Portfolio Change - Buy Amcor | Add Healius & Atlas Arteria

Changes for Blended Australian Equities Portfolio

Buying Amcor (AMC.AX)

Amcor is a global packaging company supplying a broad range of rigid and flexible packing products into the food, beverage, health care, home & personal care, and specialty cartons packaging industries. Amcor offers a well- balanced global footprint across the developed markets (primarily North America and Western Europe) and emerging markets (including China and India).

For FY22 Amcor reported 11% (constant currency) earnings per share growth at the top end of its guidance range. In an environment of ongoing supply constraints and elevated cost inflation, Amcor has successfully passed through higher raw material costs and initiated broad based price increases.

Amcor has a defensive portfolio with 95% of its products falling into the staples category. Underlying demand across each of its core categories in consumer staples continues to be resilient.

For FY23 Amcor has guided for +3%- 8% (constant currency) eps growth. Amcor’s growth outlook is supported by 5-10% growth from its underlying business, 2% accretion from a share buy-back ($400m), offset by -4% higher net interest expense and -2% from the exit of its Russian business. Overall, Amcor’s growth outlook remains positive benefiting from its exposure to the defensive characteristics of consumer staples.

Adding Healius (HLS.AX)

For FY22 Healius reported underlying EBIT of $492m up 85% on the previous corresponding period. Healius has continued to be a beneficiary of Covid-19 PCR testing, which remained at elevated levels in July and August at 10-12 thousand per working day. Indeed, Healius expects that Covid PCR testing to continue for the foreseeable future in the range of 7-14 thousand per working day.

Whereas the core businesses of pathology and imaging activity were materially impacted by Covid-19 resulting in lower volumes for elective surgery and general health care screening of patients. While the timing of a sustained recovery in volumes remains uncertain, an extended period of catch-up is expected due to known underdiagnosis and a backlog in patient procedures. Importantly, the underlying drivers of diagnosis remain strong including ageing population, and the treatment of chronic health conditions. The delay in the recovery in volumes has recently weighed on the share price of Healius, which has underperformed the ASX 200 by ~700bps over the last month. We have added to Healius based on its appealing valuation metrics of an Enterprise Value to EBITDA multiple of ~5-6 times and a Price to Book Value of ~1.1x coupled with the expected medium-term recovery in diagnostic volumes. A strong balance sheet of 1.0x (Net Debt/EBITDA) further provides optionality via organic investment and bolt-on acquisitions.

Change for Australian Equities Income Portfolio

Adding Atlas Arteria (ALS.AX)

We have added to the existing holding of Atlas Arteria following its 1H22 result. ALX reported weighted average traffic up 22.7% led by recovery in volumes on its largest exposure, the APRR network in France where traffic was 23.4% higher year on year. Revenue and earnings from APRR are now higher than the last pre-Covid corresponding period of 1H19 by 6.1% and 8.0% respectively. In a period of elevated inflation the majority of toll escalation is based on 70% of CPI France plus 0.25%, which will further expand gross margins. The APRR network is expanding with the A79 road under construction scheduled for late 2022 completion. Group distributions are increasing with the recovery in earnings with guidance for FY22 to December to total $0.40 per share, representing an 11% increase on FY21 and a running yield of 5.0%.