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Technology Stocks

Texas Instruments Deserves the Benefit of the Doubt With its Lehi Fab Acquision

85215903 - attractive businessman using mobile phone while having lunch

TI is already building a new 300mm wafer fab, RFAB2, which should come online in the second half of 2022 and have enough capacity for $5 billion of incremental annual revenue (as compared with roughly $18 billion in sales for the company expected in 2021).

Investors have questioned whether TI will generate enough future revenue to fill RFAB2, so acquiring the Lehi fab might be deemed excessive. However, TI’s exemplary management team should be given the benefit of the doubt for now, as Micron noted that it is selling the fab at less than book value.

Given TI’s $6.7 billion of cash on hand as of March 2021, as well as a low-interest rate environment if TI wanted to fund the deal with debt, TI isn’t putting its financial future at risk by buying another fab, even if Lehi were to sit underutilized for an extended amount of time. It also appears to us that the market for used fab equipment has been rather tight, so buying an additional fab and more equipment might make sense, even if the timing is less than ideal since the RFAB2 opening is on the way.

The economics of a merger might not make sense if TI has to build new facilities to take on chip orders from the acquired business, but if TI has already made the necessary fab investments and has underutilized 300mm facilities on hand, the return on investment on future deals might make more sense for TI in the long run.

Company Profile

Dallas-based Texas Instruments generates about 95% of its revenue from semiconductors and the remainder from its well-known calculators. Texas Instruments is the world’s largest maker of analog chips, which are used to process real-world signals such as sound and power. Texas Instruments also has a leading market share position in digital signal processors, used in wireless communications, and microcontrollers used in a wide variety of electronics applications.

(Source: Morningstar)

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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

Mettler-Toledo Returning to Sales and Earnings Growth

While the competitive nature of these markets makes incremental share gain somewhat difficult, we see opportunity for organic growth and share gains in product inspection, industrial, and food retail. Mettler places an intense focus on sales and marketing and has leveraged its Spinnaker and Stern Drive programs to operate with high efficiency and maintain strong customer retention.

Despite relatively slow market growth in weighing instrumentation, Mettler has achieved steady above-market share gains and has established a niche in high-end laboratory balances. Impressively, the firm has posted consistent pricing and margin gains over the past decade, even during the great financial crisis, 2015-16 industrial downturn and COVID-19 pandemic. Tepid industry growth holds potential competitors at bay, given that new entrants would find it difficult to take meaningful share, and the reward for doing so would be relatively small.

Higher inflation could limit earnings growth because Mettler may find it difficult to pass on pricing increases to clients that are more than the customary 2 percent to 3 percent range. Nonetheless, because the company works in established, stable markets, the long-term picture for the company appears positive.

Despite shareholder pressure on financial allocation, Mettler has taken a methodical approach to acquisitions.

Financial Strength

Mettler-Toledo has good financial strength and has consistently maintained solid levels of free cash flow and reasonable debt, which stood at 1.5 times EBITDA in December 2020. Mettler has generated increasing levels of free cash flow in each of the past four years, with $240 million of cash flow in 2016 increasing to nearly $650 million in 2020. Mettler has typically used much of this cash flow on share buybacks, which have totaled nearly $2.8 billion over the last five years. Apart from repurchases, Mettler has occasionally made moderately sized acquisitions, such as the $105 million purchase of pipette consumable vendor Biotix in 2017, and the $96 million acquisition of lab equipment company Henry Troemner in 2016.

Bulls Say

  • Despite the slow market growth of balances, Mettler has consistently exceeded analyst expectations, and the company has unmatched operating efficiency.
  • Mettler has shown impressive cost discipline during the COVID-19 pandemic. With a flexible cost structure and healthy balance sheet, Mettler is poised to benefit from a post-crisis economic rebound.
  • Though details of the programs remain somewhat opaque, the Spinnaker and Stern Drive initiatives appear to be significant contributors to the firm’s consistent market-beating results, and these programs are set to continue.

Company Profile

Mettler-Toledo supplies weighing and precision instruments to customers in the life sciences (54% of 2020 sales), industrial (40%), and food retail industries (6%). Its products include laboratory and retail scales, pipettes, pH meters, thermal analysis equipment, titrators, metal detectors, and X-ray analyzers. Mettler leads the market for weighing instrumentation and controls more than 50% of the market for lab balances. The business is geographically diversified, with sales distribution roughly as follows: the United States around 30% of sales, Europe around 30%, China around 20%, and the rest of the world around 20%.

(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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IPO Watch

Dodla Dairy is trading at a premium of 28% above the issue price.

Bids for 38,80,64,950 shares were received, that was 45.62 times the offer size of 85,07,569 shares. The shares reserved for non-institutional investors were subscribed 73.26 times, while the quota reserved for qualified institutional buyers (QIBs) was subscribed 84.88 times. Retail individual investors (RIIs) received 11.33 times the number of shares offered.

Dodla Dairy Capacity

As of March 31, 2021, the dairy owner purchased an average of 1.03 million litres of raw milk per day (MLPD). It operates 13 production plants with a total installed capacity of 1.70 million metric tonnes per day. In addition, it operates two skimmed milk powder (SMP) facilities in Nellore and Vedasandur, with installed capacities of 15,000 and 10,000 kg per day, separately.

Dodla’s revenues increased by 16 percent yearly and its Ebitda increased by 12 percent annually between FY18 and FY20. During the same time period, profit after tax (PAT) declined by 6% yearly. In the first nine months of FY20, value products accounted for 24.68 percent of total sales, down from 27.18 percent in FY20.

Analyst View

However, the Ebitda margin for the nine-month period increased to 14.6% from 6.7% in FY20. Analysts predicted that the corporation would struggle to maintain such strong margins, which were achieved through cost-cutting initiatives. The management has also advocated for a return to normal margins.

Source: Economictimes

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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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IPO Watch

NTPC is considering an initial public offering of its renewable energy division to obtain revenue for its green goals.

The National Thermal Power Corporation (NTPC) plans to build 60 GW of renewable energy capacity.By 2032, the country’s largest power generator wants to reduce its net energy efficiency by 10%.

NTPC Chairman and Managing Director  Gurdeep Singh at the virtual BloombergNEF Summit:-

We should not concentrate our efforts solely on one method of generating financing. We intend to go public with our fundraising efforts as soon as possible. Singh was speaking about obtaining funding for NTPC’s ambitious renewable energy objective, stressing that the business would add 7-8 GW of RE each year, which he said would not be a difficult undertaking. He exuded confidence that NTPC would surpass its aim of 60GW of renewable energy by 2032.

He also mentioned that blended finance might be utilised to fund the capacity expansion, as well as building assets and enlisting the help of other investors to accomplish green energy ambitions. In October of last year, state-owned NTPC formed NTPC Renewable Energy Ltd, a wholly-owned subsidiary for its renewable energy sector.

Company Profile

NTPC Ltd is an Indian state-owned electric utility company. It is the largest power producer in India and supplies a significant amount of the nation’s total needs. The company primarily generates revenue through the sale of electricity to state-owned Indian power distribution companies from its stations throughout the country. NTPC also brings in a significant amount of revenue through its consultancy wing, which provides engineering and project management services to the utility industry. While the vast majority of its facilities use coal and gas fuel sources, NTPC has also increased its capacity through renewable energy sources, such as hydroelectric, solar, and thermal power, and plans to continue this trend going forward.

Source: – Economictimes

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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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IPO Watch

Exxaro Tiles receives approval from the Sebi to launch an initial public offering

According to a Sebi update issued on Monday, Exxaro Tiles, which filed preliminary IPO papers with the regulator in March, has received the regulator’s comments. The Sebi’s comments are required for public offerings such as initial public offerings (IPOs), follow-on public offerings (FPOs), and rights issues.
According to the DRHP, the Gujarat-based business may seek a pre-IPO sale of up to 22 lakh equity shares for cash consideration in conjunction with the merchant banker. The pre-IPO transaction will result in a reduction in the volume of equity shares issued compared to the new issuance.
The company expects to raise Rs 150-160 crore from the IPO, according to market sources. The funds from the new issue will be used to repay or prepay debt, support working capital needs, and for other general company reasons.
About Exxaro
Exxaro Tiles, founded by Mukeshkumar Patel, Dineshbhai Patel, Rameshbhai Patel, and Kirankumar Patel, specialises in the production and distributing of vitrified tiles, which are primarily utilised for flooring solutions in the domestic and industrial sectors. It presently has a dealer network of approximately 2,000 people spread over 27 states.

Source:- Economictimes

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

Revenue Reaching for the Sky but Earnings to Remain Grounded

Unfortunately, the bright revenue picture is blurred by an uncertain outlook for costs snapping back from COVID-19 related rights relief, and investments needed to execute the strategic plan. EBITDA is projected to fall for two to three years from management’s projected NZD 180 million-plus in fiscal 2021. The trajectory is in line with our current expectation, but the key mystery is where Sky’s fiscal 2024 EBITDA will end up relative to our NZD 110 million forecast.

The current guidance for fiscal 2021 implies second-half EBITDA of NZD 66 million, or roughly NZD 130 million annualised. Our current fiscal 2024 EBITDA forecast of NZD 110 million would then equate to an average decline of 16% from fiscal 2021. It may be tempting to blindly input management’s financial targets into the model, but details from the investor day warrant a longer deliberation. In any case, our unchanged NZD 0.30 fair value estimate (AUD 0.28 at current exchange rates) already implies material upside from Sky’s current stock price. And the no-moat-rated group has attracted “a number of unsolicited approaches around potential transactions” over the past year according to management.

Management View to Launch Broadband Service

Management’s clear rationale for launching the broadband service is also sound (to improve the value and bundle proposition for existing Sky customers), while a continued focus on staking its ground in the fast-growing streaming space is not only positive but necessary. As with all strategic plans, the proof is in the execution. Its degree of difficulty is high, especially the objective of stabilising core pay TV subscriber base while growing streaming customers–a Goldilocks scenario that may be easier said than done. Still, with a pristine balance sheet, management is equipped with ample firepower to continue Sky’s transformation. The group ended December 2020 with an NZD 123 million cash balance, more than enough to repay the NZD 100 million bond (matured in March 2021). It also has an undrawn NZD 200 million facility (maturing July 2023).

Finally, management reaffirmed all current guidance for fiscal 2021. In fact, it even alluded to the potential that EBITDA may exceed the upper end of the NZD 170 to 183 million projected range, suggesting some remnants of COVID-19-related content cost savings and/or continued progress on non-content expense reductions. We have increased our fiscal 2021 EBITDA estimate to NZD 183 million, from NZD 175 million, but our longer-term forecasts are unchanged.

Company Profile

Sky Network Television is the only satellite pay-TV provider in New Zealand, and distributes local and overseas content to its customers through a digital satellite network. It generates subscription and content revenue from these customers. This business is augmented by a free-to-air television channel (Prime) and defensive forays into other distribution channels such as online video-on-demand and online access to live sports.

(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 Shares

Raising Our Tesla FVE to $550 on Improved Profitability Outlook; Shares Slightly Overvalued

Tesla also invests around 6% of its sales into R&D, focusing on improving its market-leading technology and reducing its manufacturing costs. The company will also move upstream into battery production, with a goal to reduce costs by over 50%. Tesla also sells solar panels and batteries used for energy storage to consumers and utilities.

After taking a fresh look at Tesla, we are raising our fair value estimate to $550 per share from $354. The increased fair value estimate comes from our outlook for higher long-term profitability in the automotive segment. We maintain our narrow moat rating but downgrade our moat trend rating to stable from positive. At current prices, shares as slightly overvalued, with the stock trading above our fair value estimate but within 25% of our fair value estimate, which is the upper end of the range for 3-star territory based on our uncertainty rating. A little over 5.1 million vehicles sold in 2030, up from 4.3 million, due to a greater number of affordable vehicles, which Tesla nicknamed the $25,000 car.

Management’s cost reduction initiatives driving long-term gross margin expansion. In its September Battery Day event, Tesla unveiled plans to reduce battery costs by 56%. Tesla will be able to achieve these cost reductions, without reducing prices, which will reduce vehicle unit costs and increase gross profit per vehicle. In addition to cost reductions, the mix shift to the Model Y will also increase automotive gross profit margins. The Model Y is built on the Model 3 platform, and management says the cost of production for a Model Y is not that much more than the Model 3. Given that the Model Y’s entry level price is $12,500, or roughly 30%, more expensive than the Model 3, we see gross profit margins expanding as a greater proportion of Model Y vehicles are sold.

Tesla’s EV prices will remain at or above the price of a comparable internal combustion engine or hybrid vehicle. This should lead to Tesla’s cost reduction efforts driving profit margin expansion. Tesla’s second largest vehicle platform over the next decade, with the two platforms generating nearly 90% of total volumes. Similar to Tesla starting with the Model 3 and then transitioning to sell more Model Ys, we expect Tesla will start with a $25,000 car and then transition to produce a greater proportion of SUVs from the platform.

Financial Strength

Tesla is in solid financial health as cash and cash equivalents exceeded total debt as of March 31, 2021. Total debt was roughly $10.9 billion, with about $5.1 billion of that amount nonrecourse debt mostly backed by asset-backed security issuances for the auto and energy businesses, China debt, and a warehouse line secured by cash flows from vehicle leasing contracts. To fund its growth plans, Tesla has used convertible debt financing as well as equity offerings and credit lines to raise capital. As of March 31, 2021, the company has $2.15 billion in unused committed amounts under credit lines and financing funds. In 2020, the company raised $12.3 billion in three equity issuances.

 Tesla‘s Unique Supercharger Network

  • Tesla has the potential to disrupt the automotive and power generation industries with its technology for EVs, AVs, batteries, and solar generation systems.
  • Tesla will see higher profit margins as the company achieves its plan to reduce battery costs by 56% over the next several years.
  • Through the combination of its industry-leading technology and unique Supercharger network, Tesla offers the best function of any EV on the market, which will result in the company maintaining its market leader status as EV adoption increases.

Company Profile

Founded in 2003 and based in Palo Alto, California, Tesla is a vertically integrated sustainable energy company that also aims to transition the world to electric mobility by making electric vehicles. The company sells solar panels and solar roofs for energy generation plus batteries for stationary storage for residential and commercial properties including utilities. Tesla has multiple vehicles in its fleet, which include luxury and mid-size sedans and crossover SUVs. The company also plans to begin selling more affordable sedans and small SUVs, a light-truck, semi-truck, and a sports car. Global deliveries in 2020 were roughly 500,000 units.

(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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Shares Small Cap

Genworth will find it Challenging to Grow its LMI Business In the face of Slow Credit growth and Increased Competition

Arch Capital Group received Australian Prudential Regulation Authority, or APRA, approval to enter the market in 2019 and announced it would acquire Westpac’s LMI business in 2021. This marked increased competition for Genworth and QBE in Australia.

LMI protects a lender against a potential gap between the outstanding loan amount plus costs and the sale proceeds from the mortgaged property. While it’s the lender who is protected and decides whether to purchase LMI, the premium is paid by the borrower. Low growth in high loan/value ratio, or HLVR loans, due to low system wide home loan growth, as well as banks being more risk-averse after the Royal Commission and tightening of lending standards is expected. An economic backdrop where Australians are holding historically high levels of home-loan debt, and wage growth is low, makes strong credit growth and a significantly stronger appetite for loans with higher LVRs unlikely.

Key Investment Considerations

  • Higher-risk home loan exposure means Genworth is very sensitive to the Australian economy, particularly employment and house prices. In a downturn, it faces the likely lower premiums, higher claims and reduced investment returns.
  • The full-recourse nature of Australia’s home loans reduces potential claims risks and in a benign economy it has proved profitable, earning profits in all but two years of its roughly 50-year history.
  • A sound balance sheet means there is the prospect of further capital-management initiatives.

Financial strength

Genworth is regulated by APRA to maintain a certain prescribed capital level, or PCA. Genworth’s PCA is driven primarily by its LMI concentration risk charge (which is mainly based on its probable maximum loss based on a three-year economic or property downturn of an APRA determined 1-in-200 year severity level) and insurance risk charge (the risk that net insurance liabilities are greater than the value determined by the actuary). Genworth targets a regulatory capital base of 1.32 times-1.44 times its PCA, which it has been consistently above. The PCA as at March 31, 2021, is a healthy 1.63 times.

Bulls Say

  • Fiscal and monetary stimulus cushion the economic downturn in Australia, resulting in a rise in

delinquencies but allows Genworth to remain profitable and continue to generate profits over the longer term.

  • A sound balance sheet provides the capacity to continue to institute capital management initiatives, including special dividends and buying back more shares.
  • The recent relaxation of some macro-prudential measures and low cash rates may spur lenders to issue more investor and HLVR home loans, which Genworth is well positioned to benefit from.

Company Profile

Genworth Mortgage Insurance Australia listed on the Australian Securities Exchange in 2014 after its U.S.-based parent, Genworth Financial Inc. (NYSE: GNW), sold down its stake. It has since exited. With a history spanning over 50 years, Genworth Australia is a provider of lenders’ mortgage insurance, or LMI, in Australia. In Australia, LMI is predominantly purchased on loans with a loan/value ratio, or LVR, above 80%. LMI protects a lender against a potential loss (gap) between the outstanding loan amount and sale proceeds on a delinquent loan property. LMI does not protect the borrower, however the premium is paid by the borrower. It’s regulated by the Australian Prudential Regulation Authority, or APRA, which requires it to meet minimum regulatory capital requirements.

(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

A Lead Supplier – Cerner in Healthcare IT Solutions & Technology Enabled Services

While the market for acute care EHR is mature and offers little growth, the firm has been able to expand into other areas, such as ambulatory (outpatient) care and secure clients in the federal space, notably with the Department of Defense (DOD) and Department of Veterans Affairs (VA). Combined, these contracts offer $20 billion in revenue to be recognized ratably per site implementation by 2028. Additionally, Cerner has started to cross-sell incremental analytics services to fortify retention rates. Incremental services are largely recurring in nature and include analytics, tele health, and IT outsourcing.

Financial Strength

Revenue is growing steadily as the rollout of Cerner’s HER platform at the DoD and VA commence, and incremental services to existing customers and international expansion add to the muted growth of the mature domestic HER market. Non-GAAP margins are already solid, and we believe they are likely to expand further with the active rationalization of services with lower profitability and cost-saving initiatives. As of fiscal 2020, the company had over $1 billion in cash, equivalents, and investments. Cerner initiated a quarterly dividend of $0.18 per share in mid-2019, which it subsequently raised to $0.22 per share at the end of 2020.

Bulls Say

  • Cerner has been able to maintain a leading market share in the acute care EHR market due to high switching costs.
  • Despite the maturity of the domestic EHR market, Cerner’s federal contracts provide modest revenue growth through 2028.
  • Cerner’s leading EHR market share gives the company valuable RWE that can be packaged and sold to pharma companies, payers, and providers in a data offering.

Company Profile

Cerner is a leading supplier of healthcare information technology solutions and tech-enabled services. The company is a long-standing market leader in the electronic health record (EHR) space, and along with rival Epic Systems corners a majority of the market for acute care EHR within health systems. The company is guided by the mission of the founding partners to provide seamless medical records across all healthcare providers to improve outcomes. Beyond medical records, the company offers a wide range of technology that supports the clinical, financial, and operational needs of healthcare facilities.

(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

Deployment Plans Pave a Road to Improving EBITDA at Carnival in 2022

However, global travel has waned as a result of corona virus, potentially leading to longer-term secular shifts in consumer behavior, challenging the economic performance of Carnival over an extended horizon. As consumers slowly resume cruising after a year-plus no-sail halt (with eight of the company’s nine brands set to resume limited sailings by year-end), we suspect cruise operators will have to continue to reassure passengers of both the safety and value propositions of cruising. Aggravating profits will be the fact that the entire fleet will likely have staggered reintroductions, crimping profitability over the 2021-22 time frame, ceding scale benefits. For reference, as COVID-19 continues to wane, 52% of the fleet is expected to be deployed by November.

Financial Strength

We believe Carnival has secured adequate liquidity to survive a slow resumption of domestic cruising, with $9.3 billion in cash and investments at the end of May 2021. This should cover the company’s cash burn rate over the ramp-up, which is likely to increase from the roughly $500 million per month experienced in the first half of 2021. Since the beginning of the pandemic, Carnival has raised nearly more than $24 billion in cash via short-term debt, long-term loans and equity issuances (announcing another $500 million at the market equity issuance of June 28, 2021). By our math, Carnival has about 16 months worth of liquidity to operate successfully in a no-revenue environment. If we assume all customer deposits are refunded, this shrinks to about 12 months.

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, set to deploy 52 ships on the seas by the end of fiscal 2021 as the COVID-19 pandemic wanes. 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.