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LICs LICs

WAM Strategic Value Limited Commences Trading

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There Pre – Net Tax Tangible Assets is $1.27 till June 2021. IPO price is $1.25 on 28th June 2021.

Till now, there is no Dividend history for WAM Strategic Value.

WAM Strategic Value Limited ((WAR)) date of listing on ASX on June 28, 2021, at a price of $1.25 per share with 180 million shares on issue.

Following the merger proposal with WAM Global Limited ((WGB)), the portfolio increased following the IPO, with Templeton Global Growth Fund Limited ((TGG)) being a positive contributor. 

TGG shareholders can choose between receiving WGB stock consideration with an attaching option or cash consideration equal to the NTA after tax and transaction charges under the terms of the offer.

The announcement of MHH’s reorganisation from a LIT to an ETMF would have given the portfolio a lift as well, with the MHH unit price reacting positively to the news.

Company Profile 

WAM Strategic Value Ltd is an investment company. Its investment objectives are to provide capital growth over the medium-to-long term, deliver a stream of dividends and preserve capital while providing shareholders with exposure to a diversified equities portfolio.

(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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Technology Stocks

NortonLifeLock Merging With Avast to Expand Reach within Consumer Security Market; Maintain $21 FVE

Our $21 fair value estimate for no-moat NortonLifeLock after announcing its intention to merge with fellow consume cybersecurity firm Avast. The news follows NortonLifeLock recently acknowledging rumors of Avast combination talks, and we believe this merger is in line with NortonLifeLock’s plan to use mergers as a growth accelerator with a focus on extracting overlapping costs. The deal puts Avast’s enterprise value between $8.6 billion and $9.2 billion, depending on how Avast shareholders elect to receive a majority stock or cash option. We updated our model with the assumption that the merger occurs in the middle of 2022 as expected, helping the company rapidly expand its revenue growth rate and achieve its reiterated adjusted earnings target of $3 per share in the coming years.

NortonLifeLock gains international reach, especially within the important German market, and helps bolster its opportunity with the small business segment through this merger. The combined company will be renamed at a later point and together have about 40 million direct customers and over 500 million total users, as well as about $3.5 billion in combined revenue with a blended adjusted operating margin of 52% (presynergies). 

NortonLifeLock expects to achieve $280 million of annual gross cost synergies, fully realized by the second year post-merger. We believe the merged company will be shareholder centric, with a plan to return 100% of free cash flow through the existing $0.125 quarterly dividend and future share buybacks.

Financial Deals Post – Merger

NortonLifeLock will finance the deal with cash and $5.35 billion of new debt facilities, which the company expects to rapidly pay down post-merger. Avast shareholders are expected to own between 14% and 26% of the combined company, depending on their election, post-merger. In the majority stock option, Avast shareholders receive $2.37 in cash and 0.1937 shares of NortonLifeLock whereas in the majority cash option, Avast shareholders receive $7.61 in cash and 0.0302 shares of NortonLifeLock. In the majority stock option, NortonLifeLock plans to increase its buyback program by $3 billion.

Current NortonLifeLock CEO Vincent Pilette will be the CEO, Avast’s current CEO will become President, and NortonLifeLock’s CFO will retain her role for the combined company. The merged company will have dual headquarters, with Avast in Prague, Czech Republic and NortonLifeLock in Tempe, Arizona. While we appreciate the combined company expanding its geographical footprint, we expect a concerted focus on reducing costs to reel in operating and fixed costs.

Company Profile 

NortonLifeLock sells cybersecurity and identity protection for individual consumers through its Norton antivirus and LifeLock brands. The company divested the Symantec enterprise security business to Broadcom in 2019. The Arizona-based company was founded in 1982, went public in 1989, and sells its solutions worldwide.

(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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Technology Stocks

Syneos Reports Strong Q2 Results; Raising FVE to $64 on Improved 2021 Outlook

the new entity, into the upper echelon of large, global, late-stage contract research organizations, but at the price of a significant debt load. Most of Syneos’ CRO business comes from the most lucrative area of the CRO market: long, complex trials that typically require thousands of patients across the globe and thus have ample room for missteps. Trial sponsors need a CRO not only with strong technical know-how in specific disease areas, but also with the expertise in local country cultures and government relations.

Legacy INC Research was a leader in late-stage clinical research from small- and mid-cap biopharma, while inVentiv Health had better exposure to large pharma. The combined company has a diversified client base and provides a full portfolio of offerings, including staffing solutions and commercialization. While we don’t see significant competitive advantages in the staffing and selling business, both complete Syneos’ portfolio of services and offer flexibility to clients. The lower-margin commercial solutions business has had mixed success, but management’s cross-selling strategy to offer hybrid contracts with both clinical and commercial components should be a boon to the segment.

Financial Strength 

Narrow-moat Syneos reported second-quarter revenue of $1.3 billion, representing nearly a 27% increase year over year. Adjusted EBITDA was $175 million for the quarter, up 47% from the prior-year period. Syneos is recovering well from pandemic-related challenges, as evidenced by its strong year-over-year figures. Due to strong demand across Syneos’ clinical and commercial segments, management has updated its 2021 guidance. Syneos reported solid net new business wins in Clinical and Commercial Solutions, totaling $1.7 billion for the quarter, representing a book-to-bill ratio of 1.33 times. The new business wins contributed to an ending backlog of $11.7 billion for the quarter, up 21% from the prior-year period. 

Syneos ended the quarter with about $261 million of unrestricted cash and total debt outstanding of about $2.9 billion, resulting in a net leverage ratio of 3.8 times. We continue to think Syneos’ positive momentum indicates the operating environment remains strong. Syneos is in middling financial health after the 2017 merger, with about $2.9 billion in total debt weighing down the balance sheet. The deal pushed the company to the top tier of large, global late-stage players, which positions the company to secure deals with large biopharma companies and propel cash generation, but we expect the deal to limit near-term financial flexibility. Syneos’ major debt maturities are pushed out to 2024 and beyond, which provides the company ample opportunity to grow and unearth synergies from the merger.

Bulls Say’s 

  • Syneos’ late-stage contract research business is poised to benefit from stable research and development spending and increased outsourcing in the biopharma industry.
  • High levels of new drug approvals should boost growth in the company’s contract commercialization business.
  • Robust net new business wins should translate to accelerated growth in the contract research segment in the near term.

Company Profile 

Syneos is a global contract research and outsourced commercialization organization that provides services to pharmaceutical and biotechnology firms. Its clinical solutions segment offers early- to late-stage clinical trial support that ranges from specialized staffing models to strategic partnerships that oversee nearly all aspects of a drug program, while the company’s commercialization solutions includes outsourced sales, consulting, public relations, and advertising services.

(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 Shares

Rapid Deployment of Ships Set Buoying Royal Caribbean Outlook for Positive Profitability in Early 2022

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 while COVID-19 remains pervasive. With a return to sail underway, cruise operators are now utilzing updated health protocols to ensure the safety of cruising as paying customers return onboard. As virus mitigation tactics prove successful, we expect Royal to see modest pricing gains as it digests bookings paid for with future cruise credits, limiting near-term yield gains. On the cost side, stringent health protocols and cruise resumption costs should inflate spending, factors that will aggravate profitability through 2022.

Royal took quick action to reduce operating expenses and capital expenditures as a result of the coronavirus (we forecast capital expenditures of $2.2 billion in 2021, down from $3 billion in prepandemic 2019). Also, since the beginning of the pandemic, the firm accessed around $13 billion to enhance its liquidity cushion. Further, as of June 30, $2.4 billion in customer deposits were still available for use. Although we believe Royal’s cash burn should remain between $300 million-$350 million a month (as it restaff the fleet), it should be able to navigate a graduated return to sailing over the next six months. While Royal is set to return to positive profitability over the next year, the prior 20>25 by 2025 target (EPS to $20 by 2025) is virtually impossible to reach as a result of secular changes in demand due to COVID-19.

Financial Strength 

Royal has taken numerous steps to ensure it remains a going concern after COVID-19. In March 2020, Royal noted it was taking actions to reduce operating expenses and capital expenditures by the tune of $1.7 billion to improve liquidity. Additionally, since the beginning of the pandemic, the firm secured around $13 billion in liquidity through various debt and equity issuances (resulting in our estimate for $1.1 billion in debt service costs in 2021, up from around $400 million in 2019). 

Furthermore, as of June 30, $2.4 billion in customer deposits were still available for use, although industry commentary suggests about half of canceled bookings have been refunded in cash rather than future cruise credits during the pandemic. And in April 2020, Royal announced it was laying off or furloughing more than 25% of its 5,000 shoreside employees. The cash burn for Royal every month while restaffing and redeployng its ships should be between $300 million-$350 million.

Bulls Say’s 

  • If COVID-19’s delta variant recedes quickly, yields could recover faster than we currently anticipate.
  • Lower fuel prices could help benefit the cost structure to a greater degree than initially expected, thanks to Royal’s floating energy prices (with only about 50% of fuel costs historically hedged).
  • The nascent Asia-Pacific market should remain promising post-COVID-19, as the four largest operators previously had capacity for nearly 4 million passengers at the beginning of 2020, which provides an opportunity for long-term growth with a new consumer when cruising fully resumes.

Company Profile 

Royal Caribbean is the world’s second-largest cruise company, operating 60 ships across five global and partner brands in the cruise vacation industry. Brands the company operates include Royal Caribbean International, Celebrity Cruises, and Silversea. The company also has a 50% investment in a joint venture that operates TUI Cruises and Hapag-Lloyd Cruises, allowing it to compete on the basis of innovation, quality of ships and service, variety of itineraries, choice of destinations, and price. The company is completed the divestiture of its Azamara brand in the first quarter of 2021.

(Source: Morningstar)

General Advice Warning

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

Categories
Technology Stocks

Marvell Technology Inc. (NASDAQ: MRVL) Maintains FVE $40 & Aiming to take the Cloud and 5G Markets

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

Marvell is the leader in DPUs and PAM-4 optics, and the clear second in the enterprise and cloud Ethernet markets. Marvell’s recent financial history has been choppy, as result of CEO Matt Murphy’s aggressive overhaul of the business’ focus. Marvell has emerged as a strong competitor in the networking chip market, following a multiyear business pivot to acquisitions, divestitures, and organic development to focus on high-growth cloud, 5G, and automotive markets.

Between data processing units, or DPUs, optical interconnect, and Ethernet solutions, Marvell has one of the broadest networking silicon portfolios in the world, and we think it is primed to steal market share from incumbent Broadcom with bleeding-edge technology. Marvell has the right portfolio to invest aggressively in organic growth going forward, but don’t rule out further acquisitions to bolster its competitiveness and enter adjacent markets.

Company’s Future outlook
Marvell’s 2021 acquisitions of In phi and Innovium will give it a path to robust and sustained top-line growth in the cloud market and expect significant margin expansion over our 10-year forecast even as it invests to compete with larger rivals. Nevertheless, the market is assuming nearly immediate operating synergies from these two acquisitions, which take some time and the shares are significantly overvalued at this point and caution investors to await a greater margin of safety. The reorganization is squarely in the firm’s rearview mirror now, and forecast mid-teens sales growth and immense margin expansion over the next 10 years. The combination of 2021 acquisitions In phi and Innovium under Marvell’s umbrella will create a dangerous combination to Broadcom in the high-performance switching arena and enable share gains.

Company Profile
Marvell Technology Inc. (NASDAQ: MRVL) is a leading fables chipmaker focused on networking and storage applications. Marvell serves the data center, carrier, enterprise, automotive, and consumer end markets with processors, optical interconnections, application-specific integrated circuits (ASICs), and merchant silicon for Ethernet applications. The firm is an active acquirer, with five large acquisitions since 2017 helping it pivot out of legacy consumer applications to focus on the cloud and 5G markets.

(Source: Morningstar)

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

Categories
Global stocks Shares

Monster Beverage Glass Is Half-Full as Its Tremendous Commercial Success Is Offset by Inflation Headwinds

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 Monster continues to extract outsize growth and stella profitability from this market. Crucial to Monster’s positioning in the market is its partnership with Coca-Cola. Being able to rely on the widest moat in beverages for distribution, merchandising, and retailer negotiation reinforces and perpetuates the benefits of its resonant brand, in our view. With its entire U.S. footprint and most international territories fully incorporated into the Coke system, strategic and logistic planning should become more seamless, allowing products to be scaled more quickly, particularly in international markets (over 35% of sales). Despite the inevitable complexity of appealing to distinct local palates, we believe Monster’s continued geographic diversification should augment its positioning.

Given the importance of the Coke relationship, the launch of Coke Energy products following arbitration between the two parties was a significant development. Still, it has proved to be far from an existential threat, garnering trivial share in the markets where it launched (and recently discontinued in the U.S.). In addition to a seemingly more tenuous Coke relationship, Monster must contend with an intense competitive environment. While Red Bull remains the most formidable rival, Monster is also beleaguered by a number of both established and upstart firms looking to carve out niches in the energy space. Nevertheless, structural advantages and an experienced management team should allow the firm to navigate an evolving competitive landscape.

Financial Strength 

Moreover, the business churns out healthy free cash flow, with over $1.1 billion generated on average over the past three years (high-20s as a percentage of sales). The company’s free cash flow has historically supported persistent share repurchases, and the company’s ability to continue buying back shares amid market disruptions like the coronavirus pandemic is a poignant illustration of its financial health, in our view. As of June 2021, Monster had over $1.5 billion in cash and short-term investments on its balance sheet, with no long-term debt to speak of. 

Still, general liquidity is not a concern. In addition to its healthy cash balance and an untapped revolver, Monster has implemented certain nontraditional means of financing, such as a working capital line of credit that is similar to an interest-bearing liability but not treated as leverage for accounting purposes. 

Bulls Say’s

  • Monster is a leading pure-play incumbent in a secularly advantaged beverage category that is growing in the high single digits, meaningfully above the broader industry average (low single digits).
  • Monster’s strategic partnership with Coca-Cola aligns its fortunes with the widest moat in nonalcoholic beverages, affording it top-tier store positioning and merchandising.
  • International expansion through Coke’s bottlingsystem offers material runway for growth.

Company Profile

Monster Beverage is a leader in the energy drink subsegment of the beverage industry. The Monster trademark anchors its portfolio, and notable offerings include Monster Energy and Monster Ultra. The firm has also started to incubate new trademarks for emerging enclaves of the energy space, like Reign in performance energy. It is primarily a brand owner, outsourcing most of its manufacturing processes to third-party copackers. It primarily uses the Coca-Cola bottling system for distribution after a strategic agreement in which Coke became Monster’s largest shareholder (roughly 19%) and that also included the exchange of certain businesses between the two firms. Most of Monster’s revenue is generated in the United States, though international geographies are increasing in the mix.

(Source: Morningstar)

General Advice Warning

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

Categories
Global stocks

Softbank Group Reports Solid Quarter of Vision Fund Growth

JAPÓN BOLSA:KMA06. TOKIO (JAPÓN), 03/01/2018.- Un grupo de mujeres usan kimono durante la ceremonia de apertura de la Bolsa de Tokio de Japan Exchange Group, Inc. de la primera sesión comercial de Año Nuevo en 2018 en la Bolsa de Tokio, en Tokio, (Japón) hoy, jueves 4 de enero de 2018. EFE/KIMIMASA MAYAMA

as expected with the company reporting strong performance from the Vision Fund in line with stock market rises and generally strong recent IPOs.

Softbank fair value estimate of JPY 9200 is mainly due to a 4% downgrade in our valuation for Alibaba following its June quarter result, offset by increased valuation for Vision Fund 2 in line with valuation improvement over the quarter. The stock price is now below our fair value estimate with the main difference likely to be due to our valuation of Alibaba which is around 55% above the current stock price.

The Vision Funds and Latin America Fund held 221 investments at the end of June 2021. SFV1 reported a net realized gain of JPY 310 billion due mainly to selling some shares in Door Dash, Uber, and Guardant Health. The net unrealized gain of JPY 3.5 billion was much lower with strong share price performances of DiDi and Door Dash partially offset by weaker share price performance of some listed portfolio companies, particularly Coupang. In terms of sectors, the investments are also well diversified with 28% in consumer, 20% in transportation, 17% in logistics, and 10% in frontier tech 10%, 7% in proptech, 7% in fintech, and 3% in health tech.

Company’s Future Outlook

Softbank’s 40.2%-owned domestic telecom business, Softbank Corp, reported a fourth-quarter result in line with our estimates with revenue increasing by 0.7%, operating income increasing by 4.1% and net profit down 0.8%. Management estimated the first-quarter mobile price cuts negatively impacted the first quarter by around JPY 10 billion with a JPY 70 billion impact factored into unchanged full-year fiscal 2021 guidance for revenue of JPY 5.5 trillion (5.7% growth), operating income of JPY 975 billion (0.4% growth), and net income of JPY 500 billion (1.8% growth). A further price cut has been introduced for low end customers in July which looks likely to continue to put pressure on mobile pricing. The fair value estimated of JPY 1450 per share which is slightly below where the stock is trading.

Company Profile

Softbank Group Corporation’s (JPY: 9984)  is a Japan-based telecom and e-commerce conglomerate that has expanded mainly through acquisitions, and its key assets include a 28% stake in Chinese e-commerce giant Alibaba and a 40% owned mobile and fixed broadband telecom operator business in Japan. It also owns 75% of semiconductor chip designer ARM Holdings although has agreed to sell this and is waiting on regulatory approvals, and has a vast portfolio of mainly Internet- and e-commerce-focused early stage investments. It is also general partner of the $100 billion Softbank Vision Fund 1 and sole investor in Softbank Vision Fund 2, both of which primarily invest in pre-IPO Internet 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
ETFs ETFs

Vanguard Australian Shares High Yield ETF

 The benchmark leans toward the highest-dividend payers, excluding property trusts. The index provider ranks all dividend-paying stocks based on their dividend yield forecast for the next year and constructs the index using stocks that make up the top 50% of the floatadjusted market capitalization. Industries are capped at 40% and individual stocks at 10%. The index is rebalanced semiannually, and in 2018, it changed its rules around buying and selling so that stocks are added or removed more gradually. This should increase the portfolio to around 55 names from 45 and reduce stock turnover, though it will likely remain higher than market-cap-weighted index funds. Vanguard’s global presence allows the Australian team to leverage the U.S. team’s extensive indextracking experience.

Portfolio

The FTSE Australia High Dividend Yield Index is a real-time, market-cap-weighted index comprising companies with higher-than-average forecast dividends. The biggest sector exposure is financial services, at around 39%-40% of the portfolio. The fund’s exposure to materials has historically been volatile. Following dividend cuts in the sector, exposure dropped to 4% in 2016 from 20%. However, a fall in Rio Tinto’s share price and corresponding increase in yield saw the stock return to the portfolio in June 2017, increasing the fund’s exposure to the sector to 21%. That came at the expense of industrials exposure, which fell to zero. As of 30 June 2021, materials exposure was at 23%. This highlights the risk of “dividend traps” in a rules-based strategy. The portfolio has an underweighting in the high-growth sectors of technology and healthcare, as these companies typically reinvest a large proportion of their cash flow into research and development to drive future earnings growth rather than focusing on high dividend payouts. Real estate investment trusts are excluded. More than half the portfolio is in giant caps, with the balance mostly in large and medium caps. The portfolio’s exposure to cyclical/sensitive names has increased over the years and currently stands at 93%, implying high dependence on the domestic economic cycle.

Performance

Vanguard has fared relatively well over the long term, but short- and medium-term results have been a drag. Moreover, the annual return track of the strategy is visibly inconsistent as compared with its category index. In 2012 and 2013, the strategy delivered 24.5% and 26.5%, respectively–incredible relative and absolute returns. But investors should be cautiously optimistic about a repeat of such performance as the fund delivered equally subdued relative performance in 2014, followed by a 4.22% decline in 2015 and category benchmark relative underperformance of negative 1.2% in 2016. Poorly timed buys into materials such as BHP and Rio Tinto hurt in 2016. Vanguard recouped some of these losses in 2017, though this was curtailed as exposure to Telstra took a bite out of returns. As the banking industry came under pressure because of falling property prices and the focus of the Royal Commission in 2018, returns were again below the broader market.

Source: Morning star

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

Vanguard High Yield Australian Shares

Vanguard Australian Shares High Yield is a compelling and efficient option. The cost-value balance of the strategy is a solid strength. At 0.35% per year, it is currently one of the cheapest unlisted products offering domestic high-yield equity exposure. Vanguard aims to own every stock in the FTSE Australia High Dividend Yield Index, an index Vanguard has exclusive rights to replicate. Vanguard choose to keep the some of the index’s construction rules undisclosed to ward off speculative market participants looking to capitalize on the semiannual index changes before they have been completed within the strategy.

A well-managed, close replication of the FTSE Australia High Dividend Index

Vanguard Australian Shares High Yield replicates the FTSE Australia High Dividend Index, offering investors an above-average yield in a passive, tax-efficient vehicle. The benchmark leans toward the highest-dividend payers, excluding property trusts. The index provider ranks all dividend-paying stocks based on their dividend yield forecast for the next year and constructs the index using stocks that make up the top 50% of the float-adjusted market capitalization. Industries are capped at 40% and individual stocks at 10%. The index is rebalanced semiannually, and in 2018, it changed its rules around buying and selling so that stocks are added or removed more gradually.

This should increase the portfolio to around 55 names from 45 and reduce stock turnover, though it will likely remain higher than market-cap-weighted index funds. Vanguard’s global presence allows the Australian team to leverage the U.S. team’s extensive index-tracking experience. It is worth noting the risk of dividend traps may be exacerbated in a portfolio that has an automated bias to high dividend-payers. The index attempts to minimize this risk primarily through sector and stock caps that enforce a minimum level of diversification by incorporating consensus yield forecasts and by excluding companies not forecast to pay dividends in the next 12 months.

A top-heavy portfolio with large sector and company biases

The biggest sector exposure is financial services, at around 39%-40% of the portfolio. The fund’s exposure to materials has historically been volatile. Following dividend cuts in the sector, exposure dropped to 4% in 2016 from 20%. However, a fall in Rio Tinto’s share price and corresponding increase in yield saw the stock return to the portfolio in June 2017, increasing the fund’s exposure to the sector to 21%. That came at the expense of industrials exposure, which fell to zero. As of 30 June 2021, materials exposure was at 23%. 

Mixed results over the long term

Vanguard has fared relatively well over the long term, but short- and medium-term results have been a drag. Moreover, the annual return track of the strategy is visibly inconsistent as compared with its category index. In 2012 and 2013, the strategy delivered 24.5% and 26.5%, respectively–incredible relative and absolute returns. But investors should be cautiously optimistic about a repeat of such performance as the fund delivered equally subdued relative performance in 2014, followed by a 4.22% decline in 2015 and category benchmark relative underperformance of negative 1.2% in 2016.

Source: Morning star

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.