Categories
Dividend Stocks

Best Buy’s Long-Term Digital and Services Narrative Remains Intact Despite Near-Term Pressure

Business Strategy & Outlook:   

The company believe Best Buy is taking adequate steps to shore up its competitive position in an intensely competitive consumer electronics space. As the industry emerges from the shadow of COVID-19, it’s become clear that how people shop has permanently changed–with customers demanding seamless omnichannel access to favorite brands, quick fulfillment across channels, and tech solutions to more problems than ever before. As a result, Best Buy’s strategic positioning continues to resonate, with the firm leveraging its physical footprint for fulfillment and post-sale services, emphasizing its differentiated service offering, and experimenting with newer store formats, as the “one size fits all” retail model across trade areas appears antiquated. With more than one third of sales coming through digital channels in calendar 2021 (with management anticipating roughly 35% in perpetuity), the firm’s recent supply chain and e-commerce investments ($2.7 billion over the last five years, some 74% of total capital expenditures) look prescient. Next-day delivery now covers 99% of U.S. zip codes (up from 80% from pre-pandemic), allowing the firm to compete on more level ground against e-commerce competitors, like wide-moat Amazon–as buy-online-pick-up-in-store, or BOPIS) volumes, at 40% of e-commerce sales, remain more challenging for online-only stores to replicate. 

Further, the company takes a positive view of the firm’s Totaltech program, with more than 4.5 million members receiving unlimited home tech support, VIP access to phone and chat teams, free delivery and standard installation, members-only pricing, and free extended warranties on Best Buy purchases. Through the program, Best Buy leverages its network of 20,000 Geek Squad agents, increases touchpoints with customers, and positions itself better to earn the first shot at servicing customer category needs. Finally, Best Buy Health remains intriguing, with lower price elasticity and auspicious tailwinds from an insurer pay model. However, competition in the space remains rife, as a number of moaty firms with extensive healthcare aspirations (Google, Microsoft, Amazon, Apple, Facebook) have invested heavily in the segment.

Financial Strengths:  

The company thinks that Best Buy’s financial strength is sound, with the firm maintaining just $545 million in net debt at the end of the first quarter of fiscal 2023 and an investment-grade credit rating. With leverage well under 1 turn (0.3 debt/EBITDA at fiscal 2022 year-end), strong EBIT interest coverage, and no meaningful maturities until 2028, the company sees very little financial risk for the firm in the near to medium term. Access to a $1.25 billion credit facility adds a further degree of insulation. Consistent with historical patterns, it is expected that Best Buy will prioritize growth capital expenditures, strategic acquisitions, dividends, and share repurchases with its free cash flow (with free cash flow averaging 4.5% of sales through fiscal 2027). The firm also maintains an attractive dividend, with a 35%-45% payout target. The company’s annual share repurchases average a mid-single-digit percentage of shares outstanding through 2032, with our model calling for total shareholder returns of $11.3 billion through fiscal 2027.

Bulls Say: 

  • With digital sales volumes projected to equilibrate at roughly double pre-COVID-19 levels, Best Buy should better compete for online volumes that it historically ceded to online competitors. 
  • Improving route densities should strengthen the margin profile of small parcel e-commerce sales, with 35% of store “hubs” now accounting for 70% of ship from-store volume. 
  • The Best Buy Totaltech program should increase touchpoints with the firm’s best customers, increasing spending and frequency relative to pre-program behavior.

Company Description:  

With $51.8 billion in fiscal 2022 sales, Best Buy is the largest pure-play consumer electronics retailer in the U.S., with roughly 10.6% share of the aggregate market and north of 40% share of offline sales, per our calculations, CTA industry, and Euromonitor data. The firm generates the bulk of its sales in-store, with mobile phones and tablets, computers, and appliances representing its three largest categories. Recent investments in e-commerce fulfillment, accelerated by the COVID-19 pandemic, have seen the U.S. e-commerce channel roughly double from prepandemic levels, with management estimating that it will represent a mid-30% proportion of sales moving forward.

(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
Global stocks Shares

Vertex’s Narrow Moat Based on Intangible Assets From CF Drugs; Diversified Pipeline Supports Growth

Business Strategy and Outlook

Vertex was once known for discovering Incivek, a blockbuster hepatitis C drug now overshadowed by a robust cystic fibrosis franchise with megablockbuster potential. The company’s approved cystic fibrosis drugs are Kalydeco, Orkambi, Symdeko, and Trikafta, which will make Vertex eligible to treat about 90% of the CF population, assuming international and pediatric approvals. Vertex is anticipated to maintain its dominant position in CF, given the strong efficacy of its therapies, lengthy patents, and lack of competition, while developing pipeline candidates in other rare indications to spur growth. Cystic fibrosis is a rare indication characterized by a progressive and deadly decline in lung function, affecting approximately 83,000 people worldwide. Since its 2012 launch, Kalydeco has captured most of its target patient population (less than 10% of CF patients with specific genetic mutations) and has become the backbone of combination therapies, including Orkambi, Symdeko, and Trikafta. Orkambi’s launch in 2015 expanded the eligible patient population by adding CF patients with homozygous F508del mutations, but its uptake was slower because of its safety profile. Symdeko’s 2018 launch didn’t come with any worries over safety and contributed over $700 million in revenue in its first year, targeting the same population as Orkambi plus some additional patients. Trikafta, a triple-combination therapy, has had a strong launch since its U.S. approval in 2019, significantly expanding the company’s addressable patient population to heterozygous patients. 

Vertex’s comprehensive approach has already shaped the treatment of CF and earned it a dominant position worldwide. The chronic nature of therapy and limited competition on the horizon heighten the CF market’s attractiveness. Given these positive market dynamics, Vertex’s CF program could possibly grow to over $11 billion within the forecast period. Vertex’s pipeline spans several rare diseases, including CTX001 for beta-thalassemia and sickle-cell disease, VX-147 for APOL1-mediated kidney disease, and small-molecule inhibitors for pain. The CF franchise will provide ample cash for the development of these candidates.

Financial Strength

Vertex is in strong financial health, given its robust cash flow generation and low debt. At the end of 2021, Vertex held $7.5 billion in cash and investments and had about $557 million in total finance lease obligations. Vertex reached profitability in 2017, and its cystic fibrosis portfolio continues to expand. The company launched its triple combination therapy, Trikafta, in the U.S. in 2019, and it is expected to operate at maintainable profitable levels throughout the explicit forecast. Vertex has utilized its cash to expand its pipeline outside of cystic fibrosis, which has included acquisitions, collaboration agreements, and ongoing internal research and development. Vertex is expected will continue using its ample cash flow to build a more diversified rare-disease portfolio as it looks beyond the cystic fibrosis market.

Bulls Say’s

  • The firm’s cystic fibrosis therapies are poised to dominate the lucrative market for the foreseeable future, based on the disease-modifying potential of the drugs, chronic use by patients, and limited competition. 
  • Vertex’s leading drug candidates were mostly discovered in-house, lending credibility to its drug discovery technology and potential to generate additional pipeline candidates. 
  • Vertex’s combination therapies have lengthy patents, protecting the profitable cystic fibrosis portfolio from generics.

Company Profile 

Vertex Pharmaceuticals is a global biotechnology company that discovers and develops small-molecule drugs for the treatment of serious diseases. Its key drugs are Kalydeco, Orkambi, Symdeko, and Trikafta/Kaftrio for cystic fibrosis, where Vertex therapies remain the standard of care globally. In addition to its focus on cystic fibrosis, Vertex is diversifying its pipeline through gene-editing therapies such as CTX001 for beta-thalassemia and sickle-cell disease, small-molecule inhibitors targeting acute and chronic pain using non-opioid treatments, and small-molecule inhibitors of APOL1-mediated kidney diseases. Vertex is also investigating cell therapies to deliver a potential functional cure for type 1 diabetes.

(Source: MorningStar)

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

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

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

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Daily Report

Morning Report Global Markets Update – 14 June 2022

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Technology Stocks

Coupa’s Opening Quarter Dives Deeper Into Subscription Growth; FVE Down to $108

Business Strategy & Outlook

Coupa Software is a cloud-based business spend management, or BMS, platform that allows firms to monitor, control, and analyze expenditures to lower costs and improve operational efficiency. Coupa’s solutions are designed to manage all spend, and inform each step of a transaction’s process, from idea inception, supplier evaluation, and procurement, to invoicing, and finally to payment collection. With a platform of over 2,500 businesses and over 7 million suppliers, Coupa has built a robust self-reinforcing ecosystem of AI-informed spend management. Narrow-moat Coupa is perceived to have a long growth runway ahead as it continues to make strategic investments to expand its platform and spend management use-cases. In a go-to-market model that focuses on co-selling deals with system integrators, Coupa has been able to expand its market reach significantly. As back-office digital transformations are accelerating and Coupa remains the market-leading cloud BSM vendor, Coupa’s partners are expected to increasingly advance Coupa’s adoption throughout businesses as they guide their clients through digital transformation initiatives. 

As Coupa has long focused on a broader source-to-pay strategy, offering solutions that far exceed the functionality of its original transactional core, the company has made a high level of investments to build out its platform into a more holistic spend management tool. As the firm introduces new modules, Coupa will benefit from alignment with a larger number of spend use-cases, greater suite synergies, and more cross-selling opportunities. Further, a growing community will reinforce Coupa’s AI-based community intelligence offering, providing higher value prescriptive insights to optimize spend decisions. Coupa’s moat is supported by strong user metrics, with gross retention above 95% and net retention exceeding 110%. While adoption of Coupa’s BSM platform has grown rapidly, cumulative spend under management has far outpaced sequential customer and recently surpassed $3 trillion. Coupa’s market opportunity is considered to be significant as it is pioneering a largely untapped market opportunity in cloud-based unified spend management.

Financial Strengths 

Coupa is in a decent financial position. As of January 2022, Coupa had $729.5 million in cash and marketable securities versus $1.6 billion in convertible debt. In June 2019 and June 2020, Coupa issued $805 million of convertible senior notes, due 2025 and convertible at $159.60 per share, and $1.38 billion of convertible senior notes, due 2026 and convertible at $296.45 per share, respectively. Coupa has yet to achieve GAAP profitability, as the company remains focused on reinvesting excess returns back into the company, both on an organic and inorganic basis, to build out the platform and enhance future growth prospects. While Coupa has invested heavily in acquisitions over the past five fiscal years, allocating well over $1.0 billion to inorganic investments, acquisition activity is expected to slow as the platform is virtually complete. Coupa does not pay a dividend, nor repurchase stock, and for a young company pioneering a novel offspring under the ERP umbrella, it is only appropriate that the company focuses capital allocation on reinvestments for growth. Even so, the firm has historically demonstrated strong cash flows, with free cash flow margins averaging 16% over the last three fiscal years. While cash flows were pressured in fiscal 2021 and 2022 as a result of the COVID-19 pandemic, healthy free cash flows are expected in later years. 

Coupa reached non-GAAP profitability in 2019, posting both a positive non-GAAP operating margin and positive non-GAAP earnings from then on. The company has averaged a non-GAAP operating margin of 9.9% since 2019, and as the company scales, non-GAAP operating margins are projected to reach into the high-20% range at the end of the 10-year forecast period. These positive results should translate to profitability on a GAAP basis in the future as well.

Bulls Say

  • Coupa has strong user retention metrics, with gross retention above 95% and net dollar retention north of 110%. 
  • As Coupa expands its platform both organically and inorganically, increasing suite synergies are anticipated to accelerate cross-selling activity, further entrenching customers within Coupa and creating greater monetization opportunities. 
  • Continual annual subscription price point increases reflect the stickiness of Coupa’s modules and suggest significant competitive differentiation in winning new deals over less expensive alternatives.

Company Description

Coupa Software is a cloud-based provider of business spend management, or BSM, solutions. Coupa’s BSM platform provides visibility into all spend, allowing companies to gain control over their spending, optimize their supplier network and supply chains, and manage liquidity. The platform’s transactional core consists of procurement, invoicing, expense management, and payment solutions, while supporting modules ranging from strategic sourcing solutions to supply chain design and planning solutions round out the comprehensive spend management ecosystem. 

(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
Dividend Stocks

Market Wants Proof Tysers Acquisition a Winner; Creates Buying Opportunity in AUB Group Shares

Business Strategy & Outlook

AUB operates the second-largest general insurance broker network in Australia and New Zealand. AUB brokers derive revenue from commissions paid by insurers, based on gross written premiums. AUB owns or has equity stakes in each broking business within the network. Post the exit of rehabilitation services in 2021, around 85% of group EBITA is delivered by the broker network, while the underwriting agencies generate about 15%. A key value proposition over smaller brokers is AUB’s ability to negotiate more favourable policy wording and pricing. Scale also provides the capacity to spend more on technology, which helps facilitate greater analytical and processing capabilities, and marketing to help attract and retain customers. Other services such as claims support and premium funding support the value proposition. AUB’s underwriting agencies distribute insurance products but take no underwriting risk. Underwriting agencies act on behalf of insurers to design, develop, and provide specialised insurance products and services. 

The earnings outlook is positive. Further insurance price rises are expected over the medium term as insurers seek to cover claims inflation and weak investment income. This follows a weak pricing environment due to excess global reinsurance capacity, soft economic conditions, and elevated competition. Insurance brokers are expected to take share of the intermediated market. Technology should allow a greater number of policies per client–for example, adding personal motor/home on top of a business clients insurance needs. AUB’s investment in BizCover, a self-service insurance platform targeting small SMEs, and partnership with accounting firm Kelly+Partners to act as a lead generator, should see AUB take share of the small SME end of the market. This share will most likely come from the direct channel. The acquisition of Tysers is material for AUB Group, and while the current projection of low-single-digit revenue growth may prove conservative in the current rate environment, an optimistic outlook is adopted in relation to whether targeted cost and revenue synergy targets will be achieved.

Financial Strengths 

AUB is in sound financial health. It has strong cash flow generation with a high conversion of earnings to operating cash flow and a relatively high dividend payout ratio. Gearing as reported by the company (corporate, subsidiary and look through share of associate debt/debt plus equity) ratio is reasonable, at 31% and below the firm’s maximum 40% ratio. The current debt load looks manageable, with EBITDA interest cover of over 18 times and the nature of its businesses being relatively low-risk. It is assumed AUB will use operating cash flows to fund increased positions in existing broker partners, with headroom to fund small acquisitions from cash on hand. To fund the acquisition of Tysers, expected to complete in first-half fiscal 2023, AUB Group completed a AUD 350 million equity raising, and will issue AUD 175 million worth of shares to the vendor, and increase debt. Debt/EBITDA is expected to rise to around 2.8 times from 2 times in fiscal 2021, but is also expected to fall on the part sale of the U.K. retail broking business, realisation of synergies, and strong cash flow generation.

Bulls Say

  • AUB’s scale and expertise in insurance products and services leave it well placed to benefit from higher insurance pricing. 
  • BizCover and the Kelly+Partners partnership see AUB placed to take market share in the smaller end of the SME market. 
  • The firm’s acquisition strategy, both new investments and increased equity stakes, likely boosts EPS growth.

Company Description

AUB Group is the second-largest general insurance broker network in Australia and New Zealand. It has an ownership in 55 brokerage businesses, which collectively write over AUD 3 billion in premiums. It also owns equity stakes in 27 underwriting agencies. AUB derives revenue from commissions (from insurers, ultimately paid for by AUB’s customers) based on gross written premium, or GWP, from agencies it owns, and a share of profits from associates and joint ventures. GWP is split between personal (6%), small to medium enterprises (68%), and corporates (26%).

(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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Daily Report Financial Markets

Australian Market Outlook – 14 June 2022

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Daily Report Financial Markets

Indian Market Outlook – 14 June 2022

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Brokers Call – 14 June 2022

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Technology Stocks

Coupa’s Opening Quarter Dives Deeper Into Subscription Growth; FVE Down to $108

Business Strategy & Outlook

Coupa Software is a cloud-based business spend management, or BMS, platform that allows firms to monitor, control, and analyze expenditures to lower costs and improve operational efficiency. Coupa’s solutions are designed to manage all spend, and inform each step of a transaction’s process, from idea inception, supplier evaluation, and procurement, to invoicing, and finally to payment collection. With a platform of over 2,500 businesses and over 7 million suppliers, Coupa has built a robust self-reinforcing ecosystem of AI-informed spend management. Narrow-moat Coupa is perceived to have a long growth runway ahead as it continues to make strategic investments to expand its platform and spend management use-cases. In a go-to-market model that focuses on co-selling deals with system integrators, Coupa has been able to expand its market reach significantly. As back-office digital transformations are accelerating and Coupa remains the market-leading cloud BSM vendor, Coupa’s partners are expected to increasingly advance Coupa’s adoption throughout businesses as they guide their clients through digital transformation initiatives. 

As Coupa has long focused on a broader source-to-pay strategy, offering solutions that far exceed the functionality of its original transactional core, the company has made a high level of investments to build out its platform into a more holistic spend management tool. As the firm introduces new modules, Coupa will benefit from alignment with a larger number of spend use-cases, greater suite synergies, and more cross-selling opportunities. Further, a growing community will reinforce Coupa’s AI-based community intelligence offering, providing higher value prescriptive insights to optimize spend decisions. Coupa’s moat is supported by strong user metrics, with gross retention above 95% and net retention exceeding 110%. While adoption of Coupa’s BSM platform has grown rapidly, cumulative spend under management has far outpaced sequential customer and recently surpassed $3 trillion. Coupa’s market opportunity is considered to be significant as it is pioneering a largely untapped market opportunity in cloud-based unified spend management.

Financial Strengths 

Coupa is in a decent financial position. As of January 2022, Coupa had $729.5 million in cash and marketable securities versus $1.6 billion in convertible debt. In June 2019 and June 2020, Coupa issued $805 million of convertible senior notes, due 2025 and convertible at $159.60 per share, and $1.38 billion of convertible senior notes, due 2026 and convertible at $296.45 per share, respectively. Coupa has yet to achieve GAAP profitability, as the company remains focused on reinvesting excess returns back into the company, both on an organic and inorganic basis, to build out the platform and enhance future growth prospects. While Coupa has invested heavily in acquisitions over the past five fiscal years, allocating well over $1.0 billion to inorganic investments, acquisition activity is expected to slow as the platform is virtually complete. Coupa does not pay a dividend, nor repurchase stock, and for a young company pioneering a novel offspring under the ERP umbrella, it is only appropriate that the company focuses capital allocation on reinvestments for growth. Even so, the firm has historically demonstrated strong cash flows, with free cash flow margins averaging 16% over the last three fiscal years. While cash flows were pressured in fiscal 2021 and 2022 as a result of the COVID-19 pandemic, healthy free cash flows are expected in later years. 

Coupa reached non-GAAP profitability in 2019, posting both a positive non-GAAP operating margin and positive non-GAAP earnings from then on. The company has averaged a non-GAAP operating margin of 9.9% since 2019, and as the company scales, non-GAAP operating margins are projected to reach into the high-20% range at the end of the 10-year forecast period. These positive results should translate to profitability on a GAAP basis in the future as well.

Bulls Say

  • Coupa has strong user retention metrics, with gross retention above 95% and net dollar retention north of 110%. 
  • As Coupa expands its platform both organically and inorganically, increasing suite synergies are anticipated to accelerate cross-selling activity, further entrenching customers within Coupa and creating greater monetization opportunities. 
  • Continual annual subscription price point increases reflect the stickiness of Coupa’s modules and suggest significant competitive differentiation in winning new deals over less expensive alternatives.

Company Description

Coupa Software is a cloud-based provider of business spend management, or BSM, solutions. Coupa’s BSM platform provides visibility into all spend, allowing companies to gain control over their spending, optimize their supplier network and supply chains, and manage liquidity. The platform’s transactional core consists of procurement, invoicing, expense management, and payment solutions, while supporting modules ranging from strategic sourcing solutions to supply chain design and planning solutions round out the comprehensive spend management ecosystem. 

(Source: Morningstar)

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