In today’s briefing:
- Venture Corporation – A Dialogue from the Past Might Give Some Insight on the Future
- TSMC Analyst Call Take-Aways: Signs of Industry Stabilization & 2H23E Recovery
- China Power International (2380 HK): A Look into the Positive Profit Alert
- Stellantis: Can It Double?
- AvidXchange: How Mid-Market Can Save Money. Attractive Valuation and Low-Risk Entry Point
- British American Tobacco: Attractive Return Potential, 6%+ Yield Likely To Sustain
- Small Cap Idea: Diversey Holdings (DSEY)
- Weekly Liquidity Risk Short Candidates: Natera, Silk Road Med, Floor & Decor Hldgs
Venture Corporation – A Dialogue from the Past Might Give Some Insight on the Future
- After a gap of over fifteen years from formal coverage of Venture Corp (VMS SP), I took a look again this week, not much seems to have changed.
- Venture Corp’s management hankering for “charm” in its contracts, with respect to NOT just return on investment but also return on effort will be the primary risk for growth
- Excellent anchor customers have boosted margins. The tech slowdown might entice larger EMS to be more aggressive and chase these businesses placing margins at risk.
TSMC Analyst Call Take-Aways: Signs of Industry Stabilization & 2H23E Recovery
- TSMC’s comments during its 4Q22 analyst call indicate the company expects an industry recovery in 2H23E, adding further confirmation to this view expressed by other firms.
- TSMC grew faster than the industry in 2022 and expects to grow faster than the industry in 2023E again.
- Based on our cycle-adjusted PE valuation metric, TSMC my not be super cheap vs. history, but it is also inexpensive.
China Power International (2380 HK): A Look into the Positive Profit Alert
- China Power International (2380 HK) announced positive profit alert for FY22 at Rmb2.3-2.7bn, vs. Rmb516m losses in FY21. Such guidances are 14-34% ahead of current consensus forecasts.
- Disposal and acquisition gains of Rmb2.15bn are the main contributors. As we see further clean energy injections and coal-fired disposals going forward, there is room for more such gains.
- Losses for core operations are Rmb300-700m in 2H22, a huge 73.5% YoY reduction. We will not read too much into HoH profitability retreat as this is due to hydropower seasonality.
Stellantis: Can It Double?
- The equity story lies with a strong execution, further synergies, cost-cutting, a strong BEV ramp-up, and diverse leading brands
- Strong operating and financial performance since IPO. Net cash >€ 20bn as of end-2022e, >€ 30bn from 2024e
- Trades on very attractive multiples. We believe that the Company’s intrinsic value is well above the current share price.
AvidXchange: How Mid-Market Can Save Money. Attractive Valuation and Low-Risk Entry Point
- AvidXchange is one of the leading providers of AP automation software and payment solutions for mid-market businesses and their suppliers. The company was founded in 2000 in the United States.
- With a large $20B+ TAM and valuation at ~5x FY23 revenue estimate of $392M – significantly below the average for software and payment peers – we believe shares are undervalued.
- Management raised the FY22 revenue outlook and expected a strong FY23. AvidXchange is two years from GAAP profitability, likely making the stock volatile in the coming years.
British American Tobacco: Attractive Return Potential, 6%+ Yield Likely To Sustain
- British American Tobacco’s stock could reach $45 per share.
- The firm’s dividend policy means a dividend yield of 6%+ is likely to sustain.
- The organization’s non-combustible products segment is skyrocketing and makes up approximately 15% of the company’s revenue mix, consequently providing valuable economies of scope.
Small Cap Idea: Diversey Holdings (DSEY)
- Diversey Holdings is a provider of cleaning and hygiene products in the hospitality, healthcare, food and beverage, food service, retail, and facility management sectors.
- Their suite of solutions combines patented chemicals, dosing and dispensing equipment, cleaning machines, and services.
- Headquartered in the US, Diversey is a multinational serving more than 85,000 customers in over 80 countries with a network of 8,500 employees.
Weekly Liquidity Risk Short Candidates: Natera, Silk Road Med, Floor & Decor Hldgs
- Liquidity shorts can be great short candidates. The key characteristic is that the company may not be viable, economically, given their cash flows and cash requirements.
- Liquidity shorts have built-in catalysts, have moderate to higher betas, and can have strong down moves if a crisis develops. They can go bankrupt, pushing the stock price near zero.
- Today we are flagging Natera, Silk Road Med, Floor & Decor Hldgs
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