Tag: Top Stories

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Small Cap

Invocare ltd operating revenue was up 11% to $527.1m with acquisitions executed in 2H20 contributing $26.7m

Investment Thesis

  • Trades in-line with our blended valuation (DCF / PE-multiple). IVC is currently trading on a 12-mth blended forward PE-multiple of 30.0x and 2.4% dividend yield. 
  • IVC continues to be impacted by Covid-19 and associated lockdown/containment measures.
  • Potential for increased death rates.
  • Continued cost control from strategic review and operational efficiency.
  • IVC benefits from demographics and long-term population growth.
  • IVC holds leading market positions in its core markets.
  • IVC has strong cash flow conversion and generation.
  • High barrier to entry with quality assets and a business model that is difficult to replicate.  
  • Increased competition from budget operators in Australia.

Key Risks

  • Continued reduction in death rate compared to expectations/forecasted trend.
  • Increased competition especially around pricing.
  • Protect and Grow 2020 does not yield incremental returns as anticipated.
  • Underperformance of funds under management.

FY21 Results Highlights

  • Statutory Revenue of $532.5m, up +11%.
  • Operating Revenue up +11% to $527.1m.
  • Operating EBITDA up +22% to $125.5m, with a return to positive operating leverage.
  • Operating EBIT up +36% to $77.8m.
  • Reported Profit After Tax of $80.2m, was higher than the loss of $11.5m in the pcp.
  • IVC achieved strong cashflow conversion of 105%, ROCE of 11.2% and leverage ratio of 1.2x.
  • Operating EPS of 31.6 cents, up 51% on pcp.
  • The Board declared a final fully franked dividend of 11.5cps which takes Full Year dividends to 21.0cps (equating to 66% dividend payout ratio).
  • IVC maintained a strong balance sheet with net debt at $144m at year-end, representing a leverage of 1.2x, a slight improvement on the pcp.  

Company Profile 

InvoCare Ltd (IVC) is the largest private funeral, cemetery and cremation operator in the Asia Pacific Region. It has leading market positions in countries like Australia, New Zealand, and Singapore. 

(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

Box Is Successfully Targeting a Niche in the Enterprise Content Management Space

Business Strategy and Outlook

Box has sought to differentiate its offerings using a two-step strategy. First, the company has pivoted away from cloud storage, an area where price competition can be fierce, especially for smaller players such as Box. Instead, the firm has focused on redesigning its platform as a collaboration ecosystem. With features such as Box Sign, Relay, and Governance, the firm is creating an open garden where users can interact with native Box features, along with more than 1,500 integrations from various software vendors, to manage their daily workflows. 

First, some other key competitors in the enterprise collaboration space include the likes of Microsoft and Google. These players have access to significantly more capital than Box, creating a tough competitive environment. Second, the legacy solutions that businesses often use for collaboration or document sharing are well entrenched, leading to high switching costs for businesses adopting Box’s solution.

Financial Strength

Box’s financial health to be in good shape. Although the company remains unprofitable in GAAP terms, we are encouraged by the firm’s positive free cash flow, or FCF, which we expect to trend upward as the firm is able to trim operating costs while maintaining solid top-line growth. The firm’s balance sheet is also in good shape, with cash and equivalents well above $500 million at the end of fiscal 2022. While Box has long-term debt, we do not foresee the firm encountering any difficulties in paying its obligations via its strong cash reserves and forecast FCF generation. With a strong net cash balance and cash flow generation profile, it is expected that management to pursue further M&A coupled with continued share repurchases. Management has been active on both of these fronts recently with tuck-in acquisitions of SignRequest and Cloud FastPath and significant share repurchase programs.

Fourth-quarter revenue of $233 million, buoyed by product stickiness and larger deal wins, was up 17% year over year. Much like other software-as-a-service companies, Box can grow its revenue in two ways: increasing average revenue per user, or ARPU, and/or increasing its number of paid users. Box has increased its ARPU by upselling its product to existing clients and increasing large deal sizes, with $100,000-plus deals growing 25% year over year. Management provided revenue guidance between $233 million and $235 million for the first quarter in fiscal year 2023, with adjusted EPS between negative $0.05 and negative $0.04. Full-year guidance was $990 million to $996 million for revenue with adjusted EPS landing between negative $0.07 and negative $0.03.

Bulls Say’s

  • Box’s revenue is buoyed by secular tailwinds as enterprise workflow collaboration tools remain in hot demand. 
  • With the firm’s focus on the enterprise space, clients are typically sticky, leading to more certainty around revenue. 
  • Box’s large install base and go-to-market motion will allow the firm to drive top-line growth while also enacting operating efficiencies leading to better free cash flow generation.

Company Profile 

Box is a cloud-based content services platform that provides cloud-based storage and workflow collaboration services for enterprise customers. The firm was founded in 2005 as a file sync and sharing provider. More recently, however, the company has focused on bolstering its product portfolio by adding tools such as governance and e-signature that enhance workflow management and collaboration.

(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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Expert Insights Technology Stocks

More Than 90% Of Fortune 100 Firms Could Be Using Splunk’s Offerings As A Vote Of Confidence In Its Enterprise Product Lineup

Business Strategy and Outlook

Splunk is a leader in ingesting, indexing, and analyzing machine generated data, and it alleged the company will maintain its leadership status for the foreseeable future. It is held machine data to become more pervasive, impacting every part of an enterprise’s operations. With more data to ingest, index, and analyze, it is foreseeen narrow-moat Splunk has a long runway for growth as it seeks to continue to dominate the enterprise market. Splunk’s offerings primarily target two broad use cases: security and full-stack monitoring & analysis (FSMA). On the security front, Splunk’s SIEM, or security information and event management, operates as a well-refined alert system, putting out alerts if any nefarious activity appears on a client’s network. Splunk’s security orchestration, automation, and response, or SOAR, software is geared toward triaging these issues automatically. SIEM and SOAR software, working in tandem, allow an enterprise’s IT team a reprieve by using artificial intelligence to triage security issues, thereby leading to a substantially lower number of alerts that need to be manually dealt with. 

The FSMA space is nascent, springing into existence as a method of unifying and coalescing disparate parts of an enterprise’s monitoring framework. Splunk’s FSMA offering seeks to give enterprises a one-stop shop to monitor their entire IT stack, ranging from application performance to logs to end user experience. Splunk’s offering allows enterprise customers to remove these data silos and monitor the entire IT stack from one consolidated platform. 

It is held Splunk warrants a narrow economic moat thanks to high customer switching costs. It is foreseen more than 90% of Fortune 100 firms using Splunk’s offerings as a vote of confidence in its enterprise product lineup. Further, it is impressing, Splunk’s strong cloud dollar-based net retention (DBNR) that has consistently remained above 120%. With the ability to land big customers and consistently upsell them, analysts remain confident in Splunk’s long-term growth prospects.

Financial Strength

It is anticipated Splunk’s financial position is healthy. Splunk ended fiscal 2022 with $1.43 billion in cash and current investments. This is juxtaposed with the company’s convertible senior notes of $3.14 billion at the end of fiscal 2022. While debt exceeds cash-in-hand currently, it is likely Splunk’s cash and cash generation over the next five years will far outstrip its commitments over the same time period. As the company undergoes the cloud transition, its effect on free cash flow has been evident. The company’s FCFE (free cash flow to equity) margins from 2014 to 2019 were comfortably in the double-digits. However, with the cloud transition dampening revenue and increasing operating spend, free cash flow margins have been significantly lower than before. However, it is alleged these transitory costs to allay and project that Splunk will achieve consistent double-digit FCFE margins starting fiscal 2025. It isn’t likely for any major shifts in Splunk’s capital structure. It is foreseen the company raising capital in the future by issuing more equity or taking advantage of low interest rates and issuing debt.

Bulls Say’s

  • Splunk has secular tailwinds behind its back as the security and FSMA markets are expected to grow rapidly. 
  • Splunk’s products are incredibly sticky, offering the company an opportunity to increase cross-selling velocity as customers increase their usage of Splunk’s platform. 
  • Many of Splunk’s enterprise customers are undergoing digital transformations. This shift should bode well for Splunk as these efforts typically include leveraging technology such as Splunk’s for efficiency gains.

Company Profile 

Splunk is a cloud-first software company that focuses on analyzing machine data. The company is a major player in two markets: security and full-stack monitoring & analysis. Splunk is currently undergoing a cloud transition as the company weans its on-premises customers over to its cloud products that are delivered as software-as-a-service. The firm’s top line consists of the sale of software licenses, cloud subscriptions, and maintenance and support. 

(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

PayPal Holdings Inc. : FY21 Revenue of $25.37bn Largely in Line With Consensus Forecast of $25.35bn

Investment Thesis:

  • Leveraged to the structural growth story of electronics payments and e-commerce globally.
  • Strong market position (largest payments platforms in North America) and increasing global market share.
  • Sophisticated technology platforms which have been incrementally improved via R&D and acquisitions. PYPL’s technology stack are difficult to replicate and impose high barriers to entry to new competitors.
  • Value-accretive acquisitions.
  • Incoming strategic partnerships to further unlock payment efficiency and access to wider markets (e.g. Instagram, Uber, Paymentus).
  • Strong free cash flow generation gives way to capital management initiatives.

Key Risks:

  • Global macro-economic conditions deteriorate, impacting consumer spending and business activity.
  • Pricing pressures from emerging competitors and alternatives to PayPal. Leading banks or tech giants such as Amazon may develop their own payment platforms to cannibalize sales from Paypal (e.g. Apple Pay).
  • U.S.-China geopolitical tensions impeding cross-border e-commerce transactions.
  • Adverse currency movements and regulatory changes (data privacy / protection, governments’ intervention/protection policies).
  • Security and technology risks (including cyber-attacks).
  • Value destructive acquisition(s).

Key highlights:

PYPL FY21 revenue of $25.37bn was largely in line with consensus forecast of $25.35bn, however, GAAP EPS of $3.52 missed forecast of $3.60. The Company added 49 million NAAs (net active accounts) bringing total active accounts to 426 million, up +13%, leading to TPV growing +33% to $1.25 trillion with management forecasting TPV to reach $1.5 trillion in FY22. Management announced a pivot in strategy to shift emphasis more towards engagement and driving higher value NNAs, leading to scrapping of the 750 million accounts target by 2025. However, management remains confident of new strategy driving higher ROI

  • Pivot in strategy – Management has pivoted their strategy and is shifting emphasis more towards engagement and driving higher value NNAs (consumers who are more engaged, drive incremental sales for merchants which drive growth at much higher margins and ROI) rather than just focusing on generating account creation (over time the Company still expect to grow net new actives, but more in line with pre-pandemic levels), leading to management scraping their target of growing active accounts to 750 million by 2025.
  • eBay headwinds in the rearview – last revenue pressure in 2Q22. eBay’s migration of payments away from PYPL led to 1100bps headwind on top-line in FY21, however, the Company remains at final stage of transition with no pressure past 2Q22 and a final ~400bps revenue headwind in FY22 (concentrated in 1H22).
  • Capital management. Given strong cash flow generation (cashflow from operations up +8% over pcp to $6.3bn and FCF up +9% over pcp to $5.4bn) and strong balance sheet with ample liquidity of $16.3bn in cash, equivalents and investments, management continued shareholder return initiatives, returning $3.4bn in the year via repurchase of ~15.4m shares of common stock.
  • Growing proportion of private label sales. Own brand sales percentage increased across all segments, with Bapcor Trade delivering 29.6% (up +50bps over 2H21), Retail delivering 33.9% (up +120bps over 2H21), Speciality Wholesale delivering 54.6% (up +130bps over 2H21) and New Zealand delivering 30.3% (up +40bps over 2H21), with the Company remaining on track to reach its 5-year targets to supplement market leading brands with BAP’s own brand products, which should be a positive for margins.
  • Revenue growth of ~15-17% Revenue growth of ~15-17% on a spot and FXN basis (excluding eBay to grow ~19-21%) vs prior guidance of high-teens, as spending remains impacted by omicron, inflationary pressures, and lack of stimulus.

Company Description:

PayPal Holdings Inc (NASDAQ: PYPL) is an American company in the global payments industry that acts as a payment gateway between merchants and customers, enabling electronic forms of payment instead of cash and cheques. The Company also provides an online payment system that allows individual persons to send and receive money between PayPal accounts. As of 2021, PayPal has 426 million active users and facilitates transactions across more than 200 countries and 25 currencies.

(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

Bank Of America Corp Revenue Growth Outpaced Expense Growth

Investment Thesis:

  • Attractive valuation versus Analysts price target. 
  • Leveraged to the improving economic conditions and activity in the U.S. 
  • Efficiency gains at the expense line exceeds market expectations. 
  • Significant leverage to the yield curve steepening in the U.S.
  • Cost out program to support earnings over the long-term. 
  • Revenue growth driven by consumer and business. 
  • Credit quality is very strong, with further reserve releases possible.  
  • Capital position is well above requirement level and management’s desired buffer, which opens up capital management initiatives.  

Key Risks:

  • Further decline in net interest margins from low yields and U.S. Fed interest rate cuts.
  • Intense competition to loan growth.
  • Subdued economic growth. 
  • Funding pressures for deposits and wholesale funding. 
  • Political and regulatory changes affecting the banking legislation.
  • Credit risk with potential default of mortgages, personal and business loans and credit cards.
  • Efficiency gains disappoint relative to market expectations.

Key highlights:

BAC’s FY21 results beat consensus on both top and bottom line, as revenue growth outpaced expense growth YoY to deliver positive operating leverage, which combined with the benefit from share repurchases delivered EPS of $3.57 (vs estimate of $3.44), equating to ROE of 12.2% (up +544bps over pcp) and ROTCE of 17% (up +752bps over pcp). Asset quality continued to improve, and shareholder returns remained strong. Maintain Buy – improvement in NII (loan growth + interest rate hikes) combined with management’s outlook of flat costs growth should drive operating leverage, with long term margin expansion coming from investment in technology leading to competitive and cost advantages. 

  • FY22 outlook – robust YoY growth expected in NII. Robust YoY NII growth (1Q to be up about “a couple of hundred million” QoQ and grow each subsequent quarter) driven by high-single-digit YoY loan growth and aided by interest rate increases (+100bps parallel shift in the interest rate yield curve is estimated to benefit net interest income by $6.5bn), particularly if short-term rates rise more and sooner than expected given higher balance sheet sensitivity to short end interest-rate (~2x compared to 3Q15, middle of last rate cycle). Flat expenses compared to pcp. Effective tax rate of 10-12%. 
  • Strong asset quality with loss rate at historical lows. Asset quality improved significantly with net charge-offs continuously declining through FY21 to historic low of $362m (down -59% over pcp) resulting in a historically low net charge-off ratio of 15bps (down -23bps over pcp), which combined with improving macroeconomic conditions, led to provision for credit loss benefit of $489m (down by $542m over pcp), reflecting a net reserve release of $851m.
  • Changes to NSF fees and overdraft fees – $750m headwind in FY22. Management announced elimination of NSF (non-sufficient funds) fees and -71.4% YoY reduction in overdraft charge per occurrence to $10 in FY22, which is expected to see -75% YoY decline in fees to ~$250m in FY22.
  • Strong shareholder returns with $7.5bn in share repurchases equating to $25.1bn for the year and $1.7bn in dividends equating to $6.6bn for the year.

Company Description: 

Bank of America (BAC) is one of the largest banks in the U.S., serving consumers, small and middle-market businesses, and large corporations with a full range of banking, investing, asset management, and other financial and risk management products and services.

(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 Small Cap

MVF reported solid 1H22 results; Growing above industry growth resulting in market share of 20.8% in key domestic markets

Investment Thesis

  • High barriers to entry with unique expertise and assets. 40-year heritage of leadership in science and innovation in ARS and women’s imaging, coupled with the depth of experience from the doctors and clinical team which will continue to underpin MVF’s future growth and maintain treatment success rates.
  • Aging Australian population and increased age of mothers (especially with the trend of more females choosing career over family until their early thirties) will provide favourable demographic tailwinds.
  • Improving balance sheet with flexibility to execute expansion strategies. Earnings increasingly become diversified as the Malaysian business gains momentum. 
  • Potential earnings diversification and growth via international expansion and increased presence in diagnostics.
  • Demonstrated capacity to perform well in terms of cost out and earnings growth despite tough conditions (i.e., lower cycle volumes).
  • Transparent and detailed disclosures.

Key Risk

  • Low growth environment impacting earnings.
  • Regulatory risk as changes in government funding may increase patient’s out-of-pocket expenses and thereby volume demand. 
  • Fluctuations in the availability and size of Medicare rebates may negatively influence the number of IVF cycles administered and overall industry revenue 
  • The Australian market does not rebound following this period of downturn. Population of males and females with fertility problems decline.
  • Loss of key specialists.
  • Loss of market share especially to low-cost providers, with one already appearing in Victoria.
  • Weakening economic activity resulting in increased unemployment leading to less disposable income to be spent in IVF treatment.
  • Execution of international forays into Malaysia goes poorly.

1H22 results summary:  Relative to the pcp:

  • Revenue increased +11.2% to $101m, largely driven by domestic stimulated cycles growth of +6.6% and average ARS revenue per stimulated cycle growth of +4.4%, partially offset by decline in ultrasound scan volumes. 
  • Adjusted EBITDA of $26.8m, increased +8.5% with volume leverage gained from increased domestic IVF activity partly offset by short-term margin declines in Ultrasound and Kuala Lumpur, pandemic related costs and $1m increase in medical malpractice and D&O liability insurance reflecting appropriate insurance policies in the current settings. 
  • Adjusted NPAT of $13.4m increased +11.7% and came in +3.1% ahead of management’s guidance. Reported NPAT declined -17.6% to $12.2m, primarily due to receipt of Job Keeper subsidies in pcp. 
  • FCF (excluding job keeper subsidy receipts in pcp) increased +51.6% to $9.7m, driven by 83% cash conversion of EBITDA to pre-tax operating cash flows and a decline of -42% in capex to $3.6m. 

Growing above industry growth and gaining market share

IVF industry fundamentals remain attractive including advanced maternal age and stable and continued government funding, which saw positive industry momentum continue in the half with industry volume growth at +3.6% and MVF recording above-industry growth of +6.6% resulting in market share gains of +70bps to an overall market share of 20.8% in key domestic markets. 

Company Profile

Monash IVF Group Ltd (MVF) offers assisted reproductive technology services, ultrasound services, gynecological services, in-vitro fertilization services, consultancy services and general clinical services to patients in Australia and Malaysia. MVF comprises 40 clinics and ultrasound practices and employs ~100 doctors and has a network of 650 associated health professionals. 

(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

Cummins Have An Exposure To End Markets That Have Attractive Tailwinds

Business Strategy and Outlook

It is held Cummins will continue to be the top supplier of truck engines and components, despite increasing emissions regulation from government authorities. For over a century, the company has been the pre-eminent manufacturer of diesel engines, which has led to its place as one of the best heavy- and medium-duty engine brands. Cummins’ strong brand is underpinned by its high-performing and extremely durable engines. Customers also value Cummins’ ability to enhance the value of their trucks, leading to product differentiation. 

The company’s strategy focuses on delivering a comprehensive solution for original equipment manufacturers. It is likely Cummins will continue to gain market share, as it captures a larger share of vehicle content. This is largely due to increasing emissions regulation, which allows Cummins to sell more of its emissions solutions, namely its aftertreatment systems that convert pollutants into harmless emissions. Additionally, Cummins stands to benefit from the electrification of powertrains in the industry. The company has made progress in the school and transit bus markets. Long term, it is alleged the truck market to also increase electrification. The pressure to manufacture more environmentally friendly products is forcing truck OEMs to evaluate whether it’s economically viable to continue producing their own engines and components or to partner with a market leader like Cummins. It is seen this play out recently, through the increase in partnership announcements for medium-duty engines with truck OEMs. It is anticipated some OEMs will opt to shift investment away from engine and component development, leaving it to Cummins. 

Cummins has exposure to end markets that have attractive tailwinds. In trucking, it is likely new truck orders will be strong in the near term, largely due to strong demand for consumer goods. In good times, truck operators replace aging trucks and opt to expand their fleet to meet strong demand. Longer term, it is projected Cummins will continue to invest in BEVs and fuel cells to power future truck models. It is foreseen a zero-emission world is inevitable, but it is held Cummins can use returns from its diesel business to drive investments.

Financial Strength

Cummins maintains a sound balance sheet. In 2021, total outstanding debt stood at $3.6 billion, but the firm had $2.6 billion of cash on the balance sheet. In 2020, the company issued $2 billion of long-term debt at attractively low rates, some of which was used to pay down its commercial paper obligations. Cummins’ strong balance sheet gives management the financial flexibility to run a balanced capital allocation strategy going forward that mostly favors organic growth and returns cash to shareholders. In terms of liquidity, it is projected the company can meet its near-term debt obligations given its strong cash balance. It is also found comfort in Cummins’ ability to tap into available lines of credit to meet any short-term needs. Cummins has access to $3.2 billion in credit facilities.Cummins can also generate solid free cash flow throughout the economic cycle. It is held the company can generate over $2 billion in free cash flow in analysts midcycle year, supporting its ability to return nearly all of its free cash flow to shareholders through dividends and share repurchases. Additionally, It is alleged management is determined to improve its distribution business following its transformation efforts in recent years. It is foreseen Cummins can improve the profitability of the business through efficiency gains, pushing EBITDA margins higher in the near term. These actions further support its ability to return cash to shareholders. In Analysts’ view, Cummins enjoys a strong financial position supported by a clean balance sheet and strong free cash flow prospects.

Bulls Say’s

  • Strong freight demand in the truck market should lead to more new truck orders, substantially boosting Cummins’ revenue growth. 
  • Cummins will benefit from increasing emission regulation, pushing customers to buy emissions solutions, such as aftertreatment systems that turn engine pollutants into harmless emissions. 
  • Increasing emission standards could push peers to rethink whether it’s economically viable to continue manufacturing engines and components, benefiting Cummins.

Company Profile 

Cummins is the top manufacturer of diesel engines used in commercial trucks, off-highway equipment, and railroad locomotives, in addition to standby and prime power generators. The company also sells powertrain components, which include filtration products, transmissions, turbochargers, aftertreatment systems, and fuel systems. Cummins is in the unique position of competing with its primary customers, heavy-duty truck manufacturers, who make and aggressively market their own engines. Despite robust competition across all its segments and increasing government regulation of diesel emissions, Cummins has maintained its leadership position in the industry. 

(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
Commodities Trading Ideas & Charts

Origin Energy Ltd signals to exit coal-fired power generation; Replacing the plant with a large-scale battery

Investment Thesis

  • Higher oil prices benefit ORG’s APLNG project (higher revenues).
  • Balance sheet position is being restored with management focused on getting the debt covenants back to an investment grade level.
  • Achieving milestones within the APLNG project.
  • On-going focus on operating cost and capital expenditure reduction.
  • Increasing dividend profile and with a restored balance sheet the Company can also consider other capital management initiatives. 
  • Rationalization of asset portfolio, including asset sales and the IPO of its conventional upstream business should help improve the balance sheet position.  

Key Risks

  • Exploration and production risks.
  • Lower energy prices, particularly oil prices (for its APLNG project). 
  • Structural change in energy markets & increased competition.  
  • Not meeting cost-out targets. 
  • Highly geared balance sheet, with the company not being able to reduce debt fast enough. 

1H22 Key Highlights

  • Underlying EBITDA declined -4.8% over pcp to $1,099m, as increased earnings from Australia Pacific LNG amid higher oil and gas prices were more than offset by expected lower earnings in Energy Markets reflecting lower retail tariffs (set in FY21 when wholesale electricity prices were at lows due to subdued economic activity and increased renewables penetration) and higher energy procurement costs. 
  • Underlying profit increased +18% over pcp to $268m, driven by strong commodity prices, however, the Company recorded statutory loss of $131m, reflecting the one-off impairment and net capital gains tax expense associated with the $2bn sale of its 10% interest in Australia Pacific LNG. 
  •  Operating cash flow was an outflow of $79m vs inflow of $669m in pcp, amid lower earnings from Energy markets, higher working capital primarily due to timing of LNG cargo delivery and oil hedging and LNG trading losses. FCF (including major growth projects of Octopus equity investment of $260m and Kraken licence implementation costs of $37m) was an outflow of $112m vs inflow of $594m in pcp. 
  • Adjusted net debt increased +10.6% over 2H21 to $5.133bn, driven by the consideration associated with the investment in Octopus and higher working capital associated with the payment for an LNG cargo partially offset by APLNG cash distributions. (5) The Board declared an unfranked interim dividend of 12.5cps, representing 66% of FCF (excluding major growth projects), with partial franking expected to be restored in FY23.

Sale of 10% interest in APLNG – expected to restore balance sheet flexibility

Management executed an agreement to sell 10% of APLNG for net proceeds of $2.12bn (ORG retains 27.5% of shareholding, existing two APLNG board seats and upstream operatorship), with sale expected to be completed in 3Q22 (first half of CY22) and proceeds used to restore balance sheet flexibility with post sale adjusted Net Debt/adjusted Underlying EBITDA and gearing ratio declining to lower end of the target ranges of 2-3x and 20-30% from current levels of 3.9x and 34%, respectively. It will also provide FY22 net interest saving of $45-65m

Coal-fired generation

Management has submitted notice to AEMO for the potential early retirement of Eraring Power Station in August 2025 (vs prior targeted closure in 2032) and plans to install a large-scale battery of up to 700 MW at the site.

Company Profile

Origin Energy (ORG) is an integrated energy company with operations in exploration, production, generation and the sale of energy to millions of households and businesses across Australia. The Company has extensive operations across Australia and New Zealand and pursuing opportunities in the fast-growing energy markets of Asia and South America. The Company has two main segments: (1) Energy Markets – retail sales of electricity, gas and other customer solutions; electricity generation; and wholesale trading of electricity and gas. (2) Integrated Gas – consists of upstream exploration, development and production; the segment also holds the 37.5% ownership in Asia Pacific LNG project (APLNG). 

  • Sale of 10% inte(Sourc                    (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 Expert Insights

Omicron Boost to Healius’ Earnings Appears Short-Lived but Core Pathology Proves Resilient

Business Strategy and Outlook:

As demand for PCR testing surged during the omicron wave, higher positivity rates limited the ability of pathology providers to pool tests, causing significant delays and accelerating adoption of rapid antigen tests. While Healius is improving its turnaround times, management admitted that the sector wouldn’t be able to keep up again if a similar surge were to occur. Despite bolt-on acquisitions, revenue of AUD 200 million was flat on the prior corresponding period. This was largely driven by pandemic impacts including elective surgery restrictions and fewer medical centre referrals. Healius continues to increase its exposure to higher-margin modalities, and the company remains on track with its costout initiatives such as digitisation and network optimisation.

Despite Virtus deciding not to proceed with the acquisition of Adora, Healius is still classifying the business as a discontinued operation and suggested a sale to a different party is imminent.

Financial Strength:

Healius’ interim 2022 underlying EBIT rose 177% to AUD 376 million driven by operating leverage from elevated PCR testing. Healius declared a fully franked interim dividend of AUD 0.10 per share. Net debt/EBITDA was 0.4 at half-end, but it is expected that gearing to slightly increase following its Agilex acquisition. Segment EBIT margin also contracted roughly 200 basis points sequentially to a depressed 6% on higher locum staff costs due to radiologist shortages.

The smaller imaging segment, which contributed just 3% of group underlying EBIT, was weaker than expected. Despite bolt-on acquisitions, revenue of AUD 200 million was flat on the prior corresponding period. This was largely driven by pandemic impacts including elective surgery restrictions and fewer medical centre referrals. Segment EBIT margin also contracted roughly 200 basis points sequentially to a depressed 6% on higher locum staff costs due to radiologist shortages. This was despite support labour, excluding radiologists, reducing 4% on average per site.

Company Profile:

Healius is Australia’s second-largest pathology provider and third-largest diagnostic imaging provider. Pathology and imaging revenue is almost entirely earned via the public health Medicare system. Healius typically earns approximately 70% of revenue from pathology, 25% from diagnostic imaging and a small remainder from day hospitals.

(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
Commodities Trading Ideas & Charts

Santos reported strong FY21 results with underlying profit up by 230%

Investment Thesis:

  • Leveraged to the oil price.
  • High quality assets which offer a number of core assets within its portfolio (no single asset risk).  
  • On-going focus on cost reduction and positioning of the business for a lower oil price environment.
  • Strong balance sheet position. 
  • High quality management team who are able to operate assets and extract synergistic value from the recent merger with Oil Search.

Key Risks:

  • Supply and demand imbalance in global oil/gas markets.
  • Lower oil / LNG prices.
  • Not meeting cost-out targets (e.g. reducing breakeven oil cash price).
  • Production disruptions (not meeting GLNG ramp up targets).
  • Strategic investors sell down their stake or block any potential M&A activity.

Key highlights:

  • Management highlighted lower unit costs, our focus on safe, low-cost and efficient operations delivered a free cash flow breakeven of $21 per barrel in 2021. 
  • EBITDAX was up 48% to $2.8bn driven by higher oil prices and lower unit costs. Underlying profit was up 230% to a record $946m.
  • Production was up +3% to of 92.1mmboe. Sales volume of 107.1mmboe, down -3%
  • Product sales revenue of US$4.71bn, up +39%
  • Record free cash flow of US$1.5bn and underlying profit of US$946m, driven by higher oil and LNG prices vs pcp due to a recovery in global energy demand and supply constraints across the industry due to lower capital investment through the pandemic
  • Reported NPAT of US$658m includes losses on commodity hedging and costs associated with acquisitions and one-off tax adjustments and is significantly higher relative to the pcp due to impairments included in FY20
  • Reported NPAT of US$658m includes losses on commodity hedging and costs associated with acquisitions and one-off tax adjustments and is significantly higher relative to the pcp due to impairments included in FY20

Company Description: 

Santos Limited (STO) explores for and produces natural gas, liquefied natural gas, crude oil, condensate, naptha and liquid petroleum gas. STO conducts major onshore and offshore petroleum exploration and production activities in Australia, Papua New Guinea, Indonesia, Vietnam. The company also transports crude oil by pipeline.  

(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.