Like for many other retailers, we expect an unusual combination of factors distorted Kogan’s recent trading performance. These include relatively volatile sales, heightened supply chain uncertainties and costs, and lockdowns in Australia’s two most populous states. Term retail industry sales growth to be weaker as consumer spending is redirected to entertainment and travel.
Company’s Future Outlook
The headline figure of no-moat Kogan’s trading update of strong gross sales growth sent shares prices up sharply to nearly match our unchanged AUD 11.70 fair value estimate. The 8% growth in gross sales in the core Australian Kogan.com segment in the first quarter of fiscal 2022 was slightly below our expectations. Nevertheless, any sales growth is a solid feat in the quarter versus the September quarter of 2020, when gross sales grew by more than 100% at Kogan.com. However, sales profitability hasn’t fully recovered yet. Despite greater gross sales, underlying EBITDA margins are well below the previous corresponding period, down some 66%.
Discounting to trim Kogan’s remaining overhanging inventories, intensifying competition post COVID-19-boom in consumer electronics, and mix shift of gross sales to Kogan’s marketplace from its higher margin third party brands have weighed on gross profits in the first quarter. The active customer base at Kogan.com grew by 4% relative to the June quarter 2021, but at the group’s New Zealand Mighty Ape business the customer count dropped off slightly, declining by 2% against the prior quarter. Although active customers were lost, Mighty Ape sales still grew by 15% quarter on quarter.
Company Profile
Kogan.com is an Australian pure-play online retailer. The firm primarily caters to value-driven consumers through its private label products, spanning multiple categories including consumer electronics, furniture, and fitness. For brand-conscious consumers, Kogan also offers a wide range of products from well-known third-party brands such as Apple, Samsung, and Google. In addition, Kogan competes in the online marketplace industry, providing a platform and customer base for approved sellers in exchange for a commission. Finally, the firm sells multiple white-labelled products and services including prepaid mobile phone plans, insurance, and travel packages.
(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.
along with the valuable data that they generate, makes Facebook’s platforms attractive to advertisers. The combination of these valuable assets and our expectation that advertisers will continue shift their spending online bodes well for Facebook, as the firm generates strong top-line growth and cash flow. Facebook has attracted users and increased engagement by providing additional features and apps within the Facebook ecosystem.
The firm’s Facebook app, along with Instagram, Messenger, and WhatsApp, is among the world’s most widely used apps on both Android and iPhone, smartphones. Facebook is taking steps to further monetize its various apps, such as providing interactive video ads and tapping into e-commerce. It is also applying artificial intelligence and virtual and augmented reality technologies to various products, which may increase Facebook user engagement even further, helping to further generate attractive revenue growth from advertisers in the future.
Financial Strength
In an industry where continuing investments are required to remain competitive and maintain market leadership, we believe Facebook is well positioned in terms of access to capital. The firm has a very strong balance sheet with $62 billion in cash, cash equivalents, and marketable securities and no debt. The firm generated $39 billion cash from operations in 2020, 7% higher than the prior year. Facebook’s strong operational and financial health is demonstrated by the 28% average free cash flow to equity/revenue during the past three years. We project average annual FCFE/sales to be in the 35%-40% range through 2025, as a result of strong top-line growth and slight operating margin expansion beginning in 2022. The firm may use some portion of its cash, as it remains active on the merger and acquisition front.
Bulls Say’s
- With more users and usage time than any other social network, Facebook provides the largest audience and the most valuable data for social network online advertising.
- Facebook’s ad revenue per user is growing, demonstrating the value that advertisers see in working with the firm.
- The application of AI technology to Facebook’s various offerings, along with the launch of VR products, will increase user engagement, driving further growth in advertising revenue.
Company Profile
Facebook is the world’s largest online social network, with 2.5 billion monthly active users. Users engage with each other in different ways, exchanging messages and sharing news events, photos, and videos. On the video side, the firm is in the process of building a library of premium content and monetizing it via ads or subscription revenue. Facebook refers to this as Facebook Watch. The firm’s ecosystem consists mainly of the Facebook app, Instagram, Messenger, WhatsApp, and many features surrounding these products. Users can access Facebook on mobile devices and desktops. Advertising revenue represents more than 90% of the firm’s total revenue, with 50% coming from the U.S. and Canada and 25% from Europe. With gross margins above 80%, Facebook operates at a 30%-plus margin.
(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.
even when omitting its poor-performing Kyndryl business to be spun off soon. As IBM nears the spinoff of its managed infrastructure business, to be known as Kyndryl, we think that the real drivers for the remaining company lie in IBM’s consulting and software businesses. While consulting revenue surpassed our expectations (and consensus’), IBM’s software revenue missed—leaving us wary of the remaining company’s performance after the spin-off.
IBM reported revenue of $17.6 billion in the quarter, marking flattish year-over-year growth. While IBM’s global business services segment was a standout, growing at 12% year over year, the rest of IBM’s businesses disappointed. The cloud & cognitive software segment grew only 3% year over year. And while global technology services, part of which will be spun off as Kyndryl, with revenue down by 5% year over year.
IBM reported operating margins of 9% in the quarter, down 310 basis points from the prior year period. Non-GAAP earnings per share for the quarter was $2.52.
It is expected that Kyndryl will continue its downward top line trajectory as mass migration of workloads to the cloud have enterprises opting for cloud vendors to manage their cloud infrastructure, rather than traditional IT services providers, like IBM. This makes the worst performance in the quarter a matter of only acceleration of such decline. For software, on the other hand, we believe it, along with consulting (known as global business services) are the main growth drivers for IBM post spinoff. . We formerly expected a stronger relation between consulting and software sales—with the former driving the latter.
We’re maintaining our fair value estimate of $125 per share for narrow-moat IBM. Shares are down 4% upon results, which has moved IBM into fair value territory. As a reminder, IBM plans to spin off shares of Kyndryl after market close on Nov. 3, so our $125 fair value estimate reflects the value of IBM’s stock pre spin-off.
Company profile
IBM looks to be a part of every aspect of an enterprise’s IT needs. The company primarily sells infrastructure services (37% of revenue), software (29% of revenue), IT services (23% of revenue) and hardware (8% of revenues). IBM operates in 175 countries and employs approximately 350,000 people. The company has a robust roster of 80,000 business partners to service 5,200 clients–which includes 95% of all Fortune 500. While IBM is a B2B company, IBM’s outward impact is substantial. For example, IBM manages 90% of all credit card transactions globally and is responsible for 50% of all wireless connections in the world.
(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.
Tabcorp’s lotteries are underpinned by long-dated state-based licences throughout Australia (with the exception of Western Australia)- an enormous scale that adds a degree of earnings certainty. Even when Tabcorp’s state-licenced exclusivities end, the scale of the business is such that new entrants will find it extremely hard to compete against Tabcorp’s distribution network and national jackpot pool size.
With the ubiquity of smartphones, Tabcorp’s previously entrenched physical locations are increasingly competing with online players, where barriers to entry are much lower. Retail outlet exclusivity has little value when punters can place bets with competitors from their phones while in TAB-exclusive venues. Trend towards digitisation has been accelerated by COVID-19 shutdowns, as forced closures and social distancing requirements weighed heavily on Tabcorp’s retail venues and most betting ordinarily made at retail locations has transferred to online platforms.
Financial Strength:
Tabcorp’s balance sheet has strengthened following the AUD 600 million capital raise in August 2020 and improved earnings in fiscal 2021. Fiscal 2021 gearing (gross debt/EBITDA) of 2.4 below the firm’s target levels of 2.5-3.0. Sustainable leverage metrics are displayed especially for a company with still relatively defensive earnings and healthy free cash generation. Such a healthy financial position is necessary ahead of what is likely to be a disruptive future. It is one in which Tabcorp is likely to face increasing competition, facilitated by relentless innovation in online betting services, and potential diminution in the power of its physical retail distribution network. Tabcorp reinstated dividends during fiscal 2021 as earnings recovered. The firm is now targeting a dividend payout ratio of 70%-80% of underlying earnings, from 100% previously.
Bulls Say:
- Tabcorp’s retail exclusivity and extensive brick-andmortar distribution presence places the company in a strong position to migrate its large wagering customer base to an omnichannel environment.
- Long-life wagering, lotteries, and keno licences furnish Tabcorp with a stable earnings and cash flow profile, underpinning a relatively high dividend payout ratio.
- The scale of the lotteries business is such that new entrants will find it extremely hard to compete against Tabcorp’s distribution network and national jackpot pool size.
Company Profile:
Tabcorp operates through principally three segments: wagering and media, lotteries and keno, and gaming services. The firm conducts wagering activities under the TAB brand both online and physically in every Australian state and territory other than Western Australia, reaching 90% of the population through a network of retail venues. Tabcorp also operates regulated lotteries in every Australian state except Western Australia. In addition, Tabcorp Gaming Solutions provides services to electronic gaming machine venues.
(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.
