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Technology Stocks

NetEase capitalizes on the industry shift toward mobile gaming and now focuses on innovation in it

Business Strategy and Outlook:

NetEase started as a Chinese Internet portal in the late 1990s but has now become the second-largest mobile game company in the world. The firm owns one of the most well-known massively multiplayer franchise in China—Fantasy Westward Journey. Over the past decade, NetEase has capitalized on the industry shift toward mobile gaming and now focuses on developing innovative, high-quality, and long-cycle games with a mobile-first approach.

Like its global gaming peers, NetEase maintains a high level of profitability (above 30% operating margin) for its gaming business, thanks to stable revenue from core titles and the steady development of new franchises. The firm is positioned to not only continue capitalizing on the success of Westward Journey titles, but to also keep diversifying its revenue into new franchises. While games will remain NetEase’s core cash flow driver, the firm’s investments in other areas (music streaming, online education, e-commerce) also offer long-term potential.

Financial Strength:

The fair value estimate of the stock is USD 139.00, which implies forward 2022 P/E of 32, below the above 40 times earnings multiples demanded by global peers like Take-Two and Electronic Arts.

NetEase has a rock-solid balance sheet. At the end of December 2020, the company had CNY 93 billion in cash, cash equivalents, short-term investments, and time deposits under current assets. There was also a restricted cash balance of CNY 3.1 billion under current assets. This compares with only CNY 19.5 billion of short-term debt. Thanks to its strong net cash position and strong operating cash flow that amounted to 137% of net income in 2020, the firm should have no problem funding its gaming business and innovative businesses. However, NetEase has returned capital to shareholders via dividends and has set quarterly dividends at 20%-30% of its anticipated net income after tax in each quarter starting in the second quarter of 2019.

Bulls Say:

  • NetEase’s expertise in asymmetric multiplayer (Identity V and Dead by Daylight) would allow it to capitalize on future opportunities in this genre. 
  • The firm has done an admirable job at organically expanding into Japan, and it is likely that it will be able to replicate same success in Europe and the U.S. 
  • NetEase Music could see stronger user growth now that Tencent Music was told to end its exclusive licensing agreements with music labels on anti-trust grounds.

Company Profile:

NetEase, which started on an Internet portal service in 1997, is a leading online services provider in China. Its key services include online/mobile games, cloud music, media, advertising, email, live streaming, online education, and e-commerce. The company develops and operates some of the China’s most popular PC client and mobile games, and it partners with global leading game developers, such as Blizzard Entertainment and Mojang (a Microsoft subsidiary).

(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
Shares Small Cap

Platinum Shares at discount as investors overlook its good traits

Business Strategy and Outlook

Platinum is an active manager founded in 1994, specialising in global equities. It concentrates on identifying unfashionable stocks with latent business and growth prospects. Platinum is not focused on asset allocation and pays little attention to its benchmarks. As a result, its portfolios often look little like–and returns often don’t resemble–their indexes. The firm manages about AUD 22 billion in FUM, and is one of the best known fund managers in Australia. 

Platinum eschews empire-building–such as special discounting to attract FUM, acquisitions or product proliferation–and prefers to spend most of its time managing money. Management is largely focused on minor product enhancements: clients can invest via unlisted funds, active ETFs, listed investment companies, mFunds, or investment bonds. Clients can also invest into performance fee class of funds. Moreover, the firm is making an effort to grow its client engagement and business development initiatives.

Financial Strength

Our fair value estimated to AUD 3.90 per share from AUD 4.25 after increasing the expected magnitude, and prolonging the duration, of net outflows to fiscal 2024. Platinum is in strong financial health, supported by a conservative balance sheet with no debt and a healthy cash balance. Platinum has maintained a very high dividend payout ratio since listing in 2007. An absence of debt, consistent earnings, strong cash flow conversion, and a durable balance sheet support the high dividend payout ratio target of close to 100%. High dividend payouts are a feature of the capital-light asset-management sector, delivering attractive shareholder returns while maintaining comfortable balance sheet settings.

Bulls Say’s 

  • Platinum is well known in Australian funds management. The firm may be able to take advantage of retail investors increasing allocation to global equities, if it improves medium-term performance. 
  • The long-term outlook is positive due to likely mandated increases in compulsory superannuation. However, fund underperformance, increasing competition and a trend to lower-cost passive investments are risks. 
  • Capital demands low, and free cash flow generation is strong. This supports a high dividend payout ratio and offers investors the opportunity of both growth and income returns.

Company Profile 

Platinum Asset Management is an Australian-based niche fund manager with a specialty in international equities founded in 1994. It offers region and industry-specific funds in addition to global portfolios. There is flexibility in the investment strategies at Platinum, with funds having the option to engage in short-selling, taking positions in foreign exchange markets, and derivative-based activities to manage risk and aid performance.

(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
Funds Funds

MFS Institutional International Equity Fund

Approach

The managers rely on broad and thorough bottom-up research and a disciplined focus on moderately growing established companies with shares trading at decent prices. That is not unique, but the process is bred in MFS’ bones and has delivered strong results elsewhere, including Gold-rated MFS Global Equity MWEIX. The managers look for firms growing faster than global GDP. That’s a lower hurdle than more-aggressive growth funds since global GDP historic growth is in the single digits.

Portfolio

This is a diversified yet distinctive portfolio. It spreads its bets over its nearly 80 stocks. Most holdings were less than 2% of assets, and the fund had less than 30% of its money in its top 10 stocks. The strategy’s preference for competitively advantaged, moderately growing, developed-markets companies helps it stand out, though. More than two thirds of its holdings have wide or narrow economic moat ratings, much more than its foreign large-cap peers and relevant indexes, like the MSCI ACWI ex USA. It also had a large slug of assets in developed Europe, including the 2021 purchase of tire maker Cie Generale des establisment Michelin. 

Portfolio .png

People

The firm’s sprawling, yet experienced analyst team supports the managers. MFS has dozens of U.S. and nonU.S. equity analysts who divide responsibilities across eight global sectors. In addition, the firm’s large credit analyst team provides insights across the capital structure, and a quantitative research squad offers riskmanagement support. The equity analysts average more than 15 years of industry experience and nearly eight years’ firm tenure, and team turnover has been low. The managers also collaborate with the firm’s other non-U.S. portfolio managers, including Roger Morley and Ryan McAllister of Gold-rated MFS Global Equity.

Performance 

The fund has done well in a variety of environments. Its performance in the early 2020 pandemic-induced market collapse was mixed, though. Its 31% loss hurt but was less than the nearly 34% plunge of broader non-U.S. stock indexes. The typical foreign large-growth fund and growth benchmarks, however, shed about 30%. Pandemic-ravaged businesses like food service company Compass hurt, so did not owning more tech stocks.

Performance .png

(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
Shares Technology Stocks

NextDC benefits from industry megatrends

Business Strategy and outlook

NextDC is well-placed to benefit from industry megatrends, including the growing adoption of cloud computing, the Internet of Things, and artificial intelligence, leading to exponential growth in data creation. As per Morningstar analyst forecast NextDC will materially expand its capacity over our 10-year forecast period in order to meet growing demand for data center services. 

The COVID-19 pandemic has accelerated the digital transformation of many businesses and expedited demand for co-location data centers. Large numbers of employees have made the transition to remote working arrangements, leading to a greater reliance on digital technologies such as video conferencing and cloud-based platforms, and reducing the need to store servers at a centralized location. Beyond the COVID-19 pandemic, it is expected that remote working levels will remain elevated above pre-pandemic levels, resulting in continued demand for digital technologies and potentially less need for physical office space. This shift has increased demand for data centers and hybrid and multi cloud data storage solutions, which are supported by co-location data centers like NextDC. Hybrid solutions, which combine traditional infrastructure with cloud storage, can improve business outcomes through reduced latency and costs, increased security and resilience, and the flexibility to connect to multiple clouds based on business needs. These solutions provide greater flexibility and allow businesses to scale their data storage capacity based on workflow. 

As per Morningstar analyst, interconnection services are becoming increasingly important for NextDC as more businesses make the transition to hybrid cloud storage models. As of fiscal 2021, interconnection revenue contributed 8% of NextDC’s total recurring revenue and this will trend higher over time as its network ecosystem matures.

Financial Strength

NextDC is in sound financial health. The company raised AUD 862 million in fiscal 2020 via an institutional placement and share purchase plan. Proceeds from the equity raising will be used to fund the development of a third Sydney data center and further capacity expansion at its existing and new sites. Morningstar analyst forecast, gearing, measured as net debt/EBITDA, to deteriorate to above 3.6 times in fiscal 2023 as NextDC continues to invest heavily in portfolio expansion, before recovering from fiscal 2024 as capacity utilization improves. Morningstar analyst forecasted that NextDC will invest about AUD 4.0 billion during the 10 years to fiscal 2031 to grow total power capacity at a CAGR of 16%. It is also expected that NextDC will only consider paying dividends when it has accrued sufficient franking credits, otherwise the capital would be better spent on investments or repaying debt.

Bulls Say

  • NextDC is well placed to benefit from industry megatrends including the growing adoption of cloud computing, the Internet of Things and artificial intelligence leading, to exponential growth in data creation. 
  • The shift to cloud-based services increases the need for enterprises to connect to numerous cloud providers and the connection is fastest, safest and most efficient in a co-located data center. 
  • The COVID-19 pandemic has accelerated the digital transformation of many businesses and is leading to increased demand for cloud-based services.

Company Profile

NextDC is an Australia data center developer and operator with a focus on co-location and interconnection among enterprise and government customers, global cloud and information and communications technology, or ICT, providers, and telecommunication networks. NextDC provides physical space, cooling, power, and security services and offers optional technical and project management support. The company’s tenants house their servers within the data center and can connect to each other via physical and virtual connections.

 (Source: Morning Star)

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
Funds Funds

Pfizer strong pipeline development increasingly sets ups near term growth

Business Strategy and Outlook

Pfizer’s size establishes one of the largest economies of scale in the pharmaceutical industry. In a business where drug development needs a lot of shots on goal to be successful, Pfizer has the financial resources and the established research power to support the development of more new drugs. Also, after many years of struggling to bring out important new drugs, Pfizer is now launching several potential blockbusters in cancer, heart disease, and immunology. Pfizer’s vast financial resources support a leading salesforce. 

Pfizer’s commitment to postapproval studies provides its salespeople with an armamentarium of data for their marketing campaigns. Further, Pfizer’s leading salesforces in emerging countries position the company to benefit from the dramatically increasing wealth in nations such as Brazil, Russia, India, China, and Turkey. Pfizer’s recent decision to divest its off-patent division Upjohn to create a new company (Viatris) in combination with Mylan should drive accelerating growth at the remaining innovative business at Pfizer. With limited patent losses and fewer older drugs, Pfizer is poised for steady growth.

Financial Strength

Pfizer holds a very strong financial position with a large degree of flexibility. As of the end of 2020, debt/capital stood at 39% and debt/EBITDA was 2.9, which suggests that Pfizer remains on solid financial footing. With the majority of its cash flow derived from a diverse portfolio of products, it’s not expects a high degree of volatility with future earnings. After a deep dive on several of Pfizer’s pipeline drugs combined with continued strong data for COVID-19 treatment Paxlovid, it has increased our projections for several key drugs leading to a fair value estimate increase to $48 from $45.50. The strong pipeline increasingly supports our wide moat rating for the firm. For the core business of Pfizer, it is expected to close to 6% annual sales growth between 2020 and 2025 as new drugs offset generic competition. 

Bulls Say’s 

  • Bega is shifting investment to the spreads and grocery business, which we view as less commoditised and higher margin than dairy, with strong niche positions in Vegemite and peanut butter 
  • External factors outside of Bega’s control, such as the weather, can adversely impact supply and demand dynamics. This can impact commodity prices, inputs costs and the firm’s supply chain and lead to volatile earnings 
  • Changing consumer trends toward dairy-free and vegan diets could lead to declines in per-capita dairy and cheese consumption, weighing on the majority of Bega’s earnings

Company Profile 

Pfizer is one of the world’s largest pharmaceutical firms, with annual sales close to $50 billion (excluding COVID-19 vaccine sales). While it historically sold many types of healthcare products and chemicals, now, prescription drugs and vaccines account for the majority of sales. Top sellers include pneumococcal vaccine Prevnar 13, cancer drug Ibrance, cardiovascular treatment Eliquis, and immunology drug Xeljanz. Pfizer sells these products globally, with international sales representing close to 50% of its total sales. Within international sales, emerging markets are a major contributor.

(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
ipo IPO Watch

The Medplus Health Service IPO Subscribed 52.59 times on its final day

Incorporated in 2006, Medplus Health Services is India’s second-largest pharmacy retailer. The company offers pharmaceutical and wellness products .

 The IPO comprises a fresh issue of equity shares worth Rs 600 crore and an offer-for-sale (OFS) of Rs. 798.30 crore. The Medplus Health Service IPO opened at Dec 13, 2021, and closed at Dec 15, 2021 and listed on both NSE & BSE at Dec 23, 2021.The minimum lot size comprises 18 shares at a price band of Rs.780 -796 per equity share. A retail-individual investor can apply for up to 13 lots.

The objective of the issue is to fund the working capital requirement of the subsidiary, Optival; and for general corporate purposes.

Axis Capital, Credit Suisse Securities (India), Edelweiss Financial Services and Nomura Financial Advisory and Securities (India) were the managers to the offer. 

Medplus Health Services IPO has got 50 per cent reserved for qualified institutional buyers (QIBs) and 15 per cent reserved for non-institutional investors (NIIs). The remaining 35 per cent of the issue is available for retail investors.

The scrip got listed at Rs 1,040.00 a piece on the National Stock Exchange (NSE), thereby registering a gain of 30.65 per cent from its offer price of Rs 796.00, while on the BSE, it opened at Rs 1,015.00, up 27.51 per cent from the issue price.

Medplus IPO Subscription Status

The Medplus Health IPO was subscribed 52.59 times on Dec 15, 2021.The public issue subscribed 5.24 times in the retail category, 111.90 times in the QIB category, and 85.33 times in the NII category.

About the Company

Incorporated in 2006, Medplus Health Services is India’s second-largest pharmacy retailer in terms of the number of stores and revenue. The company offers pharmaceutical and wellness products i.e. medicines, vitamins, medical devices, test kits, and fast-moving consumer goods i.e. home and personal care products, baby care products, sanitizers, soaps, and detergents, etc. It is also the first pharmacy retailer in India to offer an omnichannel platform wherein customers can purchase products through stores, place orders over the telephone, online orders, and a Click and Pick facility.

As of June 31, 2021, the company has a strong pharmacy retail network of 2,165 stores across Tamil Nadu, Andhra Pradesh, Telangana, Karnataka, Odisha, West Bengal, and Maharashtra. In fiscal 2021, its share of the organized pharmacy retail based on revenue from operations in Chennai, Bangalore, Hyderabad, and Kolkata reported at 30%, 29%, 30%, and 22% respectively. It follows a cluster-based approach for store network expansion wherein it first opens high store density in a populated residential area within a target market. The company’s warehouses are located in Bengaluru, Chennai, Hyderabad, Vijayawada, Kolkata, Pune, Bhubaneshwar, Mumbai, and Nagpur.

(Source: DRHP of Medplus Health Services Limited IPO)

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

Dollar General Should Weather Near-Term Supply Chain Issues, Long-Term Competition Well

Young woman trading stock market by touching.

Business Strategy and Outlook

Despite intensifying competition that we believe is diminishing its competitive edge, Dollar General’s advantageously located store network, low-priced items, and leverageable supply and distribution capabilities should allow it to deliver economic returns. With a footprint focused on thinly populated areas that cannot support numerous retailers and make shipments to homes costly for a small basket (over 80% of items are priced at or below $5), we expect Dollar General to use its burgeoning scale and proximity to customers to economically deliver the convenience and affordability that its generally modest-income (roughly $40,000 annually, as a household) customers demand. 

Still, switching costs are negligible, forcing Dollar General to face intense competition from convenience stores, mass merchandisers, hard discounters, grocery stores, pharmacy chains, and online retailers (Amazon). The crowded landscape puts a premium on execution, a challenge management has met thus far but requires agility as customers’ demands change.

Financial Strength

With stores that have remained open through the pandemic, ample liquidity, and negligible near-term maturities, the firm is well positioned to endure a volatile fiscal 2021-22 as the economy normalizes. The firm has a history of limited leverage, with net debt roughly equal to adjusted EBITDA over the past five years, on average. It is expected that such prudence to continue. Despite aggressive growth (from under 9,000 stores at the start of fiscal 2010 to more than 17,000 at the end of fiscal 2020), free cash flow generation has been strong. 

Furthermore, in the event of financial strain, Dollar General should be able to hold additional funds as needed by simply curbing its unit growth targets, reducing capital expenditure needs, which we forecast to average 2%-3% of sales over the next decade, or more than $1 billion annually.Dollar General introduced a dividend in fiscal 2015, with a payout ratio averaging nearly 20% over fiscal 2015-20. 

Bulls Say’s 

  • Low price points and average ticket sizes protect the dollar store segment from digital incursion as shipping costs are difficult to absorb, all while allowing firms to sell smaller package sizes at higher margins. 
  • Dollar General capitalizes on a broad network of stores, which include rural locations that are often the only convenient sizable retailer. 
  • With its stores considered essential, a consumablesheavy lineup, and potential to capture trade-down sales, Dollar General should largely sidestep the COVID-19 pandemic’s adverse economic consequences.

Company Profile 

A leading American discount retailer, Dollar General operates over 17,000 stores in 46 states, selling branded and private-label products across a wide variety of categories. In fiscal 2020, more than 76% of net sales came from consumables (including paper and cleaning products, packaged and perishable food, tobacco, and health and beauty items), 12% from seasonal merchandise (such as toys, greeting cards, decorations, and gardening supplies), 7% from home products (for example, kitchen supplies, small appliances, and cookware), and 5% from basic apparel. Stores average roughly 7,400 square feet, and about 75% of Dollar General locations are in towns of 20,000 or fewer people. The firm emphasizes value, with more than 80% of its items sold at everyday low prices of $5 or less.

(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

Costco’s Advantages Should Weather Near-Term Supply Chain Challenges and Long-Term Competition

Business Strategy and Outlook

With a besotted member base, low-frills warehouses, and growth opportunities at home and abroad, it is expected that Costco’s durable competitive advantages lead to consistent, strong performance despite retail’s upheaval. The competitive environment is intense and becoming more challenging as Amazon scales and physical rivals deliver an omnichannel experience, but it is believed that the values that Costco offers (driven by cost leverage, procurement strength, and top-class store efficiency) should allow it to keep traffic high. With ample opportunity to expand globally, Costco Is expected to post consistently strong returns even as it grows. 

Through a financial crisis, the maturation of digital general merchandise retail, the expansion of Amazon’s Prime offering, a credit card provider switch, a robust pre-pandemic economy, two meaningful fee increases, and the COVID-19 outbreak, Costco’s membership renewal rates in the United States and Canada have remained at roughly 90%. The traffic-driving values that Costco offers in its stores are fueled by cost leverage and procurement strength that, in turn, feeds additional store visits. 

As per Morningstar analyst perspective, it is believed that the firm’s food and fuel offerings drive traffic and suspect that Costco is poised to thrive even as digital sellers expand. Although it is expected to keep pace with rivals by further developing its omni channel offering (a mid- to high-single-digit share of fiscal 2021 sales, excluding same-day grocery and various other services, came from e-commerce), it is  believed that Costco’s value proposition should support continued member growth and in-store sales expansion.

Financial Strength

With strong cash flow generation and a dedicated subscriber base, Costco is in good financial health. Costco had $11 billion in balance sheet cash as of the end of fiscal 2021 against just $7.5 billion in debt. The geographic mix of new store openings will shift as Costco grows to more than 1,000 warehouses; it is expected that openings and digital investments will leave capital expenditures at roughly 2% of sales, in line with the firm’s five-year average. Despite the spending, analysts expect the firm will be able to balance growth with returning capital to shareholders without meaningfully altering its leverage metrics. Morningstar analyst expects that firm’s conservative balance sheet approach to endure despite continued share repurchases. With free cash flow to the firm expected to average around 2%-3% of sales (consistent with recent results), it can be observed that Costco has significant financial flexibility. It is suspected such returns will include special dividends, which Costco paid in fiscal 2013, 2015, 2017, and 2021. 

Bull Says

  • Costco’s membership format exhibits strong customer loyalty, with renewal rates holding steady around 90% in a variety of economic environments and despite Amazon’s growth (particularly Prime) and the broader digitization of retail. 
  • Costco’s focused assortment reduces complexity while concentrating its buying power, which we believe grants it exceptional procurement leverage. 
  • Costco should be a safe harbor in retail seas roiled by the COVID-19 pandemic, with its competitive advantages holding returns steady.

Company Profile

The leading warehouse club, Costco has 815 stores worldwide (at the end of fiscal 2021), with most sales derived in the United States (72%) and Canada (14%). It sells memberships that allow customers to shop in its warehouses, which feature low prices on a limited product assortment. Costco mainly caters to individual shoppers, but roughly 20% of paid members carry business memberships. Food and sundries accounted for 40% of fiscal 2021 sales, with non-food merchandise 29%, warehouse ancillary and other businesses (such as fuel and pharmacy) nearly 17%, and fresh food 14%. Costco’s warehouses average around 146,000 square feet; over 75% of its locations offer fuel. About 7% of Costco’s global sales come from e-commerce (excluding same-day grocery and various other services).

(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

Novartis results beat consensus delivering revenue of US$12.95bn

Investment Thesis:

  • Relatively high barriers to entry, with a significant amount of funds deployed in R&D every year. 
  • Recent and upcoming divestments will streamline the business and provide increased focus to deliver shareholder returns. 
  • Recent product launches indicate solid sales momentum, with near-term product pipeline potentially providing further upside. 
  • Selective bolt-on acquisitions to supplement organic growth. 
  • Operating efficiency focuses to further support earnings growth. 
  • As the new management team improves Company culture, investors are less likely to ascribe a discount to the stock based on legacy issues.

Key Risks:

  • Recently launched products fail to deliver sales growth as expected by the market. 
  • New product pipeline fails to yield “blockbuster” products or delays in bringing key products to market. 
  • R&D programs do not yield new long-term ideas. 
  • Increased competition (pricing pressure & innovative products) from new entrants or existing players. 
  • Value destructive M&A. 
  • Regulatory / litigation risks.

Key highlights:

  • NOVN’s product development pipeline continues to progress well without any major disruptions.
  • Novartis (NOVN) 2Q21 results beat consensus on both top and bottom line, delivering revenue of US$12.95bn (vs estimates of US$12.49bn) and EPS of US$1.28 (vs estimate of US$1.08) as disruption from the pandemic waned, with management announcing the growth drivers and launches continue to show excellent momentum with +35% growth and now contributing to more than 50% of top line.
  • The Oncology business continued to recover delivering +7% growth with sales reaching US$3.9bn during the quarter, with management expecting to see accelerated growth if trends move toward pre-Covid-19 levels in 2H21.
  • Financial position remained strong with the Company not experiencing liquidity or cash flow disruptions during 2Q21 due to the Covid-19, ending the quarter with total liquidity of US$5.4bn.
  • FY21 net sales to grow low to mid-single digit, with Innovative Medicines to grow mid-single digit and Sandoz to decline low to mid-single digit, and core operating income to grow midsingle digit (ahead of sales), with Innovative Medicines growing mid to high-single digit, ahead of sales, and Sandoz declining low to mid-teens.
  • The Company retained strong capital structure (credit rating of A1/AA- by Moody’s/S&P), not experiencing any liquidity or cash flow (2Q FCF up +17% over pcp) disruptions during 2Q21 due to the COVID-19 pandemic.

Company Description: 

Novartis AG (NOVN) is an innovative healthcare company headquartered in Basel, Switzerland, with approximately 125,000 employees. In 2017, the Group reported net sales of US$49.1bn, while R&D throughout the Group amounted to approximately US$9.0bn. The Company sells its products in approximately 155 countries. The group has two segments which it reports on: (1) Innovative Medicines (Oncology / Pharmaceutical), and (2) Sandoz generics division.

(Source: Banyantree)

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
Funds Funds

Kotak Bond Direct Growth: Stable team supports the process and has the potential to outperform in the long term with its active duration positioning

Kotak Bond is actively managed and run by an experienced team with a robust investment strategy. The fund has delivered consistent returns, and we believe it is a strong choice for investors who seek a quality portfolio and are willing to occasionally take a higher investment risk for higher returns.

Approach 

The strategy is run using a team-based approach and has a strong fundamental process in place. The fund is more focused towards taking active duration bets and invests primarily in high-quality credits. Credit analysis is divided into banking, nonbanking financial companies, and manufacturing debt, further demarcated into three buckets based on the strength of the business, management, and corporate governance standards. The qualitative assessment is then followed by rigourous quantitative analysis wherein financial ratios such as leverage, coverage, and solvency ratios are considered.

Portfolio

In 2021, the manager maintained a high allocation to government securities mainly towards the medium and long end because of attractive yields. He is overweight at the medium end because he believes that, regardless of whether the yield went up or down, the middle of the segment would provide a good level of carry and roll-down advantage. At the same time, the steepness of the curve made the longer end of the curve look appealing. However, because of the uncertainty surrounding the rate hike, he kept a limited the fund avoids investing in anything below AAA segment and intermittently holds higher cash/money market instruments to take opportunistic trading calls when markets are bumpy.

People

Abhishek Bisen is an experienced manager who has been with the fund house since October 2006. He took over this fund in April 2008 along with Deepak Agrawal. From July 2015, Bisen has been sole manager after Agrawal moved out to manage credit and shorter-maturity funds. Bisen is well-engrained in Kotak’s philosophy, and his skills complement the investment process. The fixed-income strategies are run using a team-based approach that follows an inclusive culture. It fosters the collective input of the investment specialists closest to the source of investment information.

Performance

Abhishek Bisen has delivered robust returns during his tenure from April 2008 to November 2021. It ranked in the first quartile by outperforming 82% of its peers, delivering returns of 8.19% versus the category average of 7.39%. In 2021, he maintained a higher exposure to medium-duration bonds and government securities. This resulted in superior risk-adjusted returns for the fund. We believe the fund has the potential to outperform with its active investment strategy across interest-rate cycle. 

(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.