Tag: Top Stocks

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Dividend Stocks

Pact Group Holdings Ltd – The Board declared a 65% Franked Interim Dividend of 3.5cps, down -30%

Investment Thesis:

  • Solid market share in Australia and growing presence in Asia. Hence provides attractive exposure to both developed and emerging markets’ growth.
  • Valuation is fair on our forward estimates.  
  • Management appears to be less focused on acquired growth going forward, which means there is a less of a chance for the Company to make a value destructive acquisition. 
  • Reinstatement of the dividend is positive and highlights management’s confidence in future earnings growth.  
  • Focusing on sustainable packaging in an environmentally friendly market.

Key Risks:

  • Competitive pressures leading to further margin erosion.
  • Input cost pressures which the company is unable to pass on to customers.
  • Deterioration in economic conditions in Australia and Asia.
  • Emerging markets risk.
  • Poor acquisitions or not achieving synergy targets as PGH moves to reduce its dependency on packaging for food, diary, and beverage clients to more high growth sectors such as healthcare.
  • Adverse currency movements (purchased raw materials in U.S. dollars)

Key Highlights:

  • Revenue increased +3.7% to $927.2m, with Packaging and Sustainability up +7.4% driven by volume growth and the pass through of higher material and other input costs and Materials Handling and Pooling up +5.3% driven by growth in pooling and infrastructure demand and resilient hanger reuse service volumes, partially offset by -10.9% decline in Contract Manufacturing
  • Underlying EBITDA declined -8% to $151m with margin compressing by -200bps to 16.3% and underlying EBIT declined -16% to $83m with margin compressing by -210bps to 9%, primarily due to lower earnings in the Contract Manufacturing amid lower volumes and lags in recovering raw material costs. PGH saw almost flat earnings in Packaging & Sustainability and Materials Handling & Pooling as significant raw material and freight cost inflation was mitigated through strong pricing discipline and efficiency programs.
  • Underlying NPAT declined -25% to $39m and reported net loss of $21m amid net after-tax expense for underlying adjustments of $60m mostly related to non-cash impairments and write-downs in the Contract Manufacturing segment of $65m (after tax).
  • Operating cashflow declined -19% to $110.4m and FCF declined -72% to $13m.
  • Net debt increased +0.3% to $601m, driven by lower earnings in the Contract Manufacturing segment along with an increase in working capital, leading to gearing increasing +0.3x to 2.7x vs target range of <3.0x.
  • Liquidity remained strong with $288.9m in committed undrawn facilities, with the Company extending the maturity of the debt portfolio to an average of 3.4 years and introducing new lenders, increasing diversification and reducing refinancing risk.
  • The Board declared a 65% franked interim dividend of 3.5cps, down -30%

Company Description:

Pact Group Holdings Ltd (PGH) was established by Raphael Geminder in 2002 (Mr. Geminder remains a major shareholder with ~44% and is the brother-in-law of Anthony Pratt, Chairman of competitor Visy). Pact has operations throughout Australia, New Zealand and Asia and conceives, designs, and manufactures packaging (plastic resin and steel) for many products in the food (especially dairy and beverage), chemical, agricultural, industrial and other sectors.

(Source: Banyantree)

General Advice Warning

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

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Dividend Stocks

Link Administration Holdings Ltd to Maintain its Dividends and Reduce its Debts

Business Strategy and Outlook

Link Administration has created a narrow economic moat in the Australian and U.K. financial services administration sectors via its leading positions in fund administration and share registry services. Client retention rates exceed 90% in both markets, underpinned by inflation-linked contracts of between two and five years. The capital-light nature of the business model should enable good cash conversion, regular dividends, and relatively low gearing. Earnings growth prospects are supported by organic growth in member numbers, industry fund consolidation, and continued outsourcing trends. The company was formed via numerous acquisitions made since 2005 under the ownership of private equity firm Pacific Equity Partners, which sold its remaining holding in the company in 2016. 

It is considered the Australian fund administration business, which constitutes around a third of group revenue, to be the strongest of Link’s businesses. Link usually comprises around three fourths of fund administration customer costs, which creates material operational and reputational risks to switching providers. Contract lengths of between three and five years, along with six to nine months of lead time to change provider, also create barriers to switching. Switching costs are evidenced by Link’s recurring revenue rate of around 90% and client retention rate of over 95%. Six of Link’s 10 largest clients have been with the company for over 20 years. 

Link’s only significant competitor in fund administration is Marsh & McLennan-owned Mercer, which has a 10% market share following its acquisition of Pillar, previously group revenue, grows at around 4% per year, comprising 1.5% population growth and 2.5% inflation. Experts assume corporate markets revenue grows at 3% per year, reflecting inflation, and assume no market share gains due to the strength of major competitor Computershare. According to analysts EBIT margins grow from 12% in fiscal 2021 to 21% by fiscal 2031 partly due to cost-cutting. Over the next decade, an EPS CAGR, excluding amortisation of acquired intangible assets, of 9%. The capital-light nature of the business model means it is anticipated cash conversion to be strong, enabling dividends to be maintained and net debt gradually reduced, assuming no further acquisitions. Experts discounted cash flow valuation assumes a weighted average cost of capital of 7.7%.

Financial Strength

Link’s balance sheet is in good shape with a net debt/EBITDA ratio of around 2.6 as at Dec. 31, 2021, which is within the company’s target range of 2 to 3. From an interest coverage ratio perspective, Link has a manageable interest coverage ratio of around 14.

Bulls Say’s

  • It is alleged Link’s EPS to grow at a CAGR of 9% over the next decade, driven by a revenue CAGR of 6% per year, in addition to cost-cutting and operating leverage. 
  • Experts base case assumes Link’s Australian fund administration market share grows by 2.5 percentage points to 32.5% over the next five years. 
  • The capital-light nature of the business model should enable regular dividends, and low financial leverage creates the opportunity for debt-funded acquisitions.

Company Profile 

Link provides administration services to the financial services sector in Australia and the U.K., predominantly in the share registry and investment fund sectors. The company is the largest provider of superannuation administration services and the second-largest provider of share registry services in Australia. Link acquired U.K.-based Capita Asset Services in 2017; this provides a range of administration services to financial services firms and comprises around 40% of group revenue. Link’s clients are usually contracted for between two and five years but are relatively sticky, which results in a high proportion of recurring revenue. The business model’s capital-light nature means cash conversion is relatively strong. 

(Source: MorningStar)

General Advice Warning

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

Categories
Technology Stocks

LNK results reflects Operating NPATA of $55.9m for 1H22, up +9% relative to the pcp, and included a $19.5m contribution from PEXA

20025825 - closeup image of businessman drawing 3d graphics

Investment Thesis:

  • LNK is currently under a takeover offer by D&D, which the LNK Board has unanimously recommended. 
  • Leveraged to ongoing outsourcing of administration by retail super funds.
  • LNK still has exposure to any further upside in PEXA’s valuation. 
  • New contract wins in Fund Administration and increased market activity.
  • Successfully delivering on its offshore expansion story. 
  • Efficiency benefits from the cost out program. 
  • Clarity around Brexit will remove uncertainty / potential discount assumed in current valuation / share price.  
  • Value accretive bolt-on acquisitions. 
  • Favourable currency movements. 

Key Risks:

  • LNK does not receive all the regulatory approvals for the current takeover offer from D&D. 
  • Lower market activity and business / investor confidence. 
  • Loss of major client contract(s) in Fund Administration.
  • Adverse changes in super regulatory environment – e.g. super account consolidation.
  • Lack of product development.
  • Adverse currency movements.

Key Highlights:

  • Link Administration Holdings Ltd (LNK) reported strong 1H22 results ahead of expectations, with the Company upgrading its FY22 guidance.
  • LNK’s results reflect – Operating NPATA of $55.9m for 1H22, up +9% relative to the pcp, and included a $19.5m contribution from PEXA.
  • Statutory Loss of $81.7m was due to a non-cash impairment charge of $81.6m related to the BCM business and rationalisation of LNK’s premises footprint.
  • According to management, the GTP remains on track to deliver the committed gross annualised savings of $75m by the end of FY22.
  • For 1H22, the GTP delivered gross savings of $14.9m (including D&A).
  • D&D takeover offer unanimously recommended by LNK Board – total consideration of $5.68 per share.
  • As per LNK’s announcement on 22 December 2021, the Company has entered a scheme of implementation deed with Dye & Durham (D&D) to have 100% of its shares acquired at $5.50 per share plus a fully franked 3cps interim dividend (which declared at the 1H22 results)
  • Investors may also receive a further 15cps if LNK reaches an agreement to sell its Banking and Credit management (BCM) business prior to or up to 12 months after the implementation of the scheme. LNK shareholders are expected to vote on the scheme in May 2022.
  • BCM sales does not proceed and investors miss out on the additional 15cps value.
  • There are contingencies in the offer, which also relates to the Woodford Matters (if there are fines before the completion of the scheme this may delay or put the takeover into jeopardy).

Company Description:

Link Administration Holding Ltd (LNK) is the largest provider of superannuation fund administration services to super fund in Australia. Further, the Company is also a leading provider of shareholder management and analytics, share registry and other services to corporates in Australia and globally. The Company has 5 main divisions: (1) Retirement & Super Solutions (RSS), (2) Corporate Markets (CM), (3) Technology & Operations (T&O), (4) Fund Solutions (FS) and (5) Banking & Credit Management (BCM). LNK was listed on the ASX in October 2015. 

(Source: Banyantree)

General Advice Warning

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

Categories
Technology Stocks

Jack Henry & Associates: margins under pressure as company developed and migrated clients to a new card processing platform

Business Strategy and Outlook

Jack Henry remains committed to the idea that slow and steady wins the race. While its larger peers both completed big mergers in 2019 that expanded their operations into new areas, Jack Henry continues to build out its competitive position organically. Overall, it is seen this approach should allow Jack Henry to maintain its wide moat and continue to modestly outperform its larger peers. 

The company has not been without challenges recently. Jack Henry’s business is quite stable, with much of its revenue recurring under long-term contracts and related to essential services for banks and credit unions. Jack Henry and its peers saw only a modest impact from the financial crisis in 2008, which is likely was essentially a worst case for the industry from a macro perspective. However, growth stalled a bit as banks looked to reduce spending during the pandemic. But much of the decline in growth has come from a falloff in deconversion fees, given that M&A activity among banks declined significantly due to the uncertainty created by COVID-19. These fees fall almost entirely to the bottom line, and as such can have an outsize impact on margins and profitability. However, while this weighed on recent results, from a long-term perspective, holding onto more clients can only be construed as a positive. Management’s guidance for fiscal 2022 suggests a full return to normalized growth, and the stage seems set for this to occur. 

Jack Henry has generally outperformed its larger peers in terms of growth, and is believed for this to continue. The company notched up over 40 competitive core takeaways in fiscal 2021, suggesting that it continues to pick up incremental share, although the high switching costs around this service make this a very slow process. On the negative side, margins have been under some pressure recently as the company developed and migrated clients to a new card processing platform. It is held Jack Henry’s competitive position is a little weaker on this side, given its relative lack of scale, but at this point see this is a one-time issue and margins should rebound now that this initiative is complete.

Financial Strength

Jack Henry’s balance sheet is strong. Historically, the company has generally carried no or just a nominal amount of debt, and it had only $100 million in debt at the end of fiscal 2021. The company’s conservative balance sheet structure, along with the underlying stability of the business, creates significant flexibility in terms of returning capital to shareholders. While the company does pursue acquisitions, historically these have been limited to small, bolt-on deals that can be covered with free cash flow. Most of the company’s free cash flow is returned to shareholders, with dividends and share buybacks equating to about 90% of free cash flow over the past five years.

Bulls Say’s

  • The bank technology business is very stable, characterized by high amounts of recurring revenue and long-term contracts. 
  • Jack Henry’s organic approach to growth has allowed the company to build out a relatively streamlined set of products, which allows the company to concentrate its resources and maintain relatively strong margins. 
  • Jack Henry has outperformed its larger peers in terms of organic growth over time, suggesting the company is steadily improving its share.

Company Profile 

Jack Henry is a leading provider of core processing and complementary services, such as electronic funds transfer, payment processing, and loan processing for U.S. banks and credit unions, with a focus on small and midsize banks. Jack Henry serves about 1,000 banks and 800 credit unions. 

(Source: MorningStar)

General Advice Warning

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

Categories
LICs LICs

PTM reported revenue of $128.7m with attractive dividend yield

Portrait of handsome man smiling and listening to female manager while discussing contract in meeting, copy space

Investment Thesis

  • Trades on an attractive dividend yield.
  • PTM is in a position to attract net inflows as value oriented strategies may make a sustained comeback. 
  • Recent decision to reduce fees from 1.35% to 1.54%, represents ~9% decline in revenue. In our view, we expect further pressure on the funds management industry and fees (as a result of industry and super funds building inhouse capabilities and passive investing with significantly lower fees/asset allocators becoming more of the norm). 
  • Significant key man risk. Particularly poignant as Kerr Neilson has stepped down from CEO, and whilst he has not signaled plans to leave altogether, it remains a possibility.
  • New distribution channels present growth runways for PTM’s core funds.
  • Transition risk as the new CEO takes over. 

Key Risks

  • Trades on an attractive dividend yield.
  • PTM is in a position to attract net inflows as value oriented strategies may make a sustained comeback. 
  • Recent decision to reduce fees from 1.35% to 1.54%, represents ~9% decline in revenue. In our view, we expect further pressure on the funds management industry and fees (as a result of industry and super funds building inhouse capabilities and passive investing with significantly lower fees/asset allocators becoming more of the norm). 
  • Significant key man risk. Particularly poignant as Kerr Neilson has stepped down from CEO, and whilst he has not signaled plans to leave altogether, it remains a possibility.
  • New distribution channels present growth runways for PTM’s core funds.
  • Transition risk as the new CEO takes over. 

1H22 result highlights

  • Fee revenue increased +2% over pcp to $133.6m, with Management fee revenues increasing +3% over pcp due to the increase in average FUM and changes in product mix (average fee up amid higher portion of retail FUM) partially offset by -32% over pcp decline in Performance fee revenues to $2.5m. Other income declined from a $35.7m gain in pcp to a $4.9m loss due to unrealized losses on seed investments. 
  • Expenses increased +15.8% to $43.2m, primarily driven by +39.6% YoY increase in share-based payments expense as share-based payments expenses normalized after being relatively low in pcp due to rights forfeited during that period, and +42.3% increase in business developments costs mainly due to advertising and the launch of the Platinum Investment Bond. 
  • NPAT declined -33.6% over pcp to $60m, primarily driven by unrealized losses on seed investments, including share of associates losses, which contributed losses before tax of $7.4m compared to income before tax of $35m in pcp. Excluding gains and losses on seed investments (net of tax), underlying NPAT declined -1.2% over pcp to $65.1m. 
  • FUM declined -6.4% over 2H21 to $22bn (down -7% over pcp), driven by net outflow of $900m and negative investment returns of $500m primarily from the Asia ex-Japan investment strategy ($400m). 
  • The Board declared a fully franked interim dividend of 10cps, down -16.7% over pcp and equating to annualized yield of ~7.4% (using 31 December 2021 share price of $2.70).

Company Profile

Platinum Asset Management (PTM) is an ASX-listed, Australian based fund manager which specializes in investing in international equities. PTM currently manages ~A$23.6bn. 

 (Source: Banyantree)

General Advice Warning

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

Categories
Dividend Stocks

Economic Weakness and Challenging Competitive Environment Limiting America Movil SAB de CV’s Returns

Business Strategy and Outlook

As the largest telecom carrier in Latin American, America Movil provides broad exposure to rising demand for access to the internet and other data services across the region. That exposure comes with significant political, regulatory, and economic uncertainty, but it is anticipated Movil’s strong competitive position in most of the markets it serves, and its strong balance sheet will create value for shareholders over the long term.  

The Mexican business is Movil’s most important, accounting for about 40% of service revenue. Despite regulatory and competitive changes that hit in 2014-15, Movil has remained the dominant Mexican wireless carrier with more than 60% market share. Wireless competition has subsided recently, with Telefonica essentially exiting the industry and AT&T focused elsewhere, allowing pricing to stabilize. While the market isn’t as attractive as a decade ago, it remains highly profitable and should deliver stable growth. Movil also serves about half of the Mexican internet access market. Competitors are investing aggressively in fixed-line infrastructure, especially cable companies Groupo Televisa and Megacable and fiber provider TotalPlay. These three firms are capturing most of the growth in the broadband market, forcing Movil to upgrade its network. 

It is alleged Movil’s extensive network assets and deep financial resources will enable it to maintain its dominance in Mexico. However, the firm and its primary shareholders, the Slim family, are likely to garner regulatory scrutiny in Mexico from time to time as officials seek to increase network investment and service adoption. In Brazil, Movil’s second-largest market at about 30% of service revenue, the firm has assembled a solid set of assets as the second-largest wireless carrier and largest cable company in the country. Economic weakness and a challenging competitive environment have limited the firm’s ability to earn attractive returns on these assets. The planned carve-up of Oi among Movil, TIM, and Vivo, if approved by regulators, should improve the competitive situation, allowing for better pricing. Consolidation in the fixed-line market is likely, but this process may be painful.

Financial Strength

America Movil’s financial position is sound, in analysts view. The firm has long had a stated leverage target of 1.5 times EBITDA, but it hasn’t been able to approach that goal until recently, as the devaluation of the Mexican peso has offset efforts to trim debt denominated in other currencies. Reported consolidated net debt had hovered around 2 times EBITDA over the past several quarters. However, the sale of Tracfone to Verizon in late 2021 generated proceeds of $3.6 billion in cash and 57.6 million Verizon shares (worth about $3 billion). Movil has also used its stake in Dutch carrier KPN, worth about $2.7 billion, to issued low-cost euro debt exchangeable into KPN shares.With the Tracfone sale, debt net of cash and investments declined to MXN 400 million ($19 billion) at the end of 2021 from MXN 538 million ($27 billion) the year before, putting net leverage at 1.2 times EBITDA after lease expense. Large telecom firms elsewhere in the world often operate with significantly higher leverage. The composition of Movil’s debt load has also improved. The firm has trimmed its U.S. dollar-denominated debt to $8.5 billion from $16 billion since the end of 2014. The Verizon shares should provide a partial hedge against future currency moves. Additionally, Movil has reduced its euros-denominated debt to EUR 8.5 billion from EUR 11.2 billion at the end of 2019. In addition to the hedge the KPN stake provides, about 30% of this borrowing held at Telekom Austria, which Movil consolidates on its financial statements. Share-repurchase activity has been modest in recent years, and shareholders have had the option of taking dividends in scrip rather than cash. With total debt trending lower, though, Movil has ramped up shareholder returns. The firm added a MXN 25 billion ($1.2 billion) share repurchase authorization in March 2021 and another MXN 26 billion in November 2021, repurchasing a total of MXN 37 billion ($1.8 billion) during the year.

Bulls Say’s

  • America Movil has unmatched scale in the Latin American telecom market. It serves far more wireless customers in the region than nearest rival Telefonica and holds the leading share in Mexico, Colombia, and Argentina and the second-largest share in Brazil. 
  • A sharp reduction in U.S. dollar-denominated debt recently, combined with continued stable cash flow, should enable Movil to maintain a strong financial position while steadily increasing shareholder returns. 
  • Movil has deep experience dealing with the political and regulatory nuances of the Latin American market.

Company Profile 

America Movil is the largest telecom carrier in Latin America, serving about 280 million wireless customers across the region. It also provides fixed-line phone, internet access, and television services in most of the countries it serves. Mexico is the firm’s largest market, providing about 40% of service revenue. Movil dominates the Mexican wireless market with about 63% customer share and also serves about half of fixed-line internet access customers in the country. Brazil, its second most important market, provides about 30% of service revenue. Movil sold its low-margin wireless resale business in the U.S. to Verizon in 2021 and now owns a 1.4% stake in the U.S. telecom giant. The firm also holds a 51% stake in Telekom Austria and a 20% stake in Dutch carrier KPN. 

(Source: MorningStar)

General Advice Warning

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

Categories
LICs LICs

Post Holdings Inc Not Able To Command Price Premium

They need an advice. Young married couple talking while sitting on the therapy session with psychologist

Business Strategy and Outlook

Post has a unique portfolio of businesses. After spinning off its majority stake in the fast-growing BellRing Brands in March 2022, nearly half of its sales mix is cereal, which is highly profitable, but experiencing declining volumes. The other half of its portfolio consists primarily of egg and potato products, which possess a better growth profile, but carry low profit margins. It is alleged a competitive edge remains elusive, as Post has not demonstrated strong brand equities, preferred relationships with customers, or a cost advantage, which are the most likely moat sources for a packaged food company. 

The cereal business has been experiencing declining per capita consumption (prior to the pandemic) as consumers have shifted away from processed, high-sugar, high-carbohydrate fare. Adding to the challenge, no-moat Post, the third-largest player, has had to compete for ever-decreasing shelf-space with market leaders narrow-moat General Mills and wide-moat Kellogg. That said, Post’s cereal business is very profitable, with EBITDA margins around mid-20% and low-30% for the U.S. and European businesses, respectively. 

The refrigerated segments (52% of 2021 sales, with 32% food service and 20% retail) consists primarily of egg and potato products, but also side dishes, cheese, and sausage sold under brands such as Bob Evans and Simply Potatoes. While this business has more attractive growth prospects than cereal (growing 1%-2% versus cereal’s modest declines), agricultural commodities are difficult to differentiate and therefore generally do not command a price premium. As a result, this business has relatively low EBITDA margins (16%-18%) and does not offer the firm a competitive advantage, in analysts view.

Financial Strength

Post has a unique capital allocation strategy, preferring to carry a heavier debt load than most packaged food peers. Net debt/adjusted EBITDA has averaged 5.3 times the last 10 years, increasing following acquisitions and gradually declining as the firm uses free cash flow to pay down debt. Leverage stood at 5.5 times at the end of fiscal 2021 including BellRing Brands, and it is being modelled that the ratio remains above 5 times for the duration of experts forecast. Post’s legacy domestic cereal business generates significant free cash flow (about 12% of revenue, above the 10% peer average), although after acquiring the refrigerated foods, BellRing, and private brands businesses, this metric fell to a mid- to high-single-digit average in 2013 and beyond, now slightly below the peer average. Post’s interest coverage ratio (EBITDA/interest expense) has averaged 2.5 times over the past three years, compared with the 7 times peer average. While this ratio is quite tight, the firm has ample access to liquidity (even considering the uncertain environment caused by the pandemic), including $1.2 billion cash and $730 million available via on its credit revolver as of December 2021. Post has no intention to initiate a dividend. Instead, the firm plans to balance debt repayments, share repurchase, and acquisitions. Although it is likely that the firm will acquire additional businesses over the next several years, given the numerous uncertainties regarding these transactions, experts have opted to model free cash flow being used instead for share repurchase, which is foreseen as a good use of capital assuming it is executed at a value below analysts assessment of its intrinsic value.

Bulls Say’s

  • The refrigerated foods segment, half of Post’s business, is benefiting from consumers’ evolving preference for fresh, unprocessed high-protein eggs, and fresh and convenient side dish options. 
  • Although growth in the cereal business has been stagnant, it reports attractive profits and cash flows. 
  • Despite inflation and the uncertain economic environment that could ensue, demand for Post’s products should be relatively stable.

Company Profile 

Post Holdings operates in North America and Europe. For fiscal 2021 (restated for the separation of BellRing Brands), 47% of the company’s revenue came from cereal, with brands such as Honeycomb, Grape-Nuts, Pebbles, Honey Bunches of Oats, Malt-O-Meal, and Weetabix. Refrigerated food made up 52% of sales and services the retail (20% of company sales) and food-service channels (32%), providing value-added egg and potato products, prepared side dishes, cheese, and sausage under brands Bob Evans and Simply Potatoes. Post also holds a 60% stake in 8th Avenue, a private brands entity and a 14% stake in BellRing Brands, with protein-based products under the Premier Protein and Dymatize brands. Post launched a special purpose acquisition corp in 2021, but has not yet executed a transaction. 

(Source: MorningStar)

General Advice Warning

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

Categories
Technology Stocks

Pro Medicus Ltd – reported strong 1H22 results reflecting earnings of $20.68m, up +52.7% relative to the pcp.

Investment Thesis:

  • The stock is trading below our valuation and represents >10% upside to the current share price. 
  • Proven and market leading technology (management believes they are 24 months ahead of competitors), with PME’s product commanding a price premium. 
  • New contract wins (more win rates plus higher value per contract) and increasing usage by existing clients. 
  • New product launches – Enterprise Imaging solutions and moving into other “ologies” such as cardiology and ophthalmology. Developing artificial intelligence (AI) capabilities. 
  • Leveraged to the digital health data thematic and industry’s transition to cloud. 
  • Expansion into new geographies.
  • Potential M&A activity.

Key Risks: 

  • High valuation which subjects the stock price to more volatility.
  • Timing (long lead time to close contracts) and scale of new contract wins disappoints relative to market expectations. 
  • Contract renewals (pricing pressure) and potential budget cuts at hospitals leading to the delay of software upgrades / investment. 
  • Increasing competitive pressures (from large scale players and new entrants with innovative technology). 
  • Systems reliability – data breach or drop in quality. 
  • Regulatory / funding changes – reimbursement changes leading to lower imaging volumes. 

Key Highlights:

  • Pro Medicus Ltd (PME) reported strong 1H22 results reflecting earnings (net profit) of $20.68m, up +52.7% relative to the pcp.
  • Revenue was up +40.3% to $44.33m driven by contract wins and renewals in the U.S. and an extension of a European contract to cover new regions.
  • Underlying profit before tax $28.8m, up +53.5%
  • Net profit of $20.68m, up +52.7%.
  • PME retained a strong balance sheet with cash reserves of $76.17m, up $14.91m and remains debt-free.
  • PME reported key contract wins which bodes well for future earnings: Novant Health (A$40m, 7-year contract), a community-based integrated delivery network that spans three U.S. states; Contract renewal with Allegheny Health (A$12m, 5-year), a health network in Pittsburgh, Pennsylvania; and extension of German government hospital to a fourth site.
  • Management also highlighted PME made progress with all key implementations being on or ahead of schedule, including Intermountain and UCSF.
  • The Board declared a fully franked interim dividend of 10c per share, up +42.9%.

Company Description:

Pro Medicus Ltd (PME) was founded in 1983 and provides a full range of radiology IT software and services to hospitals, imaging centers and health care groups globally. In Jan-09, PME purchased Visage Imaging, which has become a global provider of leading-edge enterprise imaging solutions, pioneering the best-of-breed, or Deconstructed PACSSM enterprise imaging strategy. Visage 7 technology delivers fast, multi-dimensional images streamed via an intelligent thin-client viewer. The company offers a leading suite of RIS, PACS and e-health solutions constituting one of the most comprehensive end-to-end offerings in radiology. Pro Medicus has global offices in Melbourne, Berlin (R&D) and San Diego (Sales).

(Source: Banyantree)

General Advice Warning

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

Categories
Shares Technology Stocks

Whispir Ltd reported strong 1H22 results ; Focus on increasing platform usage and onboarding new customers

85215903 - attractive businessman using mobile phone while having lunch

Investment Thesis 

  • Sizeable market opportunity – in the U.S. alone WSP TAM is US$4.7bn (WSP North American target markets) vs total U.S. CPaaS TAM of US$98bn.
  • Established a solid foundation to build from – the Company has over 800 customers worldwide with leading brand names.  
  • Structural tailwinds – ongoing automation and digitization. 
  • Increasing direct sales penetration.
  • Attractive recurring revenue base via subscriptions. 
  • Investment in R&D to continue developing the Company’s competitive position and enhance value proposition with customers

Key Risks

  • Rising competitive pressures.
  • Growth disappoints the market, given the company trades on high valuation multiples – growth in subscriptions, new customers and penetration of existing clients. 
  • Product innovation stalls and fails to resonate with customers. 
  • Emergence of new competitors and technology.
  • Key channel partnerships breakdown. 

1H22 Results Highlights. Relative to the pcp: 

  • Revenues of $39.4m, up +70.4% (CAGR of +37.7% since 1H19). Annualised Recurring Revenue (ARR) at $60.0m, up +26.6% (CAGR of +29.4% since 1H19). WSP saw significant contract wins in ANZ, Asia and North America which bodes well for future revenue growth. 
  •  WSP achieved gross profit of $23.0m, up +64.9%. Gross margin declined from 60.4% to 58.4% due to a surge in transactional revenues, which grew from 66.6% to 80.6% of total revenue. 
  • Operating expenses jumped +75.0% to $29.9m, as WSP grew head count from 169 to 270 to service the growing business. 
  •  WSP reported an EBITDA loss of $(4.6)m versus $(1.8)m in the pcp. 
  •  WSP remains well-funded, with no debt and line of sight to cash flow breakeven. 
  • WSP remains on track to deliver on upgraded guidance for FY22.
  • WSP remains well-funded, with no debt and line of sight to cash flow breakeven

Company Profile

Whispir Ltd (WSP), founded in 2001, is a global enterprise software-as-a-service (SasS) company. WSP provides a communications workflow platform that automates interactions between businesses and people. The Company has over 800 customers, operates in 60 countries and more than 200 staff globally. WSP operates in an emerging subset of the enterprise communications SaaS market known as Workflow Communications-as-a-Service (WCaaS). WSP currently solves two communication problems: (1) Operational Messaging – engaging with employees; and (2) External Messaging – engaging with customers. WSP operates in 3 key markets – Operational messaging (size $8bn), API messaging (size $32bn) and Marketing messages (size $66bn). 

(Source: Banyantree)

General Advice Warning

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

Categories
LICs LICs

Keybridge Capital Limited Announces Proposed Takeover Bid Over for WAAM Active Limited

Keybridge Capital Limited (KBC)has announced its intention to make an off-market takeover bid for WAM Active (WAA)for an all scrip consideration of 1.16 x $1.00 Keybridge convertible redeemable promissory notes (CRPN) for each WAA share. This equates to a value of $1.16 per WAA share, an 8.4% premium to the share price at the COB on the day of the announcement (7 February 2021) and a 13.6% premium to the most recently released post-tax NTA. The Offer values WAA at $85.6m, currently a market cap of $79.0m. The Offer is subject to Keybridge shareholder approval.

Keybridge have outlined the following key terms for the CRPN:

  • Face value of $1.00
  • Maturity Date of 10 years from the issue date.
  • Will be categorised as an equity instrument for tax purposes.
  • A gross running yield of 2.0% p.a., fully franked. The CRPN will pay a fully franked dividend of 1.4 cents per note, paid annually.
  • A dividend stopper on Keybridge ordinary shares if a CRPN interest payment remains outstanding.
  • Upon maturity, the CRPN may be redeemed for the face value in cash or converted into Keybridge ordinary shares at a 5% discount to the VWAP.

The Keybridge CRPN is intended to be ASX-listed.

There is a bit of history with regards to Keybridge and WAA. In 2020, WAA made a takeover bid for Keybridge which was unsuccessful. The two parties also went to court regarding the block of shares held by WAA, in which costs were awarded against Keybridge. In the event Keybridge obtains control of WAA, it intends to dispose of WAA’s shares in Keybridge within 12-months. WAA and associated entities of the Wilson Asset Management Group hold a 44.5% interest in Keybridge.

Company Profile

Keybridge is an ASX-listed investment and financial services group (ASX: KBC) with a portfolio of listed and unlisted investments/loan assets in the life insurance (New Zealand), property and funds management sectors and strategic holdings in HHY Fund (ASX: HHY), Yowie Group Ltd (ASX: YOW), Metgasco Limited (ASX: MEL) and Molopo Energy Limited. At 31 December 2021, Keybridge had Net Assets of $18.36m. Keybridge currently holds a 6.0% interest in WAA.

(Source: FNArena)

  • Relative to the pcp: (1) 

General Advice Warning

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