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Dividend Stocks

The Strategic review of Tabcrop Favours a Demerger Rather Than a Sale

Further, Tabcorp’s retail exclusivity has little value when punters can place bets with competitors from their smart phones while inside TAB-exclusive venues, such as pubs. We currently model Tabcorp as a combined entity with the demerger earmarked for completion by June 2022, and make no changes to our AUD 3.40 fair value estimate and no-moat rating.

With long-dated licences across all Australian states other than Western Australia, the lottery business enjoys an monopolistic position in its addressable market, and this is bolstered by the scale of its national prize pool. Optimistic about the lottery segment’s opportunity to better realise these competitive advantages and support a strong dividend payout ratio once unshackled from the beleaguered wagering business–the highly cash-generative lotteries business has historically acted as a funding source for capital-intensive wagering investment.

While signaling it remains opens to improved bids, Tabcorp has baulked at the myriad conditions and hurdles to get the various proposals lobbed for its wagering and media business over the line–notably approval from state gaming regulators and racing industry partners.

Company Profile

Tabcorp operates through principally three segments: wagering and media, lotteries and keno, and gaming services. The firm conducts wagering activities under the TAB brand both online and physically in every Australian state and territory other than Western Australia, reaching 90% of the population through a network of retail venues. Tabcorp also operates regulated lotteries in every Australian state except Western Australia. In addition, Tabcorp Gaming Solutions provides services to electronic gaming machine venues.

(Source: Morningstar)

General Advice Warning

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

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Dividend Stocks Expert Insights

Smucker – Long Run Benefits Should Be Gained From Increased Pet Adoption and Flexible Work Arrangements

. Collectively, pet food and coffee comprise nearly 70% of Smucker’s sales. Despite this benefit, we forecast just 2% annual sales growth for the firm (less than that of the total at-home feed and beverage industry), as Smucker’s high exposure to mainstream and value segments in pet food and coffee should result in continuing market share losses as consumers are trading up to premium offerings. Smucker is attempting to offset this pressure with products more aligned with consumer trends, such as Uncrustables on-the-go snacks, it will take a few years for these smaller brands to move the needle.

Financial Strength

The Big Heart Pet Brands acquisition in 2015 increased the net debt/adjusted EBITDA ratio to above 6 from 2. Smucker paid $5.9 billion for the business, 13 times EBITDA, which we believe was rich, particularly considering the acquired brands’ poor positioning in the category. We believe management was prudent in its decision to sell the nonstrategic canned milk business shortly thereafter for $194 million to free up capital in order to accelerate debt reduction. Share repurchases were also significantly curtailed in 2015, which we view as sensible. Net debt to adjusted EBITDA declined to a manageable 2.8 times by 2018, in our opinion, before the firm announced it was acquiring pet food producer. Smucker’s free cash flow (CFO less capital expenditures) as a percentage of revenue has averaged high single digits to low double digits historically, and we expect similar results going forward. With net debt/adjusted EBITDA below 3 times, the firm’s priorities for cash are dividends, capital expenditures, acquisitions, and share repurchase. In the past 10 years, Smucker has averaged a 50% dividend payout ratio (in line with peers), and we expect it will continue to do so; our forecast anticipates 2%-6% annual dividend increases.

Bulls Say

  • A significant increase in R&D and marketing (and increasing productivity of those investments) should enhance Smucker’s capabilities, helping it capitalize on consumer trends.
  • During the pandemic, consumers adopted 11 million pets and purchased 3 million coffee machines, which should provide a lasting benefit for categories representing nearly 70% of Smucker’s fiscal 2021 sales.
  • Executive leadership changes (newly created chief operating officer role, leadership changes for the U.S. sales organization and the pet food segment) should improve execution and enhance accountability.

Company Profile

J.M. Smucker is a packaged food company that primarily operates in the U.S. retail channel (88% of fiscal 2021 revenue), but also in U.S. food-service (5%), and international (7%). Its largest category is pet food and treats (36% of 2021 revenue), with popular brands such as Milk-Bone, Meow Mix, 9Lives, Kibbles ‘n Bits, Nature’s Recipe, and Rachael Ray Nutrish. Its second-largest category is coffee (33%) with the number-two brand Folgers and number-six Dunkin’. Other large categories are peanut butter (10%), with number-one Jif, fruit spreads (5%) with number-one Smucker’s, and frozen hand-held foods (5%) with number-one Uncrustables.

(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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Technology Stocks

Texas Instruments Deserves the Benefit of the Doubt With its Lehi Fab Acquision

85215903 - attractive businessman using mobile phone while having lunch

TI is already building a new 300mm wafer fab, RFAB2, which should come online in the second half of 2022 and have enough capacity for $5 billion of incremental annual revenue (as compared with roughly $18 billion in sales for the company expected in 2021).

Investors have questioned whether TI will generate enough future revenue to fill RFAB2, so acquiring the Lehi fab might be deemed excessive. However, TI’s exemplary management team should be given the benefit of the doubt for now, as Micron noted that it is selling the fab at less than book value.

Given TI’s $6.7 billion of cash on hand as of March 2021, as well as a low-interest rate environment if TI wanted to fund the deal with debt, TI isn’t putting its financial future at risk by buying another fab, even if Lehi were to sit underutilized for an extended amount of time. It also appears to us that the market for used fab equipment has been rather tight, so buying an additional fab and more equipment might make sense, even if the timing is less than ideal since the RFAB2 opening is on the way.

The economics of a merger might not make sense if TI has to build new facilities to take on chip orders from the acquired business, but if TI has already made the necessary fab investments and has underutilized 300mm facilities on hand, the return on investment on future deals might make more sense for TI in the long run.

Company Profile

Dallas-based Texas Instruments generates about 95% of its revenue from semiconductors and the remainder from its well-known calculators. Texas Instruments is the world’s largest maker of analog chips, which are used to process real-world signals such as sound and power. Texas Instruments also has a leading market share position in digital signal processors, used in wireless communications, and microcontrollers used in a wide variety of electronics applications.

(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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Shares Small Cap

Genworth will find it Challenging to Grow its LMI Business In the face of Slow Credit growth and Increased Competition

Arch Capital Group received Australian Prudential Regulation Authority, or APRA, approval to enter the market in 2019 and announced it would acquire Westpac’s LMI business in 2021. This marked increased competition for Genworth and QBE in Australia.

LMI protects a lender against a potential gap between the outstanding loan amount plus costs and the sale proceeds from the mortgaged property. While it’s the lender who is protected and decides whether to purchase LMI, the premium is paid by the borrower. Low growth in high loan/value ratio, or HLVR loans, due to low system wide home loan growth, as well as banks being more risk-averse after the Royal Commission and tightening of lending standards is expected. An economic backdrop where Australians are holding historically high levels of home-loan debt, and wage growth is low, makes strong credit growth and a significantly stronger appetite for loans with higher LVRs unlikely.

Key Investment Considerations

  • Higher-risk home loan exposure means Genworth is very sensitive to the Australian economy, particularly employment and house prices. In a downturn, it faces the likely lower premiums, higher claims and reduced investment returns.
  • The full-recourse nature of Australia’s home loans reduces potential claims risks and in a benign economy it has proved profitable, earning profits in all but two years of its roughly 50-year history.
  • A sound balance sheet means there is the prospect of further capital-management initiatives.

Financial strength

Genworth is regulated by APRA to maintain a certain prescribed capital level, or PCA. Genworth’s PCA is driven primarily by its LMI concentration risk charge (which is mainly based on its probable maximum loss based on a three-year economic or property downturn of an APRA determined 1-in-200 year severity level) and insurance risk charge (the risk that net insurance liabilities are greater than the value determined by the actuary). Genworth targets a regulatory capital base of 1.32 times-1.44 times its PCA, which it has been consistently above. The PCA as at March 31, 2021, is a healthy 1.63 times.

Bulls Say

  • Fiscal and monetary stimulus cushion the economic downturn in Australia, resulting in a rise in

delinquencies but allows Genworth to remain profitable and continue to generate profits over the longer term.

  • A sound balance sheet provides the capacity to continue to institute capital management initiatives, including special dividends and buying back more shares.
  • The recent relaxation of some macro-prudential measures and low cash rates may spur lenders to issue more investor and HLVR home loans, which Genworth is well positioned to benefit from.

Company Profile

Genworth Mortgage Insurance Australia listed on the Australian Securities Exchange in 2014 after its U.S.-based parent, Genworth Financial Inc. (NYSE: GNW), sold down its stake. It has since exited. With a history spanning over 50 years, Genworth Australia is a provider of lenders’ mortgage insurance, or LMI, in Australia. In Australia, LMI is predominantly purchased on loans with a loan/value ratio, or LVR, above 80%. LMI protects a lender against a potential loss (gap) between the outstanding loan amount and sale proceeds on a delinquent loan property. LMI does not protect the borrower, however the premium is paid by the borrower. It’s regulated by the Australian Prudential Regulation Authority, or APRA, which requires it to meet minimum regulatory capital requirements.

(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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Shares Technology Stocks

ARB Is an Attractive Business, but the Price Needs to Improve

Shares in ARB trade at a material premium to our unchanged fair value estimate of AUD 19.50. Granted, ARB is a high quality company. The firm’s ranges of vehicle accessories have established significant brand strength in Australia, underpinning our narrow economic moat rating for the firm.

The firms is extremely well-run and assign ARB an Exemplary capital allocation rating based on our assessment of balance sheet risk, investment efficacy, and shareholder distribution. We expect ARB to enjoy some operating leverage as its store network expands and its international businesses, most notably in the U.S., improve scale. But we do not believe the firm’s international foray will replicate the success enjoyed domestically.

The firm has been unable to enjoy this pricing premium offshore, as demonstrated by lower segment margins. In our view, ARB’s current lofty share price indicates domestic success is being extrapolated by investors to the firm’s international business.

Financial Strength

ARB’s balance sheet is in pristine condition. At Dec. 31, 2020, the company had no debt and a net cash position of AUD 84 million. This is despite major investment in the Thailand and Victoria warehouses and continued new store rollouts. We forecast the firm remaining in a net cash position through fiscal 2021, with short-term financing facilities providing further headroom in the balance sheet to meet cash flow requirements. The firm’s major funding requirements are store rollouts, international expansion, and working capital in line with growing sales.

Bulls Say

  • Online competition is not a significant threat to ARB’s business. Products usually require professional fitting (often in ARB stores), and the often heavy and bulky accessories can make delivery cost prohibitive.
  • ARB’s range of vehicle accessories have established significant brand strength, underpinning its narrow economic moat, allowing the firm to enjoy pricing power and high returns on invested capital.
  • ARB has opportunities for growth with store roll-outs in Australia and continued overseas expansion.

Company Profile

ARB Corporation designs, manufactures, and distributes four-wheel-drive and light commercial vehicle accessories. The firm has carved a niche with aftermarket accessories including bull bars, suspension systems, differentials, and lighting. ARB operates manufacturing plants in Australia and Thailand; sales and distribution centers across several countries. The Australian division, which generates the vast majority of group earnings, distributes through the ARB store network, ARB stockiest, new vehicle dealers, and fleet operators.

(Source: Morningstar)

General Advice Warning

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

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Dividend Stocks Expert Insights

Federal Realty’s Portfolio of High-Quality Retail Thrive in Recovery

As a result, Federal Realty has been able to drive strong same-store net operating income growth and average double-digit re-leasing spreads over the past two decades.

Its portfolio should continue to attract shoppers and tenants and produce solid internal growth even in a challenging retail environment.

E-commerce continues to pressure brick-and-mortar retail as consumers increasingly move their shopping habits online. While many of Federal’s tenants must directly compete with the growth of e-commerce, much of the portfolio is insulated from online competition. Segments like grocery stores, restaurants, fitness centers, and other service-based businesses still drive traffic to physical retail centers. Regardless of the competition from e-commerce, location is still paramount for retailers. Retailers are becoming more selective with their physical locations, opting to locate storefronts in the highest-quality assets while closing stores in low-productivity sites. Thus, we expect Federal’s portfolio to remain in demand despite the changing retail environment.

However, Federal must deal with the fallout of the current corona virus pandemic. Many retailers were forced to close for a period of time and shopping at brick-and-mortar locations has fallen. While Federal’s revenue is somewhat protected by long-term leases, retailer bankruptcies have caused a drop in occupancy and Federal has been forced to offer rent concessions to keep others afloat. We believe that high-quality retail locations will rebound and will eventually return to their prior occupancy and rent levels, but the short-term impact to Federal’s cash flow has been significant.

Financial strength:

Federal is in good financial shape from a liquidity and a solvency perspective. The company seeks to maintain a solid but flexible balance sheet, which we believe will serve stakeholders well. Federal has an A-/A3 credit rating, so it should be able to easily access low-rated debt to service financial obligations. Debt maturities in the near term should be manageable through a combination of refinancing and the company’s significant free cash flow. Additionally, the company should be able to access the capital markets when development and redevelopment opportunities arise. We expect 2021 net debt/EBITDA and EBITDA/interest to be roughly 6.9 and 4.2 times, respectively, both of which are slightly outside of Federal’s targeted range but we believe the company will return to historical norms within a few years .As a REIT, Federal is required to pay out 90% of its income as dividends to shareholders, which limits its ability to retain its cash flow.

Company Profile:

Federal Realty Investment Trust is a shopping center-focused retail real estate investment trust that owns high-quality properties in eight of the largest metropolitan markets. Its portfolio includes an interest in 101 properties, which includes 23.4 million square feet of retail space and over 2,600 multifamily units. Federal’s retail portfolio includes grocery-anchored centers, superregional centers, power centers, and mixed-use urban centers. Federal Realty has focused on owning assets in highly desirable areas with significant growth, and as a result, the average population density and average median household income are higher for its portfolio than for any other retail REIT.

(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

Is Investing in Cryptocurrency a Good Idea?

The market, however, is constantly changing, and today’s top ten crypto coins aren’t the same as they were even a year ago. Some investments fail, while others go on to become the most profitable assets.

Despite the fact that it has been in operation for ten years, no other asset has ever done as well for early investors as Bitcoin. It’s impossible to predict how high each coin will go. Because cryptocurrencies like Bitcoin, Ethereum, and the others featured in this article are very volatile, trading them rather than investing in them can be the most rewarding way to enter the crypto market.

Bitcoin is a payment currency and cryptocurrency that is secured by a complex mathematical formula that is unbreakable. With the launch of Bitcoin, a whole new industry of competing cryptocurrency coins known as altcoins formed.

When Bitcoin hit its all-time high in 2017, it plummeted by 80%, causing many investors to lose money. Instead of losing money, those who chose to short Bitcoin benefited on the way down. It was also lucrative to enter a long position in Bitcoin at the bottom.

Because of its market dominance, first mover advantage, brand strength, and other factors, Bitcoin is frequently regarded as the best and safest cryptocurrency to invest in. Other cryptocurrencies may outperform or eventually replace Bitcoin, making it impossible to determine which cryptocurrency is the best overall.

Source:-

PrimeXBT

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

Downer’s Transformation to Urban Services Business Continues with More Mining Sold Down

In the past, Downer has also underperformed from an operational perspective, but the firm now appears to have learned some hard lessons. The company is pursuing a more capital-light business model for the future, with an emphasis on urban services. In late October 2014, Downer acquired Tenix, a major provider of long-term operations and maintenance services to the power, gas, water, industrial, and resources sectors in Australia and New Zealand. In April 2017, it bought facilities manager Spotless Group.

Key Considerations

  • In late fiscal 2014, Downer completed a high-profile state government rolling stock contract that had weighed on the company’s reputation for the past five years.
  • Based on AUD 36 billion of work-in-hand, Downer has over two and a half years of revenue life, close to the 2.5 year five-year historical average. This is courtesy of Spotless’ additions, many of which are considerably longer dated than mining and EC&M contracts.
  • A key concern in relation to future earnings relates to increased uncertainty surrounding the level and timing of new domestic infrastructure projects by the federal and state governments.

Company Profile

Downer operates engineering, construction, and maintenance; transport; technology and communications; utilities; mining; and rail units. But the future of Downer is focused on urban services, and mining and high-risk construction businesses are being sold down. The engineering, construction, and maintenance business has exposure to mining and energy projects through consulting services. The mining division provides contracted mining services, including mine planning, open-cut mining, underground mining, blasting, drilling, crushing, and haulage. The rail division services and maintains passenger rolling stock, including locomotives and wagons.

General Advice Warning

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

Categories
Fixed Income Fixed Income

Fidelity® Emerging Markets Z FZEMX

He joined Fidelity in 2006 as an analyst, and then built strong track records at Fidelity Pacific Basin FPBFX from 2013 and Fidelity Emerging Asia FSEAX from 2017 until he became the successor to this fund’s previous manager in February 2019. Since taking over the following October, Dance has leaned on Fidelity’s deep emerging- markets analyst team for support, a strong group that continues to play a role here as Dance learns more about the emerging markets he didn’t invest in at his previous charges.

Dance, a successful regional strategy manager, still must show he can consistently apply his process to a broader universe. He’s a growth-oriented investor who buys four kinds of stocks–sustainable growers, niche companies, firms with macroeconomic tailwinds, and special situations–and holds them for three to five years.

Dance considers regional economics and macro views more than many of his peers, looking to accumulate exposure in regions or sectors in which he sees high growth potential. He turned defensive in February 2020 after learning of the coronavirus outbreak in China, selling expensive stocks like Brazilian investment manager XP while buying consumer staples stocks like Angel Yeast and healthcare stocks like Shenzhen Mindray.

The portfolio reflects Dance’s preferences. Its average holding has better profitability metrics and competitive advantages than those of its MSCI Emerging Markets Index benchmark and diversified emerging markets Morningstar Category. Such stocks often come at a cost: The portfolio’s average valuation measures like price/earnings, price/book value, price/sales, and price/cash flow are higher than those of its benchmark and typical peer. Despite some price risk, Dance has succeeded at his previous charges with this approach, so there’s reason for optimism.

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

Invesco Main Street Mid Cap Y OPMYX

Anello had been a lead manager of this fund since 2012 and had worked with Main Street team founder Mani Govil since 2006, but the fund had been a mediocre performer under his watch, so his departure was not really a shock. Now the fund’s sole lead manager is Belinda Cavazos, who was hired in February 2020 to manage this fund and Invesco Rising Dividends OARDX. She previously spent three years at Boston Trust managing small and mid-cap funds with some success. But this fund is much larger than any of her previous charges, and turning it around will be no easy task.

This fund is a mid-cap counterpart to Invesco Main Street MSIGX, which tries to identify profitable, well-run companies trading at reasonable valuations. Cavazos has not made any major changes to the process, but she has tried to put her own stamp on the fund, especially since Anello left. She reduced the portfolio’s exposure to some interest-rate-sensitive sectors, notably real estate and utilities, and added to some cyclical names such as Vulcan Materials VMC and homebuilder

D.R. Horton DHI. She also reduced the overweighting in energy that the fund typically had under Anello and sold some large-cap names that didn’t really fit with the fund’s mid-cap mandate. The effect has been to make the fund less reliant on sector bets and more driven by stock-picking. So far, the results haven’t been great. In 2020, the fund trailed about two thirds of its midcap blend Morningstar Category peers, similar to its performance over the past three, five, and 10 years. Results were similarly disappointing in the first five months of 2021. It is hard to come to any firm conclusions based on such a short time period, but Cavazos will definitely need to achieve better results than this before concluding that the fund is on the right track.

This fund’s strategy is straightforward in most respects. It is similar to the approach used by Invesco Main Street MSIGX, but less tested. It earns an Average Process rating. Lead manager Belinda Cavazos and her six co-managers employ a version of the strategy developed over the years by Main Street team leader Mani Govil. They seek companies with strong management teams and a fundamental catalyst for future value creation over the next two to five years, such as pricing power, market share gains, or improving profitability.

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.