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

Not Much to Dislike About Pro Medicus’ Business Model, but Shares Screen Expensive

Business Strategy & Outlook

Pro Medicus’ strategy revolves around renewing existing contracts and winning new clients for its main product, Visage 7, while increasing its price point. The company won six out of six major public tenders it competed for in fiscal 2021, which often involved on-site pilot tests. While this likely highlights Visage 7’s current superior speed, scalability, and resilience, continued investment in R&D is imperative for the firm to remain at the forefront of innovation and consistently win contracts. Most of the firm’s expenses are allocated to over 40 software engineers with the main R&D center located in Berlin. The company also recently extended its R&D capability in New York in collaboration with NYU Langone Health in 2021. Its R&D efforts mostly revolve around software enhancements, program extensions, and research in artificial intelligence to assist in diagnosis. Many of Pro Medicus’ competitors already utilize server-side rendering and cloud-native architecture. Legacy systems are also mostly owned by larger competitors such as GE Healthcare, Fujifilm, and Phillips that will be incentivised by the high returns in the industry. In Australia, Sectra won a AUD 85 million 13-year deal over Pro Medicus with NSW Health for both its Radiology Information System, or RIS, and Picture Archiving Communications System, or PACS, in 2020. 

Visage 7 has found most success with U.S. academic hospitals and in fiscal 2022 was in nine out of the top 20 ranked U.S. hospitals, more than double its nearest competitor. While Pro Medicus has secured a few contracts with mid market U.S. hospitals such as Alleghany and Wellspan, wider uptake has been slow with Visage 7’s features likely superfluous for their normal operations. However, Pro Medicus is still targeting smaller radiology groups that seek to consolidate IT infrastructure and become more efficient. Currently, Visage 7 is limited to radiology departments, but Pro Medicus is aiming to extend the product set to other specialty departments including cardiology and ophthalmology. In addition, when winning contracts, the firm has other product offerings such as Open Archive or Visage RIS that it can cross-sell to clients.

Financial Strengths

Pro Medicus is in a strong financial position. As of June 2022, Pro Medicus had AUD 91 million in net cash, and the company is forecasted to continue holding net cash over the explicit 10-year forecast period. Despite having low capital intensity, net cash provides the firm with additional flexibility to pursue organic or acquisitive growth opportunities. Pro Medicus’ free cash flow generation is strong, with free cash flow prior to acquisitions and dividends averaging 93% of net income over the last five years. Free cash flow conversion is anticipated to remain relatively constant at 93% on average over the next 10 years. On this basis the company is expected to comfortably maintain a 50% dividend payout ratio, which is broadly consistent with the historical average.

Bulls Say

  • Pro Medicus is well positioned to benefit from industry tailwinds such as cloud adoption, larger datasets, and remote access. 
  • Earnings are extremely defensive due to contracted revenue being largely guaranteed over five to eight years from customers. 
  • The long-term growth opportunity is significant as most of the U.S. market still uses legacy systems and other geographies are largely untapped.

Company Description

Pro Medicus is a healthcare IT company specializing in radiology imaging software. Its main product, Visage 7, is a clinical desktop application that radiologists use to view, enhance, and manipulate images from any device and make a diagnosis. Its main customers are U.S. private academic hospitals. In fiscal 2022, Pro Medicus earned 79% of revenue in North America, 16% from Australia, and the remaining 6% in Europe.

(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

Synopsys Enjoys Being in Demand As Technical Complexity Persists; FVE Up to $343

Business Strategy & Outlook

Synopsys provides electronic design automation, or EDA, software, intellectual property, and software integrity products that are critical to the semiconductor chip design process. As secular trends toward artificial intelligence, 5G communications, autonomous vehicles, and cloud computing, among others, accelerate, Synopsys will benefit from both the rising complexity of chip designs and the advancing digitization of various end markets. The narrow-moat Synopsys has a long growth runway ahead as it continues to make strategic organic and inorganic investments to expand its platform amid a growing semiconductor landscape. The Synopsys’ products are transformational in enabling increasingly complex integrated circuit (IC) and system-on-chip (SoC) design. Advancing technologies require these more powerful, precise, and efficient chips, for which EDA software informs the end-to-end process. Synopsys is the largest player in the EDA space, and specifically in digital design as well. With a larger digital exposure, the Synopsys privy to higher growth vectors and as a result expected growth greater than that of top competitor Cadence. Outside of core EDA, Synopsys’ IP and SI businesses are benefiting from industry trends. As systems companies increasingly design their own differentiated silicon in-house, the Synopsys to benefit as its customer base expands beyond traditional semiconductor designers. This trend in achieving technological differentiation through chip customization to support IP adoption, as leveraging IP blocks for standardized components allows for significant time and resource savings and reallocation to differentiating components. Further, given the rising complexity of chip design, rising cost of failure, and increasing importance of software security, Synopsys’ growing SI business presents an important point of differentiation for the company. Reflecting the mission criticality of EDA tools, Synopsys exhibits negligible churn, with customer retention consistently at approximately 100%, and has relationships with all major chip design companies in the United States.

Financial Strengths

Synopsys is in a healthy financial position. As of January 2022, Synopsys had $1.1 billion in cash and cash equivalents versus $24 million in debt. The firm repaid its $75 million outstanding term loan balance in 2021 and is now solely liable for a 12-year credit agreement of approximately $33 million in aggregate, of which about $24 million is outstanding as of January 2022. One does not have any material concerns about Synopsys’ ability to finance this debt. Approximately 90% of Synopsys’ revenue is of a recurring nature, given that the firm primarily sells time-based licenses. Synopsys’ average license length is approximately three years, with periodic software updates delivered throughout the license’s term ensuring continued access to Synopsys’ evolving technology. The ratable revenue of time-based licenses tends to smooth returns compared with utilizing a perpetual license model, allowing for better visibility into the future of the business. Synopsys is profitable on both a GAAP and non-GAAP basis and demonstrates strong cash flows. Free cash flow margin has grown from 21% in fiscal 2017 to 33% in fiscal 2021, and return on invested capital is increasingly widening its spread above cost of capital. The margins continue to expand and believe management will deliver on its target of 100 basis points of annual non-GAAP operating margin expansion. The healthy growth in free cash flow as industry tailwinds lead to long-term growth for Synopsys.

Bulls Say

  • Secular tailwinds in chip design such as 5G, Internet of Things, AI, and others should increase demand for EDA tools and support growth for Synopsys. 
  • The growing Software Integrity business enables a larger TAM for Synopsys and addresses expanding demand for real-time identification of security vulnerabilities across the entire software development lifecycle. 
  • Synopsys provides mission-critical EDA software, having relationships with all major domestic chip designers and retention rates of approximately 100%.

Company Description

Synopsys is a provider of electronic design automation software, intellectual property, and software integrity products. EDA software automates the chip design process, enhancing design accuracy, productivity, and complexity in a full-flow end-to-end solution. The firm’s growing SI business allows customers to continuously manage and test the code base for security and quality. Synopsys’ comprehensive portfolio is benefiting from a mutual convergence of semiconductor companies moving up-stack toward systems-like companies, and systems companies moving down-stack toward in-house chip design. The resulting expansion in EDA customers alongside secular digitalization of various end markets benefits EDA vendors like Synopsys.

(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

Deere has exposure to end markets with attractive tailwinds

Business Strategy & Outlook

Deere offers customers an extensive portfolio of agriculture and construction products. It will continue to be the leader in the agriculture industry and one of the top players in construction. For over a century, the company has been the pre-eminent manufacturer of mission-critical agricultural equipment, which has  led to its place as one of the world’s most valuable brands. Deere’s strong brand is underpinned by its high-quality, extremely durable, and efficient products. Customers in developed markets also value Deere’s ability to reduce the total cost of ownership. The company’s strategy focuses on delivering a comprehensive solution for farmers. Deere’s innovative products target each phase of the production process, which includes field preparation, planting and seeding, applying chemicals, and harvesting. The company also embeds technology in its products, from guidance systems to seed placement and spacing and customized spraying applications. Deere is committed to expanding customer offerings and providing value-added services. Additionally, the management team will look to reduce the company’s cost structure as some markets have matured, providing an opportunity to rethink its footprint and create a leaner organization.

Over the past decade, the company has continually released new products and upgraded existing product models to drive greater machine efficiency. Customers also rely on the services that Deere provides, for example, machine maintenance and access to its proprietary aftermarket parts. Furthermore, its digital applications help customers interact with dealers, manage their fleet, and track machine performance to determine when maintenance is needed. Deere has exposure to end markets with attractive tailwinds. In agriculture, demand for corn and soybeans will be strong in the near term, largely due to robust demand from China and tight global supplies. On the construction side, the company will benefit from the $1.2 trillion infrastructure deal in the U.S. The country’s roads are in poor condition, which has led to pent-up road construction demand.

Financial Strengths

Deere maintains a sound balance sheet. On the industrial side, the net debt/adjusted EBITDA ratio was relatively low at the end of fiscal 2021, coming in at 0.4. Total outstanding debt, including both short- and long-term debt, was $10.4 billion. Deere’s strong balance sheet gives management the financial flexibility to run a balanced capital allocation strategy going forward that mostly favours organic growth and also returns cash to shareholders. In terms of liquidity, the company can meet its near-term debt obligations given its strong cash balance. The company’s cash position as of fiscal year-end 2021 stood at $7.2 billion on its industrial balance sheet. Deere has access to $5.7 billion in credit facilities. Deere can generate solid free cash flow throughout the economic cycle. The company can generate over $6 billion in free cash flow in the midcycle year, supporting its ability to return nearly all of its free cash flow to shareholders through dividends and share repurchases. Additionally, management is determined to rationalize its footprint by reducing the number of facilities in mature markets. If successful, this will put Deere on much better footing from a cost perspective, further supporting its ability to return cash to shareholders. The captive finance arm holds considerably more debt than the industrial business, but this is reasonable, given its status as a lender to both customers and dealers. Total debt stood at $38 billion in fiscal 2021, along with $38 billion in finance receivables and $829 million in cash. Deere enjoys a strong financial position supported by a clean balance sheet and strong free cash flow prospects.

Bulls Say

  • Higher crop prices encourage farmers to grow more crops and will lead to more farming equipment purchases, substantially boosting Deere’s revenue growth.
  • Deere will benefit from strong replacement demand, as uncertainty around trade, weather, and agriculture commodity demand has eased, encouraging farmers to refresh their machine fleet.
  • Increased infrastructure spending in the U.S. and emerging markets will lead to more construction equipment purchases, benefiting Deere.

Company Description

Deere is the world’s leading manufacturer of agricultural equipment, producing some of the most recognizable machines in the heavy machinery industry. The company is divided into four reportable segments: production and precision agriculture, small agriculture and turf, construction and forestry, and John Deere Capital. Its products are available through an extensive dealer network, which includes over 1,900 dealer locations in North America and approximately 3,700 locations globally. John Deere Capital provides retail financing for machinery to its customers, in addition to wholesale financing for dealers, which increases the likelihood of Deere product sales.

(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

CAR achieved strong revenue and earnings growth with double digit revenue and EBITDA growth in the US, South Korea and Brazil

Digital tablet display the stock market data

Investment Thesis:

  • Leading market position in online car classifieds. 
  • Overseas expansion provides new growth opportunities from the challenging core Australian market. 
  • Heavily reliant on two growth stories (South Korea and Brazil).
  • Diversified geographic coverage.
  • Bolt-on acquisitions provide opportunities 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:

  • 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). 

Key Highlights: 

  • FY22 Results Highlights. Relative to the pcp: Look-through revenue of $609m, up +36%. Look-through EBITDA of $324m, up +25%, on strong results and inclusion of Trader Interactive from September 2021.
  • Adjusted Revenue of $510m, up +16%, driven by strong domestic results in the Private and Media segments, growth in CAR’s Encar business in Korea and inclusion of revenue from tyre connect acquisition in July 2021. Adjusted EBITDA of $272m, up +7% (or excluding impact of wage subsidies in FY21, Adjusted EBITDA was up +10%). 
  • Adjusted NPAT of $195m, up +27% on strong contribution from Trader Interactive. Adjusted EPS of 69.0 cents, up +12%. 
  • On a reported basis, Revenue of $509m, up +19%, EBITDA of $270m, up +12% and NPAT of $161m, up +23% on pcp. Reported EPS of 56.9c, up 8%. 
  • CAR saw good cash flow with Reported EBITDA to operating cash flow conversion of 99%. 
  • The Board declared a fully franked final dividend of 24.5cps, up +9%.
  • Carsales Australia. Relative to the pcp and on a constant currency basis: Adjusted Revenue of $351.7m, up +10%, driven by Online Advertising revenue of $307.7m, up +11% and Data, Research and Services revenue of $44.1m, up +3%. Adjusted EBITDA of $227.2m was up +8%.
  • Dealer: 5% adjusted revenue growth to $183.8m was driven by growth in CAR’s online buying service, Carsales Select and Dealer Finance product heading into FY23, despite lockdowns in NSW and VIC in 1H22.
  • Private: +26% growth in adjusted revenue to $69.4m driven by strong uplift in private ad volume, private ad yield and Instant Offer penetration. 
  • Media: +15% uplift in adjusted revenue was driven by CAR’s strategy of diversifying into more native ad placements and non-automotive customer segments.
  • Data, Research & Services: Adjusted Revenue of $44.1m, was up +3% despite impact of lockdowns and ongoing inventory challenges for dealers.
  • Carsales International. CAR achieved strong revenue and earnings growth with double digit revenue and EBITDA growth in the US, South Korea and Brazil. Relative to the pcp and on a constant currency basis: Asia. Adjusted revenue of $95.4m, was up +17% and EBITDA of $48.1m, was up +12%, with management pointing to “strong product penetration growth across Guarantee, Dealer Direct and Encar Home. These products are expected to continue driving growth over the medium term”. 
  • Americas. Adjusted revenue of 6.0m was down -7%, whilst adjusted EBITDA was -$1.6m.

Company Description:

Carsales.com Ltd (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.

(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

JB Hi-Fi Ltd (JBH) delivered a very “JBH” type FY22 which highlighted solid performance in the key segments of JBH Australia and The Good Guys

Investment Thesis:

  • High quality retailer, however trading on a 2-yr forward consensus PE-multiple of ~13.2x, much of the benefits appear to be factored in (unless there’s an upgrade cycle). 
  • Being a low-cost retailer and able to provide low prices to consumers (JB Hi-Fi & The Good Guys) puts the Company in a good position to compete against rivals (e.g., Amazon). 
  • The acquisition of The Good Guys gives JBH exposure to the bulky goods market.
  • Market leading positions in key customer categories means suppliers ensure their products are available through the JBH network.  
  • Clear value proposition and market positioning (recognized as the value brand). 
  • Growing online sales channel. 
  • Solid management team – new CEO Terry Smart was previously the CEO of JBH (and did a great job and is well regarded) hence there are less concerns about the change in senior management. 

Key Risks:

  • Increase in competitive pressures (reported entry of Amazon into the Australian market). 
  • Roll-back of Covid-19 induced sales will likely see the stock de-rate. 
  • Increase in cost of doing business. 
  • Lack of new product releases to drive top line growth.
  • Store roll-out strategy stalls or new stores cannibalize existing stores. 
  • Execution risk – integration risk and synergy benefits from The Good Guys acquisition falling short of targets). 

Key Highlights:

  • Sales increased +4.0% to $6.2bn, with comparable sales up +3.4%. Sales momentum in the 2H22 was particularly strong with 3Q22 up +11.9% and 4Q22 up 11.6% YoY. Hardware and services sales were up +5%, with comparable sales up 4.3%.
  • The key growth categories were communications, driven by strong Apple iPhone 13 launch in the first half (with growth in both units and ASP), visual or TVs, small appliances (continued strength in stick vacs, robot vacs, coffee & kitchen appliances), and Smart Home. Gross profit was up +4.7% to $1,387.7m with GP margin up +15bps to 22.4% driven by strong improvements in the key categories (especially in 2H22). CODB of 11.4%, was up +21bps on the pcp. EBIT was up +4.2% to $544.9m, with margin of 8.79% essentially flat on pcp.
  • Sales were mostly flat (up +0.3%) on pcp at NZ$262.4m, however the segment had a solid 2H22 with sales up +6.3% YoY (3Q22 +4.8% & 4Q22 +7.7%). Gross Profit of NZ$45.7m was down -2.1% with GP margin down -43bps to 17.4%. CODB was 12.75%, down -36bps on pcp. Underlying EBIT (excluding impact of impairments) of NZ$4.7m was down -22.1% on pcp, with margin down -51bps to 1.77%.
  • The Good Guys. Sales increased +2.7% to $2.79bn, with comparable sales up +2.2%. Consistent with the rest of the group, the segment saw strong second half trading with sales up +5.5% in 3Q22 and +7.8% in 4Q22. Key growth categories included Laundry, Portable Appliances, Floorcare, Dishwashers and Visual. Online sales were up +53.7% to $397m (and now equates to 14.2% of total sales). Gross profit of $649.8m was up +6.8%, with GP margin up +89bps to 23.3% driven by improvement in key categories in the 2H22.

Company Description:

JB Hi-Fi Ltd (JBH) is a home appliances and consumer electronics retailer in Australia and New Zealand. JBH’s products include consumer electronics (TVs, audio, computers), software (CDs, DVDs, Blu-ray discs and games), home appliances (whitegoods, cooking products & small appliances), telecommunications products and services, musical instruments, and digital video content. JBH holds significant market-share in many of its product categories. The Group’s sales are primarily from its branded retail store network (JB Hi-Fi stores and JB Hi-Fi Home stores) and online. JBH also recently acquired The Good Guys (home appliances/consumer electronics), which has a network of 101 stores across Australia.  

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

Rolls Royce Holdings plc (RR) manufactures aero, marine and industrial gas turbines for civil and military aircraft

Investment Thesis:

  • Very high barriers to entry and Covid-19 are likely to improve industry structure (consolidation)
  • Consumer pent up demand for travel will return with a vaccine. 
  • Liquidity concerns have been addressed with the GBP5bn recapitalization program.  
  • Ongoing focus on R&D and innovation, which will drive further efficiencies.
  • Cost efficiency program to drive savings to support earnings. 

Key Risks:

  • Covid-19 impacts are deeper and more protracted than expected.
  • The Company fails to hit its near-term guidance. 
  • Défense and Power Systems fails to deliver organic growth. 
  • Economic downturn leading to reduced demand from airlines.  
  • Brexit uncertainty. 
  • Adverse currency movements outside hedging strategies. 
  • Regulatory / litigation risks. 

Key Highlights:

  • FY22 outlook remains unchanged. Despite a more uncertain environment, management confirmed FY22 guidance with revenue growth of low-to-mid single-digit driven by improvements in Civil Aerospace driven by higher large engine sales and increases in shop visits, operating profit margin remaining broadly unchanged y/y and FCF being modestly positive. (Refer to Figure 1 for detailed guidance)
  • Managing external inflation/supply chain challenges successfully. Though RR isn’t immune to the impact of global supply chain challenges and cost inflation, management continues to successfully manage these by making innovative changes to manufacturing processes to manage rising costs and supply chain bottlenecks (e.g., repairing and reusing spare parts, de-risking customer deliveries by temporarily increasing inventories) and by partnering with key suppliers to ensure contractual pricing protection in place through long-term contracts.
  • Sale of ITP Aero to close soon. The Company received all the required regulatory approvals for the sale of ITP Aero, with the transaction expected to complete in the coming weeks and proceeds to be used to reduce debt by repaying early the £2bn loan, which is supported by an 80% guarantee from UK Export Finance and remains only drawn debt exposed to interest rate movements.
  • Capital management. Balance sheet remained strong with liquidity of £7.3bn including £2.8bn in cash, equating to netdebt of £5.1bn including £1.9bn leases with no significant debt maturities before 2024. Shareholder returns remain scrapped with no interim dividend for FY22.
  • Cashflow profile – management warns of headwinds in FY23. FCF was an outflow of £68m vs an outflow of £1.2bn in pcp, driven by higher Civil Aerospace EFH receipts and increase in payables, with the company experiencing limited impact from concession payments amid further delays in 787 deliveries and the associated concession payments. However, management warned of a larger headwind in FY23, by continued low receipts from Trent 1000 new engine deliveries as Boeing continues to manage its own inventory.

Company Description:

Rolls Royce Holdings plc (RR) manufactures aero, marine and industrial gas turbines for civil and military aircraft. The Company designs, constructs, and installs power generation, transmission and distribution systems and equipment for the marine propulsion, oil and gas pumping and defence markets. The Company operates three main segments: (1) Civil Aerospace; (2) Defence Aerospace; and (3) Power Systems.

(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

Amazon.com Inc (AMZN) is a multinational technology company focusing on e-commerce, cloud computing and artificial intelligence

 Investment Thesis:

  • Well positioned as a market leader in e-commerce and cloud computing.
  • Strong operating cash flow profile provides the Company with a significant amount of flexibility. 
  • Large base of loyal customers.
  • Strong senior executive team.
  • Entry into new regions (e.g. India) – although this is not without risk.
  • Re-accelerating investment expenditure should be positive for future revenue and earnings growth. 

Key Risks:

  • It is a complex business with a lot of moving parts, thus forecasting future earnings can be difficult. 
  • Further de-acceleration in advertising revenue.
  • Increased investments fail to yield adequate returns to justify AMZN’s trading multiples. 
  • Increased e-commerce competition domestically and internationally.
  • Decrease in operating margins of AWS due to increased competition and price cuts.
  • Increased regulatory scrutiny (India being a good example).
  • Increase in overheads like free shipping and higher labour cost leading to margin contraction.  

Key Highlights: 

  • Strong growth in AWS – leading the $200bn cloud market. Having established itself as an early leader in the market for cloud infrastructure, AWS continued to lead the pack in 2Q22 (according to estimates from Synergy Research Group, AWS’s market share in the worldwide cloud infrastructure market amounted to 34%, exceeding the combined market share of its two largest competitors, Microsoft Azure and Google Cloud with shares of 21% and 10%, respectively) and saw remaining cloud contract commitments jumping +65% to $100.1bn, with an average deal life of 3.9 years, as global cloud infrastructure service spending climbed to $55bn, bringing the industry total for the trailing twelve months to more than $200bn. Though AWS should face near-term headwinds from high inflation (energy costs + wage pressures), strengthening $US and a decline in IT budgets if a recession hit (especially by start-ups and newer tech companies as VC funding comes under pressure), the underlying growth in cloud usage to continue to grow at truly impressive rates with AWS’ leading market position helping it remain a major beneficiary. Additionally, margin expansion should come from scale and as higher-value services (PaaS products like databases, machine learning, security etc) become a bigger portion of revenue (according to IDC ~77% of AWS revenue in FY21 was generated from IaaS products, which are commoditized offerings and continue to face pricing pressure in the industry).
  • Focusing on the bottom line. Management continued to work on improving margins, noting “one have moved to adjust the staffing levels and improve the efficiency of significantly expanded operations network and have slowed 2022 and 2023 operations expansion plans to better align with expected customer demand…on the transportation side, to improve delivery route density and improved package deliveries per hour and see opportunity to further improvement in 2H22…one can expect fixed cost leverage to improve in the 2H22, as to grow into the capacity and have also taken steps to slow future network capacity additions.”
  • 3Q22 outlook. Management expects; Net sales of $125-130bn, up +13-17% y/y, including an unfavourable impact of ~390bps from FX. 
  • Operating income of $0-3.5bn vs $4.9bn in pcp and $3.3bn in 2Q22, with $1.5bn q/q sequential cost improvement in fulfilment network operations largely offset by investments in AWS (higher infrastructure investments to support continued strong customer growth and increased energy costs) and additional digital content for Prime members.

Company Description:

Amazon.com Inc. (AMZN) is a multinational technology company focusing on e-commerce, cloud computing and artificial intelligence. It is the largest e-commerce marketplace and cloud computing platform in the world as measured by revenue and market capitalization. The company operates through three segments; North America, International and Amazon Web Services (AWS).

(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

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)

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