Investment Matters

Company News

Earlypay (positive impact) held its Annual General Meeting this week.

The headline was a strong increase in its forecast profit for this year.

It has lifted its profit forecast by 25% for this year.

This is on the back of guiding towards a 40% profit growth earlier in the year.

Though we are still processing the news – the update appears incredibly positive.

We will be speaking with the company today and updating our modelling over the coming week.

Fundamentally, the company remains cheap relative to the strong earnings it is expected to deliver.

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Last week, Here, There and Everywhere (positive impact) announced it will acquire Grants Broadcasters.

Grants Broadcasters is a leading regional radio broadcaster with 58 radio stations, 46 DAB stations across 33 markets.

We met with the company at this week’s UBS Australia Conference.

The $307.5m transaction (funded with a mix of cash) will see HT&E’s reach expand to regional markets.

Why regional? Regional radio has shown a lot more resilience than Metro: much to do with demographics and the strong “local” element of content.

Furthermore, on an advertising spend to population basis, there is an under penetration of advertising spend (readers will recall that Southern Cross Media has also pursued growing regional advertising through its “Boomtown” initiative).

The combination should allow HT&E to upsell to advertising agencies/clients – i.e., offer a “national” advertising package. The company estimates this will result in $20m of revenue synergies over the coming years.

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Cardno (positive impact) announced it is undertaking a strategic review for its International Development business.

Previously, the company has announced the sale of its Americas and Asia Pacific segments and intended on retaining its International Development business.

To us, the announcement indicates there has been a considerable amount of interest in the business and that a sale is likely – which may provide for some additional icing on a profitable investment.

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Incitec Pivot (positive impact) announced its FY-21 result.

Prices, particularly in fertilisers, have been accommodating over the year, benefiting from strong demand and inflation.

Pleasingly, its ammonia plant in Louisiana operated at nameplate capacity in the second half of the year. This meant the company was able to take advantage of buoyant fertiliser prices – which substantially lifted its operating profit (as discussed above).

The company has suffered from some issues with the plant over the year however is confident it has remediated these issues and put a plan and operating structure in place to improve plant reliability.

We took advantage of knee jerk reactions by the market over the year to purchase shares at a substantial discount to their current trading price.

The other news from the company is that it will be closing its Gibson Island manufacturing plant in Queensland towards the end of 2022. An inability to secure future-dated gas contacts at an economic price had led to the decision to close the plant – which has teetered on the edge of profitability for several years.

The company will instead source its nitrogen products predominantly in Australia.

However, the company, in conjunction with Fortescue Future industries, is exploring the conversion of the plant to a green hydrogen (hydrogen generated using electricity from renewable resources) plant.

As highlighted at this week’s UBS conference, companies are increasingly shifting towards minimising or offsetting their carbon footprint. This is as the impact that companies have on natural capital (i.e., the environment) is increasingly being measured and reflected in prices.

This, in combination with an evolution in costs, may allow Incitec to earn a premium on “green ammonia” in the future.

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United Malt Group (positive impact) released its FY-21 result.

Its earnings recovery remains on track as venues re-open and people return to pubs, bars and clubs.

The company anticipates processing volumes to be back to pre-COVID levels early next year, as restrictions ease in Asia.

A shift back to processing more “premium” malts (used in craft brewing) as opposed to mass market “base” malts should see margins lift in the near term.

Pleasingly, margins in its warehouse and distribution segment picked up significantly – which might point to the craft segment beginning to recover.

There are however some short-term challenges. The drought in Canada has meant the company has had to source barley internationally and rising prices mean it will need to spend more completing its Scottish malt facilities.

However, for the most part, United Malt is able to pass on its costs to customers (barley costs are contractually passed through).

As volumes recover and its processing mix is restored (base malt vs specialty), we see it as a beneficiary from an inflationary environment and takeover target.

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Emeco (positive impact) held its Annual General Meeting this week.

Pleasingly, the company provided an update on its performance this year – with its profit for the first half tracking in line with expectations.

The company expects to have a strong second half as the rates they charge and utilisation of equipment on loan improves, particularly in Western Australia. This should deliver profit for the financial year that is in line with expectations (potentially exceeding them).

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