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Technology Stocks

Dexcom’s strength in innovation puts the company on firm footing.

The Japan Finance and market, Data Chart.

Business Strategy & Outlook

Dexcom enjoys a well-established track record for introducing the most precise sensors for use in its continuous glucose monitors. On the strength of its technology, Dexcom has captured an impressive slice of this CGM market, but a recent wave of innovation in the diabetes device market has intensified competitive pressure. Nonetheless, Dexcom has done a credible job of adapting and fending off competition from Abbott and Medtronic. Dexcom has finally begun to make progress in penetrating the Type 2 market, in addition to long dominating the Type 1 market, where CGM penetration has been estimated around 35%. The establishing reimbursement for Type 2 patients can be challenging, but payers have been steadily joining the bandwagon. Dexcom should benefit as these the reimbursement pieces fall into place.

Both Abbott and Medtronic have introduced meaningful innovation in this realm that the offers patients’ new alternatives. Abbott’s FreeStyle Libre Flash is significantly more user-friendly and is aggressively priced. The product has made substantial inroads with the Type 2 population. Medtronic’s next-gen 780g insulin pump automates much of the insulin delivery and comes with its own integrated CGM. These competitive features could peel some Dexcom users away on the margins. However, one has been impressed with how Dexcom was able to incorporate some of the most attractive Libre features–no-stick calibration, longer sensor life–in its G6 product. The new G7 CGM builds on those strengths. The Dexcom’s strength in innovation puts the company on firm footing. First, the precision of its CGM remains materially better than competitive products. Second, Dexcom’s next-gen, one-piece G7 should be significantly lower-cost, which offers flexibility for improving cost structure. The firm has also moved more aggressively into the pharmacy channel to enhance patient access and take advantage of greater volume upside. Finally, Dexcom’s alliances with Tandem, Insulate, Livongo (now part of Teledoc), and Eli Lilly provide opportunities for the firm to remain tightly woven into most new diabetes technologies.

Financial Strengths

Dexcom has been cash flow positive for since 2014 and more recently moved into positive earnings territory. While revenue has grown very quickly, research and development expenses and selling, general, and administrative costs have grown significantly as well, sometimes outpacing revenue growth, during the early phases of commercialization. However, the firm turned the corner in 2019, and it will post meaningful profits through the explicit forecast period. Historically, Dexcom has funded its operating losses through additional capital raises over the years or through convertible debt. As of December 2020, Dexcom had two lots of convertible senior notes, which mature in 2023 and 2025. The debt is partially intended to support Dexcom’s efforts to expand, including building out the company’s manufacturing footprint. The $850 million in convertible debt due in 2023 are already in the money at the initial conversion price of $41.07 per share. Most recently, the firm issued $1.21 billion more in convertible debt due in 2025, partially to redeem convertible debt due in 2022, and these notes have an initial conversion rate that is equivalent to $150.11 per share. Dexcom also issued 1.8 million shares in 2018 to raise funds to pay for a hefty collaborate R&D fee.

Bulls Say

  • Dexcom’s next-gen G7 product should be significantly less expensive, offer a thinner profile, and faster warm-up time than G6. 
  • Medicare’s decision to reimburse for the G6 is a favorable development for Dexcom, as private payers often use Medicare as the benchmark for reimbursement policies. 
  • Dexcom’s initiative with Verily offers the potential to apply tech expertise in data analytics with data intensive health management for type 2 diabetic patients. This partnership could put Dexcom a step ahead of rivals.

Company Description

Dexcom designs and commercializes continuous glucose monitoring systems for diabetics. CGM systems serve as an alternative to the traditional blood glucose meter process, and the company is evolving its CGM systems to include the disposable sensor and the durable receiver.

(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.

Categories
Dividend Stocks

Suncorp Sale or Demerger of the Bank Could Make Sense, Depending on Price

Business Strategy & Outlook

Suncorp is a well-capitalised financial services business with a dominant market position in the Australian and New Zealand general insurance industry and a regional banking franchise headquartered in Queensland. In addition to offering insurance under the parent name, key brands in Australia include AAMI, GIO, bingle, Apia, Shannons, and Terri Scheer. In New Zealand, key brands include Vero, AA Insurance, and Asteron Life. Some brands are specific to certain states, but at a group level, the insurer carries concentrated weather and earthquake risk in Australia and New Zealand, and in particular Queensland which makes up around 25% of gross written premiums in Australia. The group’s exposure to the Queensland market, where large natural peril events have tended to be larger and more frequent, heightens the risks. Reinsurance protection mitigates risks to some extent, but can be expensive, particularly following large events. 

Suncorp’s regional banking franchise is more concentrated than the major banks, with home loans making up around 80% of the loan book and Queensland accounting for more than half of total lending. Suncorp Bank’s smaller operating presence, higher funding and operational costs, and relatively limited product offerings have all led to lower margins relative to the majors. While there are potential benefits to the bancassurance model, such as better customer insights versus stand-alone insurance peers, and better cross-selling opportunities, they have not delivered a material tangible improvement in earnings, returns, or switching costs. Selling home insurance to borrowers is the lowest hanging fruit, with recent improvements to give the group a single customer view likely to make the process smoother. Similar to its peers, Suncorp is focused on enhancing the digital offering to ensure simpler and faster quotes, claim processing, and to ensure the large insurer remains competitive on price. In response to changes in the way customers engage with their insurer, with less human contact and the expectation of being able to access services at anytime, productivity improvements remain a priority.

Financial Strengths 

BHP is in a strong financial position. With ongoing debt repayment, modest near-term capital requirements and the fortuitous bounce in commodity prices since 2016, BHP’s financial position is strong. For the five years ended fiscal 2026, net debt/EBITDA is expected to remain below 0.5 and EBIT/net interest to average more than 30. Net debt at end-June 2021 was about USD 4 billion, below BHP’s net debt target range of USD 12 billion to USD 17 billion. Given the limited capital expenditure requirements, with only modest commitments to new expenditure in the lower demand growth environment, BHP’s balance sheet is expected to remain strong with excess cash flow to be returned to shareholders. Share buybacks and special dividends are possible, depending on the level of commodity prices, given the relatively modest outlook for capital expenditure. The likelihood of special dividends and buybacks would decline if BHP chose to pursue acquisitions.

Bulls Say

  • Premium increases stick without an equal rise in claims and rising rates lift yields on fixed income, together lifting underlying profitability and dividends. 
  • A benign claims environment with a lower incidence of major catastrophes would considerably boost underwriting profits. 
  • Risk management has been improved, and productivity initiatives are expected to deliver greater cost efficiencies.

Company Description

Suncorp is a Queensland-based financial services conglomerate offering retail and business banking, general insurance, superannuation, and investment products in Australia and New Zealand. It also operates a life insurance business in New Zealand. The core businesses include personal insurance, commercial insurance, Vero New Zealand, and Suncorp Bank. Suncorp and competitors IAG Insurance and QBE Insurance dominate the Australian and New Zealand insurance markets.

(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.

Categories
Commodities Trading Ideas & Charts

NextEra Well Positioned for Renewable Energy Growth

Business Strategy & Outlook:   

NextEra Energy’s high-quality regulated utility in Florida and fast-growing renewable energy business give investors the best of both worlds: a secure dividend and industry-leading renewable energy growth potential. NextEra’s regulated utility, Florida Power & Light, benefits from constructive regulation that offers high allowed returns, little regulatory lag, and low customer rates. Florida’s strong economy and population growth through 2026. The utility plans to invest $32 billion to $34 billion from 2022-25, supporting 9% rate base growth. Growth opportunities include continued solar generation build out, storm hardening investments, and transmission and distribution infrastructure. The recent Florida rate case outcome supports our view that FP&L enjoys industry-leading constructive regulation. The outcome allows for a target 10.6% allowed return on equity, one of the highest among its peer group, with a range of 9.7%-11.7%. The rate case outcome also supports hydrogen, electric vehicle programs and storm hardening.

The company’s highly contracted competitive energy business, NextEra Energy Resources, has proved to be a best-in-class renewable energy operator and developer. The company was an early adopter of wind generation, building a competitive advantage by securing some of the country’s most desirable locations and locking in 20-year contracts with price escalator clauses. NextEra’s current plans shift the focus to solar. Roughly half its planned renewable energy growth through 2026 will be solar, with the remaining a mix of wind and energy storage. Higher costs could threaten near-term renewable energy development, but high fossil fuel costs have helped maintain renewable energy’s relative economic advantage. Management’s continued execution on its NEER development program gives us confidence that NextEra will deliver on its 28 gigawatts to 37 GW development target range in 2022-25. Investments in green hydrogen, transmission, and water utilities present additional growth opportunities.

Financial Strengths:  

We forecast that NextEra will invest over $90 billion through 2026, requiring it to be a frequent debt issuer. We expect NextEra to continue to tap project financing, including tax equity, to build out its renewable energy fleet. The company has manageable long-term debt maturities, and we anticipate that it will be able to refinance its debt as it comes due and maintain its debt/capital ratio. We expect the firm to tap the equity markets in line with its current capital structure. We expect total debt/EBITDA to remain near 5.0 times. Even with its large capital expenditure program, NextEra maintains a strong balance sheet, particularly for an integrated electric utility, and an investment-grade credit rating. We expect debt/capital to average 60% through our 2026 forecast. Interest coverage should average over 5.5 times. NextEra has ample cash liquidity and borrowing capacity available under its master revolving credit facility. We believe NextEra’s dividend is well covered with its regulated utilities’ earnings. We forecast 9% average dividend increases through 2026 with the payout ratio remaining around 60%.

Bulls Say:

  • FP&L operates in one of the most constructive regulatory environments with numerous capital investment opportunities.
  • NEER has benefited from renewable energy federal tax credits, but state renewable portfolio standards, corporate purchases, and attractive economics are now driving investments in renewable energy.
  • Management’s long runway of capital investment opportunities support our industry-leading 9% annual earnings growth outlook from 2022-26.

Company Description:  

NextEra Energy’s regulated utility, Florida Power & Light, distributes power to more than 5 million customers in Florida. FP&L contributes more than 60% of the group’s operating earnings. The renewable energy segment generates and sells power throughout the United States and Canada. Consolidated generation capacity totals more than 50 gigawatts and includes natural gas, nuclear, wind, and solar assets.

(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.

Categories
Technology Stocks

Lennar controls an ample land supply, which affords the company the ability to meet future demand while focusing on improving cash flows.

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

Business Strategy & Outlook

From 2020-2021 proved to be strong years for the U.S. housing market despite the COVID-19 pandemic, and housing starts should remain elevated in 2022 as homebuilders work through extensive backlogs. However, deteriorating affordability has slowed housing demand, and starts to decrease 10% in 2023 to 1.435 million units and decline roughly 10% in 2024 to 1.3 million units, which is about in line with new home production in 2018-19. However, the affordability will improve over the next two years as mortgage rates subside and home prices become more tenable. The project starts will rebound to 1.55 million units by 2026 and average around 1.45 million units from 2027-31.

The first-time buyers will be a key driver of future housing demand, and Lennar is well positioned to capture these potential buyers with its increased mix of entry-level homes. Lennar controls an ample land supply, which affords the company the ability to meet future demand while focusing on improving cash flows and maintaining a strong balance sheet. The company has shifted to a lighter land acquisition strategy, which seeks to reduce the amount of capital tied up in land by purchasing smaller land parcels and relying more on land options to acquire land on a just-in-time basis. This strategy should help the company realize better returns on invested capital and cash flows over the housing cycle. Lennar’s investments in ancillary businesses, such as its multifamily business and technology startups, distinguishes the company from many other homebuilders. Management announced plans to spin off its multifamily, single-family for rent, and land businesses by the end of fiscal 2022. Whether the market will place a higher multiple on SpinCo as a standalone entity has yet to be seen, but one cannot think this transaction will result in meaningful value creation for Lennar’s remaining businesses. However, the separation of these ancillary businesses, which tend to generate lumpier earnings, should dampen Lennar’s earnings volatility.

Financial Strengths

At the end of fiscal second-quarter 2022, Lennar had approximately $4.6 billion of outstanding homebuilding debt, which net of its $1.3 billion homebuilding cash balance, equates to a 13.4% homebuilding net debt/capital ratio. The Lennar has a strong balance sheet and plenty of liquidity. Aside from the firm’s $1.3 billion homebuilding cash balance, it also has $2.5 billion available on its revolving credit facility. Given the long-term outlook for U.S. residential construction and the firm’s commitment to become a more asset-light business, the Lennar will continue to generate strong cash flow over the longer term.

Bulls Say

  • The U.S. housing market is undersupplied. This supply/demand imbalance will take years to address and should support pricing power for homebuilders. 
  • Demand for entry-level housing should increase as the large millennial generation forms households. Lennar is well positioned to capitalize on this growing market. 
  • Lennar’s multifamily segment is an underappreciated asset, which could get more market recognition after it is spun off.

Company Description

Lennar is the second-largest public homebuilder in the United States. The company’s homebuilding operations target first-time, move-up, and active adult homebuyers mainly under the Lennar brand name. Lennar’s financial-services segment provides mortgage financing and related services to its homebuyers. Miami-based Lennar is also involved in multifamily construction and has invested in numerous housing-related technology startups.

(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.

Categories
Dividend Stocks

New PPL Will Look to Rhode Island for Growth

Business Strategy & Outlook:  

PPL is expected to spend nearly $12 billion at its U.S. utilities through 2026, including its recent acquisition of Narragansett Electric. These regulated utility growth opportunities support the expectations for 6% annual earnings growth, the low end of management’s 6% to 8% earnings growth target through 2025. PPL exited its U.K. business for $10.4 billion in net cash proceeds. This was an attractive price, representing a 50% premium to standalone value for the unit. Amid regulatory and political uncertainty, management’s decision to exit the business was the right one. As part of the WPD transaction, PPL agreed to pay $3.8 billion for National Grid’s U.S. utility, Narragansett Electric. Management allocated the remaining proceeds to $2 billion of additional regulated investment opportunities, $3.9 billion to strengthen the company’s balance sheet bringing leverage more in line with its peers, $1 billion of common stock repurchases, and $400 million in additional dividends. 

Overall, these capital allocation decisions were in the best interest of shareholders. Narragansett Electric provides the most growth opportunities among PPL’s portfolio of companies. The forecasted 11% annual rate base growth supported by a constructive regulatory environment. Growth in the region should accelerate in 2024 and beyond, coinciding with the company’s agreement not to seek a rate base increase until then. The company’s legacy Pennsylvania and Kentucky utilities also operate in supportive regulatory environments but offer less growth than Narragansett. In Kentucky, rate base growth will be less than 2% annually as the company slowly winds down its coal generation. Importantly, regulators will allow PPL to recover through rates a return of and on the net book value of assets it plans to retire in the coming years. Coal rate base in the state is $5 billion, declining to $4 billion by 2026, but will still represent one third of rate base in 2026, among the highest of its utility peers. Rate base in Pennsylvania should grow near 4% annually.

Financial Strengths:   

PPL will invest nearly $12 billion at its utilities through 2026, including the recent Narragansett acquisition. This will require PPL to issue debt to maintain its current capital structure. Company didn’t expect any equity issuances in five-year forecast. Total debt/capital improved significantly as management used $3.9 billion in proceeds from its U.K. utility sale to reduce leverage. Estimate leverage will normalize around 50%, down from prior year-end 65% debt to capital. Total debt/EBITDA to stay below 5 times. The earnings stability of the regulated utilities coupled with modest near-term maturities makes the debt load manageable. The company approved a $0.20 per share dividend for the first quarter of 2022, a more than 50% cut from the quarterly payments in 2021 after the company completed the sale of its U.K. business. After closing the Narragansett acquisition, the company increased its quarterly distribution to $0.225, or $0.90 annualized. The company plans to maintain a 60%-65% payout target, and the company will grow the dividend in line with 6% earnings growth estimate.

Bulls Say: 

  • PPL’s domestic regulated earnings mix provides a stable base for earnings growth.
  • Management’s decision to sell its U.K. assets will allow investors to focus on the company’s U.S. utilities.
  • PPL is expected to spend nearly $12 billion in capital investment, including the recently acquired Narragansett, supports near-term earnings growth.

Company Description: 

PPL is a holding company of regulated utilities in Pennsylvania, Kentucky, and Rhode Island. The Pennsylvania regulated delivery and transmission segment distributes electricity to customers in central and eastern Pennsylvania. LG&E and KU are involved in regulated electricity generation, transmission, and distribution in Kentucky. The Kentucky utilities also serve gas customers. Narragansett operates electric and gas utilities in Rhode Island.

(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.

Categories
Technology Stocks

Littelfuse is a differentiated supplier of electrical protection into cars and industrial applications

Business Strategy & Outlook

The Littelfuse is a differentiated supplier of electrical protection into cars and industrial applications. While the firm is a smaller player than other competitors in the components market under our coverage, it has aligned its portfolio toward secular themes of safety, efficiency, and connectivity to pursue growth. The Littelfuse’s best organic growth opportunities will come from vehicle electrification; battery electric vehicles require five times the circuit protection content of an internal combustion counterpart, and charging infrastructure presents a lucrative opportunity for the firm’s growing power semiconductor business.

Littelfuse’s passive components are small and inexpensive, yet vitally important to the safe and continuous function of mission-critical systems in end applications. Circuit protection products safeguard against electrostatic discharge and overcurrent to prevent component failure and/or fire in cars, power grids, data centers, and manufacturing plants. Even though individual parts like fuses and relays don’t carry a hefty price tag, the Littelfuse’s application expertise helps the firm stave off commoditization and creates sticky customer relationships. The Littelfuse will keep selling more content into ever-electrifying end products, especially as applications like cars and industrial equipment moves into higher voltages. Higher voltages and new applications like wind and solar power offer a greater electrical protection content opportunity and new selling opportunities for the firm’s emerging silicon carbide technology. The Littelfuse’s organic growth to benefit from ample cross-selling between its relatively new semiconductor customers (largely acquired through its IXYS deal in 2018) and its electrical protection customers. Meanwhile, the Littelfuse to continue acquiring in line with the consolidating electronic components industry, as management aims to achieve half of its long-term top-line growth target of 10%-14% inorganically.

Financial Strengths

The Littelfuse is in good financial shape. As of Jan. 1, 2022, the firm held $637 million in total debt and $478 million in cash on hand. The firm to satisfy its financial obligations with ease. Littelfuse has no more than $150 million coming due in a single year through 2026, and the firm averaged $226 million in free cash flow from 2017 to 2021. As per forecast firm to average $471 million in free cash flow per year over the explicit forecast. Littelfuse’s debt/adjusted EBITDA ratio of 1.29 times at the end of 2021 places it solidly at the low end of management’s long-term range of 1 times-2.5 times. The firm to remain leveraged, using debt to supplement free cash flow in funding future M&A opportunities. The Littelfuse is trending toward more frequent acquisitions of larger sizes in order to fulfill its 5%-7% inorganic growth target off of a higher revenue base. Following the use of cash on hand to fund the 2021 acquisitions of Hartland Controls and Carling Technologies, the next acquisition to involve Littelfuse incurring additional leverage. Even so, the firm to maintain its regular dividend and continue share repurchases.

Bulls Say

  • Secular trends toward renewable energy and electric vehicles should boost demand for Littelfuse’s products. 
  • Littelfuse has a foot in the door of the emerging silicon carbide semiconductor market, which could fuel future rapid growth for the firm. 
  • Littelfuse’s sticky customer relationships have helped it earn excess returns on invested capital even in the face of cyclical downturns like in 2019 and 2020.

Company Description

Littelfuse is a primary provider of circuit protection products (such as fuses and relays) into the transportation, industrial, telecommunications, and consumer electronics end markets. The firm is also increasing its power semiconductor business, where it predominantly serves industrial end markets and is breaking into electric vehicle charging infrastructure. Littelfuse has 17,000 global 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.

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.

Categories
Technology Stocks

Fortinet keeps customers locked into its ecosystem via holistic security management across any location

Closeup of a stock market broker working with graphs on digital tablet at office. Rear view of stock agent reading bad report and graph. Back view of multiethnic businessman analyzing fall sales.

Business Strategy and Outlook 

Fortinet is a leading cybersecurity company that has amassed an extensive customer base because of its solutions’ high performance relative to price as well as its broad product offerings covering various security concerns. The company developed a centralized cybersecurity management plane and is at the forefront of networking and security converging with its secure software-defined wide-area networking offerings. Fortinet sells security appliances and subscriptions as well as technical and professional services. It has established customer switching costs alongside its network effect and has a nice runway for growth through its holistic approach to network and cloud cybersecurity. As organizations expand their networking footprint beyond on-premises data centres, Fortinet keeps customers locked into its ecosystem via holistic security management across any location. The vast creation of data and the dispersed nature of network traffic due to hybrid environments, software-as-a-service applications, and remote access needs create a larger threat surface. Attacks are becoming more masqueraded and serpentine, which drives up the complications associated with cybersecurity management and threat prevention. Fortinet gleans threat insights from its massive customer base, which keeps it at the forefront of security requirements. Compounded by a dearth of cybersecurity talent, the consolidated security platforms, like Fortinet’s Security Fabric, will remain in high demand, as customers prefer to add capabilities via subscriptions over managing disparate software and hardware vendors.

The company has a build-versus-buy mentality, with a penchant for making custom processors. While this strategy has helped establish its name within the perimeters of localized networks, it is expected Fortinet to supplement its engineering prowess with inorganic growth in areas like cloud-based security, machine learning, and automated threat responses. Hence, these high-growth areas can help drive new product growth on top of a considerable base of durable services and support income.

Financial Strength

Fortinet is a financially sound company that will continue to generate strong cash flow. At the end of 2021, Fortinet’s deferred revenue of $3.5 billion is a strong indication of predictable revenue streams and should help insulate the company from any IT spending downturns. Fortinet had $3.0 billion in cash and equivalents and $1 billion of debt at the end of 2021. The company has never paid a dividend, but used over $2 billion to repurchase shares between 2017 and 2021, and it is expected Fortinet will continue repurchasing shares. Beyond returning capital, the cash outflows are to be focused on research and development alongside sales and marketing efforts and with some smaller tuck-in acquisitions to be completed for areas such as cloud-based security and analytics.

Bulls Say’s

  • A growing enterprise customer base and nascent technologies like software-defined networking and 5G create sizable revenue growth potential for Fortinet. 
  • The firm’s consolidated cybersecurity platform could be enticing for customers attempting to decrease the quantity of vendors, which would drive more revenue per customer for Fortinet. 
  • With no end to cybersecurity threats, Fortinet’s products should remain in high demand from SMBs, government entities, service providers, and enterprises

Company Profile 

Fortinet is a cybersecurity vendor that sells products, support, and services to small and midsize businesses, enterprises, and government entities. Its products include unified threat management appliances, firewalls, network security, and its security platform, Security Fabric. Services revenue is primarily from FortiGuard security subscriptions and FortiCare technical support. At the end of 2021, products were 38% of revenue and services were 62% of sales. The California-based company sells products 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 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.

Categories
Technology Stocks

Dell Is an IT and PC Behemoth, But That Doesn’t Lead to a Moat

Business Strategy & Outlook

Born out of Dell’s 2016 acquisition of EMC, Dell Technologies is a pre-eminent vendor of IT infrastructure and PCs. Although Dell has substantial exposure to commoditized markets, its ability to bring the cloud to organizations is a growth opportunity and the company is expected to benefit from PC and workplace productivity product demand brought on by remote work needs. Dell has taken massive strides to trim its debt load via cash injections coming from divestitures, as well as spinning off VMware in November 2021. Dell’s business centers on PCs and peripherals, servers, storage, and networking equipment, as well as software, services, and financial services. Its brands include Dell, Dell EMC, Secureworks, and Virtustream.

The company’s largest revenue streams of commercial PCs and servers are in tough pricing environments that can rely on services and support to generate profit. The overall PC market is projected to continue consolidating toward an oligopoly, with profits coming from high-end notebooks, gaming PCs, and peripherals. While storage is a challenging marketplace, flash-based arrays and hyperconverged infrastructure provide avenues for growth. A commercial agreement with VMware should continue providing Dell’s hardware with a unique selling proposition. Dell Technologies as an end-to-end IT infrastructure provider that is supplementing hardware prowess with emerging software and cloud-based solutions. Its ability to bring the cloud to customers via its hybrid cloud offerings as organizations face challenges adopting public cloud is met with optimism, but competitive markets are anticipated to challenge the company’s overall profitability. With Dell Technologies achieving an investment-grade capital rating after the VMware spinoff, it is expected to have flexibility in investing for growth and rewarding shareholders via a new quarterly dividend and through share buybacks. Public shareholders have very little influence on the company’s strategy and rely heavily on CEO Michael Dell and Silver Lake Partners making value-accretive decisions.

Financial Strengths

Dell Technologies’ core debt load (outside of Dell Financial Services) as the main hindrance to its financial strength, but the firm’s financial health is projected to greatly improve through cash flow generation and paying down debt. Using its portion of VMware’s special dividend, as part of the spinoff, to repay obligations helped increase Dell’s credit rating into investment-grade territory. After returning to the public market in December 2018, the total debt load was approximately $55 billion versus an estimated $6 billion cash and cash equivalents. The company has placed a priority on paying down its debt balance over shareholder returns. As of the end of fiscal 2022, Dell Technologies had about $27 billion in total debt and $9 billion in cash and equivalents.. The company has taken strides to restructure debt, sell off assets, and improve its cash flows, which is expected to give better flexibility in investing for growth and potential shareholder returns. Outside of operating costs, debt repayments will take priority in the near term. As of fiscal 2023, Dell pays a quarterly dividend as well. As an investment-grade organization, Dell will look for targeted acquisitions to help expand into higher-growth areas for cloud workload management, edge, and open telecom solutions.

Bulls Say

As a supplier with an end-to-end IT infrastructure portfolio, Dell Technologies has significant upselling and cross-selling opportunities.

Through its cloud-based products, higher-margin nascent technologies, traditional hardware prowess, and tight VMware product integrations, the company is well positioned to be a leader in hybrid cloud environments.

Dell Technologies’ healthy cash flow is focused on paying down debt and creating a more balanced longterm capital structure that can support future investments.

Company Description

Dell Technologies, born from Dell’s 2016 acquisition of EMC, is a major provider of servers, storage, and networking products through its ISG segment and PCs, monitors, and peripherals via its CSG division. Its brands include Dell, Dell EMC, Secureworks, and Virtustream. The company focuses on supplementing its traditional mainstream servers and PCs with hardware and software products for hybrid-cloud environments. The Texas-based company employs around 133,000 people and sells globally.

(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.

Categories
Technology Stocks

Mandiant Services and Solutions Expected To Be Demanded Amid Heightened Threat Environment

Business Strategy & Outlook

Cybersecurity pure play Mandiant (formerly FireEye) sells subscriptions and services to protect customers from threats and to resolve security breaches. Mandiant is considered a pre-eminent provider of professional consulting services for incident response, 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. Robust demand for Mandiant’s services and subscriptions is expected due to a persistent cybersecurity talent shortage and cybercriminals continually evolving their threats, causing organizations to look for assistance from experts. 

By selling off its products division in October 2021, Mandiant is making the prudent decision to focus on its world-class incident response, threat intelligence, and security validation offerings, as strong competition from other leading cybersecurity players’ holistic security platforms and spry best-of-breed upstarts hindered its legacy products’ success. Being independent of its former product division could enhance its technology partner relationships and improve threat intelligence and enhanced customer engagements. The vast creation of data plus the increased use of software-as-a-service applications and cloud-based ecosystems will continuously drive up the quantity and complexity of cyberthreats. Mandiant’s security experts stay ahead of threat trends via in-depth research, and those insights cause organizations to demand support or potentially outsource their security to Mandiant to manage. With a lack of security talent in the marketplace, firms are anticipated to increase their usage of external threat assessments, security validation, and automated response solutions while looking toward experts, such as Mandiant, when internal teams are overwhelmed.

Financial Strengths

Mandiant is in mediocre financial shape, with an improving free cash flow profile and its cash balance outweighing its convertible note obligations. At the end of 2020, FireEye, Inc. (which included both Mandiant plus FireEye products) had $1.3 billion in cash and equivalents and $960 million in total debt made up of convertible notes. Mandiant sold its FireEye products division for $1.2 billion in October 2021, which is expected to help 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 share dilution is anticipated 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. FireEye has made some small acquisitions, which are presumed to continue. Cash deployment is expected 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 customers with 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 Description

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)

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.

Categories
Technology Stocks

Operating cash flow was up +42.0% to $502.4m reflecting strong business performance and underlying cash flow generation capability

Investment Thesis:

  • Trades on attractive multiples and valuation.
  • On market buy back should be supportive of its share price.
  • Fasting growing Digital business, with strong execution by management.
  • Expectations of new product releases will gain significant traction with customers. 
  • Increasing skew towards recurring revenue.
  • Global gaming exposure. 
  • Growing market share in underpenetrated markets. 
  • Leveraged to a falling AUD.
  • Strong balance sheet with ample liquidity provides management with significant flexibility to take advantage of value accretive acquisitions or pursue organic growth opportunities. 

Key Risks:

  • Any further downside to the Japanese market.
  • Low replacement/uptake in the US market.
  • Competition risk.
  • Loss in market share.
  • Lack of product development.
  • Adverse currency movements.
  • Adverse outcome from any potential court case. 

Key Highlights:

  • Group revenue increased to $2.7bn, up +23.1% in reported terms, or up +19.7% in constant currency compared to the pcp, driven by strong performance in Gaming Operations and Outright Sales, supported by robust portfolio performance from Pixel United.
  • EBITDA of $970m, up +30% on a reported basis and +27% higher on a constant currency basis compared to the pcp.
  • Normalized profit after tax and before amortization of acquired intangibles (NPATA) of $580m, up +41% (up +37% in constant currency). According to management, this was +37% ahead of (pre-COVID) 1H19 profit performance, despite mixed operating conditions and supply chain disruptions.
  • Operating cash flow was up +42.0% to $502.4m reflecting strong business performance and underlying cash flow generation capability.
  • ALL’s balance sheet remained robust, with gearing (net (cash)/debt to EBITDA) further reduced to (0.3x), and more than $3.3bn of liquidity available as of 31 March 2022.
  • The Board declared an interim fully franked dividend of 26.0cps (A$173.7m).

Company Description

Aristocrat Leisure Ltd (ASX: ALL) manufactures and sells gaming machines in Australia and globally, to casinos, clubs and hotels. In addition, ALL provides complementary products and services such as gaming systems and software, table gaming equipment and other related products.

(Source: Banyantree)

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.

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.