Tag: Top Stocks

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Dividend Stocks

Encouraging Signs from Telstra’s Investor Day

although the impact on high-margin roaming revenue was notable. The cost-out program is back on track, with management in February 2021 increasing the T22 cost-out target by the end of fiscal 2022 to AUD 2.7 billion, from AUD 2.5 billion previously. Telstra is the leading telecommunications services provider in Australia. It has dominant market share in each service category and customer segment, and enjoys cost advantages which underpin its narrow moat rating.

Telstra is not the cheapest provider of telecommunications services but is the lowest-cost provider resulting in earnings before interest, taxes, depreciation and amortisation, or EBITDA, margins of over 30%. As the National Broadband Network, or NBN, is rolled out, the traditional copper and cable networks will be progressively decommissioned. Compensation payments amount to an after-tax net present value of AUD 11 billion. Mobile market share of 44% remains well ahead of rivals Optus and Vodafone at 35% and 21% respectively. Competitive advantage in coverage and speed of the Telstra mobile network attracts customers demanding reliable mobile connectivity.

Financial Strength

Telstra’s balance sheet is strong. Net debt/EBITDA was 2.0 times at the end of June 2021, while EBITDA interest cover was 13.2 times. The strong capital position and cash flow allows spectrum acquisition and renewals, as well as network reinvestment, to be debt-funded.

Bulls Say’s 

  • Telstra has market-leading shares across all vital telecommunications segments and is likely to maintain these positions in the future.
  • While the telecommunications space is incredibly competitive, Telstra has a significant competitive advantage via its extensive mobile and wireless networks.
  • Decommissioning of the copper network lowers capital intensiveness of the business. Telstra can redirect capital to the higher-growth mobile segment.

Company Profile 

Telstra is Australia’s largest telecommunications entity, with material market shares in voice, mobile, data and Internet, spanning retail, corporate and wholesale segments. Its fixed-line copper network will gradually be wound down as the government-owned National Broadband Network rolls out to all Australian households, but the group will be compensated accordingly. Investments into network applications and services, media, technology and overseas are being made to replace the expected lost fixed-line earnings longer term, while continuing cost-cuts are also critical.

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

Oracle Begins Fiscal 2022 With a Mixed Quarter As Cloud Shines; Shares Overvalued

Revenue in the first quarter increased 4% year over year to $9.7 billion. Once again, cloud services and license support drove the top line upward, growing 6% year over year and accounting for 76% of the firm’s sales in the June quarter. Additionally, adjusted operating margins for the quarter remained flat year over year at 45%, and non-GAAP earnings per share was $1.03, compared with our estimate of $0.94.

The company’s cloud business continues to perform well and grow as a portion of Oracle’s overall sales. Since the cloud business typically offers better margins than the firm’s on-premises business, we view this mix shift positively as the increasing cloud mix will help the company grow its profitability. At the same time, however, we remain aware of the intense competition in the database management market and maintain our fair value estimate of $65 per share. With shares trading around $87, we recommend waiting for a pullback before committing capital to the narrow-moat name.

Within the cloud space, management highlighted a recent Gartner report that reviews Oracle’s strong execution within cloud infrastructure. At the same time, we find it important to highlight that while Gartner positions Oracle as the number three player in the cloud infrastructure space, Amazon and Microsoft (the current number one and two, respectively) have built their cloud infrastructure business over many years. As a result, it’ll be hard for Oracle to displace these two cloud giants off their perches, as doing so would require companies to make cloud infrastructure decisions primarily based on database functionality. 

Additionally, on the call, management stressed the outperformance of its MySQL offering, HeatWave, over Amazon’s and Snowflake’s MySQL offering. While we continue to think Snowflake boasts significant benefits over Amazon due to its customers’ ability to avoid vendor lock-in, we found it compelling that Oracle claimed it plans to make its MySQL product available on competing public clouds. 

Company Profile

Oracle provides database technology and enterprise resource planning, or ERP, software to enterprises around the world. Founded in 1977, Oracle pioneered the first commercial SQL-based relational database management system. Today, Oracle has 430,000 customers in 175 countries, supported by its base of 136,000 employees.

(Source: Morningstar)

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

WCM Global Growth Increases Final Dividend 25%

Recently, WAM Global Growth provides 2.5 percent per share. 

WCM Global Growth Limited ((WQG)) reported a net operating profit after tax of $48.4 million for fiscal year 21. For FY21, the investment portfolio returned 26.8 percent, with total shareholder returns of 35.6 percent.

The Company declared a final dividend of 2.5cps for FY21, fully franked, a 25% increase over the FY20 final dividend. This represents a 4.5cps full-year dividend, a 12.5 percent increase over the FY20 full-year dividend.

The Board has announced that the next two dividend payments will be increased, with an FY22 interim dividend of 2.75cps and a final FY22 dividend of 3.0cps. These dividends will most likely be fully franked. The increased dividends will be subject to corporate, legal, and regulatory considerations, as well as the Company having sufficient profit reserves and franking credits.

WQG issued Bonus Options on a one-for-three basis in February 2021. The options have an exercise price of $1.50, which represents a 7.4 percent discount to the closing share price on August 19, 2021. The exercise period for the options is until August 31, 2022. 

Shareholders who exercise their options by COB 17 September 2021 and continue to hold the shares on the relevant record date will be eligible for all of the dividends listed above.

Company Profile 

WCM Global Growth Limited (WQG or the Company) is a listed investment company investing in global equities. The Company provides investors with access to an actively managed portfolio of quality global companies found primarily in the high growth consumer, technology and healthcare sectors. The portfolio is managed by WCM Investment Management (WCM), a California-based specialist global equity firm with an outstanding long-term investment track record. WCM’s investment process is based on the belief that corporate culture is the biggest influence on a company’s ability to grow its competitive advantage or ‘moat’. 

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 Small Cap

Costa Group completes 2PH citrus acquisition after successful offering of $190m fund

Investment Thesis

  • Positive thematic play on food supply for a growing global and domestic population.
  • Berries, Mushrooms, Citrus, Tomato and Avocado are five major categories who leads market Positions via the recent acquisition.
  • Near term challenges could persist a little while longer (e.g extreme weather and drought).
  • Balance sheet risk has been removed with the recent capital raising. 
  • Continuation of execution of domestic berry growth program while china berry expansion is gaining momentum.
  • Given the number of downgrades, management will likely need to rebuild trust with its guidance and execution.

Key Risks

  • Weather conditions continue to deteriorate, putting pressure on earnings.
  • Earnings could deteriorate further, putting the balance risk at risk once more.
  • Weather-related crop damage or any significant increase in insurance costs. This risk is mitigated by CGC’s crop insurance (hail, wind, and fire) and structure insurance.
  • Any power outage resulting in crop destruction per incident.
  • Any significant increase in power costs, affecting earnings.
  • Any operational disruption caused by health and safety issues.
  • Any disruptions or problems with water, irrigation, or water recycling.
  • Negotiations with supermarkets giants cole (wesfarmers), Woolworths and independent grocers results in erosion of margins.
  • Increased costs due to lower water allocations.
  • Pricing pressures arising from either competitors or insufficient demand. 

1H21 Results Highlights

  • Revenue of $612.4m was in line with the pcp (or up +1.7 percent in constant currency), driven by International sales, which were up +25 percent due to improved pricing and yield in both regions, offset by Produce revenue, which was down -6.9 percent due to negative impacts in Citrus (Colignan hailstorm damage) and lower Mushroom and Tomato production.
  • EBITDA-S of $124.4 million increased by +4.3 percent. EBITDA-S increased by 9.7 percent in constant currency. Domestic berries outperformed the pcp, but this was offset by poor performance in Citrus, Tomato, and Mushroom, which was hampered by weather/production issues. Avocado performance fell short of expectations due to weak pricing following strong industry volumes.
  • RNPAT-S of $44.4m increased by 3.0% (or 13% in constant currency). Interest costs fell by 13% due to lower base rates and average debt, but were offset by higher D&A (up 2%). CGC also recognised $2.5 million in direct Covid-19 costs.
  • NPAT-S of $44.4m increased by 3.0% (or 13.0% in constant currency). Interest costs fell by 13% due to lower base rates and average debt, but were offset by higher D&A (up 2%). CGC also recognised $2.5 million in direct Covid-19 costs.
  • Declared interim dividend of 4.0cps. Statutory NPAT of $37.5 million.

Company Profile 

Costa Group Holdings Ltd (CGC) grows and markets fruit and vegetables and supplies them to supermarket chains and independent grocers globally. CGC has leading market positions in five core categories of Berries (Blueberries, strawberries and raspberries), Mushrooms, Citrus, Tomato and Avocado via the recent acquisition.

(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

Pro Medicus reports strong FY21 results beating market estimates

Investment Thesis:

  • Management believes they are 24 months ahead of their competitors driven by proven and market leading technology, thereby making PME’s product command a price premium. 
  • New contract wins by Pro Medicus (more win rates plus higher value per contract) and increase in usage by existing clients. 
  • Launch of new products namely; Enterprise imaging solutions, exploring other “ologies” such as cardiology and ophthalmology. 
  • Development of artificial intelligence (AI) capabilities. 
  • Leveraged to the digital health data thematic and industry’s transition to cloud. 
  • Business expansion into new geographies.
  • Probability of Mergers and Acquisitions.

Key Risks:

  • Stock price exposed to more volatility on account of high valuation.
  • Long lead time to close contracts and scalability of new contract leads to disappointment with reference to market anticipations. 
  • Renewal of contracts (pricing pressure) and potential budget reduction at hospitals leads to the delay of software upgrades / investment. 
  • Large scale players and new entrants with innovative technology offer increase in competitive pressures. 
  • Reliability of system i.e. data breach or drop in quality. 
  • Regulatory / funding changes, for instance, reimbursement changes leading to lower imaging volumes.

Key Highlights:

  • PME to benefit from their recent contract wins and is positively leveraged to several important themes – digital health data, replacing legacy technology with PME’s innovative platform, AI adoption in imaging, Electronic Health Records (EHR) driving PME’s Enterprise Imaging solutions and PME’s cloud solution substantially increasing its concerned market.
  • Pro Medicus Ltd (PME) reported solid FY21 results outperforming the market estimates. The profit before tax of $42.6m, was up +41.0% mainly because of significant revenue growth in three key jurisdictions – North America, up +18.0%, Australia, up +23.4% and Europe, up +25.7%.
  • Revenue of $67.9m is up by 19.5% 
  • Underlying profit before tax $42.6m, which is up by 41.0%  
  • Net profit of $30.9m is up by 33.7%. 
  • PME remains debt-free with cash reserves at year-end of $61.8m, 42.4% higher than pcp. 
  • The Board declared a fully franked final dividend of 8c per share, which brings the total FY21 dividend to 15cps.
  • In FY21, PME won key contracts which are as follows: (1) NYU Langone (A$25.0m, 7-year) (2) Zwanger-Pesiri (A$8.5m, 5-year renewal) (3) LMU Klinikum (A$10.0m, 7-year) (4) Medstar Health (A$18.0m, 5-year) (5) Intermountain Healthcare (A$40.0m, 7-year) (6) University of California (A$31.0m, 7-year) (7) University of Vermont (A$14.0m, 8-year)

Company Profile:

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).

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
Fixed Income Fixed Income

Suncorp’s stock is in the spotlight following the announcement of a $350 million capital round.

final margin set at 2.90%. The margin is also in line with the recent issuances from Westpac Capital Notes 8 (WBCPK) and Macquarie Capital Notes 3 (MBLPD) (MBPLD are trading largely in line with par value since listing). We note this is a new issuance and therefore has no rollover or reinvestment plan attached to it. The underlying issuer, Suncorp Group, is a strong business and a regular issuer of debt in the market. We would have liked to have seen the final margin at the upper end of the indicative range (3.1% above BBSW). However, the demand for this relatively small issuance ($375m market cap) is also likely to be high given the issuer is someone other than the big 4 banks (although the sector exposure is the same, therefore we are not fully convinced of the diversification benefits here). Our positive view on these is a relative call.

Security Description: 

SUNPI securities are fully paid, subordinated, perpetual, redeemable, convertible, unsecured, non-cumulative, subject to a capital trigger event and non-viability trigger event, listed securities. The securities are scheduled to convert into ordinary shares on 17 Dec 2030 (subject to the conversion conditions being satisfied). 

Issuer Description: 

Suncorp is an ASX-listed company and financial services provider in Australia and New Zealand, and the ultimate parent company of the Suncorp Group, with a market capitalisation of approximately $16 billion as at 27 August 2021. The Suncorp Group offers insurance and banking products and services in Australia and New Zealand. 

KEY RISKS

  • The market price of SUNPI may fluctuate due to various factors that affect financial market conditions. It is possible that SUNPI may trade at a market price below their Issue Price of $100. Interest Rate will fluctuate with changes in the market rate.
  • Significant economic shock to the Australian economy, including a severe and prolonged downturn in the Australian economy. These capital notes are not deposit liabilities or protected accounts.
  • There is a risk that Distributions will not be paid given they are discretionary.
  • Unless exchanged on or before that date, SUNPI are expected to Convert into Ordinary Shares on the Mandatory Conversion Date. However, there is a risk that Conversion will not occur on the Mandatory Conversion Date because the Scheduled Conversion Conditions are not satisfied due to a large fall in the Ordinary Share price relative to the Issue Date VWAP, or if Ordinary Shares cease to be quoted on ASX or have been suspended from trading for a certain period. Mandatory Conversion may therefore not occur when scheduled or at all. The Ordinary Share Price may be affected by transactions affecting the share capital of Suncorp Group, such as rights issues.
  • The market price of SUNPI (and the Ordinary Shares into which they are expected to Convert) may be affected by Suncorp Group’s financial performance and position.

Interest Rate: Margin of 2.9% above the 90day BBSW rate. 

Interest / Distribution Payments: Discretionary, Non-cumulative and subject to following conditions: (1) Distributions will be paid if Suncorp’s capital requirements are sufficient as required by APRA. (2) Distributions will not cause Suncorp to become insolvent. (3) APRA not objecting to distributions being paid. Distributions are expected to be fully franked but not guaranteed.

Mandatory Conversion: On 17 Dec 2030, SUNPI Holders will receive ordinary shares worth $101 per note. Conversion may not occur on 17 Dec June 2030, being the first possible Mandatory Conversion Date, or at all if the Conversion Conditions are not satisfied.  Holders have no right to request that their Notes be Converted, Redeemed or Transferred.  Holders would need to sell their Notes on ASX at the prevailing market price to realise their investment. That price may be less than the Face Value (initially $100 per Note) and there may be no liquid market in the Notes.

Non-Viability Trigger Event:  In case of the event that APRA considers Suncorp non-viable, these notes will be written off (in all or in part) or Converted into Ordinary Shares and Holders will hold Ordinary Shares and rank equally with other holders of Ordinary Shares in a subsequent Winding Up of the Bank. Following a Non-Viability Trigger Event, if Conversion does not occur within five Business Days for any reason, those Capital Notes 4 that are required to be Converted will be Written-Off and Holders will not receive any Ordinary Shares with respect to those Capital Notes 4.

Ranking: In the event of a Winding Up, if the Notes are still on issue and have not been Redeemed or Converted, they will rank ahead of Ordinary Shares, equally among themselves and with all Equal Ranking Capital Securities and behind Senior Creditors (including depositors and holders of Westpac’s senior or less subordinated debt). This means that if there is a shortfall of funds on a Winding Up to pay all amounts ranking senior to, and equally with, the Notes, Holders will lose all or some of their investment.

The above is a brief summary of the terms and risks. Investors should read the PDS for more information.

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 Small Cap

InvoCare Headwinds with the Return of Funeral Restrictions Immaterial to FVE

The company boasts well-known, highly respected brands and cost advantages over the long tail of smaller players in the highly fragmented death care industry, underpinning our wide economic moat rating. Death is one of few certainties in life, supporting steady demand for InvoCare’s services. Death rates can fluctuate from year to year. For instance, social distancing and increased hygiene focus in the wake of the COVID-19 pandemic led to a virtually non-existent flu season and significantly lower mortality rates in calendar 2020. However, death rates are very consistent over the long run.

While the program created some near-term disruption as venues closed or were otherwise impaired while undergoing refurbishments, InvoCare to capture an increasingly large portion of market share, given its dominant position, brand strength, and refreshed service offering following the venue refurbishments. Customers, typically the family of the deceased, are relatively price-insensitive, given the highly emotional context surrounding death care. 

Financial Strength 

InvoCare’s balance sheet is in a strong position following the AUD 274 million equity raising in calendar 2020. Leverage, measured as net debt/adjusted EBITDA, improved to 1.3 at fiscal year-end 2020, from 2.4 in fiscal 2019, comfortably below covenant levels of around 3.5. As earnings improve, net debt to fall below 1.0 times EBITDA by fiscal 2022. Underlying operating income lifted 46% on the coronavirus-ravaged prior corresponding period, or PCP, to AUD 39 million, still around 10% below the first half of fiscal 2019. Pricing bounced back during the period as restrictions on funeral attendances eased and pricing recovered—a demonstration of the strength of the underlying business.

Australia’s hardline approach to minimising COVID-19 cases with social distancing, lockdowns, and an increased focus on hygiene is leading to the second consecutive year of virtually no flu. InvoCare’s Australian funeral volumes in the first half were flat on the prior corresponding period and down approximately 3% on the prepandemic first half of fiscal 2019. The number of deaths to grow at an average CAGR of around 3% per year for the next decade, accelerating beyond 2030 due to demographics. The last traded price of Invocare Ltd was 12.15 AUD while it’s Fair Value Estimate 15.30 AUD which shows that InvoCare has potential to Grow.

Bulls Say’s

  • InvoCare consistently generates return on invested capital above its weighted average cost of capital, reflective of its pricing power due to its market position, reputation, and strong brand equity.
  • Industry volumes are immune to economic factors and will steadily grow as the population increases.
  • Prepaid funerals effectively lock in future sales and provide InvoCare with a low-cost source of funding.

Company Profile 

InvoCare is the largest funeral, cemetery, and crematorium operator in Australia and New Zealand. We estimate InvoCare enjoys over a third of revenue share in Australia, and around a fifth in New Zealand, and is the number one player in both countries. Australia contributes the vast majority of consolidated earnings. InvoCare owns a portfolio of over 60 brands, including three flagship national Australian brands: White Lady, Simplicity Funerals, and Value Cremations, and owns and operates 290 funeral homes, along with 16 cemeteries and crematoria. 

(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
Fixed Income Fixed Income

Westpac Banking Corp to issue Convertible perpetual notes

Investment Thesis:

  • For WBCPK, the final distribution margin has been decided at 2.9%, which is more than BBSW (Bank Bill Swap Rate) in comparison to pre-book build range of 2.9- 3.1%.
  • The WBCPK securities are similar to the value declared by the recently offered MBLPD (Macquarie Bank Ltd.) securities but offer a healthy premium margin to other major banks’ AT1 securities.
  • WBCPK offers a gross running yield of 2.0% and yield-to-first call maturity of 4.1%.
  • Westpac Bank has a powerful business and is a regular issuer of debt- instrument in the market.
  • Westpac is also offering an opportunity to reinvest (“Reinvestment Offer”) into the new WBCPK securities to all current WBCPG (Westpac Capital Notes 4) holders since the first call date (20 Dec-21) of WBCPG is approaching. 
  • WBCPG investors have been given the option of reinvesting some or all of their holdings into WBCPK. If WBCPG investors hold it until 20 Dec-21, Westpac has disclosed that the Company plans to redeem any outstanding notes for face value of $100 per security.

Key Risks:

  • The current market price of WBCPK would be volatile on account of different factors that may impact the financial and economic conditions. Interest Rate is likely to fluctuate along with the change in the market rate.
  • Economic distress to the Australian economy, including an extended declining phase in the Australian economy. 
  • Risk of dividends not being paid, given that they are discretionary.
  • WBCPK are anticipated to be converted into ordinary shares on the Scheduled Conversion Date, unless mentioned otherwise on or before that date. 
  • Risk of non-occurrence of conversion on the scheduled conversion date because of the inability of fulfilment of the scheduled conversion conditions due to a large fall in the Ordinary Share price relative to the Issue Date VWAP (Volume Weighted Average Price), or if ordinary shares stop from being quoted on ASX or have been limited from trading for a specific period.
  • The price of the Ordinary Shares may be impacted by transactions affecting the Westpac Bank share capital, such as rights issues.
  • Westpac Bank’s financial performance and position may affect the market price of WBCPK (and the ordinary shares into which they are expected to be converted).

Security Description:

WBCPK securities are fully paid, non-cumulative, convertible, redeemable, perpetual, and unsecured, which is subject to a capital trigger event and non-viability trigger event, subordinated, listed securities. Its current price is $100 and the coupon rate that it would be offering would be 2.90%. Its issue date is 15th September, 2021. The securities have been scheduled to be converted into ordinary shares on 21 June 2032 (only on account of conversion conditions being fulfilled). 

Company Profile:

Westpac is one of Australia and New Zealand’s leading financial services provider, operating under multiple brands, with a low presence in Europe, North America and Asia.  As on 31st March 2021, Westpac and its controlled entities had total assets of approximately $889 billion. 

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
ETFs ETFs

BETASHARES AUSTRALIAN SUSTAINABILITY LEADERS ETF is true-to-label and cost effective

Investment Objective:
The main goal of Betashares Australian Sustainability Leaders ETF is to track the index (before fees and expenses) that involves Australian companies, which have passed through screens so as to eliminate companies with direct or sufficient exposure to fossil fuels or those that are involved in activities which are supposed to be inconsistent when compared to responsible investment requirement.

Investment Strategy:
This fund offers a chance to investors to align their investments with their ethical standards. FAIR’s investment methodology includes strict screening criteria, which provide investors a true to label ethical investment option. FAIR does not consider investing in any of the big 4 banks or large Australian mining companies.

Portfolio Objective:
Diversified exposure is provided to ethical Australian shares
High preference towards companies that are classified as “Sustainability Leaders”
Ethical investment methodology that are true to label

Positives:
Shares diversification
Australian shares options that are available at low cost
Distributions made semi-annually

Negatives:
Fluctuations in Share market can make the portfolio value go up and down during the holding period.
Concentrated market in relation to others
Exclusion of major market sectors experiencing strong returns
Change in fees and costs of the fund might be possible

Company Profile:
BetaShares is a renowned manager of ETFs and other funds that are traded on the ASX. The inception of the company was in 2009 and it now consists of over 60 products in its portfolio, all of which can be bought and sold on the ASX. The company aims to offer investors simple, liquid, and cost-effective solution to Australian and global shares, cash and fixed income, currencies, commodities, and active and alternative strategies.

ETF Performance:

(%)FundBenchmark
1-month+0.29%+0.34%
3-months+5.53%+5.66%
6-months+11.28%+11.46%
1-year+19.30%+19.76%
5-year (p.a.)–+9.80%
Since Inception (p.a.)+10.54%+11.07%

(Source: BetaShares)

Fig. 1: Fund performance as at 31 July 2021

ETF Positioning:

(Source: BetaShares)

Fig. 2: Top 10 Exposures

(Source: BetaShares)

Fig. 3: Sector Allocation

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

oOh!Media Ltd a buy given the Company’s leverage to ad spend pick up once restrictions ease.

Investment thesis

  • Strong market share (~47% in Australia / New Zealand) in a growing advertising medium Out Of Home (OOH).
  • The share price trades below our blended valuation (DCF / PE-multiple / EV/EBITDA multiple).
  • Dividend temporarily suspended, with the Board intending to revisit this decision when prevailing market conditions improve and with consent of the Company’s lenders.
  • Management did not provide quantitative FY22 earnings guidance but did provide “revenue for Q3 is currently pacing 38% higher than the corresponding period in 2020 and 74% of Q3 2019”. Further, management noted, “forward visibility remains uncertain given the ongoing effects of Covid-19 lockdowns and associated movement restrictions, however we expect that when the current lockdowns end there will be a strong recovery in audiences and associated revenues as has been the case previously”. 
  • The market that OML competes in is concentrated (majority share with three very well financed competitors), which poses a challenge for international players wanting to come in (need to have a network established to be an out-of-home player). 
  • Unproven CEO Cathy O’Connor became CEO of OML in January 2021, however she brings extensive experience in media and history of running profitable media companies. 
  • OML utilises audience analytics to stay ahead of the curve, with its association with Quantium (Quantium is 50% held by Woolworths and the other 50% is private equity, with its data set currently covering all the Woolworths loyalty data, NAB credit card data, real estate core logic etc to capture more than 75% of Australians spend). OML believes Quantium gives it an edge over its competitors, especially given it has exclusive rights and the contract was only recently renewed.

Key Risks

  • The following are the key challenges to the investment thesis:
  • Competitive threats leading to market share loss.
  • Disappointing growth (company and industry specific).
  • Pandemic is prolonged longer than expected.
  • Cyclicality in advertising markets 
  • Disappointing updates on contract renewals.

Highlights of key FY21 results

Relative to the pcp: (1) Revenue of $251.6m was up +23% driven by revenue recovery across key formats in Australia (Road, Retail and Street Furniture) and NZ. OML maintained the number one market position in both the Australian and New Zealand markets. (2) Gross margin of 42.5% was up 8.8 points reflecting recovery towards pre-Covid levels. (3) Underlying EBITDA of $33.3m was up +209% driven by margin expansion leveraging revenue uplift. (4) OML was able to negotiate with property partners for net rent abatements of $19m. (5) Underlying NPATA was $2.4m versus a loss of $16.9m in 1H20. Reported Net Loss after tax of $9.3m (post AASB16) was an improvement from a -$28.0m loss in 1H20. (6) OML’s balance sheet strengthened with gearing ratio (Net Debt / Underlying EBITDA) down to 1.1x (from 1.8x) and net debt declined to $94m, down -16% relative to the pcp. (7) The Board has temporarily suspended dividends (as per OML’s announcement during its March 2020 equity raising) with the Board intending to revisit this decision when prevailing market conditions improve and with consent of the Company’s lenders.

Company Description 

oOh!media Ltd (OML) is one of Australia’s largest operators of out of home advertising products (largest scale with footprint in all major regions in Australia & New Zealand) covering all the major advertising formats including – billboards, retail, street furniture, airports and office towers (~95% market share in office tower marketing). The Company has a workforce of 800 people, with ~150 people sales facing, ~250 people on operations (cleaning maintaining street furniture etc) and rest in shared services, technology, etc.

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.