It has been observed that Applied Materials and its peers have all called for strong growth in 2021, driven by record capital expenditure levels at TSMC (Taiwan Semiconductor Manufacturing Company) and Intel as well as solid memory spending.
Third-quarter sales rose 41% year over year to $6.2 billion, led by a 53% increase in the semiconductor systems group (SSG) revenue. Within SSG, equipment sales to logic and foundry customers grew 75% year over year. This strength has been attributed to investments supporting leading-edge process technologies at the likes of TSMC as well as lagging-edge processes that support end markets such as automotive and Internet of Things. Memory equipment sales also grew 26% year over year. Foundry and logic are expected to be the biggest growth drivers for Applied’s SSG sales in 2021.
Financial Strength:
The last price for Applied Materials Inc. was USD 129.20, whereas its fair value has been estimated to be USD 131. Besides, PE ratio of Applied during 2020 was 14.2, making it undervalued with reference to its sector. This suggests that there is room for growth of the Applied Materials Inc.
Management expects Applied’s fourth-quarter revenue to be up by 34% year over year at the midpoint, with momentum persisting into 2022. Also, the sales of Applied are expected to be $6.3 billion at the midpoint, with SSG at $4.6 billion, services at $1.3 billion, and display at $400 million.
Quarterly services revenue was nearly $1.3 billion and was up 24% year over year. In recent years, services and part sales from long-term service agreements have grown from 40% to 87% of total service revenue.
Company Profile:
Applied Materials is one of the world’s largest suppliers of semiconductor manufacturing equipment, providing materials engineering solutions to help make nearly every chip in the world. The firm’s systems are used in nearly every major process step with the exception of lithography. Key tools include those for chemical and physical vapor deposition, etching, chemical mechanical polishing, wafer- and reticle-inspection, critical dimension measurement, and defect-inspection scanning electron microscopes.
(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.
customized specialty vehicles, and parts and services. Winnebago Industries’ strong brand equity in recreational vehicles and its balance sheet would allow the firm to persevere through economic turmoil.
The top three motor home manufacturers (Thor, Forest River, and Winnebago) make up about 80% of the North American motor home market. Winnebago has reinvented itself under CEO Mike Happe with the November 2016 acquisition of high-end towable maker Grand Design and sees itself as a leading outdoor lifestyle firm rather than just a maker of RVs. Acquisitions in the $700 billion-plus outdoor activity market also play a role. Over 60% of U.S. households’ camp at least occasionally and 12% camp more than three times a year. Millennial and Gen X campers are 81% of new U.S. campers, and 82% of new campers since the pandemic have children, so Winnebago has plenty of runway with younger consumers if it executes right.
Financial Strength:
The balance sheet lacks the massive legacy costs that burden some other manufacturers because Winnebago’s workforce is not unionized. Winnebago’s untapped $192.5 million credit line coupled with $405.8 million of cash at the end of the third quarter of fiscal 2021 would get the firm through nearly any challenge.
A 9% increase in the dividend in summer 2020, despite the pandemic at the time, is a good sign of financial health, as is a 50% increase announced in August 2021.Winnebago’s balance sheet had been free of long-term debt since the mid-1990s. Net debt/adjusted EBITDA was 1.7 times at the end of fiscal 2020. Winnebago has no significant pension obligations and stopped paying retiree healthcare in 2017. Revenue was about $2.35 billion in fiscal 2020.
Bulls Say:
The Grand Design acquisition materially raised Winnebago’s operating margin, and Newmar could do
the same.
The company’s strong balance sheet provides financial strength and flexibility to withstand cyclical downturns.
Because RV consumers are relatively affluent, rising gas prices would probably not hinder a consumer’s ability to purchase a motor home. A 2016 study by travel consulting firm PKF Consulting found that for a family of four, gas prices would have to exceed $12 a gallon to make RV travel more expensive than other forms of travel.
Company Profile:
Winnebago Industries manufactures Class A, B, and C motor homes along with towables, customized specialty vehicles, and parts and services. With headquarters in Eden Prairie, Minnesota, Winnebago has been producing recreational vehicles since 1958. Class A motor homes account for 31% of motorized unit sales, Class B about 41%, and Class C the rest.
(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.
to last year’s pandemic-sparked sales surge (5.2% comparable growth for U.S. namesake stores, 14.5% two-year stack). While Walmart beat our expectations, we attribute the outperformance to pandemic-related volatility, so our long-term targets of lowsingle- digit percentage top-line growth and mid-single-digit adjusted operating margins are intact. The top-line outperformance extended across Walmart’s segments (5.2% and 7.7% comparable growth, excluding fuel, at Walmart U.S. and Sam’s Club, versus our respective 2.6% and 4.3% forecasts, and $23.0 billion in international revenue against our $22.3 billion mark).
Recovery in pandemic-affected categories like auto care and party augmented another strong quarter in grocery, where Walmart gained share domestically on mid-single-digit comparable growth. Cost leverage contributed to a 5.3% adjusted operating margin, up nearly 80 basis points. Management lifted full-year guidance, now calling for $6.20 to $6.35 in adjusted diluted EPS, up from around $6.03 (which was near our prior estimate, which should rise toward the top of the new range).
Walmart’s advertising business (Walmart Connect) was particularly strong, with U.S. sales nearly doubling and the
number of active advertisers up more than 170%. Although e-commerce sales consolidated gains (up 6% in the U.S. for the quarter, and 103% on a two-year stacked basis), we believe Walmart is still in the earlier stages of capitalizing on its ancillary online revenue potential
Company Profile
America’s largest retailer by sales, Walmart operated over 11,400 stores under 54 banners at the end of fiscal 2021, selling a variety of general merchandise and grocery items. Its home market accounted for 78% of sales in fiscal 2021, with Mexico and Central America (6%) and Canada (4%) its largest external markets. In the United States, around 56% of sales come from grocery, 32% from general merchandise, and 10% from health and wellness items. The company operates several e-commerce properties apart from its eponymous site, including Flipkart and shoes.com (it also owns a roughly 10% stake in Chinese online retailer JD.com). Combined, e-commerce accounted for about 12% of fiscal 2021 sales.
(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.
driven by the competitively advantaged Australian business which benefits from industry tailwinds. ARB provides automotive accessories for four-wheel-drive, or 4WD, vehicles–namely, 4WD utility vehicles, and medium and large sport utility vehicles, or SUVs. The vast majority of earnings are generated in Australia, where sales of 4WD vehicles have grown strongly in recent years. While headline new vehicle sales in Australia have remained stagnant over the five years to fiscal 2019, sales for vehicles in ARB’s niche target market have increased at a CAGR of around 6% over the same time period.
We estimate this subsegment eclipsed 50% of new vehicles sales in fiscal 2020, up from around 35% of new vehicle sales in fiscal 2014.The firm’s network of store fronts defends ARB’s premium positioning, ensuring end-to-end reliability from manufacturing to fitting. We expect ARB will also need to continue to invest heavily in its brands and its narrow moat by maintaining a high level of expenditure on marketing, research and development. This expenditure is necessary to maintain the firm’s brand equity, and differentiate its products from lower-end competitors, allowing ARB to remain at the forefront of product innovation and quality, improving brand awareness and ensuring a healthy pipeline of new product releases.
Financial Strength
ARB’s balance sheet is in pristine condition. At June 30, 2021, the company had no debt and a net cash position of AUD 85 million. This is despite major investment in the Thailand and Victoria warehouses and continued new store rollouts. The firm’s major funding requirements are store rollouts, international expansion, and working capital in line with growing sales. We anticipate the firm will maintain expenditure on marketing and R&D at around 5% for the foreseeable future. We are confident the firm can maintain a dividend payout ratio of around 50% without stretching its balance sheet or compromising its expansion plans.
Profit before tax near-doubled to AUD 150 million as restrictions on international travel and government stimulus increased domestic driving holidays–both in Australia and in overseas markets, boosting demand for ARB products. After falling 14% in fiscal 2020, Australian new car sales have bounced back quickly, up 10% in fiscal 2021. The rebound is more pronounced for 4WD utilities and SUVs (ARB’s primary target market), which grew by 11% in fiscal 2021 after falling just 7% in fiscal 2020. The company declared a final dividend of AUD 39 cents per share, bringing full-year dividends to AUD 68 cents per share, fully franked. ARB maintains a dividend payout ratio of about 50%, and with no debt, we anticipate the firm can maintain this payout ratio without stretching its pristine balance sheet or compromising expansion plans.
Bulls Say’s
- Online competition is not a significant threat to ARB’s business. Products usually require professional fitting (often in ARB stores), and the often heavy and bulky accessories can make delivery cost prohibitive.
- The 4WD accessories industry has few barriers to entry, and with products such as bull bars essentially just fabricated steel, ARB’s products are somewhat replicable.
- ARB’s range of vehicle accessories have established significant brand strength, underpinning its narrow economic moat, allowing the firm to enjoy pricing power and high returns on invested capital.
Company Profile
ARB Corporation designs, manufactures, and distributes four-wheel-drive and light commercial vehicle accessories. The firm has carved a niche with aftermarket accessories including bull bars, suspension systems, differentials, and lighting. ARB operates manufacturing plants in Australia and Thailand; sales and distribution centres across several countries. The Australian division, which generates the vast majority of group earnings, distributes through the ARB store network, ARB stockists, new vehicle dealers, and fleet operators.
(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.
- Offers a number of core assets within its portfolio (no single asset risk).
- On-going focus on cost reduction and positioning of the business for lower oil price environment.
- Potential M&A activity – the Company has been the subject of several takeover offers.
- Ramp up to GLNG.
- Strong balance sheet position.
- Strategic shareholders (potential corporate activity).
Key Risks
- Supply and demand imbalance in global oil/gas markets.
- Lower oil / LNG prices.
- Not meeting cost-out targets (e.g. reducing breakeven oil cash price).
- Production disruptions (not meeting GLNG ramp up targets).
- Strategic investors sell down their stake or block any potential M& A activity.
1H21 Results Highlights
Relative to the pcp and in US$: Production of 47.3mmboe was up +23%. Sales volume of 53.8mmboe was up +15%. Product sales revenue of $2,040m was up +22%. EBITDAX of $1,231 was up +24%. Underlying profit of $317m is up +50%. STO achieved a net profit of $354m versus a loss of -$289m in FY20. Free cash flow of $572m was up +33%. The Board declared an interim dividend of 5.5cps (versus 2.1 in FY20) and equates to 20% of first half free cash flow, in-line with STO’s sustainable dividend policy which targets a range of 10% to 30% payout of free cash flow. Reported NPAT of $354m includes net gains on asset sales and is significantly higher than the PCP due to impairments included in the previous half-year result.
Company Description
Santos Limited (STO) explores for and produces natural gas, liquefied natural gas, crude oil, condensate, naptha and liquid petroleum gas. STO conducts major onshore and offshore petroleum exploration and production activities in Australia, Papua New Guinea, Indonesia, and Vietnam. The company also transports crude oil by pipeline.
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.
