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Technology Stocks

Veeva Is a Leading Supplier of Healthcare Information Technology

Veeva’s effective technology and dominant position enables it to generate excess returns commensurate with a wide-moat company. The company’s strong retention, continued development of new applications, increasing penetration within existing customers, addition of new customers, and expansion into industries outside of life sciences should allow the company to extend its market leadership.

The company operates in two categories: Veeva Commercial Cloud, which entails vertically integrated customer relationship management (CRM) services and end-market data and analytics solutions; and Veeva Vault, a horizontally integrated content and data manager. Veeva’s CRM application supports real-time collaboration and regulatory oversight, and enables incremental add-on solutions. The incremental functionality is critical to improving marketing programs while remaining in compliance with mandated anti-kickback laws and statutes. This service has been well received by the life sciences industry and has propelled Veeva to become the leading solution with the lion share (approximately 80% market share) of this niche market. As a follow-on to the initial introduction of CRM, management introduced the Veeva Vault platform to broaden the portfolio that addresses the largely unmet needs of the life sciences industry outside of CRM. Each module offers features and functionality targeting four key areas within life sciences: clinical (R&D); regulatory (compliance); quality of manufacturing; and safety.

Financial Strength

Veeva enjoys a position of financial strength arising from its strong balance sheet (no debt) and leading position in a growing market. As of fiscal 2021 Veeva had over $1.6 billion in cash and short-term investments and no debt. The company will continue to use the cash it generates from operations to fund future growth opportunities. From our perspective, management has been disciplined about M&A and taking on debt. The 2019 acquisition of Crossix was the firm’s largest to date, at approximately $430 million.

Bulls Says

  • Veeva’s best-of-breed vertical addressing unmet needs provides opportunities to further penetrate a highly fragmented market.
  • The rapid adoption of the company’s new modules continues to entrench Veeva into mission-critical operations of customers, making it increasingly challenging for competitors to gain a foothold.
  • Veeva’s institutional knowledge and co-development partnerships with customers enable the company to develop robust offerings addressing market needs.

Company Profile

Veeva is a leading supplier of software solutions for the life sciences industry. The company’s best-of-breed offering addresses operating and regulatory requirements for customers ranging from small, emerging biotechnology companies to departments of global pharmaceutical manufacturers. The company leverages its domain expertise and cloud-based platform to improve the efficiency and compliance of the underserved life sciences industry, displacing large, highly customized and dated enterprise resource planning, or ERP, systems that have limited flexibility. As the vertical leader, Veeva innovates, increases wallet share at existing customers, and expands into other industries with similar regulations, protocols, and procedures, such as consumer goods, chemicals, and cosmetics.

(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

Recuperation of Paychex in the Fiscal Fourth Quarter

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

Total revenue during the company’s fiscal fourth quarter was up 12% year over year. The management solutions segment was up 14% compared with the prior-year period, led by increased cross-selling of services outside payroll and an increase in payroll checks per client as businesses started to recover from pandemic lows. The professional employer organization and insurance solutions segment was up 13% as well, due to an increase in worksite employees.

The recovery in Paychex’s top line aided profitability, with operating margins improving to 34.4% from 32.7% last year. The positive effect was partially offset by expenses that were up 10% year over year, mainly due to an increase in performance-based compensation.

Company’s Future Outlook

Management’s current guidance suggests a solid rebound this fiscal year. Paycheck expects total revenue to grow 7% and operating margins to come in at 38%, with both of those levels roughly in line with our long-term expectations for the firm.

Company Profile

Paychex competes in the payroll outsourcing industry. It is the second-largest player in terms of revenue and focuses on providing this service to small and midsize businesses. Paychex was created from the consolidation of 17 payroll processors in 1979 and services about 590,000 clients. The firm has almost 13,000 employees and is based in Rochester, New York.

(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

Endeavour’s Leadership: Encouragement in Sustainable Cost Advantages of liquor market

Woolworths’ divestment of Endeavour separated the ESG risk of alcohol retailing and gaming machine operation from the broader supermarkets business and provided investors with the ability to tailor their risk exposures to each business. The impetus for divestment had risen in the years leading up to the separation of Endeavour as a standalone company along with the emergence of social oriented investment.

Endeavour’s business is divided into two segments. Its retail segment is Australia’s leading vertically integrated omnichannel liquor retailer, while Endeavour’s hotels segment provides hospitality services and gambling operations.

Company’s Future Outlook

We expect consumer demand for alcohol to be relatively steady through the economic cycle, exhibiting attributes of consumer defensives. For instance, like in food, liquor spending grew at around or above the 30-year average growth rate of 7% in fiscal years 2008 and 2009, respectively. However, data stretching back to the last Australian recession suggests liquor demand isn’t always recession-proof. According to the Australian Bureau of Statistics, Australian consumers significantly cut back on drinking in fiscal 1991 and liquor retailing took over two years to recover to its fiscal 1990 levels.

We estimate the Australian hotels market will predominantly be driven by the same factors as the off premises retail liquor market, namely population growth and inflation. We estimate a total market size at AUD 15 billion in fiscal 2020 and anticipate this to grow at a CAGR of 6% from lockdown-affected calendar 2020 to AUD 27 billion by fiscal 2030

Bulls Say

– Endeavour’s dominant retail market share of 47% is multiples of its closest competitors and provides a source of long-term sustainable cost advantage.

– Endeavour’s partnership agreements with Woolworths allow the business to leverage the scale and capabilities of Australia’s largest supermarket.

– Endeavour’s wide economic moat, strong competitive positioning and strong balance sheet will underpin a sustainable and steadily growing dividend.

Company Profile

Endeavour Group Ltd is an Australian drinks retailer of products such as liquor and operator of various licensed hospitality venues. Its portfolio of brands include Dan Murphy’s, BWS, Pinnacle Drinks, ALH Hotels, Jimmy Brings, Langton’s, among others.

(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 Technology Stocks

ARB Is an Attractive Business, but the Price Needs to Improve

Shares in ARB trade at a material premium to our unchanged fair value estimate of AUD 19.50. Granted, ARB is a high quality company. The firm’s ranges of vehicle accessories have established significant brand strength in Australia, underpinning our narrow economic moat rating for the firm.

The firms is extremely well-run and assign ARB an Exemplary capital allocation rating based on our assessment of balance sheet risk, investment efficacy, and shareholder distribution. We expect ARB to enjoy some operating leverage as its store network expands and its international businesses, most notably in the U.S., improve scale. But we do not believe the firm’s international foray will replicate the success enjoyed domestically.

The firm has been unable to enjoy this pricing premium offshore, as demonstrated by lower segment margins. In our view, ARB’s current lofty share price indicates domestic success is being extrapolated by investors to the firm’s international business.

Financial Strength

ARB’s balance sheet is in pristine condition. At Dec. 31, 2020, the company had no debt and a net cash position of AUD 84 million. This is despite major investment in the Thailand and Victoria warehouses and continued new store rollouts. We forecast the firm remaining in a net cash position through fiscal 2021, with short-term financing facilities providing further headroom in the balance sheet to meet cash flow requirements. The firm’s major funding requirements are store rollouts, international expansion, and working capital in line with growing sales.

Bulls Say

  • Online competition is not a significant threat to ARB’s business. Products usually require professional fitting (often in ARB stores), and the often heavy and bulky accessories can make delivery cost prohibitive.
  • ARB’s range of vehicle accessories have established significant brand strength, underpinning its narrow economic moat, allowing the firm to enjoy pricing power and high returns on invested capital.
  • ARB has opportunities for growth with store roll-outs in Australia and continued overseas expansion.

Company Profile

ARB Corporation designs, manufactures, and distributes four-wheel-drive and light commercial vehicle accessories. The firm has carved a niche with aftermarket accessories including bull bars, suspension systems, differentials, and lighting. ARB operates manufacturing plants in Australia and Thailand; sales and distribution centers across several countries. The Australian division, which generates the vast majority of group earnings, distributes through the ARB store network, ARB stockiest, new vehicle dealers, and fleet operators.

(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

Since its IPO, shares of Aussie Broadband (ASX:ABB) have increased by about 50%.

The corporation is likely to outperform its FY21 prospectus prediction. In its brochure, Aussie Broadband indicated that its standardised EBITDA for FY21 would be $12.3 million. The costs associated with the company’s first public offering are excluded from normalised EBITDA (IPO).

Aussie Broadband now estimates standardised EBITDA for the entire year to be between $17 million and $20 million, following two upgrades — one in the half-year report and the other in late May. This might put you 63 percent ahead of the prospectus.

Significantly higher rates of growth in the retail and business areas, as well as good cost control and marketing rebates, are credited with the improvements. One potential flaw in that estimate is that it only thinks Victoria’s May snap lockout will last one week, when it was later extended for a second week. Due to increased broadband consumption, Aussie Broadband’s costs tend to rise during certain times. It’s unclear how much of an impact this will have on the company’s full-year EBITDA.

About Aussie Broadband

Aussie Broadband Ltd is a telecommunications company. It provides NBN subscription plans and bundles to residential homes, small businesses, not-for-profits, corporate/enterprise and managed service providers. The company services all states and territories in Australia.

Source: MSN

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

ASX welcomed three new IPOs

“With a total identifiable 1.1 million ounce JORC Mineral Wealth platform and 100% ownership of the area’s only gold mill, our goals are to illustrate the actual capabilities of this property package and maximise lengthy business value,” stated managing director Alexander Scanlon.

Wilson Asset Management Strategic Value (ASX:WAR)

This is the eighth LIC handled by Wilson and the second to list since COVID-19, following Salter Brothers’ listing earlier this month. It will, according to Wilson, benefit from the ability that the market has mispriced.

WAM Strategic Value seeks to produce exceptional risk-adjusted returns from a portfolio predominantly comprised of discounted asset opportunities identified utilising the established market-driven investment process we have created over the last two decades,” the company said in a statement to shareholders on Friday.

Camplify (ASX:CHL)

Campervan and motorhome renting community focused on the Australia and UK markets, completed the trio of new ASX IPOs that debuted today. Camplify went public after raising $11.5 million and reporting that its initial public offering (IPO) was almost four times oversubscribed, with customers being urged to acquire shares in the IPO and strongly supporting it. It is also supported by Apollo Tourism and Leisure (ASX:ATL), one of the ASX’s few other caravan specialists, who invested in the company in 2017 and now has a 17.8% share.

Source: MSN

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

Raising Criteo FVE to $35: Delay in decision by Google

Closeup of a stock market broker working with graphs on digital tablet at office. Rear view of stock agent reading bad report and graph. Back view of multiethnic businessman analyzing fall sales.

With third-party cookies not blocked on Google’s Chrome browser, targeted advertising, which has used cookies for more than two decades, will remain effective longer than anticipated. The use of cookies allows for more effective targeting, increasing the return on ad spending and thus resulting in higher demand by advertisers. This type of targeting allows for an increasing role and revenue for adtech Criteo. Plus, Criteo, other ad-tech firms, and Google will have more time to develop and test replacements for cookies. We increased our projections and now expect Criteo’s top-line growth to average 9.5% annually through 2025 (higher than our previous assumption of 8%), which will also create operating leverage and expand average operating margin to 13.3% (compared with 15% prior to the pandemic, and higher than our previous 12.6% assumption).

In reaction to Google’s decision, Criteo stock jumped more than 12% and is trading at 1.3 times our fair value estimate. The firm’s current market capitalization of $2.7 billion is not far off from the $2.8 billion it hit in the second half of 2017, when the market expected 5-year average net revenue growth in the mid-teens off a higher base.

Criteo’s Future Outlook

We think today’s reaction clearly displays the firm’s dependency on Google’s digital advertising platform and supports our no-moat and very high uncertainty ratings for Criteo. In our view, uncertainties surrounding possible alternatives and their effectiveness remain, and they could force advertisers to allocate less toward targeting and retargeting as we approach the second half of 2023.

While we think Criteo is overvalued, we remain pleased with the firm’s efforts to minimize impact of cookie-less browsers. We are skeptical about the adoption and possible success of the Unified ID solution, but we do see possibly attractive ROIs generated from campaigns that combine first-party data (data from Criteo’s clients) with contextual marketing. We think with access to a large amount of its client’s first-party data, Criteo is well-positioned to leverage nearly any new solution. In addition, we applaud what appears to be the firm’s main strategy–to not invest in designing and creating another version of third-party cookies. Criteo continues to invest in solutions based on contextual advertising which we think will be welcomed by Google, publishers, and ad buyers now and in two years.

Lastly, we remain pleased with the firm’s efforts to diversify its revenue with the retail media segment, which represented 10% of total net revenue in the most recent quarter. The retail media business not only helps retailers market their products and services on other sites or apps (demand for ad inventory), but it also allows them to further monetize their own online properties by selling more ad inventory (supply of ad inventory).

Company profile

Headquartered in Paris, Criteo is one of the leading ad-tech companies in the growing digital ad market. Its technology, mainly the Criteo Engine, allows advertisers to launch multichannel and cross-device marketing campaigns in real time using retarget digital display ads. With real-time return on investment analysis of the ads, the firm’s clients can adjust their marketing strategies dynamically.

(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 Philosophy

Bank on the Australian Majors Buying Back Shares

The remainder of surplus capital returned via an annual dividend top-up between fiscal 2021 and 2024, and on-market buybacks once franking balances deplete. Off-market buybacks can provide an attractive opportunity for Australian-based shareholders to sell depending on their tax circumstances. Given a large component of the buyback is treated as a dividend, and franked, the total return to the shareholder can be 20% higher than selling on market.

We think the Commonwealth Bank could kick things off in August 2021 with an approximate AUD 5.5 billion off-market buyback. However, the bank’s conservatism around loan loss provisioning and dividends during 2020 and 2021 suggests shareholders may need to wait until 2022.

Based on a target common equity Tier 1 ratio of 11%, we assume AUD 30 billion is returned to shareholders. We estimate Commonwealth Bank returns around AUD 5.50 per share, ANZ and National Australia Bank around AUD 2.20 each, and Westpac AUD 1.90. Only Westpac has enough franking credits to fully frank all returns.

Shares of the major banks trade around our fair value estimates (except for Commonwealth Bank). But we think the strong wide-moat franchises and prospects for material capital management initiatives, still make the banks attractive holdings in a fairly overvalued Australian market. Our fair value estimates assume the banks have returned excess capital to shareholders by 2025. This may occur sooner, but timing is not material to our fair value estimates. We have not included dividend top-ups in our forecasts given uncertainty around timing.

Company Profile

ANZ Bank is Australia’s third-largest bank by market value and provides retail, business, and institutional banking services to customers in Australia, New Zealand, and Asia-Pacific. The super-regional Asian strategy is being de-emphasised, with management focusing on the higher-returning businesses in Australia and New Zealand. Fine-tuning strategy and bank-wide restructuring results in a differentiated bank compared with domestic peers. ANZ Bank still retains a tilt to its Asia-centric strategy, but is now more balanced, better capitalised and a simpler bank.

(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 Expert Insights

Federal Realty’s Portfolio of High-Quality Retail Thrive in Recovery

As a result, Federal Realty has been able to drive strong same-store net operating income growth and average double-digit re-leasing spreads over the past two decades.

Its portfolio should continue to attract shoppers and tenants and produce solid internal growth even in a challenging retail environment.

E-commerce continues to pressure brick-and-mortar retail as consumers increasingly move their shopping habits online. While many of Federal’s tenants must directly compete with the growth of e-commerce, much of the portfolio is insulated from online competition. Segments like grocery stores, restaurants, fitness centers, and other service-based businesses still drive traffic to physical retail centers. Regardless of the competition from e-commerce, location is still paramount for retailers. Retailers are becoming more selective with their physical locations, opting to locate storefronts in the highest-quality assets while closing stores in low-productivity sites. Thus, we expect Federal’s portfolio to remain in demand despite the changing retail environment.

However, Federal must deal with the fallout of the current corona virus pandemic. Many retailers were forced to close for a period of time and shopping at brick-and-mortar locations has fallen. While Federal’s revenue is somewhat protected by long-term leases, retailer bankruptcies have caused a drop in occupancy and Federal has been forced to offer rent concessions to keep others afloat. We believe that high-quality retail locations will rebound and will eventually return to their prior occupancy and rent levels, but the short-term impact to Federal’s cash flow has been significant.

Financial strength:

Federal is in good financial shape from a liquidity and a solvency perspective. The company seeks to maintain a solid but flexible balance sheet, which we believe will serve stakeholders well. Federal has an A-/A3 credit rating, so it should be able to easily access low-rated debt to service financial obligations. Debt maturities in the near term should be manageable through a combination of refinancing and the company’s significant free cash flow. Additionally, the company should be able to access the capital markets when development and redevelopment opportunities arise. We expect 2021 net debt/EBITDA and EBITDA/interest to be roughly 6.9 and 4.2 times, respectively, both of which are slightly outside of Federal’s targeted range but we believe the company will return to historical norms within a few years .As a REIT, Federal is required to pay out 90% of its income as dividends to shareholders, which limits its ability to retain its cash flow.

Company Profile:

Federal Realty Investment Trust is a shopping center-focused retail real estate investment trust that owns high-quality properties in eight of the largest metropolitan markets. Its portfolio includes an interest in 101 properties, which includes 23.4 million square feet of retail space and over 2,600 multifamily units. Federal’s retail portfolio includes grocery-anchored centers, superregional centers, power centers, and mixed-use urban centers. Federal Realty has focused on owning assets in highly desirable areas with significant growth, and as a result, the average population density and average median household income are higher for its portfolio than for any other retail REIT.

(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

Woolworths’ Solely Adjusting for the Demerger of Endeavour

Following the demerger of wide-moat Endeavour Group, we maintain our narrow economic moat rating for Woolworths which is underpinned by cost advantages related to the core Australian food segment. Our low uncertainty and Exemplary capital allocation ratings are also unchanged.

Post-demerger of its liquor retailing and hospitality, Woolworths is essentially a pure-play food retailer with significant competitive advantages over its Australian competitors, Coles, Aldi, and independent operators.

Our investment thesis on Woolworths stands. We expect Australian supermarkets to compete by passing on efficiency gains or cost savings to consumers through price cuts, rather than expanding operating margins and potentially losing share.

As a result, we think Woolworths will successfully defend its market share in food retailing at around 37% in the long term, while EBT margins are capped at around 4.5%.

The demerger of Endeavour Group separates perceived environmental, social, and governance, or ESG, risks associated with liquor retailing and gaming operations from Woolworths’ supermarkets business. We consider the now lessened ESG risks for Woolworths’ supermarket and department store businesses as immaterial to our fair value estimate and well mitigated by the company’s existing

Processes and procedures.

Financial Position of the company

Woolworths’ balance sheet improved with the demerger, including a pro forma net cash position of AUD 75 million as of Jan. 3, 2021. This has prompted management to consider capital management options and potential for capital returns of between AUD 1.6 billion and AUD 2.0 billion is flagged—subject to Board approval. We anticipate capital returns of AUD 1.8 billion to shareholders in fiscal 2022, and we expect Woolworths to comfortably pay out around 75% of earnings in dividends going forward. At our revised fair value estimate, Woolworths offers a fully franked dividend yield of 4%.

Company Profile

Woolworths is Australia’s largest retailer. Operations include supermarkets in Australia and New Zealand, and the Big W discount department stores. The Australian food division constitutes the majority of group EBIT, followed by New Zealand supermarkets, while Big W is a minor 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.

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