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

Intellia Therapeutics’ Gene Editing Technology looks promising; FVE $85, shares undervalued

Business Strategy & Outlook

Intellia Therapeutics is a gene editing company focused on the development of CRISPR/Cas9-based therapeutics. Intellia’s technology platform specializes in Clustered Regularly Interspaced Short Palindromic Repeats (CRISPR)/Cas9, which precisely cuts DNA to disrupt, delete, correct, and insert genes to treat genetically defined diseases. CRISPR/Cas9 has created a new class of medicines, which are well suited for targeting rare diseases or other disorders that are caused by genetic mutations. CRISPR/Cas9 works by having CRISPR (pieces of DNA sequences) guide Cas9 (an enzyme that can cut and edit DNA) to edit, alter, or repair genes. Intellia is utilizing this gene knockout approach to remove unwanted proteins using its proprietary lipid nanoparticle delivery system. Intellia has leveraged its expertise in CRISPR/Cas9 gene editing to advance a pipeline of in vivo and ex vivo therapies for diseases with high unmet medical needs. The company’s proprietary technology has the potential to build blockbusters in rare diseases with limited treatment options available.

 Intellia currently has no approved drugs and a largely early-stage pipeline, so refrain from awarding the company an economic moat. Intellia’s most advanced in vivo candidates are NTLA-2001 for the treatment of transthyretin amyloidosis (ATTR) and NTLA-2002 for the treatment of hereditary angioedema (HAE). NTLA-2001 is part of a co-development and co-promotion agreement with narrow-moat Regeneron, in which Intellia is the clinical and commercial lead party and Regeneron is the participating party. Regeneron shares in 25% of worldwide development costs and commercial profits for the ATTR program. The Intellia will retain 75% of economic profits of NTLA-2001, if approved, and the company also has the expertise and financial support of Regeneron to offset some of the development costs. In addition, the NTLA-2002 is wholly owned by Intellia. The rest of Intellia’s pipeline is either in early (Phase 1) or pre-clinical stages of development. While Intellia does not currently have approved products, the company provides long-term investors with pure play exposure to gene editing.

Financial Strengths

Intellia Therapeutics is in fair financial health. The company has no approved products, so its revenue currently comes from collaboration payments. At the end of 2021, Intellia had just over $1 billion in cash, cash equivalents, and marketable securities, which is a healthy amount to support additional investments in the company’s pipeline. As an early-stage biotechnology company, Intellia has so far only operated at a net loss. The company will not achieve positive net income until 2026 due to its early-stage pipeline and the lengthy development and regulatory approval process.

Bulls Say

  • Intellia’s partnerships allow it to receive milestones and economic benefits from drug candidate progression while offsetting some of the clinical development costs. 
  • Intellia’s CRISPR/Cas9 platform has the potential to develop highly efficacious and curative treatments for rare, genetic diseases with high unmet needs, which will likely lead to pricing power if approved. 
  • The company’s pipeline as possessing strengthening intangible assets and assign it a positive moat trend.

Company Description

Intellia Therapeutics is a gene editing company focused on the development of CRISPR/Cas9-based therapeutics. CRISPR/Cas9 stands for Clustered Regularly Interspaced Short Palindromic Repeats (CRISPR)/CRISPR-associated protein 9 (Cas9), which is a revolutionary technology for precisely altering specific sequences of genomic DNA. Intellia is focused on using this technology to treat genetically defined diseases. It’s evaluating multiple gene editing approaches using in vivo and ex vivo therapies to address diseases with high unmet medical needs, including ATTR amyloidosis, hereditary angioedema, sickle cell disease, and immuno-oncology. Intellia has formed collaborations with several companies to advance its pipeline, including narrow-moat Regeneron and wide-moat Novartis.

(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.

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Technology Stocks

Ericsson may find licensing opportunities in non handset markets, and that licensing revenue will help bolster operating results

Business Strategy and Outlook 

Ericsson is a leading provider of hardware, software, and services to communications service providers. The company is excelling in 5G build-outs and gaining share. 5G may have a longer spending period than previous wireless iterations and Ericsson’s robust portfolio of hardware and software coupled with its industry-leading services business has it primed to take advantage of 5G network demand. The company has been on a turnaround mission after its 2015 apex. Ericsson is making wise strategic efforts and management’s prudent outlook after slashing its cost of goods and operating expenses while committing to exit or renegotiate unfavourable contracts is appreciable. The management team has properly focused the company on invigorating networking innovation while honing operational efficiency.

That said, it is not to be believed the CSP equipment provider industry lends itself to economic moats because CSPs multisource vendors and flex pricing power by pitting suppliers against each other. However, Ericsson’s restructuring and strategic efforts, combined with 5G demand, to create top-line and operating margin expansion. Ericsson’s efforts within software-defined networking will be fruitful as software becomes essential in a 5G world. Ericsson is to gain from 5G networks requiring many small-cell antenna sites to propagate the fastest transmission bands. Ericsson should profit from 5G networks creating more product use cases such as “Internet of Things’ ‘ devices in cars and factories. Network complexity will increase as firms control and monitor a rapidly growing quantity of Internet of Things devices, Ericsson’s software and services will be in high demand. The company also creates revenue from licensing patents that are essential in the production of 5G smartphones (as well as previous generations). Ericsson may find licensing opportunities in non handset markets, and that licensing revenue will help bolster operating results.

Financial Strength

Ericsson is a financially stable company after making drastic changes that put itself into a position to prosper after a tumultuous period that coincided with 4G infrastructure spending declines. Ericsson is to generate steady free cash flow and be judicious with its cash deployments. Ericsson finished 2021 with SEK 67 billion of cash and equivalents with a debt to capital ratio of 23%. Ericsson will repay its outstanding debts of SEK 32 billion, as of the end of 2021, on schedule. Ericsson is to focus its expenditures on R&D innovations while continuing to remove costs from its SG&A and product costs. As a percentage of revenue, R&D will remain in the midteens and SG&A in the low double digits. Ericsson has paid a steady dividend, although it dipped through its restructuring period, and the company will gradually increase its pay-out as operating margin improves. The company does not have any stock repurchase plans.

Bulls Say’s:

  • Ericsson’s turnaround measures are happening at an opportune time. Management’s focused strategy should expand operating margins while 5G infrastructure spending increases top-line results.
  • 5G may afford Ericsson a longer spending cycle and higher equipment demand than previous wireless generations. Additionally, 5G should create more use cases for Ericsson’s software and services within Internet of Things device networks. 
  • Income sources could diversify as licensing revenue from 5G patents may grow through applications outside of Ericsson’s handset manufacturer agreements.

Company Profile 

Ericsson is a leading supplier in the telecommunications equipment sector. The company’s three major operating segments are networks, digital services, and managed services. Ericsson sells hardware, software, and services primarily to communications service providers while licensing patents to handset manufacturers. The Stockholm-based company derives sales worldwide and had 95,000 employees as of June.

(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.

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Technology Stocks

Assa Abloy has significant growth potential as it benefits from structural changes

Business Strategy & Outlook

Assa Abloy has significant growth potential as it benefits from structural changes. There are two key drivers of future growth. An industrywide shift toward software-driven products, expanding functionality, and linking locking systems with other building systems. Second, emerging-market demand will move up the quality curve to more sophisticated locking solutions, in which Assa Abloy is a leader. If the spectrum of today’s locks were defined by a basic mechanical lock on one end and a software-controlled locking system on the other end, Assa Abloy’s product portfolio would be heavily weighted toward the latter. Advances in the past decade have expanded the functionality of lock systems to enable ever more precise access parameters, as well as enhanced identification of lock system users. For example, a building administrator would be able to provide a registered visitor with temporary access to a computer for a specified two-hour window on a particular day.

Technological improvements are shortening the upgrade cycle for locks, as customers are eager to implement new security-enhancing features. The shift toward software-driven locks will continue over the long term, with the company’s global technologies division forging the path. The division is experiencing good initial success in selling virtual keys, typically issued on a temporary basis to mobile phones. Asia and other emerging markets lag in locking solutions, with under penetration of electromechanical locks, such as those linked to a keycard reader. Pent-up demand in the region, combined with strategic acquisitions, fueled a fivefold increase in Assa Abloy’s Asia-Pacific revenue over the past decade, with organic revenue growth averaging 5% from 2005 to 2013 (before China’s property bust). For buildings with multiple daily users, there are obvious benefits from upgrading to more sophisticated systems that can track and limit building access. Asia and other emerging markets offer a long runway of demand for Assa Abloy’s products.

Financial Strengths

At the end of March 2022, the company’s net debt/EBITDA ratio was less than 2 times. Looking to the medium term, total debt maturities from 2023 to 2026 are around SEK 13 billion out of around SEK 25 billion in gross debt. Given the forecast for roughly SEK 16 billion in annual free cash flow, which would enable the company to pay down gross debt, in theory, in about two years.

Bulls Say

  • As the global leader in locking solutions, Assa Abloy is best positioned to capture the spoils from a secular shift toward integrated lock and other building systems.
  • The growing contribution of software-driven products should strengthen Assa Abloy’s margins and returns, as well as the stickiness of customer relationships, in the medium term. 
  • Accelerated adoption of electromechanical, digital, or smart locks should ease Assa Abloy’s path toward achieving its target of 5% organic growth over the business cycle.

Company Description

Assa Abloy has the world’s largest installed base of locks, protecting some of the most security-sensitive buildings, including the European Parliament in Brussels. Three fourths of its revenue come from government and commercial customers. The company’s product base is centered on electromechanical locks, which require identification to unlock with a keycard, biometric scan, or PIN. Assa Abloy’s products are sold directly to security systems integrators, locksmiths, hardware stores, and original equipment manufacturers

(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

Atlas Copco is a market leader with a focused product portfolio of mainly compressors and vacuum pumps

Business Strategy & Outlook

Atlas Copco is a market leader with a focused product portfolio of mainly compressors and vacuum pumps. These two product areas contribute around three fourths of revenue and four fifths of profit for the company. Its two smaller divisions, industrial technique and power technique, make up the remaining revenue. The company’s equipment is highly engineered, often with customization and application-specific variations. To that point, equipment sales are done by engineers. End markets for the company’s compressors are diverse, from automotive assembly to food processing. However, for vacuum pumps, semiconductor chip demand is the key driver. The electronics industry contributes two thirds of vacuum pump division revenue and, as a result, nearly one fifth of revenue for Atlas Copco at the group level.

 The economic cycle can cause short-term demand volatility, but the company’s flexible cost structure and large portion of service revenue underpin double-digit margin and returns throughout the cycle. Around 75% of its equipment components are outsourced. Maintenance services and spare parts contribute more than one third of group revenue. The company leverages its large service operations and trains its technicians to service competitors’ equipment as well as its own. The compressor division brings in the largest portion of service revenue at more than 40% of division revenue. The Atlas Copco’s compressor division is around twice as large as its closest competitor, Ingersoll Rand. Atlas Copco uses this near ubiquity to its advantage by acquiring other equipment and tool portfolios that it can sell to its air compressor base. Higher-volume production capabilities and an installed distribution channel allow the company to globalize the products of its acquired businesses at a lower cost than those operations could achieve by themselves.

Financial Strengths

Atlas Copco has a strong balance sheet, with around SEK 29 billion in gross debt and a net debt/EBITDA ratio of less than 1 times at the end of March 2022. Included in its debt is around SEK 11 billion in debt maturities through to 2026. However, one cannot see this as a risk as a forecast roughly SEK 22 billion in annual free cash flow for the medium term, which in theory would enable the company to pay down its total gross debt within three years.

Bulls Say

  • Atlas Copco’s tools are used in automation, including robotic applications, and offer some structural growth to an otherwise cyclical revenue stream. 
  • The expansion into vacuum technologies gives Atlas Copco exposure to long-term semiconductor growth. 
  • The company’s large, experienced service organization should help it to continue to gain share of service revenue across its own products and potentially competitors’ equipment, particularly for compressors.

Company Description

Atlas Copco is a 140-year-old Swedish company and a pioneer in air compression technology. Today, the company is still the world’s leading air compressor manufacturer, with around 25% market share. The company’s product portfolio includes power tools and vacuum pumps. For vacuum pumps, the semiconductor chip cycle is a key demand driver. The company generates revenue from three sources: initial equipment sales, spare parts, and maintenance. Its operations span 180 countries.

(Source: Morningstar)

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

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

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

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

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

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

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

Categories
Technology Stocks

Align has invested heavily to develop and market its offerings to juveniles and win over parents.

Business Strategy & Outlook

In the 25 years since Align was granted U.S. Food and Drug Administration approval for its clear dental aligners, the Invisalign brand has become synonymous with effective and discreet orthodontic treatment. The serviced addressable market comprises 15 million new orthodontic case starts each year, three fourths of which represent the teen market and the remainder adults. The Invisalign has achieved low-teens market penetration, largely due to its success at appealing to the adult market. Through two decades of research and development and an unrivaled database from roughly 10 million treated patients, Invisalign estimates that the system can treat over 90% of malocclusion cases (misaligned teeth), a substantially wider array of patients than seen with most other clear aligner firms.

Align is focused on disrupting the traditional metal braces market, which represents the lion’s share of the 21 million orthodontic cases today (over 80%), through innovation in customized 3D-printed clear aligners and industry-leading scanners and design software. The dental industry is still in the early stages in the shift to digital technologies, largely stuck to old workflows. Intraoral scanners, such as Align’s iTero device, combined with computer-aided design software (CAD/CAM) are typically seen as the gateway for dental providers to shift new case volumes over to clear aligners (nearly 90% of all Invisalign cases are submitted via digital scan). On the demand side, Align’s largest obstacle has been capturing a more meaningful share of the teen market (currently mid-single-digit penetration). In recent years, Align has invested heavily to develop and market its offerings to juveniles and win over parents, adding solutions for younger patients with mixed dentition, free replacement trays, and physical indicator “dots” that monitor treatment compliance. Additionally, Align has been focused on driving growth through treatments initiated by general practitioner dentists. While traditional metal braces are under the domain of orthodontists, clear aligner treatments offer a separate, incremental stream of revenue to the general dentist.

Financial Strengths

As of fiscal year-end 2021, cash and cash equivalents were $1.2 billion, and the company held no outstanding debt. One cannot have any concerns about Align’s ability to meet minimum purchase agreements with suppliers and do not foresee any liquidity issues facing the company. The free cash flow of $933 billion in 2022 and do not anticipate the firm initiating a dividend in the near term, as Align prefers to return capital to shareholders via share repurchases. The company has $650 million remaining under its existing share-repurchase plan, and recently announced it would use $200 million for accelerated repurchases.

Bulls Say

  • Align’s first-mover advantage has allowed the company to build a dominant market share and a brand synonymous with clear aligners. 
  • Align’s 10 million-plus treated patient data set is unrivaled by competitors and grants the company an edge in developing new indications of treatment. 
  • Invisalign starts saw a tailwind in 2021 as a result of the so-called Zoom effect, with a sharp uptick across cosmetic procedure categories.

Company Description

Align is the leading manufacturer of clear dental aligners globally, having pioneered the technology with the introduction of its Invisalign branded aligners in 1998. Since then, Invisalign has become a household name, having treated over 10 million patients with malocclusion (misaligned teeth) through orthodontist and dentist-guided treatment plans. The company maintains dominant market share of clear aligners, despite the introduction of direct-to-consumer competitors upon the expiration of key patents that began in 2017. Align also manufactures intraoral scanners (iTero), used for orthodontic treatment and restorative dental procedures (digital models for crowns, veneers, and implants).

(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

Tate & Lyle, is focused on the increasing use of alternative ingredients in food and beverage to remove unhealthy components

Business Strategy & Outlook

Tate & Lyle, or T&L, is focused on the increasing use of alternative ingredients in food and beverage to remove unhealthy components (sugar, fat, salt), improve nutritional credentials through added fiber, and increase the shelf life of products. The company has a narrow moat, as the efforts over the last few years to optimize the portfolio, culminating with the sale in 2022 of a controlling stake in the commoditized primary products business unit, have improved the company’s pricing power and competitive position. The company is a market leader in sweeteners, with ingredients that range from high intensity to natural sweeteners, supported by the need to cut calories in food and beverages. The opportunity is substantial as sugar still accounts for 80% of all sweeteners. As the replacement of sugar with more concentrated alternatives comes with significant challenges regarding the product’s mass, stability, and texture, the company’s complementary offering in mouthfeel and fortification is perfectly placed to provide comprehensive solutions for customers. 

T&L plans to continue building its expertise in these somewhat niche and interconnected segments of the specialty ingredients market, since other segments such as flavors are already dominated by large players such as Givaudan and IFF, with T&L unlikely to garner any competitive advantage. The above-average revenue growth as T&L steps up its research and development investment and expands the share of revenue coming from integrated solutions—its service-led platform where the company works closely with customers throughout the product development process, combining multiple ingredients to derive a customized solution that best addresses the customer’s needs. The company’s sucralose segment—with business-to-business sales of the Splenda brand—has seen pricing pressures following the entrance of Chinese players, which has led the company to reduce its capacity. The segment’s top-line growth prospects are likely inferior to the remaining business, but given its brand-related intangible assets, the segment can maintain its operating margin above 30%.

Financial Strengths

Tate & Lyle is in strong financial health. The company has low financial gearing, with net debt to adjusted EBITDA expected to be maintained below 1 time following the disposal of the primary products (commodity ingredients) business unit and a USD 800 million undrawn credit facility. Tate & Lyle will continue to generate healthy free cash flows, similar to other ingredient companies and the consumer staples sector as a whole. Acquisitions form an important part of T&L’s strategy as it looks to expand its portfolio and capabilities within its key areas of expertise of sweetening, mouthfeel, and fortification, with the company aiming to provide an even broader portfolio of solutions to customers as well as gain exposure to fast-growing natural ingredients. These acquisitions are primarily financed from free cash flow, which will enable T&L to maintain its solid financial position. Maintaining a relatively conservative balance sheet is wise as it enables the company to weather potentially volatile earnings and affords capacity for future acquisitions should the right opportunities arise.

Bulls Say

  • Tate & Lyle’s portfolio is well positioned to benefit from secular trends that see consumers demanding healthier, safer, cleaner-label products. 
  • The company has undergone extensive reorganization in order to improve profitability and returns on capital, such as withdrawal from the sugar business and commodity ingredients, allowing management to focus on high-value-added specialty ingredients. 
  • The company’s focus on niche, complementary areas of the food ingredients market could make it the supplier of choice for certain highly specified applications in food reformulation.

Company Description

Tate & Lyle is a global provider of food and beverage ingredients and solutions. Following the sale in 2022 of a controlling stake in its commodity ingredients business, as well as its exit from the sugar business a decade earlier, Tate & Lyle is now focused on specialty ingredients—sweeteners, starches, and soluble fiber. It has 2,700 employees and operates in over 140 countries, with most of its revenue generated in North America.

(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

Kone is increasing investments to connect most of its installed base to the cloud

Business Strategy & Outlook

As the market dynamics in China and Europe shift, the established relationships with developers and end users will protect Kone’s position as a top global elevator player. The company’s success in winning contracts for new elevator and escalator installations stems from a record of delivering tailor-made solutions that can save costs by shortening a building’s construction time, lowering energy use, or improving people traffic flow. In China, now the world’s largest elevator market, Kone has the number-one share in new installations, and in Europe the company is the second-largest competitor for new equipment. 

Winning new installations puts the company at a competitive advantage in securing maintenance contracts, which are more lucrative and important to long-term returns than new installations. In China, where it has now been present for 20-plus years, Kone shares the number-one position for maintenance contracts, and in Europe, the Middle East, and Africa, it is number three. As the original equipment manufacturer, the company is in a good position to win the associated maintenance contract on a new installation because it can offer lower downtime through the quickest access to spare parts, knowledge of its own equipment, and its long record of reliability. This last point is especially important in developing markets, where Kone’s European brand, associated with quality and safety, carries weight. Elevators have become more software-driven, enabling better usage management to lower energy costs or control access for security purposes. As with cars, increasing the sophistication of tools and skills needed to maintain software-enabled elevators has limited some third-party repair providers to servicing older models. Kone is increasing investments to connect most of its installed base to the cloud over the next few years, helping customers dynamically manage elevator and escalator flow as well as providing ongoing online diagnostics to minimize downtime. Once a customer signs on to cloud management, it will be even more unlikely to switch to a new service provider.

Financial Strengths

The company possesses a strong balance sheet, benefiting from a net cash position built by an asset-light business model and only modest acquisitions. Kone’s model of outsourcing most of its components lowers both the capital intensity of its business and the pressure on the balance sheet to finance future revenue with debt. Double-digit EBIT growth, combined with improvements in working capital, has doubled the company’s annual free cash flow generation over the past several years. The free cash flow to remain more than EUR 1 billion per year for the next several years.

Bulls Say

  • Kone’s well-known brand, combined with the market’s sensitivity to safety issues, should put it in a good position to retain a majority of its maintenance contracts in China. 
  • As the revenue mix in China moves away from new installations toward higher-margin maintenance contracts, Kone’s EBIT margin should expand. 
  • Replacement and modernization of aging elevators in Europe and North America should offset slowing revenue growth in the China business.

Company Description

Kone, whose name means “machine” in Finnish, is the world’s fourth-largest supplier of elevators and escalators. Kone began producing elevators in Finland in 1918 and today generates revenue in three ways: selling new elevators and escalators, overhauling or modernizing old equipment, and servicing its installed base. Most of the company’s profit comes from the last activity, where contracts are rolled over annually with built-in price increases. The bulk of the company’s business is in elevators, which are more numerous globally than escalators.

(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

UCB SATwilio has a long growth runway ahead as it continues to make strategic organic and inorganic investments to expand its platform

Young woman trading stock market by touching.

Business Strategy and Outlook 

Twilio is a cloud-based communication-platform-as-a-service, or CPaaS, company offering communication application programming interfaces, or APIs, and prebuilt solution applications aimed at improving customer engagement. Through these APIs, Twilio’s platform allows developers to embed messaging, voice, and video functionality into other applications. Twilio has a long growth runway ahead as it continues to make strategic organic and inorganic investments to expand its platform. In a go-to-market model that focuses on empowering developers to utilize the APIs to rapidly build and deploy solutions, Twilio has been able to expand into use-cases that would be difficult to penetrate otherwise. For common use cases, Twilio has developed applications, like Flex Contact Center, which combine various channel APIs into a unified interface to create use-case-specific solutions.

Twilio’s platform as an incrementally value-additive technology stack, with each layer of the stack building on top of and enhancing the prior. The foundational components of the stack are the Super Network, a global network of connections to carriers that provides efficient communication routing, and the Segment Customer Data Platform, which collects first-party data to assemble customer profiles that inform and optimize customer engagement. The communication channel APIs are deployed through the Programmable Communications Cloud and then are combined and expanded into application platforms in the Engagement Cloud to offer higher level functionality for specific use-cases. It can be viewed this full stack as best-in-breed in the CPaaS space, enabling deeply integrated, sticky communication solutions. Twilio has stellar customer metrics, with churn consistently below 5% and net dollar expansion in excess of 130% in recent years. Twilio’s market opportunity to be significant as the communications industry is still early in its transition to software-based communications. Twilio to lead the charge in the CPaaS space by continuing to gain share from legacy communication vendors and expanding into greenfield markets.

Financial Strength

Twilio’s financial position is sound. Revenue is growing rapidly, and the company is beginning to scale, while the balance sheet is in good shape. As of December 2021, the firm had cash and short-term investments of $5.4 billion and a debt balance of $986 million. In March 2021, Twilio issued $1.0 billion of senior notes, consisting of $500 million of 3.625% notes due 2029, and $500 million of 3.875% notes due 2031. In June 2021, the company redeemed its prior convertible notes, due March 2023, in their entirety. Since raising approximately $150 million in its IPO in 2016, Twilio has completed several secondary offerings, recently announcing a $1.8 billion offering of its Class A common stock in 2021. Twilio has yet to achieve GAAP profitability, as the company remains focused on reinvesting excess returns back into the company, both on an organic and inorganic basis, to build out the platform and enhance future growth prospects. Twilio does not pay a dividend, nor repurchase stock, and for a young company in a relatively nascent industry, it is appropriate that it focuses capital allocation on reinvestments for growth.

Bulls Say’s

  • The addition of SI partnerships and solution APIs should lead to increasing success in winning enterprise customers, which not only offer a greater lifetime value, but also tend to be stickier customers. 
  • Twilio has stellar user retention metrics, with churn consistently below 5% and net dollar retention north of 130% in recent years. 
  • As Twilio focuses on developing more solution APIs and growth shifts from usage-based messaging to SaaS-like priced solutions, there should be a natural uptick in both gross margins and recurring revenue.

Company Profile 

Twilio is a cloud-based communication platform-as-a-service company offering communication application programming interfaces, or APIs, and prebuilt solution applications aimed at improving customer engagement. Through these APIs, Twilio’s platform allows software developers to integrate messaging, voice, and video functionality into new or existing business applications. The company leverages its Super Network, Twilio’s global network of carrier relationships, to facilitate high speed cost-optimized global messaging and voice-based communications.

 (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

Musk Parting from Twitter Purchase, but Twitter Remains Attractive; FVE Downs to $47

Young woman trading stock market by touching.

Business Strategy & Outlook:   

Twitter has captured the attention of nearly 200 million daily active users, including prominent celebrities and public figures worldwide. Its access to, and interactions around, real-time information and content create value for its users and for advertisers. While Twitter user growth has accelerated since 2018, a potential slowdown remains a concern. Slower user growth could make higher user monetization more difficult as advertisers may allocate a bit more toward other platforms such as Snap, which has a faster-growing user base. Twitter might have carved out an economic moat. Twitter is an open distribution platform for (and a conversational one around) short-form text, image, and video content. Its users can access real-time information regarding a wide array of topics or news events. They can also share information and content, interact with content, and express their reactions to other Twitter users. These types of interactions allow Twitter to compile more data about its users, which is then licensed and/or utilized by Twitter and advertisers to launch online brands and targeted ads. 

While Twitter remains one of the main real-time online content distribution platforms, its user base is smaller than other social networks such as Facebook (including Instagram) and Snap’s Snapchat. As such, Twitter is not benefiting from increased spending on mobile and online video advertising as much as its peers. Product enhancements such as the Explore tab may have helped increase initial user engagement and improve user retention, but the firm’s potential network effect is weakening as its user base shrinks in size relative to rivals, which could lead to generating less data and drive advertisers to spend more on other platforms. However, Twitter has introduced some subscription products which could lessen dependence on ad revenue.

Financial Strengths:  

Twitter has a strong balance sheet with net cash of $5.9 billion. The firm generates cash from operations, and expects it to generate free cash flow going forward. Twitter’s free cash flow to equity/revenue ratio averaged 18% over the past three years, and they projected this ratio to improve to over 26% in 2025.

Bulls Say: 

  • Growth in ad revenue per user remains strong at Twitter, more than offsetting the deceleration in user growth. 
  • Agreements with various professional sports leagues provide a platform for interaction and conversation about the games, which may attract more premium content providers to use the Twitter platform. 
  • Investments in product enhancements and video content could return the monthly active user growth rate to the double digits.

Company Description:  

Twitter is an open distribution platform for and a conversational platform around short-form text (a maximum of 280 characters), image, and video content. Its users can create different social networks based on their interests, thereby creating an interest graph. Many prominent celebrities and public figures have Twitter accounts. Twitter generates revenue from advertising (90%) and licensing the user data that it compiles (10%). (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

Zendesk can be successful by simply providing robust software for a reasonable price and offering a credible alternative to those offered by its peers

Business Strategy and Outlook 

Zendesk is a leader in customer service and engagement software. It has a long runway for growth within its existing roster of clients as it continues to improve the feature set and add new solutions to the portfolio. The company is in the process of being acquired by two private equity firms for $77.50 per share. Zendesk was founded with a focus on simplicity and a desire to bring robust customer service functionality more quickly and more cheaply than existing solutions. The software was initially available only online and included free trials. This self-service approach, combined with a rich feature set, drove early traction in the SMB community. Over time, Zendesk began to employ a direct salesforce to attack the enterprise market, which is going towards the small end of enterprise customers. Larger customers drive about 40% of annual recurring revenue, or ARR. Enterprise buyers of software are stickier than SMB customers. That said, Zendesk already enjoys very high dollar retention in the 110%-120% range, which can be considered as very good.

Zendesk is successfully pursuing the typical land and expand approach to growth in that the firm lands at a new customer with one solution or a limited number of seats and increases the seat count or number of solutions over time. At its inception, Zendesk sold only its Support product, whereas today it has branched out to CRM, marketing automation, and others. Support remains the single largest solution, and even today approximately 80% of revenue is derived from existing customers. The market opportunity is substantial. Management believes its total addressable market, or TAM, is near $85 billion, and this market is still growing rapidly and could be up to three times larger in the long run. While the competition includes Salesforce.com, Microsoft, Oracle, and others, hence Zendesk doesn’t have to “beat” any of them. Their competitive overlap remains relatively small for now, and Zendesk can be successful by simply providing robust software for a reasonable price and offering a credible alternative to those offered by some of the larger peers.

Financial Strength

Zendesk is a financially sound company with a solid balance sheet, improving margins, and rapidly growing margins. Capital is generally allocated to growth efforts and acquisitions, with no dividends or buybacks on the horizon. As of December 2021, Zendesk had $1.0 billion in cash and marketable securities compared with $979 million in long-term debt. The company generated non-GAAP EBITDA of $220 million in 2021, representing leverage of 4.5 times. The company’s free cash flow to grow rapidly over the next several years. The debt is due in 2023 and is convertible into common shares, which will be the outcome. Zendesk does not pay a dividend and has not repurchased shares, nor is it expected for the company to do so within the next several years. The company makes small acquisitions from time to time, with a handful of deals totalling approximately a couple hundred million dollars over the last five years. These are feature additions or product expansion that supplements the company’s research and development efforts. While the size and frequency of deals may vary from year to year, the company is not going to change its acquisition strategy.

Bulls Say’s

  • The free trial, easier implementation, and rapid return on investment for Zendesk customers make for a compelling sales pitch. The company is also enjoying success moving upstream to larger customers. 
  • Zendesk does not have to beat out Salesforce.com or Microsoft, it just has to offer a viable alternative for larger SMB customers, which is already true. 
  • Zendesk’s track record of introducing new solutions in adjacent areas and upselling existing customers has driven strong revenue growth thus far, which will continue.

Company Profile 

Founded in 2007, Zendesk provides a portfolio of customer engagement software solutions via single applications or the Sunshine suite. Its software unifies customer communication and data across various channels and business units, and simplifies customer service and engagement across self-service, phone, chat, messaging, and email.

(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.