Category: Sectors

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LICs LICs

Twilio’s Software Building Blocks Are Constructing a Cloud Communications Empire

Business Strategy and Outlook

Twilio is a cloud-based communication-platform-as-a-service, or CPaaS, company offering communication application programming interfaces, or APIs, and prebuilt solution applications aimed at improving customer engagement. Through these APIs, Twilio’s platform allows developers to integrate messaging, voice, and video functionality into business applications. In a go-to-market model that focuses on empowering developers to utilize the APIs to build products in a highly customized fashion, Twilio has been able to expand into use-cases that would be difficult to penetrate otherwise. For widely sought after use-cases, Twilio has developed solution applications, like Flex Contact Center, which combine various channel APIs into a unified interface to create use-case-specific solutions.

The communication channel APIs are deployed through the Programmable Communications Cloud and then are combined and expanded into application platforms in the Engagement Cloud to offer higher level functionality for specific use-cases. In this view full stack as best-in-breed in the CPaaS space, enabling deeply integrated, sticky communication solutions. Twilio has stellar customer metrics, with churn consistently below 5% and net dollar expansion in excess of 130% in recent years.

Financial Strength

Twilio is in a healthy financial position. Revenue is growing rapidly, and the company is beginning to scale, while the balance sheet is in good shape. As of September 2021, the company had cash and short-term investments of $5.4 billion and a debt balance of $985.5 million. In March 2021, Twilio issued $1.0 billion of senior notes, consisting of $500 million of 3.625% notes due 2029, and $500 million of 3.875% notes due 2031. In June 2021, the company redeemed its prior convertible notes, due March 2023, in their entirety. Since raising approximately $150 million in its IPO in 2016, Twilio has completed several secondary offerings, recently announcing a $1.8 billion offering of its Class A common stock in 2021. Twilio has yet to achieve GAAP profitability, as the company remains focused on reinvesting excess returns back into the company, both on an organic and inorganic basis, to build out the platform and enhance future growth prospects.

Our fair value estimate for Twilio is $356 per share, down from $388 as we model slightly more muted long-term growth. It is expected that Twilio to grow at a 38% CAGR through 2025 from the combination of an expanding customer base and increasing usage of the platform by existing customers, evidenced by a stellar 131% net dollar expansion rate in the third quarter. Investors are discouraged by the combination of the third-quarter slowdown in organic growth, which we still view as healthy at a 38% increase year over year, and the widening loss expected for full-year 2021 after management’s fourth-quarter guidance.

Bulls Say’s 

  • The addition of SI partnerships and solution APIs should lead to increasing success in winning enterprise customers, which not only offer a greater lifetime value for a proportionally smaller acquisition cost, but also tend to be stickier customers. 
  • Twilio has stellar user retention metrics, with churn consistently below 5% and net dollar retention north of 130% in recent years. 
  • As Twilio focuses on developing more solution APIs and growth shifts from usage-based messaging to SaaS-like priced solutions, there should be a natural uptick in both gross margins and recurring revenue.

Company Profile 

Twilio is a cloud-based communication platform-as-a-service company offering communication application programming interfaces, or APIs, and prebuilt solution applications aimed at improving customer engagement. Through these APIs, Twilio’s platform allows software developers to integrate messaging, voice, and video functionality into new or existing business applications. The company leverages its Super Network, Twilio’s global network of carrier relationships, to facilitate high speed cost-optimized global messaging and voice-based communications.

(Source: FN Arena)

General Advice Warning

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

Categories
Technology Stocks

Accenture Posts Stellar Results as Compressed Transformations Accelerate Demand; Raising FVE to $258

Young woman trading stock market by touching.

Business Strategy and Outlook

Accenture is one of the largest IT-services companies in the world, providing both consulting and outsourcing capabilities. It is expected that Accenture’s growth will remain at a healthy and gradual pace, rather than a massive uptick. 

As a consultant, Accenture provides solutions for specific enterprise problems as well as broad-scope strategies in addition to integrating software for more than 75% of the global top 500 companies. As an outsourcer, Accenture offers business process outsourcing like procurement services as well as application management. 

As per the opinion of Morningstar analyst, there is always something new in the realm of enterprise technology to keep Accenture relevant and engaged with its most important customers. It’s wide moat stems from intangible assets associated with a stellar reputation for reliability and strategic and technological know-how, especially with large, risk-averse enterprise customers. It is also believed that  Accenture benefits from high customer switching costs as its key customers are loath to switch service providers for large or ongoing contracts. Further, as per Morningstar analyst Accenture generates industry-leading returns on capital because of its scale, given that there are only so many blueprints and software partners that an IT-services company needs to solve enterprise problems. Plus, with Accenture having one of the largest IT workforces (at half a million) and an industry-leading number of diamond accounts (typically $100 million annually or more), smaller IT-services companies may find it hard to keep up with the increasing innovation and know-how required to service enterprise technology.

Accenture Posts Stellar Results as Compressed Transformations Accelerate Demand; Raising FVE to $258

Wide-moat Accenture reported excellent first-quarter results, with the top and bottom line exceeding both management’s and our expectations. Accenture experienced broad-based growth in the quarter, benefiting from accelerating digital transformations throughout all end markets. Outperformance was industry, geography, and deal-size agnostic–reflective of the tremendous demand environment Accenture is experiencing. It is  believed that Accenture is uniquely positioned to address compressed transformation, a demand phenomenon that reflects enterprises requiring all-comprehensive digital and cloud transformations in a faster time span. This broad-market trend toward clients taking on more change at once will accelerate and continue to build an impressive pipeline. On the back of increasing alignment of Accenture’s end markets with its business transformation backed value proposition, Morningstar analysts increased our fair value estimate to $258 per share from $236. 

Financial Strength

Accenture’s financial model requires very little debt and generates significant cash flow. The company has an extremely low debt/capital ratio of 0.3% and produced slightly over $3 billion in free cash flow in fiscal 2021. Morningstar analysts are confident that it will be able to deliver on significant share repurchases, dividend expansion, and acquisitions going forward, as it is expected that free cash flow to the firm will expand to over $8 billion by fiscal 2026. Most important is Accenture’s returns on new invested capital. While Accenture has similar operating margins to peers like Cognizant and Capgemini, it is able to achieve much greater returns on new invested capital than its peers because of its size, as per Morningstar analyst. This is possible in the industry because most major consulting/IT-services companies need the same partnerships with major software companies and all need blueprints to solve common enterprise problems. 

Bull Says

  • Accenture will increase wallet share with its enterprise customers as the technology landscape becomes increasingly complex. 
  • Accenture will rely more on automation to handle some of its business process outsourcing, allowing for margin expansion. 
  • Accenture’s mix shift away from more commoditized offerings should boost profitability.

Company Profile

Accenture is a leading global IT-services firm that provides consulting, strategy, and technology and operational services. These services run the gamut from aiding enterprises with digital transformation to procurement services to software system integration. The company provides its IT offerings to a variety of sectors, including communications, media and technology, financial services, health and public services, consumer products, and resources. Accenture employs just under 500,000 people throughout 200 cities in 51 countries.

(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

JP Morgan Investment Funds: A collection of top picks from diversified industries

He also tends to add and trim positions aggressively as they become more or less attractive according to analyst models, a tendency that benefits when stock prices mean revert. While Davis’ artful approach has some appeal, it doesn’t have a discernible edge relative to its competition.

Portfolio:

This portfolio finds a balance between differentiation and careful risk management. It held 51 stocks at the end of September 2021, significantly less than the 140-180 it used to have when it had three independently managed sleeves. However, manager Scott Davis’ desire to let stock selection drive results leads to only modest sector and industry tilts relative to its S&P 500 benchmark. Davis also considers factor exposure when building the portfolio. For instance, he increased the portfolio’s stake in financials companies toward the end of 2020 to bolster its exposure to cheaper, more cyclical stocks to help offset its lack of exposure to the energy sector.

The portfolio has historically leaned a bit more toward a growth style, and that still rings true. It displayed a slight growth bias relative to the benchmark as of October, sporting higher valuation metrics such as price/ sales and faster trailing revenue- and earnings-growth rates.

People:

This strategy continues to rely heavily on J.P. Morgan’s core research team, but it is now led exclusively by Scott Davis, who oversaw the strongest-performing sleeve of this formerly multi-managed offering. Davis became a named manager in August 2014, inheriting a 10% slice of the strategy, but quickly saw his share grow, most notably after manager Thomas Luddy stepped down at the end of 2017. Davis continues to leverage the ideas of J.P. Morgan’s core research team, which consists of 23 analysts with extensive industry experience.

Performance:

A good portion of the fund’s success came in 2020, which skews the trailing return figures a bit. Its 26.7% gain in 2020 outpaced the benchmark by over 8 percentage points, the best calendar year since Davis debuted. The fund’s case over other time periods is weaker: It outperformed the bogy about 51% of the time on a rolling one-year basis since Davis joined.

(Source: jpmorgan.com)

Price:

Analysts find it difficult to analyse expenses since it comes directly from the returns. Analysts expect that it would be able to generate positive alpha relative to its benchmark index.


(Source: Morningstar)                                                                      (Source: Morningstar)

About Funds:

The investment objective of this fund is to achieve a return in excess of the US equity market by investing primarily in US companies. It uses a research-driven investment process that is based on the fundamental analysis of companies and their future earnings and cash flows by a team of specialist sector analysts.

(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 Research Sectors

JP Morgan Investment Funds- A collection of top picks from diversified industries

Process:

Davis maintains a relatively concentrated portfolio of 50-60 stocks but seeks to minimize the magnitude of sector or factor bets. He also tends to add and trim positions aggressively as they become more or less attractive according to analyst models, a tendency that benefits when stock prices mean revert. While Davis’ artful approach has some appeal, it doesn’t have a discernible edge relative to its competition.

Portfolio:

This portfolio finds a balance between differentiation and careful risk management. It held 51 stocks at the end of September 2021, significantly less than the 140-180 it used to have when it had three independently managed sleeves. However, manager Scott Davis’ desire to let stock selection drive results leads to only modest sector and industry tilts relative to its S&P 500 benchmark. Davis also considers factor exposure when building the portfolio. For instance, he increased the portfolio’s stake in financials companies toward the end of 2020 to bolster its exposure to cheaper, more cyclical stocks to help offset its lack of exposure to the energy sector.

The portfolio has historically leaned a bit more toward a growth style, and that still rings true. It displayed a slight growth bias relative to the benchmark as of October, sporting higher valuation metrics such as price/ sales and faster trailing revenue- and earnings-growth rates.

People:

This strategy continues to rely heavily on J.P. Morgan’s core research team, but it is now led exclusively by Scott Davis, who oversaw the strongest-performing sleeve of this formerly multi-managed offering. Davis became a named manager in August 2014, inheriting a 10% slice of the strategy, but quickly saw his share grow, most notably after manager Thomas Luddy stepped down at the end of 2017. Davis continues to leverage the ideas of J.P. Morgan’s core research team, which consists of 23 analysts with extensive industry experience.

Performance:

A good portion of the fund’s success came in 2020, which skews the trailing return figures a bit. Its 26.7% gain in 2020 outpaced the benchmark by over 8 percentage points, the best calendar year since Davis debuted. The fund’s case over other time periods is weaker: It outperformed the bogy about 51% of the time on a rolling one-year basis since Davis joined.

(Source: jpmorgan.com)

Price:

Analysts find it difficult to analyse expenses since it comes directly from the returns. Analysts expect that it would be able to generate positive alpha relative to its benchmark index.                                                              

                 
(Source: Morningstar)                                                                 

About Funds:

The investment objective of this fund is to achieve a return in excess of the US equity market by investing primarily in US companies. It uses a research-driven investment process that is based on the fundamental analysis of companies and their future earnings and cash flows by a team of specialist sector analysts.

(Source: Morningstar)

General Advice Warning

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

Categories
Dividend Stocks Sectors

Tassal Group revenue increased driven by volume growth

Investment Thesis:

  • Number one player in the domestic market (approximately 50% market share), with only one major competitor (Huon Aquaculture Group). This could see rational pricing behaviour, which should be positive for both companies. 
  • High barriers to entry (assets, desired temperatures and regulatory licences are difficult to obtain). 
  • Initiatives like selective breeding programs and investments in infrastructure appear to be paying dividends, with more recent generations of TGR’s salmon showing more robust growth than their predecessors. 
  • Given the complex nature of salmon farming, TGR is unlikely to have its dominant position as an Australian leading salmon farmer seriously threatened in the foreseeable future. 
  • Addition of prawns into TGR’s product portfolio brings diversification benefits to the Company’s risk profile. 
  • Growth in prawns represents material upside for group earnings.

Key Risks:

  • Impact on production due to adverse weather conditions and diseases. 
  • The De Costi subsidiary presents an opportunity for diversification; however, execution and competitive risks remain. 
  • Potential review of chemical colouring in salmon may lead to further negative publicity and undermine demand for salmon. 
  • Cost pressures or cost blowout could deteriorate margins significantly given the large cost base relative to earnings (EBITDA).
  • Irrational competitive behaviour (domestic and international markets). 
  • Negative media reports on the sustainability of the Tasmanian salmon industry. 
  • Regulatory risks regarding Federal, State and Local laws and regulations regarding the leases, licenses, permits and quotas which may affect TGR’s operations.

Key highlights:

  • TGR’s 1H21 revenue was up on volume growth but EBIT and NPAT fell by -2.7% and -7.8% on pcp, respectively, amid materially negative returns from the export market due to Covid19.
  • Interim dividend was down -22.2% to 7cps.
  • Operating cash flows remained strong despite negative movements in working capital and declining salmon prices.
  • Total revenue increased +6.6% over pcp to $292.48m, with sales volume growth for salmon up +16.2% and prawns up +786.4%, which was more than offset by materially negative returns from the export market given the impact of reduced global pricing and an appreciating AUD/USD exchange rate, leading to operating EBIT falling -2.7% over pcp to $46.78m
  • Balance sheet further strengthened with available committed debt facilities extended by $100m to $509.2m (including Receivables Purchasing Facility), secured to April 2023
  • The Board declared an unfranked interim dividend (vs 25% franked in pcp) of 7cps, down -22.2% over pcp and announced a DRP with a -2% discount.
  • Segment revenue are as follows:
    • Salmon: Segment revenue increased +6.7% over pcp, with decline of -8.7% to $12.47/hog kg in average price (domestic down -2.6% and export down -18%) more than offset by +16.2% increase in volume (domestic up +1.3% and export up +74.3%).
    • Prawns: Operating EBITDA/kg (pre AASB 16) declined -47% over pcp to $3.05, as earlier harvest to optimize Christmas sales led to decrease in size

Company Description: 

Tassal Group (TGR) is Australia’s largest vertically integrated seafood/aquaculture company. Based in Tasmania, TGR is engaged in hatching, farming, processing, sale and marketing of Atlantic salmon and ocean trout. Tassal is also undergoing investments to enter the prawns market. The company’s products are distributed in Australia, Japan and other international markets.

(Source: Banyantree)

General Advice Warning

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

Categories
Dividend Stocks Sectors

Bendigo & Adelaide comprising 4.5cps Y20 final dividend and 23.5cps FY21 interim dividend

Investment Thesis

  • Relative to major banks, BEN trades at fair value in our view, on 13.2x one-year forward price to earnings, 0.9x price to book and dividend yield of ~5.0%. 
  • Strong franchise model with funding predominately by way of deposits. 
  • Expected low levels of impairment charges (especially as a low interest rate environment helps customers and arrears). 
  • Continued strong cost discipline, improving efficiency and boosting performance. 
  • Advanced accreditation in progress (which may improve ROE). 
  • Potential pressure on net interest margins as competition intensifies, with major banks in a low interest rate environment. 
  • Leading in terms of customer satisfaction and net promoter metrics, which are increasingly key in a period where trust is paramount.

Key Risks

  • Intense competition for loan growth, combined with further discounting. 
  • Volatility in Homesafe earnings. 
  • Increase in bad and doubtful debts or increase in provisioning. It is to monitor the asset quality of Rural Bank and Great Southern portfolios. 
  • Funding pressure for deposits and wholesale funding.

FY21 Results Highlights

  • Statutory net profit of $243.9m, up +67.3%. Cash earnings after tax of $219.7m, up 1.9%. Cash earnings per share of 41.4cps declined -5.5%. Total income was $849.0m, up +3.3%. Operating expenses of $517.4m, down -3.1% as BEN was able to drive cost reductions across the business. 
  • Net interest margin of 2.30% was down 7bps, reflecting “active pricing and volume management for lending and deposits, despite lower lending rates due to a mix of growth and competitive new business rates”. Core BEN NIM of 1.97% was up +6bps on 2H20 NIM of 1.93%. Management noted the December 2020 exit NIM was -3bps lower, which again highlights margin pressure remains from front book/back book repricing. However, we expect this to be offset by favourable funding costs. 
  • Bad and doubtful debts of $19.5m, declined – 15.9%, and comprises 6bps of gross loans. This was a solid outcome and we are likely to continue to see lower BDDs in the near-term. However, we remain cautious of this trend further out as government assistance starts to pull back. 
  • Common Equity Tier 1 of 9.36%, improved 36 basis points on the pcp, above APRA’s ‘unquestionably strong’ benchmark.

Company Profile 

Bendigo and Adelaide Bank Ltd (BEN) offers a variety of banking and other financial services including internet banking, housing finance, retail and business banking, commercial finance, funds management, treasury and foreign exchange services, superannuation and trustee services.

(Source: BanyanTree)

General Advice Warning

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

Categories
Dividend Stocks Sectors

Spark New Zealand reports earnings better than expected; however it was negatively impacted by Covid

Investment Thesis:

  • Attractive dividend yield of 5.4%. 
  • Market-leading position in New Zealand. Dominant market share in Mobile, Broadband and is the leader in IT Services. 
  • Strong capacity for growth demonstrated across all segments, with IT expected to continue to be a key driver as more consumers and businesses migrate to the Cloud. 
  • Investments in Broadband and the roll-out of 4.5G should see its lagging broadband segment improve.
  • Multi-product offerings provide interesting points of differentiation from other telco providers. 
  • Implementation of “Agile” leading to further cost reductions and operating efficiencies. 
  • Increasing customer demand for higher-margin cloud-based services. 
  • Increases in ARPU growth and connections despite weak industry conditions 
  • SPK still commands a strong market positions and has the ability to invest in technologies and areas which could provide room for growth.

Key Risks:

  • Unsuccessful migration of copper wire customers resulting in earnings drag in May due to weather conditions. 
  • More competition in its Mobile and Broadband segments leading to aggressive margin contraction, especially as products become commoditized. 
  • Risk of cost blowout (for instance in network upgrades or maintenance). 
  • Churn risk. 
  • Balance sheet risk (including credit ratings risk) should earnings decline due competitive and structural risks. 
  • Reduced flexibility and increased net debt if unable to fund total dividend by earnings per share 
  • Any network disruptions/outages.

Key highlights:

  • SPK’s earnings were negatively impacted by Covid-19 with ongoing loss of mobile roaming revenues and lower growth broadband and prepaid markets.
  • EBITDA was up +0.4% to $502m, despite Covid-19 impacts, offset from strong cost controls.
  • Margin of 27.4% was 60bps lower than the pcp. NPAT was -11.4% lower to $148m, driven by a $29m increase in depreciation and amortisation charges resulting from the shorter asset lives of new digital technologies, and higher depreciation related to customer and property leases.
  • Operating expenses declined $30m, or -2.3%, offsetting revenue declines
  • NPAT was -11.4% lower to $148m, driven by a $29m increase in depreciation and amortisation charges resulting from the shorter asset lives of new digital technologies, and higher depreciation related to customer and property leases.
  • Free cash flow of $113m, was up $63m over the pcp on tight management of working capital resulting in higher cash conversion rate of 102%.

Company Description: 

Spark New Zealand Ltd (SPK) is a New Zealand based telecommunications company. SPK’s key services are the provision of telephone lines, mobile telecommunications, broadband services and IT services. Its key product offerings are Spark Home, Mobile & Business, Spark Digital, Spark Ventures, and Spark Connect. The Company operates four main segments: (1) Spark Home, Mobile & Business; (2) Spark Digital; (3) Spark Connect & Platforms; and (4) Spark Ventures & Wholesale.

(Source: Banyantree)

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 Research Sectors

WCM Focused International Growth Fund Institutional Class: A promising option

Approach

The managers first generate ideas through a quality-growth screen, which includes companies with market caps of at least $3.5 billion, a good liquidity profile, and other metrics such as strong and improving margins. The team excludes non-growth industries such as utilities and looks for companies with solid returns on invested capital. Factors such as economies of scale, intellectual property, and legal or regulatory advantages are key. The team also places a heavy emphasis on culture, believing that culture drives certain companies forward and helps maintain their competitive edge. The team takes its best ideas and builds a relatively concentrated portfolio of roughly 30 to 40 international stocks. Because of their benchmark-agnostic approach, the portfolio may have extreme over- and underweighting to various sectors.

Portfolio

The managers use their best ideas to build a concentrated portfolio. . Coming out of the 2007-09 global financial crisis, the managers felt like their portfolio was too concentrated at about 20 holdings. They’ve gradually increased that count, and in July 2021 had 35 holdings. While still relatively concentrated (the typical foreign large-growth peer held 83 stocks in July), the expansion helps reduce individual stock risk. The managers take other prudent steps to minimize risk and remain relatively diverse. They avoid sectors that they believe offer little growth potential and as of July 2021, the fund had no exposure to energy, real estate, or utilities.

Portfolio Holdings .png

People

Co-CEO and manager Kurt Winrich’s upcoming retirement has been long in the works and the team will still have four capable managers to pick up the slack. Mike Trigg, who has been on the strategy since the fund’s 2011 inception, is the final decision-maker here. . Peter Hunkel, who has also managed since the fund’s inception, is responsible for portfolio construction. The team promoted Sanjay Ayer, also a former Morningstar equity analyst, to the management ranks in June 2019. Ayer joined WCM in 2007 and manages the WCM Global Growth Fund WCMGX and the WCM Emerging Markets Fund WCMEX, which have had success under him. Paul Black, co-CEO of WCM, is a named manager here but serves mainly as an advisor to the team. 

Performance 

Strong stock selection has fueled the fund’s outperformance. Picks in technology and industrials, in particular, have been among the biggest contributors to its performance. That helped the strategy weather 2020’s first-quarter coronavirus-driven slide. The fund held up slightly better than the index losing 29.4% from Jan. 18 to March 23, 2020, compared with the index’s 30.3% loss. The managers then opportunistically added MercadoLibre MELI and Ferrari RACE, which benefitted the strategy coming out of the bear market. In 2021, the fund has returned to its winning ways. Its 12.7% return handily beat the index’s 4.6% and the Morningstar Category’s 4.5%. That was good for the top decile in the category. Holdings such as ASML Holdings NV ADR ASML and Shopify SHOP were among the leading contributors in that period.

Performance .png

About the Fund

WCM Focused International Growth Fund seeks long term capital appreciation by investing in equity securities of non-U.S. domiciled companies or depository receipts of non-U.S. domiciled companies.

(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
Financial Markets Sectors Technology Technology Stocks

Equinix reports strong results driven by increased gross bookings in key American regions

The concept of 5G network with magnifying glass on modern circuit board, high-speed mobile internet and new generation networks technology background

Investment Thesis:

  • In our view, considering the quality of the business, EQIX is trading at fair valuation (from the perspective of trading multiples, dividend yield and our DCF valuation). 
  • Attractive long-term outlook in global digitization and data requirements of companies, with 5G and cloud computing as key drivers. 
  • Businesses moving away from on-premise centres towards colocation and cloud networks. 
  • Diversified client base and revenue stream minimises contractual risk. 
  • Opportunity for future market share expansion via potential acquisitions.

Key Risks:

  • Increases to operating expenses – particularly electricity costs. However, the contracts between Equinix and its customers provide for rights and protection clauses to permit the Company to pass on electricity cost increases that exceed 5%. 
  • Rising technology and acceptance of cloud-based services may incentivise businesses to fully leverage cloud infrastructure rather than connecting with IBX data centres. However, management has downplayed these concerns, stating that there must still be direct interconnection between Cloud and businesses within the data centres. 
  • Newer IBX data centres have twice the cooling needs as old centres. Potential power limitations could force the company to have a lower utilization rate of its cabinets.  
  • Increased competition in the industry from the likes of Google, Apple, Microsoft and Digital Reality Trust, and the possibility of formation of strong strategic alliances amongst competitors 
  • EQIX is subject to exchange rate risk due to the company’s diverse geographical scale of operations. However, the company hedges many of these exposures. 
  • REIT classification mandates a minimum of 90% of taxable income paid to shareholders. This may hinder EQIX’s ability to increase its cash via retained earnings and could render the company’s balance sheet inflexible.

Key highlights:

  • Over the quarter, revenues up +8% to $1.7bn, adjusted EBITDA up +7% and AFFO was ahead of management’s expectations.
  • Strong quarterly result, with revenues up +8% to $1.7bn, adjusted EBITDA up +7% and AFFO growth of +10% (normalised and constant currency) was ahead of management’s expectations.
  • Interconnection revenues grew +12%
  • On a normalized and constant currency basis, Americas’ revenue growth of +8% YoY was among the highest in as many quarters. Adjusted EBITDA of $326m was up +3%.
  • Asia-Pacific reported normalized and constant currency revenue up +11% YoY and normalised MRR up +9% YoY, with management noted MRR growth was partially impacted by Covid related constraints in Singapore and political uncertainty in Hong Kong.
  • Total gross debt at the end of the quarter was $11.8bn, with weight average borrowing costs of 1.72% (95% of the debt is at fixed rate) and weight average maturity of debt 9.6 years. 
  • Net leverage ratio at the end of the period was 3.8x

Company Description: 

Equinix (NASDAQ: EQIX) is a leading company in internet connection and data centres. It is the global market leader in colocation data centre industry, providing data services and platforms for over 9800 companies across 24 countries. This allows companies to connect to their online ecosystem and meet their interconnection needs for their business operations. EQIX also offers additional solutions such as the Equinix Cloud Exchange Fabric to connect data centres to cloud networks, and the recently introduced Equinix SmartKey to offer encryption protection for the data security management of companies.

(Source: Banyantree)

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
Financial Markets Sectors Technology Technology Stocks

Apple Inc is focused on sustaining growth and margins

fintech icon on abstract financial technology background represent Blockchain and Fintech Investment Financial Internet Technology Concept.

Investment Thesis 

  • High barriers to entry.Strong strategic position in the rapidly growing global smartphone market especially with high end consumers. Loyal consumer base resulting in lower competitive pressure, and higher pricing power. 
  • Large cash balance and strong free cash flow supporting share buyback and dividend payout.
  •  Leading positions in iPhone; iPads; and Macs. 
  •  Services segment remains on track to double FY16 revenue by FY20. 
  • In terms of Other products (such as wearables and home products), AAPL seized the leading position off the back of a surge in smartwatch sales in a market expected to grow single digit till 2022 and double digit thereafter. 
  • Strong senior executive team reducing (not totally eliminating) key man risk.

Key Risks

  • Geo-political tensions. The current trade war between the US and China pose a threat to the company’s future profits. AAPL currently obtains components from single or limited sources (mostly China), the Company is subject to significant supply and pricing risks. Also, Greater China is a major market contributing to approximately 21% (Q218) of total revenue and any retaliatory efforts from Beijing could impact those sales. 
  • Whilst there are only a handful of competitors, the competition is Intense from Android manufacturers. The most notable competitors in the smartphone market (which contributes 62% of Apple’s revenues) are the Korean giant Samsung and two rapidly growing Chinese smartphone players in Huawei and Xiaomi. On raw performance specs (i.e., camera, maps, screen size, charge time, etc.), one may assert that AAPL devices are technically inferior to a handful of Android devices. 
  • Movements in U.S. dollar (USD). The greenback’s strong gain recently (due to rise in U.S. interest rates and moderating growth in other parts of the globe) has seen it rise to the highest level in nearly seven months, meaning foreign currency earnings of AAPL can be worth less when translated back to USD. The weakness in foreign currencies relative to USD will have an adverse impact on net sales during 2018.

Key highlights to 4Q18 results

  • 4Q18 revenue of $62.9bn, up +20% from the year-ago quarter, and quarterly diluted EPS of $2.91, up +41%, driven by record sales and strong momentum for iPhone, Wearables and Services. On the conference call, management highlighted “[revenue] was ahead of our expectations. That’s an increase of 20% over last year and our highest growth rate in three years”. 
  •  Gross margin was 38.3%, flat sequentially, in line with management’s expectations, as leverage from higher revenue offset seasonal transition costs. 
  •  International sales (61% of the quarter’s revenue) was strong, especially in Japan, up +34%, Rest of Asia Pacific, up +22%. The Americas (44% of revenue) saw revenue of $27.5bn, up +19%, whilst Europe at $15.4bn, was up +18% and China was up +16% at $11.4bn. 
  • Services revenue reached an all-time high of $10.0bn. Excluding a one-time favorable adjustment of $640m (in 4Q17), Services revenue grew from $7.9bn to $10bn, up +27% over the pcp. 
  • By product, iPhone, Services and Other products saw 29%, 17% and 31% sales growth, respectively, whilst disappointingly, iPad and Mac saw -15% and 3% sales growth respectively. 
  • iPhone ASP was $793 compared to $618 a year ago, driven by strong performance of iPhone X, 8 and 8 Plus, as well as the successful launch of iPhone XS and XS Max in the September quarter this year, while we launched iPhone X in the December quarter last year.

Company Profile

Apple Inc. (AAPL) designs and manufactures media devices and personal computers (Macs), and sells a variety of related software, services, accessories, networking solutions and third party digital content and applications. The company leads the world in innovation with iPhone, iPad, Mac, apple watch and Apple tv.

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