NEWS
12 Jul 2024 - Performance Report: Argonaut Natural Resources Fund
[Current Manager Report if available]
12 Jul 2024 - Performance Report: Bennelong Long Short Equity Fund
[Current Manager Report if available]
12 Jul 2024 - Fast food profits
|
Fast food profits Montgomery Investment Management June 2024 I have previously written here that one of the most repeatable ways to make money on the Australian Stock Exchange (ASX) is to buy into a retail store rollout story early. Catching the steepest part of the 'S' curve when revenue and profit growth are accelerating while head office becomes simultaneously more efficient usually produces good results thanks to the accompanying rise in the share price. And when like-for-like sales of existing stores are still growing and the number of new stores being added is high in proportion to the number of existing stores, jumping aboard early provides an even more beneficial tailwind. Store growth ambitions are often disclosed in a company's initial public offering (IPO) prospectus and within twelve months, investors usually have a good idea about management's ability to deliver on the stated plans, as well as customers' love for the concept. Recent retail success stories Some recent and not-so-recent examples include Lovisa (ASX:LOV), which sold its product through 60 stores in 2012. When it was listed in 2014, it had grown to 220 stores. Eight years after listing, Lovisa distributes its jewellery through 449 stores. And since it listed, the share price is 976 per cent higher. JB Hi-Fi (ASX:JBH) listed in October 2003, with just 25 stores, issuing shares at $1.55. Today, with 316 stores (including acquisitions of Clive Anthonys and The Good Guys) the shares trade at $58.46, a return of 3671 per cent, or 19.1 per cent per annum over 20 years, excluding dividends. The furniture retailer Nick Scali (ASX:NCK) was listed in May 2004. At the time of its 2004 full-year results, it reported sales of $43.4 million and earnings of $6.7 million from just 10 stores. The IPO price was $1. With 85 stores today, and more than 90 Plush stores, the share price is up 1378 per cent at $13.78, or 14 per cent per year over 20 years. Guzman y gomez IPO Recently, the healthy, fast, Mexican-inspired food chain Guzman y Gomez launched its prospectus for an already fully subscribed IPO to list shares on the ASX on 25 June. With its first store opening in 2006, and 185 stores in Australia currently, Guzman y Gomez's management has already proven to be one of Australia's fastest-growing quick service restaurant (QSR) teams. Guzman y Gomez plans to have over a thousand domestic stores in the next twenty years. This compares with McDonalds (NYSE:MCD) Australia, which opened its first store in 1971, reached 869 stores in 2011 and now has 1043 stores. Elsewhere, Subway, which launched in 1988, has 1227 stores across Australia today, while Domino's (ASX:DMP), which set up shop in 1983, now has 736 stores. And like Lovisa, JB Hi-Fi and Nick Scali before it, Guzman y Gomez lists 'new store openings' as its top source of future growth, stating, "new restaurant openings in Australia are expected to be the primary contributor to Guzman y Gomez's network sales growth over the long term. Guzman y Gomez believes there is an opportunity to grow its network to more than 1,000 restaurants in Australia over the next 20-plus years. The company believes that it has substantially built the team, restaurant pipeline, and infrastructure to be able to open 30 new restaurants per annum over the near-term [it opened 26 in CY23], increasing to 40 restaurants per annum within five years." As an aside, there are also 16 stores in Singapore, five in Japan and four in the U.S. Not only are store openings going to continue, they are expected to accelerate. That's the first source of growth. Importantly, individual store economics are extremely attractive, with Guzman y Gomez expecting to achieve a return on investment (ROI) in line with existing stores of approximately 50-55 per cent on new corporate restaurants and its franchisees to achieve an ROI of approximately 30 per cent on new franchise restaurants, with the difference being due to the royalty paid by franchisees. Not only is the number of these highly profitable stores expected to grow significantly and accelerate, but restaurant margins are also expected to improve. Guzman y Gomez restaurant margins improve with volume, and volume rises as Guzman y Gomez stores mature. In 2023, corporate restaurant margins were 14.4 per cent. In 2024, that margin is expected to rise to 17.1 per cent and 17.8 per cent in 2025. At the same time, the Franchise royalty rate is expected to rise from an average 7.6 per cent in FY23 to 8.3 per cent in 2025. And as the store count grows, the general and admin related costs should come down. Indeed, the company is aiming for a reduction in G&A-to-network-sales from the expected 6.8 per cent of sales in FY25. Accelerating store openings, continuing like-for-like sales growth, expansion in restaurant margins and franchise royalty rates should all add up to strong earnings growth, something investors are desperately seeking in an environment marred by slowing economic growth and heightened interest rates. What remains for investors to consider is the price they might be paying for all this growth. Cornerstone investors, which include Aware Super and Copper Investors, are acquiring their shares at $22 each following a 250-for-one share split. That price represents a very high price-earnings (P/E), so one might wonder what the cornerstone investors see that's worth paying up for, especially given at that multiple there will be any number of investors who turn their back on the opportunity. So is Guzman y Gomez the ultimate investor Mexican standoff? Valuation considerations Most investors value QSR businesses on an earnings before interest, tax, depreciation and amortisation (EBITDA) multiple basis, and the number on the prospectus is about 38 times, which, again, is very high. Importantly, it's worth understanding that 38 times includes the losses the company is currently incurring in the U.S. strip out those losses and the multiple applicable to the Australian business is about 32 times. It's also worth acknowledging a change in the terms between the company and its franchisees. When Guzman y Gomez first launched, the standard franchise contract included an eight per cent of sales royalty. Given Guzman y Gomez franchisees earn abnormally high returns on investment, Guzman y Gomez changed that franchise royalty to eight per cent of sales up to three million dollars per store and 15 per cent above that. All new franchise arrangements are struck on the new terms and old franchise arrangements, when they come up for renewal, will move to the new platform. Assuming Guzman y Gomez didn't open another restaurant ever again and existing stores traded without any further improvement, the shift to the new contract terms would see the EBITDA multiple falls from 32 to approximately 28 times. Meanwhile, if the company also opens its targeted 30 stores next year, never opens another store again after 2025, and these stores trade in line with existing stores, the EBITDA multiple falls to 23 times. It is clear from the prospectus, the company plans to open many more stores in coming years. International comparisons Despite Guzman y Gomez's prospectus appearing to play down its international growth opportunities, it may nevertheless be worth comparing the adjusted EBITDA multiple to global peers. A relevant comparison would be Cava (NYSE:CAVA), which IPO'd in the U.S. in June 2023, also at U.S.$22 per share, funnily enough. Upon listing, Cava shares surged 89 per cent to U.S.$42 amid that clearly welcomed long-term sustainable growth stories, especially category-defining brands. Cava has about 200 stores and trades at 82 times EBITDA. Meanwhile, Chipotle (NYSE:CMG), which is obviously the behemoth in the space, and arguably mature, with 6,000 stores, trades at 34 times. With an already proven store concept, a significant store rollout opportunity ahead, and a proven management team to execute that store rollout, some investors are clearly arguing the multiple is reasonable. And with existing shareholders (including your author) escrowed until August 2025, the supply of shares may be tight. Investing in the rapid rollout of a successful store concept has been one of the easiest and most repeatable ways to make money in the Australian stock market. The listing of Guzman y Gomez in June this year will help determine if that strategy remains relevant. Author: Roger Montgomery Funds operated by this manager: Montgomery (Private) Fund, Montgomery Small Companies Fund, The Montgomery Fund |
11 Jul 2024 - Performance Report: Glenmore Australian Equities Fund
[Current Manager Report if available]
11 Jul 2024 - Performance Report: Bennelong Australian Equities Fund
[Current Manager Report if available]
11 Jul 2024 - EMD outlook: election fever
|
EMD outlook: election fever abrdn June 2024 We look forward to the numerous elections that have the potential to shape the asset class and what it could mean for investors.There is rarely a dull moment in emerging market debt (EMD), and the first six months of 2024 have been no different. While the opening half of the year hasn't produced the blockbuster returns of 2023, there have been plenty of talking points. Most notably around elections and debt restructurings. Bond outlook pieces often mention developed market monetary policy as a driver of returns, and rightly so. For emerging markets (EMs) in 2024, however, a different theme has emerged- elections. To date, voters have gone to the polls in Bangladesh, Taiwan, El Salvador, Pakistan, Senegal, India, Mexico, Turkey and South Africa. We don't have time to run through the individual country outcomes but there are a few that warrant a closer look. Let's turn our attention to Pakistan. In January, a civilian government came to power, pledging fiscal consolidation and promising to build foreign exchange (FX) reserves. Sound familiar? That's because it is. Pakistan is now looking to enter a record 24th International Monetary Fund (IMF) programme. The question remains: will the outcome be different this time? The early signs are promising. Ongoing disinflation has allowed the central bank to loosen monetary policy. The balance of payments recently turned positive. But let's not get carried away. This story is still unfolding, and we'll keep a close eye on developments over the coming months. In Mexico, the election of Claudia Sheinbaum, a protégé of the current president (AMLO), is expected to maintain the political status quo. Sheinbaum will need to focus on reducing the deficit from 6% of gross domestic product to a manageable level. The fiscal deficit blew out in the run-up to the election, as AMLO increased unfunded social security payments - among other social transfers - in a bid to shore up support. It certainly did the trick. Sheinbaum will also have to reckon with Pemex, the state-owned energy company groaning under heavy debt and declining crude production. AMLO's decision to include Pemex's amortisation payments in the national budget for the first time also increased the deficit. It's hard to see how Sheinbaum will address these issues in the near future. Democracy alive and wellLiberal democracy has come under pressure over the last few years. It was therefore encouraging to see the world's largest democracy, India, go to the polls in a general election that was generally seen as free and fair. Such is the scale of proceedings that voting took place over six weeks. President Modi has walked away wounded but victorious. His BJP party remains the largest in congress and coalition partners are unlikely to block his planned economic initiatives. Finally, in South Africa, the loss of the ANC's majority for the first time since the dawn of democracy shocked the party. For the moment, things are likely to remain the same. Yet, looking ahead, there's an increased chance of the government collapsing, leading to either parliament choosing a new president or calling for new elections. Stay tuned. What does this mean for investors?Why are we focusing on country-specific events? Because it's in idiosyncratic stories where we see the most compelling investment opportunities. This plays to our strength in EMD: fundamental bottom-up research to generate alpha. At an index level, spreads across bond markets, including EMD, are tight compared with historic levels. Meanwhile, investment-grade spreads have been unattractive for several quarters. We remain underweight here. Over a year ago, we identified value in the distressed and CCC segments. The near completion of several debt restructurings has validated this view, leading to outperformance. Recently, investors accepted Zambia's debt restructuring deal, crafted by official creditors, the IMF and the private sector. These deals should lead to renewed inflows into Zambia and bodes well for Ghana and Sri Lanka, which are negotiating their own deals. While we haven't seen credit-rating upgrades for CCC-rated issuers - where the most significant spread changes have occurred - further narrowing of spreads is likely should such upgrades occur. What's the outlook?And so to the US Federal Reserve. Its decision to delay rate cuts has notably affected EM local bond markets, which are particularly sensitive to shifts in interest rate cut expectations. At the end of May, the EM Index was down -2.7% year-to-date. Despite the current challenges, rate cuts in EMs are coming. Monetary policy remains tight, growth is lagging long-term averages, and base effects mean inflation should continue to fall. Despite the macro backdrop, local bond markets continue to price-in tight monetary policy. We're holding positions and adding selectively in anticipation of the market delivering elevated returns in the coming months. After lagging EMs in 2023, EM Corporate Debt has outperformed in the first half of the year. Fundamentals remain in good shape, reflected in the low default rate year-to-date. At the end of April, the rate stood at just 0.7%, well-below the historical average. Most defaults in this asset class are coming from China's high-yield property sector. Like the sovereign market, spreads have been tightening recently, reaching near-historic lows. Despite this, the high absolute yield of over 7% remains appealing. For now, there seems to be little that could halt the momentum of the spread rally. Finally, a quick word on frontier local markets. What's changing? The answer is: a lot - and for the better. Policymakers are building external buffers, inflows into the local market are contributing to the rebuilding of FX reserves, and financing from commercial and official sources is on the rise. Meanwhile, fiscal consolidation and tightening monetary policy are helping to establish policy anchors. Finally, high nominal yields and attractive carry in countries like Pakistan, Nigeria, Kenya, and Egypt mean that these markets are garnering investor attention and are worth considering for investment. Author: Leo Morawiecki |
|
Funds operated by this manager: Aberdeen Standard Actively Hedged International Equities Fund, Aberdeen Standard Asian Opportunities Fund, Aberdeen Standard Australian Small Companies Fund, Aberdeen Standard Emerging Opportunities Fund, Aberdeen Standard Ex-20 Australian Equities Fund (Class A), Aberdeen Standard Focused Sustainable Australian Equity Fund, Aberdeen Standard Fully Hedged International Equities Fund, Aberdeen Standard Global Absolute Return Strategies Fund, Aberdeen Standard Global Corporate Bond Fund, Aberdeen Standard International Equity Fund, Aberdeen Standard Multi Asset Real Return Fund, Aberdeen Standard Multi-Asset Income Fund |
10 Jul 2024 - Performance Report: DS Capital Growth Fund
[Current Manager Report if available]
10 Jul 2024 - Performance Report: Airlie Australian Share Fund
[Current Manager Report if available]
10 Jul 2024 - BHP's emissions reduction pathway
|
BHP's emissions reduction pathway Tyndall Asset Management June 2024 BHP Group Limited (BHP), a global mining giant, has reaffirmed its commitment to sustainability through an in-depth decarbonisation strategy, which was showcased during an investor presentation on 26 June 2024. The company is making significant strides toward achieving its ambitious medium- and long-term decarbonisation goals, focusing on substantial reductions in greenhouse gas (GHG) emissions across its operations and value chain. This insight delves into BHP's progress, key initiatives, and future plans for decarbonisation. Operational Emissions Reduction: Progress and GoalsBHP is on track to meet its target of reducing scope 1 and 2 emissions by 30% by FY2030, compared to FY2020 levels. By FY2023, the company had already achieved a 32% reduction, predominantly through investments in long term renewable energy power purchase agreements, underscoring its commitment to a sustainable future. To maintain this level of performance as the company - and its emissions - continues to grow is a substantial investment of approximately US$4 billion in decarbonisation initiatives up to FY2030. Key Initiatives:
Figure 1: BHP's operational decarbonisation trajectory |
9 Jul 2024 - Why invest in global equities
|
Why invest in global equities Magellan Asset Management June 2024 |
|
Australian investors often prefer to invest in Australian shares due to their familiarity with local companies. For generations, many have held shares in iconic Australian firms like BHP Billiton, Woolworths, and Westpac Banking, or their predecessors. While many Australians invest locally, they are spending with global companies, regularly choosing to consume products and services from global mega-brands. In our connected lives, we awake to an alarm from our Apple iPhone, sip our morning at-home coffee from Nestlé and tap Visa or Mastercard as we board the train or jump in an Uber. Australians heavily rely on global technology brands such as Microsoft Windows, Netflix, Spotify, Apple iPhone, Alphabet for Google internet searches and Meta Facebook and Instagram for social networking. Our pantries and bathrooms are filled with many of Nestlé's 2000 brands, especially some of its 31 mega-brands (Nespresso, Milo, Kit-Kat, Nescafe, Purina, Nature's Bounty Vitamins) as well as Lóreal's broad array of beauty products (Aesop, Garnier, Redken, Lancome). A stop at McDonalds is a feature of many Australian road trips. We use credit cards and mobile Wallets for almost all payments, via international financial services providers like American Express, MasterCard, Visa and Apple Pay and increasingly shop online using platforms like Amazon. Our medicines are developed by pharmaceutical companies based abroad such as in Switzerland or the US, and our surgeries are undertaken using precision equipment by multinational companies. Despite the familiarity and extensive usage of these international brands and products, many Australians have been less confident to own shares in them. Exploring the potential of investing in international shares could offer two significant benefits: Broadening Investment Opportunities Diversifying Risk Four key attributes that may contribute to achieving these two outcomes with international investing: 1. Look globally for the world's best companies. We consider that many of the world's best companies are found overseas - where 98% of stocks, by market capitalisation, are located. Alphabet (Google's parent company), Apple, Meta (Facebook, Instagram and 2. More industries to choose from. Investing in international equities can offer access to emerging industries poorly represented on the ASX. For example, for those seeking exposure to the prospects of artificial intelligence, 3D-printing, Cloud or cybersecurity, 3. Reduce local exposure. A portfolio that holds only Australian assets such as property, term deposits and Australian stocks is vulnerable to fluctuations in the Australian economy. The lack of diversification may expose investors to higher levels 4. Spreading currency risk. Investing in different markets may help diversify currency risk. Investing in international equities offers exposure to foreign currencies as the global stocks are bought in the local currency of their listing, which may include Investing in global equities offers Australian investors the opportunity to tap into the familiarity they already have with global mega-brands and access broader investment opportunities. By venturing into the global market, investors gain access to a wider array of industries and sectors underrepresented or absent on the Australian stock exchange. Investing in global equities can provide exposure to some of the world's best companies, diversification, and the potential for long-term growth. |
|
Funds operated by this manager: Magellan Global Fund (Hedged), Magellan Global Fund (Open Class Units) ASX:MGOC, Magellan High Conviction Fund, Magellan Infrastructure Fund, Magellan Infrastructure Fund (Unhedged), MFG Core Infrastructure Fund, Magellan Core ESG Fund Important Information: This material has been delivered to you by Magellan Asset Management Limited ABN 31 120 593 946 AFS Licence No. 304 301 ('Magellan') and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendation. This material does not take into account your investment objectives, financial situation or particular needs. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investment product or service. You should obtain and consider the relevant Product Disclosure Statement ('PDS') and Target Market Determination ('TMD') and consider obtaining professional investment advice tailored to your specific circumstances before making a decision about whether to acquire, or continue to hold, the relevant financial product. A copy of the relevant PDS and TMD relating to a Magellan financial product may be obtained by calling +61 2 9235 4888 or by visiting www.magellangroup.com.au. Past performance is not necessarily indicative of future results and no person guarantees the future performance of any financial product or service, the amount or timing of any return from it, that asset allocations will be met, that it will be able to implement its investment strategy or that its investment objectives will be achieved. This material may contain 'forward-looking statements'. Actual events or results or the actual performance of a Magellan financial product or service may differ materially from those reflected or contemplated in such forward-looking statements. This material may include data, research and other information from third party sources. Magellan makes no guarantee that such information is accurate, complete or timely and does not provide any warranties regarding results obtained from its use. This information is subject to change at any time and no person has any responsibility to update any of the information provided in this material. Statements contained in this material that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Magellan. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. No representation or warranty is made with respect to the accuracy or completeness of any of the information contained in this material. Magellan will not be responsible or liable for any losses arising from your use or reliance upon any part of the information contained in this material. Any third party trademarks contained herein are the property of their respective owners and Magellan claims no ownership in, nor any affiliation with, such trademarks. Any third party trademarks that appear in this material are used for information purposes and only to identify the company names or brands of their respective owners. No affiliation, sponsorship or endorsement should be inferred from the use of these trademarks. This material and the information contained within it may not be reproduced, or disclosed, in whole or in part, without the prior written consent of Magellan. |
The three factors driving stock returns (pdf format)
