Weekly Stocktake - Lunar Capital

Novo – Lilly: Building Capacity

Eli Lilly and Novo Nordisk are both major pharmaceutical giants with a focus on developing drugs for chronic diseases. Two of the main common areas they focus on are diabetes and, most recently, obesity. The diabetes and obesity drugs that the two companies are developing are glucagon-like-peptide-1 (GLP-1) agonists. These medications mimic the actions of the GLP-1 hormone which regulates blood sugar, slows digestion, and suppresses appetite.

Last week, Eli Lilly released their Q4 2023 results; and the week before, Novo Nordisk released their Q4 2023 results. Eli Lilly’s revenue increased by 28% to $9.4 billion while its profit increased by 13% to $2.2 billion for the quarter. The lower profit percentage increase was a result of expenses incurred in the acquisition of a few up-and-coming companies.

Novo Nordisk’s revenue grew 37% to DKK 65.9 billion. And their net profit grew 62% to DKK 21.9 billion. As of 9 Feb 2024, 1 USD = 6.9 DKK. Novo Nordisk recently became the largest listed company in Europe and has been a material contributor to Denmark’s economy.

Since the beginning of the year, Eli Lilly and Novo Nordisk’s share prices have increased by 24.9% and 18.7% respectively. In the US, it is estimated that around 40% of adults suffer from obesity. The recent drive in the share price for Eli Lilly and Novo Nordisk has mainly been driven by the demand for their obesity drugs.

Novo Nordisk and Eli Lilly are at different stages in the production and approval of their respective obesity drugs.

Novo Nordisk’s Wegovy has been available in eight countries since 2021 but only reached approval for all dosage levels in the US in December 2022. Due to overwhelming demand and limited supply, Novo Nordisk had to halt the sale of lower dosages to prioritize patients requiring higher doses who were facing stock shortages. The efficacy of the treatment is contingent on consistent, long-term commitment to the prescription and treatment regime. Novo Nordisk is actively working to expand production capacity to meet the needs of patients relying on these drugs.
Eli Lilly’s Zepbound obesity product received approval and was launched in the US in the last quarter of 2023. Notably, even before securing approval for the drug’s sale, Eli Lilly had initiated the construction of production capacity to ensure a they could hit the ground running once they received approval.

As of now, Novo Nordisk holds the lead in the race. However, the demand for these treatments remains substantial, providing ample opportunity for both Eli Lilly and Novo Nordisk to thrive in the market.

Novo Nordisk and Eli Lilly are held in the Lunar BCI Worldwide Flexible fund. They are also held by Lunar Capital’s Offshore Portfolio clients.

Key Indicators

Index / Fund / Rate

Start of Year

Last Week

This Week

% Change YTD

Index / Fund / Rate

Lunar BCI WW Flexible Fund

Start of Year

188.33

Last Week

195.68

This Week

202.23

% Change YTD

7.38%

Index / Fund / Rate

JSE ALSI

Start of Year

76 893

Last Week

74 174

This Week

73 423

% Change YTD

-4.51%

Index / Fund / Rate

NASDAQ Composite

Start of Year

15 011

Last Week

15 629

This Week

15 991

% Change YTD

6.52%

Index / Fund / Rate

S&P 500

Start of Year

4 770

Last Week

4 959

This Week

5 027

% Change YTD

5.38%

Index / Fund / Rate

Prime Lending Rate

Start of Year

11.75%

Last Week

11.75%

This Week

11.75%

% Change YTD

0.00%

Index / Fund / Rate

USD/ZAR

Start of Year

18.30

Last Week

18.90

This Week

19.04

% Change YTD

4.04%

Index / Fund / Rate

EUR/ZAR

Start of Year

20.17

Last Week

20.37

This Week

20.54

% Change YTD

1.83%

Index / Fund / Rate

Brent Crude ($'barrel)

Start of Year

76.97

Last Week

77.40

This Week

81.92

% Change YTD

6.43%

Source: Iress

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

Disclosures
Lunar Capital (Pty) Ltd is a registered Financial Services Provider. FSP (46567)
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 stocktake is prepared for the clients of Lunar Capital (Pty) Ltd. This stocktake does not constitute financial advice and is generated for information purposes only.

Novo – Lilly: Building Capacity Read More »

Mega Caps’ Big Week

Weekly Stocktake / By VCS Agency

Last week, five Mega Cap companies: Alphabet, Amazon, Apple, Microsoft, and Meta, released their results for the quarter ending 31 December 2023. All five companies are technology companies, with some similarities and differences in their respective businesses. There are overlaps in areas like cloud computing and advertising, but the approaches to leveraging and delivering technology services can differ significantly. And this affects their results differently.

Here is a summary of the key highlights from the recent results.

Alphabet
Alphabet reported a 13% increase in quarterly revenue, reaching $86.3 billion, with a notable 52% growth in net profit, totalling $20.7 billion. During the earnings call, the company highlighted its strategic focus on leveraging AI to enhance existing products in addition to introducing new AI offerings such as the multi-modal (it can understand different formats of information) LLM: Gemini. Adverts from Youtube, the video-sharing platform owned by Alphabet, generated a revenue of $9.2 billion for the quarter. In comparison, Netflix generated $8.8 billion for its most recent quarter. Youtube don’t have to spend large amounts of money on creating content like other streaming platforms. Rather, content creators receive a share of advert and subscription revenues, based on how well their content does on the platform.

Amazon
For the quarter, Amazon witnessed a 14% increase in net sales, reaching $170.0 billion compared to the same quarter last year. Notably, the operating income showed a substantial increase from $2.7 billion in Q4 2022 to a whopping $13.2 billion in Q4 2023. Amazon have focussed on cost-cutting over the last 2 years whilst still prioritising faster and cheaper deliveries to clients. They have also continued to invest in certain strategic projects. The primary drivers of revenue and operating income growth over the last year are AWS, advertising, and third-party seller services. Amazon’s advertising service experienced a 27% growth in the quarter compared to the same period last year.

Apple
In the latest quarter, Apple reported a 2% increase in revenue at $119.2 billion, with net income growing by 13% to $33.9 billion. The company boasts an impressive installed base of 2.2 billion active devices. Like other major tech firms, Apple’s large and loyal user base gives it an advantage when launching new products or services. The net income growth is impressive given the low revenue growth. The expanding margin was a result of the services revenue increasing at a higher rate than what the cost of sales for the services segment increased by.

Microsoft
In the quarter, Microsoft reported robust financials with a revenue of $62.0 billion and a net profit of $21.9 billion, marking impressive year-on-year increases of 18% and 33%, respectively. Notably, the cloud revenue, encompassing Azure, Onedrive, and other cloud services, surged by 24% to $33.7 billion, constituting over 50% of Microsoft’s total earnings for the quarter. Despite this growth, operating expenses for Microsoft increased by 3% year over year. The company’s scalability as a tech giant allows it to boost revenue without a proportional increase in operating costs.

Meta
In the recent quarter, Meta achieved a revenue of $40.1 billion, accompanied by a net profit of $14.0 billion, marking a 201% increase in profit compared to the same quarter last year. Across all Meta products, including Facebook, Instagram, and WhatsApp, there were 3.19 billion daily active users, reflecting an 8% year-over-year growth. Noteworthy corporate changes include several restructurings throughout the year, resulting in a 22% reduction in headcount by the end of 2023 compared to the end of 2022. Additionally, Meta declared its first-ever dividend during this period.

Amazon, Apple (via Berkshire Hathaway) and Microsoft are held in the Lunar BCI Worldwide Flexible fund. They are also held by Lunar Capital’s Offshore Portfolio clients.

Key Indicators

Index / Fund / Rate

Start of Year

Last Week

This Week

% Change YTD

Index / Fund / Rate

Lunar BCI WW Flexible Fund

Start of Year

188.33

Last Week

195.25

This Week

195.68

% Change YTD

3.90%

Index / Fund / Rate

JSE ALSI

Start of Year

76 893

Last Week

75 084

This Week

74 174

% Change YTD

-3.54%

Index / Fund / Rate

NASDAQ Composite

Start of Year

15 011

Last Week

15 455

This Week

15 629

% Change YTD

4.11%

Index / Fund / Rate

S&P 500

Start of Year

4 770

Last Week

4 891

This Week

4 959

% Change YTD

3.96%

Index / Fund / Rate

Prime Lending Rate

Start of Year

11.75%

Last Week

11.75%

This Week

11.75%

% Change YTD

0.00%

Index / Fund / Rate

USD/ZAR

Start of Year

18.30

Last Week

18.79

This Week

18.90

% Change YTD

3.28%

Index / Fund / Rate

EUR/ZAR

Start of Year

20.17

Last Week

20.38

This Week

20.37

% Change YTD

0.99%

Index / Fund / Rate

Brent Crude ($'barrel)

Start of Year

76.97

Last Week

83.09

This Week

77.40

% Change YTD

0.56%

Source: Iress

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

Mega Caps’ Big Week Read More »

ASML: Cycle Up

Weekly Stocktake / By VCS Agency

ASML, the Dutch firm behind the production of lithography equipment essential for semiconductor manufacturing, released their 2023 full year financial results last week. In the semiconductor production process, lithography employs light to intricately design patterns on silicon. Semiconductors serve as foundational components (basically the brain) in all electronic devices: ranging from everyday appliances to the smartphones, and the high-powered Graphic Processing Units (GPUs) crucial for training and operating Large Language Models (LLMs) like ChatGPT.

Semiconductors vary widely in transistor count, with some containing tens of billions of transistors. The smaller the transistor, the greater the number that can be accommodated on a semiconductor, resulting in enhanced performance and energy efficiency. ASML’s cutting-edge lithography machines can create patterns with transistor sizes as small as 3nm (nano meters, i.e. one thousandth millionth of a meter), and they are currently building the capacity for their 2nm technology. Some argue that the technology they have developed is the most intricate ever devised by humankind.

ASML reported €27.6 billion in revenue for the past year, marking a 30% increase compared to the previous year. The net profit for the company increased 39%, reaching €7.8 billion for FY2023. ASML noted that the current fiscal year will yield results similar to FY2023, emphasizing the ongoing recovery of the semiconductor industry from the trough of its economic cycle. ASML’s primary clientele comprises major fabrication plants in the semiconductor sector, including TSMC, Samsung, and Intel. Notably, ASML’s clients have given them indications that they want to increase capacity for 2025. This is evidenced by a significant growth in their order book.

ASML holds a virtual global monopoly in the sale of lithography equipment. Due to this dominance and the fact that semiconductors play a vital role in military applications, companies dealing in such equipment require licenses to sell their products. The United States and several allied nations, including the Netherlands, have imposed trade restrictions, restricting the sale of their most equipment to China. ASML anticipates that this will result in a 10-15% decline of their sales to the Chinese market.

ASML is held in the Lunar BCI Worldwide Flexible fund. It is also held by Lunar Capital’s Offshore Portfolio clients.

Key Indicators

Index / Fund / Rate

Start of Year

Last Week

This Week

% Change YTD

Index / Fund / Rate

Lunar BCI WW Flexible Fund

Start of Year

188.33

Last Week

191.75

This Week

195.25

% Change YTD

3.67%

Index / Fund / Rate

JSE ALSI

Start of Year

76 893

Last Week

72 661

This Week

75 084

% Change YTD

-2.35%

Index / Fund / Rate

NASDAQ Composite

Start of Year

15 011

Last Week

15 311

This Week

15 455

% Change YTD

2.96%

Index / Fund / Rate

S&P 500

Start of Year

4 770

Last Week

4 840

This Week

4 891

% Change YTD

2.54%

Index / Fund / Rate

Prime Lending Rate

Start of Year

11.75%

Last Week

11.75%

This Week

11.75%

% Change YTD

0.00%

Index / Fund / Rate

USD/ZAR

Start of Year

18.30

Last Week

19.01

This Week

18.79

% Change YTD

2.68%

Index / Fund / Rate

EUR/ZAR

Start of Year

20.17

Last Week

20.71

This Week

20.38

% Change YTD

1.04%

Index / Fund / Rate

Brent Crude ($'barrel)

Start of Year

76.97

Last Week

78.63

This Week

83.09

% Change YTD

7.95%

Source: Iress

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

ASML: Cycle Up Read More »

2023 Review

Weekly Stocktake / By VCS Agency

Key Indicators

Index / Fund / Rate

Start of 2023

End of 2023

% Change YTD

Index / Fund / Rate

Lunar BCI WW Flexible Fund

Start of Year

141.43

End of 2023

188.33

% Change YTD

33.16%

Index / Fund / Rate

JSE ALSI

Start of Year

73 049

End of 2023

76 893

% Change YTD

5.26%

Index / Fund / Rate

NASDAQ Composite

Start of Year

10 467

End of 2023

15 011

% Change YTD

43.42%

Index / Fund / Rate

S&P 500

Start of Year

3 840

End of 2023

4 770

% Change YTD

24.21%

Index / Fund / Rate

Prime Lending Rate

Start of Year

10.50%

End of 2023

11.75%

% Change YTD

11.90%

Index / Fund / Rate

USD/ZAR

Start of Year

16.98

End of 2023

18.30

% Change YTD

7.77%

Index / Fund / Rate

EUR/ZAR

Start of Year

18.44

End of 2023

20.17

% Change YTD

9.38%

Index / Fund / Rate

Brent Crude ($'barrel)

Start of Year

85.95

End of 2023

76.97

% Change YTD

-10.45%

Source: Iress

Compliments of the season to everyone. We wish you all the best for the year.

Above is a table showing the change in value of some of the key indicators that we have tracked during the year. We were extremely pleased with the 33% increase the Lunar BCI WW Flexible Fund achieved during 2023.

At Lunar Capital, we aim to invest in great businesses that can benefit from long term macro trends. Below are a few examples of long term trends we held last year and I mention some of the holdings we had that resulted in our performance.

1) Technology Innovation

As technology continues to advance, businesses are discovering innovative ways to harness faster and more efficient technologies. This can be done through the development of new products or the enhancement of operational efficiency, leading to cost reduction. Companies like Nvidia and ASML have been relentlessly pursuing new methods to create more efficient semiconductors and the equipment necessary for semiconductor production. These semiconductors provide the foundational building blocks for training Large Language Models, a branch of Artificial Intelligence (AI) that will have many opportunities for businesses to provide AI based services.

2) Cybersecurity

The world’s increasing digitization and interconnectivity to the internet have brought a heightened risk of cyber-attacks. Similarly, the increase in geopolitical tensions also increases the risk of cyberattacks. Consequently, there is a growing demand for enhanced cybersecurity measures from individuals, businesses, and governments. Companies like Palo Alto and Crowdstrike are at the forefront of developing new online security tools. Crowdstrike notably uses AI to detect and prevent cyberattacks.

3) Aging Populations and Modern Diseases

In developed nations, the average life expectancy is on the rise, leading to an increased demand for medical care as individuals live longer. This demographic shift also amplifies the need for effective wealth management, particularly among the wealthier older generations. UBS, a Swiss banker and wealth manager has benefited significantly in managing money for its wealthy clients around the world.

Companies such as Novo Nordisk and Eli Lilly have played a pivotal role in addressing health concerns associated with obesity, which is prevalent around the world . A recent trial showed that Novo Nordisk’s Semaglutide reduces the risk of major adverse cardiovascular events by 20% in adults who suffer from obesity.

Our view is that these themes can play out over multiple years. At Lunar Capital, we aim to find great businesses that we think will do well with the tailwinds from these mega-trends. Sabir covers this in more depth in his Quarterly Investment Review and Investment Strategy.

Nvidia, ASML, Microsoft, Palo Alto, Crowdstrike, UBS, Novo Nordisk and Eli Lilly are held in the Lunar BCI Worldwide Flexible fund. They are also held by Lunar Capital’s Offshore Portfolio clients.

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

2023 Review Read More »

Lululemon: Three x 2

Weekly Stocktake / By VCS Agency

Lululemon’s three growth drivers are product innovation, guest experience and market expansion in athleisure wear. It aims to double (X2) its digital and men’s wear business to achieve a quadruple growth in its non-US sales by 2025. Lululemon is renowned for its athleisure designs catering to various sports codes.

Last week, Lululemon, a business owned by Lunar Capital, unveiled its Q3 2023 results, reported a notable 19% surge in revenue, reaching $2.2 billion for the quarter. Sales in North America saw a 12% increase, while international sales increased by 49%. The latter was mainly attributed to sales in China, which has recently encouraged growth in its economy through favourable policies.

Lululemon’s gross margin for the quarter increased by 110 basis points to achieve 57%. However, there was a 4% decrease in income from operations, settling at $338.1 million. This dip in profit was predominantly a result of an impairment charge incurred on their Mirror product range. Lululemon have decided to discontinue the sale of the hardware associated to the Mirror. Mirror is a subscription service to access thousands of streaming exercises. This service will continue in partnership with Peloton.

Lululemon’s stock price has surged 51% this year, reaching a share price $489.64 per share and boasting a market cap of $61.96 billion as of Friday. Several factors have contributed to the positive sentiment surrounding Lululemon:

Diverse Product Pipeline: Lululemon exhibits a clear product roadmap, introducing a variety of new products targeting different sports codes and children’s wear.
Robust Online Presence: For the quarter; 41% of Lululemon’s sales were conducted online. Scaling online sales has the potential to yield a higher operating margin compared to traditional in-store sales.
Thriving Asian Market: Lululemon has established a robust presence in the international market, particularly in Asia, where a growing demand for their products is evident.
Adaptability to Market Trends: The recent emergence of weight-loss drugs like Ozempic may benefit athleisure companies like Lululemon, as these clients need to replace their wardrobes and exercise more. Lululemon, along with other clothing brands, stands to benefit from this trend.

Lululemon is currently enjoying a favourable position and it appears that its Three x 2 strategy is working despite facing intense competition in the market. The challenges come not only from established competitors like Nike, who boast a stronger balance sheet, but also from emerging players entering the field. These newcomers have the potential to introduce novel styles and trends that might resonate more effectively with customers. Despite the competitive landscape, Lululemon’s strengths and strategic advantages position it well in navigating the dynamic and evolving nature of the market.

Lululemon is held in the Lunar BCI Worldwide Flexible fund. It is also held by Lunar Capital’s Offshore Portfolio clients.

This marks the final stocktake for the year, and we’ll resume our updates in January. Our team will continue monitoring the market and the portfolios we manage; and supporting our clients.

We extend our heartfelt gratitude for an incredible year and wish all our clients, staff and partners a joyful and safe festive season.

Key Indicators

Index / Fund / Rate

Start of Year

Last Week

This Week

% Change YTD

Index / Fund / Rate

Lunar BCI WW Flexible Fund

Start of Year

141.43

Last Week

183.29

This Week

184.35

% Change YTD

30.35%

Index / Fund / Rate

JSE ALSI

Start of Year

73 049

Last Week

75 534

This Week

73 791

% Change YTD

1.02%

Index / Fund / Rate

NASDAQ Composite

Start of Year

10 467

Last Week

14 305

This Week

14 404

% Change YTD

37.61%

Index / Fund / Rate

S&P 500

Start of Year

3 840

Last Week

4 595

This Week

4 605

% Change YTD

19.91%

Index / Fund / Rate

Prime Lending Rate

Start of Year

10.50%

Last Week

11.75%

This Week

11.75%

% Change YTD

11.90%

Index / Fund / Rate

USD/ZAR

Start of Year

16.98

Last Week

18.63

This Week

18.97

% Change YTD

11.72%

Index / Fund / Rate

EUR/ZAR

Start of Year

18.44

Last Week

20.29

This Week

20.42

% Change YTD

10.74%

Index / Fund / Rate

Brent Crude ($'barrel)

Start of Year

85.95

Last Week

79.26

This Week

75.81

% Change YTD

-11.80%

Source: Iress

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

Lululemon: Three x 2 Read More »

Snowflake – A Benefactor of Artificial Intelligence

Weekly Stocktake / By VCS Agency

Snowflake, owned by Lunar Capital’s clients, assists businesses in organizing and structuring their data, and providing insights on their business. Data is crucial for gaining a clear insight into a company’s value, it’s performance and the factors driving the business. Snowflake efficiently organizes and stores data, enabling companies to easily use and share their information with others; while also providing the management with insights into their business.

Numerous questions have been asked regarding practical applications of Large Language Models (LLMs) in business and how companies can effectively integrate them. Snowflake is deploying LLMs on the structured data that is stored in their cloud infrastructure. The goal is to empower companies using their service to directly query their data without requiring the expertise of data scientists. The key lies in formulating precise questions, making the technology accessible to businesses as long as they have the necessary financial resources to use Snowflake’s services.

Snowflake released their Q3 2024 results last week. Revenue for the quarter increased by 32% year on year to reach $734 million. The gross margin increased from 74.6% in Q3 2023 to 78.3% in Q3 2024. Despite having strong revenue growth, Snowflake’s sales and marketing expense as a percentage of revenue was 48%. Snowflake also recorded an operating loss of $260 million.

Snowflake is classified as a high-growth company. A common characteristic among high-growth companies is that they operate at a loss in early stages to focus on acquiring new clients and enhancing their service offering. Once they reach critical mass, they then have sufficient revenues to be profitable, rewarding shareholders through dividends and share price growth. However, this strategy comes with inherent risks. Potential challenges include the failure to achieve anticipated revenue growth due to factors like lower-than-expected demand for their product. External factors, such as shifts in the macroeconomic environment, can also necessitate cost-cutting measures from their client base, which can impact Snowflake’s revenue growth.

If revenue doesn’t increase as anticipated, the company may be compelled to secure additional funding through debt or equity. This could result in incurring additional interest expenses or diluting existing shareholders through the issue of new shares.

Snowflake is held in the Lunar BCI Worldwide Flexible fund. It is also held by Lunar Capital’s Offshore Portfolio clients.

Key Indicators

Index / Fund / Rate

Start of Year

Last Week

This Week

% Change YTD

Index / Fund / Rate

Lunar BCI WW Flexible Fund

Start of Year

141.43

Last Week

182.9

This Week

183.29

% Change YTD

29.60%

Index / Fund / Rate

JSE ALSI

Start of Year

73 049

Last Week

75 712

This Week

75 534

% Change YTD

3.40%

Index / Fund / Rate

NASDAQ Composite

Start of Year

10 467

Last Week

14 251

This Week

14 305

% Change YTD

36.67%

Index / Fund / Rate

S&P 500

Start of Year

3 840

Last Week

4 559

This Week

4 595

% Change YTD

19.65%

Index / Fund / Rate

Prime Lending Rate

Start of Year

10.50%

Last Week

11.75%

This Week

11.75%

% Change YTD

11.90%

Index / Fund / Rate

USD/ZAR

Start of Year

16.98

Last Week

18.77

This Week

18.63

% Change YTD

9.72%

Index / Fund / Rate

EUR/ZAR

Start of Year

18.44

Last Week

20.53

This Week

20.29

% Change YTD

10.03%

Index / Fund / Rate

Brent Crude ($'barrel)

Start of Year

85.95

Last Week

80.26

This Week

79.26

% Change YTD

-7.78%

Source: Iress

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

Snowflake – A Benefactor of Artificial Intelligence Read More »

Nvidia – Bringing on the Competition

Weekly Stocktake / By VCS Agency

Nvidia, the AI chip designer, has had a surge in its share price since the beginning of the year. The company’s share price has increased just over 230% since the beginning of the year. It has been the poster company for investors trying to jump in on the Artificial Intelligence (AI) wave, that has dominated news cycles and conversations over the past year.

Nvidia is renowned for developing the first commercially accessible graphics processing unit (GPU) in 1999. The GPU distinguishes itself from the central processing unit (CPU) by completing less intricate tasks but can do these tasks concurrently. The CPU, on the other hand, can handle more complex tasks but does them sequentially. GPUs have a wide variety of uses such as:

Creating visuals for displays on computers
Facilitating the computations essential for cryptocurrency mining
Contributing to the training of large language models in data centres

Microsoft, Amazon, and Alphabet, owners of the world’s three largest cloud services providers, have been acquiring Nvidia’s premium GPUs for advancing the next phases of AI application development. These high-end chips come at a substantial cost, with Nvidia’s flagship H100 chip priced at approximately $30,000 each. In Q3 2024, Nvidia gross margin reached 74%: a significant increase from the 56% recorded during Q3 2023. The quarter’s revenues soared to $18 billion, marking a remarkable growth of over 200% compared to the same period last year. Furthermore, Nvidia’s net income reached $9 billion for the quarter, indicating a 1200% increase compared to the same quarter last year.

The substantial costs associated with Nvidia’s high-end GPUs have prompted Microsoft, Amazon, and Alphabet to seek alternatives. Consequently, these tech giants have either already crafted their own chips or are in the process of developing such solutions for use in their data centres. Backed by substantial capital reserves, these companies are investing in chip development endeavours aimed at narrowing the performance gap with Nvidia’s offerings. Nvidia is not stepping back though. The company claims that its upcoming flagship H200, slated for release next year, boasts nearly double the capacity of its predecessor, the H100 GPU.

The competition is further intensifying as traditional semiconductor companies globally vie to capitalize on the AI trend. The race is notably heightened by the US ban on exporting high-performing chips to China, serving as a catalyst for Chinese companies to bolster their presence in the AI chip market. The race is on. As it stands, Nvidia is in the lead but there are many other factors that could favour other winners.

Nvidia, Microsoft, and Amazon are held in the Lunar BCI Worldwide Flexible fund. They are also held by Lunar Capital’s Offshore Portfolio clients.

Key Indicators

Index / Fund / Rate

Start of Year

Last Week

This Week

% Change YTD

Index / Fund / Rate

Lunar BCI WW Flexible Fund

Start of Year

141.43

Last Week

176.17

This Week

182.99

% Change YTD

29.39%

Index / Fund / Rate

JSE ALSI

Start of Year

73 049

Last Week

73 921

This Week

75 712

% Change YTD

3.65%

Index / Fund / Rate

NASDAQ Composite

Start of Year

10 467

Last Week

14 125

This Week

14 251

% Change YTD

36.15%

Index / Fund / Rate

S&P 500

Start of Year

3 840

Last Week

4 514

This Week

4 559

% Change YTD

18.73%

Index / Fund / Rate

Prime Lending Rate

Start of Year

10.50%

Last Week

11.75%

This Week

11.75%

% Change YTD

11.90%

Index / Fund / Rate

USD/ZAR

Start of Year

16.98

Last Week

18.34

This Week

18.77

% Change YTD

10.54%

Index / Fund / Rate

EUR/ZAR

Start of Year

18.44

Last Week

20.00

This Week

20.53

% Change YTD

11.33%

Index / Fund / Rate

Brent Crude ($'barrel)

Start of Year

85.95

Last Week

80.50

This Week

80.26

% Change YTD

-6.62%

Source: Iress

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

Nvidia – Bringing on the Competition Read More »

Walmart – History of Opportunity

Weekly Stocktake / By VCS Agency

The first Walmart store opened its doors in 1962 in Arkansas, USA. Sam Walton, the founder, perceived a potential niche for discount retail stores catering to customers in rural areas in the US. Traditionally, these customers had been neglected by conventional department stores concentrating their efforts in larger cities. Today, Walmart strives to cater to customers across both rural and urban landscapes. In the United States, 90% of the population lives within a 16 km radius of a Walmart store.

Walmart’s business model revolves around the fundamental principle of delivering products and services to customers at the most competitive prices. To achieve the goal of offering the “Lowest price possible,” Walmart employs various strategic tactics, including:

Economies of scale: Walmart acquires products in substantial quantities, securing a lower per-unit cost from suppliers.
Everyday low prices: Rather than relying on periodic promotions, Walmart is committed to maintaining consistently low prices across a diverse range of products.
Centralized distribution centres: Each distribution centre supports 90 to 100 stores within a 240 km radius.

These initiatives have propelled Walmart to emerge as one of the primary price leaders in the retail sector. Walmart establishes the pricing standards that competitors are forced to match.

Last week, Walmart released their Q3 2023 results. Revenue increased by 5.2% compared to the same quarter last year, reaching $160.8 billion. Meanwhile, the “cost of sales” experienced a more modest increase of 4.8%, resulting in a gross margin of 24.6%. The “Operating, selling, general, and administrative” expenses decreased by 3.1%, settling at $33.4 billion. This reduction led to a 130% increase in operating income, soaring to $6.2 billion for the quarter.

In low margin businesses, the operational leverage becomes evident through variances between the change in revenue and the change in costs. When companies enact cost-cutting measures or experience revenue growth outpacing cost growth, operating income grows at a higher rate than revenue. Conversely, if costs were to outpace revenue growth, the operating income of the company would be leveraged in the opposite direction.

Walmart executives indicated that the US consumer was starting to show some levels of stress due to high interest rates. This, despite their very good results impacted the share price, which dropped by about 8% since the announcement of their results.

Walmart is held in the Lunar BCI Worldwide Flexible fund. It is also held by Lunar Capital’s Offshore Portfolio clients.

Key Indicators

Index / Fund / Rate

Start of Year

Last Week

This Week

% Change YTD

Index / Fund / Rate

Lunar BCI WW Flexible Fund

Start of Year

141.43

Last Week

176.17

This Week

176.17

% Change YTD

24.56%

Index / Fund / Rate

JSE ALSI

Start of Year

73 049

Last Week

71 39

This Week

73 921

% Change YTD

1.19%

Index / Fund / Rate

NASDAQ Composite

Start of Year

10 467

Last Week

13 798

This Week

14 125

% Change YTD

34.95%

Index / Fund / Rate

S&P 500

Start of Year

3 840

Last Week

4 415

This Week

4 514

% Change YTD

17.55

Index / Fund / Rate

Prime Lending Rate

Start of Year

10.50%

Last Week

11.75%

This Week

11.75%

% Change YTD

11.90%

Index / Fund / Rate

USD/ZAR

Start of Year

16.98

Last Week

18.74

This Week

18.34

% Change YTD

8.01%

Index / Fund / Rate

EUR/ZAR

Start of Year

18.44

Last Week

20.02

This Week

20.00

% Change YTD

8.46%

Index / Fund / Rate

Brent Crude ($'barrel)

Start of Year

85.95

Last Week

81.62

This Week

80.50

% Change YTD

-6.34%

Source: Iress

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

Walmart – History of Opportunity Read More »

Adyen – All in One

Weekly Stocktake / By VCS Agency

Following the release of the 2nd quarter 2023 results, Adyen, the financial technology company, witnessed a more than 50% decline in its share price, plummeting to a low of €633 in October. This downturn was attributed to a deceleration in their revenue growth and increased personnel hiring spree. However, in their 3rd quarter results presentation, unveiled last week, Adyen’s share price surged by 36% , reaching €936. Adyen’s shares have exhibited considerable volatility, reflective of the challenges the company faces in navigating its expansion into new markets; coupled with the overall market sentiment.

Adyen provides businesses with a comprehensive platform for end-to-end management of payments, data, and financial transactions. Their platform enables businesses to seamlessly process both online and in-store payments within a unified system. This integrated approach offers businesses a holistic perspective on their operations. Adyen also holds a banking license, which allows them to hold their client’s funds and issue cards to those clients. This feature facilitates the smooth transfer of funds between different aspects of a business, enhancing overall operational efficiency. The data collected from the business’ users; and the business’ cash flow are all managed on a singular platform.

For Q3, Adyen reported processed transaction volume of €243 billion and a net revenue of €413 million, marking respective year-over-year increases of 21% and 22%. Throughout the year, Adyen has been actively expanding its sales team, employing the “land and expand” sales strategy. This approach involves encouraging potential clients to adopt one of their products initially and subsequently demonstrating the advantages of using additional offerings over time. Adyen, also held an investor day last week, where they provided clarity on their business strategy, which included moderating the pace of personnel hiring in 2024, clarifying how their investments will increase revenues and improve margins, their direct focus on large institutional clients and supporting smaller clients through integrating with fintech platforms. This contributed to Adyen’s 36% share price jump.

The payments space is highly competitive, but it appears that Adyen has a strategy to be competitive by their value-added offering.

Adyen is held by Lunar Capital’s Offshore Portfolio clients.

Key Indicators

Index / Fund / Rate

Start of Year

Last Week

This Week

% Change YTD

Index / Fund / Rate

Lunar BCI WW Flexible Fund

Start of Year

141.43

Last Week

172.81

This Week

176.17

% Change YTD

24.56%

Index / Fund / Rate

JSE ALSI

Start of Year

73 049

Last Week

72 856

This Week

71 393

% Change YTD

-2.27%

Index / Fund / Rate

NASDAQ Composite

Start of Year

10 467

Last Week

13 478

This Week

13 798

% Change YTD

31.82%

Index / Fund / Rate

S&P 500

Start of Year

3 840

Last Week

4 358

This Week

4 415

% Change YTD

14.98%

Index / Fund / Rate

Prime Lending Rate

Start of Year

10.50%

Last Week

11.75%

This Week

11.75%

% Change YTD

11.90%

Index / Fund / Rate

USD/ZAR

Start of Year

16.98

Last Week

18.25

This Week

18.74

% Change YTD

10.37%

Index / Fund / Rate

EUR/ZAR

Start of Year

18.44

Last Week

19.60

This Week

20.02

% Change YTD

8.57%

Index / Fund / Rate

Brent Crude ($'barrel)

Start of Year

85.95

Last Week

85.17

This Week

81.62

% Change YTD

-5.04%

Source: Iress

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

Adyen – All in One Read More »

MercadoLibre – Amazon South

Weekly Stocktake / By VCS Agency

MercadoLibre (Meli), an e-commerce and fin-tech business operating in South America, released their Q3 2023 results last Wednesday. During the quarter, Meli’s revenue surged by 40% year on year to $3,760 million. E-commerce segment grew 45%, while Fintech increased 37% year on year. Furthermore, income from operations saw a surge of 131%, totalling $685 million, resulting in an operating margin of 18.2% for the business for the quarter.

Meli is predominantly recognized for their e-commerce platform, MercadoLibre, which is operational in Brazil, Argentina, Mexico, and a few other South American countries. Essentially, they facilitate companies in selling and distributing products through their platform. In the most recent quarter, the commerce segment made up 54% of their total revenue, with the fintech division (MercadPago) making up the remaining 46%. Meli’s fintech arm aims to further evolve into a comprehensive financial service provider in South America, catering to both businesses and individuals. Retail customers have the option to use Meli’s credit card facilities, while businesses can utilize their point-of-sale and online payment technology.

Meli faces a number of challenges. Both the ecommerce space and fintech space are highly competitive. In the ecommerce space, it can take quite a while for companies to become profitable. Customers can be quite fickle and move to different services at their pleasure. Meanwhile, the fintech space presents its own set of hurdles, including regulatory complexities and formidable competition from established players well-versed in the field.

Presently, one of the primary hurdles facing Meli is currency devaluation in the regions they operate. Over the past two years, the dollar, which Meli reports in, has exhibited a consistent strengthening trend. This stands in contrast to the currencies of numerous other developing nations, which have experienced depreciation. Specifically, the Argentine Peso has seen a reduction of just over half its value relative to the dollar since November 2022.

Companies that operate in underserviced regions have a lot of opportunity to build, however there are many challenges that come with it.

MELI is held by Lunar Capital’s Offshore Portfolio clients.

Key Indicators

Index / Fund / Rate

Start of Year

Last Week

This Week

% Change YTD

Index / Fund / Rate

Lunar BCI WW Flexible Fund

Start of Year

141.43

Last Week

170.40

This Week

172.81

% Change YTD

22.19%

Index / Fund / Rate

JSE ALSI

Start of Year

73 049

Last Week

69 452

This Week

72 856

% Change YTD

-0.26%

Index / Fund / Rate

NASDAQ Composite

Start of Year

10 467

Last Week

12 643

This Week

13 478

% Change YTD

28.77%

Index / Fund / Rate

S&P 500

Start of Year

3 840

Last Week

4 117

This Week

4 358

% Change YTD

13.49%

Index / Fund / Rate

Prime Lending Rate

Start of Year

10.50%

Last Week

11.75%

This Week

11.75%

% Change YTD

11.90%

Index / Fund / Rate

USD/ZAR

Start of Year

16.98

Last Week

18.84

This Week

18.25

% Change YTD

7.48%

Index / Fund / Rate

EUR/ZAR

Start of Year

18.44

Last Week

19.91

This Week

19.60

% Change YTD

6.29%

Index / Fund / Rate

Brent Crude ($'barrel)

Start of Year

85.95

Last Week

90.01

This Week

85.17

% Change YTD

-0.91%

Source: Iress

Click here to access your account to view statements, obtain tax certificates, add or make changes to your investments.

Our email address is: [email protected]

MercadoLibre – Amazon South Read More »