BCI Worldwide Flexible Fund

ON Top of It

Founded in 2010, ON is a sports apparel and shoe brand established in Zurich, Switzerland. Olivier Bernhard, a retired athlete, envisioned crafting a running shoe that offered a completely different running sensation compared to what was on the market. Early prototypes featured sections of hosepipes attached to the bottom of the shoe.

In their most recent financial report as of September 30, 2023, ON revealed total sales amounting to CHF* 480 million (USD/CHF = 0.915) and a net income of CHF 58 million. Both revenue and net income experienced impressive growth, surging by 47% and 184%, respectively, compared to the corresponding quarter of the previous year. Notably, ON’s gross margin expanded from 57.1% in Q3 2022 to 59.9% in Q3 2023. This expansion was attributed to ON’s strategy of refraining from discounting products to boost sales, coupled with an increased proportion of direct consumer sales through their website.

During their earnings call, ON emphasized a strategic focus on increasing sales through their Direct-to-Consumer (DTC) channel while also nurturing relationships with third-party sellers. Despite being in its relative infancy, ON is gearing up for expansion by diversifying its product lines to captivate a broader customer base. Like many sports brands, ON is leveraging the allure of sports stars to enhance brand recognition. Given ON’s size, they need to use innovative approaches to attract “superstar” athletes. In 2019, they successfully secured Roger Federer as a collaborator by issuing equity to him. ON’s recent successes on the sports field include Helen Obiri winning the Boston Marathon wearing ON CloudTr1 1 and Iga Swaitek who also wears ON shoes on the tennis court.

Retail brands operate in a fiercely competitive environment. They generally require years to establish genuine customer loyalty. To stay competitive, these companies must consistently invest in brand and product development, while maintaining their brand identity.

*CHF = Swiss Francs

On Holdings 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

202.23

This Week

203.05

% Change YTD

7.82%

Index / Fund / Rate

JSE ALSI

Start of Year

76 893

Last Week

73 423

This Week

73 616

% Change YTD

-4.26%

Index / Fund / Rate

NASDAQ Composite

Start of Year

15 011

Last Week

15 991

This Week

15 776

% Change YTD

5.09%

Index / Fund / Rate

S&P 500

Start of Year

4 770

Last Week

5 027

This Week

5 006

% Change YTD

4.94%

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

19.04

This Week

18.87

% Change YTD

3.11%

Index / Fund / Rate

EUR/ZAR

Start of Year

20.17

Last Week

20.54

This Week

20.34

% Change YTD

0.84%

Index / Fund / Rate

Brent Crude ($'barrel)

Start of Year

76.97

Last Week

81.92

This Week

83.23

% Change YTD

8.13%

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.

ON Top of It Read More »

Novo – Lilly: Building Capacity

Weekly Stocktake / By VCS Agency

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]

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 »

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 »

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 »