Author: lvc-admin

Categories
Technology Stocks

Sustainalytics Rated Weibo – Medium ESG Risk

daily newspaper and a magnifying glass to find news

Weibo’s recent content enhancements include video accounts (similar to Weixin’s), video pages with both professionally generated content and user-generated content (similar to YouTube channels), the discovery zone (where users can find the popular discussion topics at the main entrance of Weibo), and vertical videos focused on user-generated content.

With the increasing importance of more focused marketing and return on investment for advertisers, Weibo has started to catch up. For example, Weibo introduced optimized cost per x model in 2019. Advertisers can also evaluate their sales conversion on Tmall from the fans accumulated through advertising campaigns on Weibo in collaboration with Alibaba through the uni-marketing program. We expect to see increasing product development costs in the next few quarters. We believe investment in research and development is vital for Weibo even if that means near-term margin compression.

To improve small and medium-size enterprise ad revenue, Weibo is expanding into untapped and faster-growing verticals such as Taobao merchants, online education, and online gaming by restructuring its sales team since 2019. For example, it has enhanced cooperation between sales and technical teams to provide customized services to top SMEs of key verticals. The success of the new model is unclear because of the disruption from COVID-19.

Financial Strength

Weibo has a strong balance sheet with a net cash position of $1.06 billion as of December 2020. The company started to make a profit in the second quarter of 2015. Operating leverage has increased significantly in recent years; the operating margin improved from 7.8% in 2015 to 25.5% in 2018 and 30.0% in 2020. This has helped the company to generate free cash flow from 2015 to 2020. The company has significantly beefed up its cash war chest through operating activities and note issuances in the past few years. The balance sheet displayed an increase in long-term investments from $695 million in December 2018 to $1,179 million in December 2020, while generating operating cash flow of $742 million during 2020. We expect Weibo to continue to make long-term strategic investments with its cash. We do not expect it to pay dividend in the next few years. As of March 30, 2021, Moody’s assigned a Baa2 (previously Baa1) issuer rating to Weibo with a stable outlook (previously negative). Moody’s been concerned about using Weibo’s assets and cash to service or repays the privatization debt of Sina.

Bulls Say

  • Weibo has been able to sustain its status as the go to platform for following top trends and topics and celebrities.
  • Weibo puts more focus on return on investment for advertisers and now provides optimized cost per x.
  • Weibo upgraded its ad platform to enhance marketing scenarios, ad formats, algorithms, and Big Data analysis to increase its competitiveness.

Company Profile

Weibo is the largest social media platform in China. As of 2020, Weibo had 521 million monthly active users and 225 million daily active users, many of whom are drawn there by the millions of key opinion leaders in entertainment, sports, and business circles. Sina is the major shareholder, holding 44.7% of shares and with 70.8% voting power; Alibaba holds 29.8% of shares and 15.7% voting power

(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

Asbestos Ringfence Doesn’t Alter Our Long-Term View of ITT, but it simplifies the business

After reviewing the terms of the deal and modeling it in the background based on pro-forma, we don’t expect to materially alter our FactSet consensus low fair value estimate of $89 per share (the math in our model currently suggests a reduction in the intrinsic value of about $1).

However, we await further details in order to re-publish our model. While the company estimates an after-tax loss of $27 million in the second quarter, according to the 8-K filing, it’s still evaluating the accounting for the transaction.

At a high level, the terms of the deal are rather simple. The deal effectively ringfences ITT from further asbestos-related and other product liabilities, as the indemnification provisions aren’t subject to any cap or time limits. ITT contributed approximately $398 million of cash to InTelCo, which is the subsidiary that holds these liabilities, in order to adequately capitalize the entity. As part of the deal, ITT’s balance sheet removes all asbestos obligations and related insurance and deferred tax assets as of July 1. Delticus, Warburg Pincus’ investment vehicle, will assume the operational management of InTelCo, including the administration of all asbestos claims.

While the deal may negligibly reduce our fair value, we like that it allows ITT to close a chapter on having to manage this legacy liability. The transaction simplifies the balance sheet, removes a layer of investor uncertainty, including “known unknowns,” and allows ITT to focus on its core operations. From that standpoint, the deal is a win

Company Profile

ITT is a diversified industrial conglomerate with nearly $3 billion in sales. After the spin-offs of Xylem and Exelis in 2011, the company’s products primarily include brake pads, shock absorbers, pumps, valves, connectors, and switches. Its customers include original-equipment and Tier 1 manufacturers as well as aftermarket customers. ITT uses a network of approximately 700 independent distributors, which accounts for about one third of overall revenue. Nearly three fourths of the company’s sales are made in North America and Europe. ITT’s primary end markets include automotive, rail, oil and gas, aerospace and defense, chemical, mining, and general industrial.

(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

Sparkling Finish to Fiscal 2021 for National Beverage, But Shares Fairly Valued

Nevertheless, while not capable of sustaining the frothy valuation of yesteryear, the firm produced record results (largely in line with our expectations on both the top and bottom lines) that continue to inspire confidence in the sustenance of its growth profile and brand equity. We don’t plan to materially change our $48.50 fair value estimate, as time value and better-than-expected commercial execution should be offset by higher taxes, as we incorporate Morningstar’s probability-weighted house expectation of an increase in the U.S. statutory rate to 26%. Despite being well off their highs, we don’t see a sufficiently compelling margin of safety in the shares at current levels, and suggest prospective investors remain on the sidelines.

Revenue for the fiscal year came in at $1.1 billion, up 7% year over year. Anchor brand La Croix remained the preeminent driver of growth, though we suspect the firm’s energy and carbonated soft drinks brands also grew nicely. As pandemic-besieged sales channels where LaCroix is underindexed–like food-service and vending–continue to rebound, we don’t see much adverse impact manifesting on the top line; if anything, there could be incremental upside given management’s ambition to broaden the aperture of its sales and consumption occasions. These efforts, together with attractive sparkling water category dynamics, should facilitate mid-single-digit growth longer term, supported by ongoing reinvestment in innovation

Operating margins were stellar, up 460 basis points to 21.2%. While operating leverage always plays a role in quarters with top-line strength (given that it owns most of its production/distribution apparatus), lower advertising and corporate expenses remain anomalous contributors that should become headwinds longer term as the competitive landscape re-intensifies post-pandemic.

Company Profile

National Beverage is one of the top 10 non-alcoholic beverage companies in the U.S. Its portfolio skews toward functional drinks (i.e. those purporting to offer health benefits) and is anchored by the popular LaCroix sparkling water trademark. Other offerings include Rip It energy drinks, Ever fresh juices, and soda brands like Shasta and Faygo. The firm controls most of its production and distribution apparatus, with very little outsourcing. In terms of go-to-market, it uses warehouse distribution for big-box retailers, direct-store-delivery for convenience stores and other small outlets, and food-service distributors for the food-service channel (schools, hospitals, restaurants). It is controlled by chairman and CEO Nick Caporella, who owns over 73% of the common stock.

(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
Dividend Stocks Expert Insights

Smucker – Long Run Benefits Should Be Gained From Increased Pet Adoption and Flexible Work Arrangements

. Collectively, pet food and coffee comprise nearly 70% of Smucker’s sales. Despite this benefit, we forecast just 2% annual sales growth for the firm (less than that of the total at-home feed and beverage industry), as Smucker’s high exposure to mainstream and value segments in pet food and coffee should result in continuing market share losses as consumers are trading up to premium offerings. Smucker is attempting to offset this pressure with products more aligned with consumer trends, such as Uncrustables on-the-go snacks, it will take a few years for these smaller brands to move the needle.

Financial Strength

The Big Heart Pet Brands acquisition in 2015 increased the net debt/adjusted EBITDA ratio to above 6 from 2. Smucker paid $5.9 billion for the business, 13 times EBITDA, which we believe was rich, particularly considering the acquired brands’ poor positioning in the category. We believe management was prudent in its decision to sell the nonstrategic canned milk business shortly thereafter for $194 million to free up capital in order to accelerate debt reduction. Share repurchases were also significantly curtailed in 2015, which we view as sensible. Net debt to adjusted EBITDA declined to a manageable 2.8 times by 2018, in our opinion, before the firm announced it was acquiring pet food producer. Smucker’s free cash flow (CFO less capital expenditures) as a percentage of revenue has averaged high single digits to low double digits historically, and we expect similar results going forward. With net debt/adjusted EBITDA below 3 times, the firm’s priorities for cash are dividends, capital expenditures, acquisitions, and share repurchase. In the past 10 years, Smucker has averaged a 50% dividend payout ratio (in line with peers), and we expect it will continue to do so; our forecast anticipates 2%-6% annual dividend increases.

Bulls Say

  • A significant increase in R&D and marketing (and increasing productivity of those investments) should enhance Smucker’s capabilities, helping it capitalize on consumer trends.
  • During the pandemic, consumers adopted 11 million pets and purchased 3 million coffee machines, which should provide a lasting benefit for categories representing nearly 70% of Smucker’s fiscal 2021 sales.
  • Executive leadership changes (newly created chief operating officer role, leadership changes for the U.S. sales organization and the pet food segment) should improve execution and enhance accountability.

Company Profile

J.M. Smucker is a packaged food company that primarily operates in the U.S. retail channel (88% of fiscal 2021 revenue), but also in U.S. food-service (5%), and international (7%). Its largest category is pet food and treats (36% of 2021 revenue), with popular brands such as Milk-Bone, Meow Mix, 9Lives, Kibbles ‘n Bits, Nature’s Recipe, and Rachael Ray Nutrish. Its second-largest category is coffee (33%) with the number-two brand Folgers and number-six Dunkin’. Other large categories are peanut butter (10%), with number-one Jif, fruit spreads (5%) with number-one Smucker’s, and frozen hand-held foods (5%) with number-one Uncrustables.

(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

Shaw and Roger’s Merger is Expected to Close in 2022, But Regulatory Approval is Not Certain

investment stockbroker risk analysis. Financial analysis using phone app and laptop. Market trading profit.

Shaw has made significant efforts to improve its wireless network and is now bundling wireless with wireline service to customers in its cable footprint, enabling it offer even better value and enhancing service when offloaded onto its Wi-Fi network. Between the ends of fiscal years 2016 and 2020, Shaw more than doubled its postpaid wireless subscriber base, increased average billings per user (ABPU) by 20%, and expanded its wireless EBITDA margin by 900 basis points. The firm continues to invest heavily to improve its wireless network, and we think the firm is a legitimate competitor for new wireless customers and will continue seeing wireless results trend upwards.

Shaw ended fiscal 2020 with 5.3 million wireline revenue generating units, or RGUs, down from 6.4 million RGUs in 2012. The losses are attributable to television and voice customers, which face secular challenges for all competitors, but even Internet customer growth has been anemic (up 2% since 2017, including customer losses in 2020). Shaw has materially underperformed Telus across all types of RGUs. Telus has grown its Internet customer base by 22% since 2017 while also adding television customers. Its RGU base has grown from to 4.5 million from 3.8 million in 2012.

Shaw’s total revenue was up 5% year over year, though growth would’ve been only 3% excluding a benefit from a recent regulatory decision. The firm’s EBITDA margin was up 30 basis points year over year but was significantly better. Average billings per user, or ABPU, was down to CAD 40.56 from CAD 44.27 in the year-ago period. We’ve expected significant ABPU compression as the firm pushes Shaw Mobile, where Shaw’s wireline customers can add wireless service for extraordinarily low prices, but the 8.5% drop was more than we anticipated, especially given that net additions were muted. The firm added fewer than 47,000 postpaid wireless subscribers.

Financial Strength

Shaw is currently in a good financial position, which we think is critical, as it will need the flexibility in the coming years. At the end of fiscal 2020, Shaw had over CAD 700 million in cash and CAD 4.5 billion in long-term debt, which represented 1.6 times net debt to adjusted EBITDA—below its target ratio of 2.0-2.5 and well below those of Shaw’s big competitors in its industry. Shaw’s coverage ratio (adjusted EBITDA to interest expense) ended 2020 at 8.7, and the company has CAD 1.5 billion available on a revolving credit facility. Shaw has no long-term debt maturing until the end of 2023.

Wireless competition

  • Shaw is doing all the right things to build up its wireless business, acquiring and building out sufficient assets and luring customers by offering great deals.
  • The Canadian government is keen on bringing wireless competition to the big three incumbents. Unlike previous national upstarts, Shaw’s strong financial position and family control afford it the time and money to stick with a long-term strategy to succeed.
  • Shaw’s move to bundle wireless and wireline service with Shaw Mobile could expedite its wireless share gains and stem wireline losses it has seen recently.

Company Profile

Shaw Communications is a Canadian cable company that is one of the biggest providers of Internet, television, and landline telephone services in British Columbia, Alberta, Saskatchewan, Manitoba, and northern Ontario. In fiscal 2020, more than 75% of Shaw’s total revenue resulted from this wireline business. Shaw is also now a national wireless service provider after acquiring Wind Mobile in 2016. Shaw has upgraded its wireless network, undertaken an aggressive pricing strategy, and significantly enhanced its spectrum holdings. As a smaller carrier, Shaw has favored bidding status in spectrum auctions, giving it a further boost in enhancing its wireless network. At the 2019 auction, Shaw added significant amounts of 600 MHz spectrum to the 700 MHz spectrum it is currently deploying.

(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

Celanese’s Low Acetic Acid Production Should Support Growing Specialty Polymer Demand

Digital tablet display the stock market data

Celanese produces the chemical in its core acetyl chain segment (roughly 50% of EBITDA), which primarily serves the automotive, cigarette, coatings, building and construction, and medical end markets. It produces acetic acid from carbon monoxide and methanol, a natural gas derivative. Celanese produces its own methanol at its Clear Lake, Texas, plant, which benefits from access to low-cost U.S. natural gas. The company recently announced that it will expand acetic acid production capacity at Clear Lake by roughly 50%, which should benefit segment margins thanks to lower average unit production costs.

The engineered materials segment (around 40% of EBITDA) produces specialty polymers for a wide variety of end markets. This segment uses acetic acid, methanol, and ethylene to produce specialty polymers. Celanese and other specialty polymer producers have benefited in recent years from automakers lighweighting vehicles, or replacing small metal pieces with lighter plastic pieces. Celanese should also benefit from increasing electric vehicle and hybrid adoption, as then company makes battery separator components. By 2030, we forecast two thirds of all new global auto sales will be EVs or hybrids. Additionally, Celanese sells products used in electronics and “Internet of Things” technologies, which provides another area of growth for the company.

With growing EV adoption and increased sales of Internet of things technologies, Celanese is well positioned for outsize engineered materials’ volume growth over the next several years. Acetate tow, which is Celanese’s smallest segment, produces acetate tow primarily for cigarette filters. Cigarette sales are in secular decline across most countries, and so we expect Celanese’s acetate tow sales will slightly decline over the long term.

Financial Strength

Celanese is in good financial health. As of March 31, 2021, the company had $3.6 billion in debt and around $0.8 billion in cash. A net debt/operating EBITDA ratio of 1.8 times. Celanese is undergoing a portfolio transformation, exiting legacy joint venture deals and acquiring new assets to increase the company’s engineered materials portfolio, such as the Santoprene business from ExxonMobil. The company will increase its debt as a part of this acquisition. However, we generally expect the company’s balance sheet and leverage ratios to remain healthy as Celanese should generate enough free cash flow to meet its financial obligations. The cyclical nature of the chemicals business could cause coverage ratios to fluctuate from year to year. However, Celanese should still generate positive free cash flow well in excess of dividends in 2021.

Core Acetic Acid Production

  • Celanese built out its core acetic acid production facilities at significantly lower capital cost per ton than its competitors thanks to the scale of its facilities (1.8 million tons versus average 0.5 million tons).
  • Celanese should benefit from producing an increasing proportion of its acetic acid in the U.S. to take advantage of low-cost natural gas.
  • The engineered materials’ auto business should grow more quickly than global auto production because of greater use of these products in each vehicle.

Company Profile

Celanese is one of the world’s largest producers of acetic acid and its downstream derivative chemicals, which are used in various end markets, including coatings and adhesives. The company also produces specialty polymers used in the automotive, electronics, medical, and consumer end markets as well as cellulose derivatives used in cigarette filters.

(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

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)

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

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.

Categories
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

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 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

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.