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Inghams delivered a strong result in spite of national lockdowns in Australia and NZ

Investment Thesis 

  • The pricing condition is improving.
  • The largest integrated poultry producer in Australia and New Zealand.
  • Additional asset sales are planned.
  • Project Accelerate has proven to be effective in increasing labor productivity and automation, resulting in increased earnings despite lower revenue.
  • Procurement measures are being executed, and the results are meeting expectations.
  • Investing in Australia and New Zealand plants to boost capacity and capabilities across the board.
  • With a healthy balance sheet, capital management measures are high on the agenda.

Key Risks

  • Re-negotiation of important contracts with significant clients on less favourable terms.
  • Increased feed and electricity costs, which could be passed on to customers through market price hikes, lowering competitiveness.
  • Uncertainty arises from the lack of information on the appointment of a new CEO.
  • In QSRs (Quick Service Restaurants) and supermarkets, there is a risk of customer concentration.
  • Exotic disease outbreaks are a risk, limiting ING’s ability to produce poultry goods.
  • From the parent stock provider, there has been a significant decline in volume and quality.
  • Material disruptions in ING’s intricate and interconnected supply chain.

Key FY21 group results 

Despite the impact of Covid-19, ING delivered solid FY21 results that were in line with management’s recent guidance (EBITDA & NPAT) issued on May-21. In comparison to the previous year, group revenue increased by +4.4 percent (with Core Poultry volumes increasing by +4.2 percent, with volume growth in NZ exceedingly strong at +6.3 percent), underlying EBITDA increased by +9.6 percent, and underlying NPAT increased by +57.4 percent. Coverage expansion in wholesale and recovery in the QSR and food service channels drove top-line growth. Total dividends increased +17.9 percent year on year to 16.5cps, representing a payout ratio of 71 percent after earnings growth (in line with policy targets of 60 – 80 percent of underlying NPAT post AASB 16 adjustments). The balance sheet is in excellent shape, with net debt falling by -23.7 percent to $240.2 million in the last year. Group leverage fell from 1.8x to 1.2x, well within management’s 1.0–2.0x target range.

Company Description  

Inghams Group Ltd (ING) is Australia and New Zealand’s largest integrated poultry producer. The Company produces and sells chicken, turkey and stock feed that are used by the poultry, pig, dairy and equine industries. Over one quarantine facility, over ten feed mills, over 74 breeder farms, over 11 hatcheries, over 225 predominantly contracted broiler farms, over seven primary processing plants, over seven further processing plants, over one protein conversion plant, and over nine distribution centres are among the Company’s operations in Australia and New Zealand. Ingham’s and Waitoa are two of the company’s brands.

Source: (BanayanTree)

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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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Technology Stocks

Maintaining BioNTech FVEs after Comirnaty Approval

received full approval from the U.S. Food and Drug Administration on Aug. 23 for individuals age 16 and older. Pfizer and BioNTech fair value estimates are maintained. The mRNA technology that formed the basis of the vaccine provides support to Pfizer’s established wide moat and also contributes to BioNTech’s positive moat trend.

Government contracts for the initial two-dose series and established contracts are more than sufficient to cover any increased demand. The demand for these purchased vaccines could increase with full approval, which could help to end the most recent surge driven by the delta variant. This could encourage some individuals who were uncertain about the long-term safety of the vaccine to get vaccinated. 

In the U.S., roughly 60% of the vaccine-eligible population has been fully vaccinated. President Joe Biden’s target for a return to near normal by July 4 was thwarted by a combination of vaccine hesitancy, waning efficacy of vaccines, and the rise of the more contagious delta variant. Herd immunity could still be achievable, but the delta variant raises the bar; it therefore could depend on new mandates or increased willingness to vaccinate following Pfizer’s Aug. 23 full approval, uptake of third-dose booster shots, and the potential rise of vaccine-resistant variants down the line. 

Company’s Future Outlook

It continues to see sales reaching $35 billion in 2021 and $39 billion in 2022, followed by roughly $2 billion in annual sales beyond 2022 as it is expected post pandemic annual COVID vaccines for only the most vulnerable (infants and seniors). It is expected this approval to give more leverage to public and private organizations wishing to mandate vaccination, including universities and hospitals.

Full approval also makes it easier for doctors to prescribe off-label use of the vaccine, which could provide more flexibility with the timing of booster shots. Most physicians are waiting for a nod from the Centers for Disease Control’s Advisory Committee on Immunization Practices, which could come next week, before recommending booster shots beyond immunocompromised individuals.

Company Profile

BioNTech is a Germany-based biotechnology company that focuses on developing cancer therapeutics, including individualized immunotherapy, as well as vaccines for infectious diseases, including COVID-19. The company’s oncology pipeline contains several classes of drugs, including mRNA-based drugs to encode antigens, neoantigens, cytokines, and antibodies; cell therapies; bispecific antibodies; and small-molecule immunomodulators. BioNTech is partnered with several large pharmaceutical companies, including Roche, Eli Lilly, Pfizer, Sanofi, and Genmab. Comirnaty (COVID-19 vaccine) is its first commercialized product.

(Source: Morningstar)

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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

ASX performed a mixed FY21 as a result of retail trading

Investment Thesis

  • M&A that adds value or product/service innovation
  • Monopoly position in a number of segments, with an EBIT margin of 70% and ROTE of 30%.
  • A quality management team has been established to assist any new CEO. The team has a detailed awareness of future operational and IT requirements, as well as strong ties to legislators and regulators.
  • With net cash and an AA credit rating, the balance sheet is strong.
  • The ASX stands to profit from rising superannuation and population trends.
  • The ASX could profit from global connectivity’s fundamental expansion.

Key Risks

  • Capex execution runs the risk of falling short of expectations in terms of ROIC.
  • Volume growth is expected to be slow, while profitability are expected to be flat.
  • Competitors’ or a new start-technological up’s and product innovation could jeopardise ASX’s market hegemony.
  • Regulation poses a threat.

FY21 results summary

Operating revenue increased +1.4 percent year on year to $951.5 million, driven by strong growth in Listings& Issuer Services (supported by new listings and increased issuer activity), Equity Post-Trade Services (reflecting higher settlement activity), and Trading Services (underpinned by increased demand for information services), partially offset by declines in Derivatives and OTC Markets as current policy settings reverted. Total expenses increased by +8.4 percent years on year to $310.3 million, in line with management’s guidance of +8-9 percent growth, due to additional costs to support licence to operate and growth initiatives, as well as variable costs associated with issuer activity. EBIT fell -1.7 percent years on year, with margin falling -210 basis points to 67.4 percent. Statutory profit was -3.6 percent lower than pcp. Net interest income fell 44.3 percent year on year to $46.7 million as a result of the RBA’s current policy settings, which resulted in lower interest earnings on ASX’s own capital and a lower investment spread on ASX collateral. Capital expenditure (capex) was $109.8 million, up 36.5 percent year on year, reflecting the expanded CHESS replacement project and ASX’s ongoing commitment to strengthen foundations for a future exchange.

Company Description  

ASX Ltd (ASX) operates Australia’s main stock exchange and equity derivatives market. ASX has four core segments:  (1) Listings and Issuer Services (covers capital raisings, investment products, and a range of services ASX provide to listed companies); (2) Derivatives and OTC Markets (covers OTC Clearing, equity options and Austraclear including the ASX collateral management service); (3) Trading Services (encompasses cash equities trading, information services and technical services); and (4) Equity Post-Trade Services (encompasses the clearing and settlement of the entire Australian cash market).

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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

P&G Cleans Up in Fiscal 2021, but Inflationary and Competive Headwinds Could Stall Its Trajectory

                   

 However, this performance is not solely a by-product of the pandemic, which has seen consumers place an outsize emphasis on cleaning and disinfecting. Rather, we attribute these marks to the strategic course P&G embarked on more than seven years ago (rightsizing its category and geographic reach by shedding more than 100 brands to ensure resources were being effectively allocated to the highest-return opportunities, while maintaining a stringent focus on costs). As a part of this playbook, P&G also adopted a more holistic approach to brand investing across its business .

But even as its top line appears healthy, P&G is facing unrelenting commodity cost inflation that management has qualitatively pegged as some of the most significant in some time. However, we think the degree of inflation combined with P&G’s innovation mandate (rooted in consumer-valued new fare) should make such increases more palatable. Further,  P&G is now involved in leaning into brand spending to illustrate the value its products offer consumers as opposed to turning off the spigot to preserve profits in this uncertain climate. This aligns with our forecast for P&G to direct around 3% and 10%-11% of sales long term to research and development and marketing, respectively, relative to the 2.7% and 10.5% expended on average the past five years.

Financial Strength

P&G maintains solid financial health. The firm continues to throw off a significant amount of cash, with free cash flow amounting to around $15 billion in fiscal 2021 .We expect P&G will remain committed to returning excess cash to shareholders and will increase its dividend, to an average payout ratio north of 60%. For the year 2020 the firms revenue stood at 70.950 USD million while its EBIT was 16,143 USD million. On the other hand the firms EV/EBIDTA was 18.2 while its P/E ratio was 23.4 for the year 2020.

 We believe P&G is also open to bolting on select brands and businesses to its mix over time. The firms acquired Germany-based narrow-moat Merck’s consumer healthcare brands for $4 billion in April 2018. In our view, this deal stood to replace the scale and technological know-how lost following the dissolution of its joint venture partnership with no-moat Teva at the end of fiscal 2018. As such, we don’t think it signals a reversal in the firm’s strategy to operate with a leaner brand mix. Rather, at just 1%-2% of sales, we believe this addition aligned with management’s rhetoric that it intends to selectively bolster its reach in attractive categories (consumer health growing midsingle digits) and geographies. Beyond this deal, P&G has failed to assert itself as a consolidator in the global household and personal-care arena.

Bulls Say

  • To the extent that retailers and consumers continue to find favour with leading branded operators, P&G’s sales trajectory may outpace our expectations.
  • Additional opportunities to narrow its product mix could enable P&G to more effectively direct its brand spending to the highest-return areas.
  • As P&G reaches the end of its second $10 billion cost reduction effort, further savings (probably related to reducing overhead and bolstering the yield on its manufacturing footprint and marketing investments) could manifest if efficiency is as engrained in its culture as management suggests.

Company Profile

Since its founding in 1837, Procter & Gamble has become one of the world’s largest consumer product manufacturers, generating more than $75 billion in annual sales. It operates with a line up of leading brands, including 21 that generate more than $1 billion each in annual global sales, such as Tide laundry detergent, Charmin toilet paper, Pantene shampoo, and Pampers diapers. P&G sold its last remaining food brand, Pringles, to Kellogg in calendar 2012. Sales outside its home turf represent around 55% of the firm’s consolidated total, with around one third coming from emerging markets.

(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.

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Funds Funds

A prudent and strong investment strategy that produced absolute returns

Philosophy of the Fund

The Fund’s investment philosophy is based on identifying long-term fundamental value picks that are both listed and unlisted. RARE believes that significant opportunities emerge during economic cycles as markets misprice infrastructure assets in the short term. In the RARE Emerging Markets Strategy, an accumulation index comprised of the FTSE EM Gov Bond Index USD plus 5.0 percent per year is used as a benchmark.

Investment Procedure

The investment team conducts fundamental analysis and valuation in order to identify ‘pure infrastructure’ assets with monopolistic characteristics, long contractual duration, and relatively stable cash flows. In particular, the investments must meet three key requirements:

  • The asset must be a hard-physical asset; 
  • The asset must provide a valuable service to society; and 
  • The asset should have strong foundations in place to ensure equity holders are adequately rewarded.

With these characteristics in mind, RARE uses the ‘RARE EM 150’ as the proprietary investment universe for their Emerging Market Strategy. Included in this list are companies in the MSCI Emerging Markets or Frontier Emerging Markets Index, as well as companies that are listed in other markets but produce a majority of their operating earnings from activities related to emerging markets. Of the 150 securities, 40% of these companies are considered Core and consistently covered, while the remaining 60% are watch listed and updated at least once a year. On a quarterly basis, the composition of the ‘RARE EM 150’ is reviewed by the Investment Leadership Team.

Sector exposure limits are also placed, with a clear preference towards regulated utilities and transport. The Fund notes this is due to their relatively stable performance, and typically lower risk nature in comparison to user-pay assets.

Source: RARE Infrastructure

Fund Positioning 

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Philosophy Technical Picks Technology Stocks

Super Retail’s FVE Increases to an Expected Sales Uplift from Network Optimisation

The company’s fiscal 2021 sales of AUD 3,453 million and underlying earnings of AUD 307 million were broadly in line with our estimates. The trading update provided for the first seven weeks of fiscal 2022 is broadly tracking with full fiscal year estimate. Trading conditions in fiscal 2022 are likely to be more challenging than we anticipated just a few months ago with lockdowns heavily impacting retailing businesses in affected states. While the near-term trading outlook is similarly opaque as during Australia’s first COVID wave, we base our longer-term sales levels on historical growth trends. 

EBIT margins sharply increased in fiscal 2021, mostly due to less discounting because of greater consumer demand and relatively inelastic supply, as well as remarkable sales growth of 22% driving just as exceptional operating leverage. EBIT margins expanded some 450 basis points to almost 13%, after adjusting for lease accounting Standard AASB 16. In the five years to fiscal 2020, adjusted EBIT margins averaged just over 8%. Super Retail’s online sales increased by 43% in fiscal 2021, similar to the 44% achieved in fiscal 2020. E-commerce accounted for 12% of group sales in fiscal 2021, with outdoor specialist Macpac and sporting goods retailer Rebel leading with online penetration of 21% and 16%, respectively. The board declared a fully franked dividend of AUD 88 cents per share for fiscal 2021.    

Company’s Future Outlook 

We continue to expect consumer spending on auto parts, sporting goods, and outdoor gear to normalize by fiscal 2023 and with it currently elevated profit margins. In contrast, to match our intrinsic valuation with current share prices, we would have to assume increased spending levels on discretionary goods and higher profit margins to persist for much longer. We expect operating margins to weaken against a backdrop of replenished inventories, more discounting, and declining sales. we estimate a 9% drop in group revenue for fiscal 2022. The dividend was ahead of our AUD 84 cents forecast on a slightly higher than expected 65% payout ratio. While we maintain our 65% payout ratio forecast, we expect declining earnings to result in a lower dividend of AUD 64 cents in fiscal 2022, representing a 5% yield at current share prices

Company Profile 

Super Retail operates in Australia and New Zealand selling auto parts, sporting goods, and camping, fishing, and boating equipment. The group generates revenue of about AUD 2.5 billion. There are generally two to four larger players in each category in which the firm operates, with Super Retail the market leader in all three categories. The firm has been corporately active historically, adding to the sporting goods category in fiscal 2012 and acquiring Macpac of New Zealand in 2018.

(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.

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Dividend Stocks

Treasury Lacks an Economic Moat Amid the Highly Competitive and Volatile

particularly in luxury (bottles priced above AUD 20) and “masstige” (bottles priced from AUD 10 to AUD 20) wine. With this focus, the company’s revenue from higher-end wines has risen to over 70% in fiscal 2021 from 43% in early 2014, both from growth in its high-end products and purposeful reduction of low-end, or commercial, wine sales. We expect continued end-market premiumisation to benefit Treasury, leading to market share gains in Australasia and North America, which together made nearly half of operating earnings in fiscal 2020

However, Treasury will face an installation of a sizable tariff against its imported product in China in fiscal 2021, effectively shutting the door in what was arguably Treasury’s most important market, comprising 30% of earnings in fiscal 2020. The company plans to reallocate some of this wine to other markets, but the associated sales and marketing efforts will take time, reducing growth from previous expectations. Treasury also faces risks from unfavourable weather effects, sensitivity to the consumer cycle, and inelastic industry supply that frequently results in wine gluts or shortages. But the diversity of Treasury’s grape and bulk wine supply should significantly mitigate these concerns.

The reason why Treasury lacks an economic moat:

  • Treasury Wine Estates has not carved out an economic moat, in our opinion. Although we expect the firm’s strategic shift to focus on high-end wines and its increased geographic diversification to benefit both long-term top-line growth and profitability, the wine industry’s high degree of competition, and volatile annual demand will likely limit Treasury’s ability to generate sustainable excess economic profits. These concerns are further exacerbated by persistent industry oversupply and specific taxation rules in Australia that award excise tax exemptions against the first AUD 350,000 in direct-to-consumer sales, a barrier to industry consolidation. Furthermore there is also continued pressure from powerful retailers in Australia, where liquor stores owned by grocery giants Woolworths and Coles account for over 50% of total wine sales and
  • We don’t believe owning a portfolio of wine brands builds a moat worthy intangible asset because wine brands are stand-alone assets and therefore consumer awareness of Treasury’s ownership in both Stags’ Leap and Berringer in the U.S., or Penfolds and St Huberts in Australia, leads to improved pricing for the respective brands versus peers, or if such awareness even materially exists. There are some cost benefits to running a portfolio of wine brands, as Treasury can optimise its grape sourcing and production within its many geographies. But we expect premium wines will likely continue to see fluctuations in supply and fruit cost year to year.
  • In all, despite the positives of premiumisation in recent years, ROICs considerably trailed WACC until fiscal 2019. This is due to the substantial inventory requirements of wine-making, the high cost of land ownership, difficult price competition in a very fragmented market, and Treasury’s lack of scale economies and brand intangible assets versus larger peers.

Bulls Say

  • Wine consumption growth in Asia should continue growing at high rates over the long run, and is a high margin business for Treasury given a focus on luxury and mid-range wine.
  • Treasury’s focus on higher-priced wine than in the past puts the company on-trend in global wine, and should drive substantial earnings growth as profitability expands.
  • Additions of new high-end wine brands, either organically or through acquisition, drive better grape utilisation, improving margins, and higher ROICs.

Company Profile

Treasury Wine Estates is an Australia-based global wine company that demerged from Foster’s Group in 2011. The company is among the world’s top five wine producers, and owns a portfolio that includes Australian labels such as Penfolds and Wolf Blass, U.S. wines like Chateau St Jean and Sterling, and newly launched names such as 19 Crimes and Maison de Grand Esprit. An acquisition of Diageo’s wine business in 2016 added additional U.S. brands including BV and Stags’ Leap. Treasury owns over 130 wineries, with more than 13,000 planted hectares.

(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

Computershare Ltd (ASX: CPU)

  • Two main organic growth engines in mortgage servicing and employee share plans should lead to organic EPS growth.
  • Expectations of margin improvement via cost reductions program.
  • Leveraged to rising interest rates on client balances, corporate action and equity market activity.
  • Potential for earnings derived from non-share registry opportunities due to higher compliance and IT requirements.
  • Solid free cash flow and deleveraging balance sheet.

Key Risks

  • Increased competition from competitors such as recently listed Link and Equiniti which affect margins.
  • Cost cuts are not delivered in accordance with market expectations.
  • Sub-par performance in any of its segments, especially mortgage servicing (Business Services) as a result of higher regulatory and litigation risks; Register and Employee Share Plans as a result of subdued activity.
  • Exchanges such as ASX are exploring block chain solution to upgrade its clearing and settlement system (CHESS). This distributed ledger technology can bring registry businesses in-house and disrupt CPU.

FY21 results by segments

Compared to pcp and in CC(constant currency): Issuer Services delivered revenue growth of +9% to $975.1m, with Register Maintenance up +3.2% amid a recovery in shareholder paid fees, new client wins and increased market share, Corporate Actions up +35.3% with volumes increasing in all major regions as a result of clients raising capital, improved IPO markets, especially in Hong Kong, and strong M&A activity, Stakeholder Relationship Management up +45.7%, Governance Service up +90.7% and Margin income down -44.3%. Management EBITDA gained +5.1% to $273.9m (with margin down -100bps to 28.1%), however, Management EBIT ex Margin Income was up +26.3% to $227.1m with margin expansion of +240bps to 24.4%, with management anticipating organic revenue ex MI growth of 0-3% p.a. and EBIT ex MI growth of 0-5% p.a. in medium term. Employee Share Plans saw revenue increase +6.3% to $308.5m, driven by Fee revenue (+4%), Transactional revenue (+15.8%) as equity markets rallied and units under administration grew +13% over pcp to $27bn as more companies issued equity deeper into their organisations, Margin Income (-4.8%) and Other revenue (-64.3%). Management EBITDA of $78.1m was up +40% (margins up +610bps to 25.3%), with Management EBIT ex MI of $69m up +68.3% (margins up +790bps to 22.6%), with management anticipating revenue ex MI growth of +3-6% p.a. and EBIT ex MI growth of +4-8% p.a. in medium term.  Mortgage Services saw revenue fall -9.5% to $574.8m driven by UK Mortgage Services (-36.6%) and Margin income (-84.7%), partially offset by US Mortgage Services (+7.7%). Management EBITDA of $103.3m was down -18.9% (margins down -200bps to 18%), with Management EBIT ex Margin Income a loss of $4.2m, with management expecting recovery in FY22 anticipating revenue ex MI and EBIT ex MI growth of 5-10% p.a. in medium term. Business Services delivered revenue decline of -15% to $207.1m, driven by Corporate Trust (-0.5%), Class Action (-30.6%) and Margin income (-48.8%), partially offset by Bankruptcy (+36.6%), Management EBITDA of $51m was down -42.2% (margins down -1160bps to 24.6%) and Management EBIT ex Margin loss of $20.4m decreased -34.4% with margin decline of -510bps to 11.5%, however, management anticipating revenue ex MI growth of 3-5% and EBIT ex MI growth of 2-5% in medium term.

Company Description  

Computershare Ltd (CPU) is a global market leader in transfer agency and share registration, employee equity plans, mortgage servicing, proxy solicitation and stakeholder communications. CPU also operates in corporate trust, bankruptcy, class action and a range of other diversified financial and governance services. 

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

Megaport Ltd (ASX: MP1)

  • to the rapidly growth of global cloud and data centres and is in a strong position to benefit from the rollout to new cloud and data centre regions. Key macro tailwinds behind MP1’s sector: (1) adoption of cloud by new enterprises; (2) increased level of investment and expenditure by existing customers; and (3) more and more enterprises looking to use multiple cloud products/providers, which works well with MP1’s business model.
  • MP1 has a scale advantage over competitors. MP1 is over 600 locations around the globe. MP1 has significant scale advantage over competitors and whilst replicating this scale is not necessarily the difficult task, it will take a number of years to do so during which time MP1 will continue to add locations and customers using the scale advantage.
  • Strong R&D program ensuring MP1 remains ahead of competitors
  • Strong cash balance of $136.3m at year end and a reducing cash burn profile puts the Company in a strong position.
  • Strong relationship with data centres (DC). MP1 has equipment installed in 400 data centres, so MP1 is a customer of data centres. MP1 also drives DCs interconnection revenue. Whilst several data centres like NEXTDC, Equinix provide SDN (Software Defined Network) services, it is unlikely data centres will look to change their relationship with (or restrict) MP1 given they are designed to be neutral providers to network operators. Further, given MP1’s existing customer base and connections with cloud service providers, it would be very difficult for data centres (without significant disruption to customers/cloud service providers) to change the rules for MP1.

      Key Risks

  • High level of execution risk (especially with respect to development).
  • Revenue, cost and product synergies fail to eventuate from the InnovoEdge acquisition.
  • Heavy reliance on third party partners (especially data centre providers and cloud service providers).
  • Data centres like NEXTDC, Equinix provide SDN services and decide to restrict MP1 in providing their services.
  • Disappointing growth (in terms of expanding data centre footprint, customers, ports, Megaport Cloud Router).

FY21 Results Highlights

Relative to the pcp: (1) Revenue of $78.28m, up +35%. EBITDA breakeven. Net loss for FY21 was $55.0m. (2) MRR of $7.5m, was an increase of $1.8m, or +32% (annualises to $90m). (3) Customers grew to 2,285, or up 443 or +24%. (4) Installed Data Centres increased by 39, or +11% to 405. (5) Enabled Data Centres increased by 92, or +14% to 761. (6) Ports increased 1,922, or 33% to 7,689. (7) Average revenue per port was down $2 to $978. (8) At year-end, MP1’s cash position was $136.

Company Description 

Megaport Ltd (MP1) is a software-based elastic connectivity provider – that is, it is a global Network as a Service (NaaS) provider. MP1 develops an elastic connectivity platform providing customers interconnectivity and flexibility between other networks and cloud providers connected to the platform.

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

Charter Hall Retail REIT Looks Defensive; Shares Fairly Valued

But we maintain our long-term assumptions and AUD 3.85 fair value estimate, which sees the stock screen as fairly valued. The REIT announced a final distribution of AUD 12.70 cents per security, taking full year distributions to AUD 23.40 cps. As a result of recent restrictions, the New South Wales and Victorian governments have reimplemented a landlord code of conduct similar to that enforced in 2020. The scheme forces landlords to provide rent waivers and deferrals for small to medium enterprises where turnover has been curtailed due to restrictions. This is likely to push more consumers to online shopping channels, fuelling the ecommerce trend.

While the near-term impact hurts especially with lockdowns potentially lasting late into calendar 2021 in line with the current vaccine rollout pace, the overall impact on Charter Hall Retail should be contained, relative to the impact in 2020. Its portfolio is increasingly dominated by major longleased tenants that are not eligible to defer rents under the government schemes. Also, the REIT has made significant efforts to increase omnichannel capabilities for tenants including click and collect facilities. This should reduce the financial impact on stores and thus reduce the need to waive or defer rent.

Company’s Future Outlook 

We forecast operating earnings per share to increase by 5% to AUD 28.60 per security in fiscal 2022, underpinned by a 2% increase in rental growth. We don’t expect there to be another equity raising, even in an extended lockdown, after one in 2020. Overall Balance sheet gearing looks modest at 33%, which sits at the midpoint of the target range of 30% to 40%. We view 55% of the REIT’s tenants as defensive (unlikely to miss a rent payment), which include the likes of Woolworths, Coles, bp, Wesfarmers, and Aldi. Supermarkets and service stations are also less likely to be impacted by COVID-19 restrictions. The proportion of portfolio income that these major tenants contribute to has steadily increased over the years, with the top five listed above representative of 54% of the portfolio income, up from 51% in fiscal 2020.

Company Profile 

Charter Hall Retail REIT, or CQR, owns and manages a portfolio of convenience focused retail properties, including neighbourhood and subregional shopping centres, service stations, and some retail logistics properties. The REIT is managed by Charter Hall, a listed, diversified fund manager and developer, which owns a minority stake in CQR, and frequently partners with it on acquisitions and developments. More than half of rental income comes from major tenants Woolworths, Coles, Wesfarmers, Aldi and BP (the latter occupies service station assets). The portfolio is more seasoned than some convenience rivals, with approximately two thirds of supermarket tenants at or near thresholds for paying turnover-linked rent.

(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.