Independent research on the U.S. markets, Baptista Research

Baptista Research

Independent research on the U.S. markets

Baptista Research is an independent financial research house focused on the U.S. markets. We provide equity research as well as credit research reports on the top-listed U.S. companies with most of our focus on technology, consumer goods and services, automobiles, industrials, oil and gas, pharma, and healthcare. Our research has served more than 3000 institutional investors including mutual funds, hedge funds, banks, family offices, and various buy-side firms. We operate a research subscription service where institutions, as well as retail investors, can have priority access to all our research. We also have a wide distribution of our research reports across some of the top global financial platforms. Apart from equity research and credit research, we also provide advisory services with respect to mergers & acquisitions (M&A), private equity/ venture capital fundraising, valuation reports, and investment management services for corporates.
Baptista Research is owned and managed by Ishan Majumdar, an ex-Venture Capitalist/ Investment Banker, a Chartered Accountant, and a Masters’ degree holder in Management from HEC Paris. Ishan has nearly a decade of experience in Mergers and Acquisitions, Leveraged Buyouts (LBOs), Venture Capital Investing, Corporate Strategy, and Valuation in front-office roles at the likes of BNP Paribas CIB, Credit Agricole CIB, Groupe Danone, and TIW Private Equity. He has worked on and closed multiple acquisition deals, leveraged buyouts, and start-up investment transactions.

Credit

<ul><li>NortonLifeLock has had a strong financial performance for the trailing twelve-month period and is benefitting from a strong macro for consumer cybersecurity particularly after the increased use of personal PCs as a result of the pandemic.</li><li>NortonLifeLock demonstrated a broad-based growth profile that reflected diversification across their product portfolio, channels, and geographies.</li><li>Based on our credit analysis, the company merits a Credit Evaluation Score of BBβ with a stable outlook and as per our Financial Strength Indicator, its performance is 3.90/ 5.</li></ul>

NortonLifeLock has had a strong financial performance for the trailing twelve-month period and is benefitting from a strong macro for consumer cybersecurity particularly after the increased use of personal PCs as a result of the pandemic.NortonLifeLock demonstrated a broad-based growth profile that reflected diversification across their product portfolio, channels, and geographies.Based on our credit analysis, the company merits a Credit Evaluation Score of BBβ with a stable outlook and as per our Financial Strength Indicator, its performance is 3.90/ 5.

NortonLifeLock Inc.: Detailed Credit Analysis & Financial Strength Evaluation Report

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<ul>
<li>On 24 February, the Spanish antitrust regulator, the National Markets and Competition Commission (CNMC) approved the proposed merger.</li>
<li>All Regulatory Conditions have now been satisfied, other than approval by the UK's CMA. The deal advances to completion but the Effective Date has been pushed to 4 April 2022.</li>
<li>As of now, the majority cash option ($7.61 + 0.0302 NortonLifeLock shares/Avast share) should be preferred vs. the majority stock option. The spread on the majority cash option is 1.4%.</li>
</ul>


On 24 February, the Spanish antitrust regulator, the National Markets and Competition Commission (CNMC) approved the proposed merger.
All Regulatory Conditions have now been satisfied, other than approval by the UK's CMA. The deal advances to completion but the Effective Date has been pushed to 4 April 2022.
As of now, the majority cash option ($7.61 + 0.0302 NortonLifeLock shares/Avast share) should be preferred vs. the majority stock option. The spread on the majority cash option is 1.4%.


NortonLifeLock/Avast: Deal Progress & Spreads

Equity Capital Markets

<ul><li>Norton LifeLock Inc. has started the 2022 fiscal with a bang after a solid set of results for Q1 despite the unpredictable macro-environment and the transition to a post-pandemic environment in several parts of the world.</li><li>The company has shown significant growth of 12% and 13% in their bookings and revenue, respectively, and EPS grew by 35%.</li><li>Its direct customer count has already grown more than 150,000 sequentially, and if we include Avira, it crossed 2.5 million customers year-over-year, bringing its total direct customer count to 23.1 million in Q1.</li></ul>

Norton LifeLock Inc. has started the 2022 fiscal with a bang after a solid set of results for Q1 despite the unpredictable macro-environment and the transition to a post-pandemic environment in several parts of the world.The company has shown significant growth of 12% and 13% in their bookings and revenue, respectively, and EPS grew by 35%.Its direct customer count has already grown more than 150,000 sequentially, and if we include Avira, it crossed 2.5 million customers year-over-year, bringing its total direct customer count to 23.1 million in Q1.

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Further to the announcements made by <a href="https://www.smartkarma.com/entities/nortonlifelock-inc" target="_blank" data-smartkarma-citation="entities:18211:1" rel="noopener">NortonLifeLock (NLOK US)</a> and <a href="https://www.smartkarma.com/entities/avast-plc" target="_blank" data-smartkarma-citation="entities:33815:1" rel="noopener">Avast PLC (AVST LN)</a> on 14 July 2021, the boards of both companies announced on 10 August that their agreement on the T&amp;Cs of a recommended merger by means of a Court-sanctioned scheme of arrangement.
NortonLifeLock Inc. will pay $7.61/share in cash + 0.0302 NLOK US for each outstanding share of Avast Plc. (majority cash option), by default. Alternatively, there's a "majority stock option" made up of $2.37in cash and 0.1937 NortonLifeLock shares. Avast shareholders will also receive a $0.048 interim dividend (declared in August 2021, payable in October).
NortonLifeLock wants to grow in a business on the rise such as cybersecurity due to the increase in computer attacks, including high-profile breaches affecting both consumers and businesses. Cost synergies of $280m are anticipated to be realised by the end of Year 3 post-completion at a one-time cost of $280m, equal to 15-20% of combined costs.
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Avast investors have the choice of a "majority cash option" made up of $7.61/549p in cash and 0.0302 of NortonLifeLock shares (worth 59p at 13 July's share price of $27.40 prior to the offer period commencing). Alternatively, investors may take a "majority stock option" made up of $2.37/171p in cash and 0.1937 NortonLifeLock shares (worth 380p at 13 July's share price). The majority cash option was worth 608p on 13 July, a 21% premium to Avast's closing price on 13 July, while the majority stock option was worth 551p on 13 July, a 9% premium. Avast shareholders will also receive a $0.048 interim dividend in August 2021 and a $0.112 dividend in respect of FY21 if the deal does not complete by 1 March 2022 and a further $0.048 if the deal is not effective before 11 August 2022.
<div>
Deal value per share (majority cash option) is $8.4459 at the closing of 12 August, broken down as follows:
<ul>
<li>$7.61, cash component</li>
<li>$0.7879, 0.302/shares of NortonLifeLock</li>
<li>$0.048, from the dividend</li>
</ul>
Vs. a closing price per Avast share of $8.17 (591p at FX 1.3824), gross spread is c. 3.7%, roughly 6.5% annualized, although you will get the dividend prior to deal closing, in October. There is FX risk, which can be hedged.
At the current levels, I recommend going long AVST LN. Spread is already interesting. Upside risk could come from a counterbid, at levels close to my estimate of fair value, 668p (blended average of mean implied comps of EV/Fwd EBITDA and Fwd P/E). A 13% upside to current levels.


</div>
</div>
</div>


Further to the announcements made by NortonLifeLock (NLOK US) and Avast PLC (AVST LN) on 14 July 2021, the boards of both companies announced on 10 August that their agreement on the T&amp;Cs of a recommended merger by means of a Court-sanctioned scheme of arrangement.
NortonLifeLock Inc. will pay $7.61/share in cash + 0.0302 NLOK US for each outstanding share of Avast Plc. (majority cash option), by default. Alternatively, there's a "majority stock option" made up of $2.37in cash and 0.1937 NortonLifeLock shares. Avast shareholders will also receive a $0.048 interim dividend (declared in August 2021, payable in October).
NortonLifeLock wants to grow in a business on the rise such as cybersecurity due to the increase in computer attacks, including high-profile breaches affecting both consumers and businesses. Cost synergies of $280m are anticipated to be realised by the end of Year 3 post-completion at a one-time cost of $280m, equal to 15-20% of combined costs.



Avast investors have the choice of a "majority cash option" made up of $7.61/549p in cash and 0.0302 of NortonLifeLock shares (worth 59p at 13 July's share price of $27.40 prior to the offer period commencing). Alternatively, investors may take a "majority stock option" made up of $2.37/171p in cash and 0.1937 NortonLifeLock shares (worth 380p at 13 July's share price). The majority cash option was worth 608p on 13 July, a 21% premium to Avast's closing price on 13 July, while the majority stock option was worth 551p on 13 July, a 9% premium. Avast shareholders will also receive a $0.048 interim dividend in August 2021 and a $0.112 dividend in respect of FY21 if the deal does not complete by 1 March 2022 and a further $0.048 if the deal is not effective before 11 August 2022.

Deal value per share (majority cash option) is $8.4459 at the closing of 12 August, broken down as follows:

$7.61, cash component
$0.7879, 0.302/shares of NortonLifeLock
$0.048, from the dividend

Vs. a closing price per Avast share of $8.17 (591p at FX 1.3824), gross spread is c. 3.7%, roughly 6.5% annualized, although you will get the dividend prior to deal closing, in October. There is FX risk, which can be hedged.
At the current levels, I recommend going long AVST LN. Spread is already interesting. Upside risk could come from a counterbid, at levels close to my estimate of fair value, 668p (blended average of mean implied comps of EV/Fwd EBITDA and Fwd P/E). A 13% upside to current levels.






NortonLifeLock/Avast: Merger Terms and Spread

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Quantitative Analysis

As Software companies look to become the key beneficiaries of a post-COVID world, we analyse allocations among active Global managers.  We find that holdings in Software companies have risen dramatically over the last 5-years, and have accelerated further through 2020. Over the last few months, Software has become the largest industry allocation among active global managers, surpassing Pharmaceuticals and Banks along the way.  Microsoft is the key holding and continues to attract new investment from the active funds in our analysis, though managers have also been raising stakes in the second tier, led by Salesforce, Intuit and Adobe.Taken from Copley's Global Research, comprising 405 Global equity funds, with combined AUM of $760bn.

As Software companies look to become the key beneficiaries of a post-COVID world, we analyse allocations among active Global managers.  We find that holdings in Software companies have risen dramatically over the last 5-years, and have accelerated further through 2020. Over the last few months, Software has become the largest industry allocation among active global managers, surpassing Pharmaceuticals and Banks along the way.  Microsoft is the key holding and continues to attract new investment from the active funds in our analysis, though managers have also been raising stakes in the second tier, led by Salesforce, Intuit and Adobe.Taken from Copley's Global Research, comprising 405 Global equity funds, with combined AUM of $760bn.

Global Active Equity:  Managers Ramp up Software Holdings

United States

NortonLifeLock Inc. provides consumer cyber security solutions. The Company offers solutions which enables consumers to protect their devices, online privacy, identity, and home networks. NortonLifeLock serves customers worldwide.

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NortonLifeLock (NLOK US)

NortonLifeLock Inc.: Detailed Credit Analysis & Financial Strength Evaluation Report

NortonLifeLock has had a strong financial performance for the trailing twelve-month period and is benefitting from a strong macro for consumer...

Baptista Research

NortonLifeLock/Avast: Deal Progress & Spreads

The deal advances towards completion. All Regulatory Conditions have now been satisfied, other than approval (or the completion of review...

Jesus Rodriguez Aguilar

Norton LifeLock Inc. - Investment Thesis

Norton LifeLock Inc. has started the 2022 fiscal with a bang after a solid set of results for Q1 despite the unpredictable macro-environment and...

Baptista Research

NortonLifeLock/Avast: Merger Terms and Spread

At the current levels, I recommend going long AVST LN. Gross spread is 3.7%. Upside risk could come from a counterbid, at levels close to my...

Jesus Rodriguez Aguilar

Global Active Equity: Managers Ramp up Software Holdings

As Software companies look to become the key beneficiaries of a post-COVID world, we analyse allocations among active Global managers. We find...

Steven Holden

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