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.

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Technology Stocks

CGI Has an Embedded Competitive Position in North American and European Government Agencies

Business Strategy & Outlook

CGI is a leading global IT services firm, catering a bit more to governmental agencies than its peers, while providing managed IT, consulting, and IP solutions. The CGI benefits from strong switching costs and intangible assets, the combination of which leads to assign the firm a narrow economic moat rating. Despite the economic headwinds brought on by COVID-19, CGI has posted steady revenues due to its long-term contracts with many of its clients, and such stability will continue with the help of a stable trend for both CGI’s switching costs and intangible assets, which both work to create stickiness amongst existing customers. CGI has long operated differently from many of its peers, focusing more on a proximity-based operating model that places CGI offices near its clients. While the firm’s offshore leverage is lower than many of its peers, it still provides global delivery centers. Nonetheless, the proximity model is important for the firm’s government vertical as governments often require data to remain within their sovereign borders to better ensure data security. There are trade-offs to CGI’s government focus. On one hand, it creates even greater stickiness as The government vertical has marginally stronger switching costs than enterprises. Yet, CGI’s growth potential is more limited than its peers due to the greater resources the enterprises have to invest in themselves. On top of the switching costs, CGI also possesses intangible assets in the form of expertise the company has and continues to acquire. With an eye on the future, the CGI to benefit from vendor consolidation through its ‘build and buy’ strategy as it continues to acquire smaller IT firms, with their own niche expertise, to gain access to localized markets across the globe.

Financial Strengths

The CGI’s financial health is in good shape. CGI had CAD 1.7 billion in cash and equivalents at the end of fiscal 2021, with debt of around CAD 3.6 billion. This leveraged position, especially in comparison with its Indian IT Services counterparts which tend to have low debt levels, is a result of CGI’s more recent European acquisitions that have been funded, in part, by debt. Whereas a net debt to net capital ratio of 21% may appear to be high within this industry, the firm’s ability to generate free cash flow over a billion dollars on an annual basis should enable it to pay down its debt without the debt posing any material risk to the firm’s operations. The firm also has access to an unsecured committed $1.5 billion credit revolver set to expire in December 2024.

Bulls Say

  • CGI has an outsize presence in the government vertical, which could lead to further growth if government agencies place increasing importance on total investment in IT needs. 
  • Increased vendor consolidation could allow bigger IT services players such as CGI to expand their client base at the cost of smaller, more local players 
  • CGI’s recent European acquisitions may benefit the firm in making inroads into the European market, resulting in material margin expansion.

Company Description

CGI Inc. is a Canada-based IT-services provider with an embedded position in North America and Europe. The company generates more than CAD 12 billion in annual revenue, employs over 88,000 personnel, and operates across 400 offices in 40 countries. CGI offers a broad portfolio of services such as consulting, systems integration, application maintenance, and business process services, or BPS. The company’s largest vertical market is government, which contributes more than a third of group revenue.

(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

IRE offers a defensive earnings profile and trades on a solid dividend yield of ~4%

Investment Thesis:

  • Solid FY22 earnings guidance.
  • 30% of the $100m buyback remains to be complete, which should support IRE’s share price.
  • Growing quantum of superannuation/pension bodes well for IRE’s clients, which bodes well for demand for IRE’s products.
  • IRE’s products are firmly entrenched within Australia, UK and South African financial market players (i.e. IRESS terminals and XPLAN). For instance, in ANZ Wealth Management segment, increasing dynamic of self-licensing by practices, high client retention and increasing demand for integrated solutions, are all key revenue themes. Over 90% of revenue is recurring.
  • Strong continuing momentum in the core growth markets of ANZ Wealth Management, and South Africa and the UK.
  • New product roll-out providing growth opportunities.
  • Solid balance sheet and capable management team.

Key Risks:

  • Less subscription due to declining sell-side and buy-side demand as well as financial planners.
  • Competitive platforms/offering (new disruptive technology); improved features and innovation from competition.
  • Associated risks in relation to system, technology and software.
  • Regulatory and structural changes in the finance sector impacting clients and their needs.
  • Deterioration in equity and debt markets which may have a negative impact on terminal demand.
  • Further deterioration with its Canadian segment.

Key Highlights:

  • FY22 Guidance reaffirmed but expected to be at lower-end. “IRESS affirms the guidance range for full year 2022 of segment profit of $177m – $183m. 2022 segment profit is expected to increase by 7% – 10% versus the pcp. Results are now expected to be at the lower end of the range due to investment in fund registry as part of investment infrastructure, and delayed growth in the UK”. 
  • Segment profit for the year is expected to grow by around +7%.
  • Underlying NPAT (excludes $13-15m pre-tax of investment in IRESS’ single technology platform and significant one-off items in 2021) is expected to grow by around +25% for the year.
  • Underlying EPS is expected to be 40-44cps on a constant currency basis. 
  • Key assumptions: $13-15m (pre-tax) of investment in IRESS’ single technology platform expected in 2022 as disclosed in July 2021. Effective tax rate (ETR) is expected to be in the range of 23-26%. Guidance is presented on a constant currency basis using average 2021 FX rates. Guidance does not include the impact of any potential M&A activity in 2022.
  • 1H22 Results Highlights. Relative to the pcp: (1) underlying revenue of $306.4m, up +6%; reported revenue of $308.2m, +6%. (2) Underlying segment profit of $80.3m, up +6%; reported segment profit of $80.7m, up +7%. (3) Underlying NPAT of $31.8m, up +29%; reported NPAT of $30.6m, down -25%. (4) Underlying ROIC of +9.6%, up +140 basis points or reported ROIC 9.4%, down -110 basis points. (5) Underlying EPS of 17.1cps, up +32% or reported EPS of 16.4cps, down -23%. (6) The Board declared an interim dividend of 16 cents per share, 25% franked.
  • Performance Highlights by Segments. 1H22 Constant Currency Segment Profit up +6%, Underlying NPAT up +29%. (1) IRE saw strong performance in APAC trading & market data and financial advice with revenue of $135.6m, up +8%. APAC trading & market data total revenue growth of +9% to $71.0m, and financial advice growth of +7% to $64.6m, both outperformed the Company’s medium term target (total revenue growth of ~5% per annum). Management noted Xplan user numbers in financial advice are stable. (2) IRE also saw revenue growth of +9% $23.6m as management highlighted recurring revenue is on track to medium term targets, growing +17%, driven by ESSSuper and GuildSuper going live. IRE’s medium term target revenue growth is +18% per annum. (3) U.K saw total revenue of $64.3m, up +2%, driven by Private Wealth management, which outperformed the medium-term targets in 1H22 – recurring revenue up +25% to $10.3m. This was offset by Retail Wealth not meeting expectations, and partly being impacted by changes in specific clients’ business models. IRE’s medium term target total revenue growth is +7% per annum. (4) Mortgages performed well, seeing total revenue increase +18% to $16.1m in 1H22 vs 1H21.

Company Description:

IRESS Ltd (IRE) is an ASX-listed company that specialises in software for the finance industry, with a focus on financial markets, wealth management and superannuation. IRE operates in the Asia-Pacific, UK, South Africa and Canada.

(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

TPG Telecom’s price-leader strategy still sees the company delivering solid subscriber and market share performance

price of btc is going to breakout

Business Strategy & Outlook

TPG Telecom is grappling with structural changes in the Australian telecom industry. Rollout of the national broadband network, 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. However, the NBN will also force TPG Telecom to become a reseller, impacting its consumer broadband margins. 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. A longer cable results in increased material and maintenance costs, meaning cost per unit is higher. Cables with large capacity reduce costs per unit, as costs such as fixed construction and rollout costs are spread across a larger base. A sharp price decline in international traffic remains a risk. 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. The 2020 merger with Vodafone Australia (the third-ranked mobile player in the country) is one-way TPG Telecom is trying to limit the impact of the NBN. Mobile offers a critical strategic path to future-proof the group in the face of onslaught from the NBN. The government entity is already wreaking havoc on the narrow-moat-rated group’s retail fixed-line broadband and could even potentially impact the lucrative enterprise segment.

Financial Strengths

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 at the end of June 2022, net debt/EBITDA was 2.0 times, below the covenant limit of 3.5 times.

Bulls Say

  • 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 fiber network also boosts growth, while incremental cost from an additional user is small.

Company Description

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 group has grown significantly since 2008, both

via organic growth and acquisitions, and in July 2020 merged with Vodafone Australia. It owns an extensive stable of infrastructure assets.

(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

Roper Looks Strongly Positioned to Continue Compounding Cash as it Remakes Its Portfolio

Business Strategy & Outlook

Roper acquires software companies with large amounts of deferred revenue. Large quantities of deferred revenue exist because many software businesses receive cash far in advance of when services are rendered. Roper uses this cash to invest in businesses at incrementally higher rates of return. Its targets have large bases of recurring revenue in oligopolistic, niche markets with small total addressable markets. That revenue base is protected by strong switching costs that frequently post customer retention rates greater than 95%. Roper’s businesses typically don’t own their own infrastructure, which further contributes to its asset-light business model. From 2003 through today, Roper’s net working capital as a percentage of sales has dropped from 18% to negative 13%. Skeptics point out three criticisms: Roper purchases businesses that have little strategic rationale with one another; it is starving its businesses for capital; and the business model carries a lot of execution risk since the company will eventually run out of targets to purchase. All three of these criticisms miss the mark. First, purchasing unrelated businesses is an advantage. While competitors frequently purchase targets to either eliminate competition or buy distribution, Roper screens all opportunities based on how each business will add to long-term cash returns, a key reason is the stock has beat the returns of the S&P 500 by about 2 times since 2003. Second, Roper’s businesses don’t require capital to continue growing. The maintenance capital expenditures are less than 1% of sales. Even so, free cash flow conversion consistently hovers well over 100%. Finally, capital allocation has been integrally tied to Roper’s culture since the early 2000s. The firm also does not try to extract aggressive synergy targets from acquisitions, choosing instead to focus on opportunity cost. Private equity also provides Roper with a continuous revolving door of potential investment opportunities. Following portfolio changes, one can still believe Roper is poised to continuously compounded cash for many years, and it can anticipate mid teens EPS growth through the cycle.

Financial Strengths

Roper is in strong financial health, and it is adequately capitalized to meet its ongoing service obligations. As a result, one can derive a low risk of default in the model’s credit risk assessment, which is slightly better than the moderate risk the rating agencies assign to Roper’s bonds. One reason one is more confident is Roper’s free cash flow conversion, which historically hovers well over 100% of earnings (including 125% in 2020, on an adjusted basis). While the firm does take on leverage when acquiring a target, management has indicated it is absolutely committed to maintaining an investment-grade rating. At an investor conference in early 2019, CEO Neil Hunn indicated his belief that Roper could do a $3 billion-$3.5 billion deal and “easily be inside of investment-grade.” Since that time, Roper has spent over $6 billion in acquisitions and has still managed to maintain its investment-grade credit rating. As of the end of 2021, the firm’s net debt/adjusted EBITDA was about 3.4 times. While one normally doesn’t like EBITDA metrics when assessing a firm’s financial health, one can point out that Roper converts about 82% of its adjusted EBITDA into free cash flow. The firm’s interest coverage (EBIT/interest), moreover, stands at 8.5 times. Unlike other multi-industry conglomerates, the firm has no pension plan. Given that one doesn’t believe Roper requires any restricted cash to operate its businesses, one can add back 100% of Roper’s cash to the net debt calculation, which is also unusual in multi-industry coverage.

Bulls Say

  • Roper’s total returns have doubled the returns of the S&P 500 over the past 15 years. 
  • Roper’s culture is greater than one person, and former CEO Jellison’s framework is safe in the hands of the current CEO and CFO. 
  • The winning formula of using cash from a recurring revenue base to acquire cash-rich businesses at reasonable valuations shows no signs of slowing down, with expected future earnings growing at similar to historical rates as the firm ups its acquisition spending.

Company Description

Roper is a diversified technology company that operates through three segments: application software; network software and systems; and technology enabled products. The firm’s culture emphasizes acquiring asset-light, cash-generative businesses. Roper then reinvests this excess cash in businesses that yield incrementally higher rates of return. While the businesses are managed in a decentralized manner, Roper does not passively manage its portfolio. Instead, Roper manages its businesses through the Socratic method and empowers decision-makers through group executive coaching. Roper has now rotated a clear majority of its business from legacy industrial products into technology software in mature, niche markets with large quantities of deferred revenue.

(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

Cochlear is investing significantly to increase awareness as well as funding research to support payer reimbursement

Business Strategy & Outlook

Cochlear is the market leader in cochlear implants with a consistent share of roughly 60% across developed markets. Cochlear implants became the standard of care many years ago for children in developed markets with profound hearing loss or deafness. With this market segment largely penetrated, the company is looking elsewhere for growth with developed-markets adults the next primary focus and emerging-markets children after that. Roughly 70% of units are sold to developed markets and the remaining 30% to emerging markets, where over 90% are for children. Large price differentials in the lower range of products result in 80% of revenue being earned in developed markets and 20% in tender-oriented emerging markets. The average unit prices achieved in developed markets are double those in emerging markets. In the developed-markets children segment, the growth tailwinds from increasing market penetration and the shift from single to bilateral implants over the last 15 years have played out, and forecast growth in this segment to reduce to the birth rate over time.

The adult developed market is more difficult to penetrate, and required investment to expand this segment will restrain significant operating margin expansion. Currently, penetration is still estimated to be under 5%, and Cochlear is at a pivot point as it invests to be adopted more widely by seniors with profound hearing loss. Prevalence of profound hearing loss increases over 65 years and has a steep increase over 80 years of age. As such, an ageing population and low penetration suggest a large opportunity. However, hearing aids, not cochlear implants, are the standard of care. Cochlear is investing significantly to increase awareness as well as funding research to support payer reimbursement. But two main challenges can be seen to accessing this market fully: first, the relatively low willingness of older candidates to undertake such invasive surgery, and second, the improvements

in hearing aids. The hearing aid market is increasing its penetration in the severe hearing loss category, leaving only the smaller profound hearing loss as the cochlear implant niche.

Financial Strengths

The company has typically enjoyed low capital intensity and high cash conversion, affording it to pay out 70% of earnings as a dividend. However, with the confluence of operational weakness due to deferred elective surgeries as a result of the coronavirus, a peak in the capital cycle, and a patent infringement penalty becoming payable, the company faced a liquidity crunch. Consequently, it completed an AUD 850 million equity raise in fiscal 2020, adding an additional 10% to shares on issue and forecast the company to carry no net debt for the foreseeable future. The company is not acquisitive and organic growth is driven by R&D spending of roughly 12% of revenue per year.

Bulls Say

  • There are signs Cochlear is looking to expand beyond the hearing market with the investment in Nyxoah, a company focused on development of a hypoglossal nerve stimulation therapy for the treatment of obstructive sleep apnea.
  • The annuity like revenue stream from sound processor upgrades and accessories is an increasingly important component of the revenue stream.
  • Cochlear earns ROICs well ahead of the cost of capital even in bear-case scenario, which is testament to the high quality of the company.

Company Description

Cochlear is the leading cochlear implant device manufacturer with around 60% global market share. Developed markets contribute 80% of group revenue where cochlear implants are the standard of care for children with severe to profound hearing loss. The company also actively targets the growing cohort of seniors in developed markets. Tender-oriented emerging markets contribute the remaining 20% of group revenue. Main products include cochlear implants, bone-anchored hearing aids, and associated sound processors. In fiscal 2020, 49% of revenue came from the Americas, 35% from Europe, the Middle East, and Africa, and 16% from the Asia-Pacific segment.

(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

Keysight Dominates Communications Testing With a Broad and Comprehensive Portfolio of Solutions

Business Strategy & Outlook

Keysight Technologies is the leader in communications testing and measurement solutions, and offers a vendor-agnostic way to invest in the rapidly growing 5G market. Keysight has the strongest and broadest communications testing capabilities in the market, inclusive of hardware, software, and services. A comprehensive portfolio allows Keysight to act as a strategic partner to its customers, enabling new designs and accelerating time to market for network operators, network equipment OEMs, device OEMs, and suppliers. Keysight can reduce time to market for customers more than competitors as a result of its end-to-end portfolio of premium offerings. Keysight’s leadership stems from its large investment in R&D–annually doubling that of the nearest competitor–that it focuses on the communications market. The hefty organic and inorganic investment has led to Keysight leading the market pivot toward software and credit its unmatched portfolio breadth for its top market share. A broad portfolio that layers software and services on top of hardware embeds Keysight into customer workflows and entrenches customers in its ecosystem. A broad, sticky portfolio underpins the wide economic moat rating for the firm. Keysight should continue to dominate the communications market, especially as it pivots toward more complex 5G testing in which it is already demonstrating proficiency. The market share gains for Keysight and think greater complexity in 5G networks will expand its wallet share at customers–both of which would result in continued outperformance of the underlying testing market. The firm continues shifting customers to subscription billing for its software and services and thinks it will complement continued organic investment with strategic M&A to further build out its software portfolio. The growing mix of software and services to expand margins. Finally, the Keysight to continue generating impressive cash flow and to send a large proportion of it back to shareholders.

Financial Strengths

The Keysight Technologies to continue generating impressive cash flow, which will fund organic and inorganic investment as well as returns to shareholders. As of Oct. 31, 2021, the firm held a net cash position, with $2.1 billion in cash on hand and $1.8 billion in gross debt. The firm will stay leveraged–especially with its current long-term maturities–but pay off its debt as it comes due. The firm also has an untapped $450 million revolver that expires in February 2022.The Keysight to continue its record of strong cash generation. The firm has converted well over 100% of its net income into free cash flow since 2017, and this pattern to carry forward through the forecast. As per forecast over 100% free cash flow conversion through 2026 and anticipate more than $1 billion in free cash flow annually during this period.

Bulls Say

  • Keysight’s large research and development budget has created a competitively advantaged portfolio for communications testing that one doesn’t expect other firms would be able to easily replicate. 
  • Keysight holds a majority share of the 5G testing market, which will elicit strong top-line growth and expand profitability over the next five years. 
  • The Keysight to continue converting over 100% of net income into free cash flow, and predict it to generate over $1 billion in free cash flow annually over the forecast.

Company Description

Keysight Technologies is a leader in the field of testing and measurement, helping electronics OEMs and suppliers alike bring products to market to fit industry standards and specifications. Keysight specializes in the communications market, but also supplies into the government, automotive, industrial, and semiconductor manufacturing markets. Keysight’s solutions include testing tools, analytical software, and services. The firm’s stated objective is to reduce time to market and improve efficiency at its more than 30,000 customers.

(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

Keysight Dominates Communications Testing With a Broad and Comprehensive Portfolio of Solutions

Business Strategy & Outlook

The Keysight Technologies is the leader in communications testing and measurement solutions, and offers a vendor-agnostic way to invest in the rapidly growing 5G market. The Keysight has the strongest and broadest communications testing capabilities in the market, inclusive of hardware, software, and services. A comprehensive portfolio allows Keysight to act as a strategic partner to its customers, enabling new designs and accelerating time to market for network operators, network equipment OEMs, device OEMs, and suppliers. The Keysight can reduce time to market for customers more than competitors as a result of its end-to-end portfolio of premium offerings. The Keysight’s leadership stems from its large investment in R&D–annually doubling that of the nearest competitor–that it focuses on the communications market. The hefty organic and inorganic investment has led to Keysight leading the market pivot toward software and credit its unmatched portfolio breadth for its top market share. A broad portfolio that layers software and services on top of hardware embeds Keysight into customer workflows and entrenches customers in its ecosystem. A broad, sticky portfolio underpins the wide economic moat rating for the firm. Keysight should continue to dominate the communications market, especially as it pivots toward more complex 5G testing in which it is already demonstrating proficiency. The market share gains for Keysight and think greater complexity in 5G networks will expand its wallet share at customers–both of which would result in continued outperformance of the underlying testing market. The firm to continue shifting customers to subscription billing for its software and services and think it will complement continued organic investment with strategic M&A to further build out its software portfolio. The growing mix of software and services to expand margins. Finally, the Keysight to continue generating impressive cash flow and to send a large proportion of it back to shareholders.

Financial Strengths

The Keysight Technologies to continue generating impressive cash flow, which will fund organic and inorganic investment as well as returns to shareholders. As of Oct. 31, 2021, the firm held a net cash position, with $2.1 billion in cash on hand and $1.8 billion in gross debt. The firm will stay leveraged–especially with its current long-term maturities–but pay off its debt as it comes due. The firm also has an untapped $450 million revolver that expires in February 2022.The Keysight to continue its record of strong cash generation. The firm has converted well over 100% of its net income into free cash flow since 2017, and this pattern to carry forward through the forecast. As per forecast over 100% free cash flow conversion through 2026 and anticipate more than $1 billion in free cash flow annually during this period.

Bulls Say

  • The Keysight’s large research and development budget has created a competitively advantaged portfolio for communications testing that one doesn’t expect other firms would be able to easily replicate. 
  • Keysight holds a majority share of the 5G testing market, which will elicit strong top-line growth and expand profitability over the next five years. 
  • The Keysight to continue converting over 100% of net income into free cash flow, and predict it to generate over $1 billion in free cash flow annually over the forecast.

Company Description

Keysight Technologies is a leader in the field of testing and measurement, helping electronics OEMs and suppliers alike bring products to market to fit industry standards and specifications. Keysight specializes in the communications market, but also supplies into the government, automotive, industrial, and semiconductor manufacturing markets. Keysight’s solutions include testing tools, analytical software, and services. The firm’s stated objective is to reduce time to market and improve efficiency at its more than 30,000 customers.

(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

Carrier strives to reduce operating costs 2%-3% annually

Business Strategy and Outlook 

Carrier Global, a leading supplier of climate control and fire and security solutions, was spun off from United Technologies in April 2020. Carrier is a high-quality franchise with leading brands across most of its product portfolio. After the spinoff, Carrier increased spending on research and development, its sales organization, and capital projects to support product development and growth initiatives; this will help management accomplish its goal of mid-single-digit top-line growth over the midterm. Two of Carrier’s higher-profile growth initiatives include increasing its service attachment rate and becoming the leader in the applied HVAC market within five years. Carrier will successfully increase its service revenue, but it will be challenging to usurp Trane Technologies and Johnson Controls in the applied HVAC market.

Carrier’s HVAC segment (its largest segment at approximately 60% of sales) has the strongest long-term growth potential due to its commercial HVAC market exposure.  The commercial HVAC market will grow above GDP due to increased demand for energy-efficient and indoor air quality solutions. Residential HVAC demand remained robust in 2021-22, but there’s a cautious outlook. On the one hand, housing starts will rebound to 1.4-1.5 million units annually by 2025 after a near-term contraction in 2023-2024) and regulation changes (refrigerants and energy efficiency standards) should be a tailwind. On the other hand, the replacement cycle is maturing. Elevated investment spending, public company costs, and a challenging operating environment during 2020-21 due to the pandemic, supply chain disruptions, and cost inflation have pressured Carrier’s profit margins. However, Carrier strives to reduce operating costs 2%-3% annually. If the company can achieve its cost-cutting goal and expand its aftermarket mix, profit margins should improve, assuming healthy end-market demand and supply chains.

Financial Strength

After becoming a stand-alone entity following its April 2020 spinoff from United Technologies, Carrier now benefits from a narrowed strategic focus and complete autonomy over its capital allocation decisions. The company paid a price for its freedom; the separation left it saddled with a significant amount of net debt. However, Carrier generates significant free cash flow (about $1.7 billion annually over the last three years), and deleveraging has been a top capital allocation priority. In early 2022, Carrier completed the sale of Chubb, its service-centric fire and security business, for $2.7 billion net of taxes. Carrier expects to reduce debt by $750 million in 2022. At year-end 2021, Carrier had $9.7 billion of debt and $3.0 billion of cash on its balance sheet, which equates to a net debt/estimated 2022 EBITDA ratio of about 2. However, with the Chubb sale and Carrier’s 2022 free cash flow, the cash balance will swell to approximately $7.5 billion. Aside from paying down debt, the firm will allocate about $900 million to fund its acquisition of Toshiba’s remaining ownership stake in the Toshiba-Carrier joint venture, and management has earmarked $500 million for dividends and $1.6 billion for share repurchases in 2022. Carrier’s next maturing debt issuance isn’t until 2025, when its 2.242% $1.2 billion outstanding notes are due. Another $900 million is due in 2027, $2 billion is due in 2030, and $4.250 billion is due after 2030. Carrier’s debt maturities are well staggered, and no worries about solvency can be seen.

Bulls Say’s

  • After separating from United Technologies, Carrier is in full control of its destiny. Near-term reinvestment should boost its long-term growth prospects, and cost cutting initiatives should result in stronger profit margins. 
  • The company has significant franchise value with leading brands across most of its product portfolio. The flagship Carrier brand has demonstrable pricing power. 
  • In the wake of the coronavirus, air filtration, air-quality assessment, cold-chain solutions, and touchless access control solutions should become larger market opportunities.

Company Profile 

Carrier Global manufactures heating, ventilation, and air conditioning, refrigeration, and fire and security products. The HVAC business serves both residential and commercial markets (HVAC segment sales mix is 60% commercial and 40% residential). Carrier’s refrigeration segment consists of its transportation refrigeration, Sensitech supply chain monitoring, and commercial refrigeration businesses. The firm’s fire and security business manufactures fire detection and suppression, access controls, and intrusion detection products.

(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

Alphabet Inc: Revenue Increased +13% to $69.7bn, Driven by Search and Cloud

Investment Thesis:

  • Commands a strong market position in online advertising and online eyeballs. 
  • Search advertising increases its share of advertising spend. 
  • Leveraged to online video streaming and advertising via YouTube. 
  • Strong balance sheet with over US$125bn in cash, which gives flexibility to invest in growth options or undertake capital management initiatives. 
  • Focus on innovation across advertising businesses, which should help to sustain growth.
  • Strong management team.
  • Value accretive acquisitions in existing and new growth areas. 
  • Recent disclosure suggests GOOGL’s Cloud business building good revenue momentum. 

Key Risks:

  • Threat of increased regulatory scrutiny, including concerns around consumer privacy and personal data. 
  • Regulatory changes which impact the way GOOGL does business (e.g., forced changes to products). 
  • Expenses such as TAC (traffic acquisition costs) increase ahead of expectations and which the company is unable to pass onto customers.
  • Deterioration in economic conditions, which would put pressure on the advertising revenue.
  • Competition from companies like Facebook Inc., Amazon etc. could put pressure on margins. 
  • Potential return from investment on new, innovative technology fails to yield adequate results.

Key Highlights:

  • Revenue increased +13% (+16% in CC) to $69.7bn, driven by Search and Cloud.
  • Cost of revenues was up +15% to $30.1bn, primarily driven by costs associated with data centres and other operations.
  • Operating expenses were up +24% to $20.1bn, reflecting increase in R&D expenses driven primarily by headcount growth, growth in Sales & Marketing expenses driven primarily by increased spending on ads & promo followed by headcount growth, and growth in G&A reflecting increases in both professional service fees and in headcount, partially offset by a decline in charges related to legal matters.
  • Operating income was up +0.5% to $19.5bn, however, margin declined -340bps to 27.9%.
  • FCF was $12.6bn and $65bn for the trailing 12 months, with the Company ending the quarter with $125bn in cash and marketable securities.
  • Google Services revenue increased +10%, with Google Search and other advertising up +14% driven by both Travel and Retail, YouTube up +5%, Network advertising up +9% driven by AdSense and Other Revenues down -1%, reflecting decline in Play, primarily driven by the fee changes and slowdown in buyer spend, which combined with +12% increase in TAC delivered operating income growth of +2% and margin decline of -300bps was 36.2%.
  • Google Cloud revenues increased +36%, driven by GCP reflecting significant growth in both infrastructure and platform services and Google Workspace driven by solid growth in both seats and average revenue per seat, which combined with increase in employee compensation expenses saw operating loss widen +45%.  
  • Capital management. The Board repurchased 231.1m aggregate shares (21.2m Class A + 209.9m Class C) for $28.5bn during 1H22 and is left with authorized $58.9bn remaining for Class A and Class C share repurchases.

Company Description:

Alphabet Inc is headquartered in Mountain View, California, and provides online advertising services across the globe. It offers performance and brand advertising services through Google and Other Bets segments. The Google segment offers products, such as Ads, Android, Chrome, Google Cloud, Google Maps, Google Play, Hardware, Search, and YouTube, as well as technical infrastructure. This segment also offers digital content, cloud services, hardware devices, and other miscellaneous products and services. The Other Bets segment includes businesses, including Access, Calico, CapitalG, GV, Verily, Waymo, and X, as well as Internet and television services. 

(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

Telstra Corporation (TLS) provides telecommunications and information products and services

Investment Thesis:

  • Solid FY23 guidance.
  • Solid dividend yield. 
  • Despite intense competition, subscriber growth numbers remain solid. 
  • In the long-term, the introduction of 5G provides potential growth, however, to monitor the ROIC from the capex spend. 
  • TLS still commands a strong market position and has the ability to invest in growth technologies and areas (e.g., Telstra Ventures) which could provide room for growth.
  • Industry consolidation leading to improved pricing behavior by competitors. 

Key Risks:

  • Further cuts to dividends.
  • Further deterioration in the core mobile and fixed business.  
  • Management fails to deliver on cost-out targets and asset monetisation. 
  • Any increase in churn, particularly in its Mobile segment – worse than expected decrease in average revenue per users (or any price war with competitors).
  • Any network disruptions/outages.
  • More competition in its Mobile segment. Merger of TPG Telecom and Vodafone Australia creates a better positioned (financially and resource wise) competitor
  • Quicker than expected deterioration in margins for its Fixed segment.
  • Risk of cost blowout in upgrading network and infrastructure to 5G.

Key Highlights:

  • FY23 guidance consistent with previous guidance. Total Income of $23.0bn to $25.0bn.
  • Underlying EBITDA of $7.8bn to $8.0bn.
  •  Capex of $3.5bn to $3.7bn. 
  •  Free cash flow after lease payments (FCFalA) of $2.6bn to $3.1bn. 
  •  On underlying EBITDA, guidance is provided within TLS’ previous FY23 ambition range, plus a contribution from Digicel Pacific, which is included in all FY23 measures. 
  • Capex guidance includes ~$350m of strategic investments in inter-city fibre and for the Viasat contract, and ~$150m for Digicel Pacific.
  • Key Highlights by Product. Underlying EBITDA of $7,251m was up +8.4%. Relative to the pcp: Mobile. EBITDA of $3,997m, was up +21.2%. The mobiles business performed strongly with $700m EBITDA growth (which equates to an +21.2% uplift), 2.9% postpaid handheld ARPU growth and 6.4% mobile services revenue growth. The product line saw 155,000 net retail postpaid handheld services added.
  •  Fixed – Consumer & Small Business. EBITDA of $55m, was down -60.4% and according to management “continued to be impacted by the tail end of the nbn migration, however there is confidence that EBITDA has bottomed. While retail bundles reduced by 87,000, bundle and standalone data ARPU increased by 2.4%”. 
  •  Fixed – Enterprise. EBITDA of $660m, was up +2.3%. Enterprise returned to growth at both the income and EBITDA level. Fixed Enterprise EBITDA increased 2.3%, with NAS EBITDA growth of $152m offsetting declines in data access and connectivity. 
  • Fixed – Active Wholesale. EBITDA of $159m, was down -31.2%.
  • International. EBITDA of $387m, was up +15.2%. 
  •  InfraCo Fixed. EBITDA of $1,655m, was down -1.1%. Income was $2.4bn, with core access revenue up 3.1% including nbn recurring receipts up 3.3%. 
  • Amplitel. EBITDA of $294m, was down -2.0%. According to management “Amplitel was established as a standalone business with sale of a non-controlling 49% interest delivering net cash proceeds after transaction costs of $2.8bn. Amplitel revenue increased by 8.9%”. 
  • Other (Miscellaneous & Telstra Health). EBITDA of $44m, was down from $68m in the pcp. Telstra Health had a strong FY22 with revenue up 51% to $243m (which encompasses Medical Director and Power Health acquisitions.

Company Description:

Telstra Corporation (TLS) provides telecommunications and information products and services. The company’s key services are the provision of telephone lines, national local and long distance, and international telephone calls, mobile telecommunications, data, internet and on-line. Its key segments are Mobile, Fixed, Data & IP, Foxtel, Network applications and services and Media.

(Source: Banyantree)

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