Tag: Street Talks

Categories
Dividend Stocks Philosophy Technical Picks

PNC Remains on Track to Complete Most Expense Saves in 2021

the acquisition of RBC’s U.S. branch network in the Southeast, and by updating its core infrastructure and retail branch model. PNC has been very successful at organically expanding its customer base, both in commercial banking and now in retail. The expanding client base has led to solid loan, deposit, and fee income growth. Selling new products into the formerly underperforming RBC branch network has worked particularly well, and PNC now seems poised to repeat this effort with the pending acquisition of BBVA. The bank’s Midwest commercial growth strategy is paying dividends, and PNC will be attempting retail growth efforts in the same areas where commercial expansion was successful.

The successful acquisition history, seemingly successful expansion initiatives, and improved credit performance during the 2007 downturn makes PNC is one of the better operators we cover. PNC has executed on many expense-saving initiatives over the years, and management has been actively reinvesting many of these savings back in the business to stay ahead on the technology front.

Financial Strength:

The fair value of PNC Financial Services is USD 185.00, which is based on analyst’s assumption that the bank’s efficiency ratio eventually declines to about 52%, as management realizes operating leverage from infrastructure investments and the BBVA acquisition helps push efficiency for PNC to the next level. The dividend yield given by company has been very consistent year on year.

PNC is in good financial health. The bank weathered the energy downturn well, and energy loans make up a small percentage of the loan book. The bank has also weathered the COVID-driven downturn well. Most measures of credit strain remain quite manageable, and the bank’s history of prudent lending give us comfort with the risks here. PNC’s common equity Tier 1 ratio was at 10% as of June 2021, handily exceeding the bank’s targets. The capital-allocation plan remains standard for PNC, with 30% plus of earnings devoted to dividends, as much as necessary used for internal investment, and the left overs used for share repurchases.

Bulls Say:

  • PNC’s acquisition of BBVA seems likely to add value to the franchise and for shareholders, and will make PNC the regional bank with the most scale. 
  • A strong economy, higher inflation, and potentially higher rates are all positives for the banking sector and should propel results even higher. 
  • In additional to acquisitions, PNC has organic expansion opportunities it is taking advantage of, which could lead to higher organic growth than peers over time.

Company Profile:

PNC Financial Services Group is a diversified financial services company offering retail banking, corporate and institutional banking, asset management, and residential mortgage banking across the United States.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Technology Stocks

Mandiant Focusing on Cybersecurity Services and Threat Intelligence

fintech icon on abstract financial technology background represent Blockchain and Fintech Investment Financial Internet Technology Concept.

security assessments and updates, managed security, and training. Its software-as-a-service solutions include continuous security validation, managed defense, threat intelligence and automated defense. We expect robust demand for Mandiant’s services and subscriptions due to a persistent cybersecurity talent dearth and cybercriminals continually evolving their threats, causing organizations to look for assistance from experts.

By selling off its products division in October 2021, we believe Mandiant is making the prudent decision to focus on its world-class incident response, threat intelligence, and security validation offerings, as we think strong competition from other leading cybersecurity players’ holistic security platforms and spry best-of-breed upstarts hindered its legacy products’ success. In our view, being independent of its former product division could enhance its technology partner relationships and improve threat intelligence and enhanced customer engagements.

Financial Strength 

Mandiant is in mediocre financial shape, with an improving free cash flow profile and its cash balance outweighing its convertible note obligations. Mandiant sold its FireEye products division for $1.2 billion in October 2021, the sale was helpful to fuel internal investments and potential shareholder returns. The company has never paid, nor has any intention to pay, a dividend. Its share count rose from 142 million shares in 2014 to 229 million in 2020, but we expect share dilution to temper in the next few years. As part of selling its products division, Mandiant announced a $500 million share repurchase program. Besides the acquisitions of Verodin for $250 million in 2019, iSight Partners for $275 million in 2016, and Mandiant (when the company was FireEye) for over $1 billion in 2013, which were partly funded with cash, most of FireEye’s funds have been used for operating expenses. FireEy has made some small acquisitions, which we presume will continue. We expect cash deployment to remain focused on operating costs, but for the firm to drive operating leverage as it matures.

Bulls Say

  • With a skills gap in cybersecurity, customers may prefer to outsource security to Mandiant’s managed services. 
  • Mandiant’s security experts provide a unique selling proposition for breach response and security posture assessments, and the expertise could become relied upon by customers.
  • Heightened threat environments and digital transformations may make organizations uneasy regarding security, driving up demand for Mandiant’s security posture validation.

Company Profile

Mandiant (formally FireEye,) is a pure-play cybersecurity firm that focuses on incident response, threat intelligence, automated response, and managed security. Mandiant’s security experts can be used on demand or customers can outsource their security to Mandiant. The California-based company sells security solutions worldwide, and sold its FireEye products division in October 2021.

 (Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Shares Technology Stocks

Twitter to Sell MoPub for $1.05 Billion; Maintaining FVE; Shares Fairly Valued

According to the firm, MoPub generated $188 million in revenue in 2020 (5% of total revenue), which makes this sale equivalent to 5.3 times revenue. Twitter is trading at more than 7 times our 2022 revenue estimate, excluding MoPub.

Company’s Future Outlook

Twitter said it plans to focus more on providing advertising opportunities for direct response marketers in addition to small- and medium-sized businesses. We think that this deal was also partially driven by questions surrounding how Apple’s IDFA and user privacy policies will impact in-app advertising. However, Twitter had also stated that some of its app ad offerings were already integrated with Apple’s SKAdNetwork that helps track and measure ads. Without MoPub, we expect slightly lower top-line growth and less margin expansion, both of which will not have a material effect on our $58 fair value estimate for the firm.

Twitter’s initial investment in MoPub  when it purchased the company in 2013 for only $350 million. However, cash received from this transaction likely will be offset by the $809.5 million charge that Twitter will recognize in the third quarter 2021 as the firm settled a case involving some of its investors who accused the firm of misleading them by providing lofty expectations of user count and engagement at an analyst day event in 2014. The event took place when Dick Costolo was at the helm at Twitter.

Company Profile 

Twitter is an open distribution platform for and a conversational platform around short-form text (a maximum of 280 characters), image, and video content. Its users can create different social networks based on their interests, thereby creating an interest graph. Many prominent celebrities and public figures have Twitter accounts. Twitter generates revenue from advertising (90%) and licensing the user data that it compiles (10%).

Source: (Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Dividend Stocks

Blackstone Has Built Itself a Solid Reputation as a Go-To Firm in the Alternative Assets Segment

Business Strategy and Outlook

Blackstone has built a solid position in the alternative asset-management industry, utilizing its reputation, broad product portfolio, investment performance track record and cadre of dedicated professionals to not only raise massive amounts of capital but sustain the reputation it has built for itself as a “go-to firm” for institutional and high-net-worth investors looking for exposure to alternative assets. Unlike the more traditional asset managers, who have had to rely on investor inaction (driven by either good fund performance or investor inertia/uncertainty) to keep annual redemption rates low, the products offered by alternative asset managers can have lockup periods attached to them, which prevent investors from redeeming part or all of their investment for a prolonged period of time.

Financial Strength

Blackstone’s business model depends heavily on having fully functioning credit and equity markets that will allow its investment funds to not only arrange financing for leveraged buyouts and/or additional debt issuances for the companies it operates but cash out of them once they’ve run their course. The company entered 2021 with $5.7 billion in longer-term debt (on a principal basis) on its books, with 56% of that total coming due during 2030-50. The company also has a $2.25 billion revolving credit facility (which expires in November 2025) but had no outstanding balances at the end of June 2021.

Blackstone should enter 2022 with a debt/total capital ratio of 44%, debt/EBITDA (by our calculations) at 1.3 times, and interest coverage of more than 25 times. On the distribution front, share repurchases have been rare over the past decade, with the company repurchasing (net of issuances) less than $2 billion of stock (most of which was bought back in the past three calendar years). During the first half of 2021, Blackstone repurchased 3.2 million shares of common stock for $289 million. Dividend payments, meanwhile, exceeded $21 billion during 2011-20 and are expected to account for 85% of distributable earnings annually going forward.

Bulls Say’s

  • Blackstone, with $499 billion in fee-earning AUM at the end of June 2021, is a “go-to firm” for institutional and high-net-worth investors looking for exposure to alternative assets.
  • The company’s ever-increasing scale, diversified product offerings, long track record of investment performance and strong client relationships position the firm to perform well in a variety of market conditions.
  • Customer demand for alternatives has been increasing, with institutional investors in the category limiting the number of providers they use—both positives for Blackstone’s business model.

Company Profile 

Blackstone is one of the world’s largest alternative asset managers with $684 billion in total asset under management, including $499 billion in fee-earning asset under management, at the end of June 2021. The company has four core business segments: private equity (27% of fee-earning AUM, and 31% of base management fees, during 2020); real estate (32% and 39%); credit & insurance (25% and 15%); and hedge fund solutions (16% and 15%). While the firm primarily serves institutional investors (87% of AUM) it does serve clients in the high-net-worth channel (13%). Blackstone operates through 25 offices located in the Americas (8), Europe and the Middle East (9), and the Asia-Pacific region (8).

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Funds Funds

During equity market sell-offs, Man AHL Alpha provided downside protection

 The strategy’s research program is driven by teams from other asset classes or themes (Specialist Strategies, Portfolio Management, Equities, Fast Strategies and Core Strategies) who are responsible for their respective models (existing and new models). The portfolio managers of the AHL Alpha Program are Matthew Sargaison, Co-CEO of Man AHL and Russell Korgaonkar, CIO of Man AHL.  

Investment Process 

The Strategy invests in approximately 500 international markets across a range of sectors, utilizing instruments such as securities, futures, options, forward contracts, swaps, CFDs and other financial derivatives. The Strategy can also gain exposure to sectors via stocks, debt, bonds, currencies, short-term interest rates, energies, metals, credit and agriculture.

Historical low correlation to traditional assets classes such as equities and bonds

Given the focus on Diversification, capital is allocated using a quantitative and systematic methodology to maximise diversification and avoid investment style bais. This aims to deliver low correlation to traditional assets such as equities and bonds.

Solid Performance 

Historically, the fund has delivered strong returns in equity market selloffs, albeit past performance is not an indicator of future performance, it is an indicator that the strategy has performed in the past. The fund delivered significant downside protection during market sell-offs – Covid – 19 market selloffs +5.8 per cent v/s S&P 500 Index -19.6 per cent v/s MSCI World -19.6 percent, fourth quarter in 2018 selloff +3 percent v/s S&P 500 Index -13.5 percent v/s MSCI World -12.9 percent, Eurpean debt crisis +5.3 percent v/s S&P 500 -13.8 percent v/s MSCI World -15.4 percent and GFC +25 percent v/s S&P 500 Index -49.2 percent v/s MSCI World -49.3 percent.

Downside Risks

  • Significant turnover in the Broader Investment team.
  • Investment strategy (trading systems) fails to yield alpha.
  • Uses of derivatives and leverage adds additional risks and complexity.

Investment Approach 

Fund Performance

Figure 1: Fund performance (as ofAug-21)–strategy has an absolute return target

(%)Fund (net)
1-mths+0.0%
Year-to-date (YTD)+6.5%
1-year+10.4%
3-year (p.a.)+7.3%
5-year (p.a.)+4.3%
Inception (p.a.)+5.2%
Annualised volatility 8.8%

Source: Man Group

About the Fund

The fund employs a systematic, statistically based investment strategy to exploit technical or price driven signals across a diverse range of global markets. The main strategy used in trend following i.e price trends (up or down) repeatable pattern ~ 500 international markets the fund can access. The portfolio invests in instruments such as Securities, Futures, Options, Forward contracts, Swaps, CFD and other derivatives, the strategy has an absolute return focus with target volatility of 10% p.a.

Company Profile 

Man group is a global investment manager offering investors a diverse range of specialist active strategies and manages over US$135 billion globally. The company has headquarters in London but a globally network of offices. The company employs an extensive team of scientists, technologies and financial professionals.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
ETFs ETFs

Schwab U.S. Aggregate Bond ETF: A great core bond holding

U.S.-dollar-denominated investment-grade bond market and harnessing the market’s collective wisdom about the relative value of each bond by weighting bonds according to their market value. This is a sound approach because it promotes low turnover, limits credit risk, and is cost-effective, and because the market does a decent job pricing these bonds. The index weights its holdings by market value and is rebalanced monthly. This yields a conservative portfolio, which limits its return potential but also cuts downside risk and makes for a good complement to stock holdings.

Portfolio:

This portfolio mimics the contours of the taxable U.S. investment-grade bond market, engendering a conservative portfolio relative to the intermediate core bond category average. The fund typically courts a similar amount of interest-rate risk, but as of September 2021, its average effective duration of 6.7 years was slightly higher than the category average, which stood at 6.0 years. U.S. Treasuries account for approximately 39% of this fund’s assets, giving the portfolio its conservative bend. Agency MBS and corporate bonds account for about 27% and 26% of the fund’s total assets, respectively.

People:

Schwab’s passive fixed-income portfolio management team has consistently provided tight index tracking performance. Its thoughtful portfolio construction process and continued investment in technology have distinguished it from the pack. Schwab has a narrower, simpler fund lineup than some of its larger peers, so its fixed-income index management team is smaller. However, it makes efficient use of its resources and is well-equipped to deliver cost-efficient and high-fidelity index tracking for the strategies it manages.

Performance:

The fund’s performance during the trailing 10 years through August 2021 has not been spectacular. It lagged the category average by 29 basis points annually. Although it exhibited slightly less volatility, ultimately its risk-adjusted performance (as measured by Sharpe ratio) ranked just outside of the category’s middle third. The fund also held up much better than category peers during the novel coronavirus-driven sell-off.

(Source: Factsheet from www.schwabassetmanagement.com)

Price:

Analysts find it difficult to analyse expenses since it comes directly from the returns. The fees levied by the share class is under cheap quintile. Analysts expect that it would be able to generate positive alpha relative to its benchmark index.


(Source: Factsheet from www.schwabassetmanagement.com)        (Source: Morningstar)

About ETF:

Schwab U.S. Aggregate Bond ETF SCHZ boasts a low fee and conservative portfolio, traits that make it a great core bond holding. The fund tracks the Bloomberg Barclays U.S. Aggregate Bond Index, which includes investment-grade U.S.- dollar-denominated bonds with at least one year until maturity. The index weights bonds by market value, tilting the portfolio toward the largest and most liquid issues. This approach also harnesses the market’s collective wisdom about the relative value of each security, a prudent approach for the long term. That said, bond-issuing activity influences the composition of this portfolio. Approximately 70% of the fund’s assets carried a AAA credit rating as of September 2021, while the category average was 57%. The fund’s category-relative performance will largely hinge on the performance of credit risky bonds.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Dividend Stocks

Simon Property Group’s Class A Mall Portfolio Should Continue to Outperform Other Malls

manages one of the top retail portfolios in the country. It owns and operates Class A traditional regional malls and premium outlets in markets with dense populations and high incomes; these malls frequently have domestic or international tourist appeal. The high-quality properties will continue to provide consumers with unique shopping experiences that are hard to replicate elsewhere, and as a result, we think Simon’s portfolio will be sought after by retailers that are increasingly pursuing an omnichannel strategy.

E-commerce continues to pressure brick-and-mortar retail as consumers increasingly move their shopping habits online. However,physical retail sales growth will still be positive over the next decade. Retailers are becoming more selective with their physical locations, opting to locate storefronts in the highest-quality assets that Simon owns while closing stores in lower-quality malls. Additionally, many e-tailers are beginning to open stores in Class A malls to take advantage of the high foot traffic, as a physical presence provides additional marketing, a showroom for products they want to highlight, and another source of sales.

However, Simon is still dealing with the fallout of the coronavirus pandemic. Shopping at brick-and-mortar locations fell as some consumers shifted purchases to e-commerce platforms. While Simon’s revenue is somewhat protected by long-term leases, occupancy fell near 90% in 2020 and has only recently started to recover while rent still remains below prepandemic levels. We believe that Class A malls will rebound and that these high-quality malls will eventually return to their prior occupancy and rent levels, but the short-term impact to Simon’s cash flow has been significant.

Financial Strength

Simon is in good financial shape from a liquidity and a solvency perspective. The company seeks to maintain a solid but flexible balance sheet, which we believe will serve stakeholders well. Simon has an A/A3 credit rating, so it should be able to easily access low-rated debt to service financial obligations. Debt maturities in the near term should be manageable through a combination of refinancing and significant free cash flow. Additionally, the company should be able to access the capital markets when development and redevelopment opportunities arise. We expect 2021 net debt/EBITDA and EBITDA/interest to be roughly 7.1 and 4.5 times, respectively. We expect the company’s credit rating to remain stable through steady net operating income growth in its existing portfolio. We think Simon has unrivaled access to capital markets in general, given its current strong balance sheet and a large, higher-quality, unencumbered asset base.

Bulls Says

  • Simon’s access to capital, scale, and validated record position the firm to execute on any attractive and available investment opportunities. 
  • Simon’s high-quality portfolio will continue to present attractive locations for tenants to place stores even as retail companies look to reduce store counts and present the most desirable locations for e-tailers looking to establish a physical presence. 
  • Simon’s mall and outlet portfolio contains a high percentage of the best malls in the country where redevelopment capital can be deployed at the most promising yields.

Company Profile

Simon Property Group is the second-largest real estate investment trust in the United States. Its portfolio includes an interest in 207 properties: 106 traditional malls, 69 premium outlets, 14 Mills centers (a combination of a traditional mall, outlet center, and big-box retailers), four lifestyle centers, and 14 other retail properties. Simon’s portfolio averaged $693 in sales per square foot over the past 12 months. The company also owns a 21% interest in Klepierre, a European retail company with investments in shopping centers in 16 countries, and joint venture interests in 29 premium outlets across 11 countries.

 (Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Commodities Trading Ideas & Charts

APA’s Medium-Term Outlook Is Supported by Accretive Expansion Opportunities

Limited regulation, scale, and a superior skills base help it capitalise on gas demand growth and generate competitive advantages that warrant a narrow economic moat. However, gas market reform will weaken its competitive advantages. Fair value uncertainty is medium, as secure revenue is balanced by high gearing and limited transparency over customer contracts.

Infrastructure, primarily gas transmission and distribution, is the core business, generating more than 90% of group EBITDA. The rest comes from part-owned investments and asset management. The investments division owns stakes in smaller gas infrastructure companies, providing solid returns and giving some influence. The asset management division provides management, operating, and maintenance services to most part-owned companies, leveraging APA Group’s skills base to generate good returns outside the regulatory framework.

APA Group’s core strategy during the past decade has been to create an integrated east-coast gas transmission grid connecting multiple gas sources to multiple markets. This is now complete following numerous acquisitions and the firm is progressing a similar strategy in Western Australia, connecting to remote mine sites and towns. Expansion creates economies of scale and synergies from linking pipes together into a network with one manager.

Financial Strength

APA Group is in sound financial health. It carries a lot of debt, but this should be manageable given highly secure revenue. Net debt/EBITDA to fall to 5.5 times in fiscal 2023 as development projects complete and earnings start to flow. The firm’s average interest rate is around 4.8%, down substantially in recent years following the issue of the cheap debt to fund the WGP acquisition and expensive hedges rolling off on other debt. The recent refinancing of medium-term debt should reduce average interest rate to about 4.8% in fiscal 2022. Average debt maturity is long at more than seven years, and 100% of interest rates are fixed or hedged.

Our fair value estimate for APA Group is AUD 9.80 per security. Our valuation implies a forward fiscal 2022 enterprise value/EBITDA multiple of 12.5 times, with a distribution yield of about 5.4%. Expansion projects drive solid EBITDA growth of 4.8% on average for the next five years in our discounted cash flow model, while revenue growth for some existing assets is likely to be soft because of regulatory headwinds, gas market reform and some demand shifts.

Bulls Say’s

  • APA Group owns and operates an excellent portfolio of gas infrastructure assets. Its large footprint ensures it is at least partially exposed to growth anywhere in the country.
  • The east-coast gas grid provides improved reliability, greater flexibility, a wider range of services, and economies of scale over single pipelines.
  • Limited regulation allows stronger returns on investment than regulated peers, particularly from organic expansion. However, gas market reform will reduce its advantage.
  • Strong returns are possible from organic growth.

Company Profile 

APA Group is Australia’s largest gas infrastructure company with an extensive portfolio of transmission pipelines, distribution networks, and storage facilities. It is internally managed and has direct operational control over all assets. It owns minority stakes in a few smaller gas infrastructure companies and manages operations for most of these. The stapled securities comprise a unit in Australian Pipeline Trust and in APT Investment Trust.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Commodities Trading Ideas & Charts

Lowering Our Fair Value Estimate for Fortescue Post the Massive Dividend

Business Strategy and Outlook 

Fortescue Metals is the world’s fourth-largest iron ore exporter. Margins are well below industry leaders BHP and Rio Tinto, and some way behind Vale, meaning Fortescue sits in the highest half of the cost curve. This is a primary driver of our no-moat rating. Lower margins primarily result from discounts from mining a lower-grade (57%- to 58%-grade) product compared with the benchmark, which is for 62%-grade iron ore. The lower grade is effectively a cost for customers, which results in a lower realised price versus the benchmark. In the five years ended June 2020, the company realised an approximate 26% discount, compared with the benchmark average for 62% iron ore fines.

Fortescue has done an admirable job of reducing cash costs materially versus peers. However, product discounts remain a competitive disadvantage. To this end, the company will add about 22 million tonnes a year of iron ore production from the 61%-owned Iron Bridge joint venture. Iron Bridge grades are much higher, around 67%, which should allow Fortescue to meet its goal to have most of its iron ore above 60%, assuming the company chooses to blend it with the existing products.

Financial Strength 

Our fair value estimate for no-moat rated Fortescue Metals to AUD 13 per share from AUD 15.10 per share previously. The shares have gone ex-entitlement to the final dividend, an unusually large AUD 2.11 per share or 14% of our previous fair value estimate. The latest financial results were astoundingly strong for the iron ore miners, Fortescue included. Rio Tinto generated an annualised return on invested capital from its iron ore operations of more than 100% in the first half of 2021.

Despite being a relatively high cost producer, once product discounts are considered, Fortescue’s annualised return on invested capital for that same half was nearly 70%. This is part of the reason the iron ore price has fallen in recent times, but the price at nearly USD 150 per tonne is still well above the price required for the iron ore majors to make a reasonable return.

Fortescue Metals Group’s balance sheet is strong, thanks to the elevated iron ore price and accelerated debt repayments. Net debt peaked near USD 10 billion in mid-2013, roughly coinciding with the start of expanded production. By the end of 2020, net debt had declined to USD 0.1 billion. The operating leverage in Fortescue, and the cyclical capital requirements, there is a reasonable argument that Fortescue should run with minimal or no debt on average through the cycle.

Bulls Say’s 

  • Fortescue provides strong leverage to the Chinese economy. If growth in steel consumption remains strong, it’s also likely iron ore prices and volumes will too.
  • Fortescue is the largest pure-play iron ore counter in the world and offers strong leverage to emerging world growth.
  • Fortescue has rapidly cut costs and significantly narrowed the cost disadvantage relative to industry leaders BHP, Vale, and Rio Tinto. If steel industry margins fall in future, it’s likely product discounts will narrow significantly relative to historical averages.

Company Profile 

Fortescue Metals Group is an Australia-based iron ore miner. It has grown from obscurity at the start of 2008 to become the world’s fourth-largest producer. Growth was fuelled by debt, now repaid. Expansion from 55 million tonnes in fiscal 2012 to about 180 million tonnes in 2020 means Fortescue supplies nearly 10% of global seaborne iron ore. However, with longer-term demand likely to decline, as China’s economy matures, we expect Fortescue’s future margins to be below historical averages.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Technology Stocks

Veeva Beats Revenue and EPS Guidance; However, CRM Headwinds Could Dampen Short-Term Growth

providing an ecosystem of products to address the operating challenges and regulatory requirements that these companies face. The company operates in two categories: Veeva Commercial Cloud, which entails vertically integrated customer relationship management (CRM) services and end-market data and analytics solutions; and Veeva Vault, a horizontally integrated content and data manager. Veeva’s CRM application supports real-time collaboration and regulatory oversight, and enables incremental add-on solutions. As a follow-on to the initial introduction of CRM, management introduced the Veeva Vault platform to broaden the portfolio that addresses the largely unmet needs of the life sciences industry outside of CRM.

Veeva’s effective technology and dominant position enables it to generate excess returns commensurate with a wide-moat company. The company’s strong retention, continued development of new applications, increasing penetration within existing customers, addition of new customers, and expansion into industries outside of life sciences should allow the company to extend its market leadership.

Veeva Beats Revenue and EPS Guidance; However, CRM Headwinds Could Dampen Short-Term Growth:

Veeva System reported strong quarterly results, with total revenue of $456 million and adjusted EPS of $0.94 slightly exceeding guidance ($450 million-$452 million and $0.85-0.86, respectively). Subscription services revenue grew 29% year over year, due to the addition of new CRM customers during the quarter, add-on module adoption, and strong Vault growth. The company reported the signing of its first top 20 pharma company to the Vault Safety platform and strong growth of other Vault modules during the quarter.

Despite the positive results and a nominal bump to fiscal 2022 revenue and EPS guidance, shares fell nearly 8% after trading hours, with investors likely overreacting to management’s commentary on macro trends impacting customer relationship management software (CRM) growth.

Financial Strength

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 2021 Veeva had over $1.6 billion in cash and short-term investments and no debt. It is assumed that the company will continue to use the cash it generates from operations to fund future growth opportunities. 

During FY 2021, the firm reported revenue of USD Million 1,465 which is 32.7 % higher in relation to the previous year while its EBIT stood at USD Million 378.The free cash flow for the firm for the year 2021 was USD Million 342 while its diluted EPS was USD 2.94.

Bull Says

  • 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 into 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 Profile:

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, or ERP, systems that have limited flexibility. As the vertical leader, Veeva innovates, increases wallet share among existing customers, and expands into other industries with similar regulations, protocols, and procedures, such as consumer goods, chemicals, and cosmetics.

( Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.