Category: Sectors

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Global stocks

Demand Continues to Rationalize From Pandemic Lift at Wayfair, Leading to Top-Line Struggles

Business Strategy & Outlook

Wayfair should be able to continue to take share in the fragmented home goods market, which it believes represents a more than $800 billion global opportunity between North America and Europe. The firm’s differentiation comes by way of product breadth and its logistics network, which permits faster delivery of both small and large parcels than most of its peers. Faster delivery is a function of fewer touch points, reducing damage and improving Wayfair’s brand equity with each positive delivery experience. However, the peers will continue to attempt faster delivery, spurring rising competition. Targeting a wide consumer base with a customer aged 20-64 years old (200 million domestic households) with income of $25,000-$250,000 also means Wayfair is competing with mass-market retailers, specialty retail, and low-cost providers, making it harder to stay top of mind. This, along with no switching costs, underlies a no-moat rating.

Wayfair’s inventory-light model benefits inventory turns, a strategy has freed up capital to spend on customer acquisition and retention, leading to 27 million active users as of December 2021 who spend around $500 per year (versus 1.3 million users who spent $300 in 2012). This implies its product mix and marketing are resonating with end users. The pandemic pulled forward the capture of positive free cash flow to 2020, and scale should allow Wayfair to return to positive free cash flow to equity levels again in 2023, even with constraints from infrastructure spend in Europe, IT investment, and slower than historical growth.

Given Wayfair’s lifecycle position, with significant growth potential but also corresponding expenses to achieve market share gains and ROICs to be volatile. The Wayfair can hit some of its long-term goals, but the timeline to achievement is trickier. While it should exceed its prior 25%-27% gross margin target longer term, one cannot see operating expenses in management’s targeted range 15%-19% of sales until beyond 2031. To watch post pandemic customer acquisition cost trends to determine whether Wayfair could develop a network effect.

Financial Strengths

Wayfair carries modest levels of debt, keeping its financial profile stable as it grows into a more mature business. It carried about $3 billion in long-term debt at competitive rates on its balance sheet as of March 31, 2022, after executing a $535 million convertible raise in April 2020 and another $1.5 billion convertible raise in August 2020. The firm also has access to liquidity through its $600 million credit facility, which matures in 2026. There is cash and marketable securities ($2 billion at the end of March) to help cover expenses like operating lease obligations.

Over the past two fiscal years, the company generated positive free cash flow positive (CFO minus capital expenditures plus site and software development costs). Free cash flow has averaged about 1% of revenue during the past five years, a metric that should average a mid-single-digit rate over the next decade benefiting from increasing scale. Capital expenditures have averaged 2% of sales over the last five years, which a reasonable run rate as the brand invests back into the business to further support top line growth and improving profitability. One cannot expect the board to initiate a dividend in the near term, given the volatile cash flow pattern that Wayfair has generated in recent years and the need for the firm to continue to invest heavily in technology and customer acquisition. However, in August 2021 it authorized a $1 billion share buyback program, which one cannot expect to be deployed until business demand stabilizes.

Bulls Say

  • Different brands in the Wayfair portfolio cater across income and age demographics, offering some resiliency in cases of macroeconomic cyclicality and economic uncertainty.
  • Over the last five years, the company has expanded into untapped markets such as Canada, the United Kingdom, and Germany. Additionally, international opportunities could provide location and revenue growth and improved brand awareness.
  • B2B represents around 10% of sales and targets a $200 billion total addressable market in the U.S. and Europe. This opportunity could grow materially faster than the anticipate.

Company Description

Wayfair engages in e-commerce in the United States and Europe. At the end of 2021, the firm offered more than 33 million products from 23,000-plus suppliers for the home sector under the brands Wayfair, Joss & Main, AllModern, Dour llStudio, Birch Lane, and Perigold. This includes a selection of furniture, decor, decorative accent, housewares, seasonal decor, and other home goods. Wayfair was founded in 2002 and is focused on helping people find the perfect product at the right price.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Global stocks Shares

Sysco’s Cost Advantage and Growth Strategy Are Driving Impressive Market Share Gains

Business Strategy & Outlook

The Sysco possesses a narrow moat, rooted in its cost advantages. The firm benefits from lower distribution cost given its closer proximity to customers, complemented by scale-enabled cost advantages such as purchasing power and resources to provide value-added services to its customers. While COVID-19 created a very challenging environment, the U.S. food-service market has fully recovered, with volumes exceeding pracademic levels as of March 2022. Sysco has emerged as a stronger player, in our view, with $2 billion in new national account contracts (3% of pracademic sales) and a 10% increase in independent restaurant customers.

In 2021, Sysco laid out its three-year road map, termed “recipe for growth” which will be funded by the elimination of $750 million in operating expenses between fiscals 2021 and 2024. The plan should allow Sysco to grow 1.5 times faster than the overall food-service market by fiscal 2024. Sysco is investing to eliminate customer pain points by removing customer minimum order sizes while maintaining delivery frequency and lengthening payment terms. It improved its CRM tool, which now uses data analytics to enhance prospecting, rolled out new sales incentives and sales leadership, and is launching an automated pricing tool, which should sharpen its competitive pricing while freeing up time for sales reps to pursue more value-added activities, such as securing new business. Sysco also developed the industry’s first customized marketing tool, harnessing its significant customer data to generate tailored messaging that should resonate with each customer, a tool that has been increasing Sysco’s share of wallet. Further, Sysco has switched to a team-based sales approach, with product specialists that should help drive increased adoption of Sysco’s specialized product categories such as produce, fresh meats, and seafood. Lastly, Sysco is launching teams that specialize in various cuisines (Italian, Asian, Mexican) that should drive market share gains in ethnic restaurants. Looking abroad, Sysco has a new leadership team in place for its international operations, increasing the confidence that execution will improve.

Financial Strengths

The Sysco’s solid balance sheet, with $4 billion of cash and available liquidity (as of March) relative to $11 billion in total debt, positions the firm well to endure the pandemic. Sysco has a consistent track record of annual dividend increases, even during the 2008-09 recession and the pandemic. A 5%-10% annual increases each year the forecast, maintaining its target of a 50%-60% payout ratio. 

Sysco has historically operated with low leverage, generally reporting net debt/adjusted EBITDA of less than 2 times. Leverage increased to 2.3 times after the fiscal 2017 $3.1 billion Brakes acquisition, and above 3 times in fiscals 2020 and 2021, given the pandemic. But the leverage will fall back below 2 times by fiscal 2024, given debt paydown and recovering EBITDA.  Calls for free cash flow averaging 3% of sales annually over the next five years. In May 2021, Sysco shifted its priorities for cash in order to support its new Recipe for Growth strategy. It’s new priorities are capital expenditures, acquisitions, debt reduction when leverage is above 2 times, dividends, and opportunistic share repurchase. Its previous priorities were capital expenditures, dividend growth, acquisitions, debt reduction, and share repurchases. In fiscal 2023-24, as it invests to support accelerated growth, Sysco should spend 1.4% of revenue on capital expenditures, falling to 1.1% thereafter. In fiscal 2021 Sysco completed the $714 million acquisition of Greco and Sons and the $500 million acquisition of The Coastal Companies.To invest about $100 million to $200 million annually on acquisitions thereafter. Finally, the model $500 million-$600 million in annual expenditures to buyback about 1% of outstanding shares annually. A prudent use of cash when shares trade below the assessment of intrinsic value.

Bulls Say

  • As Sysco’s competitive advantage centers on its position as the low-cost leader,  Sysco should be able to increase market share in its home turf over time.
  • Sysco has gained material market share during the pandemic, allowing it to emerge a stronger competitor.
  • The company is performing well under the leadership of CEO Kevin Hourican (in place since 2020), with his Recipe for Growth strategy driving improved sales growth and profit margins.

Company Description

Sysco is the largest U.S. food-service distributor, boasting 17% market share of the highly fragmented food-service distribution industry. Sysco distributes over 400,000 food and nonfood products to restaurants (66% of revenue), healthcare facilities (9%), education and government buildings (8%), travel and leisure (5%), and other locations (14%) where individuals consume away-from-home meals. In fiscal 2021, 83% of the firm’s revenue was U.S.-based, with 8% from Canada, 3% from the U.K., 2% from France, and 4% other.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Shares Small Cap

nib holdings Ltd (NHF) reported revenue grew +8.3% to $1.4bn and is forecasted to become profitable in FY23

Young woman trading stock market by touching.

Investment Thesis:

  •  Given Australia’s growing and ageing population, there will be increased demand for health care services. This will add additional pressure on Australia’s public health care system and the Federal budget and an increased dependence on private health care insurers. NHF offers exposure to the business model of providing a funding mechanism for the high-growth health care sector. Healthcare spending is expected to grow at 5-10% per annum, so without significant tax hikes, the government cannot afford for people to shift back to the public healthcare system.
  • Given underlying increases in average premium rates of around 5 – 6% p.a., some policyholder growth (especially at the 30-34-year-old segment), and exposure to upstart investments, we estimate that NHF offers close to double-digit underlying growth in the medium term.
  • Solid management team.
  • Cost-out strategy which improves the company’s expense ratio. 
  • Incentives and benefits encourage PHI take-up. They include 1. Tax benefits and penalties for Australian residents (via Lifetime Health Cover, Medicare Levy Surcharge and means tested rebate); and 2. Shorter wait times, a choice of specialist doctor/hospital and coverage of ancillary health services support.
  • Growth runways through the JV with Tasly Holdings Group, and also international expansion, through product offerings like NISS

Key Risks:

  • Intensifying competition between top 6 players, putting policy growth targets at risk and any Increases in expected marketing spend going forward will no doubt add further strain on earnings growth.
  • Policyholders decline unexpectedly despite the encouraging incentives and the Australian Government struggling with the rapid increase in healthcare spending and health services demand.
  • Registered health insurers cannot increase premium rates without approval from the Government/Minister for Health/PHIAC/APRA. This leaves NHF’s ROE and margins exposed to a political process and pressures if the company is deemed too profitable.
  • Regulatory changes especially relating to any changes to tax incentives and benefits which encourage take up of PHI. 
  • Higher than expected lapse rates and claims inflation as a result of poor insurance policy design, aging population, and costs of new medical equipment, procedures and treatments;
  • Poor negotiations with healthcare providers such as private hospital operators leading to unfavorable contractual terms;
  • Lower than expected investment returns

Key highlights:

nib holdings Ltd (NHF) reported 1H22 – relative to the pcp, group underlying revenue grew +8.3% to $1.4bn; Group underlying operating profit (UOP) increased +28.5% to $109.6m; NPAT of $81.2m was up +24.7%. NHF’s Arhi (Australian Residents Health Insurance) recorded an uplift in net arhi policyholder growth of +2.8% to 653,000 new policyholders; whilst NHF’s New Zealand segment reported strong performance, with revenue growth of +13.8%, partially offset by poor but expected performance in international inbound and travel businesses, which reported a loss of $7.4m, and -$7.9m, respectively, as the Government continues to enforce measure to contain Covid. On the conference call with NHF, management did expect in the near-term, the iihi and travel segment to gradually return to normal as countries reopen international borders. Both segments are forecasted to become profitable in FY23. 

  • 1H22 Results Highlights. Relative to the pcp: (1) Group underlying revenue $1.4bn, up +8.3%, driven by strong premium revenue growth of +8.2% upon uplift in policyholders, and Covid related disruption to elective surgery and allied healthcare, partially offset by NHF’s international students and travel insurance businesses. (2) Group claims expense $1.1bn, up +6.4% with ongoing uncertainty around deferred treatment and future claims. (3) Group underlying operating profit $109.6m, up +28.5%. (4) NPAT of $81.2m, up +24.7%. (5) The Board declared an interim dividend of 11.0cps, fully franked (versus 10.0cps in 1H21). (5) Management does “expect and account for an inevitable ‘catch-up’ in deferred treatment now estimated at $59.2m”.
  • Performance by Segments. Relative to the pcp: (1) Australian Residents Health Insurance (arhi). Premium revenue of $1,151.0 was up +7.8% driven by policyholder growth, up +2.8% to over 653k. Claims expense of $917.1m, was up +4.9%, as Covid impacts offset increase in deferred claims liability, and effect of catch up in pcp. UOP of $123.6m, was up +39.8%. Normalised net margin continues to be in the 6-7% range. (2) New Zealand. Premium revenue of $144.4m, was up +13.8% due to policyholder growth of +4.1%, price adjustments to reflect inflation and favorable FX. Claims expense increase +17.2% to $92.9m due to policyholder increase and +12.3% claims inflation. UOP of $9.2m was down -12.4%. Net margin declined to 6.3% reflecting investment in the core system. NHF noted “the outlook for our Kiwi business is positive with favorable market conditions and the acquisition of Kiwi Insurance Limited which should be completed in 2H22. We expect 3-5% growth in policyholders for FY22”. (3) International inbound health insurance (iihi). Premium revenue was up +2.7% to $59.9m on strong performance in workers business especially through the Pacific and Australia Labor Mobility (PALM) scheme, offset by NHF’s student business with restrictions on international students. Claims incurred of $47.9m was up +20.4%. Underlying operating loss of $7.4m, was weaker than the $0.3m profit in the pcp. (4) nib Travel. Operating income of $8.2m was materially stronger than the $4.4m in the pcp. Underlying operating loss of -$7.9m was -1.3% lower than the pcp. NHF’s management noted that nib Travel’s loss was as expected, with the business still heavily impacted by border closures and travel restrictions.
  • Outlook. While NHF did not provide specific quantitative earnings guidance, management did note: “Strong arhi performance and New Zealand and international workers profitability are offsetting current loss making in international students and travel. Expect that support to continue while necessary”. (1) Australian Residents Health Insurance (arhi). Net policyholder growth ~3%; Claims escalation associated with “catch up” in deferred treatment fully provisioned; Return to net margin target 6-7% over time. (2) New Zealand. FY22 net policyholder growth 3-5%; Kiwi Insurance acquisition expected to complete in 2H22. (3) International inbound health insurance (iihi). Gradual return of travel domestically and internationally in CY22; Return to profitability in FY23. (4) nib Travel. Heightened demand for skilled migration to continue; Gradual return of international students as travel restrictions ease; Return to profitability in FY23.

Company Description: 

nib Holdings Limited (NHF) is the Australian private health insurer. NHF operates in four divisions which are private health insurance, life insurance, travel insurance and related health care activities. 

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do, business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and is not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Dividend Stocks

Acquisition of Monsanto has significantly expanded Bayer’s competitive position in this industry

Business Strategy and Outlook

Largely on the basis of the strong competitive advantages of the healthcare group and to a lesser extent the crop science business, it is alleged Bayer has created a wide economic moat. Also, the past divestiture of no-moat material science group Covestro leaves the company in a stronger competitive position. 

In the healthcare division, Bayer’s strong lineup of recently launched drugs and solid exposure to biologics should support steady long-term growth. Bayer’s hemophilia franchise and key ophthalmology drug Eylea are biologics. While competition is increasing in hemophilia and in eyecare, the manufacturing complexity of these drugs deters generics from entering the market. Further, strong demand for cardiovascular drug Xarelto should continue to drive growth, but the drug’s approaching patent loss in 2026 will likely create some growth headwinds. 

Bayer’s healthcare segment also includes a consumer healthcare business with leading brands Aspirin and Aleve. Brand recognition is key in this segment, as evidenced by the company’s iconic Aspirin, which continues to produce strong sales even after decades of generic competition. The 2014 acquisition of Merck’s consumer products increased the scale of Bayer’s consumer group. Bayer runs a leading crop science segment, which includes crop protection products (pesticides, herbicides, fungicides) and the fast-growing plant and seed biotechnology business. Similar to the drug business, this segment is research and development intensive, and Bayer has developed a strong portfolio of products. The downside to this business is that demand is heavily dictated by weather and commodity prices, which will determine how much farmers can afford to spend on crop treatment. The acquisition of Monsanto has significantly expanded Bayer’s competitive position in this industry. On the negative side, the acquisition increased Bayer’s exposure to litigation around potential side effects from glyphosate use. While many studies have shown glyphosate use to be safe, some reports of linkage to cancer drove large class action legal cases against Bayer and led to a legal settlement of over $15 billion.

Financial Strength

The merger with Monsanto and glyphosate litigation settlements have significantly increased debt, but it is alleged the cash flows from the business will meet the increase in related interest payments. It is foreseen, a 2022 net debt position for the firm of close to EUR 38 billion, falling to close to EUR 30 billion by 2024. Bayer’s steady cash flows from healthcare and crop science products should enable the company to both reduce debt and service current debt levels. However, the high debt levels and slow near-term growth prospects likely mean relatively high debt levels over the next several years. Also, the high debt burden will likely reduce Bayer’s potential to make major acquisitions over the next few years.

Bulls Say’s

  • Several drugs, including recently launched cancer drugs, hold potential for further gains and have relatively steady pricing power partly based on excellent clinical data. 
  • Bayer’s strong entrenchment in biologics helps protect the firm from generic competition, as generic biosimilars are more difficult to develop and market. 
  • Bayer has established a strong presence in emerging markets and is well positioned to benefit from these fast-growing regions.

Company Profile 

Bayer is a German healthcare and agriculture conglomerate. Healthcare provides close to half of the company’s sales and includes pharmaceutical drugs as well as vitamins. The firm has a crop science business that includes seeds, pesticides, herbicides, and fungicides, which was expanded through the acquisition of Monsanto. 

(Source: MorningStar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do, business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and is not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Technology Stocks

Solid Quarter as Blackbaud Progresses Towards Rule of 40 Goals; FVE Down to $74

Business Strategy & Outlook:  

Blackbaud is deeply entrenched in the social-good community and expect its leadership to continue to drive the space forward over the long term as it transitions to a subscription model. Such transitions tend to pressure near-term results, but the worst is behind the company and that results should naturally improve over the next couple of years. The company as among the most negatively affected from the pandemic within the software coverage, so as the world returns to normal, Blackbaud is benefiting. Blackbaud has employed an acquisition strategy to expand its addressable market. Its portfolio has grown to be the broadest in the nonprofit vertical, with Blackbaud becoming the leading software provider by virtue of its complete end-to-end platform, including a searchable database of charitable donors, customer relationship management, campaign management, grant management, payment processing, fund accounting, and other specialized enterprise resource planning functionality, as well as domain-specific solutions for education, healthcare, and faith-based institutions. 

Blackbaud has also re-engineered its once-on-premises solutions to be available via the Sky platform, which makes the portfolio more holistic and easier to add modules. Because existing clients drive the bulk of revenue, and the company’s business model transition to remain important over the next couple of years. That said, as a result of its thought leadership and strong portfolio, the company enjoys strong customer retention in the low to mid-90% area. With much of the product work complete, the company is focusing on adding sales reps and driving revenue. The market opportunity remains large. About 25% of charitable donations in 2020 were made on Blackbaud’s platform. With 1.6 million nonprofits in the U.S., and only 40,000 customers, there is clearly room to grow in its core, which will help pull along domain sales. Management pegs its addressable market at $20 billion. The growth is expected to come from both further penetration with additional products in larger clients, as well as the accumulation of new logos.

Financial Strengths: 

Blackbaud is a financially sound company. Revenue is growing in the mid-single-digit area, margins are low but expanding, and the balance sheet is in reasonable shape. The revenue slowdown from the high-single-digit range and the margin contraction to midsingle digits are explained by a business model transition to subscriptions. By now the investors have had a chance to observe this pattern many times and recognize it for the better model that it is. The margins will expand and growth will accelerate as the transition progresses over the next several years. Management, customers, and investors all prefer the predictable subscription model over the lumpy perpetual license model. As of Dec. 31, 2021, Blackbaud had $55 million in cash and equivalents, offset by $956 million in debt, which results in a net debt position of $901 million. The EVERFI acquisition added $300 million to debt. The credit facility was extended and expanded to $900 million in October of 2020. Nominal payments continue to be $8 million annually. The free cash flow margins shall improve materially over the next several years, however, driven by an increase in operating margins. At the heart of this is the familiar transition to a subscription model. There is no reason why operating margin will not expand to at least 20%. In terms of capital deployment, Blackbaud has debt to pay down and makes acquisitions. Blackbaud will have to refinance its debt, as there isn’t enough free cash flow to fully repay the entire amount. The debt balance is from various acquisitions over the last several years. It is expected the acquisitions to continue, but perhaps at a more muted pace over the next several years. In April 2020 the company eliminated its modest $0.12 quarterly dividend.

Bulls Say: 

  • Blackbaud is a clear leader in the niche fundraising and nonprofit market, with CRM, financial management, and a variety of other modules that combine to create a comprehensive software platform.
  • Blackbaud has largely eliminated its closest competitors by acquiring them, primarily through the Convio, MicroEdge, Smart Tuition, and JustGiving acquisitions over the past few years. 
  • Blackbaud’s commitment to the cloud is paying off, as most of the firm’s revenue is now generated by subscriptions, which boast strong lifetime value from customers.

Company Description: 

Founded in 1981, Blackbaud provides a suite of software solutions targeted at the “social good” community, including nonprofits, foundations, corporations, education institutions, healthcare institutions, and individual activists. Through mergers, acquisitions, and organic product development, the company has also moved into related areas outside of core fundraising, notably into K-12 schools. Blackbaud enables more than $100 billion in donations annually across a customer base in excess of 40,000 customers in at least 50 countries.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Dividend Stocks

Raising Eastman FVE to $140 On Higher Near-Term Outlook Despite Plant Shutdown; Shares Undervalued

Business Strategy & Outlook:  

Through acquisition and internal development, Eastman owns a solid portfolio of specialty chemicals. Eastman’s specialty chemicals include plastics and components used in safety glass, window tinting, and specialty plastics, which offer a solid growth profile. To increase its specialty portfolio, the firm invests roughly 4% of sales from its additives and functional products and advanced materials segments into research and development, which is in line with its specialty chemical peers. Eastman is well positioned to meet growing demand for auto window interlayers, including heads-up displays, and specialty plastics. Eastman also holds a solid position in acetate tow, which is primarily used to make cigarette filters. The acetate tow industry has experienced falling prices due to overcapacity in China over the past several years. However, a handful of players dominates the industry, a factor that led to disciplined capacity shutdowns by all of the major companies during the industry downturn. To offset some of the decline, Eastman has been investing in capacity for other uses for its fibers, including fabrics and apparel.

Eastman uses multiple feedstocks, including natural gas, coal, wood pulp, and recycled chemicals and plastics. The company plans to widen its recycled feedstock capacity over time, which will replace traditional carbon-based feedstocks. Eastman’s long-term goal is to eventually make all its cellulosic plastics and polyesters from plastic waste. This strategy will provide Eastman with solid growth as volumes of these products grow over time. Further, the company can charge a premium for its sustainable feedstock-based products, which allows it to recover the higher cost of production. Eastman’s coatings, adhesives, specialty polymers, fluids, and inks businesses generate solid operating margins. Along with the fibers segment, these businesses provide a relatively stable earnings base to offset swings in other areas. As with other chemical companies, Eastman’s business model is subject to a high degree of operating leverage, as changes in volumes can have an outsize impact on profits.

Financial Strengths:

Eastman is in good financial health. As of March 31, 2022, Eastman carried around $4.9 billion in net debt on its balance sheet. The calculated net debt/adjusted EBITDA is of 2.3 times. With strong free cash flow generation and the sale of its adhesive resins portfolio for $1 billion in cash that occurred at the beginning of April, and Eastman will have no trouble meeting its financial obligations, including dividends. Assuming no major acquisitions are made, the company will be able to maintain leverage ratios within management’s long-term target of 2.0-2.5 times over a number of years. However, the cyclical nature of the chemicals business could cause coverage ratios to fluctuate from year to year.

Bulls Say:  

  • Eastman is well-positioned to meet evolving chemical demands in auto window interlayers and tires through its best-in-class patented products.
  • Eastman’s investments in plants that use sustainable-based feedstocks, including recycled chemicals and wood pulp, should benefit from growing demand for specialty plastics made from these feedstocks.
  • As Eastman continues to develop new patented products, it should expand its specialty chemicals business, which generates higher margins and commands some degree of pricing power.

Company Description:

Established in 1920 to produce chemicals for Eastman Kodak, Eastman Chemical has grown into a global specialty chemical with manufacturing sites around the world. The company generates the majority of its sales outside of the United States, with a strong presence in Asian markets. During the past several years, Eastman has sold noncore businesses, choosing to focus on higher-margin specialty product offerings.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Technology Stocks

Visa Inc – The Board declared a quarterly cash dividend of $0.375 per share

Finance and Economy Chart for Dollar Gold Euro Currencies Trading View

Investment Thesis

  • Stands to benefit from the increased digitization of money with the global amount of payments made via card or digitally exceeding physical cash for the first time in 2016.
  • Expansion of new flows and use cases. 
  • Visa stands to benefit from the improving momentum in Europe and India.
  • Strong partnerships with first class financial institutions including increased ease in working with fintech partners (as Visa opens up its APIs to fintechs).
  • Continued investment in technology and cyber security.
  • Strong management team.
  • Solid fundamentals with recurring revenues, high incremental margins, low capital expenditure and high free cash flow.

Key Risks

  • Cyber security attacks.
  • Increased regulatory environment and government-imposed restrictions on payment systems. Antitrust remains a hot topic in the market. 
  • Margin deterioration due to intense competition from alternative payment processing providers.
  • Higher expenses and incentives.
  • Deterioration in global growth or consumption.

Key Highlights

  • 3Q22 net revenues to grow at the upper end of the mid-teens range (in CC – FX to be -2.5% drag) including +0.5% contribution from Tink and Currencycloud, incentives to be 26.5-27.5% of gross revenues, non-GAAP operating expenses to grow in the mid-teens (in CC – FX to be a tailwind of 1.5%) including expense savings from Russia and +3% of added expense from Currencycloud and Tink and tax rate to be 19-19.5%, with 4Q22 trends to be generally in line with 3Q22.
  • FY22 net revenue growth in in the high-teens to 20% range (in CC – FX to be a headwind of 2%) including +0.5% from contribution from Tink and Currencycloud (vs prior guidance of high-end or mid-teens net revenue growth in CC), incentives as a percent of gross revenues of 25.5-26.5% (vs prior guidance of 26-27%), non-GAAP operating expense growth at the upper end of mid-teens (in CC – FX to be tailwind of 1.5%), including savings from the suspension of Russian operations and +2% of added expense from Currencycloud and Tink (vs prior guidance of low teens YoY operating expenses growth), and tax rate of 19-19.5%. 
  • Starting March 2022, the Company has suspended its operations in Russia (for FY21 and 1H22, Russia amounted for ~4% of total consolidated net revenues) and deconsolidated its Russian subsidiary and is no longer generating revenue from domestic and cross-border activities related to Russia. V expects the exit to reduce 2H22 revenues by -4% YoY. 
  • The Board declared a quarterly cash dividend of $0.375 per share of class A common stock, flat QoQ and up +17% YoY. 
  • The Company repurchased a total of 33.3 million shares of class A common stock in 1H22, at an average price of $210.11 per share, using $7bn of cash on hand, leaving $9.7bn of remaining authorized funds for share repurchase. 

Company Description

Visa Inc. is the world’s leader in digital payments and one of the most recognized brands around the world, with a mission to connect the world through innovative, reliable and secure payment network, enabling individuals, businesses and economies to thrive. The Company’s advanced global processing network, VisaNet, facilitates authorization, clearing and settlement of payment transactions, providing secure and reliable payments across borders and within countries. The Company operates in party models, which include card issuing financial institutions, acquirers and merchants. The Company’s products/services include core products, processing infrastructure, transaction processing services, digital products, merchant products, and risk products and payment security initiatives. Its relentless focus on innovation is a catalyst for the rapid growth of connected commerce on any device, and a driving force behind the dream of a cashless future for everyone, everywhere.

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Technology Stocks

Jacobs will continue to expand its critical mission solutions business

Business Strategy & Outlook

Since taking the helm in 2015, CEO Steve Demetriou has transformed Jacobs’ portfolio to increase recurring revenue and reduce cyclicality. In 2017, Jacobs acquired CH2M for $3.3 billion to bolster its presence in the transportation, water, nuclear, and environmental services end markets. In April 2019, Jacobs completed the sale of its energy, chemicals, and resources (ECR) business to WorleyParsons for $3.3 billion. Jacobs operates three business segments: critical mission solutions, people & places solutions, and PA Consulting.

Jacobs’ portfolio transformation favorably. As the ECR segment had high exposure to volatile oil and gas prices, and its operating margins have long lagged those of the firm’s other segments, the divestment will lower the risk and boost the margins of Jacobs’ portfolio. Furthermore, the strategic fit of the CH2M acquisition, as the deal has bolstered the firm’s nuclear business, allowing it to become a Tier 1 nuclear services provider, and increased Jacobs’ exposure to end markets that will benefit from favorable long-term trends, including water and transportation.

 Jacobs will continue to expand its critical mission solutions business through strategic M&A, particularly focusing on opportunities that would allow the firm to enhance its capabilities in cybersecurity, IT, and predictive analytics. In the long-run, the company is poised to capitalize on multiple favorable secular drivers, including infrastructure modernization, space exploration, intelligence analytics, energy transition, supply-chain investments (particularly in the semiconductor and life sciences end markets), and the 5G buildout. Jacobs is well-positioned to benefit from the $1.2 trillion infrastructure bill in the U.S., given the firm’s strong position in areas such as water and transportation infrastructure.

Financial Strengths

Jacobs maintains a sound capital structure. As of December 2021, the firm owed approximately $3.1 billion in long-term debt, while holding roughly $1.2 billion in cash and cash equivalents. The company will have a debt/adjusted EBITDA ratio of roughly 2 times in fiscal 2022. At the recent Investor Day, management indicated that it would be willing to increase the leverage ratio up to around 3 times to fund M&A but would generally reduce leverage following any potential acquisitions. Jacobs’ financial health is satisfactory, considering the firm’s ability to generate cash flows throughout the business cycle.

Bulls Say

  • Management has shifted Jacobs’ portfolio toward sectors with favorable long-term prospects, including transportation and water.
  • The sale of the ECR business to WorleyParsons should reduce the risk of Jacobs’ remaining portfolio by lowering its exposure to volatile oil and commodity prices. Additionally, following the divestment, roughly two thirds of the remaining segments’ revenue is recurring.
  • The operating margins to expand due to synergies from the CH2M acquisition, SG&A cost reductions, and favorable mix shift.

Company Description

Jacobs Engineering is a global provider of engineering, design, procurement, construction, and maintenance services as well as cyber engineering and security solutions. The firm serves industrial, commercial, and government clients in a wide variety of sectors, including water, transportation, healthcare, technology, and chemicals. Jacobs Engineering employs approximately 55,000 workers. The company generated $14.1 billion in revenue and $1.2 billion in adjusted operating income in fiscal 2021.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Dividend Stocks

Apple’s Capital Management – $90bn buyback announced + dividend increased

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.
  • Recent share price de-rating is likely factoring in near-term headwinds. 
  • Large cash balance and strong free cash flow supporting share buyback and dividend payout.
  • Leading positions in iPhone (~55.0% of revenue); iPads (~7.0%); and Macs (~9.0%)
  • Other products (such as wearables and home products) – APPL 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 trade war between the USA and China poses 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 20% (1H22) 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 50% 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 currency’s safe-haven appeal in the light of the ongoing coronavirus pandemic and Russia-Ukraine war), 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.
  • Adverse regulatory policies. 

Key Highlights:

  • Strong shareholder returns with the Company returning ~$27bn ($3.6bn in dividends + $22.9bn in buybacks) during 2Q22. The Board authorized an additional $90bn for share repurchases and increased 2Q22 dividend by +5% to $0.23 a share with plans for annual increases in the dividend going forward.
  • Ample liquidity with $193bn in cash and marketable securities and $120bn in debt, resulting in a net cash position of $73bn.
  • Revenue increased +9% YoY to $97.3bn, setting new 2Q records in the Americas, Europe and greater China, with Product revenue up +7% YoY to $77.5bn and installed base of active devices reaching an all-time high for all major product categories as well as geographic segments, and Services setting an all-time revenue record of $19.8bn, up +17% YoY with 2Q records in every geographic segment and services category as the Company continued to improve the quality and increased its offerings. AAPL plans to introduce tap-to-pay on iPhone (way for businesses to accept contactless payments) across the U.S. by end of FY22.
  • Gross margin increased +120bps YoY to 43.7%, with favourable mix partially offset by unfavourable FX, with Products margin up +30bps YoY to 36.4% and Services margin up +250bps YoY to 72.6%.
  • Net income of $25bn (up +6% YoY) and diluted EPS of $1.52 (up +9% YoY) were 2Q records. 

Company Description:

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.

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Categories
Technology Stocks

TechnicFMC Projected To Profit From Increased Operational Efficiency And Differentiated Product Offerings

Business Strategy and Outlook

TechnipFMC has cultivated a reputation as a top provider for subsea equipment and services, a factor that’s crucial in a space where customers seek solutions for some of the most challenging engineering problems in the world. The firm’s recent spinoff of its Technip Energies sector (representing the firm’s onshore E&C business) has transformed TechnipFMC into a pure-play technology and service provider for the offshore market. The firm still holds a 7% share in Technip Energies, but management intends to exit its ownership position by the end of 2022. Moving forward, TechnipFMC intends to focus on its integrated services like its iFEED studies for front-end engineering and design and its iEPCI program, among other specialized offerings. Through these, the firm can work with customers from early phase design through the life of the field. TechnipFMC ultimately aims to simplify subsea field layouts by acting as a one-stop shop for offshore producers, which, if successful, will reduce wellsite costs and production times for operators while creating a stickier, more profitable customer base for the firm. 

So far, the firm appears to be executing well in its integration strategy. It’s dominated competitors in winning contracts over the last few years, posting record order intake in 2019 and winning over half of subsea tree contracts awarded in 2020. As of third quarter 2021, about two thirds of TechnipFMC’s active front-end engineering (FEED) studies were integrated projects. If the firm continues this trajectory, its integration strategy could lead to outperformance compared with its peers in the subsea industry, at least in the near term. Investment in offshore oil and gas production is projected to increase over the next five years, which will provide ample opportunity for TechnipFMC to further cement its positioning as a leading subsea technology and services provider.

Financial Strength

TechnipFMC is in solid financial health. While the firm is no longer in negative net debt due to its spinoff of Technip Energies (which operates with substantial cash balances), at $2 billion, its debt burden still is not large. About 75% of this will come due over the next five years, mostly due to a $600 million note maturing in 2026. At the last reporting period, TechnipFMC had about $1.2 billion of cash on hand, and nearly $1 billion available on its credit facility. Management intends to liquidate its remaining position in Technip Energies (currently around 2%) over the next year and use the proceeds to pay off some of its remaining debt. Net debt to EBITDA is expected to  remain below 1 times over the next five years.

Bulls Say’s

  • TechnipFMC will derive a first-mover advantage from its Subsea 2.0 solution by delivering cost-saving subsea equipment and services to its customers. 
  • The firm is well positioned to capitalize on the significantly growing demand for integrated services which, beyond expanding its already significant market share will provide downcycle protection, as well. 
  • Increased investment in offshore production will provide ample opportunity for TechnipFMC to secure more long-term contracts that will continue driving value in the event of a future slowdown.

Company Profile 

TechnipFMC is the largest provider of integrated deep-water offshore oil and gas development solutions, offering the full spectrum of subsea equipment and subsea engineering and construction services. The company also provides various surface equipment used with onshore oil and gas wells. TechnipFMC originated with the 2017 merger of predecessor companies Technip and FMC Technologies.

(Source: MorningStar)

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