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Commodities Trading Ideas & Charts

Consolidated Edison Reports Weak Q2 Due to Adverse Weather Events but Reaffirms Earnings Guidance

Adjusted EPS in the recently ended quarter were $0.53 versus $0.60 in the same period last year. Earnings in the second quarter were negatively impacted by several heat waves in June. Con Ed mobilizes crews in anticipation of weather events, resulting in significant extra costs even when the weather events end up not being as serious as anticipated.

Our 2021 adjusted EPS estimate of $4.25 is unchanged and at the midpoint of management’s $4.15-$4.35 EPS guidance range. Management increased its 2023 rate base guidance by $135 million due to the approval of a new transmission line. The increase in projected rate base would result in about a $0.01 increase in our 2023 EPS estimate but would not have a material impact on our fair value estimate.

Con Ed’s regulatory allowed returns are lower than industry average, but the overall regulatory rate structures in New York remain constructive. Multi-year rate cases provide forward-looking estimates of capital expenditures and rate base, swallowing Consolidated Edison Company of New York, Con Ed’s largest subsidiary, to consistently earn near or above its 8.8% allowed return on equity.

Company Profile 

Con Ed is a holding company for Consolidated Edison Company of New York, or CECONY, and Orange & Rockland, or O&R. These utilities provide steam, natural gas, and electricity to customers in southeastern New York–including New York City–and small parts of New Jersey. The two utilities generate roughly 90% of Con Ed’s earnings. The other 10% of earnings comes from investments in renewable energy projects and gas and electric transmission. These investments have resulted in Con Ed becoming the second-largest owner of utility-scale PV solar capacity in the U.S.

(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.

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Currencies Trading Ideas & Charts

Coinbase Global Benefits from more Interest and Adoption of Cryptocurrency, but the Future Remains Unknown

Golden bitcoins. Cryptocurrency on computer motherboard.

The company’s reputation, regulatory compliance, and track record as a custodian have allowed it to maintain transaction fees above many of its peers despite operating in a crowded field with hundreds of competing firms trying to grab market share in the rapidly growing space. Coinbase has continued to branch off into adjacent businesses offering cryptocurrency collateralized loans, a crypto debit card, blockchain infrastructure support, and data analytics services.

While these new businesses expand the company’s presence in the cryptocurrency space and add new revenue streams, the company still earns the majority of its income through the transaction fees traders pay when they trade on Coinbase’s platform. These fees are charged as a percentage of trade’s total value. Due to its breadth of its service offerings and the connection between cryptocurrency prices and trading revenue, Coinbase’s short- and long-term results are deeply tied to the health and growth of cryptocurrencies as an asset class. 

Cryptocurrency adoption continues to rise but questions regarding the long-term viability of cryptocurrency, the role of speculation in current market prices, and the potential for a more hostile regulatory environment remain unanswered.

Financial Strength 

Coinbase is in an excellent financial position, particularly after receiving an influx of capital from private-investment- in-public-equity investors coinciding with its direct listing on the Nasdaq exchange. Coinbase saw a spike in trading volume in the first quarter of 2021, leading the company to generate more net income in the first quarter of the year than in the entirety of 2020. As a result, the company ended March 2021 with nearly $2 billion in cash against only $500 million in borrowed crypto assets. Since March, Coinbase has issued $1.25 in convertible debt due in 2026, adding to both its liquidity reserves and its debt load. The decision to keep Coinbase largely free of debt makes sense given how volatile the company’s revenue generation can be. Coinbase needs to keep sufficient financial reserves to sustain itself in the event of a major market collapse.

No-moat Coinbase reported strong second-quarter results with earnings of $6.42 per share and net revenue of $2.23 billion coming in above our expectations. Earnings benefited from a tax benefit of $737 million as a result of tax deductions associated with the company’s direct listing. Strong cryptocurrency prices during the quarter drove total trading volume to a new all-time high of $462 billion, 38% more than last quarter. Coinbase added 29 new cryptocurrencies to be traded on its platform and now lists 83 different offerings. Coinbase continues to increase spending with operating expenses increasing 66% from last quarter and 838% year over year. As a result of the sharp sequential increase in operating expenses the company’s operating margin fell from roughly 55% in the first quarter to 39% in the current quarter.

The two largest drivers of this decline were technology and development spending, which increased 58%, sequentially and marketing spending, which increased 66%. Historically, Coinbase has kept marketing spending at 10% or less of sales, as it relied more heavily on word of mouth than on advertising to grow. The company is now guiding marketing expenses to be around 12%-15% of sales during 2021. Average retail trading fees increased from 1.21% in the first quarter to 1.26% in the second quarter, due to a mix shift away from the company’s less expensive Coinbase Pro platform. 

Bulls Say’s

  • Coinbase has established itself as the leading U.S.cryptocurrency exchange and established a strong reputation for security in an industry filled with risk for traders.
  • Coinbase has been able to accelerate the rate at which it lists new cryptocurrencies, giving the company more exposure to the growth of the asset class.
  • There is a global market for cryptocurrency. Regulatory approval from international regulators will allow Coinbase to expand its operations and increase its footprint globally.

Company Profile 

Founded in 2012, Coinbase is the leading cryptocurrency exchange platform in the United States. The company intends to be the safe and regulation-compliant point of entry for retail investors and institutions into the cryptocurrency economy. Users can establish an account directly with the firm, instead of using an intermediary, and many choose to allow Coinbase to act as a custodian for their cryptocurrency, giving the company breadth beyond that of a traditional financial exchange. While the company still generates the majority of its revenue from transaction fees charged to its retail customers, Coinbase uses internal investment and acquisitions to expand into adjacent businesses, such as prime brokerage, data analytics, and collateralized lending.

(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.

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Technology Stocks

Marvell Technology Inc. (NASDAQ: MRVL) Maintains FVE $40 & Aiming to take the Cloud and 5G Markets

The concept of 5G network with magnifying glass on modern circuit board, high-speed mobile internet and new generation networks technology background

Marvell is the leader in DPUs and PAM-4 optics, and the clear second in the enterprise and cloud Ethernet markets. Marvell’s recent financial history has been choppy, as result of CEO Matt Murphy’s aggressive overhaul of the business’ focus. Marvell has emerged as a strong competitor in the networking chip market, following a multiyear business pivot to acquisitions, divestitures, and organic development to focus on high-growth cloud, 5G, and automotive markets.

Between data processing units, or DPUs, optical interconnect, and Ethernet solutions, Marvell has one of the broadest networking silicon portfolios in the world, and we think it is primed to steal market share from incumbent Broadcom with bleeding-edge technology. Marvell has the right portfolio to invest aggressively in organic growth going forward, but don’t rule out further acquisitions to bolster its competitiveness and enter adjacent markets.

Company’s Future outlook
Marvell’s 2021 acquisitions of In phi and Innovium will give it a path to robust and sustained top-line growth in the cloud market and expect significant margin expansion over our 10-year forecast even as it invests to compete with larger rivals. Nevertheless, the market is assuming nearly immediate operating synergies from these two acquisitions, which take some time and the shares are significantly overvalued at this point and caution investors to await a greater margin of safety. The reorganization is squarely in the firm’s rearview mirror now, and forecast mid-teens sales growth and immense margin expansion over the next 10 years. The combination of 2021 acquisitions In phi and Innovium under Marvell’s umbrella will create a dangerous combination to Broadcom in the high-performance switching arena and enable share gains.

Company Profile
Marvell Technology Inc. (NASDAQ: MRVL) is a leading fables chipmaker focused on networking and storage applications. Marvell serves the data center, carrier, enterprise, automotive, and consumer end markets with processors, optical interconnections, application-specific integrated circuits (ASICs), and merchant silicon for Ethernet applications. The firm is an active acquirer, with five large acquisitions since 2017 helping it pivot out of legacy consumer applications to focus on the cloud and 5G markets.

(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.

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Commodities Trading Ideas & Charts

Hess Corporation (NYSE: HES) Fair Value Up to $72 after Commodity Price Refresh

It is now assumed that oil (West Texas Intermediate) prices in 2021 and 2022 will average $57 per barrel and $67/bbl respectively (previously $55 and $57). That makes the stock look more or less fairly valued at the current price.

At the end of 2020, the company reported net proved reserves of 1.2 billion barrels of oil equivalent. Net production averaged 323 thousand barrels of oil equivalent per day in 2020, at a ratio of 70% oil and natural gas liquids and 30% natural gas.

The valuation of the firm’s Guyana assets continues to assume 10 total phases of development, consistent with management commentary. However, we risk the sixth and seventh phases at 75% and the final three at 50% in our base case. Likewise, 220 mb/d capacities for stages 4 and 5, with 180 mb/d peak output for developments 6-10. To give some indication of the upside if Hess and its partner Exxon can continue to execute and deliver the full 10 phases, we also model a scenario with no risk on the later-stage developments, and assume 220 mb/d capacities throughout. In that scenario fair value would be $89 per share.

Company Profile

Hess Corporation (NYSE: HES) is an independent oil and gas producer with key assets in the Bakken Shale, Guyana, the Gulf of Mexico, and Southeast Asia. Hess Corporation is a mining and exploration firm. The Company is involved in the exploration, development, production, transportation, procurement, and sale of crude oil, natural gas liquids (NGL), and natural gas, with operations in the United States, Guyana, the Malaysia/Thailand Joint Development Area, Malaysia, and Denmark. Exploration and Production and Midstream are the Company’s segments. It’s Exploration and Production sector searches for, develops, produces, buys, and sells crude oil, natural gas, and NGLs. The Midstream business provides fee-based services such as crude oil and natural gas gathering, natural gas processing and fractionation of NGLs, crude oil transportation by rail car, terminating and loading crude oil and NGLs.

(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.

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Funds Funds

Vanguard High Yield Australian Shares

Vanguard Australian Shares High Yield is a compelling and efficient option. The cost-value balance of the strategy is a solid strength. At 0.35% per year, it is currently one of the cheapest unlisted products offering domestic high-yield equity exposure. Vanguard aims to own every stock in the FTSE Australia High Dividend Yield Index, an index Vanguard has exclusive rights to replicate. Vanguard choose to keep the some of the index’s construction rules undisclosed to ward off speculative market participants looking to capitalize on the semiannual index changes before they have been completed within the strategy.

A well-managed, close replication of the FTSE Australia High Dividend Index

Vanguard Australian Shares High Yield replicates the FTSE Australia High Dividend Index, offering investors an above-average yield in a passive, tax-efficient vehicle. The benchmark leans toward the highest-dividend payers, excluding property trusts. The index provider ranks all dividend-paying stocks based on their dividend yield forecast for the next year and constructs the index using stocks that make up the top 50% of the float-adjusted market capitalization. Industries are capped at 40% and individual stocks at 10%. The index is rebalanced semiannually, and in 2018, it changed its rules around buying and selling so that stocks are added or removed more gradually.

This should increase the portfolio to around 55 names from 45 and reduce stock turnover, though it will likely remain higher than market-cap-weighted index funds. Vanguard’s global presence allows the Australian team to leverage the U.S. team’s extensive index-tracking experience. It is worth noting the risk of dividend traps may be exacerbated in a portfolio that has an automated bias to high dividend-payers. The index attempts to minimize this risk primarily through sector and stock caps that enforce a minimum level of diversification by incorporating consensus yield forecasts and by excluding companies not forecast to pay dividends in the next 12 months.

A top-heavy portfolio with large sector and company biases

The biggest sector exposure is financial services, at around 39%-40% of the portfolio. The fund’s exposure to materials has historically been volatile. Following dividend cuts in the sector, exposure dropped to 4% in 2016 from 20%. However, a fall in Rio Tinto’s share price and corresponding increase in yield saw the stock return to the portfolio in June 2017, increasing the fund’s exposure to the sector to 21%. That came at the expense of industrials exposure, which fell to zero. As of 30 June 2021, materials exposure was at 23%. 

Mixed results over the long term

Vanguard has fared relatively well over the long term, but short- and medium-term results have been a drag. Moreover, the annual return track of the strategy is visibly inconsistent as compared with its category index. In 2012 and 2013, the strategy delivered 24.5% and 26.5%, respectively–incredible relative and absolute returns. But investors should be cautiously optimistic about a repeat of such performance as the fund delivered equally subdued relative performance in 2014, followed by a 4.22% decline in 2015 and category benchmark relative underperformance of negative 1.2% in 2016.

Source: Morning star

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
LICs LICs

Mirrabooka Investments Maintains Its Final Dividend & Declares A Special Dividend

They need an advice. Young married couple talking while sitting on the therapy session with psychologist

Mirrabooka Investments Ltd (ASX: MIR) declared a final dividend of 6.5 cents per share, fully franked, for FY21, in line with the preceding final dividend.

In addition to the final dividend, the company declared a special dividend of 2 cents per share, fully franked, bringing the total dividends for FY21 to 12 cents per share.

The full dividend (final and special) will be collected from capital gains on which the Company is or will be taxed. 

The pre-tax attributable gain (“LIC capital gain”) associated with the dividend is 12.14 cents.

The dividend will trade ex-dividend on July 28, 2021, and will be paid on August 17, 2021.

Mirrabooka Investments Ltd NTA (NET TANGIBLE ASSETS) per share is currently marked at $2.96, dividend yield at 2.40% and PE at 106.92 for the year 2021. 

The current price is $4.16 per share of Mirrabooka investments Ltd.

Company Profile

Mirrabooka Investments Ltd (ASX: MIR) was founded in 1980 by Mr. Robert Mark Freeman and is an Australian based company. Mirrabooka Investments Ltd is a publicly traded investment company that focuses on small and medium-sized businesses in Australia and New Zealand. The company has been in operation since April 1999 and debuted on the ASX on June 28, 2001. Mirrabooka seeks to offer shareholders with medium- to long-term benefits, including strong dividend yields, by making core investments in chosen small and mid-sized businesses. It invests in 50-70 companies outside of the S&P/ASX 50 Leaders Index. 

 (Source: FactSet)

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.

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Technology Stocks

Nvidia’s (NASDAQ NVDA) Revenue Continues To Rise, Despite Concerns about Cryptocurrency Demand

Display of Stock market quotes

The firm had record showings in both gaming and data center segments, but we are concerned with the surge of demand for Nvidia’s gaming GPUs used in cryptocurrency mining (specifically Ethereal), as we view this application as a volatile one that could lead to lower GPU sales if crypto prices trend down.

Nvidia continues to execute well in growing its data center business thanks to its A100 GPU for Artificial Intelligence and networking products from its 2020 Mellanox acquisition. Nvidia is paying a high multiple for ARM’s earnings. The Fair value estimate of Nvidia is $515 per share. First-quarter sales grew 84% year over year to $5.7 billion, with gaming and data center revenue up 106% and 79%, respectively. Data center sales benefitted from the inclusion of Mellanox and continued adoption of Nvidia’s A100 GPUs. Gross margins during the first quarter grew 100 basis points sequentially thanks to a more favorable product mix. Nvidia’s gaming’s GPUs are receiving an artificial boost from crypto mining that could be difficult to sustain.

The chief growth drivers are expected to be gaming; data center, and crypto mining processors, or CMPs. CMPs are optimized for crypto mining power efficiency and will provide Nvidia’s management some visibility into the contribution of crypto mining to total revenue.

Company’s Future Outlook
We estimate crypto mining related demand contributed around $400 million to $500 million in GPU sales during the quarter. It is expected that the firm’s automotive segment to resume growth in the coming years as its autonomous solutions are adopted and its legacy infotainment business is ramped down. Specifically, Nvidia’s automotive design win pipeline exceeds $8 billion through fiscal 2027. Management expects second-quarter sales to be at a midpoint of $6.3 billion, which implies 63% year-over-year growth and was also ahead of our estimates. For the second quarter, CMP sales are expected to be $400 million. Nvidia’s channel inventories remain lean, and management expects the firm to be supply constrained into the second half of the year. While we anticipate strong growth for Nvidia in the coming quarters, we remain vigilant of signs of weaker crypto-mining demand for its GPUs should crypto prices fall.

Company Profile
Nvidia Corporation (NASDAQ: NVDA) is the leading designer of graphics processing units that enhance the experience on computing platforms. The firm’s chips are used in a variety of end markets, including high-end PCs for gaming, data centers, and automotive infotainment systems. In recent years, the firm has broadened its focus from traditional PC graphics applications such as gaming to more complex and favorable opportunities, including artificial intelligence and autonomous driving, which leverage the high-performance capabilities of the firm’s graphics processing units.

(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

Raising Targa Resources (NYSE: TRGP) FVE for Targa after increasing our G&P volumes to reflect the recovery in 2021

The firm managed through a very difficult 2020 via sharply reduced capital spending, a nearly 90% dividend reduction, and expense cuts. So far in 2021, it has done a good job, reducing debt by nearly $800 million. Targa is by no means particularly conservative on capital spending plans–its initial 2021 growth spending plans were twice our original expectations, as the rest of the midstream space hunkers down. The firm has also hinted that it may spend virtually all its excess cash on rebuying assets from its Stonepeak joint venture in early 2022 at a cost of nearly $1 billion.

LPG exports are largely contracted out to 2022 and sent mainly to Asian and Latin American markets. The Grand Prix NGL pipeline will be a highly attractive asset tha takes advantage of Targa’s position in the Permian Basin to move over 350,000 barrels per day of NGLs by our estimates in 2021 (expandable to 550,000 b/d) to Mont Belvieu, and links Targa assets at both ends of the pipe, giving it more control over the molecule and ability to earn multiple fees. The Grand Prix pipeline will reduce Targa’s costs for NGLs, as it will no longer pay third-party tariffs to transport its NGLs to market.

Financial Strength

After updating our model to reflect Targa’s higher guidance, our fair value estimate increases to $38 per share. Targa’s second-quarter results benefited from higher Permian gas volumes, thanks primarily to higher activity by private operators. As a result, Targa increased its 2021 EBITDA guidance to a midpoint of $1.95 billion from its prior midpoint guidance of $1.85 billion last quarter. The incremental cash is being applied smartly toward debt reduction for the time being, as Targa’s 2021 leverage target falls to 3.5 times from 4 times last quarter. 

Total consolidated debt fell to $7 billion from $7.4 billion sequentially. Year-to-date debt reduction totals $780 million, which is impressive. Targa also announced a new 250-million-cubic-feet-per-day plant in the Permian to be on line in early 2022 while holding 2021 expected capital spending flat. 

Peers tend to be around 75%-85% investment-grade or letter of credit-backed.Total liquidity at the end of the second quarter was $2.9 billion with no major maturities until 2026. Targa is now targeting leverage of 3-4 times as well as an investment-grade rating, which is a marked shift from prior commentary.

 Leverage now stands at 3.8 times at the end of the second quarter, and Targa expects it to be around 3.5 times by the end of the year, which our current model supports.However, it’s not clear whether Targa can achieve both its new leverage goals and execute its expected repurchase of the joint venture assets from Stonepeak (included in its May presentation), which could take place as early as the first quarter of 2022.

Bulls Say’s 

  • Targa is leveraged to the high-growth Permian, and its Grand Prix pipeline is expected to increase volumes 25% in 2021.
  • Targa has substantial excess cash after its dividends and capital spending plans in 2021 to allocate toward reducing leverage.
  • Targa is a significant fractionation player at the attractive Mont Belvieu hub.

Company Profile

Targa Resources is a midstream firm that primarily operates gathering and processing assets with substantial positions in the Permian, Stack, Scoop, and Bakken plays. It has 813,000 barrels a day of gross fractionation capacity at Mont Belvieu and operates a liquefied petroleum gas export terminal. The Grand Prix natural gas liquids pipeline recently entered full service.

(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

Mineral Resources Ltd (ASX: MIN) Continue To Be Expensive, But There Are Still Pockets Of Value To Be Found.

 Revenue, profit, and market capitalization all grew significantly, but are expected to rely more heavily on lithium production going forward. Management has significantly improved disclosure, earnings streams have been materially diversified and the investment strategy has consistently generated high returns on invested capital. We expect a well-supplied lithium market in the longer term, coupled with weaker demand growth for steel, particularly from China, to drive lower prices and reduce the pool of available contracting work. Despite this, we think Mineral Resources can drive EPS growth on volume.

Key Investment Considerations

Management has significantly improved disclosure, earnings streams have been materially diversified and the investment strategy has consistently generated high returns on invested capital. We think the business model is demonstrably sustainable, centering on Mining Services around Australian bulk commodities. Mineral Resources will selectively own and develop its own mining operations, though with the aim of subsequent sell-down while retaining core processing and screening rights.

Financial Strength

Mineral Resources is in strong financial health. Albemarle’s acquisition of a 60% stake in Wodgina lithium instantly expunged net debt in first-half fiscal 2020.From a net debt position of AUD 872 million at end June 2019. Lithium project construction expenditure was at the core of the cash drain. The current circumstance is a return to the usual territory for Mineral Resources, which operated in a position of little to no net debt for at least the eight years to fiscal 2018; a sensible position for a company operating in the volatile mining services space. Mineral Resources had faced the key question of what it should do with its cash, with a shrinking pool of growth and investment opportunities in a lower iron ore price environment. 

Bull Says

  • Mineral Resources grew strongly since listing in 2006. The chairman and managing director have been with the business for over a decade and have meaningful shareholdings.
  • Australian iron ore is mainly purchased by Chinese steel producers, meaning Mineral Resources offers leveraged exposure to Chinese economic growth.
  • Mineral Resources has a recurring base of revenue and earnings from processing infrastructure.
  • Mineral Resources’ balance sheet is very strong with net cash. This has opened up the opportunity for lithium investments selling into highly receptive markets.

Company Profile

Mineral Resources Ltd. (ASX: MIN) listed on the ASX in 2006 following the merger of three mining services businesses. The subsidiary companies were previously owned by managing director Chris Ellison, who remains a large shareholder despite selling down. Operations include iron ore and lithium mining, iron ore crushing and screening services for third parties, and engineering and construction for mining companies. Mining and contracting activity is focused in Western Australia.

 (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.