Category: Financial Markets
The renowned investment bank remains a sceptic of bitcoin and other cryptocurrencies. While cryptocurrencies like bitcoin have gotten a lot of publicity, Goldman says Bitcoin is “not an asset class”.
The previous Goldman Sachs research was pessimistic about cryptocurrency and stated that it was not an asset class. According to “Goldman Sachs, it was not an asset class because of the following characteristics: –
No cash flows –
No earnings –
Unstable correlations –
High volatility –
Goldman Sachs claimed that the only reason that Bitcoin has value is because other people are willing to buy it. They also compared it to a number of other periods of market euporia.
Goldman Sachs, on the other hand, released a study on May 21st addressing their previous stance that Bitcoin was not an asset class changed. The top of the report is headlined ‘Crypto: a new asset class’ they interviewed Mike Novogratz (CEO of Galaxy Digital Holdings Ltd.). He claims that the institutional adoption we’ve observed will likely continue as long as the macro trends we’ve witnessed persist, he also believes that Defi, NFTs, and payments, all of which are currently built on Ethereum, will drive some of the most interesting growth in the crypto world.
Zach Pandl who is one of Goldman’s top strategists agrees with Novogratz, he believes that the Bitcoin has the potential to become a major global macro play factor. Jeff Currie, Heading commodity research, believes that for cryptocurrencies to be an excellent store of value, it must have applications other than price speculation.
Christian Mueller Glissman, a senior strategist at Goldman Sachs illustrated that even a minor investment to Bitcoin (5%) in a traditional 60/40 bond equities portfolio would have outperformed the market. He claims that this is due to Bitcoin’s relative lack of correlation with traditional assets, despite the fact that this correlation has increased significantly over the past year.
They compared the price increase of crypto with those of other assets throughout the course of the year. What’s shocking is the Goldman Sachs Commodities index’s tremendous surge (refer a link below). This indicates that more inflation is on the way. Report also has a chart that shows the volatility that have had for these assets over the year. Report also illustrated that the year’s volatility for various assets. While cryptocurrency is volatile, it must be weighed against the possibility for profit. As the blockchain becomes more widely used, this volatility is likely to decrease over time. As a result, utility demand rises, boosting the currency’s value. They also demonstrate that the people with the biggest pockets are the ones who are most inclined to “Hold on for dear life” in the long run.
(Snap*)
There’s a reason Goldman has shifted its stance on Bitcoin: their clients are asking for exposure to the cryptocurrency. If they believe it isn’t an asset class, they won’t be able to serve these clients. They’ve even set up internal trading desks that have just completed a derivative linked swap transaction.
Get an access of report – https://www.goldmansachs.com/insights/pages/crypto-a-new-asset-class.html
The long life Sierra Rutile operation is the key source of rutile but lacks a cost advantage. It may come in time as the company expands and builds scale economies. The new Cataby mine bolsters zircon output and maintains feedstock for the production of synthetic rutile. Iluka’s 20% ownership of Deterra Royalties brings exposure to the high-returning iron ore royalty over BHP’s Mining Area C. It is the sole moat-worthy asset but comprises less than 10% of our fair value estimate.
Key Considerations
- Iluka’s shares are undervalued with demand set to recover from coronavirus-inspired lows. Disruption to other suppliers is likely to see prices remain resilient despite lower demand.
- As a large producer of both zircon and high-grade titanium dioxide products (rutile and synthetic rutile), Iluka has some ability to flex output to meet either weak demand and strong demand.
- Reserve life is moderate at around 10 years but Iluka has a sizable resource base which covers at least 25 years of production at 2018 rates. We expect resources to convert to reserves as Iluka clears feasibility and technical hurdles.
- Iluka is an industry leader with relatively high grade zircon and rutile deposits. Supply can be withheld to defend prices and margins in times of weak demand.
- Management has improved company fortunes with a strong focus on returns on capital. Demand for zircon is likely to be bolstered by new applications such as chemicals and digitally printed tiles.
- Iluka has some diversification. The revenue mix is approximately half from zircon and half from highgrade titanium products. Geographically, revenue is split between North America, Europe, China and the rest of Asia.
- Mineral sands markets are relatively small. Sales volumes can go through periods of significant demand weakness, such as in 2008-09 and 2012-16.
- The largest single source of demand for zircon is China, accounting for nearly half. China could throttle back on fixed-asset investment-driven growth, which may see subdued zircon sales volumes and prices. OThe Jacinth Ambrosia deposit is very high-grade, with a large component of high-value zircon. Reserve life is less than 10 years and it will be nearly impossible to replicate the returns and competitive position once depleted.
(Source: Morningstar)
Disclaimer
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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Worley Ltd
Worley says its strategic transformation is accelerating as it increasingly supports customers moving to a low-carbon future. While traditional business continues to be an important part of Worley’s activities, sustainability is providing a higher rate of future growth and margin. The company says its work backlog at end of March 2021 had increased to AUD 14.1 billion, from AUD 13.5 billion at December 2020’s end, with activity levels on long-term projects returning and key project awards in both sustainability and traditional services. Sustain ability focused work comprises 29% of current aggregated revenue, but a considerably higher 45% of the factored sales pipeline (upcoming work). In the half to December, Worley delivered AUD 1.2 billion in sustainability revenue at more favourable margin.
Worley characterises the global market size for sustainable design to 2035 as approximating USD 4.5 trillion per year, of which its addressable share is estimated at 10%-20%. And for decarbonisation investment, its addressable share is estimated at 3% to 15% of a total USD 1.5 trillion annual spend. It’s a big market for a company with current annual revenue approximating just AUD 10 billion.
And despite having a similar risk profile to other services– not lump sum turn-key–sustainability activities have more favourable gross margins. This reflects their technically complex nature involving technology integration and modification to existing facilities, with often challenging logistics requiring expertise in scaling-up. This provides opportunities to embed automation and digital solutions. Worley is accelerating its digital technology to create high value solutions and drive margin improvement including in artificial intelligence and machine learning.
At around AUD 10.70, Worely shares are up 75% on March 2020 lows, and are currently only somewhat undervalued, in 3-star territory. Our fair value estimate equates to an unchanged fiscal 2025 EV/EBITDA of 7.2, a P/E of 15.4, and dividend yield of 4.9%. We still assume a five-year EBITDA CAGR of 9.5% to AUD 1.15 billion. Our 9.2% midcycle EBITDA margin assumption betters the five-year historical average to June 2020 of 7.2%. In addition to the historical period including COVID-19 imposts, improvement reflects both cost-outs and higher assumed sustainability margins.
Worley achieved run rate cost synergies from the ECR acquisition of AUD 190 million in April 2021, already factored in our base-case valuation. We mention this completed program simply in recognition of form–the program being completed on time and at considerably greater magnitude than the original target of AUD 130 million. Future cost-outs are to come solely from operational savings targeted at a total AUD 350 million by June 2022. Worley said it had banked approximately 70% of these on an annualised basis at the December 2020 mark. We estimate this leaves around 1.0% of EBITDA margin improvement left from this source. The balance of our forecast margin improvement can be expected to come via the return of volumes post-COVID over which fixed costs can be disbursed, and via higher margins from growing sustainability activities.
At end December 2020, Worley’s net debt excluding operating leases stood at AUD 1.2 billion, (ND/(ND+E)) 18.4% and annualised net debt/EBITDA of 2.4. Net debt/ EBITDA was somewhat elevated, reflective of the AUD 4.6 billion ECR takeover. We estimate current net debt little changed, but project sub-1.0 net debt/EBITDA by as soon as fiscal 2022 and an unleveraged balance sheet by fiscal 2025, all else equal. This includes assumption of a 75% payout ratio for a prospective plus 6.0% unfranked yield from fiscal 2023.
Source:Morningstar
Disclaimer
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.
