Category: Technology Stocks

Tech stocks refer to any stock involved in the technology sector, from semiconductor producers to software providers. Tech stocks are often a leading indicator for the economy and the stock market. Technology stocks generally follow the pattern of more innovation in the market & new development of product.

Categories
Technology Stocks

Workday Doesn’t Take a Day Off When It Comes to Its Positive Moat Trend

Business Strategy & Outlook:  

Workday to be a best-of-breed cloud-only platform for human capital management software. By debuting in 2005 as a first mover in cloud HCM at an ideal time—when enterprises were looking to make the move from on-premises to cloud software solutions—Workday has benefited from its timeliness as well as its high-quality product and reputation for smooth implementations. Now that customers have transitioned to a cloud solution with Workday, the possibility of another vulnerable event like the cloud migration that would leave the company susceptible to customer switching, is unlikely. Instead, seeing wide-moat Workday as having robust switching costs which, will only get stronger as the company builds on its core HCM offering.

Workday is now the HCM platform for approximately 60% of the Fortune 50 and 50% of the Fortune 500 as of fiscal 2022. Workday been able to take share from legacy employee resource planning software companies Oracle and SAP, which is tough enough based on the switching costs which are inherent in most ERP software; even more impressive is that Workday has been able to do so by initially unbundling HCM software from the ERP ecosystem. By doing so, customers understand that they will need to go through integrations between different ERP solutions by mixing and matching, but in return, they hope to get the best-of-breed HCM solution—and pay a premium for Workday. Now, Workday is in its next chapter of allowing the option to “rebounded” HCM with other ERP solutions as it now offers a financial management suite and planning suite, boosted by the acquisition of Adaptive Insights. As its core addressable market continues to expand and it finds adoption of its new products to be strong, Workday is poised for continued robust top-line growth and strengthening switching costs.

Financial Strengths: 

Workday is in healthy financial standing. As of fiscal 2021, Workday had $3.5 billion in cash and equivalents versus $1.8 billion in debt, all of which is composed of convertible notes. Workday is currently unprofitable on a GAAP basis, which has us monitoring the company’s cash cushion carefully. Even if Workday were not to issue any more convertible notes, or other forms of debt, Workday will have enough of a cash cushion to make it into its years of GAAP profitability. Workday does not need to use acquisitions as a crutch for growth, and thus acquisition spending will be more moderate over the next 10 years compared with spending over fiscal 2019 and 2020. The assumptions are also based on expectations that capital expenditure will continue to grow at a slower rate than Workday’s top line as it pertains to real estate and data center investments.

Bulls Say: 

  • Workday’s planning and analytics solutions should take off after COVID-19 has enterprises placing more importance on top-down planning. This should drive further customer and ACV growth, and thus revenue growth.
  • Quicker expansion into markets outside North America should allow for more operating leverage than previously expected.
  • Increasing attach rates among Workday’s offerings, such as its core HCM software and its emerging financials business, should allow Workday to exert further pricing power, driving revenue growth.

Company Description:  

Workday is a software company that offers human capital management, financial management, and business planning solutions. Known for being a cloud-only software provider, Workday is headquartered in Pleasanton, California. Founded in 2005, Workday now employs over 12,000 employees.

(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 is a Longtime, Established Market Leader that Still Enjoys Strong Growth Prospects

Business Strategy & Outlook:  

Visa is a somewhat unique company in that it is a longtime, established market leader that still enjoys strong growth prospects. Despite the ongoing evolution of the payments industry, a wide moat surrounds the business and that Visa’s position in the global electronic payment infrastructure is essentially unassailable. The shift toward electronic payments has driven Visa’s growth historically, and expected that to continue for the foreseeable future. Digital payments, on a global basis, surpassed cash payments just a few years ago, suggesting this trend still has a lot of room to run. Emerging markets could offer a further spurt of growth even if growth in developed markets slows. 

Visa’s position as the leading network makes it something of a tollbooth business, and the company is relatively agnostic to the smaller shifts within electronic payments, since it earns fees regardless of whether payment is credit, debit, or mobile. Visa is not without its issues in the near term, and its smaller peer, Mastercard, has been performing better over the past few years. Cross-border transactions, which are particularly lucrative for the networks, saw dramatic declines due to the coronavirus outbreak and a reduction in global travel. This headwind to endure for some time, but history suggests travel ultimately makes a full recovery following disruptive events and expect that to be the case again, although the process could take a few years. Visa obviously has sensitivity to the volume of consumer transactions, and the U.S. remains its largest market. A downturn in the economy would slow growth, and the fallout from the coronavirus has had a material impact, with both card networks seeing major declines in transaction volumes, although that pressure has started to reverse. However, there is no forecast of any long-term industry trends that will impede Visa’s ability to maintain its growth in the coming years, and the scalability of the business should still allow the company to modestly expand its already ample margins over time.    

Financial Strengths:  

Visa’s financial condition is solid. Historically, it’s been debt-free, but it issued $16 billion in debt before the Visa Europe acquisition in 2016, and has increased its debt level modestly since. Debt/EBITDA was 1.3 times at the end of fiscal 2021, a level that is viewed as very reasonable. Given the company’s relatively limited appetite for mergers or acquisitions and the asset-light nature of the business, and don’t see a compelling need for a lot of debt financing. Further, given the integral nature of Visa to the global payment infrastructure, don’t believe management would be eager to get too aggressive with its capital structure. On the other hand, an overly conservative balance sheet structure could impede long-term shareholder returns. The current amount of leverage strikes a good balance.

Bulls Say: 

  • Visa has commanding market share in a scalable industry.
  • There is still plenty of runway for growth in electronic payments, which surpassed cash payments on a global basis only a few years ago.
  • The scalable nature of the business should allow Visa to improve its already impressive margins.

Company Description:  

Visa is the largest payment processor in the world. In fiscal 2021, it processed over $10 trillion in purchase transactions. Visa operates in over 200 countries and processes transactions in over 160 currencies. Its systems are capable of processing over 65,000 transactions per second.

(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

Okta Remains Attractive Even as We Lower Our Long-Term Profitability Assumptions; FVE to $193

Business Strategy & Outlook

Enabling access management and protecting networks from malicious actors based upon identity credentials are cornerstones of cybersecurity, and the dissipation of a distinct security perimeter could make security teams further rely on user-based cybersecurity. Okta’s cloud-based identity access solutions upended the prevailing methodology of protecting users and providing access to digital resources based upon on-premises products. Okta’s innovative solutions for user access and security will provide it with a durable presence, and strong revenue growth is forecasted alongside significant margin expansion. 

Okta addresses two primary markets through its workforce identity and customer identity products. Workforce identity affords protection and allows access for a customer’s employees, contractors, and partners, while customer identity is for enabling a customer’s customers. Okta melded these two distinct markets within its identity cloud, and has a robust integration network that simplifies identity access and security protocols for the applications its customers rely on. Okta’s solutions are anticipated to be in high demand due to entities desiring a seamless experience for its employees and customers when accessing requested applications, while also ensuring that networks are protected. Always-connected distributed workforces are increasingly using more cloud-based resources, which amplifies the complexity of cybersecurity. Okta’s network of application integrations provide it with a unique selling proposition in that entities can holistically provide identity access across their cloud-based and on-premises applications in a manageable fashion. Alongside a rapidly expanding customer base and gaining more clients with larger deals, Okta is migrating upstream to land more enterprise clients and expanding internationally. The company has become a favorable partner with large system integrators, which are expected to help its growth plan with large customers undergoing digital transformation and market expansion efforts.

Financial Strengths

Okta is a financially sound company that is expected to generate strong free cash flow while expanding its operating margin profile. The company has historically operated at a loss, and Okta can become profitable by fiscal 2026 on an adjusted basis. Okta’s financial plan is viewed in line with a land-and-expand strategy, whereby Okta initially has elevated sales and marketing to gain a customer cohort before expanding its revenue per customer while lowering its operating costs per customer (on a revenue percentage basis). Okta can benefit from cross-selling and up-selling tangential products while developing a stickier customer base by further penetrating the enterprise and government markets. At the end of fiscal 2022, Okta had $2.5 billion in cash and cash equivalents, $16 million of 2023 convertible senior notes, and $1.8 billion of 2025 and 2026 convertible senior notes. The 2023 notes have a 0.25% fixed interest rate per year and have an initial conversion price of about $48.26. The 2025 notes have a 0.125% fixed interest rate per year and have an initial conversion price of about $188.71. The 2026 notes have a 0.375% fixed interest rate per year with an initial conversion price around $236.80. Okta uses note hedges, warrants, and capped calls to alleviate the effects of senior notes converting.

Bulls Say

  • Okta’s novel cloud-based approach for identity access management should continue to attract new customers while margin expansion comes from prolific revenue growth outpacing expenses. 
  • The independence of its integration network can make Okta a favorable choice for customers using resources across public clouds, private clouds, and on-premises. 
  • As Okta moves upstream, it can land higher-value deals with larger, stickier customers. Additionally, ample cross-selling and up-selling opportunities exist between Okta’s workforce identity and customer identity products.

Company Description

Okta sells solutions for identity and access management. Its workforce offerings contain products to protect and enable employees, contractors, and partners, while customer identity and access products securely enable an organizations’ customers to use applications. Okta’s software solutions are cloud-delivered, and its integration network gives customers security protection and access across a wide variety of applications that are critical to business and government needs. The California-based company went public in 2017.

(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

Alibaba Cloud Continues To Be The Leader In Terms Of Market Share In China And Stands To Benefit From Digitization Of Industries

Investment Thesis:

  • Strong existing consumer base (1.31 billion global active transacting users as of FY22) which is continuing to grow strongly.
  • Growing incremental market share in China’s e-commerce pie which is being captured by strategic vertical expansions. 
  • International expansion across both developed and emerging markets.
  • Supportive long-term macroeconomic tailwinds in real wage growth, healthier balance sheets, and accessible consumer credit.
  • Potential corporate activity.
  • Reliable and competent management team.

Key Risks:

  • Expansion into new verticals disappoints management and market expectations.
  • Increasing competition impacts BABA growth rates and key trading metrics (e.g. daily active users).
  • Contracting margins as entry into offline-retail markets is met with fierce competition from incumbents (e.g., Tencent-backed Meituan in food delivery).
  • Key person risk – Jack Ma has been the face of BABA and retirement from the board may be viewed as negative.
  • Geopolitical tensions hurt trade relations between China and key partners.
  • Significant data breach or increase rules/regulations around consumer data privacy leading to increased costs.
  • Regulatory risks (Chinese government imposing restrictions or additional tax burdens on companies like BABA and antitrust policies). 

Key highlights:

  • BABA reported mixed FY22 results with revenue of RMB853.1bn, beating consensus estimate of RMB850.2bn, however, diluted EPS of RMB2.84 was well below expectations of RMB26.3.
  • Though year-on-year (y/y) revenue growth moderated during the year with the segment earning revenue (after inter-segment elimination) of RMB74,568m, up +23% y/y 
  • The segment delivered its first profitable year, with adjusted EBITA of RMB1,146m compared to a loss of RMB2,251m in pcp.
  • The Company repurchased ~60m of ADSs for $9.6bn during the year and the Board authorized an increase of share repurchase program by +66.7% to $25bn with 2.7bn ADSs (21.4bn ordinary shares) remaining outstanding.
  • The combined AACs (after deduplication) of consumer-facing businesses in China reached a historic milestone of over 1 billion during the year, up +13% y/y
  • Revenue increased +19% to RMB853,062m, primarily driven by +18% growth in China commerce, +23% increase in Cloud and International commerce increasing +25%. Adjusted EBITA, a non- GAAP measurement, declined -23% to RMB130,397m.
  • Net cash provided by operating activities declined -38% to RMB142,759m and FCF was RMB98,874m, a decline of -43%.

Company Description: 

Alibaba Group Holding Ltd is a multinational Chinese retailer, specializing in e-commerce, infrastructure, and internet content services through its numerous subsidiaries. Additionally, the Company also owns a 33% equity stake in Ant Financial (now formally known as Alipay) which offers payment and financial services for consumers that operate on Alibaba platforms. The Company’s businesses consist of core commerce, cloud computing, mobile media and entertainment, and other innovation initiatives. Through investee affiliates, it also participates in the logistics and local services sectors. 

(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

Littelfuse is a differentiated supplier of electrical protection into cars and industrial applications

Business Strategy & Outlook

The Littelfuse is a differentiated supplier of electrical protection into cars and industrial applications. While the firm is a smaller player than other competitors in the components market under our coverage, it has aligned its portfolio toward secular themes of safety, efficiency, and connectivity to pursue growth. The Littelfuse’s best organic growth opportunities will come from vehicle electrification; battery electric vehicles require five times the circuit protection content of an internal combustion counterpart, and charging infrastructure presents a lucrative opportunity for the firm’s growing power semiconductor business.

Littelfuse’s passive components are small and inexpensive, yet vitally important to the safe and continuous function of mission-critical systems in end applications. Circuit protection products safeguard against electrostatic discharge and overcurrent to prevent component failure and/or fire in cars, power grids, data centers, and manufacturing plants. Even though individual parts like fuses and relays don’t carry a hefty price tag, the Littelfuse’s application expertise helps the firm stave off commoditization and creates sticky customer relationships. The Littelfuse will keep selling more content into ever-electrifying end products, especially as applications like cars and industrial equipment moves into higher voltages. Higher voltages and new applications like wind and solar power offer a greater electrical protection content opportunity and new selling opportunities for the firm’s emerging silicon carbide technology. The Littelfuse’s organic growth to benefit from ample cross-selling between its relatively new semiconductor customers (largely acquired through its IXYS deal in 2018) and its electrical protection customers. Meanwhile, the Littelfuse to continue acquiring in line with the consolidating electronic components industry, as management aims to achieve half of its long-term top-line growth target of 10%-14% inorganically.

Financial Strengths

The Littelfuse is in good financial shape. As of Jan. 1, 2022, the firm held $637 million in total debt and $478 million in cash on hand. The firm to satisfy its financial obligations with ease. Littelfuse has no more than $150 million coming due in a single year through 2026, and the firm averaged $226 million in free cash flow from 2017 to 2021. As per forecast firm to average $471 million in free cash flow per year over the explicit forecast. Littelfuse’s debt/adjusted EBITDA ratio of 1.29 times at the end of 2021 places it solidly at the low end of management’s long-term range of 1 times-2.5 times. The firm to remain leveraged, using debt to supplement free cash flow in funding future M&A opportunities. The Littelfuse is trending toward more frequent acquisitions of larger sizes in order to fulfill its 5%-7% inorganic growth target off of a higher revenue base. Following the use of cash on hand to fund the 2021 acquisitions of Hartland Controls and Carling Technologies, the next acquisition to involve Littelfuse incurring additional leverage. Even so, the firm to maintain its regular dividend and continue share repurchases.

Bulls Say

  • Secular trends toward renewable energy and electric vehicles should boost demand for Littelfuse’s products. 
  • Littelfuse has a foot in the door of the emerging silicon carbide semiconductor market, which could fuel future rapid growth for the firm. 
  • Littelfuse’s sticky customer relationships have helped it earn excess returns on invested capital even in the face of cyclical downturns like in 2019 and 2020.

Company Description

Littelfuse is a primary provider of circuit protection products (such as fuses and relays) into the transportation, industrial, telecommunications, and consumer electronics end markets. The firm is also increasing its power semiconductor business, where it predominantly serves industrial end markets and is breaking into electric vehicle charging infrastructure. Littelfuse has 17,000 global employees.

(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

Fortinet keeps customers locked into its ecosystem via holistic security management across any location

Closeup of a stock market broker working with graphs on digital tablet at office. Rear view of stock agent reading bad report and graph. Back view of multiethnic businessman analyzing fall sales.

Business Strategy and Outlook 

Fortinet is a leading cybersecurity company that has amassed an extensive customer base because of its solutions’ high performance relative to price as well as its broad product offerings covering various security concerns. The company developed a centralized cybersecurity management plane and is at the forefront of networking and security converging with its secure software-defined wide-area networking offerings. Fortinet sells security appliances and subscriptions as well as technical and professional services. It has established customer switching costs alongside its network effect and has a nice runway for growth through its holistic approach to network and cloud cybersecurity. As organizations expand their networking footprint beyond on-premises data centres, Fortinet keeps customers locked into its ecosystem via holistic security management across any location. The vast creation of data and the dispersed nature of network traffic due to hybrid environments, software-as-a-service applications, and remote access needs create a larger threat surface. Attacks are becoming more masqueraded and serpentine, which drives up the complications associated with cybersecurity management and threat prevention. Fortinet gleans threat insights from its massive customer base, which keeps it at the forefront of security requirements. Compounded by a dearth of cybersecurity talent, the consolidated security platforms, like Fortinet’s Security Fabric, will remain in high demand, as customers prefer to add capabilities via subscriptions over managing disparate software and hardware vendors.

The company has a build-versus-buy mentality, with a penchant for making custom processors. While this strategy has helped establish its name within the perimeters of localized networks, it is expected Fortinet to supplement its engineering prowess with inorganic growth in areas like cloud-based security, machine learning, and automated threat responses. Hence, these high-growth areas can help drive new product growth on top of a considerable base of durable services and support income.

Financial Strength

Fortinet is a financially sound company that will continue to generate strong cash flow. At the end of 2021, Fortinet’s deferred revenue of $3.5 billion is a strong indication of predictable revenue streams and should help insulate the company from any IT spending downturns. Fortinet had $3.0 billion in cash and equivalents and $1 billion of debt at the end of 2021. The company has never paid a dividend, but used over $2 billion to repurchase shares between 2017 and 2021, and it is expected Fortinet will continue repurchasing shares. Beyond returning capital, the cash outflows are to be focused on research and development alongside sales and marketing efforts and with some smaller tuck-in acquisitions to be completed for areas such as cloud-based security and analytics.

Bulls Say’s

  • A growing enterprise customer base and nascent technologies like software-defined networking and 5G create sizable revenue growth potential for Fortinet. 
  • The firm’s consolidated cybersecurity platform could be enticing for customers attempting to decrease the quantity of vendors, which would drive more revenue per customer for Fortinet. 
  • With no end to cybersecurity threats, Fortinet’s products should remain in high demand from SMBs, government entities, service providers, and enterprises

Company Profile 

Fortinet is a cybersecurity vendor that sells products, support, and services to small and midsize businesses, enterprises, and government entities. Its products include unified threat management appliances, firewalls, network security, and its security platform, Security Fabric. Services revenue is primarily from FortiGuard security subscriptions and FortiCare technical support. At the end of 2021, products were 38% of revenue and services were 62% of sales. The California-based company sells products worldwide.

(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

NextDC’s total recurring revenue, will trend higher over time as its network ecosystem matures

Business Strategy & Outlook

NextDC is well placed to benefit from industry megatrends, including the growing adoption of cloud computing, the Internet of Things, and artificial intelligence, leading to exponential growth in data creation. The NextDC will materially expand its capacity over the 10-year forecast period in order to meet growing demand for data center services.

The COVID-19 pandemic has accelerated the digital transformation of many businesses and expedited demand for co-location data centers. Large numbers of employees have transitioned to remote working arrangements leading to a greater reliance on digital technologies such as video conferencing and cloud-based platforms and reducing the need to store servers at a centralized location. Beyond the COVID-19 pandemic, remote working levels to remain elevated above prepandemic levels resulting in continued demand for digital technologies and potentially less need for physical office space. This shift has increased demand for data centers and hybrid and multi cloud data storage solutions, which are supported by co-location data centers like NextDC. Hybrid solutions that combine traditional infrastructure with cloud storage can improve business outcomes through reduced latency and costs, increased security and resilience, and the flexibility to connect to multiple clouds based on business needs. These solutions provide greater flexibility and allow businesses to scale their data storage capacity based on workflow. The interconnection services to become increasingly important for NextDC as more businesses transition to hybrid cloud storage models. As at fiscal 2021, interconnection revenue contributed 8% of NextDC’s total recurring revenue, and this will trend higher over time as its network ecosystem matures.

Financial Strengths

NextDC is in sound financial health. The company raised AUD 862 million in fiscal 2020 via an institutional placement and share purchase plan. Proceeds from the equity raising will be used to fund the development of a third Sydney data center and further capacity expansion at its existing and new sites. The gearing, measured as net debt/EBITDA, to deteriorate to above 3.6 times in fiscal 2023 as NextDC continues to invest heavily in portfolio expansion, before recovering from fiscal 2024 as capacity utilization improves. The NextDC will invest about AUD 4.0 billion during the 10 years to fiscal 2031 to grow total power capacity at a CAGR of 16%. The NextDC will only consider paying dividends when it has accrued sufficient franking credits, otherwise the capital would be better spent on investments or repaying debt.

Bulls Say

  • NextDC is well placed to benefit from industry megatrends including the growing adoption of cloud computing, the Internet of Things and artificial intelligence leading, to exponential growth in data creation. 
  • The shift to cloud-based services increases the need for enterprises to connect to numerous cloud providers and the connection is fastest, safest and most efficient in a co-located data center. 
  • The COVID-19 pandemic has accelerated the digital transformation of many businesses and led to increased demand for cloud-based services that require data centers.

Company Description

NextDC is an Australia data center developer and operator with a focus on co-location and interconnection among enterprise and government customers, global cloud and information and communications technology, or ICT, providers, and telecommunication networks. NextDC provides physical space, cooling, power, and security services and offers optional technical and project management support. The company’s tenants house their servers within the data center and can connect to each other via physical and virtual connections.

(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

Cellnex to finance future acquisitions with a combination of rights issues and new debt, as it has done in the past

Business Strategy & Outlook

Cellnex is the only pure independent tower firm of large scale in Europe (Inwit and Vantage are not independent, as they are controlled by mobile network operators). Cellnex’s strategy is to acquire European wireless tower portfolios from MNOs and then lease the towers back to those MNOs while adding other tenants to take advantage of the towers’ operating leverage. MNOs find value in Cellnex’s proposition as they can monetize towers at good valuations and use the proceeds to reduce debt. Transactions are structured as sale and leasebacks and provide Cellnex with long-term revenue and cash flow visibility underpinned by its contracts (10- to 25-year durations), which include annual rent escalators often tied to inflation.

When Cellnex acquires a tower portfolio, the MNO signs a long-term contract with Cellnex and becomes an “anchor tenant” on the towers. Contracts, known as master service agreements, allow Cellnex to move anchor tenants between towers, which lets it realize efficiencies (decommission redundant towers, build new towers with two tenants instead of one, or avoid unnecessary land lease costs) and improve returns on invested capital. Cellnex’s strategic priority is to own at least two tower portfolios in each of the markets where it operates, as having several portfolios allows for more efficiencies. The company owns at least two portfolios in each of France, Spain, Italy, Portugal, Switzerland, Poland, and the United Kingdom. The Cellnex will keep acquiring towers in Europe, with a focus in Germany, Scandinavia, or Austria, regions where it currently owns none or only one tower portfolio. Cellnex has reached a scale of almost 100,000 towers since its inception in 2015 by acquiring towers from operators like Telefonica, Iliad, Bouygues, Altice, and CK Hutchison, among others. Deals are usually structured as asset deals, so they typically come with fewer integration burdens, which is positive for an acquisitive company like Cellnex. The Cellnex to finance future acquisitions with a combination of rights issues and new debt, as it has done in the past.

Financial Strengths

As of December 2021, Cellnex had EUR 11.7 billion in net debt excluding leases, which implies a net debt/EBITDA (after leases) ratio of around 5.5 times at the end of 2022. Although this ratio may seem elevated, it is reasonable, as tower companies can manage high leverage due to long-term contractual revenue and high cash flow visibility linked to inflation. Cellnex’s leverage is also in line with other peers in the sector, such as American Tower and Inwit. As the European tower industry consolidates and fewer M&A opportunities are available, we expect the firm to steadily reduce leverage. Of Cellnex’s debt, 80% is fixed-rate, providing protection against interest-rate increases. Cellnex’s debt is nonrecourse, which means the debt is associated with the assets but not to the company (the issuer can seize the collateral—towers—but cannot go after the firm for additional compensation).

Bulls Say

  • Cellnex provides high cash flow visibility to investors, with inflation protection and growth optionality coming from new tenants. It is also protected against COVID-19 headwinds as critical infrastructure is still needed in lockdown times. 
  • Cellnex has the opportunity for more M&A deals. Tower portfolios in Germany, Scandinavia, or Austria could be acquired, which could enhance operating leverage and drive better returns on capital. 
  • Cellnex is well hedged against inflation risk and interest-rate increases through its inflation-linked contracts and fixed-rate debt.

Company Description

Cellnex owns and operates almost 100,000 wireless towers in Europe, resulting from continued M&A activity since its IPO in 2015. It has acquired towers from several European mobile network operator, including Telefonica, Iliad, CK Hutchison, Bouygues, and Altice. Cellnex is present in more than 10 European countries as of December 2021, including France, Italy, Spain, Poland, the U.K., Switzerland, and Portugal. Cellnex’s strategy is to acquire portfolios from MNOs and lease the towers back to them through long-term contracts, which provide high cash flow visibility and inflation protection.

(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

SAP has further entrenched itself in X data with its acquisition of Qualtrics

Stock exchange market concept, stock broker looking at graph working and analyzing with display screen, pointing on the data presented and deal on a exchange, Businessman trading stocks online.

Business Strategy and Outlook 

SAP is a best-in-breed enterprise resource planning provider and holds dominant market share in global ERP software. However, SAP is phasing out its support of its on-premises ERP Central Component software such that by 2030 all of its ERP customers will need to shift to a cloud solution. This vulnerability is a significant threat to SAP’s switching costs, as competitors like Workday offer compelling cloud ERP solutions, while forced migration opens up opportunity to question a company’s best fit for ERP needs. In turn, SAP’s narrow moat, derived from its switching costs, is trending negative. However, it is still early in SAP’s transition of on-premises users to the cloud, which leads to believe its negative trend could be prolonged. ERP is not SAP’s only offering. The company offers software in its so-called intelligent spending category, which includes Ariba and Concur, which cater to procurement and travel and expense reporting. While ERP and intelligent spending software caters to operational data–otherwise known as O data–SAP also provides solutions around X data, or experience data. SAP has further entrenched itself in X data with its acquisition of Qualtrics experience management software. But, regardless of which type of data is flowing through SAP software, this data can be stored in SAP’s database offering, HANA, which is the only database compatible with SAP’s cloud ERP, S/4HANA (unlike on-premises ERP’s former database interoperability).

Despite SAP’s efforts to nurture high attach rates among offerings amid the vulnerable transition to the cloud, such as via database lock-in, this is only ruffling more feathers among its customers that have adapted to the new norm of mix-and-match technology, which the cloud has enabled. Such lock-in attempts are influential in SAP’s consistently declining net promoter score. Moreover, SAP’s efforts to add to its ecosystem in the hopes of more effortless user experience have proved to be anything but accretive, as its acquisition of Qualtrics has shown. SAP announced plans to spin off the company only two years after it was acquired.

Financial Strength

AP has been acquisitive over the last decade as it has built out its ERP offerings. Despite this, SAP has maintained healthy leverage ratios and continues to do so with 2019 net debt/EBITDA close to 2. This figure includes the EUR 7 billion of debt SAP issued in December 2018 to finance the Qualtrics acquisition, leaving it with outstanding long-term debt of roughly EUR 14 billion and EUR 7 billion in cash and marketable securities at the end of the fiscal 2020 third quarter. The Qualtrics acquisition has stretched SAP’s leverage ratio slightly beyond its normal levels over the last decade and may limit the company’s ability to make transformative acquisitions in the near future. It can be foreseen SAP is still having the ability to make tuck-in acquisitions, and with free cash flow of at least EUR 3 billion expected in 2020 and 2021, but SAP is not having any troubles covering its financial obligations.

Bulls Say’s

  • SAP should be able to migrate the majority of its on-premises ERP customers to S/4HANA while continuing to add hefty net new customers to the platform. 
  • As more customers transition to the cloud, SAP should be able to extract significant more lifetime value per customer, adding to its top line. 
  • SAP should see significant margin expansion as a result of improving scale in its cloud offerings.

Company Profile 

Founded in 1972 by former IBM employees, SAP provides database technology and enterprise resource planning software to enterprises around the world. Across more than 180 countries, the company serves 440,000 customers, approximately 80% of which are small to medium-size enterprises.

(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

Arista Gaining From High End Switching Demand Turned On As Cloud Data Centers Expand, $105 FVE

Business Strategy & Outlook

Arista Networks has solidified its market presence through data center switching and software-based networking innovation, and customers are anticipated to remain loyal to the firm’s Extensible Operating System software and peripheral products. Arista’s initial growth came from high-frequency trading firms that found value in its low-latency switches and EOS. By remaining at the forefront of switching and routing speeds, Arista became a key networking supplier to giant cloud operators, service providers, and enterprises. EOS’ novelty lies in its single software image that provides a consolidated view of device activity from end to end and its ability to centrally upgrade the entire network. EOS contains leading software-defined networking features while remaining intuitive and fully programmable. Additional software offerings like CloudVision expand functionality and interoperability across networks. Arista uses merchant silicon for its hardware, which allows the company to focus on its core competencies. 

Arista works closely with its core customers to optimize their networking ecosystems, which can strengthen its customer switching costs. To expand its customer base beyond the data centers of hyperscale cloud providers, enterprises, service providers, and financial institutions, Arista entered into the campus market. The adjacent move is due to requests from existing customers desiring one software platform across networking locations, and Arista has bolstered its clout with wireless and security capabilities. Even with current customer concentration risk, Arista is growing alongside key customers and it is noted that new ventures have expanded from core competencies. Arista is well positioned as a pioneer in the new age of software-defined networking and will continue to be a leader in next-generation switches and routers.

Financial Strengths

Arista is considered to be in a financially healthy position; its zero debt balance and $3.4 billion in cash, cash equivalents, and marketable securities as of the end of 2021 provide flexibility for the future. With no stated plans to return capital to shareholders, the company’s investment plan is fixated on developing products and expanding sales. The company’s financial health is expected to remain stable and that cash could be deployed for growth via bolt-on products or technologies.

Bulls Say

  • Demand for EOS continuity across networks should proliferate Arista’s installation base. Installation base growth causes new customers to consider Arista during upgrades. 
  • Arista has been a first mover on its path to rapid profitable growth. Upcoming industry disruptions that Arista may lead include 400 Gb Ethernet switching and campus market splines. 
  • Instead of relying on partnerships to plug portfolio gaps, Arista might be able to make accretive acquisitions in adjacent markets that could catalyze growth in areas such as analytics, access points, and security.

Company Description

Arista Networks is a software and hardware provider for the networking solutions sector. Operating as one business unit, software, switching, and router products are targeted for high-performance networking applications, while service revenue comes from technical support. Customer markets include data centers, enterprises, service providers, and campuses. The company is headquartered in Santa Clara, California, and generates most of its revenue in the Americas. It also sells into Europe, the Middle East, Africa, and Asia-Pacific.

(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.