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India to Launch its own digital currency in 2022-23

The Reserve Bank of India (RBI) intimated in October 2021 that it had got approval for a modification to the Reserve Bank of India Act 1934 that would broaden the definition of bank note to include CBDCs. The central government has emphasised the potential benefits of CBDCs, claiming that they will lessen reliance on fiat currencies.

In another major announcement, Sitharaman said that all income from the transfer of virtual digital assets will be taxed at 30%. This will impact gains from cryptocurrencies and NFTs.

She further highlighted that no deduction will be allowed for expenditure undertaken on its acquisition. The loss from transfer of virtual digital assets cannot be set off against any other income.

The Finance Minister also proposed to provide for TDS on payment made in relation to transfer of virtual digital assets at the rate of 1 percent of such consideration above a monetary threshold. Gift of virtual digital assets has also been proposed to be taxed in the hands of the recipient.

India’s crypto industry had several demands, including that the government classify cryptocurrencies, provide clarity on taxation and establish a self-regulatory framework shaped by the crypto industry.

Many countries have rolled out their CBDCs recently. Nigeria launched eNaira in October last year. The Bahamas and five other islands in the East Caribbean have also rolled out their digital currencies.

(Source: The Financial Express)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Global stocks Shares

Sensata To Use Bolt-on M&A To Supplement Sensor Content Growth In Its Core Markets

Business Strategy and Outlook

It is understood Sensata Technologies is a differentiated supplier of sensors and electrical protection. The firm has oriented itself to benefit from secular trends toward electrification, efficiency, and connectivity, and it is supposed that investors will see meaningful topand bottom-line growth as upon an automotive market recovery. 

Despite the cyclical nature of the automotive and heavy vehicle markets, electric vehicles (EVs) and stricter emissions regulations provide Sensata the opportunity to sell into new sockets, which has allowed the firm to outpace underlying vehicle production growth by about 4% historically. It is alleged such outperformance is achievable over the next 10 years, given the expectations for a fleet mix shift toward EVs and Sensata’s growing addressable content in higher-voltage vehicles. 

It is observed, Sensata’s ability to grow its dollar content in vehicles demonstrates intangible assets in sensor design, as it works closely with OEMs and Tier 1 suppliers to build its products into new sockets. It is also believed the mission-critical nature of the systems into which Sensata sells gives rise to switching costs at customers, leading to an average relationship length of 31 years with its top 10 customers. As a result of switching costs and intangible assets, it is held Sensata benefits from a narrow economic moat and will earn excess returns on invested capital for the next 10 years. 

Over the next decade, it is anticipated Sensata to use bolt-on M&A to supplement sensor content growth in its core markets. Sensata established a leading share in the tire pressure monitoring system (TPMS) market in 2014 with its acquisition of Schrader, and it is implicit acquisitions will play a key role in allowing the firm to enter new, higher-growth, adjacent markets. Recent acquisitions of GIGAVAC and Xirgo will allow Sensata to compete in the electric vehicle charging infrastructure and telematics markets, respectively, which is likely to begin to bolster the top line and margins near the end of analyst’s explicit forecast and beyond.

Financial Strength

Sensata Technologies is leveraged, but it is held that its balance sheet is in good shape, and that it generates enough cash flow to fulfill all of its obligations comfortably. As of Dec. 31, 2021, the firm carried $4.2 billion in total debt and $1.7 billion cash and equivalents. Sensata closed out 2021 with a net leverage ratio of 2.8 times, which is squarely in management’s target range of 2.5-3.5 times. Over the next few years, it is probable Sensata to stay in its target leverage range as it continues to engage in supplemental M&A. Between 2023 and 2026, Sensata has $2.1 billion total in debt maturing, with $400 million-$700 million coming due each year. It is projected the firm to easily fulfill its obligations with its cash balance and cash flow—it is foreseen over $700 million in average annual free cash flow over Analyst’s explicit forecast. Finally, it is noted that Sensata has a variable cost structure that allows it to keep a relatively healthy balance sheet during difficult demand environments. Even with weak end markets in 2019 and 2020 that shrunk the top line, Sensata’s free cash flow generation held steady, with its free cash flow conversion jumping to 130% in 2020.

Bulls Say’s

  • Sensata should benefit from secular trends toward electrification, efficiency, and connectivity to continue outgrowing global vehicle production. 
  • Fleet management is an opportunity for Sensata to expand its margins and create a recurring base of revenue in an emerging, high-growth market. 
  • Sensata has some of the sensor industry’s highest margins and strong free cash flow conversion, providing it with capital to invest in organic and inorganic growth.

Company Profile 

Sensata Technologies is a leading supplier of sensors for transportation and industrial applications. Sensata sells a bevy of pressure, temperature, force, and position sensors into the automotive, heavy vehicle, industrial, heating, ventilation, and cooling (HVAC), and aerospace markets. The majority of the firm’s revenue comes from the automotive market, where it holds the largest market share for tire pressure monitoring systems. 

(Source: MorningStar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Global stocks

Cushman And Wakefield PLC To Post Healthy Growth Rates

price of btc is going to breakout

Business Strategy and Outlook

Cushman & Wakefield underwent a major business transformation after the combination of DTZ, Cassidy Turley and Cushman & Wakefield in 2015. The combination of these three firms expanded its geographical presence, added incremental capabilities, and gave the company adequate scale to effectively compete with its larger rivals CBRE and JLL for lucrative global contracts from multinational clients. The company has benefitted from the secular trends in the real estate services industry and has been able to grow strongly through organic growth opportunities, strategic in-fill acquisitions and by actively recruiting fee earning teams. M&A is a strategic pillar for the company in its quest to become a single source provider for the full spectrum of real estate related services on a global footprint and the company has demonstrated a track record of successful integrations and broker onboarding. 

The GAAP operating margin of the company has been negatively impacted by restructuring & integration related charges, and various efficiency related projects over the past several years. However, it is alleged that these investments were necessary for the firm and the enhanced scale and efficiency improvements from the prior initiatives will contribute positively toward margin accretion on a midcycle basis in the upcoming years. It is also anticipated non-recurring changes to normalize, resulting in positive earnings and cash flow generation that can be reinvested into the business. 

The leasing and capital market segments which make up about 38% of fee revenue provides full-service brokerage and has a higher cyclicality in revenue. By contrast, the property & facility management segment, which make up about 54% of fee revenue, represents the outsourcing business and provides a contractual stream of revenue. The valuation & other segment contributes 8% of fee revenue and provides solutions related to workplace strategy, digitization, valuation and so on. The company should be able to post healthy growth rates as it continues to take share from its smaller competitors and benefits from rising capital flows into real estate, increasing corporate outsourcing and growth in urbanization.

Financial Strength

Cushman & Wakefield has somewhat concerned financial health. The company had a total debt of $3.2 billion and net debt of $2.0 billion as of the end of third quarter in 2021. This resulted in a net debt/adjusted EBITDA ratio of about 2.8 times. Management has repeatedly stated that debt reduction is not a strategic priority, and they are comfortable with a debt/adjusted EBITDA ratio in mid 2s. Debt maturity timeline is not an issue for the company as most of the debt matures after 2024. The company is also in a comfortable position with respect to liquidity with a total liquidity of $2.2 billion consisting of cash and a revolving credit facility. This gives the firm enough flexibility to fund its operations, pursue M&A and invest in organic growth opportunities. The company has used leverage for in-fill acquisitions in the past to achieve adequate scale and capabilities to compete with its larger rivals. The company is currently using approximately 40% debt to fund its capital structure, which makes it significantly more leveraged than its larger competitors CBRE and JLL, which are currently using approximately 5.0% debt. Additionally, it has not been able to consistently generate positive operating cash flows since 2015 because of the significant investments in integration and efficiency related projects. This makes the company vulnerable to macroeconomic downturns and the cyclicality in the commercial real estate. It is likely the cash flow generation capacity of the business to improve in the upcoming years as it achieves scale and the nonrecurring expenses normalize. Although it isn’t viewed, the company’s high level of debt as an immediate liquidity concern, a prolonged downturn could call its underlying financial stability into question. While it is anticipated the firm to benefit from various secular tailwinds, it is alleged that management should err on the side of caution and refrain from taking too much incremental debt, given the cyclical nature of the industry.

Bulls Say’s

  • As one of the largest of only a few truly international one-stop shops, Cushman & Wakefield is poised to continue taking share from competitors in a growing industry that increasingly rewards scale. 
  • The trend of corporate outsourcing represents a significant opportunity and area of growth for Cushman & Wakefield. 
  • Increased scale and the recent efficiency initiatives should help the company achieve material margin accretion in the upcoming years.

Company Profile 

Cushman & Wakefield is the third largest commercial real estate services firm in the world with a global headquarters in Chicago. The firm provides various real estate-related services to owners, occupiers and investors. These include brokerage services for leasing and capital markets sales, as well as advisory services such valuation, project management, and facilities management. 

(Source: MorningStar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Dividend Stocks

COVID-19 Crisis and Other Issues Have Slowed VF, but Its Brands Provide a Competitive Advantage

Finance and Economy Chart for Dollar Gold Euro Currencies Trading View

Business Strategy and Outlook:

Through dispositions and additions, VF has built a portfolio of strong brands in multiple apparel categories. The three brands that are viewed account for about 80% its sales (Vans, Timberland, and The North Face) as supporting VF’s narrow moat based on a brand intangible asset. Despite short-term disruption from the COVID-19 crisis and economic weakness in China, VF is believed to grow faster than most competitors in the long run and maintain its competitive edge.

The North Face will benefit from its new Future Light waterproof fabric, brand extensions, and expansions of its direct-to-consumer business. VF plans 8%-9% annual growth for The North Face, which may be possible after the coronavirus crisis has passed. It is less certain of VF’s long-term growth targets for Timberland and Dickies of 3%-4% and 5%-6%, respectively, given inconsistent results. At its 2019 investor event, VF targeted a gross margin above 55.5%, an operating margin above 15%, and an ROIC above 20% in fiscal 2024.

Financial Strength:

Although VF is struggling with some product shortages, higher costs, and inconsistent demand for Vans in China, its sales and profit margins have mostly recovered from the worst of the pandemic. Fiscal 2022 sales growth forecast has been lowered to 29% from 30% but adjusted EPS estimate have been held at $3.20. For fiscal 2023, adjusted EPS is adjusted of $3.68 on 7% sales growth. Fair value estimate implies fiscal 2023 price/adjusted earnings and EV/adjusted EBITDA of 18 and 15, respectively. The Kontoor spin-off and the sale of some of VF’s work brands has improved the firm’s margins as its remaining brands have more pricing power than those that have been eliminated. Further, the remaining VF has higher exposure to attractive active and outdoor categories. Gross margins of 56% or higher are forecasted after this fiscal year, well above historical gross margins of below 50%.

Bulls Say:

  • Vans, expected to generate over $4 billion in sales in fiscal 2022, is developing into a fashion brand. It still has growth potential, given its small share in the global sports-inspired apparel and footwear market, estimated at $152 billion in 2021 (Euromonitor). 
  • VF has disposed of its weaker jeans and work brands, helping to pull its gross margins up to the mid-50s from the high-40s. 
  • As an upscale brand with high price points, Supreme brings higher margins than any of VF’s individual brands except Vans. There is potential for VF to expand Supreme in international markets.

Company Profile:

VF designs, produces, and distributes branded apparel and accessories. Its largest apparel categories include action sports, outdoor, and workwear. Its portfolio of about 15 brands includes Vans, The North Face, Timberland, Supreme, and Dickies. VF markets its products in the Americas, Europe, and Asia-Pacific through wholesale sales to retailers, e-commerce, and branded stores owned by the company and partners. The company has grown through multiple acquisitions and traces its roots to 1899.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Technology Stocks

Trane’s Record Backlog Positions the Narrow-Moat Firm for Another Strong Year in 2022

Business Strategy and Outlook:

In early 2020, Ingersoll Rand spun off its industrial segment, which immediately merged with Gardner Denver. This new entity assumed the Ingersoll Rand name and stock ticker. Legacy Ingersoll Rand’s climate segment was renamed Trane Technologies. It has been viewed legacy Ingersoll Rand’s climate business as more attractive than its industrial segment because the former has generally been more profitable and less cyclical.

Trane Technologies is a leading supplier of climate control products and services; it is a dominant player in commercial and residential heating, ventilating, and air conditioning systems (approximately 80% of sales) with its Trane and American Standard brands, as well as in transportation refrigeration (20% of sales) with its Thermo King brand. The leading HVAC manufacturers have all embraced a pure-play model. Johnson Controls sold its automotive battery business and Carrier spun off from United Technologies. Lennox is already a pure-play climate control company, although it has rid itself of some underperforming domestic and foreign refrigeration businesses.

Financial Strength:

Trane Technologies has a sound balance sheet, and its consistent free cash flow generation supports its debt service obligations, capital expenditure requirements, and dividend, while also providing financial flexibility for opportunistic share repurchases and acquisitions. Trane Technologies ended its fourth-quarter 2021 with $4.8 billion of outstanding debt and $2.2 billion of cash, which equates to a net debt/2021 adjusted EBITDA ratio of about 1.1. Besides its 4.25% senior notes ($700 million) due in 2023, the 3.75% senior notes ($545 million) due in 2028, and the 3.8% senior notes ($750 million) due in 2029, no more than $500 million is due in any one fiscal year. In 2021, Trane Technologies generated almost $1.4 billion of free cash flow.

Bulls Say:

  • Trane should benefit from secular trends in global urbanization and increased demand for energy efficient building solutions. 
  • With a company mission to address climate change and energy efficiency challenges with its products and services, Trane Technologies has become a popular ESG play. 
  • Trane Technologies generates significant aftermarket and replacement sales on its large installed base, which helps damp cyclicality.

Company Profile:

Trane Technologies manufactures and services commercial and residential HVAC systems and transportation refrigeration solutions under its prominent Trane, American Standard, and Thermo King brands. The $14 billion company generates approximately 70% of sales from equipment and 30% from parts and services. While the firm is domiciled in Ireland, North America accounts for over 70% of its revenue.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Global stocks

Carnival’s Return to Full-Year Profitability Postponed Until 2023 as Omicron Dampens Demand

Business Strategy and Outlook:

Carnival remains the largest company in the cruise industry, with nine global brands and 91 ships at 2021 fiscal year-end. The global cruise market has historically been underpenetrated, offering cruise companies a long-term demand opportunity. Additionally, in recent years, the repositioning and deployment of ships to faster-growing and under-represented regions like Asia-Pacific had helped balance the supply in high-capacity regions like the Caribbean and Mediterranean, aiding pricing. However, global travel has waned as a result of COVID-19, which has the potential to spark longer-term secular shifts in consumer behavior, challenging the economic performance of Carnival over an extended horizon.

As consumers have slowly resumed cruising since the summer of 2021 (after a year-plus no-sail halt), it is suspected that the cruise operators will have to continue to reassure passengers of both the safety and value propositions of cruising. On the yield side, it is expected Carnival to see some pricing pressure as future cruise credits continue to be redeemed in 2022, a headwind partially mitigated by the return of capacity via full deployment of the fleet. And on the cost side, higher spend to maintain tighter cleanliness and health protocols should keep expenses inflated. Aggravating profits will be staggered reintroduction of the fleet through the first half of 2022, crimping near-term profitability and ceding previously obtained scale benefits. As of Jan. 13, 2022, 67% of capacity (50 ships) was already deployed and around 96% of the fleet should be sailing by the end of February.

Financial Strength:

Carnival has secured adequate liquidity to survive a slow resumption of domestic cruising, with $9.4 billion in cash and investments at the end of November 2021. This should cover the company’s cash burn rate over the ramp-up, which has run around $500 million or more per month recently due to higher ship start-up costs. The company has raised significant levels of debt since the onset of the pandemic closing fiscal 2021 with $28.5 billion in long-term debt, up from less than $10 billion at the end of 2019. The company has less than $3 billion in short term and $2 billion in long-term debt coming due over the next year versus $33 billion in total debt. The company is focused on reducing debt service as soon as reasonably possible, as evidenced by the refinancing of over $9 billion in debt, which reduced future annual interest by around $400 million per year. It has also actively pursued the extension of maturities, limiting the cash demand on debt service over the near term.

Bulls Say:

  • As Carnival deploys its fleet, passenger counts and yields could rise at a faster pace than we currently anticipate if capacity limitations are repealed. 
  • A more efficient fleet composition (after pruning 19 ships during COVID-19) may help contain fuel spending, benefiting the cost structure to a greater degree than initially expected, once sailings fully resume. 
  • The nascent Asia-Pacific market should remain promising post-COVID-19, as the four largest operators had capacity for nearly 4 million passengers in 2020, which provides an opportunity for long-term growth with a new consumer.

Company Profile:

Carnival is the largest global cruise company, with 91 ships in its fleet at the end of fiscal 2021, with 98% of its capacity set to be redeployed by May 2022. Its portfolio of brands includes Carnival Cruise Lines, Holland America, Princess Cruises, and Seabourn in North America; P&O Cruises and Cunard Line in the United Kingdom; Aida in Germany; Costa Cruises in Southern Europe; and P&O Cruises in Australia. Carnival also owns Holland America Princess Alaska Tours in Alaska and the Canadian Yukon. Carnival’s brands attracted about 13 million guests in 2019, prior to COVID-19.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Global stocks

BlackRock Will Continue to Thrive in a More Difficult Environment for Active Asset Managers

Business Strategy and Outlook

With wide-moat-rated BlackRock crossing the $10 trillion mark in assets under management at the end of 2021, concerns about the firm being too large to grow have emerged again. It seems that this complaint come up when the company had just over $1 trillion in AUM back during the 2008-09 financial crisis, as well as just about every time the firm has passed another trillion-dollar marker during the past decade. While one of our key bear points on BlackRock is that the sheer size and scale of its operations would end up eventually being the biggest impediment to the firm’s longer-term growth, we don’t believe we are quite there yet.

BlackRock is at its core a passive investment shop. Through its iShares exchange-traded fund platform and institutional index fund offerings, the wide-moat firm sources two thirds of its managed assets (and close to half of its annual revenue) from passive products. And unlike many of its competitors, BlackRock is currently generating solid organic growth with its operations, primarily driven by its iShares platform, which is the leading domestic and global provider of ETFs, riding a secular trend toward passively managed products that began more than two decades ago.

Financial Strength

BlackRock has been prudent with its use of debt, with debt/total capital averaging just over 15% annually the past 10 calendar years. The company entered 2022 with $6.6 billion in long-term debt, composed of $750 million of 3.375% notes due May 2022, $1 billion of 3.5% notes due March 2024, EUR 700 million of 1.25% notes due May 2025, and $700 million of 3.2% notes due March 2027, $1 billion of 3.25% notes due April 2029, $1 billion of 2.4% notes due April 2030, and $1.25 billion of 1.9% notes due May 2031. The company also has a $4.4 billion revolving credit facility (which expires in March 2026) but had no outstanding balances at the end of September 2021.

BlackRock has historically returned the bulk of its free cash flow to shareholders via share repurchases and dividends. That said, the firm did spend $693 million on two acquisitions in 2018, $1.3 billion on eFront in 2020, and $1.1 billion for Aperio Group in early 2021, so bolt- on deals look to be part of the mix in the near term. As for share repurchases, BlackRock expects to spend $375 million per quarter on share repurchases during 2022 but will increase its allocation to buybacks if shares trade at a significant discount to intrinsic value. The company spent $1.2 billion on share repurchases during 2021. BlackRock increased its quarterly dividend 18% to $4.88 per share early in 2022.

Bulls Say’s 

  • BlackRock is the largest asset manager in the world, with $10.010 trillion in AUM at the end of 2021 and clients in more than 100 countries. 
  • Product diversity and a heavier concentration in the institutional channel have traditionally provided BlackRock with a much more stable set of assets than its peers. 
  • BlackRock’s well-diversified product mix makes it fairly agnostic to shifts among asset classes and investment strategies, limiting the impact that market swings or withdrawals from individual asset classes or investment styles can have on its AUM.

Company Profile 

BlackRock is the largest asset managers in the world, with $10.010 trillion in AUM at the end of 2021. Product mix is fairly diverse, with 53% of the firm’s managed assets in equity strategies, 28% in fixed income, 8% in multi-asset class, 8% in money market funds, and 3% in alternatives. Passive strategies account for around two thirds of long-term AUM, with the company’s iShares ETF platform maintaining a leading market share domestically and on a global basis. Product distribution is weighted more toward institutional clients, which by our calculations account for around 80% of AUM. BlackRock is also geographically diverse, with clients in more than 100 countries and more than one third of managed assets coming from investors domiciled outside the U.S. and Canada. 

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Global stocks Shares

Strong Revenue Growth Continued in Pentair’s Fourth Quarter, but Cost Inflation Pressured Margins

Stock market digital graph chart on LED display concept. A large display of daily stock market price and quotation. Indicator financial forex trade education background.

Business Strategy and Outlook

Pentair is a pure play water company manufacturing a wide range of sustainable water solutions, including energy-efficient swimming pool pumps, filtration solutions, as well as commercial and industrial pumps. Pentair’s business is organized into two segments: consumer solutions and industrial & flow technologies. Consumer solutions (58% of Pentair’s sales in 2021) concentrates on business-to-consumer sales and includes aquatic systems as well as residential and commercial filtration. 

The aquatic systems business, which offers a full line of energy-efficient equipment for residential and commercial swimming pools (including pumps, filters, heaters, and other equipment and accessories), is the crown jewel in Pentair’s portfolio, as it is both its fastest-growing and most profitable business. Industrial & flow technologies (42% of sales in 2021) focuses on business-to-business sales and consists of industrial filtration (including the food and beverage end market), residential irrigation flow, and commercial and infrastructure flow.

Financial Strength

Pentair ended the fourth quarter of 2021 with $894 million of long-term debt while holding $95 million in cash and equivalents. Debt maturities are reasonably well laddered, with only about $88 million maturing in 2022. Furthermore, the company has an additional $764 million available under its revolving credit facility. The company is bound by a debt/EBITDA covenant that requires that the ratio not exceed 3.75 times.

Narrow moat-rated Pentair reported solid fourth-quarter results, as its full-year sales of $3,765 million and adjusted EPS of $3.40 both surpassed our previous estimates ($3,709 million and $3.35, respectively). For full-year 2022, management expects sales growth of 6% to 9% and adjusted EPS in the range of $3.70 to $3.80. After rolling our model forward one year, we’ve modestly bumped our fair value estimate for Pentair to $70 from $69, mostly due to time value of money as well as reversing the implementation of a probability-weighted change in the U. S. statutory tax rate in our model.

Bulls Say’s 

  • Pentair is a pure play water company poised to benefit from demand for sustainable and energy-efficient water solutions. 
  • The pool business continues to deliver solid revenue growth, consistent market share gains, and lucrative operating margins. 
  • Recent acquisitions of Pelican Water and Aquion will bolster Pentair’s portfolio of water solutions in the residential and commercial markets.

Company Profile 

Pentair is a global leader in the water treatment industry, with 10,000 employees and a presence in 25 countries. Pentair’s business is organized into two segments: consumer solutions and industrial & flow technologies. The company offers a wide range of water solutions, including energy-efficient swimming pool equipment, filtration solutions, and commercial and industrial pumps. Pentair generated approximately $3.8 billion in revenue and $686 million in adjusted operating income in 2021.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Funds Funds

Vanguard Energy Fund Investor Shares: An energy hybrid sensible

Approach

In late 2020, Vanguard changed this strategy’s prospectus benchmark from the MSCI ACWI Energy Index to the MSCI ACWI Energy + Utilities Index (a custom benchmark that splices the MSCI ACWI Energy and MSCI ACWI Utilities indexes). The firm made the change so this strategy could capitalize on the evolution away from fossil fuels and toward renewable energy sources by investing significantly more in electric and other utilities.

Portfolio

The MSCI ACWI Energy + Utilities Index is a dynamic benchmark, and its sector weights vary based on the performance of energy stocks versus utilities stocks. Meanwhile, the MSCI ACWI Energy Index gained 36% in 2021, whereas the MSCI ACWI Utilities Index returned 10% last year. The MSCI ACWI Energy + Utilities Index’s energy stake increased to 56% as of Dec 31, 2021, as result, while its utilities position decreased to 44% (per Vanguard data).

People

Tom Levering has good credentials for picking utilities stocks as well as energy equities. For starters, he spent several years as a utilities consultant before joining Wellington in 2000, and he served as an energy and utilities analyst for roughly two decades–and led Wellington’s combined energy/utilities team for a few years–before he took charge of this fund in early 2020.

Performance

The Investor share class of this strategy recorded a 27.7% gain in 2021. That’s significantly less than the 36.0% and 44.8% returns posted by the MSCI ACWI Energy Index and the average fund in the energy equity Morningstar Category, respectively. But this strategy is an energy/utilities hybrid that began 2021 with roughly 48% of its assets in utilities stocks and ended the year with roughly 44% of assets in such names, and the MSCI ACWI Utilities Index produced a gain of just 10.1% last year. The Investor share class’ 27.7% gain is significantly better than the 23.6% return of a 50/50 MSCI ACWI Energy/Utilities custom index and better than the 23.0% return of the strategy’s custom prospectus benchmark.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Technology Stocks

Citrix Agrees To Be Taken Private for $104 Per Share; Reports Good Results; FVE Down to Deal Price

Business Strategy and Outlook

Citrix serves customers from enterprise-level to small and medium-size businesses and has come to dominate remote access and desktop virtualization while building a supportive portfolio of related networking solutions. A streamlined portfolio has allowed Citrix to focus on selling a holistic solution rather than endpoint products. This includes selling directly to CIOs, converting the installed base of point products to higher-priced and higher-value IT solutions, and winning new accounts. As if these changes were not enough of a challenge, the company is also in the midst of a model transition to subscriptions, which appears to be going well thus far.

While Citrix is strong in its core market, it is not a leader in other markets. In fact, Citrix remains one of a handful of competitors in each of the other markets it serves, including application delivery, endpoint management, software-defined wide-area network management, and web application firewalls, among other niches. The firm went through some turbulence in 2015-17. 2018 was a step in the right direction in terms of focus and execution, but Morningstar analyst believe management will have its hands full over the next several years executing its strategy. 

Morningstar analyst believe Citrix has established a narrow moat, as switching proven core software infrastructure components is something organizations try to avoid. Morningstar analyst  forecast mid single digit top-line growth over the next five years, with gradually improving operating margins. Morningstar analyst think Citrix is well positioned in the coming quarters to be an important partner as its customers expand their remote work strategies, especially with the addition of Wrike to the portfolio.

Citrix Agrees To Be Taken Private for $104 Per Share; Reports Good Results; FVE Down to Deal Price

Morningstar analyst  lowering  fair value estimate for narrow-moat Citrix to $104 per share from $116 after the company agreed to be taken private by Vista Equity Partners and Evergreen Coast Capital for $104 per share. Citrix has been hampered over the years by questionable acquisitions and a lack of operational discipline by previous management teams and was the target of Elliott Management’s activist involvement in 2015. Concurrent with this announcement, Citrix also reported surprisingly strong fourth-quarter results. Fourth-quarter revenue grew 5% year over year to $851 million, which topped the high end of the $825 million to $835 million guidance range. 

Bulls Say

  • Citrix dominates the desktop virtualization (broadly defined) market. 
  • A streamlined portfolio and optimized footprint from a period of major restructuring should help Citrix drive both revenue and margins over the next several years. 
  • The recent release of Citrix Cloud has helped jumpstart the business model transition to subscriptions.

Company Profile

Citrix Systems provides virtualization software, including Virtual Apps and Desktops for desktop virtualization and Citrix Virtual Apps for application virtualization. The company also provides Citrix Endpoint Management for mobile device management and Citrix ADC for application delivery and Citrix SDWAN for routing, security, and WAN monitoring.

 (Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.