Tag: US Market

Categories
Global stocks

S&P Global and IHS Markit Are a Collection of Moaty Franchises

Human hand stacking generic coins over a black background with hexagonal golden shapes. Concept of investment management and portfolio diversification. Composite image between a hand photography and a 3D background.

 Key Takeaways

  • S&P Global and IHS Markit are high-margin, largely recurring-revenue businesses that serve a diverse set of customers. IHS Markit has modestly more recurring revenue, which should lead to smoother earnings for the combined business.
  • S&P Global and IHS Markit have seen meaningful operating margin expansion over the past five years. S&P Ratings, the firm’s largest segment, has seen strong revenue growth and has expanded adjusted operating margins to 62% in 2020 from 50% in 2016 driven by robust issuance and pricing.
  • Following the merger, S&P Global and IHS Markit’s transportation and consolidated markets and solutions segments will continue to be stand-alone segments. Financial information and services will be created from S&P Market Intelligence and IHS Markit Financial Services (excluding indices), commodities and energy will be created from S&P Platts and IHS Markit Resources, and Indices will be created from S&P Dow Jones Indices and Markit Indices.
  • We expect S&P Global to achieve its $480 million expense synergy target. While we acknowledge some potential upside to this target, at a certain point the margin expansion implied by additional cost synergies would become unrealistic. Furthermore, S&P Global’s expense synergy targets are on top of existing expense efficiency programs.
  • S&P Global expects $350 million in revenue synergies within five years, though thus far it has given only limited detail on this. In Exhibit 1, we provide a list of where we think those revenue synergies may lie.
  • Rather than use the cross-sell versus new product framework, we instead categorize potential revenue synergies based on the segment and then identify vectors of where revenue synergies may be achieved. We expect the majority of revenue synergies to be in the financial information and services segment; to achieve its targeted synergies, we estimate the segment would need to grow 1.3% faster than it would have on its own. We view this as reasonable and could envision upside to this scenario.
  • While synergies are important, we believe investors should not overly concentrate on them. Other factors may have a greater impact in determining earnings, such as bond issuance volume. In addition, it can be difficult to precisely measure revenue synergies, given product bundling and other factors.

(Source: Morningstar)

Disclaimer

General Advice Warning

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

Categories
Dividend Stocks Shares

Abbott Laboratories Reduces Outlook for Pandemic-Related Diagnostics

We’d already seen a foreshadowing of softening demand for COVID-19 diagnostic tests as reference labs LabCorp and Quest Diagnostics had indicated that SARS-CoV-2 testing volume peaked in mid-December and then steadily declined through to the end of the first quarter. Considering the penetration of COVID-19 vaccination in the United States and a falling caseload in the last couple of months, we anticipate further decreases in PCR testing through the rest of this year at the labs.

The big question is to what degree demand for COVID-19 PCR testing could shift to the point-of-care, rapid antigen tests that Abbott has supplied. The U.S. government made bulk purchases of those antigen tests last year, and the test recently became widely available over the counter. However, gains in vaccinating adults and now teens in the U.S. are taking place quickly, reducing the need for rapid antigen tests. Abbott now expects $4 billion-$4.5 billion in

COVID-19 test sales in 2021 (down from the $6.5 billion it expected earlier this year), which is closer to our $4.5 billion estimate. We continue to project the diagnostics segment to decline 7% in 2022, driven by falling demand for COVID-19 tests.

Company Profile

Abbott manufactures and markets medical devices, adult and pediatric nutritional products, diagnostic equipment and testing kits, and branded generic drugs. Products include pacemakers, implantable cardioverter defibrillators, neuromodulation devices, coronary stents, catheters, and infant formula, nutritional liquids for adults, and immunoassays and point-of-care diagnostic equipment. Abbott derives approximately 60% of sales outside the United States.

General Advice Warning

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

Categories
Dividend Stocks Expert Insights Shares

Bank of Nova Scotia Revenue Growth

Its domestic operations are more concentrated in mortgages and auto lending, with leading market share in autos. The bank has been expanding its domestic wealth operations significantly with its acquisitions of MD Financial and Jarislowsky Fraser, making it the third-largest active manager in Canada. The bank has also been making multiple acquisitions in its Latin America footprint as it attempts to consolidate better share within the area.

The international exposure gives the bank the potential for higher growth and return opportunities compared with peers, but it also exposes the bank to more risks. While Latin America has been more stable in the past decade, there are risks that this may not continue. A return to political instability, higher credit losses, and inflation arguably all have higher likelihoods in these emerging markets than for Canada. The unique risks surrounding Latin America’s bounce back from COVID-19 are also worth considering.

After numerous acquisitions, the bank is in the middle of rationalizing its many back-end systems and improving efficiency bankwide. The bank’s original goal was to have an efficiency ratio of 50% by the end of 2021; however, we think this will be delayed, given the less positive economic backdrop caused by COVID-19. We like the bank’s digital efforts. While all banks in Canada are engaged in similar ongoing investments, Scotiabank has been spending the most on its technology and communication expenses. We think these efforts will ultimately pay off in the form of improved operating efficiency, customer engagement, and internal sales coordination. This leads us to believe that returns on tangible equity near 15% are sustainable over the longer term for the bank.

Bank of Nova Scotia is a global financial services provider. The bank has five business segments: Canadian banking, international banking, global wealth management, global banking and markets, and other. It offers a range of advice, products, and services, including personal and commercial banking, wealth management and private banking, corporate and investment banking, and capital markets. The bank’s international operations span numerous countries and are more concentrated in Central and South America.

General Advice Warning

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

Categories
Funds Funds

BlackRock Global Funds – Asian Growth Leaders Fund A2 USD

The strategy is comanaged by Emily Dong and Stephen Andrews. Dong has been on the roster since the strategy’s 2012 inception alongside previous comanager Andrew Swan, who unexpectedly left the firm and was replaced by Andrews in April 2020. Andrews has 23 years of industry experience, albeit mostly on the sell-side prior to joining BlackRock in 2017. His first portfolio management stint came in April 2018 and his limited portfolio management experience was apparent during our meetings. Dong, who has 18 years of investment experience and 11 years of firm tenure, brings some continuity amid the team change. That said, while she has contributed to the strategy’s solid track record in the past, the views she provided during our meetings have tended to be undifferentiated and we have yet to build conviction on the collaboration between the comanagers.

Our confidence is further dampened by the ongoing instability within the 36-member investment team, which has notably lost several senior portfolio managers and country experts in recent years. The strategy continues to follow a style agnostic approach that combines top-down and bottom-up research, with the aim of outperforming in different market environments. After determining which style factors or sectors to rotate into, the comanagers leverage the fundamental analysts to build a concentrated 30- to 60-stock portfolio.

This is an index-agnostic and high-conviction offering compared with the team’s core Asian equity mandate BGF Asian Dragon, and management has used the flexibility to make drastic short-term position changes to reflect the team’s top ideas. While the approach is reasonable, it depends much on the managers’ intuition and experience in navigating the market, and we are sceptical of the comanagers’ ability to execute the strategy and add value on a consistent basis. Overall, the strategy does not stand out as an attractive option for investors looking for Asia ex Japan equity exposure.

General Advice Warning

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

Categories
Funds Funds

Candriam Equities L Biotechnology Class L USD Cap

Rudi van den Eynde is among the most seasoned investors in the biotechnology sector. His track record on Candriam Equities L Biotechnology spans over more than two decades. He navigated the fund through periods where biotechnology stocks were unpopular and when they became red-hot. His experience in assessing innovations and market potential is invaluable to the fund.

He receives support from a dedicated and growing cast. Comanager Servaas Michielssens started as analyst in 2016 and assumed portfolio manager responsibilities in 2019. Further support comes from three recently hired analysts and a diverse group of external advisors and industry experts.

While we welcome the additional resources given the complexity and growing number of listed biotechnology companies, we also note that team dynamics changed and the effectiveness of the new members is unproven. Keyperson risk remains high in our view, while their workload is considerable–managing two other strategies that have some overlap. The process rests on a solid foundation of thorough research of clinical data. It is well structured and effectively balances the significant opportunities offered by the industry with the binary outcomes of many biotech ventures and the associated volatility of their stock price.

The managers run the fund with a cautious mindset, diversifying the portfolio over a range of disease types, market caps, and clinical trial stages. Although liquidity is not a concern, the substantial rise in assets for this fund and the oncology fund, which have 36 holdings in common per April 2021, needs to be monitored. Candriam would consider soft-closing the biotechnology fund when combined assets reach USD 5 billion, which leaves about 20% of spare capacity.

Despite uninspiring performance over the recent 18-month period, the strategy’s track record remains compelling over longer horizons. The fund’s R USD Cap share class has beaten both the category average and Nasdaq Biotechnology Index over various periods.

General Advice Warning

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

Categories
Shares Technology Stocks

Delphi Technologies largest product group is Fuel injector technology

× Fuel injector technology is currently Delphi’s largest product group. This represents a risk as manufacturers switch to smaller engines with fewer cylinders.

× Even so, the growth potential for Delphi’s electric and electronic powertrain products is substantial and represents margin expansion potential from software-based applications. We think Delphi revenue will grow at 1-3 percentage points above our long-term forecast for global light vehicle demand.

× We assume a 15.5% normalized sustainable midcycle EBITDA margin, 160 basis points below 17.1% historical 10-year high but 50 basis points above the 10-year median owing to more favorable product mix.

× To force our DCF model’s fair value to equal the $22 consensus price target, investors would have to believe a 10.0% midcycle EBITDA margin. To reach the market price, the midcycle EBITDA margin would have to be 8.7%, 80 basis points less than the 10-year historical low.

Delphi Technologies, a spinoff from Delphi Automotive, provides advanced vehicle propulsion solutions through combustion systems, electrification products and software and controls for global automotive, commercial vehicle and aftermarket customers.

DLPH Stock Summary

  • The capital turnover (annual revenue relative to shareholder’s equity) for DLPH is 27.74 — better than 98.99% of US stocks.
  • DLPH’s went public 2.83 years ago; making it older than merely 8.53% of listed US stocks we’re tracking.
  • Equity multiplier, or assets relative to shareholders’ equity, comes in at 14.76 for Delphi Technologies PLC; that’s greater than it is for 97.12% of US stocks.

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.