Category: Technology Stocks

or NBN, and take-up of high-traffic products such as Internet protocol television and video streaming, will increase the demand for broadband and backhaul capacity. TPG Telecom’s price-leader strategy still sees the company delivering solid subscriber and market share performance. Product bundling has also become a key segment in the market, with all players using broadband as a lead-in product and cross-selling voice, mobile, pay-TV, and digital streaming services. 

The ownership of submarine cable between Australia and Guam offers the group broader cost advantages. Pricing is mainly a function of demand and supply, available capacity, and the length of cable. Economies of scale play a large part in pricing where costs are measured on per unit of volume. Contracts are structured in typical 15-year

leases, providing some certainty in revenue. Clients are allocated a fixed bandwidth and have the right to on-sell capacity. Maintenance fees of 3%-4% of the lease are also levied.

Financial Strength 

TPG Telecom’s financial health is solid. Historically, management has used debt to finance acquisitions and demonstrated a capacity to pay it down in due course. As of June 2021, net debt/EBITDA was 2.8 times, well below the covenant limit of 3.5 times. Highlights from the 2021 first-half result support the key planks of our positive investment thesis for TPG Telecom. The NBN-inflicted EBITDA damage in the broadband unit is on track to fall less than management’s prior AUD 60 million projection for the full year (AUD 25 million in the first half), down from AUD 83 million in 2020. 

Moderating fall in subscribers (128,000 in June half 2021 versus 361,000 in December half of 2020), and ARPU (underlying post-paid down 1.6% in first half versus an estimated 2.3% in 2020) are signs of likely improvements to come. While shares in narrow-moat-rated TPG have climbed 30% since the May 2021 lows, they remain 13% below our unchanged AUD 7.40 fair value estimate. 

The 4% decline in corporate EBITDA to AUD 236 million was especially disappointing. It was mainly due to a fall in lowmargin legacy services, as underlying EBITDA margin was up to 53.2%, from 52.3% a year ago. Nevertheless, the shortfall in this division, coupled with continuing likely impact from COVID-19 (AUD 11 million in the first half) has led to 2% decline in our 2021 group EBITDA forecast to AUD 1,779 million. TPG’s broadband business will also benefit from management’s concerted push into fixed wireless, to bypass the National Broadband Network, or NBN. Indeed, 17,000 fixed wireless customers were signed up in the current second half to date, just a month after launch of the TPG-branded fixed wireless product. 

Bulls Say’s 

• Cross-selling opportunities remain for both consumer and corporate markets.
• The merger with Vodafone Australia increases the scale of the combined entity and allow it to better compete against Telstra and Optus in the Australian market.
• Further rollout of its fibre network also boosts growth, while incremental cost from an additional user is small.

Company Profile 

TPG Telecom is Australia’s third-largest integrated telecom services provider. It offers broadband, telephony, mobile and networking solutions catering to all market segments (consumer, small business, corporate and wholesale, government). The company has grown significantly since 2008, both via organic growth and via acquisitions, and in July 2020 merged with Vodafone Australia. It owns an extensive stable of infrastructure assets. TPG is also a very nimble competitor in the telecom space, with an aggressive operating culture unencumbered by any legacy issues facing incumbents.

(Source: Morningstar)

General Advice Warning

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

The Seqirus flu business, which achieved positive earnings (EBIT) for the first time in FY18, continues to perform strongly.
There is a lot of interest in their product line.
High entry barriers in terms of knowledge, worldwide channels, and operations/facilities/assets.
The executive team is strong, as are the operational capabilities.
Leveraged against a weakening dollar.
Key Risks
Pressures from competitors.
Behring’s core business, product recalls, disappoints.
Growth is underwhelming (underperform company guidance).
The Seqirus flu business is stalling or deteriorating.
Unfavourable currency fluctuations (AUD, EUR, USD).

FY21 Results Highlights
CSL’s influenza vaccines business, Seqirus, reported NPAT of $2,375 million, up 10%, and revenue of $10,026 million, up 10%, thanks to strong performance in leading subcutaneous Ig product HIZENTRA and leading HAE product HAEGARDA, as well as exceptionally strong performance in CSL’s influenza vaccines business. EBIT increased by 11% to $3,025, while margins remained at 30.2 percent. Earnings per share increased from 10% to $5.22.
The final payout of US$1.18 per share (A$1.61 franked at 10%) brings the total dividend for the year to US$2.22 per share, up 10%. Highlights from each segment: (1) CSL Behring, relative to the pcp and in constant currency. Albumin (+61%), HIZENTRA (+15%), HAEGARDA (+14%), and KCENTRA (+7%) all contributed to an increase in total revenue of 6%. (2) Seqirus is a character in the game Seqirus.
Seasonal influenza vaccine sales increased from 41% on a record volume of 130 million doses, driving total revenue up 30%. FLUAD® QIV was released in the United States in FY21, while FLUCELVAX was marketed in Australia.

Company Description
The Commonwealth Serum Laboratories Limited (CSL) is a company that develops, manufactures, and sells pharmaceutical and diagnostic products made from human plasma. Paediatrics and adult vaccines, infection, pain medicine, skin problem treatments, anti-venoms, anticoagulants, and immunoglobulins are among the company’s goods. These are life-saving products that are not optional.

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

• Heavily reliant on two growth stories (South Korea and Brazil).
• Diversified geographic coverage.
• Bolt-on acquisitions provide opportunity to supplement organic growth.
• The Company can sustain high single-digit and low double-digit revenue growth. 
• CAR’s move into adjacent products and industries. 
• Increasing pricing in South Korea to boost margins.
• Looking to take more of the car buying experience online with dealers (i.e. increasing its total addressable market).

Key Risks

 We see the following key risks to our investment thesis:

• Rich and demanding valuation.
• Competitive pressures, that is car dealer driven substitute platform or the No. 2 & 3 player gain ground on CAR.
• Motor vehicle sales remain subdued.  
• Value destructive acquisition / execution risk with international strategy.
• Not immune from broader downturn in economy (consumer likely to delay a significant purchase in time of uncertainty).

FY22 Earnings Guidance:- 

CAR provided no quantitative guidance but provided outlook commentary (which excluded the impact of acquiring Trader Interactive). 

• Consolidated Outlook: “in FY21… While current lockdowns and retail closures are having an impact on leads and private ad volumes, if our experience is consistent with prior lockdowns, the business is well placed to recover all or most of the declines once retail re-opens. On this basis we would expect to deliver solid growth in Group Adjusted revenue, Adjusted EBITDA and Adjusted NPAT1 in FY22. Depending on the duration and frequency of lockdowns in the first half, financial performance is likely to be more heavily weighted to the second half than usual”. 
• Australia. Dealer: “Outside the states impacted by lockdowns, underlying market conditions remain solid”. Private: “Private listing volumes are growing strongly on pcp excluding NSW; tyresales has operated at lower volume levels in July 2021 due to the lockdowns in NSW and Victoria”. Media and new car market: “The new car market continues to demonstrate signs of improvement as evidenced by the solid performance in new car sales volumes over the last six months. This has resulted in an improvement in media revenue run rate, providing confidence that we can deliver growth in this segment in FY22”. Domestic Core expenses: “Anticipating core expenses to be higher in FY22 compared to FY21 largely reflecting the absence of wage subsidies”. 
• International. (i) Korea: “In FY22 we expect strong growth in revenue and strong growth in EBITDA excluding the potential for continued marketing investment in Dealer Direct”. (ii) Brazil: “We expect strong growth in revenue and EBITDA in FY22”. (iii) U.S: “In July 2021, financial performance continues to be strong. We will provide guidance on Trader Interactive at the AGM in October-21”.

Company Description  

Carsales.com Ltd (ASX:CAR), founded in 1997, operates the largest online automotive, motorcycle and marine classifieds business in Australia. Carsales is regarded as one of Australia’s original disruptors and has expanded to include a large number of market-leading brands. The Company employs over 800 and develops world leading technology and advertising solutions in Melbourne. CAR has also expanded to numerous global markets, such as South Korea, Brazil, and other countries in Latin America.

General Advice Warning

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

 driven by the competitively advantaged Australian business which benefits from industry tailwinds. ARB provides automotive accessories for four-wheel-drive, or 4WD, vehicles–namely, 4WD utility vehicles, and medium and large sport utility vehicles, or SUVs. The vast majority of earnings are generated in Australia, where sales of 4WD vehicles have grown strongly in recent years. While headline new vehicle sales in Australia have remained stagnant over the five years to fiscal 2019, sales for vehicles in ARB’s niche target market have increased at a CAGR of around 6% over the same time period. 

We estimate this subsegment eclipsed 50% of new vehicles sales in fiscal 2020, up from around 35% of new vehicle sales in fiscal 2014.The firm’s network of store fronts defends ARB’s premium positioning, ensuring end-to-end reliability from manufacturing to fitting. We expect ARB will also need to continue to invest heavily in its brands and its narrow moat by maintaining a high level of expenditure on marketing, research and development. This expenditure is necessary to maintain the firm’s brand equity, and differentiate its products from lower-end competitors, allowing ARB to remain at the forefront of product innovation and quality, improving brand awareness and ensuring a healthy pipeline of new product releases. 

Financial Strength 

ARB’s balance sheet is in pristine condition. At June 30, 2021, the company had no debt and a net cash position of AUD 85 million. This is despite major investment in the Thailand and Victoria warehouses and continued new store rollouts. The firm’s major funding requirements are store rollouts, international expansion, and working capital in line with growing sales. We anticipate the firm will maintain expenditure on marketing and R&D at around 5% for the foreseeable future. We are confident the firm can maintain a dividend payout ratio of around 50% without stretching its balance sheet or compromising its expansion plans.

Profit before tax near-doubled to AUD 150 million as restrictions on international travel and government stimulus increased domestic driving holidays–both in Australia and in overseas markets, boosting demand for ARB products. After falling 14% in fiscal 2020, Australian new car sales have bounced back quickly, up 10% in fiscal 2021. The rebound is more pronounced for 4WD utilities and SUVs (ARB’s primary target market), which grew by 11% in fiscal 2021 after falling just 7% in fiscal 2020. The company declared a final dividend of AUD 39 cents per share, bringing full-year dividends to AUD 68 cents per share, fully franked. ARB maintains a dividend payout ratio of about 50%, and with no debt, we anticipate the firm can maintain this payout ratio without stretching its pristine balance sheet or compromising expansion plans.

Bulls Say’s 

• Online competition is not a significant threat to ARB’s business. Products usually require professional fitting (often in ARB stores), and the often heavy and bulky accessories can make delivery cost prohibitive.
• The 4WD accessories industry has few barriers to entry, and with products such as bull bars essentially just fabricated steel, ARB’s products are somewhat replicable.
• ARB’s range of vehicle accessories have established significant brand strength, underpinning its narrow economic moat, allowing the firm to enjoy pricing power and high returns on invested capital.

Company Profile 

ARB Corporation designs, manufactures, and distributes four-wheel-drive and light commercial vehicle accessories. The firm has carved a niche with aftermarket accessories including bull bars, suspension systems, differentials, and lighting. ARB operates manufacturing plants in Australia and Thailand; sales and distribution centres across several countries. The Australian division, which generates the vast majority of group earnings, distributes through the ARB store network, ARB stockists, new vehicle dealers, and fleet operators.

(Source: Morningstar)

General Advice Warning

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

an investigation into Tesla Inc’s (NASDAQ: TSLA) autopilot software following 11 crashes from January 2018 through July 2021 where the software was engaged. Having reviewed the NHTSA report, the incidents highlight the need for Tesla to continue to improve its autonomous software before the company is likely to see a large revenue increase from its subscription-based full self-driving software. This is in line with our view that Tesla’s autonomous software will not contribute a large portion of revenue in the near term. While the outcome of the investigation is uncertain, the agency is investigating the software, rather than any hardware on a Tesla. 

Tesla shares were down around 5% at the time of writing. At current prices, Tesla shares are slightly overvalued with the stock trading in 3-star territory but roughly 20% above our fair value estimate. Accordingly, we reiterate our very high uncertainty rating for Tesla.

In all 11 crashes, a Tesla vehicle struck one or more vehicles at a first-responder scene. Most of the incidents took place after dark, where the crash scenes included typical control measures such as first-responder vehicle lights, flares, an illuminated arrow board, and road cones. While the software can take over many parts of driving features for more normal highway conditions, first-responder scenes represent a situation where drivers should likely disengage the software when approaching the scene and resume full manual control of the vehicle.

Company’s Future Outlook

As a result, the most likely outcome will include an over-the air software update, which Tesla already regularly does, and additional warnings about the limitations of driving with autopilot. The company’s Outlook intact at $570 per share fair value estimate and narrow moat rating for Tesla.

Company Profile

Tesla Inc’s (NASDAQ: TSLA) founded in 2003 and based in Palo Alto, California, is a vertically integrated sustainable energy company that also aims to transition the world to electric mobility by making electric vehicles. The company sells solar panels and solar roofs for energy generation plus batteries for stationary storage for residential and commercial properties including utilities. Tesla has multiple vehicles in its fleet, which include luxury and mid-size sedans and crossover SUVs. The company also plans to begin selling more affordable sedans and small SUVs, a light-truck, semi-truck, and a sports car. Global deliveries in 2020 were roughly 500,000 units.

(Source: Morningstar)

General Advice Warning

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