Tag: Recommendations

Investment Thesis

• Market leading position (significantly ahead of the nearest competitor). 
• Growing global trade and increasingly globalization of products sold. 
• High degree of revenue visibility and low customer annual attrition rates. 
• R&D spend will ensure product/services are enhancing WTC products. WTC’s vision is to be the operating system for global logistics. Having completed 39 acquisitions since its IPO in 2016, WTC has assembled significant resources and development capabilities to fuel its CargoWise technology pipeline. 
• Scalability of the business model. 
• Geopolitical tensions considered by management as “tailwinds” due to higher consolidation of the logistics software industry.

Key Risks

• Company announces another earnings downgrade. 
• Organic growth could moderate further, which may no longer warrant such a lofty valuation. However, organic growth has improved over FY19. 
• Management noted that revenues from recent acquisitions actually declined and offered little margin. This means the return from these acquisitions could take longer than management’s expectations. 
• Competitive threat (new product/technological advancements). 
• Disruption to technology (data breach). 
• Adverse currency movements.

Key Highlights: Relative to the pcp and on a constant currency basis: 

• 1H22 Total Revenue of $281.0m, up +18% (+22% ex FX) on 1H21. 
• CargoWise revenue was up +29% (+33% ex FX) to $193.0m, driven by Large Global Freight Forwarder rollouts, new customer wins, price and increased existing customer usage.
• Acquisition (non-CargoWise) revenue of $87.9m, down -1% (up +2% ex FX). 
• Market penetration momentum continuing – two new global rollouts secured in 1H22 – FedEx and Access World – and Brink’s Global Services (Brink’s) signed post 31 December 2021. 
• Ongoing product development delivered 589 CargoWise new product features and enhancements and continued expansion of the CargoWise ecosystem. 
• Organization-wide efficiency and acquisition synergy program well-progressed – $20.2m of gross cost reductions in 1H22 (net benefit $19.7m). 
• EBITDA of $137.7m up +54% driven by revenue growth and cost reductions. Margin of 49%, up 12 bps. CargoWise’s 1H22 EBITDA margin of 58% represents an increase of 4pp on 1H21.
• Underlying NPAT of $77.3m, up +77%. 
• WTC generated strong free cash flow of $90.3m, up +85%. 
• WTC retained a strong balance sheet, with cash as at 31 December 2021 of $380.3m and no outstanding debt excluding lease liabilities. WTC has an undrawn, unsecured, four-year, $225m, bi-lateral debt facility, to fund future growth. 
• WTC’s Board declared a fully franked interim ordinary dividend of 4.75cps, which equates to payout ratio of 20% of Underlying NPAT.

Company Description

WiseTech Global (WTC), founded in October 1994, is a leading provider of software to the logistics services industry globally. WTC develops, sells and implements software solutions that enable logistics service providers to facilitate the movement and storage of goods, domestically and internationally. WTC’s software assists their customers to better address and adapt to the complexities of the logistics industry while increasing their productivity, reducing costs and mitigating risks. WTC services over 6,000 customers across more than 115 countries with offices in Australia, New Zealand, China, Singapore, South Africa, United Kingdom and the United States.

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.

Investment Thesis

• Solid market share in Australia and growing presence in Asia. Hence provides attractive exposure to both developed and emerging markets’ growth. 
• Valuation is fair on the forward estimates. 
• Management appears to be less focused on acquired growth going forward, which means there is a less of a chance for the Company to make a value destructive acquisition. 
• Reinstatement of the dividend is positive and highlights management’s confidence in future earnings growth. 
• Focusing on sustainable packaging in an environmentally friendly market.

Key Risks

• Competitive pressures leading to further margin erosion. 
• Input cost pressures which the company is unable to pass on to customers. 
• Deterioration in economic conditions in Australia and Asia. 
• Emerging markets risk. 
• Poor acquisitions or not achieving synergy targets as PGH moves to reduce its dependency on packaging for food, dairy, and beverage clients to more high growth sectors such as healthcare.
• Adverse currency movements (purchased raw materials in U.S. dollars)

Key Highlights: Relative to the pcp and on a constant currency basis: 

• Revenue of $1,838m was up +4%, driven by solid demand for sustainable packaging and recycled products. 
• FY22 underlying EBIT was in line with guidance provided at 1H22. However, underlying EBIT of $156m, was down -15%, with EBIT from Packaging & Sustainability of $110m, up +5% more than offset by declines in Material Handling & Pooling underlying EBIT of $50m, down -8%, and Contract Manufacturing underlying EBIT, which saw a loss of -$4m (versus $24m in the pcp).
• Underlying NPAT of $70m was down -25% largely due to the absence of one-off revenue in the Contract Manufacturing segment recorded in FY21. Reporting NPAT of $12m was significantly down – 86%. 
• The Board declared a final dividend of 1.5cps, franked to 65%, which brings FY22 total dividend to 5cps, down -55% and equates to a payout ratio of 25% of underlying NPAT.
• PGH acquired Synergy Packaging for ~$20m which adds to sustainable health and beauty packaging. 
• PGH began operations at Circular Plastics Australia (PET) recycling facility in Albury-Wodonga with international food grade certification in place and producing recycled resin for joint venture partners. 
• PGH maintained gearing of 2.7x, within its target range, with net debt at $561m, $24m lower than pcp, and operating cash conversion of $253m.

Company Description

Pact Group Holdings Ltd (PGH) was established by Raphael Geminder in 2002 (Mr. Geminder remains a major shareholder with ~44% and is the brother-in-law of Anthony Pratt, Chairman of competitor Visy). Pact has operations throughout Australia, New Zealand and Asia and conceives, designs, and manufactures packaging (plastic resin and steel) for many products in the food (especially dairy and beverage), chemical, agricultural, industrial and other sectors.

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

CrowdStrike is a leader in endpoint security, a necessity that aids in protecting devices and networks, and its threat hunting and breach remediation services are topnotch. While nefarious threat actors are continually upping their attack methodology to create zero-day attacks and are using the rise in entities using cloud-based resources to their advantage, CrowdStrike developed a methodology to turn any entities’ weak-point into better protection for all of its clients. CrowdStrike’s cloud-delivered endpoint protection platform continuously ingests data from all of its installed agents to enhance its protection solutions while keeping all users up to date against the latest threats. CrowdStrike’s customer base, revenue, and margins will experience profound growth throughout the 2020s as customers update their endpoint and workload security requirements in a hybrid-cloud world. CrowdStrike’s endpoint protection platform melded the needs of next-generation antivirus, threat intelligence, endpoint detection and response, and other features like managed threat hunting into a consolidated management plan. The lightweight agents, installed on physical devices like servers and laptops, or in virtual machines and cloud environments, are continually improving through its cloud database algorithms, becoming more capable as more data is received. CrowdStrike’s solutions establish customer switching costs and its network effect makes changing vendors a challenge as clients rely on having the latest threat protection. Alongside a persistent talent shortage in cybersecurity and firms attempting to manage disparate toolsets for various parts of endpoint security, entities are challenged to stay secure in networking environments without distinct security perimeters. CrowdStrike’s experts supplement these overwhelmed or short-staffed teams, and the firm also offers breach remediation and proactive testing services. CrowdStrike is in the early stages of becoming a market mainstay as businesses and governments rapidly adopt cloud-based endpoint protection platforms.

Financial Strengths

CrowdStrike is a financially sound company that will be able to generate solid free cash flow and expand its margin profile throughout the 2020s. CrowdStrike had its initial public offering in June 2019 and has historically operated at a loss on a GAAP basis. CrowdStrike’s capital deployment efforts true to a land-and-expand strategy, whereby CrowdStrike initially has elevated sales and marketing expenses to gain a customer cohort before expanding its revenue per customer while lowering its operating costs per customer (on a revenue percentage basis). CrowdStrike can benefit from cross-selling and up-selling tangential products to its existing base and new clients, while also converting breach remediation service clients to be product customers. As of the end of fiscal 2022, CrowdStrike had $2.0 billion of cash, cash equivalents, and marketable securities and $740 million of debt. With a strong balance sheet and free cash flow generation, CrowdStrike is to pay its obligations on time.

Bulls Say

• CrowdStrike’s innovative endpoint security solutions, delivered as a platform, are quickly attracting customers as clients want to consolidate their myriad legacy security tools. Its threat remediation services are a powerful tool in landing new subscription clients.
• After landing a client, CrowdStrike can gain significant margin leverage via the cross-selling and up-selling of additional security modules.
• Larger firms, with much longer operating track records versus CrowdStrike, have been adding endpoint security into their portfolios that can disrupt technology partnerships and go-to-market strategies.

Company Description

CrowdStrike Holdings provides cybersecurity products and services aimed at protecting organizations from cyberthreats. It offers cloud-delivered protection across endpoints, cloud workloads, identity and data, and threat intelligence, managed security services, IT operations management, threat hunting, identity protection, and log management. CrowdStrike went public in 2019 and serves customers worldwide.

(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

Winnebago, which reinvented itself under CEO Mike Happe with the November 2016 acquisition of high-end towable maker Grand Design, sees itself as a leading outdoor lifestyle firm. It now has a marine segment with Chris-Craft and Barletta. Towables is an area the company had long wanted to grow in but had remained very small since acquiring Sunnybrook in 2011. Winnebago’s North American towables share is in the teens, up from under 2% before Grand Design, so there’s a long growth runway if it can keep chipping into Thor’s and Forest River’s roughly 80% combined share. In fiscal 2022, towables were about 52% of total revenue compared with just 9% in fiscal 2016. Marine was about 9% of fiscal 2022 sales and Barletta is a top five pontoon brand. Management wants non-RV revenue of 15% by fiscal 2025. High brand equity enabling scale and barriers to entry provide Winnebago with a narrow economic moat.

Leadership sees opportunities to grow with products in new segments such as off-roading and lower price points (but not the cheapest in a segment). Models are no longer cloned, which should help dealer profitability, and products will be positioned around a good, better, best framework. A unit is now not manufactured until it has an order, which should mean little discounting. Acquisitions in the $860 billion-plus outdoor activity market also play a role, but only for high-end brands such as Grand Design, Chris-Craft, Newmar, and Barletta. Industry data shows that 11.2 million U.S. households owned a RV in 2020, up from 6.9 million in 2001. 60% of first-time campers are under age 40 and have a household income of $100,000 or more versus 29% for all campers. 82% of new campers since the pandemic have children and Hispanic and Black consumers were 25% of all campers in 2020, up from 8% in 2012, so Winnebago has plenty of runway with a wide consumer base if it executes right. Winnebago’s brand equity gives it a good shot at capitalizing on these trends. The pandemic-induced outdoor lifestyle boom has also given the company a $2.3 billion RV backlog at year-end fiscal 2022, up from about $400 million at the end of fiscal 2019.

Financial Strengths

The balance sheet lacks the massive legacy costs that burden some other manufacturers because Winnebago’s workforce is not unionized. Winnebago’s untapped $350 million credit line, good through July 15, 2027, coupled with about $282 million of cash should 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 and another 50% increase in August 2022. Winnebago’s balance sheet had been free of long-term debt since the mid-1990s.  Having no debt limits the downside to equity investors, but new leadership was exploring whether to add debt and did so in fiscal 2017 with $353 million to fund part of the consideration to buy Grand Design. Debt as of Aug. 27 totaled $600 million, before a $45.3 million convertible note discount and $8.9 million of debt issuance costs, and consists of $300 million of 1.5% April 2025 unsecured senior convertible notes issued to buy Newmar (along with the company issuing 2 million shares of stock to the seller at $46.29) and $300 million of 2028 6.25% senior secured bonds. The convertible notes are not callable, can be converted any time starting Oct. 1, 2024, and have a conversion price of $63.73 per share. The target range for net debt/adjusted EBITDA is 0.9-1.5 times, but management is willing to leverage up to 3.0 times to make an acquisition. Net debt/adjusted EBITDA was 0.5 times at the end of fiscal 2022. Winnebago has no significant pension obligations and stopped paying retiree healthcare in 2017.  Winnebago is to be comfortably free cash flow positive in the long term. It is to repurchase its shares only when they’re cheap and buybacks be done at a minimum to offset dilution from stock option issuance. Acquisitions and other growth investments are a priority over buybacks but buyback spending was $214.3 million in fiscal 2022.

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 motorhome. 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 Description

Winnebago Industries manufactures Class A, B, and C motor homes along with towables, customized specialty vehicles, boats, and parts. Headquartered in Eden Prairie, Minnesota, Winnebago has been producing recreational vehicles since 1958. Revenue was about $5 billion in fiscal 2022. Winnebago expanded into towables in 2011 with the acquisition of SunnyBrook and acquired Grand Design in November 2016. Towables made up 83% of the firm’s RV unit volume, up from 31% in fiscal 2016. The company’s total RV unit volume was 71,922 in fiscal 2022. Winnebago expanded into boating in 2018 with the purchase of ChrisCraft, bought premium motor home maker Newmar in November 2019, and bought Barletta pontoon boats in August 2021.

(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.