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Shares Small Cap

oOh!media entire business model hinges on its portfolio of leasehold concessions

Business Strategy and Outlook

OOh!media is strongly-positioned to benefit from the positive dynamics driving the Australian (and New Zealand) outdoor advertising industry. This has seen outdoor’s share of the total advertising pie lift from 3.5% in 2009 to 5.7% prior to COVID-19. A key Achilles heel for the outdoor advertising industry was the lack of reliable audience measurement. However, with the 2010 launch of measurement of Outdoor Visibility and Exposure, or MOVE, the medium now has greater legitimacy and offers a more robust way for marketers to assess the return on money allocated to outdoor advertising. Converting a traditional outdoor advertising site to a digital one is attractive to marketers as it allows creative flexibility, immediacy and premium presentation. Digital conversion also benefits the outdoor advertising operator as it attracts new clients, allows greater inventory utilisation and offers yield management flexibility. 

Financial Strength

oOh!media’s 2021 full-year result release in February with our unchanged AUD 1.40 fair value estimate 7% below the current stock price. This is despite a 24% stock price fall from the recent high on Oct. 20, 2021, compared with an 8% fall for the S&P/ASX 200 index over the same period. Radio finished the quarter up just 10%, after increasing 6% and 14% in October and November, respectively. Even digital advertising growth is likely to have slowed to mid-teens level in the December quarter−solid but down from circa 40% growth in the first three quarters of 2021. It is forecasted that no-moat rated oOh!media to report a 17% revenue increase in 2021 to AUD 499 million, implying second-half growth of 12% to AUD 247 million. This is significantly down from the 23% recorded in the first half, and market growth of 51% in the third quarter

At the end of June 2021, net debt/EBITDA was 1.1 times, pre AASB 16. It is forecast that this to fall to 1.0 by the end of 2021, within the renegotiated 3.25 covenant limit. The current dividend payout policy is reasonably conservative at between 40% and 60% of net profits after tax but before amortisation acquired intangibles, allowing further investment in inventory digitisation. However, due to the uncertain impact of the coronavirus outbreak, there were no dividends in 2020 and resumption of just AUD 0.04 in 2022.

Bulls Say’s 

  • Outdoor advertising is a growth industry, aided by structural tailwinds such as increasing audience, more reliable measurement and conversion to digital. OOh! media has the operating expertise and the strategic nous to exploit these dynamics. 
  • Like all players in the outdoor advertising space, oOh! media’s business hinges on its portfolio of leasehold contracts with owners of sites and properties, exposing the group to periodic renewal risks. 
  • The outdoor advertising industry is both highly competitive and highly leveraged to economic conditions, marketing budgets, and consumer confidence.

Company Profile 

OOh!media operates a network of outdoor advertising sites with a commanding share of the Australian market of around 30%, and has also presence in New Zealand. It boasts a diverse portfolio of locations to service the needs of outdoor advertisers, and is particularly strong in the roadside billboard and retail (such as shopping malls) segments. OOh!media offers these services by entering into lease arrangements with owners of outdoor sites–effectively an intermediary allowing site owners to monetise their visible space in high-traffic areas. In late September 2018, the group completed the acquisition of Adshel from HT&E for AUD 570 million, a deal that cements its competitive position in the face of industry consolidation. 

(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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ETFs ETFs Research Sectors

BetaShares Australian Sustainability Leaders ETF: Australian equities exposure with a tangible approach to ESG

Approach

FAIR tracks the Nasdaq Future Australian Sustainable Leaders Index, a benchmark Nasdaq co-developed with BetaShares in 2017. As per the guidelines laid out by the Responsible Investment Committee, Sustainability Leaders are defined as companies generating more than 20% revenue from select sustainable business or having a certain grade (B or better) from sanctioned ethical consumer reports or being a certified B corporation. There is a maximum 10 stocks per sector and a limit of 4% exposure at an individual stock level.  

Portfolio

As at 30 November 2021, FAIR has a large-cap-dominated portfolio comprising 86 stocks. Stocks must have a market cap of more than USD 100 million and three-month trading volume of over USD 750,000. The index differs largely from the category index S&P/ASX 200, as there is a significant overweight in healthcare, real estate, technology, and communication services. On the other hand, the portfolio is underweight in financial services and materials with nil exposure to energy stocks.

People

The three-person responsible investment committee may remove index inclusions at any time based solely on qualitative considerations of whether a company still meets ESG considerations. The committee comprises Betashares co-founder David Nathanson and Adam Verwey, a managing director of large investor Future Super.

Performance

In early 2020, the fund dropped significantly owing to the frantic sell-off triggered by the global coronavirus pandemic. Despite this, the fund managed to close on a positive return of 2.23% for the year 2020. The uptrend continued into 2021, and it ended the calendar year with 17.99% returns, closely matching the category.

(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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Commodities Trading Ideas & Charts

Regional refiner Lytton of Ampol Ltd. margins recover at long last

Business Strategy and Outlook:

Ampol says the Lytton refinery is expected to deliver the highest quarterly replacement cost EBIT result in more than four years. Regional refiner margins rose well above the five-year historical average as supply and demand fundamentals improved. Lytton refinery production was also strong for the period at 1.6 billion litres.  And given the strong refiner margin environment, the company does not anticipate receiving any Fuel Security Service Payment, or FSSP, in the fourth quarter.

The midcycle Lytton refiner margin assumption remains USD 10 per barrel in real terms, around 10% below the fourth-quarter 2021 actual. Material synergies can be expected from an Ampol/Z Energy tie-up. The Z board recommended scheme remains subject to New Zealand regulatory approval and a subsequent Z shareholder vote on the Scheme, expected early this year. The takeover of Z Energy seems logical. The companies have very similar business models, but Z shares have fallen from NZD 8.65 peaks due to intense retail fuel competition in New Zealand and COVID-19 disruption. Ampol can fund the Z transaction within its target 2.0-2.5 net debt/EBITDA framework while maintaining a 50%-70% dividend payout ratio. It will also consider capital returns when net debt/EBITDA is less than 2.0. Ampol’s healthy franking balance and moderate debt has long had investors marking it a favourite for capital initiatives.

Financial Strength:

The fair value of Ampol Ltd. has increased to AUD 32 and it reflects a combination of time value of money, with an increase in expected near-term refiner margins.

Ampol’s healthy franking balance and moderate debt has long had investors marking it a favourite for capital initiatives. The fair value estimate equates to a 2025 EV/EBITDA of 5.5, P/E of 12.2, and dividend yield of 4.9%. A five-year group EBITDA CAGR of 15.5% to AUD 1.4 billion by 2025, the CAGR flattered by the COVID-impacted start year. A nominal midcycle retail fuels margin of AUD 2.03 per litre versus first half 2021’s AUD 1.85 actual, but broadly in line with the three-year historical average. These estimates don’t yet include the Z transaction, but Ampol is targeting double-digit EPS accretion and 20% plus free cash flow accretion in 2023 versus pre-acquisition levels.

Company Profile:

Ampol (nee Caltex) is the largest and only Australian-listed petroleum refiner and distributor, with operations in all states and territories. It was a major international brand of Chevron’s until that 50% owner sold out in 2015. Caltex transitioned to Ampol branding due to Chevron terminating its licence to use the Caltex brand in Australia. Ampol has operated for more than 100 years. It owns and operates a refinery at Lytton in Brisbane, but closed Sydney’s Kurnell refinery to focus on the more profitable distribution/retail segment. It currently has NZD 2.0 billion bid on the table for New Zealand peer Z Energy. 

(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

SBI Corporate Bond Fund Direct Growth: The fund which invest in high quality corporate bond and short duration mandate

Fund Objective

The investment objective of the scheme is to provide the investors an opportunity to predominantly invest in corporate bonds rated AA+ and above to generate additional spread on part of their debt investments from high quality corporate debt securities while maintaining moderate liquidity in the portfolio through investment in money market securities.

Approach

The fund’s strategy is to generate attractive returns through high-quality corporate bonds and short duration mandates. It employs a bottom-up approach combined with a top-down overlay to generate superior risk adjusted returns. The managers use various qualitative and quantitative parameters and put a lot of emphasis on a company’s management, business, and financial health. They also use the analysis of sell-side research and credit rating agencies to form a view on the creditworthiness of companies but to a limited extent. The credit committee then reviews the rated securities, and the approved securities are assigned credit and tenor limits. While constructing the portfolio, the managers have the flexibility to implement the trades with reasonable leeway to express their views. The risk-management team periodically reviews the portfolio to ensure the managers adhere to the guidelines. We believe the flow of ideas/information is effective and fits nicely with the process in place, supporting an Above Average Process rating.

Portfolio

The fund has a higher credit-quality portfolio, making it more liquid and less prone to credit risk. The fund maintains 100% of its assets in AAA rated bonds, despite having the flexibility to take some allocation in lower-rated instruments. The duration of the portfolio is well managed between one and three years. The fund also invests in government securities based on portfolio manager’s view on interest rates, but this does not account for more than 20% of its net assets. But high allocation is made to state development loans, given attractive spreads with regard to central government securities.

The portfolio of the fund is well diversified. The manager also intermittently holds higher cash/money market instruments to take opportunistic trading calls when markets are bumpy.The strategy, however, is not without risk. The fund may underperform its peers if the market favours high-yielding bonds. Also when interest rates are falling, the fund may struggle to outperform its category peers that invest in a portfolio with a little longer duration.

Performance

Under a short tenure of the fund’s existence (February 2019 to December 2021), the fund’s direct share class has posted an excellent annualised return of 8.36% as against the category average (7.14%). The portfolio manager’s research-intensive approach has helped the fund generate superior returns, placing the fund in the first quartile.

In terms of year-on-year returns, the fund’s performance has been inconsistent. The fund outperformed most category peers by a wide margin in 2019 and 2020. However, the 2021 performance got impacted because of the fund’s conservative approach with regard to its peers. On expectation of normalisation of interest rates by the RBI, the manager kept the duration below two years. This resulted in the fund ranking in the fourth quartile as against its category peers. However, the fund has the potential and could bounce back going ahead.

About the fund

The investment objective of the scheme is to provide the investors an opportunity to predominantly invest in corporate bonds rated AA+ and above to generate additional spread on part of their debt investments from high quality corporate debt securities while maintaining moderate liquidity in the portfolio through investment in money market securities.

The fund follows a disciplined and risk-conscious investment process that draws extensively from the in depth expertise of the investment team. The process is bottom-up with a focus on high-quality business models with a top-down overlay. The team’s understanding of the markets and frequent interaction with its equity team and parent company give it an edge in forming views on the business and creditworthiness of the companies. Furthermore, it has built some additional aspects into the approach. They now do an even more detailed analysis of the group and the promoter-linked entities in which they invest.

The execution of the process has been above average with limited credit risk and a short duration strategy. Despite having the flexibility to invest up to 80% of its portfolio in AAA and AA+ rated corporate bonds, the manager constructs the portfolio with a primary focus on liquidity, avoiding exposure to the below AAA rated segment, and keeping the duration between 1 and 3 years

 (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

Alibaba Falling Weak as Competition Rising

Business Strategy and Outlook

Alibaba BABA is a Big Data-centric conglomerate, with transaction data from its marketplaces and logistics businesses allowing it to move into omnichannel retail, cloud computing, media and entertainment, and online-to-offline services. It is believed a strong network effect allows leading e-commerce players to extend into other growth avenues, and nowhere is that more evident than with Alibaba. 

Alibaba’s Internet services had annual active consumers of 953 million as of September 2021, versus the 1.2 billion online population in September 2021 per Questmobile and the 1.4 billion population in China. This provides Alibaba with an unparalleled source of data that it can use to help merchants and consumer brands develop personalized mobile marketing and content strategies to expand their target audiences, increase click-through rates and physical store transactions, and bolster return on investment. Alibaba’s marketplace monetization rates have reduced recently, due to increased compliance of antitrust laws, more competition, and weak consumer sentiment. Monthly gross merchandise volume per annual active user was CNY 770 for the year ended March 2021 for Alibaba, higher than CNY 176 in 2020 for Pinduoduo and CNY 461 in 2020 for JD. 

While it is perceived the Taobao/Tmall marketplaces as Alibaba’s core cash flow drivers, it is also seen AliCloud and globalization offer long-term potential. While AliCloud will remain in investment mode in the medium term, accelerating revenue per user suggests a migration to value-added content delivery and database services that can drive segment margins higher over time. On globalization, third-party merchants are successfully reaching Lazada’s users across Southeast Asia, something that should continue as the company rolls out incremental personalized mobile marketing and content opportunities. 

Financial Strength

Alibaba is in sound financial health. As of December 2020, the company had CNY 456 billion in cash and unrestricted short-term investments on its balance sheet against CNY 117 billion in short- and long-term bank borrowing and unsecured senior notes. Although Alibaba remains in investment mode, it is held the strong cash flow profile of its e-commerce marketplaces offers it the financial flexibility to continue investing in technology infrastructure and cloud, research, marketing, and user experience initiatives through its current balance sheet and strong cash flow profile. Additionally, it is alleged the company has the capacity to add leverage to its capital structure, which could allow it to take advantage of low borrowing rates to fund growth initiatives, introduce a cash dividend when it sees limited investment opportunities with good returns on investment, or repurchase shares. It is likely for the company to pursue acquisitions that could further improve its ecosystem, including online-to-offline, physical retail, and increased logistic capacity or capabilities.

 Bulls Say’s

  • Monthly gross merchandise volume per annual active user was CNY 770 for the year ended March 2021 for Alibaba, higher than CNY 176 in 2020 for Pinduoduo and CNY 461 in 2020 for JD. 
  • Core annual active users on Alibaba’s China retail marketplaces had a retention rate of over 90% for the year ended September 2021. 
  • Alibaba’s core commerce (which includes China marketplace-based businesses and other loss-making businesses) adjusted EBITA margin was 26.2%, higher than JD retail’s 2.3% non-GAAP EBIT margin and PDD’s 15.2% non-GAAP EBIT margin for the September quarter of 2021.

Company Profile 

Alibaba is the world’s largest online and mobile commerce company as measured by gross merchandise volume (CNY 7.5 trillion for the fiscal year ended March 2021). It operates China’s online marketplaces, including Taobao (consumer-to-consumer) and Tmall (business-to-consumer). Alibaba’s China commerce retail division accounted for 63% of revenue in the September 2021 quarter. Additional revenue sources include China commerce wholesale (2%), international retail/wholesale marketplaces (5%/2%), cloud computing (10%), digital media and entertainment platforms (4%), Cainiao logistics services (5%), and innovation initiatives/other (1%). 

(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

Iron Ore Price Rise More than Offsets Rio Tinto’s Modest Production Weakness

Business Strategy and Outlook

Rio Tinto is one of the world’s biggest miners, along with BHP Billiton, Brazil’s Vale, and U.K.-based Anglo American. Most revenue comes from operations located in the relatively safe havens of Australia, North America, and Europe, though the company has operations spanning six continents.

Rio Tinto has a large portfolio of long-lived assets with low operating costs. The recent focus has been to run a strong balance sheet, tightly control investments, and return cash to shareholders. The company’s major expansion projects are Amrun bauxite, the Oyu Tolgoi underground mine, and the expansion of the Pilbara iron ore system’s capacity from 330 million tonnes in 2019 to 360 million tonnes. Those projects are expected to be completed in the next few years. Otherwise, the focus is on incremental expansions through productivity and debottlenecking initiatives. These will be small but capital-efficient and should modestly improve unit costs.

Iron Ore Price Rise More than Offsets Rio Tinto’s Modest Production Weakness

Rio Tinto’s fourth-quarter production was overall mildly softer than expected. The company’s share of iron ore Pilbara shipments, the key earnings driver, finished the year at 268 million tonnes, slightly below Morningstar analyst forecast. Shipments were down on 2020’s 273 million tonnes with headwinds from weather, delayed expansions and traditional owner relationships post the Juukan Gorge disaster. COVID-19 also reduced labour availability. The destruction of the caves sees the major Pilbara iron ore miners facing additional scrutiny around traditional owner relationships. This has slowed output and growth somewhat but has not materially impacted the value of Rio Tinto shares, given the supportive iron ore price has more than made up for the lower volumes. Morningstar analysts have raised its fair value estimate for no-moat Rio Tinto to AUD 91 from AUD 89 per share. The increase reflects higher the stronger iron ore futures curve and the softer AUD/USD exchange rate, partly offset by weaker production forecasts.

Financial Strength

Rio Tinto’s balance sheet is strong with net cash of $3.1bn. For FY 2020 the revenue stood at USD Million 44,611 and USD Million 44,661 estimated for FY 2021. The strong balance sheet may allow the company to make targeted investments or acquisitions through the downturn, important flexibility. But it appears management is favouring distributions to shareholders. The progressive dividend policy was canned in 2016, providing important flexibility to increase or reduce dividends as free cash flow allows.

Bulls Say 

  • Rio Tinto is one of the direct beneficiaries of China’s strong appetite for natural resources. 
  • The company’s operations are generally well run, large-scale, low-operating-cost assets. Mine life is generally long, and some assets, such as iron ore, have incremental expansion options. 
  • Capital allocation has improved following the missteps of the China boom with management generally preferring to return cash to shareholders than to make material expansions or acquisitions.

Company Profile

Rio Tinto searches for and extracts a variety of minerals worldwide, with the heaviest concentrations in North America and Australia. Iron ore is the dominant commodity, with significantly lesser contributions from aluminium, copper, diamonds, gold, and industrial minerals. The 1995 merger of RTZ and CRA, via a dual-listed structure, created the present-day company. The two operate as a single business entity. Shareholders in each company have equivalent economic and voting rights.

(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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Currencies Trading Ideas & Charts

Asia‘s first crypto ETF on the card, to be launched in India by Torus Kling blockchain

Golden bitcoins. Cryptocurrency on computer motherboard.

Torus Kling Blockchain IFSC, a joint venture between Mumbai-based Cosmea Financial Holdings and Hyderabad-based Kling Trading India, and the Bombay Stock Exchange’s (BSE) international branch, India INX, have signed a memorandum of understanding (MoU) to create digital asset-based products in India.

GIFT city’s IFSC will be used to trade the product (International Financial Services Centre). This will be done in a “sandbox” environment made feasible by the International Financial Services Centres Authority (IFSCA), which is in charge of regulating financial centres within SEZs (Special Economic Zones).Regulatory sandboxes are testing grounds for live trials of new fintech goods or services that are currently not subject to any regulatory oversight, in a controlled environment and under close supervision, with the goal of balancing product innovation and consumer protection.

Post obtaining all regulatory approvals, Indian investments in the ETF will be streamlined through RBI’s liberalised remittance scheme. The trading is expected to be allowed through a regular investment account, bypassing the risks associated with cryptocurrency exchanges.

Torus Kling Blockchain, which will also handle global distribution, is aiming for $1 billion in assets under management (AUM) from consumers that participate in these blockchain-backed products through ETFs and Discount certificates in the first two years.

This follows the lead of US regulations, which approved a Bitcoin Futures ETF last year, and the approval of Bitcoin and Ethereum spot ETFs to be listed on the Toronto Stock Exchange by Canadian financial regulatory authorities.

Crypto ETFs allow an investor to track cryptocurrency returns without having to invest in the digital tokens themselves, thereby circumventing the hassles and concerns associated with usual cryptocurrency exchanges.

(Source: The Times of India, Moneycontrol)

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
Funds Funds Research Sectors

AMP Capital Corporate Bond Fund Outdoing the Bloomberg AusBond Bank Bill Index and The Average Credit Fund

Process:

AMP Capital Corporate Bond provides exposure to a wide range of credit securities within Australian, global, investment-grade, corporate bond, and high yield. The benchmark changed from the Bloomberg AusBond Credit 0+Yr Index to the Bloomberg AusBond Bank Bill Index in February 2016, reflecting the fund’s capital preservation and income emphasis since 2012. Monthly distributions are announced and reviewed biannually, which helps income-focused investors manage their expectations. Credit analysis is done on two accounts; first, a quantitative and qualitative assessment of the broader industry sector, and second, issuerand security-specific analysis. 

The analysis is conducted in line with a “score card” methodology that incorporates fundamentals, technicals, and valuations. The primary weighting is to the valuation and fundamental factors as the team believes this is the primary determinant of a positive outcome for investors over the longer term. The duration view is led by the macro team and is established through a similar score card system, which again considers fundamental, sentiment, and technical factors, with the analyst view of valuation playing a key part. The credit strategy panel, comprising senior investment staff, set the overall credit strategy, risk budget, and sector allocations. However, the ultimate duration and credit exposures are determined by comanagers Sonia Baillie and Nathan Boon.

Portfolio:

The vehicle chiefly comprises Australian credit, though it does hold around 5% each in US and UK names. The strategy can hold up to 10% in high yield and 15% in unrated bonds but is usually well below these limits. The portfolio is largely BBB and A rated corporate bonds, with the BBB names providing a slightly larger proportion of the fund’s asset value at nearly 44% to October 2021. Following the coronavirus-driven dislocation, the team took opportunistic exposures in long duration REITs and industrials, some of which have seen partial profit taking with significant spread tightening throughout 2021. 2019 saw the fund rotate back into corporate bonds following the late-2018 sell-off. 

The team believes credit fundamentals are improving and technicals supportive, but valuations indicate little expectation of further spread compression. It wants to maintain income by holding credit, albeit at a reducing amount to late-2021, also using credit derivatives to insulate from wider spreads. The fund’s duration limits were adjusted from plus or minus 1.5 years versus the old credit benchmark, to absolute terms of zero to 4.5 years in October 2014. The fund has been positioned within a duration range of 0.2-0.8 years since the start of 2017 (0.6 years in October 2021), meaning the sensitivity to rising interest rates is low. FUM has steadily declined over the past few years and currently sits at AUD 855 million as of October 2021.

People:

Sonia Baillie (head of credit) has led this portfolio since October 2017, joined by Nathan Boon (head of credit portfolio management) in March 2018. This group, however, is currently transitioning into the Macquarie fixed-income team as part of AMP Capital’s sale to that organisation; completion is expected by mid-2022, creating some uncertainty. The duo gets significant input from head of macro Ilan Dekell, and a team of analysts spread between Sydney and Chicago. Head of credit research Steven Hur was previously a key member until he left the group in December 2021. The fixed-income team is headed by Grant Hassell, who has more than 30 years of experience, though he is the sole member of this quartet not joining the Macquarie investment team in the same capacity. 

Hassell contributes to overall discussions through team meetings and investment committees, acting as the sounding board for the various heads to bring ideas together into a portfolio. While there has been staff turnover among the credit analyst and credit portfolio managers–former managers Jeff Brunton and David Carruthers left in 2014 and 2016, respectively–most key staffers have long tenure. For example, while Baillie was appointed portfolio manager only in 2017, she has been with the team since 2010, has held other senior roles, and worked in the firm’s Asian fixed-income business. Furthermore, AMP Capital has taken steps to improve staff incentives and address staff turnover.

Performance:

Over the long run, this fund has outdone the Bloomberg AusBond Bank Bill Index and the average credit fund. That’s not necessarily compelling, given the fund has been running substantially more credit and/or duration risk than those yardsticks. Since AMP Capital slashed the fund’s duration, rival credit funds are a more reasonable benchmark looking ahead; the fund’s historically high duration means we also compare the fund’s history against the Bloomberg AusBond Credit Index, where this strategy has underperformed. The fund’s track record has benefited from higher-than-average credit risk, as well as significant interest-rate risk, that has paid off as rates declined to historically low levels. returns, yet three- and five-year returns fail to beat the average category peer. Given declining global interest rates, the fund reduced its distribution in mid-2017 to 0.275% per month, and then 0.25% per month at the beginning of 2018. This continued through 2021 when distributions dropped to 0.175% by year-end, the shop expects it to remain at these compressed levels, barring unforeseen circumstances. The rate peaked at 0.55% per month in 2012, highlighting that while these distribution indications can be helpful in the short run, they should not be relied on for long-term income expectations.

About Funds:

Though a new home will bring positives to AMP Capital Corporate Bond, it also introduces uncertainties for this diversified credit strategy. AMP Capital’s Global Equities and Fixed Interest business is in the midst of a sale to Macquarie Asset Management, which is expected to complete by mid-2022. Head of global fixed income Grant Hassell is leading the integration. The strategy has benchmarked to the Bloomberg Ausbond Bank Bill Index since early-2016, reflecting the income goals with capital stability. This move followed a history of changes, which under Macquarie’s guidance going forward could see further revisions in approach.

(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

Johnson Controls Is Well Positioned to Capitalize on Healthy and Smart Buildings Trends

Business Strategy and Outlook

Before 2016, the market had long viewed Johnson Controls as an automotive-parts company because about two thirds of its sales came from automakers. However, after merging with Tyco and spinning off its automotive seating business, now known as Adient, in late 2016, Johnson Controls is now a more profitable and less cyclical pure-play building technology firm that manufacturers heating, ventilation, and air-conditioning systems; fire and security products; and building automation and control products. In early 2019, Johnson Controls sold its power solutions business to a consortium of investors for $11.6 billion of net proceeds. The firm used proceeds to pay down debt and repurchase shares.

It is believed that Johnson Controls’ prudent capital allocation strategy in tandem with its simplified business model that is clearly showing improving fundamentals has been catalysts for the stock. As a pure play building technologies and solutions business, Johnson Controls stands to benefit from secular trends in global urbanization and increased demand for energy-efficient and smart building products and solutions. It is also expected that the COVID-19 pandemic will increase the market opportunity for healthy building solutions, such as air filtration and touchless access controls.

 These secular tailwinds should allow Johnson Controls to grow faster than the economies it serves. Indeed, over the next three years (through fiscal 2024), the firm is targeting revenue growth at a 6%-7% compound annual rate, compared with expectations of 4%-5% market growth. Key levers behind Johnson Controls’ targeted outperformance include continued product innovation (supporting market share gains and pricing); increased service penetration (a higher margin opportunity); and the firm’s participation in meaningful growth themes (for example, energy efficiency, smart buildings, and indoor air quality solutions).

Financial Strength

After selling its power solutions segment in April 2019, which netted Johnson Controls $11.6 billion, the firm paid down $5.3 billion of debt and repurchased 191 million shares (21% share reduction) for approximately $7.5 billion. The firm’s balance sheet is now in great shape, with a net debt/2021 EBITDA ratio of about 1.8, which is below management’s targeted range of 2.0-2.5. The firm finished its fiscal 2021 with $7.7 billion of debt, about $1.3 billion of cash on the balance sheet, and $3 billion available on two credit facilities. We see the firm’s significant liquidity as dry powder for additional buybacks or acquisitions

Bulls Say’s

  • Johnson Controls should benefit from secular trends in global urbanization and increased demand for energy-efficient and smart building solutions.
  • The COVID-19 pandemic should increase the market opportunity for air filtration and touchless access control solutions.
  • Johnson Controls’ free cash flow conversion has been improving, exceeding 100% in 2020-21. A 100% free cash flow conversion is in line with other world-class firms.

Company Profile 

Johnson Controls manufactures, installs, and services HVAC systems, building management systems and controls, industrial refrigeration systems, and fire and security solutions. Commercial HVAC accounts for about 40% of sales, fire and security represents another 40% of sales, and residential HVAC, industrial refrigeration, and other solutions account for the remaining 20% of revenue. In fiscal 2021, Johnson Controls generated over $23.5 billion in revenue.

 (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
Currencies Trading Ideas & Charts

Wallmart plans to enter the metaverse with crypto and NFTs

The retail behemoth would be the latest corporation to enter the nascent market of virtual worlds, sometimes known as the metaverse. Offering digital replicas of products in the form of NFTs through virtual, metaverse experiences, all paid for with a Walmart token, may be one example.

Walmart plans to expand into digital assets and virtual experiences, according to at least three applications with the USPTO on Dec. 30.

The trademark filings include the provision of a Walmart virtual currency, in addition to cryptocurrency exchange services using blockchain technology. A separate application to the USPTO describes downloadable software for uses ranging from e-commerce to augmented reality as well as managing a portfolio of cryptocurrencies.

Another filing details the possibility of a virtual reality game or online retail service featuring a marketplace of digital goods authenticated by NFTs. These goods could range from  home appliances to sporting goods, beauty products, patio furniture, and musical instruments—all listed in the trademark application.

All of these cryptocurrencies are non-fungible tokens (NFTs). NFTs are an option for Walmart’s digital offering. This ensures that the ownership of these items is documented on the blockchain. Such records are both timeless and enticing to a new generation of listeners.

(Source: The street)

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.