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Accessing lower-costs funds providing SoFi the opportunity to drive net interest income growth

Post author By lvc-admin
Post date April 13, 2022
No Comments on Accessing lower-costs funds providing SoFi the opportunity to drive net interest income growth

Business Strategy and Outlook

SoFi targets young, high-income individuals who may be underserved by traditional full-service banks. The company is purely digital and engages with its clients exclusively through its mobile app and website. Unlike existing digital banks, which generally have limited product offerings, SoFi offers a full suite of financial services and products that includes everything from student loans to estate planning. The intent is that this will allow its customers to structure the entirety of their finances around SoFi, and the company’s reward structures are designed to encourage its clients to do so. By acting as a one-stop shop for its customers’ finances, SoFi intends to create powerful cross-selling advantages that will reduce its cost of acquisition and give it a competitive advantage in the marketplace.

In order to meet this goal, SoFi has used a mixture of internal development and external partnerships to rapidly expand the services offered to its clients. The use of partnerships has allowed SoFi to build out its product offerings with impressive speed, transforming SoFi from being a student and personal loan company into a one-stop shop for financial services in just a few years. The company’s expanded product lineup along with increased adoption of digital banking during the pandemic has helped accelerate SoFi’s growth, with the number of members increasing by nearly 90% in 2020. Rapid growth has persisted into 2021, and SoFi remains the only company utilizing a digital full-service model, giving it a clear niche.

While SoFi has offered its clients banking services for some time, the company itself has only recently become a true bank. Having successfully gained a national banking charter in early 2022, SoFi is now able to retain deposits into its SoFi Money accounts and use them to support its lending operations. Prior to SoFi obtaining a charter, deposits into these accounts were swept out to SoFi’s partner banks, leaving SoFi to finance its lending arms entirely though external financing. Access to these lower-costs funds will give SoFi the opportunity to drive net interest income growth as the firm leans into its unique model for digital banking.

Financial Strength

SoFi is in a good financial position with a strong balance sheet and limited credit risk from its lending operations. During its SPAC merger, SoFi raised $1.2 billion through PIPE financing, which came in addition to the $800 million in liquidity that the company acquired during the SPAC merger itself. SoFi does not pay a dividend or make any kind of shareholder returns. This is expected given where SoFi is in its corporate life cycle. It is not likely, SoFi to commit itself to making dividend payment or to repurchase shares at any point in the immediate future as the company is far more likely to reinvest any excess capital into its business. Additionally, the company’s financial reserves should be more than sufficient to cover any credit losses it may experience. SoFi either sells or securitizes the loans it originates. While historically SoFi has retained some of the securitizations it has made, recently the company has been moving away from this practice and many of the loans it has on its books are “float” from its lending business. In other words, loans that have been made but not yet sold through. Because these loans are recently originated, SoFi experiences limited credit losses, and the company’s write-off expense is low relative to the size of its balance sheet. With low credit losses and substantial financial assets at its disposal SoFi is in a good position financially and should have plenty of flexibility to invest in its business as it sees fit.

Bulls Say’s

SoFi has managed to rapidly launch an impressive array of products and services, and the company remains the only firm offering a digital full-service model.
SoFi has enjoyed rapid growth driven by the introduction of new products and broader adoption of digital banking.
The company’s acquisition of Galileo was likely a major win as the number of accounts using Galileo’s platform has risen sharply since the purchase.

Company Profile

SoFi is a financial services company that was founded in 2011 and is currently based in San Francisco. Initially known for its student loan refinancing business, the company has expanded its product offerings to include personal loans, credit cards, mortgages, investment accounts, banking services, and financial planning. The company intends to be a one-stop shop for its clients’ finances and operates solely through its mobile app and website. Through its acquisition of Galileo in 2020 the company also offers payment and account services for debit cards and digital banking.

(Source: MorningStar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Shares Small Cap

Upon U.S. federal legalization, Tilray to own 21% of the U.S. multistate operator

Post author By lvc-admin
Post date April 13, 2022
No Comments on Upon U.S. federal legalization, Tilray to own 21% of the U.S. multistate operator

Business Strategy and Outlook

Tilray cultivates and sells cannabis in Canada and exports into the global medical market. It also sells CBD products in the U.S. The company is the result of legacy Aphria acquiring legacy Tilray in a reverse merger and renaming itself Tilray in 2021. Canada legalized recreational cannabis in October 2018. Since then, recreational sales have come to represent an increasingly larger portion of sales for producers. The Canadian market is overly crowded with producers, so Tilray faces stiff competition to develop consumer brands that can lead to meaningful pricing power. Buoyed by attractive deal terms, Tilray’s acquisition of HEXO’s senior secured convertible notes could potentially help drive necessary market consolidation.

Legacy Aphria had an extensive international distribution business, which generated the majority of its net revenue, a far larger portion than many of its Canadian cannabis peers. Legacy Tilray had also entered the global medical market. With both companies’ international capabilities intact, Tilray looks well positioned. The global market looks lucrative given higher realized prices and growing acceptance of the medical benefits of cannabis. Exporters must pass strict regulations to enter markets, which protects early entrants. It is foreseen, roughly 15% average annual growth through 2030 for the global medicinal market excluding Canada and the U.S.

In 2020, legacy Aphria acquired SweetWater, a U.S. craft brewery. Legacy Tilray previously acquired Manitoba Harvest to distribute CBD products in the U.S. It finally secured a toehold into U.S. THC when it acquired some of MedMen’s outstanding convertible notes. Upon U.S. federal legalization, Tilray would own 21% of the U.S. multistate operator. Furthermore, Tilray paid a great price while also getting downside protection as a debtholder. It is held, the U.S. offers the fastest growth of any market globally. However, the regulatory environment is murky with individual states legalizing cannabis while it remains illegal federally. It is alleged federal law will eventually be changed to allow states to choose the legality of cannabis within their borders

Financial Strength

At the end of its third fiscal quarter 2022, Tilray had about $710 million in total debt, excluding lease liabilities. This compares to market capitalization of about $4 billion.In addition, Tilray had about $279 million in cash, which will allow it to fund future operations and investments. Management has been deliberate with its SG&A spending given the slow rollouts and regulatory challenges the Canadian market has faced. Legacy Aphria was the first major Canadian producer to reach positive EBITDA, with legacy Tilray reaching positive EBITDA in the quarter immediately preceding its acquisition. However, the combined company continues to generate negative free cash flow to the firm, which pressures its financial health.The proposed deal to purchase $211 million in HEXO senior secured convertible notes is unlikely to add any pressure to Tilray’s financial health.With most of its development costs completed, it is anticipated Tilray will have moderate capital needs in the coming years. As such, it is held, debt/adjusted EBITDA to decline. It is alleged Tilray is unlikely to require significant raises of outside capital. In September 2021, the company received shareholder approval for increasing its authorized shares in order to rely on equity for future acquisitions. This bodes well for keeping its financial health strong.

Bulls Say’s

Legacy Aphria’s acquisition of Legacy Tilray created a giant with leading Canadian market share, expanded international capabilities, and U.S. CBD and beer operations.
Tilray’s management focuses on strategic SG&A spending and running a lean business model, benefiting its financial health in the early growth stage industry.
Tilray management’s careful approach to expansion has allowed it to reach profitability faster than any of its Canadian peers.

Company Profile

Tilray is a Canadian producer that cultivates and sells medical and recreational cannabis. In 2021, legacy Aphria acquired legacy Tilray in a reverse merger and renamed itself Tilray. The bulk of its sales are in Canada and in the international medical cannabis export market. U.S. exposure consists of CBD products through Manitoba Harvest and beer through SweetWater.

(Source: MorningStar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Daily Report Financial Markets

European Market Outlook – 13 April 2022

Post author By Renuka Toshniwal
Post date April 13, 2022
No Comments on European Market Outlook – 13 April 2022

European-Market-Outlook-13-April-2022 Download

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Daily Report Financial Markets

Shanghai Market Outlook – 13 April 2022

Post author By Renuka Toshniwal
Post date April 13, 2022
No Comments on Shanghai Market Outlook – 13 April 2022

Shanghai Stock Exchange.

Shanghai-Market-Outlook-13-April-2022 Download

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Technology Stocks

Launching Coverage of No Moat, Stable Moat Trend GoDaddy With an $80 FVE

Post author By lvc-admin
Post date April 13, 2022
No Comments on Launching Coverage of No Moat, Stable Moat Trend GoDaddy With an $80 FVE

Business Strategy & Outlook:

GoDaddy’s position as the world’s leading domain registrar creates a unique opportunity to capture demand from newly formed businesses and upsell complementary products beyond domain registration. The one-stop-shop model will appeal to micro- and small businesses looking to establish and manage a ubiquitous online identity with integrated commerce solutions. The initial domain registration process is typically a customer’s first interaction with GoDaddy, and acts as an onramp for additional products. For example, an entrepreneur seeking an online presence for their idea may approach GoDaddy for a domain registration initially, and as a natural extension purchase a subscription to a domain linked email account, website building tools and commerce solutions.

GoDaddy has expanded its offering beyond domain registration to include a domain aftermarket platform, website design, security and hosting services, productivity tools such as email, and omni-commerce solutions. While domain registration remains the company’s core offering, GoDaddy made a strategic shift into the omni-commerce market via the 2021 acquisition of payment processing platform Poynt. This acquisition complements the company’s existing product suite and allows GoDaddy to compete more directly with providers such as narrow-moat Block (owner of Square) and narrow-moat Shopify. While the company’s shift into payment processing remains in its infancy, GoDaddy aspires to offer payment functionality across all surfaces including attaching it to every new domain registered. However, GoDaddy is pursuing growth in a crowded market with several established providers, and the company is expected to face challenges upselling products to existing clients due to customer switching costs and inertia. While the GoDaddy will have greater success upselling products to newly formed businesses or those upgrading from a subpar product, the company will need to maintain competitive pricing over the medium term to take share, limiting margin upside. In conjunction, GoDaddy’s core offering is commoditized, with new entrants such as Google Domains increasing pricing pressure.

Financial Strengths:

GoDaddy’s balance sheet is stretched as the company has increased leverage to support growth and return capital to shareholders. As of year-end fiscal 2021, the company had a net debt position of about $2.6 billion and reported $3.9 billion of long-term debt from a credit facility and senior notes. This includes $800 million of senior notes issued in February 2021 intended to fund working and capital expenditure, as well provide headroom for strategic acquisitions. While this has increased the company’s leverage, the GoDaddy will be able to meet interest and maturity payments on outstanding debt over our forecast period. the company will remain compliant with the operating and financial covenant’s related to the various debt instruments including remaining below certain gearing ratios.

GoDaddy does not pay dividends but instead returns capital to shareholders through a share repurchase program. The company intends to return $3 billion of capital to shareholders over the three years to fiscal 2024, which shall be funded through free cash flow and debt.

Bulls Say:

GoDaddy benefits from a highly recognizable brand, economies of scale, and customer switching costs.
Omni-commerce is a natural extension for GoDaddy with promising uptake to date.
The strategic shift into payment processing should provide opportunity for greater scale-based cost advantage.

Company Description:

GoDaddy is a provider of domain registration and aftermarket services, website hosting, security, design, and business productivity tools, commerce solutions, and domain registry services. The company primarily targets micro- to small businesses, website design professionals, registrar peers, and domain investors. Since acquiring payment processing platform Poynt in 2021, the company has expanded into omni-commerce solutions, including offering an online payment gateway and offline point-of-sale devices.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Daily Report

Morning Report Global Markets Update – 13 April 2022

Post author By Renuka Toshniwal
Post date April 13, 2022
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Dividend Stocks

Pandemic-Driven Home Improvement Trend Pushes Demand Forward for Kingfisher; Shares are Undervalued

Post author By lvc-admin
Post date April 13, 2022
No Comments on Pandemic-Driven Home Improvement Trend Pushes Demand Forward for Kingfisher; Shares are Undervalued

price of btc is going to breakout

Business Strategy & Outlook:

Kingfisher is a leading home improvement retailer operating under the retail banners of B&Q and Screwfix in the U.K and Brico Depot and Castorama in France, while also expanding in other European markets. Kingfisher has attempted multiple strategies to optimize its product offering and leverage its leading position in the French and British home improvement market with little success delivering excess economic returns. While the coronavirus pandemic has provided unexpected tailwinds for Kingfisher, such as increases in do-it-yourself activity and online penetration rates, operating margins remain below U.S peers, who enjoy greater scale and are thus able to operate at a more efficient cost base. Prior to the pandemic, Kingfisher had not reported an increase in like-for-like sales since fiscal 2017. The COVID-19-driven home improvement trend is unlikely to be maintainable as customers shift expenditures toward services as governments no longer impose lockdown restrictions and rising interest rates lowers accessibility to homeownership, a major driver of home improvement activity.

With consumer demand currently elevated, greater emphasis is placed on Kingfisher’s ability to grow market share through investments into its digital capabilities and own-exclusive brands, especially from trade customers who visit stores more frequently and have a larger basket size. Kingfisher’s retail banners in France are dilutive to the group and will benefit from the reorganization of its logistics operation in the region, which will reduce transportation costs and improve customer service. Self-help measures such as optimizing Kingfisher’s store footprint, lease renegotiations at lower rates and reversing stock inefficiencies will free up cash that will be returned to shareholders via a dividend payout ratio of approximately 40%.

Financial Strengths:

Kingfisher is in a sound financial position. The group ended fiscal 2022 with a net debt/EBITDA ratio (including lease liabilities) of 1.0 times, below its 2.0-2.5 target range, which provides a cushion for any potential slowdown in DIY activity in the future. The group is also one of the few around with a pension surplus. Kingfisher has very little funded debt, which is comfortably covered by the group’s cash balance.

Kingfisher’s main source of debt are lease liabilities, consisting of GBP 2.4 billion within its net debt position of GBP 1.6 billion as at fiscal 2021-22. Approximately 40% of Kingfisher’s store space is owned (mostly in France and Poland), which provides financial flexibility, as these assets can be monetized through sale and leaseback transactions, a tool Kingfisher has begun to use. Better inventory management, which lags peers, would also improve Kingfisher’s cash generation.

Bulls Say:

Demand for Kingfisher’s home improvement products stands to benefit from aging housing stock in the U.K. and France, as well as people spending more time indoors during the pandemic.
Self-help opportunities at Kingfisher should help increase operating margins by optimizing its store space footprint and improving logistical inefficiencies across its French operations.
As the second-largest home improvement retailer in Europe, Kingfisher has the opportunity to better leverage its size to drive costs down and use its customer knowledge to develop its own products.

Company Description:

Kingfisher is a home improvement company with over 1,470 stores in eight countries across Europe. The company operates several retail banners that are focused on trade customers and general do-it-yourself needs. Kingfisher’s main retail brands include B&Q, Screwfix, and TradePoint in the United Kingdom and Castorama and Brico Depot in France. The U.K. and France are Kingfisher’s largest markets, accounting for 81% of sales. The company is the second-largest DIY retailer in Europe, with a leading position in the U.K. and a number-two position in France.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.