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Technology Stocks

ViacomCBS Posts In-Line Q2, but Streaming Momentum Clearly Building

Top-line growth of 8% was driven by the rebound in advertising, the return of live sports, and continued streaming growth. The firm’s streaming platforms posted a strong quarter both in terms of new subscribers and monetization. ViacomCBS also announced a distribution deal with Sky to launch Paramount+ in 2022 in its Western European markets.

Global streaming subscribers increased by 6.5 million during the quarter to 42.4 million, and Pluto, a free platform, added 2.8 million monthly active users to end the quarter at 52.3 million. The recent results and the Sky agreement reinforce our view that the long-term guidance of 65-75 million streaming subscribers by 2024 is very conservative. 

While Paramount+ is only available in 25 markets, we expect much wider distribution by 2024, making the high-end target of another 33 million net adds seem very modest.

Streaming revenue exploded, up 98%, as ad revenue bounced back at Pluto and the smaller streaming platforms like Showtime and BET+ continued to grow their subscriber bases. Streaming subscription revenue improved to $481 million, up 82% year over year and subscription average revenue per user increased 4% sequentially.

 On the ad side, streaming revenue jumped by 102% to $502 million as Pluto continues to improve engagement with domestic time watched per MAU up 45% in the quarter. The June launch of Paramount+ Essential, a lower priced ad-supported tier, should help boost advertising growth.

TV Entertainment revenue increased 23% year over year. Broadcast ad revenue was buoyed by the return of the NCAA Final Four and golf tournaments along with the overall rebound in ad demand. 

Affiliate revenue, up 10%, was driven by strong reverse compensation and retransmission fee growth at the CBS broadcast network. Adjusted EBITDA for the segment dropped by 45% to $216 million as the firm continues to invest in Paramount+.

Cable networks revenue grew by 8% versus a year ago to $3.5 billion. Cable ad revenue increased by 24% as the higher pricing in the U.S. and international growth more than offset lower ratings. 

Affiliate revenue was up 9% as the expanded online distribution from services like YouTube TV and rate increases more than offset the ongoing cordcutting trend.

Company Profile

ViacomCBS is the recombination of CBS and Viacom that has created a media conglomerate operating around the world. CBS’ television assets include the CBS television network, 28 local TV stations, and 50% of CW, a joint venture between CBS and Time Warner. The company also owns Showtime and Simon & Schuster. Viacom owns several leading cable network properties, including Nickelodeon, MTV, BET, Comedy Central, VH1, CMT, and Paramount. Viacom has also built several online properties on the strength of these brands. Viacom’s Paramount Pictures produces original motion pictures and owns a library of 2,500 films, including the Mission: Impossible and Transformers series.

(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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Technology Stocks

Motorola Solutions Inc. (NYSE: MSI) Increases Guidance Following Strong Quarter, Meeting Prior Expectations; $175 FVE

Our $175 fair value estimate for Motorola is unchanged, as the new outlook aligns with our previous above-guidance expectations for fiscal 2022. We’re also pleased to see continued growth for the firm’s software and services segment, and continue to believe a heavier software mix will drive margin expansion for Motorola through 2025.

Motorola is benefiting from looser security budgets as the U.S. economy rebounds from 2020, and think it will see multi-year demand as state and local governments digest funds from U.S. government stimulus during the pandemic. Still, we think of Motorola as a steady grower, and think the market is painting a more rapid sales growth and margin expansion picture than is reasonable. We currently view shares as overvalued, and would recommend waiting for a pullback to invest. Management commented on its acquisition of Open path that occurred after quarter-end. The $297 million acquisition gives Motorola a stronger position in access control, which is quickly becoming a greater portion of its video segment.

Second-quarter revenue grew 22% year over year to $1.97 billion–2% higher than the top end of quarterly guidance– behind broad-based strength. Motorola’s video business posted 66% annual growth, which we think is resulting from strong market share gains against Axon in the body cam market. Non-GAAP operating margin of 24.5% grew 230 basis points year over year and 130 basis points sequentially, mainly behind higher sales volume and a greater mix of video and command center revenue.

Company’s Future Outlook

It is estimate these to continue increasing as part of Motorola’s mix, and think margin expansion should continue. We maintain our forecast for non-GAAP operating margin to expand 500 basis points through 2025. Command center software lagged the firm’s overall growth profile, but we think it’s primed for an inflection point with the full Command Central suite launching during the quarter, which we expect to augment switching costs a customers over time.

Company Profile

Motorola Solutions Inc (NYSE: MSI) is a leading provider of communications and analytics, primarily serving public safety departments as well as schools, hospitals, and businesses. The bulk of the firm’s revenue comes from sales of land mobile radios and radio network infrastructure, but the firm also sells surveillance equipment and dispatch software. Seventy-five percent of Motorola’s revenue comes from government agencies, while 25% comes from its commercial customers. Motorola has customers in over 100 countries and in every state in the United States.

(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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Commodities Trading Ideas & Charts

Alumina Ltd’s (ASX: AWC) Commodity Price Change

Alumina is effectively a forwarding office for AWAC profits. Its profits stem from its equity share in AWAC, less local head office and interest expenses. While AWAC enjoys a low operating cost position relative to its competitors, the cost curve is relatively flat, and competitive pressures exist via supply from China. Alumina was the result of a demerger of WMC’s aluminum assets in 2003. AWAC has substantial global bauxite reserves and alumina refining operations, many of which are in the lowest quartile of the cost curve.

Key Investment Consideration

We expect aluminum Ltd’s (ASX: AWC) demand to grow considerably in the future, with global consumption benefiting from transport’s electrification. Supply in China that is managed by state-owned enterprises will prove sticky, with little capacity being cut even if aluminums prices decrease considerably. Alumina’s production has declined over the past five years as it closed capacity in a bid to reduce costs. With no major expansions planned, the company will continue to operate in maintenance mode.

Financial strength

At end 2020, AWAC (Alcoa World Alumina and Chemicals) had USD 361 million in net cash, marginally improved on 2019’s USD 340 million. And at end June 2021, Alumina had just position of USD 5.7 million in net debt, also marginally improved. Historically, AWAC reinvested heavily in its operations at the expense of dividend growth. We expect the company to remain largely in maintenance mode, with no major projects planned over the foreseeable future. Therefore, AWAC should pay out most if not all of its operating cash flows in the form of a dividend to Alumina Ltd. and Alcoa. This will help to maintain Alumina Ltd’s strong financial health. We expect AWAC to remain unleveraged and Alumina to remain modestly leveraged at worst.

Bull Says

  • Alumina is a beneficiary of continued global economic growth and increased demand for aluminum via electrification of transport.
  • AWAC is a low-cost alumina producer. It has improved its position on the cost curve relative to peers through expansion of low-cost refineries and closure of high cost operations.
  • The amended AWAC agreement ensures that Alumina will be able to maximize value for shareholders and makes it a more attractive acquisition target.

Company Profile

Alumina Ltd. (ASX: AWC) is a forwarding office for Alcoa World Alumina and Chemicals’ distributions. Its profit is a 40% equity share of AWAC profit, less head office and interest expenses. Its cash flow consists of AWAC distributions. AWAC investments include substantial global bauxite reserves and alumina refining operations. Declining capital and operating costs and a lack of supply discipline from China are likely to result in competitive pressures, but Alumina’s position in the lowest quartile of the industry cost curve is defensive.

 (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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Commodities Trading Ideas & Charts

Williams’ Deepwater Whale Project One of Several High-Return Growth Opportunities

 The 2018 consolidation of William Partners strengthened Williams’ financial position and lowered its cost of capital. With nearly half of its earnings and cash flow coming from rate-regulated gas pipelines, Williams increasingly looks more like a utility than an energy company. Williams delivered steady performance through turbulent energy markets the last two years, relying on its largely fee-based, long-term contracted revenue and strategically well-positioned assets.

Most of Williams’ growth investment will be directed toward Transco expansions and projects to reduce carbon emissions. Transco capacity will reach 20 bcf/d by 2023 from 10 bcf/d in 2014 and continue to grow as natural gas demand in the eastern U.S. grows. With more than 100 bcf/d in interconnects and regulatory hurdles for competing projects, Transco faces no major competitive threats.

Williams’ other businesses are demonstrating their favorable competitive positions with steady results through volatile energy markets. The Northeast gathering and processing business has a captive customer base in low-cost producing regions. The Northwest pipeline benefits from steady demand from utilities and supply from producers in the Western U.S. Williams is growing and improving the competitive position of its other assets through upstream partnerships.

Financial Strength

Williams has strengthened its balance sheet and dividend coverage in recent years. Its improved credit profile and long-term, fixed-fee contract structures gives Williams financial flexibility to pursue growth investment opportunities, grow the dividend, keep the balance sheet strong, and possibly repurchase shares starting in 2022. 

Williams has raised its dividend to $1.64 in 2021 from $1.20 in 2017 while strengthening its balance sheet. The 2018 consolidation of Williams Partners and elimination of incentive distribution rights resulted in a shadow dividend cut of about 17% for former Williams Partners unitholders.

The flip side was an improved credit profile, higher dividend coverage, and ability to invest in growth without issuing equity. Williams remains engaged in litigation with Energy Transfer over its $1.5 billion payment due to Energy Transfer for its alleged breach of the merger agreement. Williams is seeking damages from Energy Transfer as well and to date has not reserved anything for the $1.5 billion potential payment.

Bulls Say’s 

  • A large, well-positioned network allows Williams to invest in high-return growth projects with minimal regulatory hurdles.
  • After several years of structural and financial moves, Williams is positioned to maintain steady dividend growth for the foreseeable future.
  • Williams is leveraged to U.S. LNG exports via agreements with LNG terminals as a key supplier of gas.

Company Profile 

Williams is a midstream energy company that owns and operates the large Transco and Northwest pipeline systems and associated natural gas gathering, processing, and storage assets. In August 2018, the firm acquired the remaining 26% ownership of its limited partner, Williams Partners.

(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.

Categories
Funds Funds

Zurich Australian Property Securities Fund

Our Opinion

Our rating is based on the following key drivers:

Experienced Portfolio Managers (PMs)

The Fund is led by Carlos Cocaro and Damien Barrack of Renaissance Property Securities Pty Ltd. The two principals have worked together for over 18 years, specialising in ASX listed property securities and have a combined total of over 45 years of experience in analysing and investing in listed property securities. Whilst one may criticize the size of the investment team, in our view, the size of the team and credentials are appropriate considering the small universe (relative to other investment classes).

Disciplined investment process

The Fund uses a rigorous investment process with the Managers employing an active, value-based investment style, characterised by incorporating bottom-up investment research into individual securities, with a particular focus on analysing and forecasting the present and potential future income generation of each underlying property investment.

Solid absolute performance but relative underperformance

Although past performance is not an indicator for future performance, it is an indicator of whether the Fund’s strategy has worked in the past. Although the Fund has performed well on an absolute basis, the Fund has now underperformed relative to its benchmark by up to 3.5% p.a. (3 years performance numbers) and a marginal -0.65%, since inception; This is surprising considering, the Fund’s active risks is minimised, with low tracking error and the PMs being very benchmark aware. Indeed, with the idea that the Managers are very benchmark aware and the Funds beta close to 1.0, over the longer term, investors are by and large taking a view of the S&P/ASX300 Property Trusts Accumulation Index (rather than whether a passive or active manager is best).

Downside Risks

Deterioration in Australian economy especially the property market (deterioration of property prices and fundamentals).

The Portfolio Manager/analysts miss-calculate their bottom-up valuation.

Softening in bond yields negatively impacting pricing.

Key-person risk in Mr. Cocaro and Mr. Barrack.

Our Opinion…

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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.