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Sensient Is Well Positioned to Meet Growing Demand for Natural Ingredients

Sensient has been focused on optimizing its portfolio, divesting less profitable, commodity-like business lines primarily in the flavors and extracts segment.Longer term, we expect consumer preferences will continue to shift toward natural flavors and colors and away from synthetic ingredients. However, with a growing natural ingredient portfolio, we think the company is well positioned for the transition. 

Although Sensient serves both large and small customers, it primarily targets middle-market customers rather than large consumer packaged goods customers. The company’s most valuable business relationships involve the manufacture of customized formulations from proprietary technologies that allow Sensient to be a sole supplier. 

Sensient reports three segments. The color segment is the largest .This business produces natural and synthetic color systems for a variety of end markets, including food, beverage, cosmetics, and pharmaceutical applications. The flavors and extracts segment (a little more than 40% of profits) sells both natural and synthetic taste and texture ingredients. 

Financial Strength 

Sensient is in very good financial condition. At the end of the third quarter of 2021, net debt/adjusted EBITDA was around 2 times. Sensient has historically remained safely below the leverage ratio and above the coverage ratio.We forecast the company will continue to generate healthy free cash flow, which it has consistently done over the last decade. Sensient should have no problem servicing existing debt. The company has only a small pension liability and no other major liabilities that will require material cash outflows in the coming years. Sensient has historically maintained a low cash balance, preferring to return excess cash to shareholders via dividends (management targets a 30%-40% payout ratio) or share repurchases.

Bull Says

  • Sensient’s restructuring program will lead to materially higher margins and ROICs as low-margin facilities are closed. 
  • The demand shift to natural colors from synthetic colors should drive higher volume for Sensient, boosting profits. 
  • Management’s 20% long-term operating margin goal is achievable as specialty colors and flavors will generate an increasing proportion of total sales, driving a mix shift-based margin expansion.

Company Profile

Sensient Technologies manufactures and markets natural and synthetic colors, flavors, and flavor extracts. The company has a widespread network of facilities around the globe, and its customers operate across a variety of end markets. Sensient’s offerings are predominantly applied to consumer-facing products, including food and beverage, cosmetics and pharmaceuticals.

 (Source: Morningstar)

General Advice Warning

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

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Shares Technology Stocks

Netflix’s Growth Will Increasingly Come From Outside the U. S

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

The firm has used its scale to construct a massive data set that tracks every customer interaction. It then leverages this customer data to better purchase content as well as finance and produce original material such as “Stranger Things.

We believe that many consumers use, and will continue to use, SVODs like Netflix as a complementary service, especially as SVOD prices increase and pay television bundle prices decrease. Larger firms like Disney and WarnerMedia have launched their own SVOD platforms to compete against Netflix. We think this usage pattern and increased competition will constrain Netflix’s ability to raise prices without inducing greater churn. 

We expect that Netflix will expand further into local-language programming to offset the weakness of its skinny offering in many countries. This will likely generate a competitive response from the firm’s global and local rivals, which will augment their own first-party content budgets. In turn, we think Netflix’s international expansion will continue to hamper margin expansion.

Netflix’s Growth Will Increasingly Come From Outside the U. S.

Netflix reported decent third-quarter results as subscriber growth beat the low guidance issued a quarter ago but this is below the previous two years. The lower subscriber growth reflects not only saturation in its largest markets but strong competition in the regions with the most potential growth remaining, including Latin America and India. 

While we now project that EMEA will have more members than the U.S. by the first quarter of 2022, its revenue and implied margin contribution will remain much lower as its ARPU only hit $11.65 in the quarter. We continue to project price increases for the region but still expect a large gap between it and the U.S. to persist over the next five years.

Asia-Pacific, Netflix’s supposed long-term growth engine, increased revenue year over year by an impressive 31% in the quarter but ARPU remained under $10 and actually declined sequentially. We expect ARPU to decline going forward as the firm rolls out low-price plans in more countries across the region. 

Financial Strength 

Netflix’s financial health is poor due to its weak free cash flow generation, large number of content investments that require outside funding (primarily debt), and content obligations. Debt has been taken on to fund additional content investments and international expansion. The company’s weak free cash flow due to this spending is a concern, as we don’t see the need to spend decreasing in the near future. As of June 2021, Netflix has $14.9 billion in senior unsecured notes that do not have borrowing restrictions, but a relatively small amount due in the near term ($500 million due 2021, $700 million due 2022, $400 million due 2024, and $800 million due 2025), as the firm generally issues debt with a 10-year maturity. Netflix also has a material quantity of noncurrent content liabilities ($2.7 billion recognized on the balance sheet and over $15 billion not yet reflected on the balance sheet).

Bull Says 

  • Netflix’s internal recommendation software and large subscriber base give the company an edge when deciding which content to acquire in future years. 
  • Netflix has built a substantial content library that will benefit the firm over the long term.
  • International expansion offers attractive markets for adding subscribers.

Company Profile

Netflix’s primary business is a streaming video on demand service now available in almost every country worldwide except China. Netflix delivers original and third-party digital video content to PCs, Internet-connected TVs, and consumer electronic devices, including tablets, video game consoles, Apple TV, Roku, and Chromecast. In 2011, Netflix introduced DVD-only plans and separated the combined streaming and DVD plans, making it necessary for subscribers who want both to have separate plans.

 (Source: Morningstar)

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

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Dividend Stocks Philosophy Technical Picks

PNC Remains on Track to Complete Most Expense Saves in 2021

the acquisition of RBC’s U.S. branch network in the Southeast, and by updating its core infrastructure and retail branch model. PNC has been very successful at organically expanding its customer base, both in commercial banking and now in retail. The expanding client base has led to solid loan, deposit, and fee income growth. Selling new products into the formerly underperforming RBC branch network has worked particularly well, and PNC now seems poised to repeat this effort with the pending acquisition of BBVA. The bank’s Midwest commercial growth strategy is paying dividends, and PNC will be attempting retail growth efforts in the same areas where commercial expansion was successful.

The successful acquisition history, seemingly successful expansion initiatives, and improved credit performance during the 2007 downturn makes PNC is one of the better operators we cover. PNC has executed on many expense-saving initiatives over the years, and management has been actively reinvesting many of these savings back in the business to stay ahead on the technology front.

Financial Strength:

The fair value of PNC Financial Services is USD 185.00, which is based on analyst’s assumption that the bank’s efficiency ratio eventually declines to about 52%, as management realizes operating leverage from infrastructure investments and the BBVA acquisition helps push efficiency for PNC to the next level. The dividend yield given by company has been very consistent year on year.

PNC is in good financial health. The bank weathered the energy downturn well, and energy loans make up a small percentage of the loan book. The bank has also weathered the COVID-driven downturn well. Most measures of credit strain remain quite manageable, and the bank’s history of prudent lending give us comfort with the risks here. PNC’s common equity Tier 1 ratio was at 10% as of June 2021, handily exceeding the bank’s targets. The capital-allocation plan remains standard for PNC, with 30% plus of earnings devoted to dividends, as much as necessary used for internal investment, and the left overs used for share repurchases.

Bulls Say:

  • PNC’s acquisition of BBVA seems likely to add value to the franchise and for shareholders, and will make PNC the regional bank with the most scale. 
  • A strong economy, higher inflation, and potentially higher rates are all positives for the banking sector and should propel results even higher. 
  • In additional to acquisitions, PNC has organic expansion opportunities it is taking advantage of, which could lead to higher organic growth than peers over time.

Company Profile:

PNC Financial Services Group is a diversified financial services company offering retail banking, corporate and institutional banking, asset management, and residential mortgage banking across 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

Lufthansa’s Fair Value Estimate Lowered to EUR 8.15 to Account for Rights Issue

As a result of the coronavirus downturn the group is embarking on a cost and fleet restructuring program, which will see it emerge as a smaller business. In 2020, the group received a government-backed support package totaling EUR 9 billion, which included an equity stake of 20% by the German government for EUR 306 million. 

As part of the approval process the European Commission required the group to surrender 26 slots at its Frankfurt and Munich hubs to new competitors. Despite the recent EUR 2.1 billion rights issue, the group remains highly indebted, which may require additional capital restructuring if cash flows don’t recover to suitable levels to de-leverage organically. Due to the group’s indebtedness and highly uncertain timing of a recovery in cash flows, there is still a wide range of possible outcomes for the group’s equity value.

Financial Strength

Lufthansa is in a weak financial position due to its high levels of indebtedness. The coronavirus pandemic dealt a heavy blow to the aviation industry, resulting in record losses, cash outflows, and growing debt levels. To bolster liquidity, the group agreed to a EUR 9 billion government support package, which included the German state taking a 20% ownership in the group. Net debt, including pension provisions of EUR 7.6 billion, at the end of June 2021 equated to EUR 18 billion. The group has since raised EUR 2.1 billion in equity capital through a rights issue concluded in October 2021, the proceeds of which will be used to repay state aid. The group’s pro-forma net debt and liquidity position after the capital increase is expected to be EUR 16 billion and EUR 7.7 billion, respectively. Despite the capital raise, we believe the group remains highly geared, with a net debt to pre-pandemic EBITDA ratio of 3.5 times, and it will require multiple years of deleveraging to restore the balance sheet to sustainable levels.

Bulls Say’s

  • COVID-19 presents the group with a unique opportunity to structurally lower its cost base and emerge from the crisis with better profitability.
  • The airline has dominant positions at the key European hubs of Frankfurt and Munich, which could be an early beneficiary of a recovery in air travel.
  • Fleet reduction through the retirement of older and less efficient aircraft could lead to a more rational fleet with higher load factors and unit revenue.

Company Profile 

Deutsche Lufthansa is a European airline group. The company operates under the Lufthansa, Swiss Air, Austrian Airlines and Eurowings brands. In 2019, the company carried 145 million passengers to its network of 318 destinations globally. The group’s main airport hubs are Frankfurt, Munich, Vienna and Zurich. The company generated sales of EUR 36.4 billion in 2019.

(Source: Morningstar)

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

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Shares Technology Stocks

Xero Investors Should Check Its ARPU and CAC in Its Interim Financial Result

SME accounting software users have historically shown little inclination to switch providers, and Xero enjoys annual customer retention rates of over 80%.

The transition from desktop- to cloud-based products offers a rare opportunity for relatively new providers to win market share via the transition of customers to cloud-hosted SaaS products that offer material productivity improvements. We expect switching costs to recapture their earlier resilience once customers transition to cloud products and accounting software becomes more integrated with third-party software.

Xero Investors Should Check Its ARPU and CAC in Its Interim Financial Result

Xero has announced little of note since its fiscal 2021 financial result in May 2021. However, the company will announce its interim fiscal 2022 financial result next month, which is likely to reignite investor attention. However, Xero shares are materially overvalued and the current market price of AUD 145 per share is significantly above our AUD 50 fair value estimate. 

Although Xero reported a NZD 20 million profit after tax in fiscal 2021, this was partly due to the company’s decision to cut back on spending in the first half.In the long term, we expect Xero’s EBIT margin to expand significantly, from 7% in fiscal 2021 to 30% by fiscal 2027.

We expect investors to largely overlook Xero’s profitability at its interim result and instead focus on other metrics like subscriber growth, revenue growth, customer acquisition costs, or CAC, and annual revenue per user, or ARPU. Particularly focused on ARPU because it forms a key component of our investment thesis, and expected that strong price-based competition to limit Xero’s ability to raise prices. This will be interesting because a strong subscriber growth figure may be supported by weak ARPU growth or possibly strong CAC growth, indicating Xero is competing harder for customers.

Financial Strength

 Xero is in reasonable financial health but needs to maintain high revenue growth rates to increase profits and justify its market capitalisation. We expect EBIT margins to expand to around 30% by fiscal 2025, in line with peer companies. As the company matures, we expect the capital-light business model to enable strong cash generation. Strong customer retention rates of over 80% should mean earnings volatility will be relatively low in the long term.

Bulls Say 

  • Xero is experiencing strong revenue and customer growth driven by the transition of desktop accounting software to the cloud, a trend we expect to continue for at least the next decade.
  • Xero operates in the software sector, which is typically an industry with low capital intensity and strong cash generation. We expect Xero to generate strong returns on invested capital and free cash flow in the long term. 
  • Xero has already achieved dominant positions in the New Zealand and Australian cloud accounting markets and is a leading competitor in the U.K. and U. S. markets.

Company Profile

Xero is a provider of cloud-based accounting software, primarily aimed at the small and medium enterprise, or SME, and accounting practice markets. The company has grown quickly from its base in New Zealand and surpassed local incumbent providers MYOB and Reckon to become the largest SME accounting SaaS provider in the region. Xero is also growing internationally, with a focus on the United Kingdom and the United States. The company has a history of losses and equity capital raisings, as it has prioritised customer growth.

 (Source: Morningstar)

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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

Nexstar Media Group looks to capitalize on its acquisition

158 are affiliated with the four national broadcasters: CBS (50), Fox (43), NBC (35), and ABC (30). The firm has networks in 15 of the top 20 television markets and reaches 63% of U.S. TV households. 

Though it’s slightly declining in importance, advertising remains an important source of revenue for Nexstar. Just under 44% of total 2019 revenue came from non-political advertising, down from 46% in 2017. Over 70% of non-political advertising revenue is generated at the local level by selling ad time to area businesses, including restaurants, auto dealerships, and retailers, which have suffered during the pandemic. In markets where Nexstar has a duopoly (two local stations), the costs of the salesforce and news programming can be split and the access to two stations provides local (and national) advertisers more choices in terms of targeting certain demographic groups. Because of its size and geographic reach, Nexstar also sells advertising nationally to auto manufacturers, telecom firms, fast-food restaurants, and retailers via their ad agencies. The larger scale of the firm, along with increased political ad spending, has increased the importance of elections.

Financial Strength:

The fair value of Nexstar has been maintained by the analysts at USD 150.00. This fair value estimate implies 2021 adjusted price/earnings of 9 times, an enterprise value/adjusted EBITDA multiple of 8, and a free cash flow yield of 16%. 

Although Nexstar is more highly leveraged than it has been traditionally, it is in decent financial shape. Overall debt increased as a result of the Tribune Media acquisition. The firm had $7.2 billion in net debt as of March 2019, up sharply from $3.9 billion at the end of 2018. Nexstar took a number of steps over the first quarter of 2020 to adapt its business for the potential impact of COVID-19. It spent $457 million in the first quarter to reduce its debt load, lowering its first-lien net leverage to 3.04 times at the end of the quarter from 3.52 times at the end of 2019. The new level is well below the covenant level of 4.25 times. The firm had no bond maturities due until 2024, though some of its $5.4 billion first-lien loans will come due over the next three years.

Bulls Say:

  • Nexstar can drive local ad revenue growth via its duopoly markets
  • The increased reach provided by the Tribune merger will help attract more national advertisers and grow political ad spending 
  • Nexstar has the heft and reach to strike more advantageous retransmission agreements with pay television distributors

Company Profile:

Nexstar is the largest television station owner/operator in the United States, with 197 stations in 115 markets. Of its 197 full-power stations, 158 are affiliated with the four national broadcasters: CBS (50), Fox (43), NBC (35), and ABC (30). The 2019 merger with Tribune made Nexstar the top broadcast affiliate for both Fox and CBS as well as the number-two partner for NBC and number three for ABC. The firm now has networks in 15 of the top 20 television markets and reaches 69 million television households. Nexstar also owns WGN, a nationwide pay-television network, and a 31% stake in Food Network and Cooking Channel.

(Source: Morningstar)

General Advice Warning

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

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Shares Technology Stocks

Netwealth’s FUA Continues to Grow Quickly But FUA Fees to remain Under Pressure

Graphic of investment stock market data analysis business

The company charges for its software based on the value of funds under management on its platform, comprising over 95% of group revenue, in addition to providing Netwealth-branded investment products, which are managed by third-party investment managers. Netwealth does not own investment management or financial advisory businesses. 

The company has also benefited from regulatory changes such as the Future of Financial Advice, or FOFA, reforms, which require financial advisors to act in their clients’ best interests. These reforms have encouraged financial advisors to break away from vertically integrated, and potentially conflicted, wealth management businesses to operate as independent financial advisors, or IFAs, and use independent investment administration platforms, such as Netwealth, in the process.
Netwealth has also benefited from the banning of trail commission fees previously paid by investment administration platforms and investment advisors for recommending their products. This has encouraged financial advisors to seek new fee sources, including managed accounts, which were mainly available on the independent platforms. 

The vertically integrated incumbent platform providers continue to develop their platforms, which poses a long-term competitive threat to Netwealth.

Netwealth Remains Overvalued Despite FUA Growth Upgrade

Netwealth’s share price jumped 16% following its third-quarter update, which included an increase to fiscal 2022 funds under administration, or FUA, net inflow guidance to AUD 12.5 billion from AUD 10 billion. However,the market overreacted to the announcement, is overly focussed on FUA and revenue growth, and is ignoring likely long-term outlook on profits and cash flows. 

We have maintained Netwealth’s earnings forecasts and fair value estimate at AUD 6.50 per share, which is well below the current market price of AUD 16.56 per share.

Financial Strength 

Netwealth is in good financial health because of its service-based and capital-light business model, which has little need for debt or equity capital. The company expenses, rather than capitalises, research and development costs, which results in strong cash conversion and means most operating cash flow is available for dividend payments. The profitable business model ensures dividends are fully franked, which we consider to be sustainable. We consider management’s target dividend payout ratio of 60%-80% of Netwealth’s statutory net profit after tax to be sustainable.

Bulls Say

  • Netwealth has only a small proportion of the investment administration market, at around 4%, but has won market share quickly, and significant growth potential remains. 
  • Netwealth has a low fixed-cost base which means operating leverage is high and further strong revenue growth should be amplified at the EPS level. 
  • The investment administration platform industry has been growing at a low-double-digit CAGR in recent years, and we expect a high-single-digit CAGR over the next decade, providing a strong underlying tailwind for Netwealth.

Company Profile

Netwealth provides cloud-based investment administration software as a service, or SaaS, in Australia via its proprietary platform. Netwealth’s platform provides portfolio administration, investment management tools, and investment and managed account services to financial intermediaries and directly to clients. The company charges SaaS fees based on funds under management on its platform. Netwealth also offers Netwealth-branded investment products on its platform which are managed by third-party investment managers.

 (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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Funds Funds

PIMCO Global Bond Fund attracts well – resource to the investment team

Well established and methodical investment Process

PIMCO’s investment process entails three main buckets: (1) the economic forum (top down analysis), which meets four times a year to debate the state of play on short and long – term basis. (2) the investment committee develops the strategic parameters for portfolios and set the risk parameters such as interest rate exposure, yield curve positioning and sector positioning. (3) Portfolio management (bottom-up analysis) consists of PIMCO’s rigorous analysis and research of securities.

Downside Risk

  • Interest rate risk – (bond price and yields are inversely related)
  • Credit risk (the risk of downgrade and default) & Inflation risk
  • Personnel risk – significant turnover among the 3 lead PMs

Fund Performance 

(%)Fund (net)BenchmarkOut-performance
1-month -0.15-0.22+0.07
3-months1.081.53-0.45
FYTD0.871.03-0.16
1-year1.690.55+1.14
2-years (p.a.) 2.541.53+1.01
3-years (p.a.)4.384.28+0.10
Since inception (%p.a.)3.863.84+0.02

Source: PIMCO

Sector Exposure

Source: PIMCO

About the fund

The ESG Global Bond Fund is an actively managed portfolio of global fixed-interest investment which incorporates PIMCO’s ESG screening. The portfolio predominantly invests in governments, corporate, mortgage and other global fixed interest securities.

  • The ESGGlobal

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

Solid economic growth via its active and passive platform lifts BlackRock’s AUM

The biggest differentiators for the firm are its scale, ability to offer both passive and active products, greater focus on institutional investors, strong brands, and reasonable fees. The iShares ETF platform as well as technology that provides risk management and product/portfolio construction tools directly to end users, which makes them stickier in the long run, should allow BlackRock to generate higher and more stable levels of organic growth than its publicly traded peers the next five years.

Although the secular and cyclical headwinds to make AUM growth difficult for the U.S.-based asset managers over the next five to 10 years, still BlackRock will generate 3%-5% average annual organic AUM growth, driven by its commitment to passive investing, ESG strategies, and geographic expansion, with slightly higher levels of revenue growth on average and stable adjusted operating margins during 2021-25.

Solid Organic Growth From Both its Active and Passive Platforms Continue to Lift BlackRock’s AUM

With $9.464 trillion in total assets under management, or AUM, at the end of September 2021, BlackRock is the largest asset manager in the world. Unlike many of its competitors, the firm is currently generating solid organic growth with its operations, with its iShares platform, which is the leading domestic and global provider of ETFs, riding a secular trend toward passively managed products that began more than two decades ago. This has helped the company maintain above average levels of annual organic growth despite the increased size and scale of its operations.

Financial Strength 

BlackRock has been prudent with its use of debt, with debt/total capital averaging just over 15% annually the past 10 calendar years. The company entered 2021 with $7.3 billion in long-term debt, The company also has a $4.4 billion revolving credit facility (which expires in March 2026) but had no outstanding balances at the end of June 2021.BlackRock has historically returned the bulk of its free cash flow to shareholders via share repurchases and dividends.The firm did spend $693 million on two acquisitions in 2018, $1.3 billion on eFront in 2020, and $1.1 billion for Aperio Group in early 2021, so bolt-on deals look to be part of the mix in the near term. As for share repurchases, BlackRock expects to spend $300 million per quarter on share repurchases but will increase its allocation to buybacks if shares trade at a significant discount to intrinsic value. The company spent close to $1.8 billion on share repurchases during 2020.BlackRock increased its quarterly dividend 14% to $4.13 per share early in 2021. We expect the dividend to increase at a mid- to high-single-digit rate the next five years, leaving the payout ratio (based on our forward earnings estimates) at around 45% on average annually.

Bulls Say 

  • BlackRock is the largest asset manager in the world, with $9.464 trillion in AUM at the end of September 2021 and clients in more than 100 countries. 
  • Product diversity and a heavier concentration in the institutional channel have traditionally provided BlackRock with a much more stable set of assets than its peers. 
  • BlackRock’s well-diversified product mix makes it fairly agnostic to shifts among asset classes and investment strategies, limiting the impact that market swings or withdrawals from individual asset classes or investment styles can have on its AUM.

Company Profile

BlackRock is the largest asset manager in the world, with $9.464 trillion in AUM at the end of September 2021. Product mix is fairly diverse, with 53% of the firm’s managed assets in equity strategies, 29% in fixed income, 8% in multi-asset class, 7% in money market funds, and 3% in alternatives. Passive strategies account for around two thirds of long-term AUM, with the company’s iShares ETF platform maintaining a leading market share domestically and on a global basis. Product distribution is weighted more toward institutional clients, which by our calculations account for around 80% of AUM. BlackRock is also geographically diverse, with clients in more than 100 countries and more than one third of managed assets coming from investors domiciled outside the U.S. and Canada.

 (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
Technology Stocks

HubSpot Narrow Moat Carves Out Rapid Growth for Marketing Automation in Midmarket

We see small/medium businesses and the midmarket as being underserved by enterprise software providers, as the smaller deal sizes make it harder to serve efficiently. Therefore, we believe that HubSpot’s robust and expanding suite has helped carve out a meaningful niche.

HubSpot provides a suite of software solutions that helps companies grow better. The five hubs (marketing, sales, service, operations, and CMS) combine to create the growth platform. HubSpot operates a “freemium” model that has allowed it to gather hundreds of thousands of free users, with approximately 15% of these moving into paid solutions. From the free version, a three-tier system emerges: starter, professional, and enterprise. HubSpot’s goal is to create as wide a funnel as possible for customer gathering, and then move users up the pricing tier as they evolve, upselling them to additional hubs as their needs change.

Company’s Future Outlook

We believe HubSpot is a financially sound company with a solid balance sheet, improving margins, and rapidly growing revenue. Capital is generally allocated to growth efforts, strategic investments, and acquisitions, with no dividends or buybacks on the horizon.As of 2020, HubSpot had $1.3 billion in cash, marketable securities, and restricted cash compared with $479 million in debt. The debt is a convertible bond issue that we believe will be converted rather than repaid. HubSpot generated a 6% free cash flow margin in 2020 and in the low double digits in 2018 and 2019, which improve steadily over the next five years. We are confident that HubSpot can satisfy its obligations while continuing to fund normal operations. HubSpot does not pay a dividend and has not repurchased shares, nor do we expect it to do so within the next several years. The company regularly makes small acquisitions and strategic investments.

Bulls Say’s

  • HubSpot has made a splash in the SMB market with its freemium model, easier implementation, and simple and feature-rich software.
  • HubSpot does not have to beat out Salesforce or Microsoft, but by offering a credible solution to the midmarket, we think it can grow rapidly in an underserved niche.
  • HubSpot’s record of introducing new solutions in adjacent areas, upselling existing customers, and moving customers up the stack as they grow has driven strong revenue growth thus far and seems likely to continue over the next several years.

Company Profile 

HubSpot provides a cloud-based marketing, sales, and customer service software platform referred to as the growth platform. The applications are available ala carte or packaged together. HubSpot’s mission is to help companies grow better and has expanded from its initial focus on inbound marketing to embrace marketing, sales, and service more broadly. The company was founded in 2006, completed its initial public offering in 2014, and is headquartered in Cambridge, Massachusetts.

(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.