subsidiary TPT Wealth.

(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.

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Shares Small Cap

Commerzbank’s latest strategy is the right one toward a better future, despite the herculean task ahead

Business Strategy and Outlook

Commerzbank generates about 70% of its operating income in the highly competitive German market, where banks without profit-maximizing motives (savings and cooperative banks) dominate the retail space and German as well as international competitors vie for the coveted German corporate market. In this competitive environment, Commerzbank has too long stuck to its large branch network strategy, failing to digitize processes sufficiently to compete in today’s changing banking landscape. Management is addressing these shortcomings with a highly ambitious plan. Until 2024, the bank aims to reduce its cost base by EUR 1.4 billion, or about 20% of its 2020 level. The largest cost savings will come from a reduction of about 10,000 in head count and 550 branch closures. After such a massive cut to its business, management believes it can achieve a return on tangible equity of 7%.

It is true that Commerzbank is addressing the obvious hurdles toward a more profitable future with its current plan. Yet given the competitive market in Germany, the reorganization may also provoke customer churn and bring revenue down with it. Commerzbank has been coveted as a takeover target by multiple European banks over the last couple of years. This was partially owed to its strong position in the German corporate market, but also the potential gains to be made via a heavy cost-cutting initiative. Commerzbank has now switched course, in experts view, and is taking matters into its own hands rather than hoping for a white knight. It is unexpected for European cross-border banking consolidation to commence anytime soon. As such, it is held, Commerzbank’s latest strategy is the right one toward a better future, despite the herculean task ahead.

Financial Strength

Commerzbank is in good financial health. The bank has cleaned up its balance sheet after its acquisition of Dresdner Bank in 2008 and derisked its exposure to bad loans in shipping, commercial real estate, and public finance. At the end of the first quarter of 2022, the bank posted a common equity Tier 1 ratio of 13.5% versus a requirement of 9.4%.

Bulls Say’s

  • Commerzbank is addressing its large cost base, setting the bank up for greater profitability in the future. 
  • The bank is in good financial health and has successfully run down its bad exposures in shipping, public finance, and commercial real estate. 
  • The efficiency program, cost-cutting efforts, and digitalization strategy will create a leaner and more agile Commerzbank.

Company Profile 

Commerzbank operates primarily in Europe. Germany contributes about 70% to total income. The bank operates two business segments: private and small-business customers as well as corporate clients. In its private and small-business segment, the group runs its branch business, a mobile bank with a focus on the Polish market, an online broker, and an asset manager for physical assets. Its corporate client business provides cash management and trade finance solutions to small and medium-size enterprises and large corporates. 

(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.

Categories
Dividend Stocks

Allianz has Reported Strong Results on Nonoperating Items Other Than the Pimco Division

Business diagram on financial report with coins

Business Strategy and Outlook

While it is believed as Allianz is one of the best-run multiline insurance companies, life and health insurance is its main problematic business. Allianz has three main business units, nonlife insurance, life insurance, and asset management. The nonlife and life businesses contribute between 35% and 40% of operating profit, while asset management accounts for around 25%. In the nonlife business, Allianz sells motor, accident, property, general liability, travel insurance, and assistance services. From a reporting standpoint, nonlife is broken down into geographies: German-speaking countries and Central and Eastern Europe; Western and Southern Europe, including Asia-Pacific; Iberia and Latin America and Allianz Partners; global insurance lines and Anglo markets. Germany, Italy, and France dominate, but Allianz Partners, Allianz global corporate solutions, and reinsurance are also important.

Allianz Partners is a business-to-business-to-consumer segment selling travel insurance through airlines, tuition insurance through colleges or universities, event protection sold with sports or concert tickets, and assistance services that cover travel, medical, transportation, medical evacuation, prescription replacement and emergency legal referral. Allianz global corporate solutions provides insurance for companies that operate globally and writes program insurance across lines like property, motor, travel, and liability.

Geographically, life and health are driven by Germany, Italy, and France, but the United States is also important. By product line, the life and health division are broken into guaranteed savings and annuities; capital-efficient products; protection and health; and unit-linked without guarantees. The guaranteed savings and annuities business dominates, contributing well over one third of operating profit. And the dependence of life and health on guaranteed savings and annuities shows how reliant Germany is on guarantees within long-term savings. Allianz’s German weighted average guarantees are still some of the highest for the business

Financial Strength

Allianz’s balance sheet is good with debt/capital at a little over 21%

Bulls Say’s

  • Allianz has a strong asset-management business that includes Allianz Global Investors and Pimco. 
  • Allianz is a good underwriter of general insurance. 
  • Turnaround stories include Turkey and Global Corporate.

Company Profile 

Allianz is a global insurance group offering insurance and asset-management services. The insurance business is organised in two segments: property-casualty insurance, life and health insurance. Allianz is one of the largest asset managers in the world with its Pimco franchise

(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.

Categories
Dividend Stocks

ANZ: The Board Declared an interim fully franked dividend of 72 cps

Investment Thesis:

  • ANZ is trading on an undemanding valuation, with 1.1x Price to Book (P/B) and dividend yield of 5.8%. 
  • All else being equal, ANZ is offering an attractive dividend yield on a 2-yr (6.1%) and 3-Yr (6.6%) view. 
  • Strong oligopoly position in Australia (along with three other major banks in CBA, NAB, WBC).
  • Strong management team and Board.
  • Macro environment to be both a tailwind and headwind – We expect a rising interest rates environment to be both positive and negative in that while it will enable banks to charge more for loans, it also could result in deterioration in asset quality, slower loan growth, as well as higher inflation and wage growth to be detrimental to costs expense.
  • Net interest margin (NIM) remains under pressure, but some offsetting tailwinds could see NIMs hold up better than market expectations.  
  • Strong capital position could lead to ongoing capital management initiatives.
  • Continued focus on cost could yield results which come in ahead of market expectations. 

Key Risks:

  • Any unexpected customer remediation provisions.
  • Loan deferrals turn into structurally impaired loans. 
  • Intense competition for already subdued credit growth.
  • Increase in bad and doubtful debts or increase in provisioning especially any Australian and institutional single exposure loan losses.
  • Funding pressure for deposits and wholesale funding.
  • Credit risk with potential default of mortgages, personal and business loans and credit cards.  
  • Potential changes to Australian Banking legislation.
  • Significant exposure to the Australian property market.
  • Operating costs come in below market expectations.

Key Highlights:

  • Statutory Profit after tax of $3,530m, up 10%. Cash Profit from continuing operations was $3,113m, down 3%.
  • Profit before credit impairments and tax was -7% weaker to $4,157m.
  • Cash Return on Equity was 10%, -18bps weaker than 10.2% in 2H21.
  • CET1 ratio decreased 81 basis points to 11.53% during the half but remains above the Australian Prudential Regulation Authority’s ‘Unquestionably Strong’ benchmark.
  • The Board declared an interim fully franked dividend of 72cps (which is flat relative to 2H21 or +2.9% or 2 cents increase on FY21 interim dividend), and consistent with its stated target Dividend Payout Ratio of between 60% and 65% (cash continuing, ex large/notables basis).
  • Total credit provision was a net release of $284m (individual provision charge of $87m was up +26% whilst collective provision release of -$371m was a significant difference from -$145m in 2H21).
  • Australia Retail and Commercial. Reported a +11% uplift in cash earnings to $1,986m driven by positive balance sheet momentum after ANZ increased home loan processing capacity by 30%, bringing assessment times in line with major peers.
  • NZ. ANZ reported a +2% increase in cash earnings to $787m as ANZ was able to grow home loans by 7% half-on-half, taking ANZ’s total home loan book in NZ to more than NZ$100bn and increasing market share by 28bps to 30.66%. ANZ maintained its position as New Zealand’s biggest fund manager and KiwiSaver provider managing over NZ$37bn in investments for more than 650,000 investors.
  • Institutional. This division saw disappointing results with a -23% decline in cash earnings to $730m. Interestingly ANZ executed first ever Australian bank issued AUD stablecoin (A$DC) payment through a public permissionless blockchain transaction for Victor Smorgon Group.

Company Description:

Australia and New Zealand Banking Group Ltd (ANZ) is one of the four major banking institutions in Australia with an international presence having activities in general banking, mortgage and instalment lending, life insurance, leasing, hire purchase and general finance.  In addition, ANZ operates in international and investment banking, investment and portfolio management and advisory services, nominee and custodian services, stock broking and executor and trustee services.

(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
Funds Funds

Vanguard Australian Shares Index Fund; Offers potential Long Term Capital Growth along with Dividend income and Franking Credits

Investment Objective

Vanguard Australian Shares Index Fund seeks to track the return of the S&P/ASX 300 Index before taking into account fees, expenses and tax.

Investment Strategy and Investment Return Objective

The Fund seeks to track the return of the S&P/ASX 300 Index before taking into account fees, expenses, and tax. The S&P/ASX 300 Index includes the large cap, mid cap and small cap components of the S&P/ASX index family. The Fund will hold all of the securities in the index most of the time, allowing for individual security weightings to vary marginally from the index from time to time. The Fund may invest in securities that have been removed from or are expected to be included in the index. The Fund may engage in securities lending. Securities lending is a common practice where holders of securities make short term loans of shares in return for a fee, to incrementally increase returns to investors.

Performance Return

About Fund:

Vanguard Investments Australia Ltd (“Vanguard”) is a wholly owned subsidiary of The Vanguard Group, Inc. The Vanguard Group, Inc. is one of the world’s largest global investment management companies, with more than AUD $8.6 trillion in assets under management as of 31 March 2020. In Australia, Vanguard has been serving financial advisers, retail clients and institutional investors for more than 20 years. Vanguard is the responsible entity of the Fund. As responsible entity, Vanguard is solely responsible for the management and administration of the Fund. Vanguard is also the investment manager for the Fund and has appointed other entities within the Vanguard group of companies to provide investment management related services to the Fund. Investors will be notified of any future change in the investment manager of the Fund and this PDS will be updated accordingly. 

(Source: https://www.vanguard.com.au/)

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

Roche’s Tiragolumab Fails in Higher-Stakes Trial; Lowering Our FVE, but Shares Remain Undervalued

Business Strategy & Outlook

The Roche’s drug portfolio and industry-leading diagnostics conspire to create maintainable competitive advantages. As the market leader in both biotech and diagnostics, this Swiss healthcare giant is in a unique position to guide global health care into a safer, more personalized, and more cost-effective endeavor. Strong information sharing continues between Genentech and Roche researchers, boosting research and development productivity and personalized medicine offerings that take advantage of Roche’s diagnostic arm.

Roche’s biologics focus and innovative pipeline are key to the firm’s ability to maintain its wide moat and continue to achieve growth as current blockbusters face competition. Blockbuster cancer biologics Avastin, Rituxan, and Herceptin are seeing strong headwinds from biosimilars. However, Roche’s biologics focus (more than 80% of pharmaceutical sales) provides some buffer against the traditional intense declines from small-molecule generic competition. In addition, with the launch of Perjeta in 2012 and Kadcyla in 2013, Roche has expanded its breast cancer franchise, and Phesgo, a subcutaneous coformulation of Herceptin and Perjeta, is launching in the U.S. Gazyva, approved in CLL and NHL and in testing in lupus, will also extend the longevity of the Rituxan franchise. Avastin’s lung cancer sales are vulnerable to biosimilars and competition from new therapies Opdivo and Keytruda, but Roche’s own immuno-oncology drug Tecentriq launched in 2016, and the peak sales potential above $10 billion. Roche is also expanding outside of oncology with MS drug Ocrevus ($9 billion peak sales) and hemophilia drug Hemlibra ($6 billion peak sales).

Roche’s diagnostics business is also strong. With a 20% share of the global in vitro diagnostics market, Roche holds the number-one rank in this industry over competitors Siemens, Abbott, and Ortho.

Pricing pressure has been intense in the diabetes-care market, but new instruments and immunoassays have buoyed the core professional diagnostics segment.

Financial Strengths

Roche’s financial health remains robust. At the end of 2021, Roche’s net debt stood at CHF 18.2 billion, or 20% of total assets. Debt levels increased in late 2021 as Roche repurchased shares held by Novartis, but with debt maturities spread over the next several years, the firm will meet obligations easily. The estimated free cash flows north of CHF 15 billion annually over the next five years. The Roche to maintain a dividend payout ratio around 50% going forward, implying mid-single-digit annual

increases in dividends per share.

Bulls Say

  • Roche and its innovative U.S. arm Genentech have a solid history of generating blockbuster therapies in oncology, and Roche’s pipeline is full of novel candidates, with a particularly large late-stage pipeline. 
  • Hemophilia drug Hemlibra and MS drug Ocrevus have multi-billion-dollar sales and significant growth potential, further diversifying Roche’s revenue.
  • Collaboration between its diagnostics and drug development groups gives Roche a unique in-house angle on personalized medicine.

Company Description

Roche is a Swiss biopharmaceutical and diagnostic company. The firm’s best-selling pharmaceutical products include a variety of oncology therapies from acquired partner Genentech, and its diagnostics group was bolstered by the acquisition of Ventana in 2008. Oncology products account for 50% of pharmaceutical sales, and centralized and point-of-care diagnostics for more than half of diagnostic-related sales.

(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

Increase In Operating Expenses And Similar Decline In Rate Case Outcomes Underpins Decline Prediction For Exelon Corp

Business Strategy and Outlook

After spinning off its merchant generation and retail energy segment, Constellation Energy, through a distribution to Exelon shareholders, the new Exelon is now a pure-play electric and gas transmission and distribution utility providing investors a more stable earnings profile. The separation is considered positive for shareholders. A standalone regulated utility strengthens Exelon’s narrow moat and lowers the company’s cost of capital. Exelon’s regulated utilities support the current outlook for 7% earnings growth through 2026, the midpoint of the company’s 6%-8% earnings growth guidance. The company is estimated to spend $36 billion of capital investment through 2026. This investment plan supports the current earnings forecast and dividend growth in line with earnings growth. Exelon operates a diverse set of regulated utilities, including five utilities in the Northeast and the largest investor-owned utility in Illinois.

Regulatory relationships have at times been strained across its Northeast utilities, resulting in low allowed returns. Alternative recovery mechanisms help reduce regulatory lag and risk across the regions for Exelon’s growth capital. Low earned returns below allowed regulated returns should gradually increase to within management’s 9% to 10% goal. Relationships at the company’s most important subsidiary, ComEd, will likely remain strained given allegations of inappropriate lobbying practices tied to the passage of previous utility legislation. Exelon subsequently entered into a deferred prosecution agreement with federal prosecutors. Recent Illinois legislation will bring significant changes to the state’s regulatory framework. Current performance base-rate making, which ties allowed returns to the average 30-year Treasury rate, have produced some of the lowest returns among U.S. utilities. After 2023, Illinois utilities may opt in for a four-year rate plan beginning in 2024. Under the multi year plan, ComEd would be allowed to “true-up” earned returns to allowed returns and continue usage-decoupled rates. Regulators could issue incentives and penalties based on performance. The legislation will likely lead to higher returns for the subsidiary

Financial Strength

With over 4.0 times interest coverage, Exelon’s financial health is sound for a regulated utility, particularly given its stable, low-risk business model. With the current forecast for $36 billion of capital spending planned through 2026, Exelon will be a frequent debt issuer. The company has manageable long-term debt maturities and anticipated to be able to refinance its debt as it comes due, maintaining its current debt/capital ratio. The company is expected to issue $1.0 billion in equity to fund its capital investment plan, in line with management’s expectations. Total debt/EBITDA is expected to remain in the 4.5-5.0 times range. Exelon will target a 60% dividend payout ratio. Dividend growth is projected to remain in line with the current 7% annual earnings per-share growth forecast through 2026. 

Bulls Say’s

  • Exelon’s divestiture of its merchant generation eliminates its earnings sensitivity to cyclical commodity prices that have dragged down returns recently. 
  • Exelon has good regulated growth investment opportunities that should support earnings and dividend growth. 
  • Nearly all of the company’s growth capital is recovered through constructive regulatory mechanisms that reduce regulatory lag.

Company Profile 

Exelon serves approximately 10 million power and gas customers at its six regulated utilities in Illinois, Pennsylvania, Maryland, New Jersey, Delaware, and Washington, D.C.

(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.

Categories
ETFs ETFs

BEAR seeks to generate returns that are negatively correlated to the returns of the Australian sharemarket

Fund Objective

BEAR seeks to generate returns that are negatively correlated to the returns of the Australian share market. The Fund expects to generate a positive return when the S&P/ASX Accumulation 200 Index falls (and a negative return when the index rises).  

The BetaShares Bear Funds are designed to provide returns that are negatively correlated with the Australian or U.S. share market, and so may be used to help protect against, or profit from, share market declines. It is important for investors in a Bear Fund to understand its features, including how it is priced, and that it targets a return over a one-day period only. Additionally, BetaShares strongly recommends investors review the relevant PDS and consider the risks associated with an investment in the relevant Bear Fund. These include the risk of negatively correlated returns, market risk, futures risk and gearing risk (in the case of BBOZ/BBUS). Investors should also check the BetaShares website for details of the Fund’s historical performance, as well as the current portfolio exposure, to ensure that the Fund continues to meet their investment objectives.

Strategy

BEAR is an ‘inverse ETF’. It invests in cash and cash equivalents and sells equity index futures contracts (i.e. ASX SPI 200 futures) to obtain its exposure. Selling these futures can typically be expected to generate a positive return when the S&P/ASX Accumulation 200 Index declines on a given day, and a negative return when the Index increases. A 1% fall in the Australian share market on a given day can generally be expected to deliver a 0.9% to 1.1% increase in the value of BEAR (and vice versa).

BetaShares Funds can be bought or sold during the trading day on the ASX, and trade like shares. ASX CODE BEAR BLOOMBERG CODE BEAR AU IRESS CODE BEAR.AXW IRESS INAV CODE BEARINAV.ETF DISTRIBUTIONS ANNUAL MGT FEE 1.19% P.A. EXPENSES CAPPED AT 0.19% P.A. INDIRECT COSTS 0.10% P.A. FUND INCEPTION 6 JUL 12 BENCHMARK S&P/ASX ACCUMULATION 200.

Portfolio

BetaShares offers four series of model portfolios, each of which seeks to achieve capital growth and income streams through a careful blending of asset classes, including Australian and international equities, bonds, cash and commodities. The models are constructed using ETFs and other exchange-traded products, resulting in institutional-quality portfolios that are cost-effective, highly diversified, transparent, and simple to explain to clients.

People

Adam O’Connor is a member of the BetaShares Distribution team responsible for supporting Institutional and Intermediary Broker and Adviser channels. Prior to joining BetaShares, Adam worked in stockbroking and advisory with Bell Potter Securities. Adam holds a Bachelor of Laws with Honours and a Bachelor of Business (Finance) from the Queensland University of Technology. Adam also holds a Diploma of Stockbroking from Deakin University and is an accredited Financial Adviser in Securities and Managed Investments and Superannuation. Brendan is responsible for growing and servicing BetaShares Adviser business clients across Western Australia. In this role, Brendan is focused on educating advisers about the role and benefits of ETF’s and SMA’s in client portfolios and sharing updates on the expanding range of strategies available across the BetaShares product suite.

Alex is a member of the BetaShares Distribution team, responsible for supporting Institutional and Intermediary Broker channels. Alexander is a member of the BetaShares Distribution team, responsible for client inquiries and supporting the sales team. Alistair is a member of the BetaShares Distribution team, responsible for supporting Institutional and Intermediary Broker channels, as well as supporting the firm’s capital markets activities. Benjamin is a member of the BetaShares Distribution team, responsible for assisting with client inquiries. Craig is responsible for growing and servicing BetaShares Adviser business clients across Queensland. In this role, Craig is focused on educating advisers about the role and benefits of ETF’s in client portfolios, and sharing updates on the expanding range of strategies available across the BetaShares product suite. 

Performance 

Past performance is not an indicator of future performance. Returns are calculated in Australian dollars using net asset value per unit at the start and end of the specified period and do not reflect brokerage or the bid ask spread that investor incur when buying and selling units on the ASX. Returns are after fund management costs, assume reinvestment of any distributions and do not take into account tax paid as an investor in the Fund. Returns for periods longer than one year are annualised. Current performance may be higher or lower than the performance shown.

About Fund

BetaShares Funds can be bought or sold during the trading day on the ASX, and trade like shares. ASX CODE BEAR BLOOMBERG CODE BEAR AU IRESS CODE BEAR.AXW IRESS INAV CODE BEARINAV.ETF DISTRIBUTIONS ANNUAL MGT FEE 1.19% P.A. EXPENSES CAPPED AT 0.19% P.A. INDIRECT COSTS 0.10% P.A. FUND INCEPTION 6 JUL 12 BENCHMARK S&P/ASX ACCUMULATION 200.

(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

BASF Is the World’s largest Chemical Company

Business Strategy & Outlook:  

BASF is the world’s largest chemical company, competing in almost every major chemical category. Given its German roots, around half of sales are generated in Europe, but investment is largely focused on higher-growth emerging markets, particularly China. End markets are widely diversified between industrial uses, energy, and transportation, but also fewer cyclical areas such as consumer goods and agriculture. The company was built on the production of basic commodities such as petrochemicals. However, its current strategy targets a shift toward speciality chemicals and customized solutions. This is viewed as a wise endeavour, given the increased pricing power and lower cyclicality typically associated with speciality chemicals. 

BASF’s traditional chemicals business includes the chemicals (35% of EBIT), materials (29% of EBIT), industrial solutions (12% of EBIT), surface technologies (10% of EBIT), and nutrition and care (6% of EBIT) segments. The chemicals and materials segments produce basic commodities and represents the core of BASF’s Verbund production concept, a key competitive advantage. The company’s massive Verbund production sites integrate several plants together, generating approximately EUR 1 billion in cost savings per year. The latter three segments are weighted toward speciality products with particularly strong competitive positions in catalysts and consumer care chemicals. BASF’s agricultural solutions segment (8% of EBIT) is focused on crop protection such as fungicides and herbicides. However, the company entered the seeds business in 2018 via purchasing the regulatory-mandated divestments in the Bayer-Monsanto acquisition. While no cost synergies are expected, as this was a rare opportunity for BASF to gain critical mass in the attractive seeds market.

Financial Strengths: 

BASF’s balance sheet is strong. The model-driven credit risk assessment is low. The company has a conservative financial policy and targets an A credit rating, which shall continue. As of 2021, the company had total net debt of EUR 14 billion, excluding pension liabilities. Net debt/EBITDA declined to 1.2 times in 2021. The company’s debt maturity profile is balanced. The company is strongly committed to the dividend and targets an increase every year. However, the payout ratio is getting high compared with BASF’s cyclicality. The company typically has the balance sheet capacity to support the dividend. However, an extended economic slump would likely lead to a dividend cut.

Bulls Say: 

  • BASF is shifting its portfolio toward speciality chemicals and customised solutions, which should increase pricing power and reduce cyclicality.
  • Development of the battery materials business and the China Verbund should ensure long-term growth is adequate.
  • The company’s Verbund production process enables strong returns, despite higher costs for oil-based raw materials compared with peers with better access to low-cost natural gas markets.

Company Description: 

Based in Germany, BASF is the world’s largest chemical company, with products spanning the full spectrum of commodities to specialities. In addition, the company is a strong player in agricultural crop protection. Given its sheer size, BASF has a top-three market position in 70% of its businesses.

(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

Acquisition of Monsanto has significantly expanded Bayer’s competitive position in this industry

Business Strategy and Outlook

Largely on the basis of the strong competitive advantages of the healthcare group and to a lesser extent the crop science business, it is alleged Bayer has created a wide economic moat. Also, the past divestiture of no-moat material science group Covestro leaves the company in a stronger competitive position. 

In the healthcare division, Bayer’s strong lineup of recently launched drugs and solid exposure to biologics should support steady long-term growth. Bayer’s hemophilia franchise and key ophthalmology drug Eylea are biologics. While competition is increasing in hemophilia and in eyecare, the manufacturing complexity of these drugs deters generics from entering the market. Further, strong demand for cardiovascular drug Xarelto should continue to drive growth, but the drug’s approaching patent loss in 2026 will likely create some growth headwinds. 

Bayer’s healthcare segment also includes a consumer healthcare business with leading brands Aspirin and Aleve. Brand recognition is key in this segment, as evidenced by the company’s iconic Aspirin, which continues to produce strong sales even after decades of generic competition. The 2014 acquisition of Merck’s consumer products increased the scale of Bayer’s consumer group. Bayer runs a leading crop science segment, which includes crop protection products (pesticides, herbicides, fungicides) and the fast-growing plant and seed biotechnology business. Similar to the drug business, this segment is research and development intensive, and Bayer has developed a strong portfolio of products. The downside to this business is that demand is heavily dictated by weather and commodity prices, which will determine how much farmers can afford to spend on crop treatment. The acquisition of Monsanto has significantly expanded Bayer’s competitive position in this industry. On the negative side, the acquisition increased Bayer’s exposure to litigation around potential side effects from glyphosate use. While many studies have shown glyphosate use to be safe, some reports of linkage to cancer drove large class action legal cases against Bayer and led to a legal settlement of over $15 billion.

Financial Strength

The merger with Monsanto and glyphosate litigation settlements have significantly increased debt, but it is alleged the cash flows from the business will meet the increase in related interest payments. It is foreseen, a 2022 net debt position for the firm of close to EUR 38 billion, falling to close to EUR 30 billion by 2024. Bayer’s steady cash flows from healthcare and crop science products should enable the company to both reduce debt and service current debt levels. However, the high debt levels and slow near-term growth prospects likely mean relatively high debt levels over the next several years. Also, the high debt burden will likely reduce Bayer’s potential to make major acquisitions over the next few years.

Bulls Say’s

  • Several drugs, including recently launched cancer drugs, hold potential for further gains and have relatively steady pricing power partly based on excellent clinical data. 
  • Bayer’s strong entrenchment in biologics helps protect the firm from generic competition, as generic biosimilars are more difficult to develop and market. 
  • Bayer has established a strong presence in emerging markets and is well positioned to benefit from these fast-growing regions.

Company Profile 

Bayer is a German healthcare and agriculture conglomerate. Healthcare provides close to half of the company’s sales and includes pharmaceutical drugs as well as vitamins. The firm has a crop science business that includes seeds, pesticides, herbicides, and fungicides, which was expanded through the acquisition of Monsanto. 

(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.