Vector Limited

Company Overview: Vector Limited (NZX: VCT) is the leading NZ infrastructure group. The company owns and manages the unique portfolio of energy as well as fibre optic infrastructure networks in NZ.

VCT Details

Vector Limited (NZX: VCT) is New Zealand’s leading network infrastructure company. Looking at the past performance, VCT’s topline and bottom-line for FY17-21 grew with a compounded annual growth rate (CAGR) of 1.06% and 3.90%, respectively. Its total revenue for FY21 stood at $1,279.3 million, as compared to $1,226.7 million in FY17. Its net income for FY21 stood at $193.2 million, as compared to $165.8 million in FY17.

Exhibit 1: Operating Performance

Source: Company Reports, Analysis by Kalkine Group

Results Performance (FY21 ended 30 June 2021)

• Revenue down 1.1%: Revenue from continuing operations for the full year period stood at $1.28 billion, a decline of 1.1% on previous year. Adjusted EBITDA of the group for the full year period stood at $513.5 million, an increase of 4.8% on previous year. Gross capital expenditure for the period stood at $529.5 million, an increase of 8.3% on previous year.
• Increase in NPAT: Net profit after tax for the period stood at $194.6 million, an increase of $97.3 million from the prior year. The result was largely due to increased earnings, higher capital contributions and lower interest cost more than offsetting higher depreciation and amortisation.
• Final Dividend at 8.50c: Net tangible assets per Quoted Equity Security stood at $1.0255, as compared to $0.0957 in the previous year. The Board of Directors declared a final dividend of 8.50c, taking full year dividend to 16.75 cents per share.

Exhibit 2: Financial Statistics

Source: Company Reports, Analysis by Kalkine Group

Operational Performance (Three months Ended 30 September 2021)

• Electricity network connections at the end of the period stood at 592,962, an increase of 1.7% on September 2020. Gas network connections for the period stood at 116,840, an increase of 2.0% on September 2020.
• BottleSwap volumes have been negatively impacted by COVID-19 alert level restrictions, leading to decline of 5.4% in the number of 9kg bottles swapped in the quarter to 30 September 2021 compared with the same period last year.

Top 10 Shareholders

The top 10 shareholders have been highlighted in the table, which together forms around 77.21% of the total shareholding. Entrust and Accident Compensation Corporation are holding maximum stake in the company at 75.10% and 0.88%, respectively, as provided in the table below:

Exhibit 3: Top 10 Shareholders

Source: Analysis by Kalkine Group

A Quick Look at Key Metrics

The company’s gross margin, EBITDA margin and net margin for FY21 stood at 67.8%, 49.3% and 15.2%, better than the FY20 result of 63.0%, 44.2% and 7.5%, respectively implying decent fundamentals. ROE for FY21 stood at 8.5%, better than the FY20 result of 4.2%, implying better return for its shareholders than previous year.

Exhibit 4: Key Metrics

Source: Analysis by Kalkine Group

Retail Bond Offer:

After the successful bookbuild process for the bond offer, VCT has confirmed that the offer been wrapped up and NZ$225 Mn of the bonds are allocated to the participants (or their clients) in the bookbuild. Notably, this includes oversubscriptions amounting to NZ$25 Mn, reflecting 25% of the amount available for the oversubscriptions

Outlook:

The company has developed its strategy to leverage its infrastructure and technology in order to create commercial opportunities such as providing solutions to third parties.

It is exploring global opportunities for the key priority solutions including the New Energy Platform created through the strategic alliance with Amazon Web Services (AWS), Distributed Energy Resource Management Systems (DERMS), cyber security, and others.

Its Vector Powersmart is well positioned to cater to the ever-increasing opportunities arising in New Zealand as solar farms and developments expand.

Its Vector Fibre has delivered a steady performance over the year. The company is anticipating that the growth in electricity as well as gas connections could continue.

Key Risks:

The business of the company is impacted by a significant change in customer needs and expectations. Further, the company is exposed to the risks like strategic risks, operational risks, etc.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Orange Color Line Reflects RSI (14-Period)

Stock Recommendation:

VCT’s share is trading below its 52 weeks high-low price level of $4.400 - $3.900, respectively. It has shown a negative return of ~3.20% in 6 months.

The stock has been valued using an EV/Sales multiple- based illustrative relative valuation method and  the target price with the potential of low double-digit (in percentage terms) upside has been arrived. The company might trade at a slight premium to EV/Sales Multiple (NTM) (Peer Average) considering decent outlook as well as its diversified business.

Considering the aforesaid facts, we give a “Buy” recommendation on the stock at the current market price of NZ$3.900 per share, down by 2.74% on 22^nd November 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

Kalkine New Zealand Limited is authorised to provide general advice only. The information on this website does not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions.