Business Strategy and Outlook
SKF’s core market is treading water from a growth perspective, and management’s plan for faster top-line growth to double revenue by “2030” is fairly high level in its outline and therefore difficult for investors to assess. SKF has deep engineering expertise and a leading position in ball bearings; however, growth from new market opportunities will still take time and investment. Of the high-level opportunities presented by the company, ceramic ball bearings for the electric vehicle market is one of the most promising. The market for EVs will expand over time, as the adoption is supported by regulators and consumers alike. Therefore, SKF’s ceramic bearing solution should yield positive results once EV take-up accelerates. Pricing power along with cost flexibility thanks to the adoption of robotics and other automation has enabled to SKF to weather its mostly procyclical end markets. However, the estimate is around 10% of its revenue is favoured by structural tailwinds. First, it has exposure to renewables through wind turbines and other “clean tech” end markets, which currently contribute around 9% of revenue. Second, it has an emerging connected services business, with contracts at less than 1% of revenue. However, the services offer a promising growth outlook and also welcome recurring revenue for SKF. Across capital goods companies, connected services have seen good customer take-up rates due to the productivity gains from preventative maintenance, and the same is expected for SKF’s connected services.
SKF provides its customers with measurable operational cost savings versus competitor bearings, which it can accomplish by designing its ball bearings on an application-specific basis. As one of the two largest industrial bearings suppliers, along with Schaeffler, it draws on its more than 100 years of experience in industrial application design to lower energy costs and extend the length of time between maintenance breaks. Customers are willing to pay a premium for this engineering and often sign supply contracts, as work stoppages are very costly for customers running processes for hours at a time or even on a continuous basis
Financial Strength
SKF ended the first quarter of 2022 with a moderate level of debt on its balance sheet and net debt/EBITDA of 1.2 times. This is an appropriate level for a company with mostly cyclical demand. Based on the free cash flow forecasts, if necessary, the company could pay down its gross debt balance within four years.
Bulls Say’s
SKF’s restructuring program and working-capital management program should boost medium-term cash flows and provide mid-single-digit earnings growth.
As a major supplier of ball bearings for wind turbines, the company is a beneficiary of renewables growth.
The lagging automotive division should see a marked improvement in the short term from restructuring efforts and EV growth
Company Profile
SKF’s history goes back to the first major patents in ball bearings: In 1907, SKF was the first to patent the self-aligning ball bearing, which is easily recognisable today. Along with Schaeffler, it is one of the top two global ball bearing suppliers, followed by Timken, NSK, NTN, and JTEK. Combined, these six companies supply about 60% of the world’s ball bearings. The company is based in Sweden and has a global manufacturing footprint of 108 sites and 17,000 global distributor locations. SKF operates under two segments: industrial, which has a fairly fragmented customer base, and automotive, which is the opposite, with a concentrated customer base that includes the likes of Tesla.
(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.
Business Strategy and Outlook
After selling the DaVita Medical Group in 2019, DaVita focuses almost exclusively on providing services to end-stage renal disease, or ESRD, patients primarily in the United States with an expanding international footprint. Over several decades, DaVita has built the largest network of dialysis clinics in the U.S., and although COVID-19-related mortality concerns look likely to constrain results through 2022, DaVita’s long-term prospects as solid. Once COVID-19 concerns dissipate, it is expected DaVita to get back to more normalized growth trends driven primarily by ESRD trends. The low- to mid-single-digit revenue growth is likely for DaVita in the long run based on the continued expansion of the U.S. dialysis patient population, mild revenue per treatment growth, and ongoing international expansion. These expectations include ongoing expansion of at-home treatments and DaVita can even benefit from extending the at-home treatment stage for patients, despite its clinic infrastructure. At-home patients still have relationships with clinics and are more likely to continue working and, in turn, remain on more profitable commercial insurance plans for a more substantial part of the 33 months where that is possible before Medicare automatically takes the lead on reimbursement for ESRD treatments.
Eventually, most ESRD patients will need in-clinic therapy, too, unless they receive a kidney transplant. Of note, supply and demand for transplants remain greatly mismatched with the average wait list time around four years. But if those dynamics change, DaVita may even be able to benefit, as it has invested in early-stage initiatives to improve transplants. And in general, DaVita stands to benefit from the continued growth in the ESRD population however they are treated, and it is even pursuing integrated care models to gain a bigger piece of the treatment pie in the long run. With these factors in mind, management has highlighted mid-single-digit operating income and high-single-digit to low-double-digit earnings per share growth targets from 2021 to 2025, which is roughly in line during that period, as well.
Financial Strength
Like many healthcare services providers, DaVita operates with significant leverage, especially when considering lease obligations. After recapitalizing its balance sheet and repurchasing shares following the 2019 sale of DaVita Medical Group, DaVita owed $8.9 billion of debt and held $1.2 billion of cash and short-term investments as of September 2021, or in the middle of its net leverage target range of 3.0 to 3.5 times. Its operating lease obligations of $3.1 billion add another turn, roughly, to leverage. After refinancing many of its obligations, DaVita’s maturity schedule appears easily manageable, though, with big maturities in 2024 ($1.4 billion) and 2026 ($2.6 billion) but limited maturities otherwise. During that time frame, DaVita is to generate at least $1 billion annually of free cash flow, so the company could handle those maturities as they come due through internal means. However, given the firm’s large share repurchase plans, DaVita will seek to refinance its obligations coming due. After $2.4 billion of share repurchases in 2019, the company made another $1.4 billion of share repurchases in 2020 and $0.9 billion of repurchases through September 2021. The company anticipates making significant share repurchases going forward to boost its adjusted EPS growth (8% to 14% goal from 2021 to 2025) above its operating income prospects (3% to 7% goal from 2021 to 2025). It had $1.0 billion remaining on its share repurchase authorization as of September 2021
Bulls Say’s
- Excluding recent COVID-19-mortality challenges, the ESRD patient population to grow at a healthy rate in the U.S. and around the globe for the long run, which should benefit DaVita.
- DaVita enjoys top-tier status in the essential dialysis business, and there are no competitive dynamics to negatively affect that attractive position anytime soon.
- While growing at-home care could change its business model a bit, DaVita could also benefit from ESRD patients being able to continue working and staying on commercial insurance plans.
Company Profile
DaVita is the largest provider of dialysis services in the United States, boasting market share that eclipses 35% when measured by both patients and clinics. The firm operates over 3,100 facilities worldwide, mostly in the U.S., and treats over 240,000 patients globally each year. Government payers dominate U.S. dialysis reimbursement. DaVita receives approximately 69% of U.S. sales at government (primarily Medicare) reimbursement rates, with the remaining 31% coming from commercial insurers. However, while commercial insurers represented only about 10% of the U.S. patients treated, they represent nearly all of the profits generated by DaVita in the U.S. dialysis business.
(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.
Business Strategy & Outlook
Dexcom enjoys a well-established track record for introducing the most precise sensors for use in its continuous glucose monitors. On the strength of its technology, Dexcom has captured an impressive slice of this CGM market, but a recent wave of innovation in the diabetes device market has intensified competitive pressure. Nonetheless, Dexcom has done a credible job of adapting and fending off competition from Abbott and Medtronic. Dexcom has finally begun to make progress in penetrating the Type 2 market, in addition to long dominating the Type 1 market, where CGM penetration has been estimated around 35%. The establishing reimbursement for Type 2 patients can be challenging, but payers have been steadily joining the bandwagon. Dexcom should benefit as these the reimbursement pieces fall into place.
Both Abbott and Medtronic have introduced meaningful innovation in this realm that the offers patients’ new alternatives. Abbott’s FreeStyle Libre Flash is significantly more user-friendly and is aggressively priced. The product has made substantial inroads with the Type 2 population. Medtronic’s next-gen 780g insulin pump automates much of the insulin delivery and comes with its own integrated CGM. These competitive features could peel some Dexcom users away on the margins. However, one has been impressed with how Dexcom was able to incorporate some of the most attractive Libre features–no-stick calibration, longer sensor life–in its G6 product. The new G7 CGM builds on those strengths. The Dexcom’s strength in innovation puts the company on firm footing. First, the precision of its CGM remains materially better than competitive products. Second, Dexcom’s next-gen, one-piece G7 should be significantly lower-cost, which offers flexibility for improving cost structure. The firm has also moved more aggressively into the pharmacy channel to enhance patient access and take advantage of greater volume upside. Finally, Dexcom’s alliances with Tandem, Insulate, Livongo (now part of Teledoc), and Eli Lilly provide opportunities for the firm to remain tightly woven into most new diabetes technologies.
Financial Strengths
Dexcom has been cash flow positive for since 2014 and more recently moved into positive earnings territory. While revenue has grown very quickly, research and development expenses and selling, general, and administrative costs have grown significantly as well, sometimes outpacing revenue growth, during the early phases of commercialization. However, the firm turned the corner in 2019, and it will post meaningful profits through the explicit forecast period. Historically, Dexcom has funded its operating losses through additional capital raises over the years or through convertible debt. As of December 2020, Dexcom had two lots of convertible senior notes, which mature in 2023 and 2025. The debt is partially intended to support Dexcom’s efforts to expand, including building out the company’s manufacturing footprint. The $850 million in convertible debt due in 2023 are already in the money at the initial conversion price of $41.07 per share. Most recently, the firm issued $1.21 billion more in convertible debt due in 2025, partially to redeem convertible debt due in 2022, and these notes have an initial conversion rate that is equivalent to $150.11 per share. Dexcom also issued 1.8 million shares in 2018 to raise funds to pay for a hefty collaborate R&D fee.
Bulls Say
- Dexcom’s next-gen G7 product should be significantly less expensive, offer a thinner profile, and faster warm-up time than G6.
- Medicare’s decision to reimburse for the G6 is a favorable development for Dexcom, as private payers often use Medicare as the benchmark for reimbursement policies.
- Dexcom’s initiative with Verily offers the potential to apply tech expertise in data analytics with data intensive health management for type 2 diabetic patients. This partnership could put Dexcom a step ahead of rivals.
Company Description
Dexcom designs and commercializes continuous glucose monitoring systems for diabetics. CGM systems serve as an alternative to the traditional blood glucose meter process, and the company is evolving its CGM systems to include the disposable sensor and the durable receiver.
(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.
Business Strategy & Outlook
Suncorp is a well-capitalised financial services business with a dominant market position in the Australian and New Zealand general insurance industry and a regional banking franchise headquartered in Queensland. In addition to offering insurance under the parent name, key brands in Australia include AAMI, GIO, bingle, Apia, Shannons, and Terri Scheer. In New Zealand, key brands include Vero, AA Insurance, and Asteron Life. Some brands are specific to certain states, but at a group level, the insurer carries concentrated weather and earthquake risk in Australia and New Zealand, and in particular Queensland which makes up around 25% of gross written premiums in Australia. The group’s exposure to the Queensland market, where large natural peril events have tended to be larger and more frequent, heightens the risks. Reinsurance protection mitigates risks to some extent, but can be expensive, particularly following large events.
Suncorp’s regional banking franchise is more concentrated than the major banks, with home loans making up around 80% of the loan book and Queensland accounting for more than half of total lending. Suncorp Bank’s smaller operating presence, higher funding and operational costs, and relatively limited product offerings have all led to lower margins relative to the majors. While there are potential benefits to the bancassurance model, such as better customer insights versus stand-alone insurance peers, and better cross-selling opportunities, they have not delivered a material tangible improvement in earnings, returns, or switching costs. Selling home insurance to borrowers is the lowest hanging fruit, with recent improvements to give the group a single customer view likely to make the process smoother. Similar to its peers, Suncorp is focused on enhancing the digital offering to ensure simpler and faster quotes, claim processing, and to ensure the large insurer remains competitive on price. In response to changes in the way customers engage with their insurer, with less human contact and the expectation of being able to access services at anytime, productivity improvements remain a priority.
Financial Strengths
BHP is in a strong financial position. With ongoing debt repayment, modest near-term capital requirements and the fortuitous bounce in commodity prices since 2016, BHP’s financial position is strong. For the five years ended fiscal 2026, net debt/EBITDA is expected to remain below 0.5 and EBIT/net interest to average more than 30. Net debt at end-June 2021 was about USD 4 billion, below BHP’s net debt target range of USD 12 billion to USD 17 billion. Given the limited capital expenditure requirements, with only modest commitments to new expenditure in the lower demand growth environment, BHP’s balance sheet is expected to remain strong with excess cash flow to be returned to shareholders. Share buybacks and special dividends are possible, depending on the level of commodity prices, given the relatively modest outlook for capital expenditure. The likelihood of special dividends and buybacks would decline if BHP chose to pursue acquisitions.
Bulls Say
- Premium increases stick without an equal rise in claims and rising rates lift yields on fixed income, together lifting underlying profitability and dividends.
- A benign claims environment with a lower incidence of major catastrophes would considerably boost underwriting profits.
- Risk management has been improved, and productivity initiatives are expected to deliver greater cost efficiencies.
Company Description
Suncorp is a Queensland-based financial services conglomerate offering retail and business banking, general insurance, superannuation, and investment products in Australia and New Zealand. It also operates a life insurance business in New Zealand. The core businesses include personal insurance, commercial insurance, Vero New Zealand, and Suncorp Bank. Suncorp and competitors IAG Insurance and QBE Insurance dominate the Australian and New Zealand insurance markets.
(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.
Business Strategy & Outlook
Five9 provides cloud-native contact center software that enables digital customer service, sales, and marketing engagement. A long growth runway and significant market opportunity is anticipated but no-moat Five9 is expected to require a high degree of investment activity moving forward as it squares off against larger competitors. Five9’s Virtual Contact Center, or VCC, platform combines core telephony functionality, omnichannel engagement capabilities, and various software modules into a unified cloud contact-center-as-a-service, or CCaaS, platform. Five9’s artificial intelligence and automation portfolio supplements and enhances the firm’s core CCaaS offerings, including solutions for digital self-service, agent assist capabilities, and workflow automation. VCC is expected to become increasingly critical for enabling omnichannel interactions amid a secular acceleration of digital-first customer engagement.
With only 15% to 20% of contact center agents in the cloud, the residual opportunity around uncaptured communication data is significant. The increasing automation of contact center labor also presents an additional opportunity for Five9 and expect the firm’s rapidly growing AI and automation portfolio to enable both scale and efficiency gains for customers’ call center operations. Attach rates for these solutions are rising within each tier of customers, and higher attach rates are observed in incrementally larger enterprises, a positive as the company advances its penetration within larger companies. Reflecting the high utility businesses derive from the firm’s offerings, Five9 reports a net retention rate in excess of 120%, reflecting strong growth within existing customers. Five9’s success in gathering new customers is also noted, principally driven by the migration of contact centers to the cloud. Nonetheless, the current positive outlook is tempered as heightening competition in the cloud contact center space is observed with the emergence of natively built CCaaS offerings from key competitors such as Zoom, Twilio, and Amazon.
Financial Strengths
Five9’s financial position is sound. As of March 2022, Five9 held $478 million in cash and short-term investments versus $738 million in debt. In May 2018, Five9 issued $259 million in 0.125% convertible senior notes, due 2023 and convertible at $40.82 per share. As of March 2022, approximately $2.3 million of the 2023 notes remained outstanding. In June 2020, Five9 issued an additional $748 million in 0.5% convertible senior notes, due 2025, convertible at $134.34 per share, and entirely outstanding as of March 2022. There are no any material concerns about Five9’s ability to repay this debt with existing cash and expected cash generation over the next several years. That said, it is possible the firm may need to access the capital markets, which will not present any significant challenges. Five9 has yet to achieve GAAP profitability, as the company remains focused on reinvesting excess returns back into the company to build out the platform and enhance future growth prospects. Five9 has invested heavily in recent years, building a sophisticated AI and automation portfolio and building direct sales teams to help drive enterprise sales. Five9 does not pay a dividend, nor repurchase stock, and for a growing company within an increasingly competitive market, it is appropriate that the company focuses capital allocation on reinvestments for growth. Healthy growth in free cash flow is anticipated as industry tailwinds around digital transformations lead to long-term growth for Five9. Five9 has generated positive non-GAAP operating margins since 2017. As the company scales, non-GAAP operating margins are expected to reach into the low-20% range within five years, up from 14% in 2021. These positive results should translate to profitability on a GAAP basis by 2025.
Bulls Say
- Five9 has strong user retention metrics, with net dollar retention above 120%.
- As the firm continues to expand its growing AI and automation portfolio, Five9 should benefit as automation of contact center labor will enable a larger incremental market opportunity, and AI-based technology commands a higher ASP per seat.
- Five9 has a large residual market opportunity, with only about 15% to 20% of contact center agents having moved to the cloud so far.
Company Description
Five9 provides cloud-native contact center software that enables digital customer service, sales, and marketing engagement. The company’s Virtual Contact Center platform combines core telephony functionality, omnichannel engagement capabilities, and various software modules into a unified cloud contact-center-as-a-service, or CCaaS, platform. Five9’s artificial intelligence and automation portfolio supplements and enhances the firm’s core CCaaS offerings, including solutions for digital self-service, agent assist technology, and workflow automation. Five9 also offers workforce optimization products that optimize call center efficiency through workforce management solutions, manage interaction quality, and track agent performance.
(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.
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Business Strategy and Outlook
As a good middle-of-the-road insurer Aviva has had its fair share of problems over the years. As with many previously poorly run companies, these issues have stretched across leverage, controls, turnover and likely relatedly, its sprawling business portfolio. While prior leadership teams tried to get a handle on this business, up until now none have really done so. This is mainly attributed to a focus on growth and innovation, without a focus on strong capital management and discipline. Mark Wilson’s tenure was characterized by the Friends Life acquisition, the digital garage and his appointment at BlackRock. It felt like Maurice Tulloch would tilt the business more toward general insurance but we think it is likely that the business’ problems became too much for him. Present CEO Amanda Blanc is now set on making things right and has divested noncore assets, promising now to focus on the U.K., Ireland, and Canada.
Aviva is not a highly differentiated business and does not have a strong strategy. As a middle of the road business, reinvestment is critical. Two of its three objectives have been achieved and those are focus and financial strength. However, what is yet to be seen is how Blanc will transform the remaining assets into a collection of units that are better than they are and perhaps approaching market-leading. From what has been seen, this is about investing in exceptional customer service and it’s hard to imagine anyone disputing that need. All too often that falls by the wayside in this segment of financial services. However, there is no disputing that excellent customer service has tangible and financial benefits. It leads to lower customer turnover and lower acquisition costs both in terms of volume and margin. Lastly, this is largely a long-term savings business so accretive investment in Aviva Investors will be crucial.
Financial Strength
Aviva has a weak balance sheet. Aviva’s debt is a little over half of its shareholders’ equity. Most of this is core structural borrowings that are held by the center. Pleasingly, management has decided to appease investors with a near GBP 2.0 billion debt reduction in 2021 and a further GBP 1.0 billion debt reduction program over the coming years. This debt reduction plan has been assisted by the GBP 7.5 billion raised from the eight business sales. This has provided management with plenty of room to commence a GBP 1.0 billion buyback on top of the deleveraging. The net of these actions is anticipated to substantially improve the business’ leveraged position. The interim dividend for 2021 was increased to GBX 7.35 per share and the total dividend for the year will be GBX 22.0. This means a final of GBX 14.7 per share for full-year 2021. Guidance is for a dividend of GBX 31.5 for full results of 2022.
Bulls Say’s
Aviva’s new CEO is still making good strides to focus, transform, and simplify the business.
Leverage has been an issue, and this is a primary focus of the new management team.
Targeted capital remittance plans provide a nice buffer for further buybacks or business reinvestment.
Company Profile
Aviva is a multiline insurer headquartered in the United Kingdom. It traces its roots back to the late 1700s with the establishment of the Hand-in-Hand Fire Office, a mutual insurer of loss from fire. This mutual, along with many other entities acquired and established over the years, was purchased by Commercial Union in 1905. In the late 1990s, Commercial Union and General Accident merged to form Commercial General Union, or CGU. A few years later CGU and Norwich Union merged and later rebranded as Aviva. Aviva acquired Friends Life in 2015. Aviva has been through quick successions of leadership in recent years. Mark Wilson served as CEO in the five years between 2013 and 2018. Then Maurice Tulloch took over and led up to July 2020. Amanda Blanc has led since then.
(Source: MorningStar)
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