Business Strategy and Outlook
Over the years, FactSet has built up an attractive subscription-based business providing data and analytics to the financial-services industry. FactSet is best known for its research solutions, which include its core desktop offering geared toward buy-side asset managers and sell-side investment bankers. Research makes up about 41% of the firm’s annual subscription value, or ASV, but is FactSet’s slowest growing segment due to its maturity and pressures on asset managers. Beyond research, FactSet offers analytics and trading solutions (35% of firm ASV), which include portfolio analytics, risk management, performance reporting, trade execution, and order management.
FactSet’s fastest-growing segments are its data feed business, known as content and technology solutions, or CTS (13% of ASV), and its wealth management offerings (11% of ASV). Rather than through an interface, users of CTS access data through feeds or application programming interfaces, or APIs. Through repurposing its research and analytics capabilities, FactSet has built software products suitable for financial advisors.
FactSet’s adjusted operating margins have been rangebound (31%-36%) over the last 10 years as it continues to invest in new content. It is believed this is prudent as investments have historically allowed FactSet to take share from competitors such as Thomson Reuters (now Refinitiv). In the future, it is anticipated some margin expansion as the company reduces its travel expenses and increases scale. FactSet has mostly grown organically and its acquisition strategy has mostly focused on adding an additional data source or software capability. In December 2021, FactSet announced it would acquire CUSIP Global Services from S&P Global for $1.9 billion, its largest acquisition to date.
Given the consolidation in the financial technology industry, FactSet could become an acquisition target. The industry has seen large deals such as LSE Group acquiring Refinitiv and S&P Global acquiring IHS Markit. In addition, it is anticipated FactSet’s recurring revenue model would be attractive to potential acquirers, many of which have ample leverage capacity and valuable stock to use as currency.
Financial Strength
As of Aug. 31, 2021, FactSet has no net debt ($682 million in cash compared with $575 million in debt). Following the firm’s acquisition of CUSIP Global Services, it is projected FactSet to have a net debt to EBITDA ratio in the neighbourhood of 2 times. FactSet intends to maintain an investment-grade rating. Overall, it is seen, this increase in leverage as appropriate. Before COVID-19, FactSet has not been shy about share repurchases and returning cash to shareholders. FactSet slowed its share repurchases during the quarters ending May 31, 2020, and Aug. 31, 2020, but has since increased share repurchases. FactSet’s revenue is almost all recurring in nature and as a result it’s weathered the uncertainties of COVID-19 fairly well. FactSet’s client retention is typically over 90% as a percent of clients and 95% as a percent of ASV. FactSet also has low client concentration (largest client is less than 3% of revenue and the top 10 clients are less than 15%. In addition, compared with the financial crisis, FactSet has diversified its ASV from research desktops to analytics software, wealth management solutions, and data feeds. As a result, it would be comfortable with FactSet increasing its leverage for the right acquisition candidate. While revenue and margins may suffer in a downturn, it is poised that FactSet would still remain profitable.
Bulls Say’s
- FactSet has done a good job of growing organic annual subscription value, or ASV, and incrementally gaining market share.
- FactSet’s data feeds business, known as content technology solutions, or CTS, and wealth management business represent a strong growth opportunity for the firm.
- There’s been a flurry of large deals in the financial technology industry and FactSet’s recurring revenue would make it an attractive acquisition candidate.
Company Profile
FactSet provides financial data and portfolio analytics to the global investment community. The company aggregates data from third-party data suppliers, news sources, exchanges, brokerages, and contributors into its workstations. In addition, it provides essential portfolio analytics that companies use to monitor portfolios and address reporting requirements. Buy-side clients account for 84% of FactSet’s annual subscription value. In 2015, the company acquired Portware, a provider of trade execution software and in 2017 the company acquired BISAM, a risk management and performance measurement provider.
(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.
Business Strategy and Outlook
Philips is a one-stop shop for imaging-related devices with an established footprint in many hospitals, which positions it to benefit from long-term healthcare trends like the transition to nonor minimally invasive procedures, increased hospital demand for efficiencies or detection of sleep apnea. Through several divestitures and acquisitions Philips has transformed itself from an industrial-medical conglomerate into a healthcare company and primary supplier across hospitals, which facilitates the introduction of new products and the displacement of smaller suppliers with more depth in a single product line, but lack of breadth. In many of its underlying markets the company operates an oligopoly where significant market share is controlled by a few players. Several of the company’s products require proprietary software or service, which provide stability to cash flows and help to lock in the customer. In addition the company has carried out several divestments and acquisitions, which is supposed to have reinforced the company’s positioning. The company continues to narrow its business focus, with the sale of its domestic appliances business in 2021.
It is alleged the company has room to improve its margins through improved operations management and cost efficiencies. Philips has made inroads on this front with a manufacturing footprint consolidation, where it has moved from 50 factories to less than 35 in five years. In D&T Philips has a large installed base built during many decades, which is suspected, has potential for improved service retention rates through remote monitoring, product sophistication and risk-sharing agreements. In connected care, Philips had a significant product recall on its sleep apnea installed base in 2021, which is assumed will result in a permanent loss of market share against Resmed. It is foreseen a long-term conversion pathway in toothbrushes from manual to electric, as a large percentage of the population still brushes manually. It is expected.6 the monitoring market will be a long-term beneficiary of COVID-19 due to hospitals realizing the need for efficiencies in patient management when hospital occupancy is high.
Financial Strength
As of September 2021, Philips had EUR 3.8 billion in net debt, which represented a 1.3 net debt/EBITDA ratio. Debt is denominated in euros and U.S. dollars, with an average interest rate of 2.0% and an average duration of around eight years. It is counter thought, Philips’ indebtedness level will be problematic given its relatively stable cash flow generation, and it is alleged, the company will have additional room for acquisitions, investments and dividends/buybacks. In the first quarter of 2021 Philips announced the sale of its domestic appliances business for EUR 4.4 billion. The proceeds will strengthen Philips’ balance sheet even more, giving the company more room to reinvest in the healthcare business, where it holds a stronger competitive position.
Bulls Say’s
- Philips’ large installed base in imaging devices and existing footprint in many hospitals is an advantage that allows them to cross-sell and introduce new products with less effort than other smaller players.
- Philips is a market leader in large unpenetrated markets such as sleep obstructive apnea and electric toothbrushes, where there are significant growth opportunities ahead.
- The firm’s divestments are reducing the conglomerate perception Philips has among investors, which will provide more visibility on cash flows and future growth opportunities.
Company Profile
Philips is a diversified global healthcare company operating in three segments: diagnosis and treatment, connected care, and personal health. About 48% of the company’s revenue comes from the diagnosis and treatment segment, which features imaging systems, ultrasound equipment, image-guided therapy solutions and healthcare informatics. The connected care segment (27% of revenue) encompasses monitoring and analytics systems for hospitals and sleep and respiratory care devices, whereas the personal health business (remainder of revenue) includes electric toothbrushes and men’s grooming and personal-care products. In 2020, Philips generated EUR 19.5 billion in sales and had 80,000 employees in over 100 countries.
(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.
Business Strategy and Outlook
California will always present political, regulatory, and operating challenges for utilities like Edison International. But California’s aggressive clean energy goals also offer Edison more growth opportunities than most utilities. Policymakers know that meeting the state’s clean energy goals, notably a carbon emissions-free economy by 2045, will require financially healthy utilities.
It is foreseen, Edison will invest at least $6 billion annually, resulting in 6% annual earnings growth at least through 2025. Edison has regulatory and policy support for most of these investments, but the timing of the investments could shift from year to year depending on regulatory delays, wildfire issues, and California energy policy changes.
Growth opportunities at Southern California Edison address grid safety, renewable energy, electric vehicles, distributed generation, and energy storage. Wildfire safety investments alone could reach $4 billion during the next four years.
It is alleged state policies will force regulators to support Edison’s investment plan and earnings growth. In August 2021, regulators approved nearly all of Edison’s 2021-23 investment plan. Regulatory proceedings in 2022 will address wildfire-specific investments and Edison’s $6 billion investment plan for 2024.
Operating cost discipline will be critical to avoid large customer bill increases related to its investment plan. Edison faces regulatory scrutiny to prove its investments are producing customer benefits. It also must resolve the balance of what could end up being $7.5 billion of liabilities related to 2017-18 fires and mudslides.
Large equity issuances in 2019 and 2020–in part to fund the company’s $2.4 billion contribution to the state wildfire insurance fund and a higher equity allowance for ratemaking–weighed on earnings the last two years. Edison now has most of its financing in place to execute its growth plan, and it is anticipated minimal new equity needs in the coming years.
It is projected Edison to retain a small share of unregulated earnings, but those are more likely to come from low-risk customer-facing or energy management businesses wrapped into Edison Energy.
Financial Strength
Edison’s credit metrics are well within investment-grade range. California wildfire legislation and regulatory rulings in 2021 removed the overhang that threatened Edison’s investment-grade ratings in early 2019.Edison has kept its balance sheet strong with substantial equity issuances since 2019. It is not forestalled Edison will have any liquidity issues as it resolves 2017-18 fire and mudslide liabilities while funding its growth investments. Edison issued $2.4 billion of new equity in 2019 at prices in line with the fair value estimate. This financing supported both its growth investments and half of its $2.4 billion contribution to the California wildfire insurance fund. The new equity also allowed Southern California Edison to adjust its allowed capital structure to 52% equity from 48% equity for rate-making purposes, leading to higher revenue and partially offsetting the earnings dilution. Edison’s $800 million equity raise in May 2020 at $56 per share was well below the fair value estimate but was necessary to support its growth plan in 2020 and early 2021. In addition to Edison’s $1.25 billion preferred stock issuance in March 2021, it is projected it will need about $700 million of new equity in 2022-24 to support its investment plan. Edison will remain a regular new debt issuer but has few refinancing needs for the next few years. Beyond 2021, it is anticipated dividends to grow in line with SCE’s earnings. The board approved a $0.15 per share annualized increase, or 6%, for 2022, up from $0.10 per share annualized increases in 2020 and 2021. Management has long targeted a 45%-55% payout based on SCE’s earnings, but the board
appears to be comfortable going above that range based on the 2021 and 2022 dividends that implied near-60% payout ratios. As long as Edison continues to receive regulatory support, it is alleged the board will keep the dividend at the high end of its target payout range.
Bulls Say’s
- With Edison’s nearly $6 billion of planned annual investment during the next four years, it is projected 6% average annual average earnings growth in 2022-25.
- Edison has raised its dividend from $1.35 annualized in 2013 to $2.80 in 2022, an 8% annualized growth rate. Management now appears comfortable maintaining a payout ratio above its 45%-55% target.
- California’s focus on renewable energy, energy storage, and distributed generation should bolster Edison’s investment opportunities in transmission and distribution upgrades for many years.
Company Profile
Edison International is the parent company of Southern California Edison, an electric utility that supplies power to 5 million customers in a 50,000-square-mile area of Southern California, excluding Los Angeles. Edison Energy owns interests in nonutility businesses that deal in energy-related products and services. In 2014, Edison International sold its wholesale generation subsidiary Edison Mission Energy out of bankruptcy to NRG Energy.
(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.
Business Strategy and Outlook
Morningstar analyst expect Crown Resorts to deliver strong earnings growth over the next decade, buoyed by the recovery from current coronavirus-induced lows as restrictions ease, the opening of Crown Sydney during calendar 2022 and continued solid performance from the core assets in Melbourne and Perth. Crown Melbourne and Crown Perth underpin the firm’s narrow economic moat. Crown is the sole operator in both jurisdictions, with long-dated licences. These properties have performed strongly, thanks to Crown’s solid track record of reinvestment, resulting in consistently high property quality, stable visitor growth, and earnings resilience. The quality of these assets, particularly Crown Melbourne, has driven strong growth in VIP gaming.
Indeed, the strong performance of Crown Melbourne helped the firm secure the second licence in Sydney to compete with The Star. As per Morningstar analyst view, the New South Wales government only issued the second licence because The Star’s performance significantly lagged Crown Melbourne in both revenue and EBITDA, depriving the state of taxation revenue. The Star Sydney’s EBITDA is roughly 60% of Crown Melbourne’s, despite Sydney being Australia’s largest city and the international gateway into Australia.
Morningstar analyst estimate Crown Sydney will not only take share from incumbent rival The Star, but will also grow the size of local casino gaming market–particularly in VIP. Morningstar analyst estimate VIP gaming will be a negligible share of revenue in fiscal 2022 amid border closures. However, it is expected that the segment to recover as border restrictions ease and tourism recovers. But VIP gaming can be highly volatile, ranging from over 30% of revenue in fiscal 2015 to 17% in fiscal 2017. Morningstar analysts estimate VIP gaming represents less than 20% of revenue at Crown Melbourne, less than 10% of revenue at Crown Perth, and will constitute more than half Crown Sydney’s sales-albeit at a lower margin than table gaming.
Crown Draws Blood From a Blackstone
Morningstar analyst have raised its fair value estimate for narrow-moat Crown by 8% to AUD 12.20 per share after directors supported an increased bid from narrow moat asset manager Blackstone. New York-based Blackstone, already Crown’s second largest shareholder with a stake of 10%, has been pursuing the beleaguered casino since March 2021 with prior bids unable to pique the interest of the Crown board.
Crown had formally rejected Blackstone’s previous bid of AUD 12.35 and the 1% improvement to AUD 12.50 would be unlikely to move the needle-particularly given regulatory uncertainty had eased with the Victorian Royal Commission stopping short of cancelling Crown Melbourne’s licence, instead providing Crown a roadmap to redemption. The AUD 13.10 offer is more compelling, representing a 16% premium to our standalone fair value estimate and a 32% premium to the undisturbed price on Nov. 18, 2021. Crown’s board flagged its unanimous intention to recommend shareholders vote in favour of the proposal, should a formal bid eventuate.
The increased offer is nonbinding and remains conditional on completion of due diligence, support from shareholders, unanimous approval from the board, final approval from Blackstone’s investment committees, and approvals from state gaming regulators. While Blackstone is prepared to proceed while Crown’s various regulatory investigations and consultations remain underway, negative outcomes arising in the meantime (such as the loss or suspension of a casino licence) could thwart the bid.
For the transaction to proceed, support from 37% shareholder Consolidated Press Holdings, or CPH, will be crucial. Via CPH, former executive chair James Packer’s major shareholding remains a headache for regulators. But the Blackstone deal could be seen as taking risk off the table for regulators, given the scrutiny on the relationship between Crown and CPH/James Packer since the commencement of the Bergin casino inquiry. Indeed, the Victorian commissioner’s report has since recommended CPH have until September 2024 to sell down its holding to less than 5%.
Financial Strength
Despite near-term earnings weakness, Crown’s balance sheet remains robust. Debt levels have increased with the construction of the Crown Sydney casino and forced venue closures due to COVID-19. Crown’s net debt/EBITDA peaked at 3.7 in fiscal 2021, from 1.8 as at the end of June 2020, but still below the precarious 5.0 level (the covenant limit on Crown’s subordinated notes). We expect significant deleverage in fiscal 2022, aided by around AUD 450 million in further apartment sales from the Crown Sydney project and earnings recovery. We forecast fiscal 2022 net debt/EBITDA to fall to 0.5, and with an improved balance sheet, expect the firm to reinstate dividends from the second half of fiscal 2022 at around 75% of underlying earnings
Bulls Says
- Long-dated licences to operate the only casino in Melbourne and Perth allow Crown to enjoy positive economic profitability in a regulated environment.
- Crown Sydney provides a long-term growth opportunity to capture share and expand gaming in Australia’s most populous market.
- Crown is well positioned to benefit from the emerging middle and upper class in China.
Company Profile
Crown Resorts is Australia’s largest hotel-casino company. Its flagship property is Crown Melbourne, an integrated complex with more than 2,600 electronic game machines, or EGMs, 540 tables, and three hotels. Crown also operates Crown Perth, a property with more than 2,500 EGMs, 350 tables, and three hotels. Crown has also obtained a licence to operate Sydney’s second casino, Crown Sydney, centred on the VIP and premium gaming market. The company also operates Aspinall’s, a boutique, premium-focussed casino in London.
(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.