Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Market update; Qube (ASX:QUB), Ansell Ltd (ASX:ANN), Hub 24 Ltd (ASX:HUB)
Qube Holdings Ltd (ASX:QUB) reported a 9% improvement in underlying revenue, increasing to $1.8 billion driven by a strong first half to the financial year. Yet with the onset of the bushfires and COVID-19 in February, profits fell 15.4% to $104 million on an underlying basis. This compares to a 32.2% contraction in statutory profit to $214.7 million due to the positive revaluation of its various property assets in the previous financial year. Weakness was felt across the business as global trade was forced to slow, but particularly in container volumes and automotive shipments. The 50% owned Patrick division saw a 9.4% fall in net profit to $34.5 million whilst the Infrastructure Division, including the Moorebank Terminal fell 48.5% to $20.2 million; with both expected to be short-lived weakness once the pandemic subsides. Despite the major disruptions and higher costs, management were able to deliver earnings growth over the prior period in a number of markets and win two major contracts, with Shell and BlueScope Steel, which will be their largest ever by revenue once complete. Managing Director Maurice James stressed the resiliency of the businesses diversified and vertically integrated business model, and its ability to deliver a sound performance “in light of the very considerable, unexpected and unprecedented challenges”. The dividend was cut from 2.9 cents to 2.3 cents per share which was in line with expectations.
Comment: Tough conditions, but market dominance supports the dividend.
Hand in glove for Ansell as COVID hits
Ansell Ltd (ASX:ANN) was perfectly positioned for the onset of COVID-19 delivering strong growth across the board form its core medical equipment and glove business. Revenue increase 7.7% to $1.6 billion pushing earnings 37.9% higher to $219 million and profit along with it adding 42.1% to $158.7 million. The result was a substantially higher than expected dividend of 50 cents per share, 7% higher. This makes it the 17th year of increasing the dividend in a row, something that is known as a Dividend Aristocrat. Both the companies core business units, being Healthcare Gloves (HGBU) and Industrial Gloves (IGBU) were key beneficiaries of the demand for greater cleanliness adding 13.8% and 4.2% in sales respectively and contributing to 117% cash flow conversion ensuring the business remains well capitalised. Similarly to CSL Ltd (ASX:CSL) the company is using the pandemic to solidify its position by spending $65 million to expand a number of production facilities and prepare for potentially higher raw material costs in 2021 and beyond. With this in mind, management left broad guidance for a further 3-12% increase in earnings in FY21 suggesting the need for greater hygiene isn’t going away anytime soon.
Comment: Strong (but expected) result, dividend a highlight.
Record inflows for independent platform Hub 24 Ltd (ASX:HUB)
Hub 24 Ltd (ASX:HUB) have followed the script set by Praemium Ltd (ASX:PPS) and Netwealth Ltd (ASX:NWL) delivering a record annual inflows of $4.9 billion onto their independent investment and superannuation platform. The flood of financial advisers leaving the major banks along with the substantial investment in innovation has meant their market share continues to grow. As evidenced by NWL, once platform businesses hit cash flow break even, revenue and profits begin to fly as overheads reduce. In this case, revenue increase 37% to $74.3 million as group assets under management reached $17.2 billion, a 34% increase. The result was a 60% increase in profit, to $24.7 million and importantly margin expansion from 33.3% to 38.6% due to the benefits of scale. Management are now targeting total funds under management of $28 – $32 billion despite the pandemic and saw fit to increase the dividend by 35% to 3.5 cents per share. As highlighted with PPS, financial advisers are increasingly drawn to HUBs ‘Managed Portfolios’ which allow discretion over individual investment decisions and huge efficiencies of scale for advisers.
Comment: Solid result, albeit with AUM growth behind expectations.
