VCS Agency

Key Indicators

Source: iress

Company and Market News

Prosus and Naspers are related companies, through crossholdings with each other. Both are listed on the Johannesburg Stock Exchange and Prosus is also listed on the Amsterdam Stock Exchange. Their largest investment is a 28% stake in Tencent – one of China’s biggest technology companies. Tencent has multiple different businesses in entertainment, social media and video gaming. One of their most well-known products is the WeChat platform, that is used for chatting, but also for payments and other services. In 2001, Naspers acquired a 46.5% stake in Tencent for roughly $32 million. Today, that investment is worth approximately $95bn. An incredible investment.

The market however values Naspers and Prosus approximately 36% below the value of their assets less liabilities (Net Asset Value, or NAV). Generally, holding companies trade at a discount to NAV; but not by that high a discount value. This high discount may be due to: the high management fees, complicated crossholdings between Naspers and Prosus, potential risks associated with investing in Chinese companies and the poor performance of Naspers’s and Prosus’s other investments. At the last earnings call, Naspers and Prosus said that they were going to sell small stakes in Tencent so that they could buy back their own shares in an effort to unlock value for their shareholders. Since June this year, Prosus and Naspers have purchased a combined $5.8 bn worth of their own stock.

Naspers, released their H1 2023 results last week. A great amount of focus was put on their ecommerce businesses. Naspers has multiple investments within the classifieds, food delivery, fintech, and education technology spaces. Some of the more noticeable companies in their portfolio include: Takelot, OLX, iFood, PayU and Udemy. The ecommerce space is proving quite tricky for Naspers and Prosus to get right, requiring high levels of investments to build scale and become profitable; and operating in highly competitive environments. In all their ecommerce categories, revenue grew but all recorded trading losses. Last week, the share price for Prosus decreased by 3,35%.

Lunar Capital Weekly Roundup

Source: iress

Lunar Capital on Eastwave Radio

Every Tuesday, at 07h45, Sabir chats with Nazia from Eastwave Radio (92.2 fm, live stream on www.eastwave.co.za) on investing and the markets.

Listen to last week’s session here: https://youtu.be/ALBFYZEj89E

Company and Market News

The global markets have come down quite significantly since the beginning of the year. The US Federal reserve has been raising interest rates at a record rate to attempt to tame rapidly rising inflation. The global economy has also been facing supply chain issues that started at the beginning of the Covid-19 pandemic and was exacerbated by the Russia/Ukraine war. With higher energy costs and interest rates, consumers have less disposable income, thus reducing the demand for goods and services, which will likely result in a recession in many countries. China, which is the second largest economy in the world, has also maintained strict Covid-19 restriction policies since the beginning of the pandemic. An example of the effect of China’s strict Covid-19 policies on their economy is that Apple, earlier this year, decided to move some of the manufacturing of their iPhone 14 from China to India.

Despite all the above, last week, we saw a significant rally in the market. During the week, the S&P 500 gained 5.9% and the JSE ALSI increased by 4%. This can be attributed to several reasons. Year-on-year inflation for October in the US came in at 7.7%. The market expected 7.9% and this lower-than-expected inflation pointed to potentially lower than previously expected interest rate increases by the US federal Reserve. Other news that could have also resulted in the market rally is that Russia have been forced to retreat from the major city of Kherson in Ukraine. This indicates that the war could end and possibly alleviate the energy crisis. China has also started to relax some of their Covid restriction methods. Certain measures such as the quarantine length for close contacts has decreased from 7 days to 5 days; and people that are secondary contacts do not need to quarantine anymore. Lastly, there is hope that US/China tensions could be eased at the G20 Meeting this month when Joe Biden and Xi Jinping have a face-to-face meeting to try and resolves these tensions. Other technical issues (like short-covering by traders) may also be the reason for the rally.

China still enforces a Covid Zero policy and could reverse course if they feel that these new measures aren’t getting them the results they want. Another risk the market faces is that inflation could remain high despite October’s lower than expected inflation. In the US, housing accounts for the highest weighting (33.8%) in determining CPI. Housing inflation is generally quite sticky and is often one of the trickiest to bring down. The war in Ukraine could also carry on for longer than people anticipate, which could result in pro-longing the energy crisis and further increasing geo-political tensions.

Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
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The Lunar BCI Worldwide Flexible Fund Fact Sheet  can be read here.
This roundup is prepared for the clients of Lunar Capital (Pty) Ltd. This roundup does not constitute financial advice and is generated for information purposes only.

Lunar Capital Weekly Roundup

Source: iress

Company and Market News

Novo Nordisk released their Q3 2022 results last week. Novo Nordisk is a health-care company that primarily focuses on producing treatments for diabetes, obesity and rare blood diseases. For the quarter, Novo Nordisk’s net sales increased by 28% to DKK (Danish Krone) 45,6 million compared to the same quarter last year. Net profit for the quarter was DKK 14,4 million, up 19% compared to the same quarter last year. Novo Nordisk’s Total Diabetes Care segment for the quarter accounted for 79% of their total sales. This segment also grew 26% compared to the same quarter last year. While their Total Obesity Care segment for the quarter accounted for 10% of total sales and grew by 81% compared to the same quarter last year.

On top of the solid growth metrics, Novo Nordisk remains very profitable. For the trailing twelve months (TTM), the gross margin for Novo Nordisk was 84%. This high gross margin indicates that Novo Nordisk has the ability to navigate a high-inflation environment without having to find significant ways to decrease their input costs. The net margin for Novo Nordisk was also strong. For the TTM, Novo Nordisk had a profit margin of 32%. Novo Nordisk also had a very high return on equity of 69%. This is partly due to high leverage through debt. Their debt-to-equity ratio is 217%. Their current liabilities are also greater than their current assets. If there were to be any significant impact to their operation, they could find it quite difficult to pay off their current liabilities for the year.

Another risk that Novo Nordisk faces is that they are in a highly regulated environment. Novo Nordisk also operates in multiple countries that will have their own set of regulatory requirements. The initial costs, in both time and money to develop and manufacture drugs can be quite high. There is always a possibility that a significant investment in a new treatment may not pay off.  Conversely, if they can develop a new treatment that works well and is approved by the health authorities; it can pay off handsomely. Our view is that the potential for their Total Obesity Care is quite significant.

Disclosure: Novo Nordisk is held in the Lunar BCI Worldwide Flexible Fund.
Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/
The Lunar BCI Worldwide Flexible Fund Fact Sheet  can be read here.
This roundup is prepared for the clients of Lunar Capital (Pty) Ltd. This roundup does not constitute financial advice and is generated for information purposes only.

Lunar Capital Weekly Roundup

Source: iress

Company and Market News

Last week, Alphabet, Microsoft, and Amazon released their results for the quarter ended 30 Sep 2022. These companies have a huge focus on cloud computing, and see it as a major driver of growth for their companies. Alphabet, Microsoft, and Amazon, along with the other services that they offer, offer customers the server infrastructure and platform to build and run their companies on. Overall revenue for the quarter was lower than the market expected. For the quarter, Alphabet’s total revenue was $69.1 billion compared to revenue of $65.1 billion for the same quarter a year ago, revenue for Microsoft was $50.1 billion compared to $45.3 billion for the same quarter last year;. And for Amazon, revenue for the quarter was $127.1 billion compared to $110.1 billion for the same quarter last year. However, net income for these companies for the quarter was lower compared to the same quarter last year. Amazon’s net income decreased by 9%, Microsoft’s net income decreased by 14%, and Alphabet’s net income decreased by 27%.

The companies all noted that they have seen noticeable decreases in consumer spending for all their segments. The one exception is that their cloud computing segments have still seen significant growth. Alphabet, Microsoft, and Amazon expect to see consumers further dial back their overall spending as the US economy likely goes into a recession. The negative outlook resulted in the share price for all these companies decreasing during the week. During the week, Alphabet’s share price decreased by 4.8%; Microsoft’s share price decreased by 2.6%; and Amazon’s share price decreased by 13.3%.

Below is a table showing certain metrics of the overall cloud-computing segment for each company. Alphabet, Microsoft, and Amazon’s revenues all increased by between 22% and 41% for the trailing twelve month (TTM) period. Despite Alphabet having the highest cloud revenue-growth, they still managed a negative cloud operating margin of -13.8% compared to Amazon and Microsoft, who had healthy operating margins above 30%. Alphabet are aggressively trying to expand their cloud computing business. The majority of the Alphabet’s capital expenditure for the quarter went towards their cloud computing operation. Setting up the infrastructure for cloud computing requires a lot of upfront capital, and is one of the reasons this segment for Alphabet is currently running at a loss. If Alphabet maintain their revenue trajectory for this operation, and are able to be disciplined with their cost structures, they could likely add another strong segment to their overall business.

Disclosure: Alphabet, Microsoft, and Amazon is held in the Lunar BCI Worldwide Flexible Fund.
Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/
The Lunar BCI Worldwide Flexible Fund Fact Sheet together with our Disclaimers can be read here.
A&EO.

Lunar Capital Weekly Roundup

Source: iress

Why Numbers Matter: In Review

A month ago we held our Lunar Capital client event: Why Numbers Matter. We’d like to share two of the short clips with you from the event.

The story of how Lunar Capital started

And the stories of some of the people who’ve invested with us

If you would like to talk to us about our products and what we can offer you, contact us via email at: [email protected] or phone Sabir at: +27 83 305 7860

Company and Market News

Last week, MTN released their interim results for 2022. Overall the results were quite good. Total revenue for the interim increased by 10.3% compared to last year. And profit after tax for the interim increased by 148.89%. The increase in revenue was largely attributable to the increase in data sales. Data sales were up 33.1%. Of the total revenue, data sales account for 34%. The stock price for MTN jump 6.46% last week on the positive news.

MTN is a telecom service provider that  operates primarily in Africa. The three locations which account for the most revenue are South Africa (25.6% of revenue), Nigeria (36.4% of revenue), and Ghana (10.2% of revenue.) One of the key metrics used when valuing a telecom provider is  Average Revenue per User per a month (ARPU). ARPU for MTN in South Africa was $6.01, Nigeria: $5.01, and Ghana: $3.60. In South Africa, a year ago the ARPU was $6.91. The decrease in ARPU in South Africa is as a result of data prices decreasing.

Some of the risks that MTN faces are high levels of inflation and hyperinflation in some  of the countries they operate in. This hurts their bottom line figures which are reported in ZAR. Telecom providers also have high fixed costs. This can negatively impact their profit in the long term if they are not able to grow their customer base.

MTN’s main competitor is Vodacom. However Vodacom’s operation is primarily focused in South Africa. For Vodacom’s most recent quarter, South Africa accounted for 77.8% of total revenue.

Below is a table comparing key metrics of MTN with Vodacom.

Disclosure: MTN and Vodacom are held in the Lunar BCI Worldwide Flexible Fund.

Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/

Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/

The Lunar BCI Worldwide Flexible Fund Fact Sheet together with our Disclaimers can be read here.

Lunar Capital Weekly Roundup

Source: iress

Company and Market News

Under Armour: a creator, marketer, and distributor of branded athletic apparel, released their Q1 2023 results last week. For the quarter, revenue remained flat at $1.3 bn compared to Q1 a year ago. Net income decreased from $59m in Q1 2022 to $8m in Q1 2023. The share price of Under Armour increased by 4.06% this week despite the disappointing news.

Under Armour operates in the athleisure/athletic apparel space with other brands such as Nike and Lululemon. Despite Under Armour and Lululemon making athletics-wear for the same purpose, Under Armour sells products to the mid-income market compared to Lululemon, who sell products to an upper-income market. An example would be if we compared the price of leggings. A pair of Under Amour leggings go for just under $75; whereas a pair of leggings from Lululemon can go for just under $100, with some leggings being priced at just under $120.

One of the things we like about premium brands, at Lunar Capital, is that they have higher margins compared to other brands. People that like a specific premium brand will stick to buying that brand compared to others. A downside, however, would be that in this current market, when interest rates are going up, and the disposal income of consumers is decreasing – consumers who were on the fringe of buying premium products may hold off on buying these products.

Below is a table comparing the margins and other financial indicators of Under Armour and Lululemon.

Disclosure: Lululemon is held in the Lunar BCI Worldwide Flexible Fund.

Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/

Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/

The Lunar BCI Worldwide Flexible Fund Fact Sheet together with our Disclaimers can be read here.

Lunar Capital Weekly Roundup

Source: iress

Why Numbers Matter – Lunar Capital Virtual Event

Join us this Wednesday at 18H00 as we will be hosting our client event: Why Numbers Matter

Numbers were used to predict trends and influence decisions during the Covid 19 epidemic, and Ridhwaan Suliman was at the forefront of making sense of these. The numbers paved the way to helping the world understand the pandemic and how to handle it. Lunar Capital also use numbers to determine market trends and the valuations of companies they invest in. Join Lunar Capital as Ridhwaan and Sabir explore and discuss the relevance of numbers in their respective fields and how Lunar Capital uses these to manage risk and grow your investments.

Sign up for our free event here.

Please forward this to anyone else you think may be interested.

Company and Market News

ASML

On Monday last week, A Bloomberg article reported that there were rumours that the US Government wanted to restrict ASML from selling some of their older semiconductor equipment like the DUV (Deep Ultraviolet) lithography equipment to China. A spokesperson from ASML said that, “No decisions have been made, and we do not want to speculate or comment on rumours.” Shares for ASML U.S. dropped from $449.96 on the Monday before the article was released to $432.21 by the end of Tuesday. However – by the end of the week the share price for ASML was $452.95.

Lithography and semiconductor equipment require licenses to sell overseas. Since 2019,The Dutch Government in conjunction with the US Government have not granted ASML the license to sell their Lithography machines, that use EUV (Extreme Ultraviolet) light waves to make high-powered semiconductor chips, to China. However ASML were still able to sell older equipment, that uses DUV technology, to Chinese customers. Of the €18.6 bl revenue in 2021, 14.7% of revenue still came from China. It accounted for the third largest revenue figure behind Taiwan (39.4%) and South Korea (33.4%).

As of Friday 8 July 2022, ASML was trading $452.95 on the Nasdaq compared to $796.14 at the beginning of the year. This represents a decrease in the share price of just under 40%, compared to the tech heavy NASDAQ which is down 26.51% since the beginning of the year.

Since the begging of 2019, revenue for ASML have grown at a CAGR rate of 19.36%, and net profits have grown at a CAGR rate of 31.43%. The company has averaged a net-margin of 25.66% since 2018. The company was trading at a PE of 34.55 as of Friday 8 June 2022. At Lunar Capital, we believe that the company has strong fundamentals and is still really well positioned due to ASML effectively having a monopoly on selling Lithography equipment in an industry with a high demand for semiconductors.

Disclosure: ASML is held in the Lunar BCI Worldwide Flexible Fund.

Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/

Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/

The Lunar BCI Worldwide Flexible Fund Fact Sheet together with our Disclaimers can be read here.