Category: Global stocks

Global Stock refer to share that are traded on multiple exchanges with different currencies. For example, if a publicly-traded company issues shares in dollars on the New York Stock Exchange and in pounds on the London Stock Exchange, it is issuing global registered shares. Global stock to a portfolio offers diversification and may provide higher returns. Global stock markets may experience higher levels of volatility than other domestic markets with bigger swings to both the upside and downside.

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Global stocks Shares

Burlington Should benefit by apparel Sales as Pandemic Ebbs and American Life Normalizes

). Although the present environment poses unique challenges, the off-price sector has performed well in such situations historically (Ross and TJX saw low- to mid-single-digit percentage comparable growth in 2008-09), and we expect Burlington to exit the crisis in better shape than full-price retailers.

Burlington’s strong inventory management operations hold inventory turnover above that of full-price stores, driving traffic with a fast-changing assortment. We believe off-price chains are valuable to manufacturers looking to sell excess product, as they offer flexibility, prompt payment, and discretion by avoiding advertising the brands they carry (important to producers looking to protect conventional channel pricing power). Product availability should stay high, as vendors’ production forecasting is complicated by factors such as mercurial customer preferences, channel diffusion, and unpredictable weather.

We believe off-price retailers such as Burlington are better positioned than other physical sellers to fend off digital rivals. The treasure hunt experience and low-frills environment enable steep discounts relative to the full-price channel (up to 60% for Burlington), limiting price gaps. Shipping and return costs (in addition to vendors’ restrictions) also limit the discounts digital sellers can offer.

Financial Strength

Burlington had reduced leverage meaningfully since its 2013 initial public offering (fiscal 2013 net debt was around 3.3 times EBITDA, versus a 0.7 mark in fiscal 2019, before the pandemic), and we expect growth and ample cash flows to keep the balance sheet strong despite ambitious expansion plans. We expect Burlington will take more than a decade to reach its 2,000-unit footprint target, in addition to relocations of existing stores. Considering Burlington’s store network is mostly leased and its payback period averages less than three years, we expect the firm to dedicate around 4% of sales to capital expenditures over the next decade (roughly $500 million on average annually). We expect the firm will continue to return excess capital to shareholders via buybacks after a pandemic-related pause; however, we expect this to eventually be augmented by a dividend approaching 40% of earnings (which we forecast the firm to initiate in fiscal 2023). We assume roughly 45% of long-term annual operating cash flow is returned to shareholders via repurchases. Burlington could pursue acquisitions of regional chains or other concepts (including operations outside the United States) to accelerate its growth, though we do not incorporate any such purchases into our forecasts because of the uncertain timing and nature of any deal.

Bulls Say

-With low prices spurred by efficiency, relatively high inventory turnover, and a differentiated value proposition to customers, Burlington should be relatively well protected from digital rivals.

– As Burlington’s assortment shifts toward more advantaged categories for the off-price channel (such as ladies’ apparel and home), performance should continue to improve.

– Burlington should be able to downsize its locations’ average square footage as it adds new, smaller stores and relocates existing inefficient units, boosting margins and the customer experience.

Company profile

The third-largest American off-price apparel and home fashion retail firm, with 761 stores as of the end of fiscal 2020, Burlington Stores offers an assortment of products from over 5,000 brands through an everyday low price approach that undercuts conventional retailers’ regular prices by up to 60%. The company focuses on providing a treasure hunt experience, with a quickly changing array of merchandise in a relatively low-frills shopping environment. In fiscal 2020, 21% of sales came from women’s ready-to-wear apparel, 21% from accessories and footwear, 19% from menswear, 19% from home décor, 15% from youth apparel and baby, and 5% from coats. All sales come from the United States.

(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

L Brands Post Strong Margins

Bath & Body Works continued to impress with a 26% operating margin, a figure in line with luxury retailers. While some expense leverage probably came from sales that rose to $3 billion (up 83%, lapping roughly six weeks of COVID-related closures last year), we think some gross margin gains could stay, given their attribution to better merchandising. However, we also expect some gains to recede, as the promotional cadence is likely to pick up over time. For reference, sales in the first quarter of 2020 were just $1.65 billion, since locations were closed for half of the fiscal quarter due to COVID-related restrictions.

L Brands’ second-quarter outlook also provides a lift to our fair value estimate, with 10%-15% sales growth and $0.80- $1.00 in EPS anticipated; these marks are ahead of the $2.9 billion in sales and $0.53 in EPS we projected for the period. As such, we plan to lift our full-year sales and EPS estimates to more closely reflect probable first-half performance, though the firm did not provide full-year guidance. We plan to stand firm on our long-term projections, which include 2% sales and mid-single-digit EPS growth along with midteens operating margins. As the division of the VS and BBW segments approaches, we expect to have more clarity on the capital structures of the separate businesses, which will allow us to value the stand-alone brands properly. Until then, we will continue to model the two businesses under the same umbrella, rendering an outcome based on current capabilities.

L Brands is still targeting August as the official separation date for its two brands, though it provided few additional details. For VS, the company will aim for midteens operating margins, an objective that feels increasingly attainable, given the brand’s latest success. VS will maintain its recent focus on inclusivity in both the VS and Pink labels, with the hope of regaining consumer confidence and demand. For BBW, the firm intends to stay the course, considering the success it has achieved with its current strategy, though it has expressed interest in expanding into whitespace categories such as sustainable hair and skincare, a move we commend given the recent focus on “green” consumption. Both brands will be expanding buy online/pick up in store capabilities, especially as they transition to more off-mall locations, which should improve throughput and profitability.

In anticipation of the spin-off, the firm named new CFOs for the two independent companies. Bath & Body Works’ CFO will be Wendy Arlin, current senior vice president and controller for L Brands, who previously was an audit partner at KPMG. Victoria’s Secret’s CFO will be Tim Johnson, former CFO of Big Lots. We believe both individuals will bring important knowledge and expertise to the two new standalone entities. In particular, Johnson’s retail industry experience will be useful as VS attempts to maintain its current trajectory.

 (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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Global stocks

S&P Global and IHS Markit Are a Collection of Moaty Franchises

Human hand stacking generic coins over a black background with hexagonal golden shapes. Concept of investment management and portfolio diversification. Composite image between a hand photography and a 3D background.

 Key Takeaways

  • S&P Global and IHS Markit are high-margin, largely recurring-revenue businesses that serve a diverse set of customers. IHS Markit has modestly more recurring revenue, which should lead to smoother earnings for the combined business.
  • S&P Global and IHS Markit have seen meaningful operating margin expansion over the past five years. S&P Ratings, the firm’s largest segment, has seen strong revenue growth and has expanded adjusted operating margins to 62% in 2020 from 50% in 2016 driven by robust issuance and pricing.
  • Following the merger, S&P Global and IHS Markit’s transportation and consolidated markets and solutions segments will continue to be stand-alone segments. Financial information and services will be created from S&P Market Intelligence and IHS Markit Financial Services (excluding indices), commodities and energy will be created from S&P Platts and IHS Markit Resources, and Indices will be created from S&P Dow Jones Indices and Markit Indices.
  • We expect S&P Global to achieve its $480 million expense synergy target. While we acknowledge some potential upside to this target, at a certain point the margin expansion implied by additional cost synergies would become unrealistic. Furthermore, S&P Global’s expense synergy targets are on top of existing expense efficiency programs.
  • S&P Global expects $350 million in revenue synergies within five years, though thus far it has given only limited detail on this. In Exhibit 1, we provide a list of where we think those revenue synergies may lie.
  • Rather than use the cross-sell versus new product framework, we instead categorize potential revenue synergies based on the segment and then identify vectors of where revenue synergies may be achieved. We expect the majority of revenue synergies to be in the financial information and services segment; to achieve its targeted synergies, we estimate the segment would need to grow 1.3% faster than it would have on its own. We view this as reasonable and could envision upside to this scenario.
  • While synergies are important, we believe investors should not overly concentrate on them. Other factors may have a greater impact in determining earnings, such as bond issuance volume. In addition, it can be difficult to precisely measure revenue synergies, given product bundling and other factors.

(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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Global stocks

CCRE Expansion Key for Future Growth

While the spin-off reshapes CCRE into more defined focus in property development, the asset-light business—which enjoys higher price-to-earnings multiples–is carved out of CCRE, which may dampen investor optimism on the post spin- off CCRE. We resume coverage of CCRE post spin-off and revise our fair value estimate to HKD 2.92 per share from HKD 4.40 per share. The shares are undervalued, trading at a depressed price/earnings ratio of about 2.2 times 2021 earnings. In our view, this is attributed to the spin-off mode not improving the balance sheet and the slower-than-peers contracted sales recovery. Moving forward much will depend on how the company’s recently articulated Greater Central China Strategy will pan out to improve growth prospects.

Contracted sales shrank 4.8% year on year to CNY 68.3 billion in 2020, which fell short of the company’s CNY 80 billion target and performance is largely below that of peers. We note that the company attributed the underperformance to a slower pace of saleable resources launched and reiterated its confidence in the Henan market. Nonetheless, CCRE recently articulated its Greater Central China Strategy to cover a large market radius around its Zhengzhou home base to bolster growth. However, we think the geographical expansion strategy may take time to bear fruit as the company enters new markets. For the first four months of 2021, the run rate looks off the pace with contracted sales at 17% of full year target. Hence, we think for this year the CNY 80 billion contracted sales target the company retained from last year looks aggressive, which may dampen share price performance.

Company Profile

Central China Real Estate is a China property developer founded by Chairman Wu Po Sum in 1992 and listed on the Hong Kong Stock Exchange in 2008. Differentiated from most other listed Chinese developers with a nationwide presence, CCRE is focused primarily in Henan province. The company’s coverage is spread across Henan’s prefecture and county-level cities, as well as a small presence in Hainan. Zhengzhou is a key market for the company, contributing the highest contracted sales and salable inventory among cities in Henan. The company has spun off its asset-light project management business and seeks geographical expansion via its Greater Central China Strategy for growth. Wu owns the controlling stake of about 74.9% in CCRE.

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

Volkswagen Fair Value Estimation

In our opinion, the market has been overly punitive in assessing technology spending and costs from the diesel emission scandal and the EC collusion charges. Even though the worst of the cheating scandal is over in the U.S., we maintain a EUR 20 billion reduction to our enterprise value for potential litigation in Europe. If we remove the EUR 20 billion EV haircut, our FVE would be EUR 280.

Our fair value includes margin contraction from higher spending for industry-disruptive technologies, including mobility, autonomy, and electrification. In 2018, VW achieved a 7.2% EBIT margin (excluding China JV equity income). The historical 10-year high is 7.4% (2017). We assume average EBIT margin of 6.1% during our five-year forecast, with a midcycle assumption of 4.9%, 120 basis points below the historical 10-year median of 6.1%.

Diesel collusion allegations: We estimate that if Volkswagen’s worst-case fine of EUR 23.6 billion were to be levied, our fair value would drop to EUR 188 from EUR 238. In this scenario, under current trading conditions, Volkswagen stock would be rated 3 stars, with the market at a 10% discount

Volkswagen AG manufactures and sells automobiles primarily in Europe, North America, South America, and the Asia-Pacific. The company operates in four segments: Passenger Cars and Light Commercial Vehicles, Commercial Vehicles, Power Engineering, and Financial Services. The Passenger Cars and Light Commercial Vehicles segment develops vehicles and engines, and light commercial vehicles; and produces and sells passenger cars and related parts. The Commercial Vehicles segment develops, produces, and sells trucks and buses; and offers parts and related services. The Power Engineering segment offers large-bore diesel engines, turbomachinery, special gear units, and propulsion components. The Financial Services segment provides dealer and customer financing, leasing, banking and insurance, fleet management, and mobility services. The company also offers motorcycles. It provides its products under the Volkswagen Passenger Cars, Audi, ŠKODA, SEAT, Bentley, Porsche, Volkswagen Commercial Vehicles, Scania, MAN, Lamborghini, Ducati, and Bugatti brands. Volkswagen AG was incorporated in 1937 and is based in Wolfsburg, Germany. Volkswagen AG operates as a subsidiary of Porsche Automobil Holding SE.

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

AXA World Funds – Global Factors – Sustainable Equity I Capitalisation EUR

Rosenberg Equities, the quantitative unit of AXA Investment Managers, manages this strategy and has a long history of systematic and factor-based investing. CIO Gideon Smith leads this strategy and is supported by large securities and ESG research teams, internally and from the wider AXA IM stable. The team undertakes consistent research with slow incremental improvements, rather than the frequent tinkering of typical quantitative strategies. We think this line-up is well-resourced for the approach taken. Incoming CEO Paul Flavier has added some structure with Rosenberg as the broader AXA IM group continues to reshape itself with numerous reshuffles, both in personnel and operationally, over the past few years including its ESG operation. At this stage, it appears these changes have not seeped into Rosenberg which does not appear to have incurred any negative impacts.

We are comforted by the depth and well-documented process at Rosenberg but are watchful of the impact of the parent and its requirements of its subsidiaries. Using the MSCI World Index, this fund ranks each stock based on low volatility and quality factors. The shop seeks diversity by reducing mega-cap exposure using a proprietary weighting mechanism to give a slightly higher small- and mid-cap bias. Rosenberg also applies a machine learning tail risk filter to avoid negative surprises. Finally, although not an afterthought, an ESG component is applied which excludes certain industries entirely and then over- or underweights the remaining 300-600 stocks based on their qualitative ESG scores.

Performance asymmetry has been strong since the inception of the strategy in 2013 with index beating returns coupled with an attractive 80% downside capture ratio, which has become even lower during recent stressed periods. The rally of low-quality, high-volatility stocks in late 2020 was hurtful but Rosenberg’s approach over the long term offers a simple yet effective systematic approach to global equities with significant ESG considerations.

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

Daimler AG attractive prospects in the automotive industry

× We also believe the market has discounted the stock for higher investment needed in industry disruptive technologies, including mobility services, autonomy, and powertrain electrification, which our fair value already takes into consideration.

× During the past 10 years, Daimler’s EBIT margin has had a high, low, and median of 8.8% (2016), negative 2.9% (2009), and 6.9%. We model Stage I peak EBIT margin at 7.0%, which represents a 180-basis-point contraction from the 10-year high.

× Our margin assumptions decline in the last two years of our Stage I to our normalized sustainable midcycle assumption of 5.9% in year five. Our midcycle assumption represents a 100-basis-point contraction versus Daimler’s 10-year 6.9% historical median.

× Despite our assumptions for significant margin pressure, our DCF model still generates a EUR 85 fair value estimate that represents 63% upside to the EUR 52 consensus price target and 74% upside potential versus the current market valuation.

For over 100 years, Daimler shares have been the investment in the inventors of the automobile. Based on the expected market development and the current assessments of the divisions, Daimler continues to anticipate Group unit sales, revenues and EBIT in 2021 to be significantly above the prior year’s level. The current worldwide supply shortage in certain semiconductor components affected deliveries in the first quarter. Daimler anticipates that this shortage could further impact sales in the second quarter. Although visibility is limited at present, Daimler assumes some recovery in the third and fourth quarter.

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

Fiat Chrysler forecasts long-term average annualized revenue growth

× Management forecasts long-term average annualized revenue growth of 7% and long-term EBIT margin to reach a range of 9% to 11% (five-year plan target to 2022) on the expansion of Jeep, Ram, Alfa Romeo, and Maserati brands. The company’s 2019 forecast includes EBIT of greater than EUR 6.7 billion for a margin of greater than 6.1%. 2019 revenue guidance was not specified, but the EBIT forecast implies at least flat year-over-year revenue.

× Contrast our Stage I forecast and midcycle assumption with management’s five-year plan targets and a 10-year historical annual revenue growth rate of 6% plus adjusted EBIT margin high, low, and median of 6.4%, 2.5%, and 4.3%, respectively.

× Even so, for our model to generate a fair value equivalent to the sell-side consensus and the current market valuation, investors would have to believe midcycle assumptions of 2.5% and 2.1%, below Fiat Chrysler’s 10-year historical range and demonstrating incredulity toward management’s five-year plan targets.

× Including assumptions that are well below management’s five-year plan, our model generates a fair value that represents 99% and 131% upside to the sell-side consensus price target and the current market valuation.

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

Hongkong Land’s Long-Term Vision Is Maintained After a Century

Over more than a century, it assiduously assembled, maintained and upgraded these assets and turned them into a portfolio consisting of the most desirable office addresses and retail locations in the city. The HK portfolio accounts for nearly 65% of the company’s earnings, all of which stable rental incomes.

HKL is the second-largest office landlord in Hong Kong behind Swire Properties, but one with the most centrally located assets. It is the clear beneficiary of rising demand in the HK office sector, prior to a weakened market in 2020. Driven by strong demand from Chinese corporates establishing presence in the city, corporates are particularly attracted to the high-grade office spaces offered by HKL. Beyond the attraction of modern grade-A office spaces, these assets offer sizable floor plates, unrivalled visibility and prestige, due to their storied histories and locations.

Fundamentally, existing office space and new supply in HK is below that of world financial centers. The small CBD with tight supply was a key driver of the decentralization trend. While office demand weakened in 2020 due to the social unrest and coronavirus pandemic, HKL’s assets maintained near full occupancy, attributable to its selection of blue-chip tenants and lease management. We expect the company’s portfolio in the city to fare well in coming years, underpinned by demand from Chinese corporates and the city’s status as a world financial center.

The company holds investment properties in Singapore, Jakarta, and Beijing. It also currently has development projects in Singapore and China. Given Hong Kong’s current high asset value, acquisitions in recent years include large commercial projects and development projects in several cities across the Asia-Pacific. However, the company’s focus in Hong Kong is clear. During the downturn in 1982, the company disposed most of its overseas assets in a bid to shore up its balance sheet and hold on to its core portfolio in Hong Kong.

Fair Value and Profit Drivers

Our fair value estimate for Hongkong Land is USD 7.20, implying a price/book ratio of 0.5 times, a forward P/E of 20 times, and enterprise value/EBITDA of 22 times. Our valuation is based on a cost of equity of 8.5% and a weighted average cost of capital of 6.9%. Over the next five years, we expect average return on invested capital to average 9%.

As Hongkong Land is a property investor first and foremost, and its development projects in Singapore, China and elsewhere are more opportunistic, we believe the long-term growth is driven by rental growth of its core portfolio in Hong Kong, and to a lesser degree in Singapore. For the Hong Kong office portfolio, we assume spot rental of HKD 110 per square foot per month, compared with an average rental of HKD 120 per square foot per month in 2020. With lease expiry at 4.6 years, we assume 20% annual lease expiry over the next five years. As such, we project blended net rental declines by 1.5% annually over the next two years, before a recovery thereafter.

Average net rent for its retail portfolio was HKD 164 per square foot per month in 2020, due to rental subsidies offered. Excluding the subsidies, rental was HKD 212 per square foot per month. Our spot rental in 2021 factors in a decline of 10%. With lease expiry declining to 1.9 years as retailers are unwilling to commit to longer leases, we expect blended rental to fall 8% in 2021. We assume near full occupancy as most luxury brands’ flagship stores are located in Hongkong Land’s properties in Central. As such, we do not expect any impact from a consolidation of luxury stores to be a negative impact. Further, fitouts for flagship stores are high.

Hongkong Land Holdings Ltd

Hongkong Land is a property investor mainly holding prime commercial assets in Hong Kong and Singapore. The company is the second-largest office landlord in Hong Kong with a portfolio of centrally located assets totalling 4.1 million square feet of office space along with 0.6 million square feet of retail space. It also holds 1.6 million square feet of prime office space in Singapore. Rental income accounts for about 75% of the operating profit, with most coming from Hong Kong. Property development projects in Singapore and China contribute the rest. The company was founded in 1889 and is dual-listed on the London Stock Exchange, with a secondary listing on the Singapore Exchange. It is 50%-owned by Jardine Matheson Holdings.

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

Sony put an effort in building an ecosystem within its PlayStation business

With name recognition across the globe, a market cap above $130 billion, and a history of profitability, we understand how some readers may be surprised at our no-moat rating of the company. However, at the same time, we must observe the competitive landscape in which the company operates. Ito asserts that Sony does not have an economic moat as a large percentage of its products have very low switching costs, even though we identify economic moats in some parts of its business. In particular, we believe that consumer electronic products (25% of revenue) will be exposed to fierce competition with Asian manufacturers.

With many products in this part of the business being commoditized, and a replacement cycle of digital appliances being three to six years, it is generally difficult for consumer electronic companies to build up an economic moat that generates sustainable excess returns on capital.

At the same time, however, Ito positively evaluates Sony’s efforts in building an ecosystem within its PlayStation business. While PlayStation 4 accumulated shipments reached approximately 97 million units by the end of fiscal 2019, the number of PS Plus users exceeded 36 million. This not only gives Sony solid cash flows with which to improve the profitability of its gaming segment but also provides a hook for customers, leading them to again purchase a PlayStation console in the next generation.

Ito also notes strength in Sony’s sensor business that focuses on improving picture quality. As a result, Sony has increased its market share, owing to growing demand from handsets. This strength can be quantitatively illustrated in Sony’s dominance in the global market share for image sensors. Sony’s global market share in this space is estimated to be in excess of 50% with the second-largest player, Samsung, holding 18% of the global market share. Security and automotive (autonomous driving) fields are the next growth drivers for Sony’s image sensor business. A critical factor for both fields is high sensitivity under various difficult conditions, and so we believe Sony could leverage its strength to expand this business in the near term.

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.