Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

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Event-Driven

We lift narrow moat-rated Spotless’ fair value estimate by 4% to AUD 1.20, following the release of Spotless’ target statement. We maintain our fiscal 2017 underlying net profit after tax, or NPAT, forecast at AUD 88 million, versus management guidance of AUD 80-90 million, but we lift our fiscal 2018 NPAT forecast by 6% to AUD 92 million, reflecting newly released earnings guidance of AUD 85-100 million. Management announced improved contract wins as contributing to 2018 earnings guidance and announced likely working capital savings of AUD 80 million by 2019, implying a slightly quicker reduction in debt than previously expected. By 2018, we now forecast net debt/EBITDA of 2.4 times, compared with 2.6 times previously. At AUD 1.08, the share price is 10% below our fair value and compares with Downer’s AUD 1.15 offer price. We maintain our narrow moat and medium uncertainty ratings.We expect the recent improvement in contract win rates (71% in the first half of fiscal 2017, up from 50% in in the prior half) to drive 4.7% EPS growth in 2018. In March 2017, Spotless confirmed AUD 330 million of contract wins and extensions focused on five-year integrated services with clients including the Alfred Hospital and Healthscope.Downer expect the proposed acquisition of Spotless to generate “mid-high teens” earnings accretion for its shareholders based on a “conservative” estimate of AUD 20 million of pretax synergies. Spotless disclosed that up to AUD 60 million of potential synergies were canvassed in preliminary discussions between Spotless and Downer in June 2016. Taking the midpoint of AUD 40 million, we estimate EPS accretion of around 25%. This could provide scope for Downer to lift its current bid from AUD 1.15, although this will also depend on a number of factors including the potential emergence of competing bidders (unlikely in our view), final level of acceptances, and Downer’s internal return hurdles.Analyst: Tim Mann

We lift narrow moat-rated Spotless’ fair value estimate by 4% to AUD 1.20, following the release of Spotless’ target statement. We maintain our fiscal 2017 underlying net profit after tax, or NPAT, forecast at AUD 88 million, versus management guidance of AUD 80-90 million, but we lift our fiscal 2018 NPAT forecast by 6% to AUD 92 million, reflecting newly released earnings guidance of AUD 85-100 million. Management announced improved contract wins as contributing to 2018 earnings guidance and announced likely working capital savings of AUD 80 million by 2019, implying a slightly quicker reduction in debt than previously expected. By 2018, we now forecast net debt/EBITDA of 2.4 times, compared with 2.6 times previously. At AUD 1.08, the share price is 10% below our fair value and compares with Downer’s AUD 1.15 offer price. We maintain our narrow moat and medium uncertainty ratings.We expect the recent improvement in contract win rates (71% in the first half of fiscal 2017, up from 50% in in the prior half) to drive 4.7% EPS growth in 2018. In March 2017, Spotless confirmed AUD 330 million of contract wins and extensions focused on five-year integrated services with clients including the Alfred Hospital and Healthscope.Downer expect the proposed acquisition of Spotless to generate “mid-high teens” earnings accretion for its shareholders based on a “conservative” estimate of AUD 20 million of pretax synergies. Spotless disclosed that up to AUD 60 million of potential synergies were canvassed in preliminary discussions between Spotless and Downer in June 2016. Taking the midpoint of AUD 40 million, we estimate EPS accretion of around 25%. This could provide scope for Downer to lift its current bid from AUD 1.15, although this will also depend on a number of factors including the potential emergence of competing bidders (unlikely in our view), final level of acceptances, and Downer’s internal return hurdles.Analyst: Tim Mann

Lifting Spotless' FVE To AUD 1.20 Following Release of Target Statement

Spotless Group Holdings

Lifting Spotless' FVE To AUD 1.20 Following Release of Target Statement