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Guidewire Extends Its Streak of Solid Results; FVE Decreased to $120

Post author By lvc-admin
Post date June 15, 2022
No Comments on Guidewire Extends Its Streak of Solid Results; FVE Decreased to $120

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 & Outlook

Guidewire is reaping the benefits of years of groundwork in the form of convincing property and casualty, or P&C, insurers to upgrade their aging core legacy systems to Guidewire’s solutions. The company has used a modern software platform to disrupt a sleepy industry that has been underserved by legacy software vendors, and there is still a long runway for additional growth for Guidewire. Guidewire as executing a classic land-and-expand strategy. The company started with the most critical piece, ClaimCenter, which is customer facing and handles claims processing, and then organically layered in BillingCenter and PolicyCenter within the next several years. Today, Guidewire has a broad software suite that covers all areas of an insurer’s needs and offers a wide variety of add-on solutions. Importantly, the company acquired ISCS to land a lower- and middle-tier SaaS offering.

By any objective measure, Guidewire has become the leading provider of core software to the P&C insurance industry. The company already covers 25% of direct written premiums, or DWPs, and it wins more deals per year than its largest competitors combined. Just as the company nudged the industry to modernize, it will be at the forefront as it now leads a wide array of the largest insurers into the SaaS age with InsuranceSuite Cloud and other cloud-based solutions. Indeed, results were uneven throughout 2019 because of accelerating SaaS adoption, but Guidewire has turned the corner and results are expected to be more predictable in future. Guidewire is anticipated to win more than its share of new clients, especially at the larger end of the market. From there the company is projected to upsell additional lines of insurance business and add on features. Momentum is on the company’s side after capturing many critical Tier 1 insurer mandates, as the industry can no longer wait or afford to maintain legacy systems built in the 1950s in some instances.

Financial Strengths

Guidewire has a standard level of financial strength. Revenue is growing rapidly on an organic basis, and non-GAAP margins are positive and expanding. Continued penetration into Tier 1 and 2 core solutions, with conversions and new bookings of InsuranceSuite Cloud, and the cross-selling of data-driven and digital add-ons will drive consistent midteens annual revenue growth over the next five years. As of July 31, Guidewire had $1.1 billion in cash offset by $344 million in debt, resulting in a net cash position of $776 million. The $344 million in debt represents convertible notes due in 2025, which is not considered as problematic, given the company’s cash balance and expected free cash flow generation leading up to the debt maturity date, and the likelihood it converts into equity rather than is repaid. GAAP Operating margin was negative in fiscal 2021, but is expected to gradually improve over time as a result of easing pressure from accounting treatment for two larger transactions in fiscal 2017 and 2018, and the maturation of the business model transition to subscriptions.

On a non-GAAP basis, margin contraction is modelled in fiscal 2022, followed by several hundred basis points of margin improvement each year over the next five years, driven by scale. Guidewire does not pay a dividend, does not regularly repurchase shares although it did recently begin doing so, and generally makes small acquisitions. The company completed two larger acquisitions in the context of its deal history, with deals of $154 million in fiscal 2017 and $130 million in fiscal 2018. Since its 2012 IPO, Guidewire has completed a handful of acquisitions for approximately $500 million in aggregate. The company is expected to occasionally make small, feature-driven acquisitions. Management is expected to initiate a dividend in the foreseeable future.

Bulls Say

Guidewire is the clear leader seeking to modernize a large and underserved P&C insurance market that is ripe for modernization.

Guidewire is investing in R&D and acquiring companies to add new solutions and features to its existing platform, as there is room to at least quadruple revenue within its existing clients.

Some friction is being removed from the sales process, as insurers are recognizing the need to modernize and the sales conversation is easier with as many live Tier 1 and 2 customers as Guidewire has.

Company Description

Guidewire Software provides software solutions for property and casualty insurers. Flagship product InsuranceSuite is an on-premises system of record and comprises ClaimCenter, a claims management system; PolicyCenter, a policy management system including policy definitions, quotas, issuance, maintenance, and renewal; and BillingCenter, for billing management, payment plans, and agent commissions. The company also offers InsuranceNow, a cloud-based offering, as well as a variety of other add-on applications.

(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.

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Tags Top Stocks

Small Cap

Corporate Action: Vote in favor of Ardent Leisure’s Proposed Sale of Main Event and Capital Return

Post author By lvc-admin
Post date June 15, 2022
No Comments on Corporate Action: Vote in favor of Ardent Leisure’s Proposed Sale of Main Event and Capital Return

Business Strategy & Outlook:

Ardent Leisure’s fundamentals is moderated by the wider macroeconomic factors that influence its operations and the current restructuring efforts to restore earnings after the recent upheavals. Of greater concern is the near-term impact of the coronavirus on Ardent’s operations and its financial position, especially theme parks. But cost-cutting and government assistance measures have provided relief. RedBird’s USD 80 million investment in June 2020 for an initial 24.2% preferred equity interest in Main Event secures the U.S. family entertainment chain’s funding position. Furthermore, RedBird has the option to acquire an additional 26.8% interest at a future date, with the valuation to be based upon 9.0 times EBITDA at the time of exercising the option, subject to a minimum equity floor price. However, the Australian theme parks remain challenged. While the facilities have emerged from their forced shutdown in March 2020, the lingering impact of the pandemic is likely to constrain free cash flow.

Beyond the current coronavirus crisis, Ardent Leisure possesses solid leisure and entertainment assets that all operate in intensely competitive markets. These assets compete for the leisure dollars of consumers who are spoilt with alternatives, especially in this online digital world, where most traditional entertainment activities can now be enjoyed in a virtual setting. Furthermore, most of the group’s businesses are relatively capital-intensive, particularly as Main Event expands its venue footprint and as Ardent strives to keep up with competing leisure options and stay fresh in consumers’ minds. The situation is exacerbated by cyclical factors, with consumer discretionary spending highly leveraged to swings in general economic conditions. The agreed sale of Main Event, announced in April 2022, was struck at a good price and the proceeds will lead to a healthy distribution to shareholders. However, it will leave the group with just the loss-making theme parks unit.

Financial Strengths:

Ardent has AUD 119 million of net debt on the balance sheet, as at the end of December 2021. This comfortable position with AUD 93 million in available liquidity for Main Event is mainly thanks to Redbird’s USD 80 million (AUD 100 million) capital injection into the U.S. business, in return for a 24.2% preferred equity stake. The Queensland government’s recent tourism-friendly three-year AUD 64 million loan package (plus AUD 3 million grant) also means the Australian theme parks unit now has AUD 18 million of available liquidity.

Bulls Say:

Main Event Entertainment adds growth appeal to Ardent Leisure, as it accelerates expansion into the United States family leisure market.
All of Ardent Leisure’s operating businesses enjoy solid market positioning.
Ardent Leisure’s balance sheet is solid and bolstered by a string of recent asset divestments and refinancing.

Company Description:

Ardent Leisure is an owner and operator of leisure assets. Its theme park operations are situated in Australia, including Dreamworld and WhiteWater World on the Gold Coast. The group also runs Main Event, a growing portfolio of family entertainment operations in the United States, offering bowling, arcade and various other leisure activities. The agreed sale of Main Event, announced in April 2022, was struck at a good price and the proceeds will lead to a healthy distribution to shareholders. However, it will leave the group with just the loss-making theme parks unit.

(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.

Tags Recommendations

Shares Small Cap

Air New Zealand Poised to Thrive As Borders Reopen

Post author By lvc-admin
Post date June 15, 2022
No Comments on Air New Zealand Poised to Thrive As Borders Reopen

Business Strategy & Outlook:

The COVID-19 pandemic has wreaked havoc on the global airline industry. Lockdowns, border restrictions, and social distancing measures have clipped Air New Zealand’s wings. Stringent New Zealand entry requirements for international arrivals have decimated passenger revenues, and despite aggressive cost cuts, and operating deleverage to lead to an after-tax loss in fiscal 2022. Nevertheless, Air New Zealand remains well-positioned to participate in the recovery as skies gradually reopen. New Zealand’s strict policies during the COVID-19 pandemic have effectively eliminated community transmission, and continued international travel restrictions will lead to a boon in domestic tourism. Air New Zealand typically enjoys around 80% market share, to recover to pre-COVID levels by the beginning of fiscal 2023. The international recovery is expected, where the airline derives the majority of revenue, to be more gradual.

Air New Zealand’s international business remains effectively grounded. While there is room for optimism amid potential travel bubbles and continuing vaccine rollout, and as Air New Zealand has permanently condensed its wide-body fleet, a full recovery to pre-COVID-19 levels of flying in its long-haul business. Air New Zealand’s loyalty program, Airpoints, to some extent cushion earnings volatility in the flying business. Despite a lack of flying activity, the expected loyalty business to be profitable. Airpoints is essentially a capital-light business attached to a capital-intensive flying business. Consumers want to earn loyalty points when they fly, and status benefits are important for corporate passengers. The program generates earnings from the sale of points to partners–notably credit card companies, but also travel-related businesses such as hotels and rental car companies. This offers more ways to redeem and earn points, attracting more customers, which in turn attracts new partners–a network effect but not enough to warrant a moat for the group.

Financial Strengths:

Despite near-term earnings pressure, Air New Zealand will be able to weather the storm, particularly following the NZD 2.2 billion recapitalisation in fiscal 2022–including an equity raise of NZD 1.25 billion. While raising capital at nearly half the updated fair value estimate is dilutive from a valuation standpoint, the equitable structure of a renounceable rights offer includes most shareholders, meaning investors need not be diluted. The airline is aggressively cutting costs in the short term, including delaying and cancelling NZD 700 million in capital expenditure, suspending dividends, and significant staffing reductions. Fiscal 2021 labour costs were nearly 40% lower than fiscal 2019 levels. Air New Zealand canceled payment of its first-half fiscal 2020 dividend, withholding around NZD 123 million at its disposal, and declared no final dividend. The firm paid no dividends in fiscal 2021, while the government funding agreement is in place, and dividends are not expected until fiscal 2026, as recovering earnings are first used to deleverage the balance sheet. Monthly cash burn was largely been stemmed in the second half of fiscal 2021, but returned at a rate of NZD 51 million in the first half of fiscal 2022 as lockdowns re-emerged–down from around NZD 96 million in the first half. Following the recapitalisation, the airline has around NZD 1.8 billion in pro forma liquidity as at March 25, 2022.

Bulls Say:

As the largest airline in the New Zealand domestic market, new entrants would likely struggle to build Air New Zealand’s scale and route frequency to attract corporate customers.
Air New Zealand’s earnings are highly leveraged to improving macroeconomic conditions and unrestricted air travel.
Limited cases of COVID-19 community transmission in New Zealand should benefit Air New Zealand’s domestic business

Company Description:

Air New Zealand, majority owned by the New Zealand Government, provides air passenger and cargo transport services within New Zealand, as well as to and from Australia, the South-West Pacific, Asia, North America, the United Kingdom, and South America. Air New Zealand also encompasses business units providing engineering and ground handling services. Air New Zealand dominates the local market, with around 80% market share, although the majority of revenue is derived from international and trans-Tasman activity.

(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.