Tag: Recommendations

Alliance Bernstein’s organic AUM growth rate averaged positive 1.9% (positive 0.2%) with a standard deviation of 2.7% (2.9%).

Post author By lvc-admin
Post date June 22, 2022
No Comments on Alliance Bernstein’s organic AUM growth rate averaged positive 1.9% (positive 0.2%) with a standard deviation of 2.7% (2.9%).

Business Strategy & Outlook

A confluence of several issues–poor relative active investment performance, the growth and acceptance of low-cost index-based products, and the expanding power of the retail-advised channel–has made it increasingly difficult for asset managers running predominantly active portfolios to generate organic growth, leaving them more dependent on market gains to drive assets under management higher. While there will always be room for active management, the advantage when it comes to getting placement on platforms will go to asset managers with greater scale, established brands, solid long-term performance, and reasonable fees.

With $687.0 billion in managed assets at the end of May 2022, AllianceBernstein has the size and scale necessary to be competitive in the asset-management industry and is structurally set up to hold on to assets regardless of market conditions, being diversified across its three main asset class segments: equities (44% of managed assets), fixed income (40%), and other investments (made up of the firm’s asset allocation services and certain other alternative investments) accounting for the remainder. However, this has not always translated into solid organic growth or above-average profitability, with AllianceBernstein’s adjusted GAAP operating margins of 23.4% on average during 2017-21 being well below the group average of 30%. During the past five (10) calendar years, AllianceBernstein’s organic AUM growth rate averaged positive 1.9% (positive 0.2%) with a standard deviation of 2.7% (2.9%). Even though the industry to continue to face stiff headwinds, the firm producing organic AUM growth in a 0% to positive 2% range annually during 2022-26. However, revenue growth and operating margins will still be affected by industry fee compression and the need for more traditional asset managers like AB to spend more to enhance investment performance and product distribution.

Financial Strengths

AllianceBernstein is structured as a limited partnership, required to pay out essentially all of its available cash flows as dividends to unitholders (but allowing it to be taxed at a significantly lower rate than most corporations). The firm has traditionally managed a fairly conservative capital structure. This does not place the company at a competitive disadvantage relative to its peers, though, because most asset managers tend to carry little to no debt on their balance sheets. At the end of the March quarter, AB had $850 million in debt (tied primarily to its commercial paper program) and $1.1 billion in unrestricted cash and cash equivalents on its books. The company maintains an $800 million revolving credit facility expiring September 2023, used primarily as backup liquidity for AB’s commercial paper program, and a $900 million committed unsecured senior credit facility with Equitable Holdings, which can be used for AB’s general business purposes (and where AB had $850 million outstanding at the end of March 2022 with an interest rate of approximately 0.3%). While the company’s structure as a limited partnership does limit the amount of capital that AB can allocate to other purposes, the firm does generally hold more cash than debt on its books, which along with substantial liquid investments and solid operational cash flows should enable AB to make investments in other assets/businesses from time to time.

Bulls Say

With nearly half of its AUM invested internationally, and 43% of managed assets sourced from non-U.S. domiciled clients, AB is one of the more global asset managers.

AB had $10 billion in its institutional pipeline at the end of March 2022, as well as a commitment from Equitable to invest $10 billion in the firm’s buildout of its private alternatives and private placements offerings.

Despite rising rates in the first quarter, AB’s bond fund performance held up with 64%, 72%, and 71% outperforming their benchmarks on a 1-, 3- and 5-year basis, respectively, at the end of the period.

Company Description

Alliance Bernstein provides investment management services to institutional (45% of assets under management), retail (39%), and private (16%) clients through products that includes mutual funds, hedge funds, and separately managed accounts. At the end of May 2022, AB had $687.0 billion in managed assets, composed primarily of fixed-income (40% of AUM) and equity (44%) strategies, with other investments (made up of asset allocation services and certain other alternative investments) accounting for the remainder. The company also provides sell-side research and brokerage services through its Sanford Bernstein subsidiary.

(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.

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Technology Stocks

ABB has an enviable base of robotics and automation customers that puts it in a solid position for Industry 4.0 or the Industrial Internet of Things

Business Strategy and Outlook

ABB generates around 40% of its revenue from electrical equipment and around 40% from industrial automation products. While it has low exposure to faster-growing software, it has a fast-growing robotics business, where it is the number-two global supplier; this contributes around 9% of revenue. It is projected 4% medium-term revenue growth for ABB. Automation is the fastest-growing category in the industrial space, and ABB has an enviable base of robotics and automation customers that puts it in a solid position for Industry 4.0, or the Industrial Internet of Things. Its robotics and industrial controller (used to program equipment) products have leading market share and enjoy loyal customer bases that would be difficult for competitors to capture. Furthermore, ABB’s electrification products division offers some overlap with other customer segments, such as process industries, that could prove useful in cross-selling the automation portfolio.

However, growing demand from Industry 4.0 has meant that ABB and its close competitors have had to refresh their product offerings, acquiring or developing in-house industrial automation components and software. ABB has been slow to refresh its product offering and, in some cases, has had to turn to second-best choices. ABB’s software strategy lags that of competitors like Siemens and Schneider. ABB has a hybrid strategy for its Industry 4.0 software, offering most of its equipment productivity and maintenance optimization software from its own developed software portfolio, while for design and simulation software, it has a partnership with Dassault Systemes. The partnership structure deprives ABB of the advantage of in-house development that Siemens and Schneider enjoy, as they offer similar software developed by in-house engineering teams.

Financial Strength

At the end of December 2021, ABB’s net debt/adjusted EBITDA was less than 1. The company does not have near-term liquidity nor long-term solvency issues. The company generates about $3.6 billion annually in free cash flow, so in theory it could pay off its roughly $7 billion in gross debt in less than three years

Bulls Say’s

ABB is one of the best-positioned companies to benefit from industrial automation and robotics.

The company’s restructuring program, which focuses on reducing corporate costs through decentralization of management, should benefit long-term margins and capital allocation by putting more profit and loss accountability into the hands of business unit leaders.

ABB’s exposure to smart-grid products and electrical distribution components should benefit from a demand tailwind for grid-management and energysaving products.

Company Profile

ABB is a global supplier of electrical equipment and automation products. Founded in the late 19th century, the company was created out of the merger of two old industrial companies: ASEA and BBC. The company is the number-one or number-two supplier in all of its core markets and the number-two robotic arm supplier globally. In automation, it offers a full suite of products for discrete and process automation (continuous processes like chemical production) as well as industrial robotics.

(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 is 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.

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Dividend Stocks

Medtronic Plc – The Board declared a cash dividend of $2.72, up +8% YoY

Post author By lvc-admin
Post date June 22, 2022
No Comments on Medtronic Plc – The Board declared a cash dividend of $2.72, up +8% YoY

Investment Thesis:

The Company should come out of COVID-19 in a solid position, with significant balance sheet liquidity increasing flexibility to undertake strategic M&A and invest in the business.
Strong shareholder returns, increasing DPS by +48% over the past 5 years and +16% CAGR over the past 45 years.
Market leadership position in the medical equipment and supplies industry.
Global footprint with continuing strong growth in EM.
Successful track record of developing breakthrough technologies. The Micra AV transcatheter pacing system is expected to be a blockbuster.
Opportunities in the growing diabetes market.
Successful M&A to gain strategic advantage.

Key Risks:

Aggressive competition by other established players putting pressure on margins.
Strict government regulations and scrutiny.
IP theft by countries like China.
Challenging political environments with U.S.-China trade war and Brexit.
Downturn in the U.S. economy given the fact that the company still derives 51% of its revenue from the local market.
Currency headwinds.

Key Highlights:

New kidney health tech company formed.
As part of its portfolio management strategy, MDT reached an agreement with DaVita to form a new, independent kidney care-focused medical device company, where MDT will contribute its Renal Care Solutions business into a new company, which will focus on developing a broad suite of novel kidney care products and solutions, including future home-based products, to make different dialysis treatments more accessible to patients, and in return will receive up to $400m from DaVita (expect transaction to close in CY23) and leverage DaVita’s expertise in kidney care to commercialize and scale the new technology.
Solid shareholder returns with the Company returning $5.5bn capital to shareholders in the year through dividend and net share repurchase. The Board approved an increase in cash dividend for 1Q23 to 68cps, translating into an annual amount of $2.72, up +8% YoY.
Strong balance sheet to complement innovation-driven growth strategy with tuck-in M&A, announcing 4 acquisitions totalling over $2.1bn in total consideration in FY22.
FY23 outlook – supply chain, inflation, and FX to be near-term headwinds.
For FY23 organic revenue growth of +4-5% YoY (FX to be a headwind of $1-1.1bn on revenue) with Cardiovascular growing +5.5-6.5%, Medical Surgical growing +3.5-4.5%, Neuroscience growing +5-6% and Diabetes declining -6-7% (excluding growth from 780G and Guardian 4 sensor in the U.S., which management remains confident to receive approval of), and non-GAAP diluted EPS of $5.53-5.65 (including an unfavourable impact of 20-25 cents from FX), negatively impacted by inflation and continued supply chain challenges.
For 1Q23 organic revenue decline of -4.5-5.5% YoY (FX to be a headwind of $350-400m on revenue) with Cardiovascular declining -1-2%, Medical Surgical declining -7.5-8.5%, Neuroscience declining -5-6% and Diabetes declining -8-10%, and EPS of $1.10-1.14, including an FX headwind of ~5 cents.

Company Description:

Medtronic Plc (MDT) is a medical technology, services and solutions company operating in four segments: Cardiac and Vascular Group, Minimally Invasive Therapies Group, Restorative Therapies Group and Diabetes Group. The Cardiac and Vascular Group segment includes cardiac rhythm and heart failure, coronary and structural heart, and aortic and peripheral vascular; Minimally Invasive Therapies Group segment includes surgical solutions, and patient monitoring and recovery; Restorative Therapies Group segment includes spine, neuromodulation, surgical technologies and neurovascular and the Diabetes Group segment includes intensive insulin management, non-intensive diabetes therapies, and diabetes services and solutions.

(Source: Banyantree)

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.

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.

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Technology Stocks

Bilibili’s video sharing site has a superior business model compared with most other streaming companies

Post author By lvc-admin
Post date June 21, 2022
No Comments on Bilibili’s video sharing site has a superior business model compared with most other streaming companies

Business Strategy and Outlook

Bilibili generates revenue through five major sources: 1) advertising; 2) mobile games; 3) live streaming; 4) subscriptions; and 5) e-commerce. The advertising business (as part of its YouTube-like video sharing website) is the most important asset for the company’s long-term success. Bilibili’s video sharing site has a superior business model compared with most other streaming companies. The company has appropriately decided to focus most of its resources on building a platform for UGC (user-generated content) instead of investing heavily into original content or paying huge up-front content licenses. By doing so, it avoids going head-to-head against Tencent Video and iQiyi, both of whom are spending hundreds of billions on content development and licensing, and have yet to generate operating profit.

More importantly, Bilibili has created a self-maintainable UGC ecosystem that allows the firm to acquire video content at significantly lower costs than traditional streaming players such as iQiyi and Tencent Video. In 2021, Bilibili recorded just CNY 11 in content cost per MAU, less than one-fourth of iQiyi’s, while delivering a comparable level of revenue per user. The fact that it has a lower cost structure demonstrates the superiority of Bilibili’s platform business model. Although Bilibili is ahead of the pack in the growing video sharing and streaming markets, it faces potential competition from behemoths such as Tencent and ByteDance. Unlike Bilibili, these firms don’t rely solely on a single app to drive profitability and can potentially run at break-even, or even as loss leaders, while monetizing users via other products and services. In addition to its core video platform, Bilibili also offers other services such as live streaming, mobile games, and e-commerce. While they offer some growth, which looks less confident of their outlook than the core video product due to weak competitive positioning, low barrier to entry, and numerous existing competitors.

Financial Strength

Bilibili might need to raise additional capital before it achieves breakeven cash flows in 2026. The firm was sitting on a net cash of CNY 11.2 billion at the end of 2021, but it is expected that another 17 billion of cash burn before Bilibili becomes net cash generative. In the past, Bilibili has used convertible debt and stock issuance to finance its operations. Its 2021 listing in Hong Kong alone provided CNY 19 billion of funds for the company. It is expected that Bilibili is to continue running its asset-light business model. The company will continue to focus its resources on building a platform for user-generated content, or UGC, instead of investing heavily into original content or paying huge up-front content licenses. Besides revenue-sharing, the bulk of cost is in people (R&D, sales and marketing). Over the next few years, the firm is to spend upward of 10 billion annually in these two categories in total. Bilibili is not expected to take part in major M&A deals as management remains focused on organic growth opportunities.

Bulls Say’s

Bilibili’s video sharing platform is in early stage of monetization with significant runway for growth.

Bilibili’s strong hold on younger users provide tremendous value to advertisers seeking to target such demographic group.

The firm still has room to attract a wider base of users, potentially increasing the platform’s appeal to advertiser

Company Profile

Bilibili is a Chinese online entertainment platform that is best known for its video-sharing site that resembles YouTube. The site was founded in 2009 and started as a long-form video platform for anime, comics, and gaming, or ACG, content that appealed to Gen Z users. Since then, it has expanded its content on the platform to include a broader range of interests that have attracted Chinese users outside of the Gen Z cohort. The firm generates revenue through five main areas: advertising, mobile games, live streaming, value-added services, and e-commerce.

(Source: MorningStar)

DISCLAIMER for General Advice: (This document is for general advice only).

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Technology Stocks

Oracle is losing database market share to new database types that may be better suited to the cloud

Post author By lvc-admin
Post date June 17, 2022
No Comments on Oracle is losing database market share to new database types that may be better suited to the cloud

Business Strategy & Outlook

Oracle is a best-in-breed provider of on-premises relational database technologies and enterprise resource planning, or ERP, software and is one of the most profitable companies in the software industry. However, growth has been lacking as more customers shift their workloads to the cloud, bypassing Oracle’s solutions. Despite Oracle’s cloud migration efforts, cloud competition will likely provide headwinds for Oracle. In turn, the moat rating for Oracle is narrow, coupled with a negative moat trend rating.

Oracle’s business is centered around its relational database which stores a treasure trove of data that is the lifeblood of many enterprises. Oracle’s software offerings leverage this database as its backend, while Oracle’s servicing and hardware businesses support these database tasks. Oracle remains a best-of-breed provider of on-premises databases and software, and customers face very high switching costs if they look to migrate elsewhere. However, no one can view the company as being on the forefront of recent software trends, and new and potential customers appear to be looking past Oracle for their database needs. Database preferences are far wider today due to the sheer number of ways to manipulate data, and the different data storage practices this necessitates. In turn, Oracle is losing database market share to new database types that may be better suited to the cloud. Additionally, the transition to the cloud is prompting enterprises to change software vendors away from all-in-one ERP systems to application specific that are best of breed. In response, Oracle is banking on its second-generation cloud to not only cater to its traditional enterprise workloads, like supporting databases, but also general use workloads. However, the Oracle’s cloud as sub-scale to Amazon and others and the doubt Oracle can close this gap soon. As per the opinion, Oracle should still be successful in moving a significant amount of its traditional on-premises workloads to Oracle cloud. However, migrating all of its customers is not such a sure thing, as cloud-first software vendors have been able to take meaningful share from legacy Oracle customers.

Financial Strengths

The Oracle to be in healthy financial standing. As of fiscal 2020, Oracle had $43 billion in cash and equivalents versus $72 billion in debt. However, Oracle should generate robust free cash flow in the years ahead to settle these debt obligations over time. That Oracle will have the capital to increase its total annual dividends to $1.28 in fiscal 2025 from $0.96 in fiscal 2020, as the company continues to make share repurchases and acquisitions. However, the magnitude of acquisitions will moderate as the company comes off of its buildout of its second-generation cloud product and has stressed their recent preference to build new capabilities in house. In terms of capital expenditures, the Oracle will spend an average of $1.6 million per year over the next five years, as the company continues to require buildouts for its cloud operations.

Bulls Say

Oracle’s relational database should be able to post strong growth as customers continue to depend on its quality features, such as data partitioning which brings incomparable load balancing efficiency.

Oracle’s autonomous database and IaaS was built with ease of use in mind, which could bring a significant base of first-time Oracle users to the company, strengthening top line results.

Oracle’s stake in TikTok Global and cloud services to TikTok’s U.S. operations should add a significant boost to Oracle’s top line and attract more “general use” cloud customers.

Company Description

Oracle provides database technology and enterprise resource planning, or ERP, software to enterprises around the world. Founded in 1977, Oracle pioneered the first commercial SQL-based relational database management system. Today, Oracle has 430,000 customers in 175 countries, supported by its base of 136,000 employees.

(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.

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Technology Stocks

Arista Gaining From High End Switching Demand Turned On As Cloud Data Centers Expand, $105 FVE

Post author By lvc-admin
Post date June 16, 2022
No Comments on Arista Gaining From High End Switching Demand Turned On As Cloud Data Centers Expand, $105 FVE

Business Strategy & Outlook

Arista Networks has solidified its market presence through data center switching and software-based networking innovation, and customers are anticipated to remain loyal to the firm’s Extensible Operating System software and peripheral products. Arista’s initial growth came from high-frequency trading firms that found value in its low-latency switches and EOS. By remaining at the forefront of switching and routing speeds, Arista became a key networking supplier to giant cloud operators, service providers, and enterprises. EOS’ novelty lies in its single software image that provides a consolidated view of device activity from end to end and its ability to centrally upgrade the entire network. EOS contains leading software-defined networking features while remaining intuitive and fully programmable. Additional software offerings like CloudVision expand functionality and interoperability across networks. Arista uses merchant silicon for its hardware, which allows the company to focus on its core competencies.

Arista works closely with its core customers to optimize their networking ecosystems, which can strengthen its customer switching costs. To expand its customer base beyond the data centers of hyperscale cloud providers, enterprises, service providers, and financial institutions, Arista entered into the campus market. The adjacent move is due to requests from existing customers desiring one software platform across networking locations, and Arista has bolstered its clout with wireless and security capabilities. Even with current customer concentration risk, it is noted that Arista is impressively growing alongside key customers and that new ventures have expanded from core competencies. Arista is well positioned as a pioneer in the new age of software-defined networking and will continue to be a leader in next-generation switches and routers.

Financial Strengths

Arista is in a financially healthy position; its zero debt balance and $3.4 billion in cash, cash equivalents, and marketable securities as of the end of 2021 provide flexibility for the future. With no stated plans to return capital to shareholders, the company’s investment plan is fixated on developing products and expanding sales. The company’s financial health will remain stable and cash could be deployed for growth via bolt-on products or technologies.

Bulls Say

Demand for EOS continuity across networks should proliferate Arista’s installation base. Installation base growth causes new customers to consider Arista during upgrades.

Arista has been a first mover on its path to rapid profitable growth. Upcoming industry disruptions that Arista may lead include 400 GB Ethernet switching and campus market splines.

Instead of relying on partnerships to plug portfolio gaps, Arista might be able to make accretive acquisitions in adjacent markets that could catalyze growth in areas such as analytics, access points, and security.

Company Description

Arista Networks is a software and hardware provider for the networking solutions sector. Operating as one business unit, software, switching, and router products are targeted for high-performance networking applications, while service revenue comes from technical support. Customer markets include data centers, enterprises, service providers, and campuses. The company is headquartered in Santa Clara, California, and generates most of its revenue in the Americas. It also sells into Europe, the Middle East, Africa, and Asia-Pacific.

(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.

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Technology Stocks

Tyro, a Capital-Light Business With Good Earnings Growth Prospects as Bargain Prices

Post author By lvc-admin
Post date June 16, 2022
No Comments on Tyro, a Capital-Light Business With Good Earnings Growth Prospects as Bargain Prices

Business Strategy & Outlook:

Tyro Payments provides merchants with the required infrastructure to accept electronic payments, as well as business banking products. It is the fifth-largest merchant acquirer in Australia by terminals, behind the major four banks. The firm mainly caters to small to medium-size enterprises in the hospitality, retail and health sectors. It is also expanding into adjacent verticals like trade, accommodation and services. Tyro is rapidly capturing the Australian card payments market–especially from smaller nonbank merchant acquirers–with 4.4% share in December 2021 versus 1.6% in fiscal 2016. Its value proposition is to address merchant friction points, rather than being a generic merchant acquirer. Tyro’s solutions are easily integrated, accept a broad range of payment types, and come with a multitude of ancillary features. These features can be industry-specific (for example remote payments and bill-splitting for restaurants) or available to all (for example online gateways for e-commerce payments or least-cost routing). The intention is to embed its solutions into a merchant’s ecosystem to limit switching; and allow Tyro to cross-sell other products like business loans.

Tyro acquires merchants mainly via digital marketing and referrals from its point-of-sale system partners. Prospective merchant acquiring partnerships with other institutions—such as its alliances with Bendigo Bank and Telstra–is another avenue for growth. The strong growth prospects is viewed from increasing penetration into a broadening addressable market. This is likely to be backed by further bolt-on acquisitions to enhance its offerings and the structural shift toward electronic payments. But future gross profit margins are likely to compress from competitive pressures, despite benefits from lower interchange and scheme fees due to growing debit card usage. The major banks have a reinvigorated their focus on banking and global merchant acquirers are contending for a slice of the overall payments market. Tyro will keep reinvesting for growth, limiting the degree of operating leverage it can achieve.

Financial Strengths:

Tyro’s balance sheet is appropriately sound and it has zero debt. The firm is not yet net- profit-after-tax, or NPAT, profitable, but it is expected to return a maiden profit in fiscal 2025 before growing NPAT at a 60% CAGR to fiscal 2031 as it realizes operating leverage. Tyro’s merchant acquiring business is less capital-intensive than other contemporary financial services businesses, including buy now, pay later firms that consistently need to source financing for receivables growth. For Tyro, its spending requirements are mainly on employee expenses, payments for terminals, and software improvements that can be mostly funded organically. Unlike traditional banks, Tyro’s banking business has ample deposits to fund its loan growth thanks to a healthy loan to deposit ratio of 21%. The average loan tenure sits at 6.6 months, unlike multiyear mortgage loans. It has a common equity Tier 1 ratio of 40%, a wide headroom above APRA’s prescribed minimum. The banking business is a comparably small earnings generator for Tyro. The bank shall generate around 8% of group gross profits by fiscal 2031.

Bulls Say:

Tyro’s growth outlook is strong and there is potential for ongoing market share gains from smaller/generic nonbank merchant acquirers.
Merchants benefit from using Tyro, as evidenced by signs of client stickiness to date. For example, there has been growing takeup of Tyro’s ancillary features, increased cross-selling success and limited merchant churn, even after a recent service outage.
Tyro will be increasingly profitable and cash- generative over time. This is due to its limited capital requirements and ability to leverage revenue growth over its fixed costs.

Company Description:

Tyro Payments is an Australian financial technology company engaged in providing routing payments solutions and business banking products to merchants. The firm mainly caters to small to medium-size enterprises in the hospitality, retail and health sectors. It is also expanding its reach into the trade, accommodation and services verticals. Tyro’s value propositions include extensive industry-specific solutions, ease of integration with point-of-sale systems, broad acceptance of payment types and a variety of ancillary features. Despite Tyro’s historic focus on in-store sales, it is also building up online gateways to facilitate e-commerce transactions and build out a multichannel payment solution. Geographically, it operates only in Australia.

(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.

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Veeva Continues to Look Well Positioned for Long-Term Growth

Post author By lvc-admin
Post date June 16, 2022
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Business Strategy & Outlook:

Veeva is the leading provider of cloud-based software solutions tailored to the life sciences industry, providing an ecosystem of products to address the operating challenges and regulatory requirements that these companies face. Its highly specialized offerings for the life science industry allow companies to improve operational efficiency to get products to market faster while ensuring regulatory compliance and ultimately sell more effectively. Its effective technology and dominant position enable Veeva to generate excess returns commensurate with a wide-moat company. Its strong retention, continued development of new applications, increasing penetration with existing customers, addition of new customers, and expansion into industries outside of life sciences should allow the company to extend its market leadership.

The company operates in two categories. Commercial solutions entail vertically integrated customer relationship management services and end-market data and analytics solutions. R&D solutions is a horizontally integrated content and data manager. Veeva’s CRM application supports real-time collaboration and regulatory oversight and enables incremental add-on solutions. The incremental functionality is critical to improving marketing programs while remaining in compliance with mandated antikickback laws and statutes. This service has been well received by the life sciences industry and has propelled Veeva to become the leading solution with the lion’s share (approximately 80%) of this niche market. As a follow-on to the initial introduction of CRM, management introduced R&D solutions to broaden the portfolio that addresses the largely unmet needs of the life sciences industry outside of CRM. Each module offers features and functionality targeting four key areas in life sciences: clinical (trial management), regulatory (compliance), quality of manufacturing, and safety.

Financial Strengths:

Veeva enjoys a position of financial strength arising from its strong balance sheet (no debt) and leading position in a growing market. As of fiscal 2022, Veeva had over $2.4 billion in cash and short-term investments and no debt. The company will continue to use the cash it generates from operations to fund future growth opportunities. The management has been disciplined about M&A and taking on debt. The 2019 acquisition of Crossix was the firm’s largest to date, at approximately $430 million. The company will continue make small tuck-in acquisitions and fund them through available cash and cash flow from operations. Even in this scenario, the increasing liquidity, as the firm’s reserve of cash should continue to increase.

Bulls Say:

Veeva’s best-of-breed vertical addressing unmet needs provides opportunities to further penetrate a highly fragmented market.
The rapid adoption of the company’s new modules continues to entrench Veeva in mission-critical operations of customers, making it increasingly challenging for competitors to gain a foothold.
Veeva’s institutional knowledge and co-development partnerships with customers enable the company to develop robust offerings addressing market needs.

Company Description:

Veeva is a leading supplier of software solutions for the life sciences industry. The company’s best-of-breed offering addresses operating and regulatory requirements for customers ranging from small, emerging biotechnology companies to departments of global pharmaceutical manufacturers. The company leverages its domain expertise and cloud-based platform to improve the efficiency and compliance of the underserved life sciences industry, displacing large, highly customized and dated enterprise resource planning systems that have limited flexibility. As the vertical leader, Veeva innovates, increases wallet share at existing customers, and expands into other industries with similar regulations, protocols, and procedures, such as consumer goods, chemicals, and cosmetics.

(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.

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Zscaler’s go-to-market approach focuses on Large Enterprises

Post author By lvc-admin
Post date June 16, 2022
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Business Strategy and Outlook

Zscaler wagered heavily on the secular trend of cloud computing and how users would directly connect to cloud-based resources. Its bet has paid dividends, as it has leveraged a distributed cloud to deliver a multitenant security platform that offers security capabilities traditionally sold as purpose-built appliances. Although Zscaler has been at it since 2007, its business model and security approach are in their early innings, and there’s a long runway for growth as enterprises adopt cloud-centric security and zero-trust architectures. Zscaler’s software-as-a-service business model and the benefits that accompany this mode of software consumption, combined with an innovative product suite and a differentiated channel sales model, are all factors that will facilitate continued success winning enterprises that are consuming more cloud-based resources. Zscaler’s go-to-market approach focuses on large enterprises; the firm charges customers on a per-user subscription basis for access to its security cloud offerings.

Capabilities such as cloud firewall, data loss prevention, and application segmentation are encompassed within its two more mature solutions: Zscaler Internet Access and Zscaler Private Access. The malware detection and application control functionalities of ZIA primarily fall under the ambit of secure web gateways, and while ZPA is used for internal resource protection.

Zscaler faces entrenched competitors as well as a legacy appliance-based approach to security that is prevalent in the IT ecosystems of current and potential customers. Still, the firm will be able to maintain and augment its competitive positioning in a fragmented security vendor landscape. The secular trends of cloud and mobility have given rise to structural shifts in data traffic paths and volume. It is believed that enterprises will continue to leverage the internet, an open network rife with security vulnerabilities, for critical workloads. In turn, they will find value in the Zscaler’s offerings.

Financial Strength

Zscaler boasts a healthy balance sheet, with over $1.5 billion in cash and liquid investments versus $914 million of convertible senior notes as of the end of fiscal 2021. The company has been free cash flow (operating cash flow minus capital expenditures) positive since fiscal 2018, and this trend is expected to continue even as it expands its data centre footprint and invests in customer acquisition, as the benefits of a recurring revenue business model should offset the cash drag of investing activities. Zscaler has no dividend or share-repurchase program to support, and the cash that the company generates will either be placed into liquid investments or redeployed into the business to stimulate organic or inorganic growth.

Bulls Say’s

Zscaler is a disproportionate beneficiary of the security implications that arise from the secular trends of cloud and mobility.

Zscaler’s multitenant platform is best equipped to handle increasing web traffic.

By building out a platform of cybersecurity offerings around its flagship ZIA, Zscaler can lock customers into its ecosystem.

Company Profile

Zscaler is a security-as-a-service firm that offers its customers cloud-delivered solutions for protecting user devices and data. The firm leverages its position in 150 colocation data centres to deliver traditionally appliance-based security functionality, such as firewalls and sandboxes, as a completely cloud-native platform. The firm focuses on large enterprise customers and offers two primary product suites: Zscaler Internet Access, which securely connects users to externally managed application and websites (such as Salesforce and Google), and Zscaler Private Access, which securely connects users to internally managed applications. Both product suites encompass a broad g

(Source: MorningStar)

DISCLAIMER for General Advice: (This document is for general advice only).

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Palo Alto’s concerted efforts into machine learning, analytics, and automated responses could make its products indispensable within customer networks

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Business Strategy and Outlook

Palo Alto Networks established its cybersecurity leadership by its next-generation firewall appliance altering the requirements of this essential piece of networking security. Its portfolio has expanded outside of network security into areas such as cloud security and solutions to help automate security operations. Palo Alto’s nascent threat-prevention solutions will provide robust growth along with a significantly improved margin profile as customers remain locked into its ecosystem. The complexity of an entity’s threat management increases as the quantity of data and traffic being generated off-premises grows. Network security can be attacked from various angles, and that security will remain a top concern for all enterprises and governments, which bodes well for Palo Alto and its peers. Security point solutions were traditionally purchased to combat the latest threats, and IT teams had to manage various vendors’ products simultaneously, which leads us to believe that IT teams are clamouring for security consolidation to manage disparate solutions. Palo Alto has established security platforms, made up of various products needed, for network security, cloud security, and operations. These platforms alleviate toolset management burden and alert fatigue, and Palo Alto gains threat insights from its vast customer base, which in turn improves its threat protection efficacy. It is believed the ability to add technologies via subscriptions in the Palo Alto framework can alleviate complications by providing more holistic security, which can generate sustainable demand.

Palo Alto will continue to outpace its security peers by focusing on providing solutions in areas like cloud security and automation. Palo Alto’s concerted efforts into machine learning, analytics, and automated responses could make its products indispensable within customer networks. Although Palo Alto will remain acquisitive and dedicated to organic innovation, it is believed that significant operating leverage will be gained throughout the coming decade as recurring subscription and support revenue streams flow from its expansive customer base.

Financial Strength

Palo Alto is financially stable and should generate strong cash flow as it expands its operating margin profile. The company has historically operated at a loss (excluding fiscal 2012), and it is expected to turn profitable by fiscal 2023 on a GAAP basis. Large operating expenditures, including an outsize sales and marketing budget, fuelled Palo Alto’s land-and-expand strategy, and the company is to gain operating leverage throughout the 2020s. Palo Alto ended fiscal 2021 with $2.9 billion in cash and cash equivalents and total debt of $3.2 billion in 2023 and 2025 convertible senior notes. The $1.7 billion 2023 notes mature in June 2023 and have a 0.75% fixed interest rate per year paid semi-annually, while the $2.0 billion of notes that mature June 2025 have a 0.375% interest rate paid semi-annually. Palo Alto issued note hedges for both maturity dates to alleviate potential earnings per share dilution. The company announced a $1.0 billion share-repurchase authorization in February 2019, which was increased to $1.7 billion the following year with an expiration at the end of 2021, and has subsequently extended the program. Palo Alto completed its previous $1.0 billion share-repurchase program in the second quarter of fiscal 2019. The company also completed an accelerated share-repurchase program of $1 billion in fiscal 2020 (announced February 2020), in addition to its normal repurchase program. It is expected that Palo Alto will continue to use share buybacks to return capital to shareholders, and will not pursue any dividend payouts. Palo Alto will continue to focus its cash expenditures on operating costs and potential acquisitions that bolster its security platform within the cloud-based security solutions arena.

Bulls Say’s

Adding on modules to Palo Alto’s security platform could win greenfield opportunities and increase spending from existing customers.

Palo Alto could showcase great operating margin leverage as it moves from brand creation into a perennial cybersecurity leader. Winning bids should be less costly as the incumbent, and Palo Alto is typically on the short list of potential vendors.

The company is segueing into high-growth areas to supplement its firewall leadership. Analytics and machine learning capabilities could separate Palo Alto’s offerings.

Company Profile

Palo Alto Networks is a pure-play cybersecurity vendor that sells security appliances, subscriptions, and support into enterprises, government entities, and service providers. The company’s product portfolio includes firewall appliances, virtual firewalls, endpoint protection, cloud security, and cybersecurity analytics. The Santa Clara, California, firm was established in 2005 and sells its products worldwide.

(Source: MorningStar)

DISCLAIMER for General Advice: (This document is for general advice only).

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