Monday 31 May 2021 4 stocks I’m flying high with for the long haul

“Picking & sticking” is a good investment strategy, provided what you select is a quality company in an industry that has growth ahead. Of course, picking is the easy bit. Sticking and being patient is the more challenging part of this money-making play. Here are 4 picks that are also 4 I’m sticking with, until good sense tells me otherwise.

Sincerely,

Peter Switzer

Inside this Issue 02 4 stocks I’m flying high with for the long haul 4 stocks I’m flying high with for the long haul by Peter Switzer 04 Woolworths & Endeavour Drinks – what you need to know and do Endeavour demerger by Paul Rickard 08 Five $5 stocks Five $5 stocks 4 stocks I’m flying high by James Dunn 12 My “HOT” stock: GrainCorp (GNC) with for the long haul GrainCorp (GNC) by Peter Switzer by Maureen Jordan 02 13 Buy, Hold, Sell – What the Brokers Say 9 upgrades, 8 downgrades by Rudi Filapek-Vandyck

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before Switzer Super Report is published by Switzer Financial Group Pty Ltd AFSL No. 286 531 acting, consider the appropriateness of the information, having regard to the Level 4, 10 Spring Street, Sydney, NSW, 2000 individual's objectives, financial situation and needs and, if necessary, seek T: 1300 794 893 F: (02) 9222 1456 appropriate professional advice. 4 stocks I’m flying high with for the long haul by Peter Switzer

“Picking & sticking” is a good investment strategy, for the patient “picker & sticker”? provided what you select is a quality company in an industry that has growth ahead. Of course, picking is Update on our flying kangaroo the easy bit. Sticking and being patient is the more challenging part of this money-making play. Let’s start with the flying kangaroo first, which has been up after the Coronavirus crash of the market but Personally, I’m ‘walking the talk’ with A2Milk, which has lost a bit recently. This chart looks promising, in a is a quality company (arguably the best of breed nice uptrend despite some down days. And at $4.77 globally) but needs international travel to get back to today against being over $7 before the pandemic normal. It also would benefit from Canberra and suggests further rises should be expected when Beijing getting along better, but once again that will vaccines have been delivered locally and we’re flying be a waiting game. As Rod Stewart’s ex-wife, Kiwi overseas by early next year. Rachel Hunter, once told us about the miracles that lay ahead for our hair with Pantene shampoo: “It Qantas (QAN) won’t happen overnight but it will happen.”

“Picking & sticking” with troubled travel stocks has worked for the likes of Qantas, Webjet, Corporate Travel Management and Flight Centre, but is it time to put more into your investment chests ahead of another leg up?

I started to ponder this question after reading a CNBC The experts surveyed by FNArena see an 18% rise story about the comeback of travel businesses and ahead but given the new version of Virgin Australia travel stocks as the US gets vaccinated. The chart since delisting, I’d argue the rises over the next two below looks at how the share price of US airline years could be better than that. Southwest Airlines (LUV) has spiked since jabbing escalated in February this year. Here’s the Webjet story

Southwest Airlines (NYSE:LUV) Webjet was smashed by COVID-19, hitting lows around $2.50. It has since rebounded over 100% to $5.16 but this company too should benefit from the normalisation of international and even domestic travel. So seeing a $7 price within two years doesn’t seem to be a big call. If that happened, it would be a 40% rise or 20% per annum for a “picker & sticker”.

The analysts see a 4.3% rise in the short term. But I So what’s happening here? And could our slow don’t care about the short term with these stocks. vaccination programme create a buying opportunity

Monday 31 May 2021 02 Webjet (WEB)

My thoughts

Surprised by Corporate Travel Management The experts see 9.8% upside but, over time, you’d (CTD)! expect better results and share prices. However, I have two takes on Flight Centre. On one hand, its One stock that has surprised me with its resilience business is challenged by the new age and digital has been Corporate Travel Management (CTD). This disruption. But against that, I’ve always been stock really has rebounded stronger than I expected, surprised at how good Graham ‘Skroo’ Turner is at given the disruption to business travel and the threat reinventing his travel business with a fantastic brand of stay-at-home star business rivals, such as Zoom, name. I bet we won’t see a $60 share price but could Microsoft Teams and Skype. it be a $20 stock? Yep! And making $5 on a $15 outlay is a 33% gain, which I could easily take on any This was a $21 stock before the virus cruelled travel investment, even over a two or three-year period. but it’s now a $21 stock again! That said, in 2018 before it copped a lot of negative press (which was If you allow time into your “flying the friendly skies” largely because a hedge fund was trying to make investment equation, you could see some great money out of press releases riddled with negative numbers from these travel-related stocks. That’s my takes on the business), it was a $30 stock. call and I’m sticking with it, unless good reasons tell me not to. Corporate Travel Management (CTD) Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.

Not surprisingly, the analysts think the company has 0.5% upside but, over time, I’m sure it will gain from the coming back of overseas travel.

What about Flight Centre?

Finally to Flight Centre (FLT), which has fallen from share price grace. It’s now around $15 but was $40 before the Coronavirus crash. And in 2018, it was a $61 stock!

Flight Centre (FLT)

Monday 31 May 2021 03 Woolworths & Endeavour Drinks – what you need to know and do by Paul Rickard

On 24 June, there will be more than 350,000 new According to the Woolworths Chairman, this is about: shareholders in Endeavour Group Limited. That’s the “enhancing shareholder value through a greater company that is being spun out of Woolworths via a focus on each business’ core customers offering and demerger, comprising the number 1 and number 2 growth opportunities”. The advantages cited in the retail drink brands in Dan Murphy’s and BWS, and demerger booklet include: the largest hotel network in Australia. Here’s what you need to know about the demerger and potentially, Simplified businesses and increased focus for what to do. Woolworths Group and Endeavour Drinks; Endeavour Group will be able to pursue its Firstly, it’s important to understand that demergers own strategy and growth agenda; have a pretty good track record in Australia. Names Opportunity for Woolworths and Endeavour to such as Coles, Treasury Wine Estates, BlueScope, realise the benefits of the strategic partnership Orora and S32 were all the result of demergers. But agreements; there have also been a couple of duds – OneSteel Stronger brand clarity for Woolworths and that became Arrium and went under, and what is now Endeavour; and called Virgin Money UK, which was spun out of NAB Existing and new shareholders will have and is just getting back to its first day trading price of flexibility to choose their level of investment in $4.01. Woolworths and Endeavour.

The argument goes that a refreshed management While these are all valid, particularly the latter, the team, free from the controls and shackles of the “real” reason is that Woolies wants to exit the poker former head office, with its own balance sheet and machine business. As the owner of 12,400 electronic dedicated focus, is able to thrive. And in the main, gaming (poker machine) licences, Woolworths is share market performance backs this up. increasingly off the radar for many fund managers due to ESG concerns. It is the biggest operator in Typically, demergers take a while to shine. Because Australia, and its ownership of poker machines has there is a weight of sellers wanting to get out when become a real thorn in its side. the stock first lists and there is no compelling reason to buy, the market price flounders for a few months. What do I get? But eventually, institutions start to see value in the stock, the management team performs, and the share You will get 1 share in Endeavour Group for each price rises. More on this later – but the key take for Woolworths share held. investors watching the share price it is usually “down before up”. Because Endeavour Group was formed out of the combination of the Woolworths retail drinks business Now to the demerger. and the hotels business known as the ALH Group (which was part owned by Woolworths and the Bruce Why is Woolworths getting rid of Endeavour Mathieson Group), the Bruce Mathieson Group Group? (BMG) will own 14.6% of Endeavour. Woolworths is directly retaining a 14.6% interest, and the remaining

Monday 31 May 2021 04 70.8% will be owned by Woolworths shareholders. of total revenue and hotels 17%. However, hotels The following diagram outlines the structure. were more profitable, accounting for 38% of EBIT.

What is Endeavour’s growth strategy?

Drinks retailing and running hotels/hospitality venues are not traditionally high growth areas. Pre Covid, retail liquor industry revenue in Australia had a CAGR (compound annual growth rate) of 3.0% pa. Hospitality industry revenue experienced a negative CAGR of 0.5%.

Endeavour says that its strategy for growth is:

Growing digital engagement (lifting ecommerce share, make digital the front door to all brands including hotels); Strategic expansion of the network (roll-up and development of new hotels etc); Enhancing the existing footprint, particularly What is the Endeavour Group’s business? hotel refurbishments; Expand product range and reach – leverage The Endeavour Group comprises the following: Pinnacle Drinks to support new category growth and support premiumisation; and The #1 and #2 preferred retail drink brands in Enhance end to end efficiency. Australia through Dan Murphy’s and BWS, which operate the largest network of 1,630 How much will the shares be worth? stores. Estimated 40% market share; Largest hotels network in Australia with 332 The market will tell us on 24 June when Endeavour hotels (49 owned, 283 leased on long term Group shares start trading on the ASX. Over the next leases); few weeks, we will see some valuations from the 1,775 liquor licenses and 12,364 poker broker analysts. machine licences; Specialty businesses Langton’s, One early estimate is an enterprise value for Cellarmasters, Shorty’s Liquor and Jimmy Endeavour of close to $15bn. With net debt of Brings; $1.3bn, this gives a market capitalisation of $13.7bn, A products and services capability through equivalent to a share price of $10.80. Notwithstanding Pinnacle Drinks (wineries and wine services); that FY20 was impacted by Covid, this would put the and business on a hefty historic PE multiple of 42 times Strong digital presence (apps, online sales earnings. etc) and 5.1m My Dan’s loyalty members. Another way to value the parts is to consider the In FY 20, Endeavour Group generated a proforma whole. In FY 20, on total revenue of $63.7bn, EBIT of $693m and NPAT of $328m on revenue of Endeavour Group contributed $10.6bn to the $10.6bn. This was heavily impacted by Covid-19, with Woolworths Group or 17%. On EBIT, Endeavour’s the retail business seeing very strong growth in sales, contribution was $693m or 21.5% and on NPAT, and hotels hit by lockdowns and government 20%. restrictions.

Pre Covid (FY19), the retail business contributed 83%

Monday 31 May 2021 05 Woolworths shares. Following the demerger, the Company will provide an ATO approved “split” to be used where you apportion your current Woolworths cost base between your Endeavour shares and your Woolworths shares.

Let’s take an example. Suppose you purchased your original Woolworths shares for $30.00 each. The Company, following confirmation from the ATO, advises that the approved apportionment is 75% for Woolworths and 25% for Endeavour. This means that your cost base for Woolworths now becomes $22.50 (75% of $30.00), and your cost base for your Using an NPAT split of 80% and 20%, and a current Endeavour shares is $7.50 each (25% of $30.00). Woolworths share price of $42.00, this would imply a split post demerger of a “new” Woolworths share You will deemed to have purchased your Endeavour being worth $33.60 and an Endeavour Share being shares on the same date that you acquired your worth $8.40. original Woolworths shares.

Supporting an argument that Endeavour is worth How will the demerger be implemented? “more” than the notional split above is that the impact of Covid-19 was damaging to Endeavour. By Shareholders will be asked to approve the demerger the first half of FY21, with hotels re-opening, via a resolution at a general meeting on Friday 18 Endeavour’s share had risen to almost 25% of June. A simple majority is required. There is also a Woolworths Group EBIT. Further, Endeavour is a capital reduction resolution (this is also a formality, higher margin business than the Woolworths food and won’t have any impact for Woolworths business – in 1H21, Endeavour earned 8.1% of sales, shareholders taking demerger tax relief ). whereas Woolworths operating EBIT margin was 5.2%. After the resolution is approved, the demerger will be implemented on 1 July. Woolworths shareholders will Against this is that some investors will not want to be issued Endeavour Group shares which are have anything to do with a business that has poker expected to commence trading on the ASX on machines. This will remove some of the “premium” Thursday 24 June. Endeavour may have had for being a business with a higher operating margin. Do I have to vote?

My guess (in the absence of analysts’ discounted No, the demerger is a forgone conclusion to be cash flow valuations) is that an Endeavour share will approved. If you do want to vote, the meeting is be worth around $10.00. scheduled for 11.00am on Friday 18 June. You can attend in person, complete the proxy form, or vote What are the tax implications? online at www.linkmarketservices.com.au

Assuming that tax demerger relief is obtained, there A reason to vote against the demerger are the costs, shouldn’t be any tax implications for Australian although many have already been occurred. In FY21, resident shareholders from the demerger per se. If Woolworths will incur separation costs of $50m. you subsequently sell your Endeavour shares, then Endeavour Group will incur additional corporate and you may have to pay capital gains tax. operating costs of $47m pa for its ASX listing, share registry, funding facilities, insurance, workers’ One thing that will change is your cost base for your compensation and maintaining a separate board and management team.

Monday 31 May 2021 06 Should I take part in the share sale facility? can be patient with this stock.

If you own less than 800 Woolworths shares Important: This content has been prepared without (meaning that you will end up with a parcel of less taking account of the objectives, financial situation or than 800 Endeavour shares), you can elect to have needs of any particular individual. It does not these shares sold through a share sale facility. constitute formal advice. Consider the Elections must be made by 21 June. appropriateness of the information in regard to your circumstances. The only advantage of doing this is the saving on brokerage – which on a tiny parcel of shares, could be considerable. But with many brokers charging low minimums, in 2021, this is not that big a deal.

The disadvantages? You won’t get the funds for over a month and have no control over the price you will receive.

How will Endeavour Group shares trade?

I said at the outset that demerged companies typically do well on the ASX. But they get off to a slow start because there is a weight of sellers wanting to get out upon listing and there is no compelling or urgent reason to buy. It takes a while for buyers to recognise the value, and as the management team starts to perform, the share price rises.

Endeavour looks ready to fit this bill. In particular, the dependence on poker machines means that Endeavour will be off the buy list for some fund managers, while other existing holders will use the demerger to exit Endeavour now that they can.

My bet: four weeks after the listing, Endeavour will be lower in price than where it first trades on the ASX, and 12 months later, higher in price.

Should I buy Woolworth’s shares now to get access to more Endeavour shares?

My sense is that a most of the Endeavour “action” is already priced into Woolworths. The stock has been very well supported, and I expect this to continue until the last date of “cum” entitlement trading (the last day you can buy Woolworths shares to get the Endeavour shares), which is 23 June.

But if Endeavour trades like previous demerged companies and comes under selling pressure at the outset, I would wait a few weeks until I bought. You

Monday 31 May 2021 07 Five $5 stocks by James Dunn

Share prices are arbitrary levels – there’s not much a final dividend of 14.5 cents, compared to no difference between a stock priced at 50 cents or $5 in dividend in the previous year. On broker consensus terms of their attractiveness, if the companies are expectations, the stock is also an attractive yield able to grow their value. But just looking at “$5 proposition, after a healthy payout in FY21 – stocks,” here are five in that range that look to offer excluding special dividends, the full-year ordinary good buying opportunities. dividend was 23 cents a share, up from 10 cents in FY21, which saw the final dividend ditched amid the 1. CSR (CSR, $5.59) COVID turmoil. Market capitalisation: $2.7 billion Three-year total return: 9.4% a year CSR (CSR) Estimated Y22 dividend yield: 4% fully franked (grossed-up, 5.8%) Analysts’ consensus valuation: $6.40 (Thomson Reuters), $6.395 (FN Arena)

Because its financial year ends on March 31, building products group CSR has already reported for FY21, delivering a rebound in net profit. CSR’s net profit rose 19 per cent to $160 million, which “beat” Source: Google analysts’ consensus of about $156 million, with the flagship building products business delivering an 8% 2. Lynas Rare Earths (LYC, $5.57) rise in earnings, and a margin that improved from Market capitalisation: $5 billion 10.7% to 12%. This was despite a COVID-driven Three-year total return: 35.7% a year slowdown in residential construction activity, down 4 Estimated Y22 dividend yield: no dividend per cent over the year. The aluminium business’ expected earnings fell by 60% to $23 million, in line with Analysts’ consensus valuation: $6.25 (Thomson previous guidance, after aluminium prices fell sharply Reuters) at the start of the financial year: however, CSR expects aluminium earnings for FY22 financial year to Australian rare earths producer Lynas Rare Earths is be in the range of $32 million –$40 million. in a very enviable position as a business: it has the world growing increasingly keen on its products, In the main business, CSR is seeing strong growth on which are major constituents of electric vehicles the back of the renovation boom. The company (EVs) and batteries, renewable energy, consumer expects the Australian housing market to remain electronics, robotics, appliances and medical devices; solid, with the government’s HomeBuilder program and it is the only non-Chinese producer of these (extended in the recent Budget) supporting the sector separated rare earth products. For example, broker into 2022. It is the improved housing cycle and rising UBS expects the market, just in EVs, for LYC’s major Australian housing starts forecasts that are likely to product, neodymium-praseodymium (NdPr), to triple underpin CSR’s earnings outlook, and brokers have in size over the next ten years. Aside from NdPr, started to upgrade profit expectations. CSR declared which is also used in batteries and wind turbines,

Monday 31 May 2021 08 consumer electronics, robotics, appliances and Analysts’ consensus valuation: $7.60 (Thomson medical devices, the company’s dysprosium, Reuters), $7.70 (FN Arena) terbium, lanthanum and cerium products are also finding new uses in these areas. Lynas’ exposure to Full-service telecommunications provider TPG global thematic megatrends is first-class. Telecom was created from the $15 billion merger between TPG Telecom and Vodafone Hutchinson Lynas mines rare earths at its world-leading orebody Australia in June 2020, which resulted in the at Mt. Weld in Western Australia, which is expected to formation of the second-largest telecommunications grow as further exploration is conducted, and company listed on the ASX, behind Telstra. TPG operates the largest single rare earths processing owns and operate nationwide mobile and fixed plant in the world, in Malaysia, which it built in 2012 to networks, operating a swag of brands including process rare earth material at a lower cost than it Vodafone, TPG, iiNet, AAPT, Internode and Lebara. could in Australia (the Malaysia plant is struggling with the country’s COVID restrictions at the The stock has lost about 41% since the merger, hit moment.) like most businesses by continuing uncertainty due to COVID, and also some major resignations, most Lynas has an ambitious 2025 plan to grow its notably that of founder and chairman David Teoh, processing capabilities, including a fully funded rare who in March resigned from the board of the business earths processing facility in Kalgoorlie, Western that he and his wife created in 1992. The Australia, which is expected to begin operations by sharemarket was unimpressed with the founder’s July 2023, and a commercial light rare resignation, mainly because of the potential share earths separation plant in the US – co-funded by the “overhang” that came from Teoh, his family and US Department of Defense, which tells you how keen associates holding 17.1% of TPG Telecom, albeit the US is on having a non-Chinese supply option – with 80% of that holding subject to an escrow until the which may also include processing of heavy rare end of June 2022. earths and specialty materials. By 2025, Lynas plans to have a production capacity of at least 10,500 It’s also fair to say that the 2020 result (TPG uses tonnes a year of NdPr (to put that in context, first-half the calendar year as its financial year) was a FY21 production was 2,709 tonnes) and to have its disappointment: while the merged entity reported a Kalgoorlie facility able to supply downstream net profit of $734 million in its first full-year result operations in the US and Malaysia. As an investment since merging, that was all courtesy of a one-off tax exposure to the technologies of the future, LYC is credit of $820 million. The pro forma result, which right up there with the best of them. simulated the figures if the merger had been effective throughout 2019 and 2020, showed a 10% fall in net Lynas Rare Earths (LYC) profit to $282 million, on the back of a 6% slide in revenue, to $5.52 billion.

However, the fixed broadband subscriber base increased by 6% from 2019 to 2.17 million, while the NBN base lifted 28% to 1.9 million. That represents net subscriber gains of 532,000 people. Tempering that was the fact that the mobile customer base went backward, hit by the absence of overseas visitors and Source: Google migrants to Australia, especially international students, due to global travel restrictions. 3. TPG Telecom (TPG, $5.21) Market capitalisation: $9.8 billion The lack of formal guidance also worried the market, Three-year total return: 0.7% a year although the company did say: “Even with continuing Estimated Y22 dividend yield: 2.2% fully franked, uncertainty due to COVID, our year-to-date results grossed-up 3.1% are tracking well against our expectations and we will

Monday 31 May 2021 09 enter the second half of 2021 with increased (versus 62% before), reducing the group’s exposure confidence. We have moved into 2021 with increased to the more volatile, commodity-driven bulk earnings. momentum and confidence. We are already a third of This is a healthy change, given that the company’s the way through 2021 and we are tracking well bulk-products markets have been hit by trading against our forecast for the year.” conditions in its main markets and the effects of COVID-19 on international travel and the “daigou” While broker consensus sees further profit falls this retail channel (in which individuals or groups outside year, a recovery is expected to start in 2022 – on that China buy products in bulk to sell in China). basis, the short-term price weakness should be seen as a buying opportunity. In the first six months of FY21, BGA’s normalised EBITDA (earnings before interest, tax, depreciation TPG Telecom (TPG) and amortisation) grew by 51% to $73 million, and net profit rose 98%, to $29.7 million, despite a 4.5% revenue decline, to $708 million. It was generally a stronger result than the market expected, and price targets rose as a result. Bega Cheese looks attractive value at present levels.

Bega Cheese (BGA)

Source: Google

4. Bega Cheese (BGA, $5.86) Market capitalisation: $1.7 billion Three-year total return: –5% a year Estimated Y22 dividend yield: 2.8% fully franked (grossed-up, 3.9%) Analysts’ consensus valuation: $6.80 (Thomson Source: Google Reuters), $6.78 (FN Arena) 5. Life 360 (360, $5.74) Founded in 1899 as a farmer co-operative on the Market capitalisation: $901 million New South Wales south coast, Bega Cheese came to Three-year total return: n/a the ASX in 2011 and has burgeoned into a major Estimated Y22 dividend yield: no dividend player in branded food. It made a major step in 2017 expected with the $460 million purchase of the iconic Vegemite Analysts’ consensus valuation: $8.67 (Thomson brand (plus and a handful of other grocery products Reuters), $8.30 (FN Arena) from global food giant Mondelez International; in January, the company completed the $560 million The San Francisco-based Life360 was one of my purchase of the Lion Dairy & Drinks milk, yoghurt and ‘Five Stocks For 2021’ back in January in juice operations, which gave Bega big brands such as the Investment Outlook 2021 eBook and it has moved Dairy Farmers, Yoplait, Big M, Masters and Farmers nicely from $3.77 to $5.75 – but brokers think it has Union. quite some way to go yet. The company developed the Life360 mobile app, a market-leading app that Bega Cheese is now one of Australia’s largest dairy provides a safety and coordination service for businesses, with the Lion stable of brands more than families, with features that range from location and doubling the size of Bega to a revenue base of about communication, driving safety (including real-time $3 billion, and greatly improving its platform for further speed monitoring), car crash alerts and roadside growth in international markets. Broker Morgans says assistance, SOS alerts, identity protection, and the combined businesses will generate 80% of disaster, medical and travel assistance. As at March revenue from more stable branded product sales 2021, Life360 has more than 28 million monthly

Monday 31 May 2021 10 active users (MAU), in more than 140 countries. EBITDA loss of no greater than US$15 million (in 2020 the loss was US$16.3 million, and in 2019 it The really interesting thing about Life360 is that the was $29 million). company is scaling-up from a location tracking app to a suite of membership services – the company Life360 (360) describes it as moving from a “where are you?” focus to a “how are you?” focus. Membership was launched in July 2020, only to be hurt by COVID, as the core features of the product became less relevant while people were not able to be out and about as much. Back in January I said, “This is poised to rebound as normal life slowly returns” – and that’s what the company has seen. Source: Google In the March 2021 quarterly report, CEO Chris Hulls said: “We are excited by Life360’s accelerating Important: This content has been prepared without growth momentum in the March quarter, particularly taking account of the objectives, financial situation or in the US where the benefits of the vaccine rollout are needs of any particular individual. It does not beginning to be felt. We are encouraged that the early constitute formal advice. Consider the signs of recovery in Australia are now being appropriateness of the information in regard to your replicated in our largest market, the US. Globally, circumstances. new registrations are at their highest level since March 2020, prior to the onset of COVID. In the US, organic registrations increased 13% versus the December quarter; additionally, the month of March delivered the strongest growth in Paying Circle additions since November 2019 and this is with our much higher priced Membership plans. It is very encouraging to see that as COVID infections and restrictions reduce, we see a corresponding positive impact on our growth rates. This reinforces our confidence that COVID is turning from a headwind in 2020 to a tailwind in 2021.”

I considered this stock for last week’s article on small and unknown (to investors, that is) global leaders, and it really can be viewed that way – as a global leader in a potentially massive market. The primary growth target is the English-speaking nations, although the company thinks there will be “strong cultural overlap” with EU markets. The membership model is really only just getting started.

Life360 is not profitable yet, but the company has outlined the pathway to profit. In its formal 2021 guidance (it is a calendar-year reporter), Life360 says that by December 2021 it anticipates delivering annualised monthly revenue in the range of US$110 million–US$120 million, and based on the planned investment in growth, it expects an underlying

Monday 31 May 2021 11 My “HOT” stock: GrainCorp (GNC) by Maureen Jordan

GrainCorp (GNC) is an Aussie company whose core GrainCorp (GNC) business is the receiving and storage of grain and related commodities. It also provides logistics and markets these commodities. Founded by the NSW government as a public sector agency, it was privatised in 1992 with a majority of shares being transferred to grain growers, and listed on the Australian Securities Exchange in March 1998.

Since July 2000, GNC’s operations have extended Source: Google into other Australian states by amalgamations with other grain handling operations. The company Important: This content has been prepared without operates an extensive network of rail-linked storages taking account of the objectives, financial situation or across south-east Australia, as well as seven export needs of any particular individual. It does not terminals in Brisbane, Geelong, Gladstone, Mackay, constitute formal advice. Consider the Newcastle, Port Kembla and Portland. In November appropriateness of the information in regard to your 2009, GNC expanded into North America and in July circumstances. 2011 extended its reach into Europe. And Julia Lee thinks GNC is a buy.

“Agricultural stocks like many sectors on the market moves in cycles,” Julia said.

“After drought and bushfires over the last half decade, the cycle has turned,” she added.

“The company is in an upgrade cycle.

“Moisture levels in the soil are positive as is the outlook for rain over the next three months, which bodes well for the planting of winter crops.

“Pricing remains strong globally, which is supporting margins and demand for Australian grains.

“While GrainCorp has recently upgrade its guidance for FY21 to EBITDA $225-285 million, given the positive drivers, we believe there’s an upside bias to these forecasts,” Julia said.

Monday 31 May 2021 12 Buy, Hold, Sell – What the Brokers Say by Rudi Filapek-Vandyck

For the week ending Friday 28 May, there were 9 prompted Morgans to lower the rating to Hold from upgrades and 8 downgrades to ASX-listed companies Add. Conversely, Credit Suisse upgraded to by brokers in the FNArena database. Outperform from Neutral while lowering the target price dropping to $4.15 from $4.70. After ALS Ltd posted an underlying FY21 profit 4.5% ahead of consensus last week, two brokers in the While management guidance was below market FNArena database downgraded the company rating expectations it resulted from factors the broker due to a strong recent share price. Morgans attributed considers are seasonal and not structural. the result to astute management of costs and Meanwhile, the company expects the June half capacity, while Morgan Stanley was impressed by performance to be marginally ahead of the last year. momentum in the Commodities segment, but notes the risk with cost inflation. In the good books

The final dividend of 14.6 cents was well ahead of COSTA GROUP HOLDINGS LIMITED (CGC) was expectations, underpinned by strong cash conversion upgraded to Outperform from Neutral by Credit and debt reduction. Suisse B/H/S: 1/3/0

There were several material upgrades to forecast Credit Suisse upgrades to Outperform from Neutral earnings, including the second-placed Insurance with the target price dropping to $4.15 from $4.70. Australia Group. Following the release of APRA’s Costa Group Holdings expects the June half quarterly general insurance performance statistics for performance to be marginally ahead of the last year. March, Macquarie estimated industry price rises This guidance was below market expectations and a remain strong. However, the broker also concluded result of factors that Credit Suisse considers seasonal covid-19 benefits, particularly in Home and and not structural. The broker finds it difficult to Commercial lines, are dissipating for IAG. ascertain a normal margin for the group’s domestic product since in a 12-month period, the group’s peak Next up was Nufarm, after Citi assessed the earnings margins have been about 14%-15% while in a bad trajectory looks positive through to FY23. The year, margins have been as low as 5%-6%. The 2021 company offers leverage to strong agricultural operating income forecast has been reduced by fundamentals across key markets on top of continued -7.5%. execution on cost-out initiatives, explains the broker. In the short term, the one negative is a higher tax rate See downgrade below. outlook in the second half, which had the analyst lowering the FY21 profit forecast by -9%.

Finally, Costa Group Holdings was next in terms of earnings downgrades last week. The more limited visibility for the earnings potential of the domestic Produce business, and uncertainty remaining over the extent of the second half earnings recovery, CHAMPION IRON LIMITED (CIA) was upgraded to

Monday 31 May 2021 13 Neutral from Sell by Citi B/H/S: 1/1/0 Copper has eased back from highs of US10,700/t to US$9900/t, yet Citi expects this to be a temporary Citi upgrades to Neutral from Sell with the target price pullback before prices rebound. The broker envisages rising to $7.10 from $6.40. Champion Iron delivered a another 20% upside to spot prices over the next six record quarterly revenue, observes Citi, with strong months and forecasts copper will hit US$12,200/t. price momentum in iron ore. Net profit for FY21 was The broker understands investors are hesitant about slightly below Citi’s forecast at $477m but more than buying a stock that has rallied around 50% in the past doubled over FY20. In the broker’s view, the six months but still expects it will trade higher and company is well-positioned to capitalise on a global upgrades to Buy from Neutral. Target is $27. de-carbonisation theme and expansion upside via Phase II delivery and potential Phase III expansion In the not-so-good books post Kami acquisition. ALS LTD (ALQ) was downgraded to Hold from MIRVAC GROUP (MGR) was upgraded to Add by Morgans and to Equal-weight from Overweight from Equal-weight by Morgan Stanley Overweight by Morgan Stanley B/H/S: 2/4/0 B/H/S: 4/2/0 Morgans downgrades the rating for ALS to Hold from Morgan Stanley notes Australian dwelling prices have Add after a strong share price rise. It’s considered been pacing at 2-3% per month for most of 2021 and astute management of costs and capacity drove believes housing affordability will become a key issue underlying FY21 profit 4.5% ahead of consensus. The in the physical as well as the equities market. After broker lifts FY22-24 EPS forecasts by 4-11% due completing a deep dive into the affordability of 72 mainly to a lift in assumed Commodities margins residential projects by Mirvac Group and Stockland close to 30%, to reflect the sector outlook. The target Corp (SGP), Morgan Stanley concludes the group’s rises to $11.56 from $10.35. land product is more affordable than Stockland’s core products. Analysing Mirvac ALS Ltd provided a strong FY21 result, in Morgan Group’s 31 active projects, the broker suggests 79% Stanley’s view. Commodities momentum impressed of the lots look affordable. The broker is positive on amid higher volumes which lead to higher earnings the group’s prospects and has increased its FY22 margins. Still, cost inflation is a risk. In life sciences residential forecast to 2.6k from 2.3k while modelling there was modest margin compression, the broker in more apartment settlements in FY23-25. Morgan notes. Morgan Stanley upgrades estimates by 8% Stanley upgrades to Overweight from Equal Weight and 3% for FY22 and FY23, respectively, noting that rating with the target price rising to $3.15 from $2.60. the stock has performed well and while there may be Industry view is In-Line. further upside the magnitude is likely to be lower. Morgan Stanley downgrades to Equal-weight from NEW HOPE CORPORATION LIMITED (NHC) was Overweight. Target is raised to $12.90 from $10.70. upgraded to Buy from Neutral by Citi B/H/S: 2/2/0 Industry view: In-line.

Citi updates coal prices to allow for marking-to-market adjustments and the recent rally in thermal coal. This results in material earnings upgrades for New Hope and the rating is upgraded to Buy from Neutral. The broker notes risk appetite is low but argues the stock is now trading on 3x enterprise value/EBITDA for FY22 and the balance sheet is moving to a net cash COSTA GROUP HOLDINGS LIMITED (CGC) was position in FY23. Target is raised to $1.75 from $1.55. downgraded to Hold from Add by Morgans B/H/S: 1/3/0 OZ MINERALS LIMITED (OZL) was upgraded to Buy from Neutral by Citi B/H/S: 3/2/1 Morgans downgrades Costa Group to Hold from Add, after first half guidance was for marginal growth. Also,

Monday 31 May 2021 14 from the guidance, there was considered implicit acquisition. Ord Minnett downgrades to a Hold contraction in Produce segment that is materially recommendation from Accumulate with the target weaker than expected. The broker lowers FY21-23 rising to $2.90 from $2.23. underlying earnings (EBITDA-S) forecasts by -10%, -5% and -5%, respectively. Also, increased D&A XERO LIMITED (XRO) was downgraded to Neutral guidance and operating deleverage has seen material by Citi B/H/S: 2/2/1 downgrades at the profit (NPAT-S) level. Overall, the more limited visibility on the earnings potential of While noting there isn’t a lot to read-through for Xero the domestic Produce business and uncertainty from Intuit’s third quarter, Citi sees Intuit’s remaining over the extent of the second half earnings commentary on the use of online accounting and recovery, prompts the analyst to lower the rating. The associated services as positive for Xero. In the target price falls to $3.54 from $5.03. broker’s view, the results from both companies point to home markets outperforming the International See upgrade above. markets although going by Intuit’s comments, it looks to the broker Xero could be outperforming FISHER & PAYKEL HEALTHCARE Quickbooks in the UK. Neutral rating with a target CORPORATION LIMITED (FPH) was downgraded price of $136. to Neutral from Outperform by Credit Suisse B/H/S: 1/1/2 Earnings forecast

Credit Suisse downgrades Fisher & Paykel Listed below are the companies that have had their Healthcare Corp to Neutral from Outperform with the forecast current year earnings raised or lowered by target dropping to $30 from $34. Post the FY21 the brokers last week. The qualification is that the result, Credit Suisse has lowered its earnings stock must be covered by at least two brokers. The estimates for FY22-23. Earnings uncertainty is table shows the previous forecast on an earnings per expected to persist over the next six months and the share basis, the new forecast, and the percentage broker does not see a short-term catalyst for the change. stock to outperform. Management conceded there is too much uncertainty in the monthly and quarterly earnings to provide any guidance or be confident that the current trends will continue. The broker notes demand is tracking covid-related hospitalisations and in countries where hospitalisations have fallen, there has not been evidence of sustained strong utilisation of the installed base outside of covid patients.

UNITI GROUP LIMITED (UWL) was downgraded to Hold from Accumulate by Ord Minnett B/H/S: 0/1/0

Ord Minnett reviews the outlook for Uniti Group in light of a strong housing backdrop and stability in the The above was compiled from reports on FNArena. wholesale broadband price. The March quarter The FNArena database tabulates the views of seven dwelling numbers highlight another quarter of major Australian and international stockbrokers: Citi, above-trend growth, observes the broker, supported Credit Suisse, Macquarie, Morgan Stanley, Morgans, by positive sales and pricing from greenfield property Ord Minnett and UBS. Important: This content has developers in 2021. The broker expects FY21 been prepared without taking account of the operating income of $84.4m and operating cash flow objectives, financial situation or needs of any of $71m after-tax but prior to re-investment in new particular individual. It does not constitute formal fibre construction. Ord Minnett also highlights lower advice. Consider the appropriateness of the integration risks with the recent OptiComm information in regard to your circumstances.

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