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Currencies Trading Ideas & Charts

BetaShare Crypto Innovators: The First ASX crypto ETF make history on debut

BetaShares Crypto Innovators (CRYP) has broken trading records on its debut. After opening at $11.23 per unit the newly minted ETF finished the day at $11.19 per unit having climbed 11.19 per cent.

CRYP saw more than $8 million change hands in less than 15 minutes. By midday, trading volumes had soared to $24.5 million.

 The fund doesn’t directly invest in cryptocurrencies or digital assets, it invests in companies involved in those sectors, tracking the Bitwise Crypto Industry Innovators Index. CRYP’s index is intended to cover the complete range of the crypto ecosystem by offering exposure to pure-play crypto enterprises, companies with at least 75 percent of their balance sheets invested in crypto-assets, and diversified corporations with crypto-focused business lines. Its largest holding is in Silvergate Capital, followed by Marathon Digital Holdings and Galaxy Digital, which together represent just over one-third of CRYP’s total portfolio.

Cryptocurrency exchange platform Coinbase, bitcoin mining company Riot Blockchain, and business analytics provider Microstrategy are among CRYP’s holdings.

BetaShares said its portfolio has a year-to-date performance of nearly 133 per cent, with monthly performance of 28 per cent. In its information pack, however, the company said investment in CRYP should be considered “very high risk.”

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 Research Sectors

Bennelong ex-20 Australian Equities Fund: distils returns of the 20 largest companies on ASX

The Fund is suitable for investors seeking to distill out the influence of the returns of the largest 20 listed companies on the ASX and looking to tilt towards growth. As a result, the fund invests in stocks outside of the top 20 subsets of the market but with at least a minimum of $250m market cap. The manager is more of a purist stock picker who seeks to invest in companies he feels are on a genuine earnings growth path and feels that such companies are not common and to find these companies requires thorough and focused bottom up research process.

Investment Team:

The BAEP investment team consists of Mark East: Chief Investment Officer and Portfolio Manager, Keith Hwang: Director, Quantitative Research, Neale Goldstone-Morris: Senior Investment Analyst, Strategy, Kieran Sisson, Doug Macphillamy, Brad Clibborn, Jack Briggs: Senior Investment Analyst and Todd Briggs: Investment Analyst

Key Highlights:

  • The manager conducts deep dive, bottom-up research on companies it invests in. With a thorough understanding of their stock positions, the manager takes high conviction and genuinely active bets relative to the benchmark.
  • The fund has been investing since 2009 – the immediate aftermath of the global financial crisis. Since then, there have been several periods where market volatility has tested the manager’s ability to generate returns while following their investment process.
  • The Fund’s focus on stocks outside of top 20 ASX listed companies provides investors an opportunity to diversify and distil growth from typical core domestic equity strategies that are heavily influenced by the performance returns of shares in the top 20 listed companies.
  • The team of eight experienced analysts includes the PM.
  • The fund’s macro analyst provides top down insights on the macro and guides the team to where the team should focus their research.

Downside Risks: 

• An economic recession in Australia/globally, leading to earnings recession

• Stock selection fails to yield alpha 

• Key man risk – the PM (Mark East) departs – given he has the ultimate responsibility of running the strategy

Investment Process:

  • From all of the stock listed on the ASX, BAEP applies a screen to derive an Investment Grade Universe from which to find investment opportunities. The filters include a market capitalisation of greater than $250 million, sufficient liquidity, an earnings track record.
  • Idea Generation aims to identify those stocks within the Investment Grade Universe that warrant particular attention, thereby focusing research efforts on the most prospective candidates. The ideas build up into the Focus List.
  • Stock analysis is extensive and includes quantitative and qualitative analysis including field research.
  • Portfolios are constructed on a stock-by-stock basis. The inclusion, sale and weighting of a particular stock is determined by reference to a number of factors
  • The portfolio is constantly monitored, tested and optimised with ongoing changes.

Performance:

Fund Positioning:

About Fund:

The Fund’s objective is to outperform the S&P/ASX 300 Accumulation Index excluding the portion of return attributed to the S&P/ASX 20 Leaders Index, by 4% p.a. after fees on a rolling 3-year basis. The Fund invests primarily in Australian shares with high quality business models, strong growth, and underestimated earnings momentum and prospects.

(Source: Banyantree)

General Advice Warning

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

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Funds Funds

SPDR S&P/ASX 200 Listed Property Fund: Decent option for A-REIT investments in a competitive market

About The Benchmark

A sector sub-index of the S&P/ASX 200, this index tracks the performance of Australian real estate investment trusts (A-REITs) and mortgage REITs.

Fund Objective

The SPDR S&P/ASX 200 Listed Property Fund seeks to closely track, before fees and expenses, the returns of the S&P/ASX 200 A-REIT Index.

Process 

SLF aims to fully replicate the S&P/ASX 200 A-REIT Index. REITs are listed vehicles that own and operate property. REITs are required to pass on the majority of their income to investors to enjoy favourable taxation arrangements, and distributions are not franked. High payout ratios and an absence of franking mean that REITs typically offer a high headline yield relative to other stock market sectors. SLF is by far the longest running, with an FUM of AUD 650 million as at September 2021, which helps it to maintain trading levels far above most rivals. SPDR doesn’t participate in securities lending for Australian ETFs.

Portfolio

With the relatively short list of A-REIT names in the S&P/ASX 200, the portfolio is understandably concentrated. As at September 2021, the index consists of 24 holdings, with the top 10 accounting for over 85% of the total portfolio. The exposure to the largest current holding, Goodman Group, has ballooned significantly over the past five years to 27% from around 11%. Seeing that the index is relatively untouched by any reconstitutions, portfolio turnover is quite low at 5%. However, in case of an eventual entry or exit of the constituents, the concentrated index is susceptible to reconstitution, which may lead to a meaningfully altered portfolio.

Top 10 HoldingsWeight (%)
GOODMAN GROUP27.07
SCENTRE GROUP11.52
DEXUS/AU8.59
MIRVAC GROUP8.17
STOCKLAND7.98
GPT GROUP7.27
CHARTER HALL GROUP5.93
VICINITY CENTRES4.91
SHOPPING CENTRES AUSTRALASIA2.20
CHARTER HALL LONG WALE REIT2.06

Sector Allocation

Sub-Industry BreakdownWeight (%)
Diversified REITs34.79
Industrial REITs28.49
Retail REITs23.96
Office REITs9.46
Specialized REITs1.90
Residential REITs1.41

People

The Global Equity Beta Solution team that is responsible for managing this ETF has undergone a leadership transition recently. Effective September 2021, John Tucker has been appointed as the new chief investment officer, replacing Lynn Blake, who has taken retirement. Tucker is a State Street veteran who has been in multiple senior leadership roles within GEBS for the past 20 years. The ecosystem and structure of the investment team is well-defined, where research and trading functions are centralised and spread out globally; however, portfolio managers are based locally. Australia-domiciled passive products are managed by a core team of Tucker and four portfolio managers: Alexander King, Lillian Poon, Andrew Howson, and Elda Dong.

Performance

The fund has managed its tracking difference well, matching up to the benchmark after accounting for management fees. SLF has recorded a return of 6.54% since its inception in 2002. As at the close of 2019, the annualised five-year returns for the fund stood at an attractive 10.55%, outperforming the category returns of 9.87%. The rally was mainly driven by the strong returns of Goodman Group in the latter half of the five-year period.

Total Return1 Month3 Month6 Month1 Year3 Year p.a5 Year p.aSince Inception  p.a
Fund (%)0.384.2712.0730.259.578.636.54
Index (%)0.424.3812.3430.879.878.966.78

(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
Shares Small Cap

Huon reported results as expected; however earnings dented due to impacts of Covid

Investment Thesis:

  • HUO takeover price is $3.85. The Board have announced it believes accepting the offer is in the best interest of shareholders, absent any superior offer or independent expert advice.
  • Founding/major shareholders, Frances and Peter Bender, who hold ~53% of total shares, intend on voting in favour.
  • Growing consumer preference for natural and organic products, both in Australia and abroad, may see significant increase in salmon sales and therefore higher share prices. 
  • Number two player in the domestic market. 
  • With rational behaviour around pricing, the concentrated industry could benefit. 
  • Supportive salmon prices given disruption to global salmon supply. 
  • High barriers to entry (desired temperatures and regulatory licenses difficult to obtain). 
  • Given the complex nature of salmon farming HUO is unlikely to have its dominant position as an Australian salmon farmer ever seriously threatened.

Key Risks:

  • Takeover fails to proceed. 
  • Impact to production due to adverse weather conditions and diseases. 
  • Chemical coloring in salmon may lead to further negative publicity and undermine demand for salmon.
  • Cost pressures or cost blowout could deteriorate margins significantly given the large cost base relative to earnings (EBITDA). 
  • Irrational competitive behaviour (domestic and international markets). 
  • Negative media on the sustainability of the Tasmanian salmon industry.

Key highlights:

  • On an operating basis, EBITDA of $16.7m was in line with management guidance but declined -65% on pcp due to a -10% fall in the average price, made worst by an increase in production which caused a shift in the channel mix to spot export sales at materially increased freight costs.
  • NPAT decline of -$128.1m was a significant deterioration from $4.9m in the pcp.
  • Cash flow from operations was -$3.0m reflecting higher working capital requirements as freight costs doubled on pcp to $66m.
  • The two main contributors were the -12% fall in the average international salmon price in FY2021 compared to the previous year and the significant increase in freight charges due to limited access to international flights.
  • The impact of these were amplified by the commencement of Huon’s ramp up in production as part of its five-year strategy to expand capacity to meet future growth in domestic demand
  • The shut-down of international commercial flights was a major impediment to gaining access to the markets Huon needed to sell 44% of its FY2021 harvest.
  • HUON also announced on 6 August 2021, a takeover offer at $3.85 per share which is a +38% premium to the Huon share price of $2.79 on the prior trading day’s close.

Company Description: 

Huon Aquaculture (HUO) is a vertically integrated salmon producer in Australia. Its operations span all aspects of the supply chain, from hatcheries and marine farming to harvesting and processing, as well as sales and marketing. HUO’s marine farms are located in the cool, pristine waters of Tasmania, with the Company’s logistics infrastructure delivering salmon efficiently to the major fish markets around Australia. 

(Source: Banyantree)

General Advice Warning

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

Categories
LICs LICs

Loomis Sayles Global Equity Fund: Concentrated portfolio of best global equities

The Responsible Entity (RE) is Investors Mutual Limited who has appointed Loomis, Sayles & Company, L.P as the Investment Manager of the Fund. Loomis Sayles is a global asset manager that was established in 1926 and had over US$350b AUM as at 30 June 2021 across fixed income and equity investment mandates.

The Fund has a long only investment strategy with a fundamental bottom-up investment approach with the portfolio representing the “best ideas” of the investment team. The Fund seeks to deliver a return (after fees and expenses but before taxes) in excess of the benchmark (MSCI All Country World Index) over a full market cycle, which is considered to be 3-5 years. The Manager has an unconstrained mandate with no sector, style or geographic limitations. Stock selection is driven by the fundamental bottom up analysis undertaken by the investment team. The portfolio is concentrated given the investable universe with 35-65 stocks. The Manager has a long-term investment horizon and as such typically has low levels of portfolio turnover. The portfolio is expected to be largely fully invested at all times, with the portfolio typically having a cash position of less than 5%.

Investment Team:

Eileen Riley and Lee Rosenbaum have managed the investment strategy behind the Loomis Sayles Global Equity Fund since 2013. They’re supported by a team of analysts and a solid foundation of interconnected firm-wide resources, enabling them to leverage extensive research capabilities across equity and debt. Collaboration helps ensure capital flows to the team’s best ideas.

Performance:

Global Equity Fund1 month1 yr2 yrs3 yrsSince Inception
Total Return2.70%27.20%19.00%20.00%20.00%
Benchmark*1.10%28.30%14.90%15.40%15.40%
Outperformance1.60%-1.10%4.10%4.60%4.60%

About the fund:

The Loomis Sayles Global Equity Fund seeks to provide a concentrated portfolio of best ideas in global equities. Using foresight and flexibility, the team behind the Loomis Sayles Global Equity Fund look far and wide to pursue attractive, sustainable potential returns. Their sound investment philosophy and disciplined process focus on uncovering drivers of long-term company performance. The research-driven approach is unconstrained by style, sector, or geography, with the flexibility to invest across market capitalisations, while risk management is integral to every investment decision.

This delivers a distinctive yet disciplined approach to global equities investing which looks different to other funds while seeking to deliver potential returns above the benchmark over the long term.

(Source: FNArena, loomissayles.com.au)

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

Synaptics well-positioned to capitalize on the secular trends toward smart devices and experience-centric

Business Strategy and Outlook:

Synaptics is an emerging provider of audio, video, automotive, docking, and wireless products for the consumer Internet of Things market, and to a decreasing extent, a developer of touch, display, and fingerprint solutions for the mobile device and PC markets. As the mobile and PC markets mature and growth opportunities diminish, Synaptics has focused investment efforts and resources on consumer Internet of Things, particularly on automotive, smart homes, and low power edge artificial intelligence, which we view favourably.

Within mobile, legacy solutions include discrete touch circuits that enable touch-based device interaction and user authentication, and display drivers to control LCD, and increasingly OLED, displays. As the mobile industry matures, component suppliers face heightening competitive pressures from industry consolidation, supplier price wars, and fast design refresh cycles. Over recent years Synaptics has worked to abate its mobile business’ decline by building combined products, like touch and display driver integrated chips, or TDDI chips, which, while industry-unique, failed to gain traction in the saturated competitive landscape. Accordingly, the transition to an Internet of Things-focused portfolio is viewed as a smart, necessary move.

Financial Strength:

As Synaptics made the strategic decision to divest its low margin LCD TDDI business in 2020 and transition investment focuses to higher-margin Internet of Things products, the company experienced a return to growth in its top line in fiscal 2021. 

Synaptics is in decent financial condition. At the end of fiscal 2021, the firm had $836.3 million in cash and equivalents, compared with $881.5 million of debt on its balance sheet. While the majority of the debt matures in the next year, analysts believe the cash cushion is strong and expect little material impact to future liquidity. Overall, the company generates adequate cash flow to meet its interest expense obligations. The company is anticipated to maintain a cash position that allows it to withstand the cyclical troughs to which semiconductor firms are prone while also maintaining a healthy research and development budget to remain competitive in the cutthroat consumer electronics market. Capital allocation priorities include organic growth investments, strategic acquisitions, debt level management, and opportunistic share repurchases.

Bulls Say:

  • An emerging leader in the Internet of Things space with its broad portfolio of audio, video, and wireless solutions winning designs in multiple Internet of Things end markets. 
  • The acquired Conexant, Marvell’s multimedia solutions business, DisplayLink, and Broadcom’s Internet of Things business have significantly diversified Synaptics’ product portfolio and opened it up to new high growth areas.
  • As the automotive industry experiences secular trends toward the digitalization of cars, Synaptics’ rapidly growing TDDI product for infotainment systems is likely to continue fueling success.

Company Profile:

Synaptics is a global producer of semiconductor solutions for the mobile, PC, and Internet of Things markets. The company develops human interface solutions that enable touch, display, fingerprint, video, audio, voice, AI, and connectivity functions for smartphones, PCs, Internet of Things products, and other electronic devices.

 (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

Attractive yield and growth through acquisition makes APA Group an appealing stock

Investment Thesis:

  • High quality assets, which are difficult to replicate 
  • Given the quality of APA’s assets; the Company will always retain its M&A appeal
  • Last takeover bid (by CKI) was at $11.00 per share
  • Attractive and growing distribution yield
  • Highly credit worthy customers
  • Currently assessing international opportunities – USA focus 
  • Growth through acquisitions 
  • Diversified customer base by sector
  • Largest owner of gas transmission pipelines in Australia 
  • Opportunity to grow its renewable business 
  • Management announced their ambition to achieve net zero operations emissions by 2050  

Key Risks:

  • Negative market/investor sentiment towards “bond-proxies” 
  • Future regulatory changes by pipeline regulators
  • Large portion of businesses are exposed to the energy sector  
  • Infrastructure issues such as explosions or ruptures 
  • Adverse decision from COAG reviews transmission costs
  • Shorter contract terms on existing capacity

Key highlights:

  • APA’s FY21 results underwhelming in a difficult trading environment with underlying EBITDA down -1.3% to $1.6bn
  • APA has ample liquidity with ~$1.9bn in cash and undrawn facilities, with management also confirming that it remains in discussions with Keppel Infrastructure to potentially acquire Basslink Pty Ltd, which owns and operates a 370km high voltage, direct current (HVDC) electricity interconnector that links the electricity grids of Victoria and Tasmania
  • APA’s U.S. acquisition remains elusive whilst the analysts commend management’s disciplined approach to valuation
  • With difficult to replicate infrastructure assets, quality resilient revenues and strong balance sheet, APA itself could be a target
  • With recent M&A in the infrastructure sector, it becomes obvious that APA is unlikely to find a bargain and will continue to be out bid on deals
  • Approximately 6% dividend yields are distributed by APA Group
  • Total capex was up +3.3% over pcp to $432.5m
  • Free Cash Flow of $901.9m, was down -5.7% over pcp, primarily due to a one-off distribution received and interest earned by APA from its investments in SEA Gas in FY20
  • Management invested over $280m in growth projects in FY21 which are expected to support revenue expansion in future years

Company Description: 

APA Group Limited (APA) is a natural gas infrastructure company. The Company owns and/or operates gas transmission and distribution assets whose pipelines span every state and territory in mainland Australia. APA Group also holds minority interests in energy infrastructure enterprises. APA derives its revenue through a mix of regulated revenue, long-term negotiated contracts, asset management fees and investment earnings.

(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

Australia and NZ Banking Group reported strong FY21 results with cash profit up by 65%

Investment Thesis:

  • Loan deferrals are falling, with economic conditions not as dire as earlier predicted
  • ANZ is trading on an undemanding valuation, with 1.2x Price to Book (P/B) and dividend yield of 5.2%
  • Extensive fiscal and monetary policy support are providing enough liquidity in the market to avoid mass stress points in property market and unemployment numbers
  • All else being equal, ANZ is offering an attractive dividend yield on a 2-yr (5.4%) and 3-Yr (5.8%) view
  • Net interest margin (NIM) remains under pressure, but some offsetting tailwinds could see NIMs hold up better than market expectations
  • The banks have aggressively provisions for loan losses, should this surprise on the upside the share price will see additional support
  • Strong capital position could lead to ongoing capital management initiatives
  • Continued focus on cost could yield results which come in ahead of market expectations

Key Risks:

  • Any unexpected customer remediation provisions
  • Loan deferrals turn into structurally impaired loans
  • Intense competition for already subdued credit growth
  • Increase in bad and doubtful debts or increase in provisioning especially any Australian and institutional single exposure loan losses
  • Funding pressure for deposits and wholesale funding
  • Credit risk with potential default of mortgages, personal and business loans and credit cards
  • Potential changes to Australian Banking legislation
  • Significant exposure to the Australian property market
  • Operating costs come in below market expectations

Key highlights:

  • It reported strong FY21 results which reflected Cash profit (from continuing operations) up +65% to $6,198m due to partial reversal of Covid-19 related credit provisions  
  • Mainly driven by Australia Retail & Commercial despite challenges in home loans processing
  • In August 2021, ANZ commenced a buy-back of $1.5bn shares on-market
  • Statutory profit was up +72% to $6,162m
  • Cash profit (from continuing operations) up +65% to $6,198m due to partial reversal of Covid-19 related credit provisions and driven by Australia Retail & Commercial despite challenges in home loans processing
  • In terms of credit quality, ANZ’s total provision result was a net release of $567m (collective provision (CP) release of $823m and individually assessed provision (IP) charge of $256m)
  • Net Interest Margin were stable at 2.61%.

Company Description: 

Australia and New Zealand Banking Group Ltd (ANZ) is one of the four major banking institutions in Australia with an international presence having activities in general banking, mortgage and instalment lending, life insurance, leasing, hire purchase and general finance. In addition, ANZ operates in international and

investment banking, investment and portfolio management and advisory services, nominee and custodian services, stock broking and executor and trustee 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

Lyft’s Network Effect Strengthened the Platform’s Supply and Demand in Q3; Increasing FVE to $66

that it is  valued at over $550 billion (based on gross revenue) by 2024, from estimated of $224 billion in 2019. Lyft warrants a narrow economic moat and a stable moat trend rating, thanks to the network effect around its ride-sharing platform and intangible assets associated with riders, rides, and mapping data, which can drive Lyft to profitability and excess returns on invested capital.

From a strategic standpoint, Lyft is well on its way to becoming a one-stop shop for on-demand transportation. It has tapped into the bike and scooter-sharing markets, which will be worth over $12 billion by 2029, growing 7% annually. Lyft also appears to be aggressively pursuing the autonomous vehicle route as it understands that self-driving cars may help the firm to expand its margins; without drivers, it could recognize a bigger chunk of the fare as net revenue. In contrast to Uber, Lyft is not focused on food transportation or logistics.

Financial strength

Increasing Fair Value Estimate for Lyft by 5% to $66, which represents a 46% upside from the stock’s 2nd  November closing price. Third-quarter revenue came in at $864 million, up 73% from last year, driven by more riders (51% growth from last year) and more drivers (45%). In addition, 47% more new riders were activated on Lyft than last year. Net revenue stood at 90% of 2019 third-quarter levels (up from 88% in the second quarter and from 52% last year), while riders were at 85% (up from 79% last quarter and from 72% in 2020). Net revenue per rider grew 14% year over year to $45.63, driven by increase in the number of rides requested per rider, which more than offset decline in prices.

Strong revenue growth created operating leverage and lessened operating loss to $177 million, from second quarter’s $240 million and last year’s $453 million in losses. Management expects fourth-quarter net revenue between $930 million and $940 million, which implies $3.17 billion- $3.18 billion full-year net revenue. The firm expects fourth-quarter contribution margin to come in at 59%. Lyft also guided for adjusted EBITDA between $70 million and $75 million in the fourth quarter, equivalent to a full-year adjusted EBITDA of around $90 million. 

 At the end of 2020, Lyft had $1.6 billion in net cash on its balance sheet. It burned $1.4 billion in cash from operations in 2020, significantly more than the $106 million in 2019, mainly due to the impact of the COVID-19 pandemic. By 2030, it is estimate that Lyft’s cash from operations to approach over $4 billion, outpacing top-line growth due to operating leverage. Excluding a one-time $18 million benefit, Lyft’s third-quarter adjusted EBITDA was $47 million (6% margin).

Bulls Say’s

  • Lyft’s position in the autonomous vehicle race could equalize gross and net revenue, if it no longer needs to pay drivers. 
  • Lyft will profit from its do-good brand in comparison with competitor Uber. 
  • The company’s aggregation of multimodal offerings will drive in-app stickiness, making Lyft a one-stop shop for all transport needs.

Company Profile 

Lyft is the second-largest ride-sharing service provider in the U.S., connecting riders and drivers over the Lyft app. Lyft recently entered the Canadian market in an effort to expand its market outside the U.S. Incorporated in 2013, Lyft offers a variety of rides via private vehicles, including traditional private rides, shared rides, and luxury ones. Besides ride-share, Lyft also has entered the bike- and scooter-share market to bring multimodal transportation options to users.

(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
Expert Insights Shares Small Cap

Rail Congestion a Headwind, but Robust Contract Pricing Driving Impressive EBIT Growth for Hub Group

In its flagship intermodal division, Hub contracts with the Class I railroads for the line-haul movement of its containers. It operates the second-largest fleet in the industry, with exclusive access to more than 30,000 containers, and enjoys an approximate 10% market share. By gross revenue, J.B. Hunt is the largest intermodal marketing company, followed by Hub and the intermodal divisions of Schneider National, XPO Logistics, and Knight Swift.

Hub has constructed intermodal and truck brokerage networks of sufficient scale to be attractive to customers (shippers) and suppliers, both of which benefit from using a larger intermediary. Sophisticated IT systems and market know-how enable customers to outsource intermodal shipping to an expert specialist, while Hub’s large volume of loads and significant control of containers make it an attractive customer to the Class I railroads. The company’s primary rail carriers are Norfolk Southern in the East and Union Pacific in the West.

Financial strength

Hub Group’s balance sheet is healthy, and the firm is not overly leveraged. At the end of 2020, Hub held a manageable amount of amount of debt, which is normally used to help finance equipment purchases as well as tuck-in acquisitions like the 2020 NonStopDelivery deal. Total debt came in near $270 million in 2020, including minimal capital lease obligations. Debt/EBITDA stood at a comfortable 1.1 times versus 1.0 times in 2019 and a five-year average near 1.4 times. The firm held roughly $125 million in cash at year-end 2020 versus $169 million in 2019. Historically, Hub’s model generated decent free cash flow in years when it wasn’t acquiring intermodal containers. Overall, free cash flow averaged 1.7% of gross revenue over the past five years, with capital expenditures approximating 3% of sales (3.2% in 2020). Capital expenditures will likely come in near 4% of sales in 2021 due in part to investment in additional intermodal containers to capitalize on growth opportunities.

Bulls Say’s

  • Spiking consumer goods spending and heavy retailer restocking are driving incredibly strong freight demand, tight trucking market capacity, and favorable pricing conditions for all of Hub’s operations in 2021.
  • Intermodal shipping enjoys positive long-term trends, particularly secular constraints on truckload capacity growth and shippers’ efforts to minimize transportation costs through mode conversions (truck to rail).
  • Intermodal market share in the Eastern U.S. still has runway for growth as rising rail service levels support incremental truck to rail conversion activity.

Company Profile 

Hub Group ranks among the largest asset-light providers of rail intermodal service. Following the August 2018 divestiture of logistics provider Mode, which was run separately, its core operating units are intermodal, which uses the Class I rail carriers for the underlying line-haul movement of containers (60% of sales); highway brokerage (12%); Unyson Logistics, which provides outsourced transportation management services (20%); and Hub Dedicated (8%), an asset-based full-truckload carrier.

(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.