Business Strategy & Outlook
Nufarm is a major producer of crop-protection products including herbicides, fungicides, and pesticides, selling into all major world markets. The company is leveraged to growing demand for crops for biofuels, and food from rapidly industrializing markets such as China and India. Growth should come from astute brand and offshore business investments and from a customer service-focused strategy. However, the global crop-protection markets are competitive and earnings are cyclical, given a reliance on seasonal conditions. Sumitomo Chemical’s investment in Nufarm endorses the quality of its global distribution. Collaboration broadens product portfolios and adds distribution in Asia. Continued growth in food demand in industrializing nations should underwrite long-term earnings growth. Nufarm’s primary competitive strengths are marketing scale, dominant position in the Australian market, formulation expertise, and skills in marketing post-patent crop-protection products. Global expansion in recent years reduced dependency on the domestic market. The company’s dominance in Australia has become less certain, with glyphosate pricing coming under considerable pressure. Due to the competitive nature of its markets, lack of pricing power and exposure to cyclical agricultural demand, Nufarm doesn’t possess an economic moat. Returns on invested capital have historically failed to meet the cost of capital.
In addition to its crop-protection business, Nufarm has a seed technologies business. With this, it aims to broaden its portfolio of products, all of which are targeted to improve agricultural yields. Nufarm has a growing presence in North America and Europe. Sound sales momentum has been evident in North America and Europe. Several Chinese companies have previously expressed interest in acquiring Nufarm, but withdrew either because of too high a price demanded by the board, or because of reduced availability of debt. In 2010, Japanese company Sumitomo Chemical bought 20% of Nufarm, subsequently increasing its stake to 23% before diluting to 16% and then selling out completely in 2022.
Financial Strengths
Nufarm’s balance sheet is in great shape. In early April 2020, the company received AUD 1.2 billion net sale proceeds from major shareholder Sumitomo, for the sale of its South American crop protection and seed treatment operations in Brazil, Argentina, Colombia, and Chile. This significantly bolstered the finances at a very fortuitous time, coming mid coronavirus. Prior to this in January 2020, group net debt had stood at a whopping AUD 1.6 billion. Nufarm’s under-leveraged balance sheet remains a strength. At Sept. 30, 2022, net debt stood at a modest AUD 204 million excluding leases, leverage of just 9% and annualized net debt/EBITDA of 0.5 is very comfortable. Leverage is well below management’s net debt/EBITDA target range of 1.5 to 2.0. Nufarm is to be unleveraged within a year all else being equal. It would be wise for the company to remain modestly leveraged at most, given vagaries of the weather, earnings seasonality, and new product ramp-up requirements.
Bulls Say
- Nufarm benefits from potential strength in soft commodities markets.
- Nufarm has well-established distribution platforms in most major global agricultural markets.
- Product and geographic diversification helps reduce earnings volatility.
Company Description
Nufarm Limited is a global crop-protection company that develops, manufactures, and sells a range of crop-protection products, including herbicides, insecticides, and fungicides. Nufarm sells its products in most of the world’s major agricultural regions, and operates primarily in the off-patent segment of the crop-protection market. Nufarm operates along two business lines: crop protection and seed technologies.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Business Strategy & Outlook
Vitesco will capitalize on vehicle electrification arising from global clean air regulation. Vitesco’s products are used in internal combustion engines, hybrid electric, battery electric, and fuel cell electric vehicles. The company’s electrified vehicle powertrain product lines should support revenue growth in the mid-single-digit range, despite non core ICE product lines which are declining. The company benefits from its ability to continuously innovate, a global manufacturing footprint, highly integrated long-term customer ties, high customer switching costs, and moderate pricing power from new technologies. Vitesco has been winning large amounts of new business due to the industry’s transition to electrified powertrains. While 2021 electrification sales amounted to EUR 888 million (from more than one operating segment) out of the consolidated total of EUR 8.3 billion, 2021 electrification order intake was EUR 5.1 billion. Vitesco has a cumulative EUR 16.8 billion electrification order intake backlog (EUR 51 billion total order intake backlog). Once an order is taken, development for a vehicle powertrain takes two to four years, during which Vitesco incurs development costs without any associated revenues. The production phase, when revenue is generated, lasts between five-10 years.
Vitesco’s large number of new contracts in development phase, relative to the low number in production, leads to net losses through 2024 and break even in 2025 for the electrification technology operating segment. The segment’s 2025 revenue is EUR 1.95 billion, up from EUR 587 million in 2021. Vitesco to wind down contract manufacturing for its former parent, Continental AG, with revenue dropping from EUR 1.05 billion in 2021 to zero in 2028. Noncore ICE revenue to decline from about EUR 2.0 billion in 2020 to EUR 665 million in 2031. Because of high growth electrified powertrain business, from a 2019 base, 4% average annual consolidated revenue growth during the 10-year, roughly 1-3 percentage points higher than expectations for 1%-3% long-term growth in global light vehicle demand.
Financial Strengths
Vitesco maintains a solid balance sheet and liquidity that, relative to other parts suppliers, makes for strong financial health. Vitesco has ample liquidity and can generate sufficient free cash flow to meet its current financial obligations and weather cyclical downturns. The firm maintains a low level of debt as its net debt / total capital was negative 7.6% (indicating a net cash position) at the end of 2021. The firm has two multicurrency revolving credit facilities including a EUR 750 million core credit facility and an incremental EUR 250 million credit facility. At the end of 2021, Vitesco had EUR 1,614 million in liquidity, including available credit facilities and a EUR 614 million cash balance. Short-term debt was EUR 69.8 million and long-term debt was EUR 199.1 million for a total debt balance of EUR 268.9 million. Vitesco ended 2021 with a 0.3 net adjusted debt/ EBITDAR ratio which takes into consideration cash, operating leases, and rent expense
Bulls Say
- Global clean air legislation enables Vitesco’s top-line growth to exceed worldwide growth in demand for light vehicles.
- The firm’s global manufacturing footprint enables the firm to participate in global vehicle programs and capitalize on global demand.
- As automakers consolidate purchases with fewer suppliers, large firms such as Vitesco are in the best position to gain share because they can offer a wide range of products at attractive prices.
Company Description
Vitesco is a global Tier I automotive supplier of internal combustion engine (ICE), hybrid electric (HEV), battery electric (BEV), and fuel cell electric (FCEV) vehicle powertrain components and systems, operating through four segments including electronic controls, sensing & actuation, electrification technology, and contract manufacturing. The company was spun off from Continental AG on Sept. 16, 2021. ICE powertrain products include electronic controls, sensors, actuators, turbochargers, hydraulic components, pumps, and emissions technologies. HEV, BEV, and FCEV products include battery management systems, onboard chargers, battery junction boxes, emotors, inverters, converters, thermal control, electronic control units, pumps, flow control valves, sensors, and actuators.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Business Strategy & Outlook
Fifth Third’s reputation as a solidly profitable bank took a hit during the financial crisis. The bank regularly reported returns on equity that exceeded 17% before 2007, largely because of a strong line of fee-income businesses. In 2007, primarily because of weakness in some of the bank’s most significant markets–Ohio, Michigan, and Florida–loan losses began to pile up. Although management could not avoid the impact of operating in hard-hit economies, a generally increasing appetite for risk compounded the bank’s problems. Over the course of 2008-09, loan-loss provisions ate up more than 100% of net interest income. Since the crisis, much has changed, and management has made improvements to the underwriting process and generally improved the bank’s risk management. Fifth Third has emerged from the crisis as one of the Midwest’s more stable banking franchises, with strong deposit share across several large cities in Ohio and Michigan. With the bank’s acquisition of MB Financial, Fifth Third’s share has improved substantially in the Chicago area.
The bank is also entering a new stage of better cost controls, which when combined with coming rate hikes, should set up the bank for solid operating leverage for years to come and a consistent sub-60% efficiency ratio. These are all necessary moves as the bank figures out how to buoy returns in a post-Worldpay existence. Better card analytics, increased capital markets and M&A offerings, and bolt-on acquisitions should continue to help drive growth in revenues. Fifth Third has experimented with partnerships with financial technology firms, such as GreenSky, the bank has bolstered its investment banking franchise with bolt-on acquisitions, and the bank’s latest acquisition of Dividend Finance should produce steady loan growth for years. The bank has performed from a credit perspective this time around, much better than during the financial crisis. Overall, Fifth Third is a dependable Midwest operator with improved risk management, decent market share in key geographies, and particular strength among its core middle-market clients.
Financial Strengths
Since the financial crisis, Fifth Third had steadily built its capital base to what is considered a healthy level. The bank reported a common equity Tier 1 ratio of 9.1% as of September 2022, in line with management’s target of roughly 9%. Fifth Third is adequately capitalized to withstand future losses while also funding growth.
Bulls Say
- A strong economy and higher rates are all positives for the banking sector and should propel revenue and profitability even higher for Fifth Third.
- Fifth Third’s latest acquisition of Dividend Finance should drive outsized and profitable loan growth for years to come.
- Fifth Third may still have additional cost savings waiting in the background, potentially allowing the bank to outperform peers in an otherwise inflationary expense environment.
Company Description
Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati. The company has over $200 billion in assets and operates numerous full-service banking centers and ATMs throughout Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Georgia, and North Carolina.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Business Strategy & Outlook
Nvidia is the top designer of discrete graphics processing units that enhance the visual experience on computing platforms. The firm’s chips are used in a variety of end markets, including high-end PCs for gaming and data centers. Traditional GPU uses include professional visualization applications that require realistic rendering, including computer-aided design, video editing, and special effects. Nvidia has experienced success in focusing its GPUs in nascent markets such as artificial intelligence (deep learning) and self-driving vehicles. Hyperscale cloud vendors have leveraged GPUs in training neural networks for uses such as image and speech recognition. The linchpin of Nvidia’s business has been gaming. PC gaming enthusiasts generally purchase high-end discrete GPUs offered by the likes of Nvidia and AMD. Going forward, the data center segment will drive most of the firm’s growth, led by the explosive artificial intelligence phenomenon. This involves collecting large swaths of data followed by techniques that develop algorithms to produce conclusions in the same way as humans. As Moore’s law-led CPU performance improvements have slowed, GPUs have become widespread in accelerating the training of AI models to perform a task. However, other solutions are more suitable for inferencing, which is the deployment of a trained model on new data.
Today’s basic variants of AI are consumer-oriented and include digital assistants, image recognition, natural language processing, and recommendation engines. The firm views the car as a “supercomputer on wheels.” Although this segment currently contributes relatively little to the top line, the opportunity Nvidia has to grow its presence in cars beyond infotainment as drivers seek autonomous features in newer vehicles is acknowledgeable. Nvidia’s Drive PX platform is a deep learning tool for self-driving that is being used in R&D at more than 370 partners. In 2020, Nvidia acquired Mellanox to bolster its data center offerings in the networking realm to raise switching costs and improve performance of Nvidia’s existing portfolio.
Financial Strengths
Nvidia is in strong financial shape. The firm had about $13.1 billion in cash, cash equivalents, and marketable securities, versus total debt of about $11 billion on its balance sheet at the end of October 2022. Semiconductor firms tend to hold large cash balances to help them navigate the cycles of the chip industry. During downturns, this provides them with a cushion and flexibility to continue investing in research and development, which is necessary to maintain their competitive and technology positions. Nvidia’s dividend is very reasonable relative to its financial health and forward prospects, and the firm also returns excess cash to shareholders via stock buybacks.
Bulls Say
- The proliferation of the artificial intelligence and deep learning phenomena that rely on Nvidia’s graphics chips presents the firm with a potentially massive growth opportunity.
- The firm has a first-mover advantage in the autonomous driving market that could lead to widespread adoption of its Drive PX self-driving platform.
- The increasing complexity of graphics processors provides a barrier to entry for most potential rivals, as it would be difficult to match Nvidia’s large R&D budget.
Company Description
Nvidia is the top designer of discrete graphics processing units that enhance the experience on computing platforms. The firm’s chips are used in a variety of end markets, including high-end PCs for gaming, data centers, and automotive infotainment systems. In recent years, the firm has broadened its focus from traditional PC graphics applications such as gaming to more complex and favorable opportunities, including artificial intelligence and autonomous driving, which leverage the high-performance capabilities of the firm’s products.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.