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

Cintas Reports Strong Q4 2022 and record full-year revenue

Stock market information

Business Strategy & Outlook

Cintas is the dominant provider in the $16 billion U.S. uniform rental/sales and related ancillary-services industry. It enjoys a roughly 43% market share, and no singular end market comprises a significant portion of total revenue. Despite its already impressive position, the Cintas will grow over the next 10 years. The firm constantly considers new product lines while emphasizing cross-selling to its existing customers. About 60% of its annual sales growth derives from new client wins, and at $4 billion-$5 billion, the remaining unvented market remains sizable, and the G&K acquisition added 170,000 uniform rental clients to Cintas’ book of business. Cintas’ first aid and safety segment benefited from a high growth of PPE sales in fiscal 2021 due to COVID-19. Now, as fiscal 2023 and COVID-19 are more under control, the segment mix-up continues to return to a more traditional level. And this is favorable for Cintas since traditional items like first aid cabinets post higher margins. The projected sales in the segment will grow at an approximately 9% CAGR over the next 10 years. 

Cintas is a highly cyclical business; its uniform rental segment moves closely with U.S. employment trends, and given the current market environment, the expected revenue will continue to increase in fiscal 2023 after strong growth in fiscal 2022. The firm recovered quickly after the 2009 recession, with revenue exceeding pre-recession levels by fiscal 2012, and Cintas still generated economic profits despite maintaining revenue losses for five straight quarters. Management has navigated this tough economic environment well over the last year, and cost management has been impressive. Despite the labor shortages that some of its customers are facing, demand remains robust and momentum seems strong, with more than 11 million job openings in the country. The midcycle revenue growth to be 7.4% and mid cycle operating margins to be 20.6% in fiscal 2032.

Financial Strengths

The Cintas’ balance sheet to be healthy. At the end of the fiscal 2022 (ended May 31, 2022), the firm posted $90 million in cash and equivalents and about $2.5 billion of total long-term debt. Solid free cash generation will enable the firm to continue reducing leverage as desired in the years ahead. Cintas’ debt/EBITDA was near 1.41 times at the end of fiscal-year 2022, versus 1.43 times at the end of fiscal 2021 and 1.65 times at the end of fiscal 2020–$1.5 billion dollars of debt will mature in fiscal 2023, followed by about $50 million of debt maturing in 2025 and $1 billion in 2027.

Bulls Say

  • Cintas’ industry-leading operating efficiency stems from its significant scale-based cost advantages, achieved through superior route density. 
  • The firm’s impressive sales execution is supporting robust new business wins and greater penetration among existing customers. It’s also helping Cintas to realize material cross-selling opportunities with the former G&K operations. 
  • There is still ample opportunity for expansion, as companies in the sizable unvended market look to outsource their uniform programs and facilities services.

Company Description

In its core uniform and facility services unit (79% of sales), Cintas provides uniform rental programs to businesses across the size spectrum, mostly in North America. The firm is by far the largest provider in the industry. Facilities products generally include the rental and sale of entrance mat, mops, shop towels, hand sanitizers, and restroom supplies. Cintas also runs a first aid and safety services business (11% of sales), a fire protection services business (6% of sales), and a uniform direct sales business (4% of 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.

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Technology Stocks

Nokia is a key provider of telecommunication hardware, software, and services to communication service providers

Laptop with chart on its display at workplace of economist

Business Strategy & Outlook

Nokia is a key provider of telecommunication hardware, software, and services to communication service providers. CSP equipment spending provides robust growth during generational wireless upgrade cycles followed by spending lulls, with 5G being the latest tailwind. 5G’s promise of connecting billions of wireless devices at incredible speed across more spectrum bands, along with more use cases than 4G, may offer Nokia more upside than previous wireless generations. However, one does not view Nokia’s core market as moat supportive because CSPs typically multisource equipment and possess purchasing power over their vendors. Nokia has a fundamentally strong strategy to remain a leader in its competitive environment after bloated initial 5G costs caused the firm to overhaul its products. 

Nokia’s core operation should benefit from 5G network infrastructures requiring more hardware to cover the increased quantity of spectrum bands and transmit at the highest speeds. Nokia’s solutions could appeal to a wider client base as industries integrate “Internet of Things” devices into their networks and enterprises build private wireless networks. The healthy demand for Nokia’s software and service offerings as software-defined networking becomes commonplace and customers desire solutions to optimize increasingly complex networks. Nokia’s technology segment creates revenue through licensing critical communication patents and receiving royalty payments through HMD’s Nokia-branded smartphone sales. Nokia has license agreements with leading 5G handset manufacturers, and the company has stated its intention to pursue licensing in industries such as automotive and consumer electronics. Alongside selling more enterprise private wireless networks, the 5G networks and Internet of Things device propagation offer Nokia a chance to be less reliant on CSPs’ generational network upgrade spending.

Financial Strengths

After taking corrective actions to remove excess costs in its 5G products, Nokia is a financially stable company that generates positive free cash flow as 5G networks are built out. While Nokia primarily funnels cash toward organic development, sales, and marketing efforts, the company has made minor acquisitions since its large Alcatel-Lucent purchase in 2015, and Nokia is well positioned to bolt-on smaller software, Internet of Things, or related technology firms as needed. Nokia finished 2021 with EUR 9.3 billion in cash and equivalents with a debt to capital ratio of 21%, and the company to repay its debts on schedule. As 5G networks are rolled out alongside cost-extraction efforts, the revenue growth to outpace operating expenditures as Nokia capitalizes on up-front 5G innovation expenditures while strengthening operational efficiencies. After pausing its dividend to fix bloated product costs in 2019, Nokia announced a plan to restart payments in 2022, alongside a buyback program.

Bulls Say

  • 5G should have more uses and a longer build-out cycle than previous wireless generations. Internet of Things device proliferation, from autonomous vehicles to smart factories, should broaden the demand for Nokia solutions. 
  • Nokia’s moving away from an end-to-end networking portfolio could be aligned with purchasing preferences. Its focus on software for 5G networks is wise, as enterprises may require custom data analytics and optimized networks. 
  • 5G may create licensing opportunities outside of handsets, and Nokia royalties could grow via a resurging smartphone brand.

Company Description

Nokia is a leading vendor in the telecommunications equipment industry. The company’s network business derives revenue from selling wireless and fixed-line hardware, software, and services. Nokia’s technology segment licenses its patent portfolio to handset manufacturers and makes royalties from Nokia-branded cellphones. The company, headquartered in Espoo, Finland, operates on a global scale, with most of its revenue from communication service providers.

(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

One-Off Costs dent Wartsila’s Profitability Despite Strong H1 demand; FVE reduced to EUR 10.80

Business Strategy & Outlook

The decarbonization of the marine and energy market has created new business opportunities for Wartsila. The company has invested significantly in anticipation of these trends, ensuring its marine engines are compatible with a wide range of environmentally friendly fuel types, while also emerging as one of the top three players in the energy storage market. A broad range of solutions that help customers reduce their carbon emissions will help grow their installed base and provides a foundation to perform recurring aftermarket services, which is less susceptible to the highly cyclical marine newbuild market and mitigates the shift toward renewable energy, away from Wartsila’s traditional thermal engine business. Both the marine and energy segments have potential to grow the contribution of revenue from services by moving up the service ladder toward performance-based agreements. Wartsila has increased its level of research and development expenditure as well as making significant investments into the Energy Storage business to help offset the declining demand for its thermal energy engines resulting from the shift to renewable energy sources. 

The energy storage business has yet to achieve scale and is loss-making and thus the path toward Wartsila’s 12% operating margin target seems difficult to achieve in the short term, as the shift in product mix toward energy storage has a dilutive impact on margins. A recovery in marine markets has supported strong demand for Wartsila’s equipment and services. Demand is expected to remain robust due to regulatory pressure aimed at reducing the carbon footprint of the marine sector, which will create a wave of shipbuilding and retrofit activity. In addition, Wartsila’s important cruise vessel category market stands to benefit from the reactivation of vessels due to the easing of travel restrictions that will support the service business. Working capital efficiencies have placed Wartsila in a healthy financial position, ensuring the majority of profits are returned to shareholders through dividends, helping to mitigate the potential downside for shareholders if new business opportunities fail to transpire.

Financial Strengths

Wartsila is currently in a stable financial position and only has EUR 4 million of net debt. Net Gearing of 0.0 falls comfortably below the company’s target of 0.5 times. Wartsila’s conservative balance sheet has allowed the company to consistently return the majority of profits to shareholders irrespective of the cyclicality of its end markets and without compromising on investments in growth initiatives. Wartsila’s healthy balance sheet allows the company to continue to invest into the fast growing but loss-making energy storage business to help it achieve scale.

Bulls Say

  • Regulatory requirements are likely to spark a new wave in shipbuilding activity and decarbonization retrofits, which, combined with Wartsila’s investments in fuel agnostic engines, would see an increase in demand. 
  • Approximately half of the group’s sales are from aftermarket activities, which are more predictable, thus reducing the cyclicality of demand from its marine and energy end markets. 
  • The reactivation of cruise vessels driven by the removal of travel restrictions will support demand for Wartsila’s services and spare parts.

Company Description

Wartsila is a global manufacturer of critical equipment and services for the marine and energy markets with operations in over 70 countries. Approximately one half of the group’s sales are derived from the sale of services and spare parts through its network of 258 sales and service network locations. Wartsila is listed on the Nasdaq Helsinki exchange in Finland. Approximately 1 in 3 oceangoing vessels has a Wartsila solution on board, translating into an installed base of over 50,000 vessels and 10,000 customers.

(Source: Morningstar)

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

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

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

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

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Technology Stocks

Seagate will try to create new growth opportunities through its module-like Lyve platform, which layers software onto multiple drives

Business Strategy and Outlook 

Seagate is a leading designer and manufacturer of hard disk drives used for data storage in consumer and enterprise applications. Seagate is successfully transitioning its portfolio to focus on mass-capacity drives for cloud providers and enterprises as consumer applications for legacy HDDs switch to faster flash-based solid-state drives. There is a continued demand for mass-capacity drives over the next five years as enterprises look to capture more data and use a multi tier storage approach, implementing both mass-capacity HDDs and smaller enterprise-grade SSDs as complements in data centres. Seagate has consistently driven costs down for its mass-capacity HDDs by advancing to larger capacities, and it will continue to do so by leveraging new technologies like heat-assisted magnetic recording. Mass-capacity HDD demand is to offset declines in consumer HDDs over the next five years, but Seagate’s drives doesn’t allow it to establish an economic moat. The HDDs are commodity like even at the enterprise level, with Seagate and Western Digital matching each other’s technological roadmaps and competing with one another for volume, preventing both from earning pricing power. In periods of tight supply and favourable pricing, the firm can earn excess returns on invested capital, but when the market hits oversupply, pricing falls, bringing Seagate’s economic profits with it.

Seagate will focus on expanding to new capacities for its enterprise drives while implementing new technologies like heat-assisted magnetic recording that will help it drive costs down and expand margins. Still, technological advancements like these will be matched by rivals and won’t shield Seagate from cyclical market downturns. Longer term, there will be demand for mass-capacity drives to slow as the cost gap with enterprise SSDs narrows further. Seagate will try to create new growth opportunities through its module-like Lyve platform, which layers software onto multiple drives, but isn’t large enough to offset a secular decline in HDD sales.

Financial Strength

Seagate to focus on generating free cash flow to finance its obligations and send capital back to shareholders. As of the end of fiscal 2022, Seagate carried $5.6 billion in gross debt and $600 million in cash. The firm is to fulfil its obligations with its free cash flow, an average of $1.6 billion in free cash flow annually through fiscal 2027, and Seagate has less than $600 million in principal due annually over the same period. If Seagate were to run into a liquidity or cash flow crunch, it has $1.5 billion available under its revolving credit facility. After paying its obligations, Seagate will focus on sending the remainder of its cash flow back to shareholders in the form of its consistent dividend and repurchase program. Seagate aims to increase its dividend by 3% annually and send 70% of free cash flow back to shareholders, inclusive of its dividend and repurchases.

Bulls Say’s

  • There is strong demand for Seagate’s nearline drives which will power mid-single-digit top-line growth in the short term as enterprises look to store the growing amount of data they generate. 
  • Advancements to larger capacities and new technologies like HAMR to modestly expand Seagate’s midcycle gross margin. 
  • Seagate has maintained a trailing 12-month dividend yield above 3% every fiscal year since 2016, making it a leader among the technology coverage.

Company Profile 

Seagate is a leading supplier of hard disk drives for data storage to the enterprise and consumer markets. It forms a practical duopoly in the market with its chief rival, Western Digital; they are both vertically integrated.

(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

Wipro’s Profitability Bottoms Out in Q1 as Pipeline Stronger Than Ever

Business Strategy & Outlook:    

Wipro is a leading global IT services provider with the typical menu of offerings, from software implementation to digital transformation consulting to servicing entire business operations teams. Wipro merits a narrow economic moat rating, similar to many of its peers, as it benefits from switching costs and intangible assets, although it is benefiting from a cost advantage. While the company will likely struggle amid the COVID-19 pandemic, its stable moat trend will stay secure. Forays into the higher-value realm of industrial engineering will help ensure that Wipro does not miss out on substantial growth trends in the overall IT services industry. In many regards, there’s uncanny resemblance between Wipro and its Indian IT services competitors, Infosys and TCS, such as in its offerings, offshore leverage mix (near 75%), or attrition rates (near 15%). However, Wipro has pockets of solutions where it distinguishes itself. For instance, its robotic process automation services are considered to rank above all other peers according to several sources, including Forrester Research. 

Wipro isn’t unusual for being an IT services provider with switching costs and intangible assets. These are founded on the intense disruption that customers would experience when changing their IT services provider as well as Wipro’s specialized knowledge of the industry verticals it caters to and the distinct knowledge of its customers’ web of IT piping. But besides these two moat sources, Wipro benefits more from a cost advantage (only allotted to Indian IT services companies) based on its labor arbitrage model. While benefits from such a cost advantage will diminish over time as the gap between Indian wage growth and GDP growth in primary markets narrows, Wipro’s moat is secure as the company’s foray into higher-value offerings and increasingly automated solutions offsets this trend.

Financial Strengths:  

Wipro’s financial health is in good shape. Wipro\ had INR 350 billion in cash and cash equivalents as of March 2021 with debt totaling INR 83 billion. Wipro’s cash cushion will remain healthy, as free cash flow is expected to grow to INR 118 billion by fiscal 2026. This should allow for continued share buybacks and acquisitions. Share buybacks, forecasted over the next five years will average INR 50 billion each year. The forecasted acquisitions over the next four years following fiscal 2022 will average INR 9 billion each year. While the forecasted dividend increases over the near term, Wipro will have more than enough of a cash cushion to undergo any dividend raises as desired without needing to take on debt.

Bulls Say: 

  • Wipro could benefit from greater margin expansion than expected as more automated tech solutions decrease the variable costs associated with each incremental sale.
  • Wipro should profit from a wave of demand for more flexible IT infrastructures following the COVID-19 pandemic, as more companies seek to be prepared for similar events. 
  • As European firms become more comfortable with outsourcing their IT workloads offshore, Wipro should expand its market share in the growing geography.

Company Description: 

Wipro is a leading global IT services provider, with 175,000 employees. Based in Bengaluru, this India IT services firm leverages its offshore outsourcing model to derive over half of its revenue (57%) from North America. The company offers traditional IT services offerings: consulting, managed services, and cloud infrastructure services as well as business process outsourcing as a service.

(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

ASML’s immersion lithography tools allowed the company to capture and maintain the leading position in the marketplace

Business Strategy and Outlook

ASML is the leader in photolithography equipment for semiconductor manufacturers. It is to materially benefit from the proliferation of extreme ultraviolet, or EUV, lithography and the uncertainty concerning the long-term extent of EUV insertion has sufficiently diminished to justify a wide moat rating. Photolithography is the process in which a light source is used to expose circuit patterns from a photomask onto a semiconductor wafer. A photomask is a flat, transparent quartz plate containing the microscopic circuit pattern. The latest technological advances in this field allow chipmakers to pursue Moore’s law and continually increase the number of transistors on the same area of silicon. Lithography tools account for a significant portion of chipmakers’ capital expenditures, with EUV platforms exceeding $150 million in price. ASML’s immersion lithography tools allowed the company to capture and maintain the leading position in the marketplace, while competitors like Nikon and Canon do not have the scale or resources to compete at the cutting-edge. Traditional immersion lithography approached its limits years ago, and chip makers adopted non litho workarounds, such as multiple patterning that uses advanced etch and deposition tools from other equipment firms.

To continue pursuing Moore’s law, chipmakers will require EUV lithography tools. EUV uses lower-wavelength light (13.5-nm versus 193-nm for current immersion tools) and simplifies the process flow (3 to 6 times cycle time reduction as a result of fewer steps and 15% to 50% cost reduction compared with multiple patterning schemes). The top three customers of the firm (Intel, Samsung, and Taiwan Semiconductor) committed to help fund a portion of research and development for EUV technologies and acquired an aggregate 23% minority equity stake in ASML in 2012 (though these stakes have come down over time). EUV industrialization in high-volume semiconductor production is now a reality, with the technology having been implemented for a few process steps at certain 7-nanometer process nodes at TSMC and Samsung and more meaningfully in each foundry’s 5-nm process technologies.

Financial Strength

ASML has a strong financial position. At the end of 2021, the company had EUR 7.6 billion in cash, cash equivalents, and short-term investments and EUR 4.1 billion in long-term debt on its balance sheet. This debt position is not an issue given ASML’s typical cash generation. The firm typically holds a significant cash position, which is appropriate given the cyclical nature of the semiconductor equipment industry. During downturns, the cash cushion allows ASML to continue investing heavily in research and development in order to maintain its cutting-edge technology position. This is especially critical in the highly arcane wafer fabrication equipment market, where companies that failed to stay at the technological forefront have seen their competitive positions erode in the past, though ASML’s dominance in lithography is unlikely to be challenged by Nikon or Canon. ASML generally returns excess cash to shareholders via annual dividend payments and share buybacks. At the end of 2021, ASML doubled its annual dividend to EUR 5.50. In July 2021, the firm announced a new share buyback program for 2021 to 2023 of up to EUR 9 billion.

Bulls Say’s

  • ASML is the market leader in photolithography, an integral part of chip manufacturing, and is pioneering EUV lithography for the next wave of Moore’s law. 
  • The extensive technical expertise needed to develop lithography tools, which are highly complex and play a critical role in enabling Moore’s law, serves as a major barrier to entry. 
  • ASML has focused on operational efficiency in recent years to improve profitability throughout the industry cycle.

Company Profile 

Founded in 1984 and based in the Netherlands, ASML is the leader in photolithography systems used in the manufacturing of semiconductors. Photolithography is the process in which a light source is used to expose circuit patterns from a photomask onto a semiconductor wafer. The latest technological advances in this segment allow chipmakers to continually increase the number of transistors on the same area of silicon, with lithography historically representing a meaningful portion of the cost of making cutting-edge chips. Chipmakers require next-generation EUV lithography tools from ASML to continue past the 5-nanometer process node. ASML’s products are used at every major semiconductor manufacturer, including Intel, Samsung, and TSMC.

(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

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

LONDON, UNITED KINGDOM: Analysts work on the trading floor at Goldman Sachs in London, 22 March 2004. AFP PHOTO / ODD ANDERSEN (Photo credit should read ODD ANDERSEN/AFP via Getty Images)

Business Strategy and Outlook 

SAP is a best-in-breed enterprise resource planning provider and holds dominant market share in global ERP software. However, SAP is phasing out its support of its on-premises ERP software such that by 2030 all of its ERP customers will need to shift to a cloud solution. This vulnerability is a significant threat to SAP’s switching costs, as competitors like Workday offer compelling cloud ERP solutions, while forced migration opens up opportunity to question a company’s best fit for ERP needs. In turn, SAP’s narrow moat, derived from its switching costs, is trending negative. However, it is still early in SAP’s transition of on-premises users to the cloud, which leads us to believe its negative trend could be prolonged.

ERP is not SAP’s only offering. The company offers software in its so-called intelligent spending category, which includes Ariba and Concur, which cater to procurement and travel and expense reporting. While ERP and intelligent spending software caters to operational data–otherwise known as O data–SAP also provides solutions around X data, or experience data. SAP has further entrenched itself in X data with its acquisition of Qualtrics experience management software. But, regardless of which type of data is flowing through SAP software, this data can be stored in SAP’s database offering, HANA, which is the only database compatible with SAP’s cloud ERP, S/4HANA (unlike on-premises ERP’s former database interoperability). Despite SAP’s efforts to nurture high attach rates among offerings amid the vulnerable transition to the cloud, such as via database lock-in, this is only ruffling more feathers among its customers that have adapted to the new norm of mix-and-match technology, which the cloud has enabled. Such lock-in attempts were influential in SAP’s historically declining net promoter score. Moreover, SAP’s efforts to add to its ecosystem in the hopes of more effortless user experience have proved to be anything but accretive, as its acquisition of Qualtrics has shown. SAP announced plans to spin off the company only two years after it was acquired.

Financial Strength

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

Bulls Say’s

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

Company Profile 

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

 (Source: MorningStar)

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

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do, business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities. Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and is not liable for any unintentional errors in the document. The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Categories
Technology Stocks

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.

Categories
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.

Categories
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.