Category: Model Portfolios

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International Growth: Performance at 30 June 2020

International Growth portfolio performance since inception on 1 July 2018 is set out below. This period is too short to give a real indication as to how the portfolio will perform in the long-term: we expect to hold most growth stocks for 5 to 10 years.

International Growth Annualized Performance 1-Jul-2018 to 30-Jun-2020: Portfolio 13.25%, ASX 200 Accumulation Index 9.22%

And in Australian Dollars:

International Growth in AUD Annualized Performance 1-Jul-2018 to 30-Jun-2020: Portfolio 17.18%, ASX 200 Accumulation Index 13.01%

Performance of Individual Stocks

[Content protected for International Growth, Premium members only]

Notes:

  • Annualized performance is calculated using the CAGR formula.
  • Equity returns are not annualized.
  • Returns are calculated after transaction costs (e.g. brokerage) but exclude all other fees and charges.
  • Past performance is not a guarantee of future performance.
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Australian Growth: Performance at 30 June 2020

Australian Growth portfolio performance since inception on 1 July 2018 is set out below. This is too short a period to give a real indication as to how the portfolio will perform in the long-term: we expect to hold most growth stocks for 5 to 10 years.

Australian Growth Annualized Performance 1-Jul-2018 to 30-Jun-2020: Portfolio 8.61%, ASX 200 Accumulation Index 1.62%

Performance of Individual Stocks

[Content protected for Australian Growth, Premium members only]

Notes:

  • Annualized performance is calculated using the CAGR formula.
  • Equity returns are not annualized.
  • Returns are calculated after transaction costs (e.g. brokerage) but exclude all other fees and charges.
  • Past performance is not a guarantee of future performance.
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International Growth: Performance at 31 May 2020

International Growth portfolio performance since inception on 1 July 2018 is set out below. This period is too short to give a real indication as to how the portfolio will perform in the long-term: we expect to hold most growth stocks for 5 to 10 years.

International Growth Annualized Performance 1-Jul-2018 to 31-May-2020: Portfolio 13.37%, ASX 200 Accumulation Index 8.52%

And in Australian Dollars:

International Growth in AUD Annualized Performance 1-Jul-2018 to 31-May-2020: Portfolio 19.64%, ASX 200 Accumulation Index 14.52%

Performance of Individual Stocks

[Content protected for International Growth, Premium members only]

Notes:

  • Annualized performance is calculated using the CAGR formula.
  • Equity returns are not annualized.
  • Returns are calculated after transaction costs (e.g. brokerage) but exclude all other fees and charges.
  • Past performance is not a guarantee of future performance.
Posted on

Australian Growth: Performance at 31 May 2020

Australian Growth portfolio performance since inception on 1 July 2018 is set out below. This is too short a period to give a real indication as to how the portfolio will perform in the long-term: we expect to hold most growth stocks for 5 to 10 years.

Australian Growth Annualized Performance 1-Jul-2018 to 31-May-2020: Portfolio 8.8%, ASX 200 Accumulation Index 0.33%

Performance of Individual Stocks

[Content protected for Australian Growth, Premium members only]

Notes:

  • Annualized performance is calculated using the CAGR formula.
  • Equity returns are not annualized.
  • Returns are calculated after transaction costs (e.g. brokerage) but exclude all other fees and charges.
  • Past performance is not a guarantee of future performance.
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Australian Growth: Performance at 30 April 2020

Australian Growth portfolio performance since inception on 1 July 2018 is set out below. This is too short a period to give a real indication as to how the portfolio will perform in the long-term: we expect to hold most growth stocks for 5 to 10 years.

Australian Growth Annualized Performance 1-Jul-2018 to 30-Apr-2020: Portfolio 7.18%, ASX 200 Accumulation Index -1.96%

Performance of Individual Stocks

[Content protected for Australian Growth, Premium members only]

Notes:

  • Annualized performance is calculated using the CAGR formula.
  • Equity returns are not annualized.
  • Returns are calculated after transaction costs (e.g. brokerage) but exclude all other fees and charges.
  • Past performance is not a guarantee of future performance.
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International Growth: Performance at 30 April 2020

International Growth portfolio performance since inception on 1 July 2018 is set out below. This period is too short to give a real indication as to how the portfolio will perform in the long-term: we expect to hold most growth stocks for 5 to 10 years.

International Growth in USD Annualized Performance 1-Jul-2018 to 30-Apr-2020: Portfolio 11.72%, S&P 500 Total Return Index 6.19%

And in Australian Dollars:

International Growth in AUD Annualized Performance 1-Jul-2018 to 30-Apr-2020: Portfolio 19.71%, S&P 500 Total Return Index 13.79%

Performance of Individual Stocks

[Content protected for International Growth, Premium members only]

Notes:

  • Annualized performance is calculated using the CAGR formula.
  • Equity returns are not annualized.
  • Returns are calculated after transaction costs (e.g. brokerage) but exclude all other fees and charges.
  • Past performance is not a guarantee of future performance.
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Macquarie Group Ltd (MQG)

Stock: Macquarie Group Ltd
Exchange: ASX Symbol: MQG
Date: 11-May-20 Latest price: $108.50
Market Cap: $38.8 bn Fair Value: $125.42
Forward P/E: 15.6 FV Payback (Years): 11
Forward Dividend Yield: 4.09% CET1 Capital Ratio: 12.2%
Financial Y/E: 31-Mar-21 Rating: HOLD
Sector: Financial Services Industry: Capital Markets
Investment Theme: Dividends & Growth LT Trends: none

Summary

We consider Macquarie (MQG) to be priced at below fair value, but the technical outlook is bearish.

We rate the stock as a long-term HOLD because of its strong cash flows and competitive position. Weighting is 5.0% of portfolio value.

Valuation

We project flat annual revenue growth in the next 12 months, recovering to 8% in the long-term, with a provision of $1.5 billion to cover further impairment charges and under-performance of market-facing businesses. Estimated fair value is $125.42 with a payback period of 11 years.

The payback period recognizes MQG’s strong market position but also the uncertainty of financial markets.

Technical Analysis

MQG is in a primary down-trend and we expect another test of primary support at 70 before the bear market is over. Trend Index and Momentum below zero both warn of bearish market sentiment. Respect of primary support would provide a solid base for a new primary up-trend. Breach is unlikely but would flag another decline and a strong bear market.

Twiggs Trend Index & Twiggs Momentum (13-week)

Company Profile

Macquarie Group is Australia’s only sizable investment bank. Internationally diversified, the group employs 15,849 people in 31 countries, with its head office in Sydney, Australia.

Macquarie was innovative in setting up large infrastructure funds which provided a captive client for the group but most of these were dissolved after the 2008 global financial crisis and have been replaced as an income source by other annuity businesses. FY20 net profit contribution by activity:

MQG Profit Contribution by Division - FY20

Asset Management (MAM) manages infrastructure and real assets and securities investments for both retail and institutional clients in Australia and the US, with a total of $A607 billion under management in FY20.

Corporate and Asset Finance (CAF), with an asset and loan portfolio of $A21.3 billion (FY19) was broken up and integrated into MAM, CGM and Macquarie Capital in FY20.

Banking and Financial Services (BFS) has a retail deposit book of $63.9 billion, an Australian loan and lease portfolio of $A75.3 billion and a wealth management platform with funds of $A79.1 billion (FY20).

Commodities and Global Markets (CGM) offers broking, trading, hedging and finance on global securities markets including equities, fixed income, foreign exchange and commodities.

Macquarie Capital (MC) provides corporate finance advisory and capital raising services to corporate and government clients.

International Income

MQG International Income - FY20

International income1 is net operating income excluding earnings on capital. Australia2 includes New Zealand.

Competitors

Macquarie competes with local commercial banks, fund managers and securities houses, and — with 67% international income in FY20 — a multitude of international investment banks.

Performance

Annuity-based businesses performed well in FY20 but cyclical, market-facing divisions experienced a significant fall in net profit contribution.

Asset Growth

  • MAM assets under management grew 10% to $605.7bn in FY20, compared to $551bn in FY19;
  • Banking & Financial Services (BFS) loans and leases grew 20% to $75.3 bn, funded by a 20% increase in deposits to $63.9 bn.

Segments

Market-facing businesses under-performed in terms of net profit contribution1 in FY20:

  • Commodities and Global Markets (CGM) were level with FY19; while
  • Macquarie Capital (MC) fell 75% after a stellar 89% increase in FY19.

Annuity-style businesses improved in FY20:

  • Asset Management (MAM) was up 16%;
  • Banking & Financial Services (BFS) were up 2%.

Net Profit Contribution1 is calculated before unallocated corporate costs, profit share and income tax.

Return on Equity

Return on equity fell to 13.6% due to an 88% increase in impairment charges ($1.04 bn compared to $552 m in FY19), related to the COVID19 outbreak and weak results from market-facing businesses.

MQG Return on Equity and Return on Assets

Margins

Staff costs are Macquarie’s largest operating expense. Long-term growth in the ratio of Net Income to Employment Costs reflects Macquarie’s increased ability to leverage operating expenses.

MQG Net Income/Total Compensation

Assets under management

Assets under management have grown at a compound annual rate of 6.4% over the last 10 years (FY10 to FY20).

Earnings per share

Earnings per share (EPS) has grown at a compound annual rate of 8.6% over the last 10 years or 9.6% over the last 5 years.

MQG EPS

We project long-term growth of 8% in annuity-based assets (AM, BFS & CAF) and in earnings per share.

Capital structure

CET1 (Common Equity Tier 1) Capital Ratio improved to 12.2% in FY20 (FY19: 11.4%) calculated on risk-weighted assets using APRA Basel III standards.

The unweighted CET1 Leverage Ratio, based on total credit exposure, however, weakened to 5.1% in FY20 .

Capital ratios are adequate but not strong by our standards.

Dividends

Dividend payout of $4.30 (40% franked) for FY20 is down 25% compared to FY19 ($5.75 and 45% franked). We consider the dividend payout ratio of 56% (FY20) to be sustainable.

Forward guidance

Guidance for FY21 has been withheld because of uncertainty surrounding the COVID19 outbreak.

We have made a provision of $1.5 billion to allow for uncertainty over further impairment charges and under-performance of market-facing businesses.

Strengths & weaknesses

Macquarie is a world-leading infrastructure fund manager and in an excellent position to capitalize on massive expected investment in global infrastructure and renewable energy over the next decade.

Weaknesses

Like most investment banks, Macquarie relies on market knowledge and resourcefulness to identify new opportunities and innovate existing businesses. While they have an excellent track record, they can still make mistakes.

Cyclical fluctuations may affect performance.

BFS exposure to the highly-priced Australian property market is a vulnerability.

Disclosure

Staff of The Patient Investor may directly or indirectly own shares in the above company.

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Apple Inc (AAPL)

Stock: Apple Inc
Exchange: NASDAQ Symbol: AAPL
Date: 7-May-20 Latest price: $300.63
Market Cap: $1.3 Tn Fair Value: $181.52
Forward P/E: 25.06 FV Payback (Years): 11
Forward Dividend Yield: 1.10% Debt/FCF: 2.1
Financial Y/E: 28-Sep-20 Rating: HOLD
Sector: Technology Industry: Consumer Electronics
Investment Theme: LT Growth Structural Trends: Growth of online services

Summary

We consider Apple (AAPL) to be priced above fair value, but the technical outlook is bullish.

We rate the stock as a HOLD but have not included it in our model portfolio because of declining long-term revenue growth.

Valuation

We project annual revenue to fall 15% in the next 12 months, recovering to 7% growth in the long-term. Estimated fair value is $181.52 with a payback period of 11 years.

The payback period recognizes AAPL’s strong market position but also its reliance on continuing sales of devices (as opposed to services).

Technical Analysis

AAPL continues in a primary up-trend, but expect strong resistance at its Feb high of 325. A Declining Trend Index warns of secondary selling pressure. Respect of resistance at 325 would suggest another test of primary support at 230.

Twiggs Trend Index & Twiggs Momentum (13-week)

Company Profile

Apple was a pioneer of the personal computer revolution, introducing the Macintosh in 1984. Today, Apple is a world leader in five areas of consumer electronics:

  • iPhone smart phones;
  • iPad tablets;
  • Mac computers;
  • Apple Watch; and
  • Apple TV.

Apple devices run internally developed semiconductors and software platforms — iOS, iPadOS, macOS, watchOS, and tvOS — with an enviable reputation for connectivity across all Apple devices.

Products are sold online, through company-owned stores, and through third-party retailers. Apart from device sales, about 20% of revenue is derived from services, including:

  • the App Store;
  • Apple Music;
  • Apple Pay; and
  • iCloud.

Apple’s headquarters are in Cupertino, California and the corporation employs more than 100,000 people.

Competitors

Morningstar sums up Apple’s competitive strengths:

We assign a narrow economic moat rating for Apple that stems from the combination of switching costs and intangible assets. We think the firm’s primary moat source is customer switching costs, as Apple bolsters the user experience with a cohort of auxiliary products…….

Regarding intangible assets, Apple’s differentiated user experience via iOS coupled with its expertise in both hardware and software design allows the firm to more seamlessly build integrated products.

….Recent survey data shows that iPhone customers are not even contemplating switching brands today. In a December 2018 survey by Kantar, 90% of U.S.-based iPhone users said they planned to remain loyal to future Apple devices. Also, users of ancillary products (especially the Watch and AirPods) lose significant functionality when paired with a smartphone other than the iPhone. Ultimately, we believe that existing iPhone users are relatively locked in to the iOS ecosystem and interface.

Major competitors include Samsung (Galaxy) which, coupled with Google (Android OS), dominates market share in smartphones. But neither offer an integrated suite of products that can compete with Apple.

Segments

Apple sales are dominated by iPhone but there is little year-on-year growth.

Segments

Growth is concentrated in the Services and Wearables segments.

Segments

Geographically, sales in the US are growing fastest, while China declined in FY19.

Segments

Apple is losing market share in China as local smartphone technology improves. From The Wall Street Journal:

Apple’s share of the Chinese smartphone market has been shrinking, crowded out by tech giants such as China’s Huawei Technologies Co. that market increasingly sophisticated phones at a lower price tag.

Apple’s share of the Chinese smartphone market contracted to 7.8% in the first three quarters of 2018 from a peak in 2015 of 12.5%, according to Canalys, a market research firm.

Performance

Revenue growth and operating cash flows have been disappointing in FY19 and FY20 so far. We expect a 15% fall in the next 12 months due to the impact of the coronavirus outbreak and declining sales in China.

Revenue & OCF

Thereafter we expect annual growth to recover to 7% in the long-term.

Declining operating margins reflect an increasingly competitive environment.

Operating Margin

Capital expenditure declined as a percentage of sales, suggesting limited growth opportunities.

Capex % of Sales

Capital Structure

Stock buybacks reduced shares outstanding by 32% since FY12.

Shares in Issue

A further $50 billion has been authorized for the year ahead.

Buybacks & Dividends

Buybacks from FY13 to FY17 were largely funded by debt.

Net Debt Issued

Debt at $99.5 billion (Q2 FY20), or 2.1 times projected free cash flow, however, remains comfortable when compared to cash & marketable investments of $156.8 billion.

Outlook

Apple did not issue guidance for the quarter ending in June, as it usually does, due to uncertainty from the coronavirus outbreak.

Disclosure

Staff of The Patient Investor may directly or indirectly own shares in the above company.

Posted on

Australian Growth: Performance at 31 March 2020

Australian Growth portfolio performance since inception on 1 July 2018 is set out below. This is too short a period to give a real indication as to how the portfolio will perform in the long-term: we expect to hold most growth stocks for 5 to 10 years.

Performance since Inception: Portfolio 6.52%, Benchmark -8.17% (1-Jul-18 to 31-Mar-20)

Annualized performance is calculated using the CAGR formula.

Annualized Performance: Portfolio 3.67%, Benchmark -4.75% (1-Jul-18 to 31-Mar-20)

Performance of Individual Stocks

[Content protected for Australian Growth, Premium members only]

Notes:

  • Annualized performance is calculated using the CAGR formula.
  • Equity returns are not annualized.
  • Returns are calculated after transaction costs (e.g. brokerage) but exclude all other fees and charges.
  • Past performance is not a guarantee of future performance.
Posted on

International Growth: Performance at 31 March 2020

International Growth portfolio performance since inception on 1 July 2018 is set out below. This period is too short to give a real indication as to how the portfolio will perform in the long-term: we expect to hold most growth stocks for 5 to 10 years.

International Growth in USD - Performance since Inception: Portfolio 15.12%, Benchmark -1.04% (1-Jul-18 to 31-Mar-20)

International Growth in AUD - Performance since Inception: Portfolio 38.71%, Benchmark 19.24% (1-Jul-18 to 31-Mar-20)

Annualized performance is calculated using the CAGR formula.

Annualized Performance in USD: Portfolio 8.38%, Benchmark -0.60% (1-Jul-18 to 31-Mar-20)

Annualized Performance in AUD: Portfolio 20.56%, Benchmark 10.58% (1-Jul-18 to 31-Mar-20)

Performance of Individual Stocks

[Content protected for International Growth, Premium members only]

Notes:

  • Annualized performance is calculated using the CAGR formula.
  • Equity returns are not annualized.
  • Returns are calculated after transaction costs (e.g. brokerage) but exclude all other fees and charges.
  • Past performance is not a guarantee of future performance.
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