Category: Research

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ipo IPO Watch

First Watch Restaurant Group Inc announced pricing of Initial Public Offering

The shares are expected to being traded on NASDAQ Global Select Market on 1st October 2021, under the ticker symbol “FWRG” and it is expected to close on 5th October 2021. 

First Watch Restaurant Group Inc. announced the price of its Initial Public offering of 9,459,000 shares of its common stock at a price to the public of $18.00 per share.  

In addition, the company has granted the underwriters a 30 days option price to purchase up to an additional 1,418,850 shares of common stock at the Initial Public Offering price less underwriting discounts and commissions.

At the time of Initial Public Offering their Total Offering Expense is $5,000,000.00 while their total share outstanding is 57,629,596. 

Market capitalization of First Watch Restaurant Group Inc is 1.239 billion. First Watch intends to use the proceeds from the proposed offering to repay borrowings outstanding under its credit facilities.

Company Profile 

First Watch is an award-winning Daytime Dining restaurant concept serving made-to-order breakfast, brunch and lunch using fresh ingredients. First Watch offers traditional favorites, such as pancakes, omelets, sandwiches and salads, alongside specialty items like the Quinoa Power Bowl®, Avocado Toast and the Chickichanga. There are more than 420 First Watch restaurants in 28 states, and the restaurant concept is majority owned by Advent International, one of the world’s largest private-equity firms.

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

BioNTech’s COVID-19 Vaccine Success Could Help It Build a Moat on mRNA Technology

The emerging biotech’s first commercial vaccine, for COVID-19, received its first authorization in December 2020, and its early-stage pipeline and mRNA technology platforms have caught the eye of several large pharmaceutical companies, resulting in collaborations and partnerships.

Further, the company has a burgeoning vaccine pipeline for infectious diseases. In partnership with the Bill & Melinda Gates Foundation, BioNTech is developing vaccines for HIV and tuberculosis, and the company’s COVID-19 program in partnership with Pfizer and Fosun Pharma was built off an existing partnership with Pfizer for an influenza vaccine. The COVID-19 vaccine, Comirnaty (BNT162b2), quickly progressed through human trials, culminating in authorization in the United States and Europe in December 2020. 

Company’s Future Outlook

We think the vaccine’s excellent efficacy, strong supply, and early leadership on the market all support $35 billion in Comirnaty sales in 2021 and $43 billion in 2022 (BioNTech books half of Pfizer’s gross profits, profit share from other smaller partners, and direct sales in Germany and Turkey). However, the long-term market for coronavirus vaccines is uncertain, and even if there is demand for continued vaccination in the long run, we expect the market to be competitive.

BioNTech’s COVID-19 Vaccine Success Could Help It Build a Moat on mRNA Technology

We believe BioNTech has a positive moat trend due to strengthening intangible assets in its pipeline. Over the next five years, we expect several data readouts, assets progressing through trials, and even the company’s first potential approval. Further, testing new combinations of treatments, which tends to improve efficacy in cancer treatment, will also strengthen the competitive position of BioNTech’s platforms. 

The positive results and subsequent authorization of BNT162b2, BioNTech’s vaccine against SARS-CoV-2, support our positive moat trend rating. While the long-term profit outlook for BNT162b2 remains uncertain, we believe its success demonstrates the potential of the company’s mRNA vaccine platform.

Financial Strength 

BioNTech has historically burned through cash to fund research and development of its pipeline. The company has minimal debt on its balance sheet, as it has funded discovery and development with equity issues,collaboration payments from partnerships with large pharmaceutical firms as well as a large inflow of cash from Comirnaty gross profits in 2021 and 2022 and believe this will continue for long term basis.Outside of BioNTech’s COVID-19 vaccine candidates, we think the earliest approval could arrive in 2023, which would put the company on a path toward steady profitability. Management has taken advantage of a couple of opportunities to acquire early-stage assets and expand its geographic footprint to establish a U.S. research hub at low prices. We expect the near-term focus for capital allocation to remain on its pipeline of vaccines and other therapies.

Bull Says

  • BioNTech’s pipeline, which relies on expertise in mRNA and bioinformatics, will be difficult to replicate by competitors. 
  • BioNTech will be able to command a premium price with its personalized cancer therapies, if successful. 
  • The rapid development of COVID-19 vaccine Comirnaty bodes well for the rest of BioNTech’s pipeline and the future of its mRNA research platform.

Company Profile

BioNTech is a Germany-based biotechnology company that focuses on developing cancer therapeutics, including individualized immunotherapy, as well as vaccines for infectious diseases, including COVID-19. The company’s oncology pipeline contains several classes of drugs, including mRNA-based drugs to encode antigens, neoantigens, cytokines, and antibodies; cell therapies; bispecific antibodies; and small-molecule immunomodulators. BioNTech is partnered with several large pharmaceutical companies, including Roche, Eli Lilly, Pfizer, Sanofi, and Genmab. Comirnaty (COVID-19 vaccine) is its first commercialized product.

 (Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Shares Small Cap

Praemium Ltd balance sheet remains strong with cash reserves of $26.7m

Businesswoman pointing at diagram in her hands when explaining marketing trends to her team during online meeting

Investment Thesis

  • Merger with powerwrap creates a much better capitalized and resourced competitor in the market, with significant opportunities for synergies.
  • Increase diversification via geography and product offering.
  • Increase competition amongst platform providers such as HUB24, Wealth O2, BT panorama, Netwealth, North Platform, etc.
  • Very attractive Australian industry dynamics – Australian superannuation assets expected to grow at 8.1% p.a to A$9.5 trillion by 2035.
  • Disruptive technology and hold a leading position to grow funds under advice via SMAs.
  • The fallout from the Royal Commission into Australian banking has led to increased inquiries for PPS’ product/services.
  • Growing and maturing SMSF market = more SMSF demand for tailored and specific solutions.
  • Both-on acquisitions to supplement organic growth.
  • Further consolidation in the sector could benefit PPS.

Key Risks

  • Execution risk – delivering on PPS’s strategy or acquisition.
  • Contract or key client loss.
  • Competitive platform/offering.
  • Associated risks in relation to system, technology and software.
  • Operational risks related to service levels and the potential for breaches.
  • Regulatory changes within the wealth management industry.
  • Increased competition from major banks and financial institutions.

FY21 Results Summary

  • Australian business segment delivered revenue growth of +37% over pcp to $53.1m, driven by Platform revenue increase of+73% to $36.5m with Powerwrap revenue of $16.3m amid strong underlying growth from record platform inflows and Portfolio services revenue increase of +6% to $16.1m with VMAAS revenue up +40% from continued portfolio on-boarding. EBITDA declined -2% to $19m, primarily due to the transition of the Powerwrap cost base and some cost expansion to support growth and service across sales, marketing and operations (EBITDA margins declined -14% to 36%), however, management forecast growth investments and scale benefits from Powerwrap synergies will drive improved earnings into FY22.
  • International net revenue (net of product commissions) increased +6% over pcp to $12.5m, driven by Platform revenue growth of +30% to $8.1m from record inflows driving International platform FUA to $5bn (up+ 55%), partially offset by declines in the Smartfund range of managed funds, with fund revenue down -47% to $1.5m. Expenses were up +2% to $16.4m from operational capability to support growth, partially offset by continued cost management. EBITDA loss declined -7% to $3.9m, comprising UK’s EBITDA loss of $1.4m (27% improvement), Asia’s EBITDA loss of $0.9m (1% increase) and the inclusion of Dubai’s cost centre of $1.6m (up 17%).

Company Profile 

Praemium Limited (PPS) is an Australian fintech company which provides portfolio administration, investment platforms and financial planning tools to the wealth management industry.

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

Temple & Webster Group delivered solid FY21 results driven by customer’s adoption of online shopping

Investment Thesis

  • Operates in a large addressable market – B2C furniture and homewares category is approx. $16bn. 
  • Structural tailwinds – ongoing migration to online in Australia in the homewares and furniture segment. At the moment less than 10% of TPW’s core market is sold online versus the U.S. market where the penetration rate is around 25%. 
  • Strong revenue growth suggests TPW can continue to win market share and become the leader in its core markets. 
  •  Active customer growth remains strong, with revenue per customer also increasing at a solid rate. 
  •  Management is very focused on reinvesting in the business to grow top line growth and capture as much market share as possible. Whilst this comes at the expense of margins in the short term, the scale benefits mean rapid margin expansion could be easily achieved. 
  • Strong balance sheet to take advantage of any in-organic (M&A) growth opportunities, however management is likely to be very disciplined. 
  •  Ongoing focus on using technology to improve the customer experience – TPW has invested in merging the online with the offline experience through augmented reality (AR).

Key Risk

  • Rising competitive pressures. 
  • Any issues with supply chain, especially because of the impact of Covid-19 on logistics, which affects earnings / expenses. 
  •  Rising cost pressures eroding margins (e.g., more brand or marketing investment required due to competitive pressures). 
  • Disappointing earnings update or failing to achieve growth rates expected by the market could see the stock price significantly re-rate lower. 
  •  Trading on high PE-multiples / valuations means the Company is more prone to share price volatility.

FY21 results highlights. 

  • Group revenue was up +85% to $326.2, with 4Q21 revenue up +26% YoY despite cycling a period which saw growth of +130%. 
  •  Gross profit was up +88% to $148m, with gross profit margin increasing to 45.4% from 44.6%. This was primarily driven by increasing private label penetration, which increased to 26% of group sales vs 19% in the prior year. Private labels had higher margin vs drop-ship sales (i.e., drop-ship means TPW takes no inventory risk and works with their >500 local distributors), given TPW source directly from the factory.  
  • Delivered margin increased +87% to $100.7m, however was impacted by one-off distribution costs in the 2H21 due to some local shortages in 3PL space and TPW had to store product in more expensive alternate sites. 
  •  Contribution margin after one-off distribution came in at 14.6% as percentage of revenue vs 15.5% in pcp. Management is aiming to keep the contribution margin in the range of 12 – 15% over the short to medium term to support their reinvestment strategy to aggressively target market share via improved pricing, tactical promotional activity, and higher investment in brand building initiatives. 
  • Group adjusted EBITDA of $20.5m was significantly higher (up +141%) than $8.5m in the pcp, with a margin of 6.3% (vs 4.8% in pcp). 
  •  Balance sheet is solid, with cash balance of $97.5m

Trending Update:“The year got off to a fantastic start with a 39 percent increase in income from July 1 to July 24. TPW benefit from tailwinds, such as the adoption of online shopping as a result of these structural and demographic developments, as well as the acceleration of transitive Covid. Following that, an increase in discretionary spending due to travel constraints and, as we all know, the housing market’s continuous resurgence. As Mark stated, “we will continue to engage in growth there as a business, vastly increasing our online market leadership and driving market share.”

Company Profile

Temple & Webster Group (TPW) is a leading online retailer in Australia, which offers consumers access to furniture, homewares, home décor, arts, gifts, and lifestyle products.

 (Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Funds Funds

Top pick within global listed property

of stocks within a range of real estate sectors across developed markets (North America, U.K, Europe, and Asia Pacific). The Fund’s objective is to exceed the total returns of the Benchmark (FTSE EPRA/NAREIT Developed Index (AUD) Net TRI) after fees on a rolling 3-year basis.

Approach

Resolution mixes top-down thematic and bottom-up fundamental research to arrive at a relatively

concentrated 40- to 60-stock portfolio with little resemblance to the benchmark. The first step filters the 450- plus stock universe down to a manageable size. Macroeconomic drivers play a part, based on the team’s company visitation schedule. Resolution also uses its proprietary screening database to filter out stocks with undesirable characteristics such as high debt/EBIT ratios and balance-sheet risk.

Portfolio

Resolution has managed global property since 2006, but this vehicle was founded in 2008 during the depths of the global financial crisis, when some low-quality REITs flirted with bankruptcy. Resolution didn’t avoid all the underperformers, but it did better than rivals at avoiding the worst offenders. Its focus on sustainability and corporate governance helped, as did the chosen UBS Global Investors Index, which focused more on rent collectors and less on risky development. Being brand new gave Resolution a clean slate, helping the team to buy quality REITs at bargain prices. The quality preference also keeps a lid on portfolio turnover, which oscillates between 30% and 55%–not as low as an index fund but lower than the average active strategy. However, Resolution has been willing to make occasional substantial portfolio shifts. In the first half of 2019, Resolution saw some industrial property such as Goodman as expensive and was underweight in this name, favouring industrial exposure through ProLogis and Segro. During the following 12 months (to 30 April 2021), Resolution preferred residential, data centre, and tower exposure, specifically in the US. The strategy managed AUD 14.4 billion as at 30 April 2021.

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
ETFs ETFs

The fund offers simple approach, portfolio, and low fee

but with some additional trade-offs of the listed structure, including brokerage costs and variable bid-ask spreads. The AsiaPacific investment strategy group and global asset-allocation committee are responsible for setting and reviewing the strategic asset allocation. The methodology starts by defining reasonable investment horizons for each portfolio and alloates to broad asset-class exposures such as equities and fixed interest based on the defensive/growth split. Then, subasset allocation within classes follows a market-cap-weighting approach, while allowing for behavioural biases and regulatory factors specific to each local market. The SAA determination is aided by the Vanguard Capital Markets Model, which forecasts asset-class returns through scenario analysis. An annual review may identify major structural shifts that can lead to a revised SAA, such as a change in the taxation of an asset class. Underlying sector exposures are realised through in-house index-tracking funds. Vanguard does not use tactical asset allocation and cites illiquidity, low transparency,

and cost as reasons for avoiding alternatives

Portfolio

Vanguard’s straightforward approach applies a strategic asset allocation that is updated periodically and broadly mirrors its equivalent unlisted fund range. Dynamic and tactical asset allocation are not used. Vanguard sticks to the traditional asset classes of equities, fixed interest, and cash, while avoiding alternatives and unlisted assets. The four diversified options are designed to suit different investor objectives and risk profiles. Vanguard Conservative has a defensive/growth split of 70/30, Balanced is 50/50, Growth is 30/70, and High Growth is 10/90. In-house index funds are relied on. Vanguard’s SAA, inclusive of both listed and unlisted vehicles, is strikingly similar to the Morningstar Category benchmarks. It hedges 30% of the international equities to keep the non-Australian-dollar exposure roughly steady. Since inception to June 2021, Vanguard’s multisector ETFs have on average traded with a bid-ask spread of 8-25 basis points, though it has elevated during bouts of volatility like most listed structures.

Performance

The Vanguard Diversified Index ETFs were launched in November 2017. Given the consistency in approach to the long-running unlisted iterations, we believe its extended track record is more informative. Vanguard’s inexpensive cost has been a key pillar in leading this strategy to strong medium-term return. Returns have historically closely mirrored the Morningstar Category benchmarks over time, typifying the limited opportunity to exceed the hurdle given the structural likeness between the two. In comparison to unlisted peers, all ETFs sit in the top quartile over a trailing three-year time period as at June 2021. Calendar-year results between 2018 and 2020 have been consistently in the first and second quartiles, surpassing the average manager in each year. Maintaining interest-rate duration has aided peer-relative performance, particularly in the more-defensive options. This structural stance also helped amid the crisis market environment in the first quarter of 2020. Albeit, the more-defensive ETFs lagged the category average over the last year to June 2021 because of its higher allocation to defensive assets relative to peers. Record-low interest rates globally suppressed returns from fixed-income securities over this period but favoured growth

assets, resulting in the more-growth oriented portfolios keeping pace with peers.

Source: Morningstar

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Shares Small Cap

Super Retail’s attractive loyalty program with 8 million member

Shot of elegant smart businesswoman explaining a project to his colleagues with statistics on the computer on coworking place.

Investment Thesis

  • Trading below our valuation and on attractive trading multiples and dividend yield. 
  • Strong tailwinds/fundamentals in SUL’s four core segment. For instance, sales for vehicle aftermarket continue to remain strong (with increase in secondhand vehicle sales (Supercheap); travelers seeking social distancing and hencemoving away from public transport (Supercheap); with Covid lockdown measures in forced, more people are spending their holidays domestically (BCF; macpac), utilising their vehicles (Supercheap); growing awareness of fit and healthy lifestyles (rebel). 
  • Solid capital position. 
  • Strong brands in BCF, macppac, rebel and Supercheap with solid industry positions in largely oligopolies and solid store network. 
  • Transitioning to an omni-channel business. Whilst previously the business has been modeled on like-to-like store numbers, management now thinks of business metrics based on club members and has been able to grow the active club membership much faster than store numbers (store numbers in last 5 years have grown +2% CAGR vs active club members at +10% CAGR), providing it with an opportunity to expand customer base and therefore revenue base without significant capex for investment in stores (most of the customers are omni channel). 
  • Management continues to push towards expanding its online sales (Covid-19 added to this tailwind), with online sales penetration of ~13-15% of total sales currently and expected to reach 20-25% over the next 5 years. 
  • Attractive loyalty members program, with over 8 million members.

Key Risks

  • Rising competitive pressures.des 
  • Any issues with supply chain,especially as a result of the impact of Covid-19 on logistics which affects earnings. 
  • Rising cost pressures eroding margins (e.g. more brand or marketing investment required due to competitive pressures). 
  • Disappointing earnings update or failing to achieve growth rates expected by the market could see the stock price significantly re-rate lower.

FY21 Results Highlights

  • Total Group sales of $3.45bn, up +22% (Group like-for-like sales growth of +23%).Online sales of $415.6m, up +43% and nowaccounts for ~12% of total sales. On the impact of Covid -19 lockdowns, management noted its “omni-retail capability enabled it to pivot to online channels to meet consumer demand through both Click & Collect and home delivery”.
  • Segment EBIT of $476.8m was up +80%. 
  • Segment normalised PBT of $435.8m, up +108%.
  • Normalised NPAT up +107% to $306.8m. Basic EPS up +139% to 133.4cps.
  • The Board declared a fully franked final dividend of 55.0cps, bringing the full year dividend to 88.0cps, significantly higher than 19.5cps in FY20. Dividend equates to 65%, which is in line with SUL’s 65% payout ratio policy.
  • Management guided capex in FY22 of $125m to fund expanded store development and investment in omni and digital capability.

Company Profile 

Super Retail Group (SUL) is one of Australasia’s Top 10 retailers. SUL comprises four core segments. (1) BCF: Australia’s largest outdoor retailer focused on selling Boating, Camping and Fishing products. (2) macpac: retailer of apparel and equipment with their own designs focused on outdoor adventurers. (3) rebel: retailer of branded sporting and leisure goods and equipment for casual and serious fitness enthusiast. (4) Supercheap Auto: specialty retail business which specialises in automotive parts and accessories. 

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

OOh!media is strongly-positioned but shares are overvalued relative to our intrinsic assessment

In the nine years to 2019, advertising dollars flowing to the Australian outdoor medium increased at a CAGR of 9%.

Our view is based on three structurally related tailwinds:

 First, unlike other traditional media, the outdoor audience is increasing. 

Second, a key Achilles heel for the outdoor advertising industry was the lack of reliable audience measurement. However, with the 2010 launch of measurement of Outdoor Visibility and Exposure, or MOVE, the medium now has greater legitimacy and offers a more robust way for marketers to assess the return on money allocated to outdoor advertising. 

Third, in contrast to its debilitating impact on other traditional media, digital technology is a growth facilitator for the outdoor industry. We estimate converting a static site to a digital site can lift advertising revenue three- to four-fold, potentially doubling the margin and vastly lifting the return on capital. 

We view these drivers as long-dated, and will continue to be exploited by oOh!media. Management is investing in further technological, data, and analytics capability. While adding to near-term costs, these investments are designed to more effectively convince marketers of the benefits of outdoor advertising, in terms of greater sophistication in audience targeting, resulting in longer-term sustainability.

Our fair value estimate for oOh!media is AUD 1.40 per share, which implies fiscal 2021 enterprise/EBITDA of 11.9 times but Shares in oOh!media are trading 30% above our AUD 1.40 fair value estimate. We are not ignorant of the stock’s appeal to investors lusting after high-beta, COVID-19 recovery trades ahead of imminent reopening of the New South Wales and Victorian economies.

Bulls Say 

  • Outdoor advertising is a growth medium benefiting from structural tailwinds such as increasing audience, more reliable measurement, and conversion of inventory to digital.
  • Australian outdoor’s 5% share of the total advertising pie still lags Canada (8%), the U.K. (7%), and the global average of 6%-plus. 
  • OOOh!media may have failed in its attempt to merge with APN Outdoor in 2017, but it completed the acquisition of Adshel in September 2018 and there is an opportunity to extract sizable synergies from the combination.

Financial Strength

 At the end of June 2021, net debt/EBITDA was 1.1 times, pre AASB 16. We forecast this to fall to 0.7 by the end of 2021, within the renegotiated 3.25-3.50 covenant limit for 2021. The current dividend payout policy is reasonably conservative at between 40% and 60% of net profits after tax but before amortisation acquired intangibles, allowing further investment in inventory digitisation. However, due to the uncertain impact of the coronavirus outbreak, there were no dividends in 2020 and we forecast resumption of just AUD 0.04 in 2022.

Company Profile

OOh!media operates a network of outdoor advertising sites with a sizable share of the Australian market of around 30%, and has a presence in New Zealand. It boasts a diverse portfolio of locations to service the needs of outdoor advertisers, and is particularly strong in the roadside billboard and retail (such as shopping malls) segments. OOh!media offers these services by entering into lease arrangements with owners of outdoor sites–effectively an intermediary allowing site owners to monetise their visible space in high-traffic areas. In late September 2018, the group completed the acquisition of Adshel from HT&E for AUD 570 million, a deal that cements its competitive position in the face of industry consolidation.

 (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

Digital Realty Continues Deepening its Global Footprint and Transitioning Away From Wholesale Only

power, and connection needs. Along with Equinix, we think this makes Digital Realty one of only two data center providers that can offer this breadth and set itself apart from the pack.

Before its acquisition of Telx in 2015, Digital Realty garnered almost 95% of its total revenue from wholesale data centers and had virtually no interconnection revenue. At the end of 2020, a year in which Digital Realty also acquired Interxion, a firm with almost exclusively co-location and interconnection revenue, we estimate that annualized rent from the largest customers–those taking greater than 1 megawatt of power–made up only about half of total annualized revenue, and interconnection revenue was about 9% of the total.

In Digital Realty’s data centers, tenants can directly connect to their cloud providers or other partners, resulting in reduced latency and superior security. Even when in different Digital Realty locations, customers can bypass the public Internet to connect with other Digital Realty data centers via direct fiber connections within cities or through a software-defined network between cities. 

Steady Performance in Q3 for Digital Realty as It Continues Pursuing New Opportunities 

Digital Realty’s third-quarter results were consistent with recent performance, with a solid level of new bookings and re-leasing spreads that remain sluggish. 

The firm’s 11% year-over-year revenue growth was significantly boosted by higher utilities revenue, which simply reflects higher energy costs that Digital passes on to its customers.Rental revenue, which excludes pass-through revenue, was up 6%. Renewal spreads remain under pressure as the firm continues working off below-market contracts with its larger deployments, but this quarter’s negative 6% cash re-leasing spread was misleading, as it was the result of a 30- megawatt renewal combined with a very large new lease.

New bookings totaled $113 million in annualized revenue, with space and power bookings just over $100 million for the third straight quarter, and interconnection bookings in the $12 million-$13 million range for the fifth straight quarter-every quarter since Digital acquired Interxion. While this level of bookings is solid, it is believed that the moves the firm is making will lead them to pick up in the future. Key moves Digital made during or after the third quarter include entries into both India and Nigeria, both through joint ventures. The firm also made an investment in AtlasEdge data centers in Europe to propel its edge ambitions.

Bulls Say 

  • Digital Realty’s shift toward connection and colocation exposes it to the most attractive parts of the data center business and the growth tailwinds of cloud providers and data connectivity. 
  • Digital Realty’s global offering and high exposure to cloud providers gives it an advantage over competitors that operate in more narrow geographies or can only offer retail colocation space.
  • Internet of Things, artificial intelligence, and other innovations that increase the public’s demand for data and connectivity require more hardware and connections in data centers.

Company Profile

Digital Realty owns and operates nearly 300 data centers worldwide. It has more than 35 million rentable square feet across five continents. Digital’s offerings range from retail colocation, where an enterprise may rent a single cabinet and rely on Digital to provide all the accommodations, to “cold shells,” where hyperscale cloud service providers can simply rent much, or all, of a barren, power-connected building. In recent years, Digital Realty has de-emphasized cold shells and now primarily provides higher-level service to tenants, which outsource their related IT needs to Digital. Digital Realty has also moved more into the co-location business, increasingly serving enterprises and facilitating network connections. Digital Realty operates as a real estate investment trust.

 (Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Shares Technology Stocks

Megaport retained strong balance sheet position, with a cash balance of $136.3m at year-end

Graphic of investment stock market data analysis business

Investment Thesis

  • MP1 is a global Software Defined Network provider, focusing on cloud connectivity. As such, the Company is leveraged to the rapidly growth of global cloud and data centres and is in a strong position to benefit from the rollout to new cloud and data centre regions. Key macro tailwinds behind MP1’s sector: (1)  adoption of cloud by new enterprises; (2) increased level of investment and expenditure by existing customers; and (3) more and more enterprises looking to use multiple cloud  products/providers, which works well with MP1’s business model.
  • MP1 has a scale advantage over competitors. MP1 is over 600 locations around the globe. MP1 has significant scale advantage over competitors and whilst replicating this scale is not necessarily the difficult task, it will take a number of years to do so during which time MP1 will continue to add locations and customers using the scale advantage.
  • Strong R&D program ensuring MP1 remains ahead of competitors. 
  • Strong cash balance of $136.3m at year end and a reducing cash burn profile puts the Company in a strong position.
  • Strong relationship with data centres (DC). MP1 has equipment installed in 400 data centres, so MP1 is a customer of data centres. MP1 also drives DCs interconnection revenue. Whilst several data centres like NEXTDC, Equinix provide SDN (Software Defined Network) services, it is unlikely data centres will look to change their relationship with (or restrict) MP1 given they are designed to be neutral providers to network operators. Further, given MP1’s existing customer base and connections with cloud service providers, it would be very difficult for data centres (without significant disruption to customers/cloud service providers) to change the rules for MP1.

Key Risks

  • High level of execution risk (especially with respect to development). 
  • Revenue, cost and product synergies fail to eventuate from the InnovoEdge acquisition. 
  • Heavy reliance on third party partners (especially data centre providers and cloud service providers) 
  • Data centres like NEXTDC, Equinix provide SDN services and decide to restrict MP1 in providing their services. 
  • Disappointing growth (in terms of expanding data centre footprint, customers, ports, Megaport Cloud Router).

Company Profile 

Megaport Ltd (MP1) is a software-based elastic connectivity provider – that is, it is a global Network as a Service (NaaS) provider. MP1 develops an elastic connectivity platform providing customers interconnectivity and flexibility between other networks and cloud providers connected to the platform.

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.