Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

Root Inc is getting ready to complete its IPO in the NASDAQ exchange in the next few weeks. Root Inc is an insurtech company that operates through a mobile app that uses smartphone technology, telematics, and data science to provide auto and home insurance. Since the founding of the company, Root has raised a total of<a href="https://www.insurancejournal.com/news/national/2020/10/06/585407.htm" target="_blank" rel="noopener"> $523 million</a> in funding. It was last valued at $3.65 billion in September 2019 in a round led by ST Global and Coatue. Root is targeting about <a href="https://www.businessinsider.com/root-insurance-us-based-insurtech-filed-for-ipo-2020-10#:~:text=The%20US%2Dbased%20insurtech%20has,currently%20available%20in%2029%20states." target="_blank" rel="noopener">$6 billion</a> valuation in this IPO. You can read Root Inc's S-1 <a href="https://www.sec.gov/Archives/edgar/data/1788882/000162828020014305/roots-1.htm" target="_blank" rel="noopener">here.</a> 
Surging revenue &amp; rapid improvement in net margins - The company's revenues have exploded higher in the past three years. In 2019, the company generated revenue of $290.2 million (up 570% YoY) while its total operating expenses increased by 393% YoY. A combination of a much higher revenue growth rate than operating expenses has resulted in a rapid improvement in net margins, which improved from -159.6% in 2018, -97.3% in 2019, and -58.9% in 1H 2020.
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Root Inc's exploding revenue growth and improvement in the reduction of net losses is very impressive, in the ranks of <a href="https://www.smartkarma.com/entities/snowflake-inc" target="_blank" data-smartkarma-citation="entities:29254:1" rel="noopener">Snowflake Inc (SNOW US)</a>. 
Although Snowflake and Root compete in different industry segments, both are SaaS companies with exceptional sales growth and significant operating leverage going forward. Similar to Snowflake, the word "WOW" came to my mind in reading through Root's IPO prospectus. Root Inc could be one of those exceptional, highly disruptive SaaS companies that even the great value investors such as Warren Buffett could inject significant amounts of capital (similar to Snowflake).
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Root Inc is getting ready to complete its IPO in the NASDAQ exchange in the next few weeks. Root Inc is an insurtech company that operates through a mobile app that uses smartphone technology, telematics, and data science to provide auto and home insurance. Since the founding of the company, Root has raised a total of $523 million in funding. It was last valued at $3.65 billion in September 2019 in a round led by ST Global and Coatue. Root is targeting about $6 billion valuation in this IPO. You can read Root Inc's S-1 here. 
Surging revenue &amp; rapid improvement in net margins - The company's revenues have exploded higher in the past three years. In 2019, the company generated revenue of $290.2 million (up 570% YoY) while its total operating expenses increased by 393% YoY. A combination of a much higher revenue growth rate than operating expenses has resulted in a rapid improvement in net margins, which improved from -159.6% in 2018, -97.3% in 2019, and -58.9% in 1H 2020.

Root Inc's exploding revenue growth and improvement in the reduction of net losses is very impressive, in the ranks of Snowflake Inc (SNOW US). 
Although Snowflake and Root compete in different industry segments, both are SaaS companies with exceptional sales growth and significant operating leverage going forward. Similar to Snowflake, the word "WOW" came to my mind in reading through Root's IPO prospectus. Root Inc could be one of those exceptional, highly disruptive SaaS companies that even the great value investors such as Warren Buffett could inject significant amounts of capital (similar to Snowflake).


Root Inc IPO Preview - The Next Snowflake?

Equity Analyst, LightStream Research

Aqila Ali

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

In our previous insight (<a href="https://www.smartkarma.com/insights/lemonade-ipo-preview-a-public-benefit-loss-making-start-up-in-a-competitive-environment" target="_blank" data-smartkarma-citation="insights:40807" rel="noopener">Lemonade IPO Preview: A Public Benefit Loss Making Start-Up In a Competitive Environment</a> ), we looked at <a href="https://www.smartkarma.com/entities/lemonade-inc" target="_blank" data-smartkarma-citation="entities:29163:1" rel="noopener">Lemonade Inc (1350648D US)</a>’s business model, growth prospects, and risks. We concluded that even though we like the company’s business model, its ability to sustain growth rates in a highly competitive industry appears challenging. In this insight, we look at the company’s financial outlook and valuation.<ul>
<li>Lemonade started trading last Thursday pricing at USD 30 and soared nearly 140% since then to reach its current price of USD 69.4.</li>
<li>We have forecasted revenue in two possible scenarios. Our best-case scenario expects revenue and customer growth rates of 108.2% and 83.1% CAGR respectively over 2019-21. Our base-case scenario is based on revenue and customer growth rates of 73.0% and 53.7% respectively.</li>
<li>Lemonade is currently trading at 12.4x EV/Sales FY+2 (best case), compared to the average 4.2x EV/Sales FY+2 of the selected established and profitable peers.</li>
<li> EV/Sales FY+2 increases to 18.2x under our base case revenue assumptions, which is more than four times the peer average.</li>
<li>Our conclusion is that Lemonade is currently overvalued and is trading at a significant premium to its peers, which is difficult to justify.</li>
</ul>

In our previous insight (Lemonade IPO Preview: A Public Benefit Loss Making Start-Up In a Competitive Environment ), we looked at Lemonade Inc (1350648D US)’s business model, growth prospects, and risks. We concluded that even though we like the company’s business model, its ability to sustain growth rates in a highly competitive industry appears challenging. In this insight, we look at the company’s financial outlook and valuation.
Lemonade started trading last Thursday pricing at USD 30 and soared nearly 140% since then to reach its current price of USD 69.4.
We have forecasted revenue in two possible scenarios. Our best-case scenario expects revenue and customer growth rates of 108.2% and 83.1% CAGR respectively over 2019-21. Our base-case scenario is based on revenue and customer growth rates of 73.0% and 53.7% respectively.
Lemonade is currently trading at 12.4x EV/Sales FY+2 (best case), compared to the average 4.2x EV/Sales FY+2 of the selected established and profitable peers.
 EV/Sales FY+2 increases to 18.2x under our base case revenue assumptions, which is more than four times the peer average.
Our conclusion is that Lemonade is currently overvalued and is trading at a significant premium to its peers, which is difficult to justify.


Lemonade (Financial Outlook and Valuation) - Expensive @ 12.4 EV/​​Sales

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Key support levels we have been monitoring (the 200-day MAs on the S&amp;P 500 and equal-weighted S&amp;P 500) have failed to hold, something we noted as increasingly likely in last week’s Compass. Despite the break below support, the move lower has been orderly but technical indications remain mixed. The weight of the evidence leads us to remain cautious. In today’s report we highlight attractive Groups and stocks within Materials and Financials: Large-Cap and Small-Cap Gold, and Large-Cap and Small-Cap Property &amp; Casualty Insurance.

Key support levels we have been monitoring (the 200-day MAs on the S&amp;P 500 and equal-weighted S&amp;P 500) have failed to hold, something we noted as increasingly likely in last week’s Compass. Despite the break below support, the move lower has been orderly but technical indications remain mixed. The weight of the evidence leads us to remain cautious. In today’s report we highlight attractive Groups and stocks within Materials and Financials: Large-Cap and Small-Cap Gold, and Large-Cap and Small-Cap Property &amp; Casualty Insurance.

U.S. Equity Strategy: Technical Indications Mixed; Outlook Remains Cautious

Technicals continue to endorse a bullish outlook. And with the S&amp;P 500 breaking out to new highs yesterday, and insurance stocks recovering from last week, we are benefitting from renewed clarity following the muddled, past two months.In today’s report we highlight actionable ideas in the following Groups:<ul><li>Semis... see page 14-20</li><li>Insurers... see page 8-13</li></ul>

Technicals continue to endorse a bullish outlook. And with the S&amp;P 500 breaking out to new highs yesterday, and insurance stocks recovering from last week, we are benefitting from renewed clarity following the muddled, past two months.In today’s report we highlight actionable ideas in the following Groups:Semis... see page 14-20Insurers... see page 8-13

U.S. Equity Uptrend Resumes; Outlook Remains Bullish

Founder and Strategist, Entext Economics & Strategy

Sean Maher

Founder and Strategist

Entext Economics & Strategy

Entext provides institutional investors with distinctive, actionable asset allocation and thematic research, which typically challenges the market consensus. Our clients range from credit, equity and multi-asset hedge and pension funds to family offices and sovereign funds. 
 
We focus on identifying key inflection points in macro data and relative asset performance amid the 'groupthink'  and confirmation bias that characterizes most investment bank analysis.

Macro Driven Investment Insight

Thematic (Sector/Industry)

<ul>
<li>The Republican replacement for ‘Obamacare’ has been announced and looks an incoherent mess – resurgent healthcare inflation will be a drag on discretionary spending.</li>
<li>The US yield curve is flattening, overall bank credit growth has been negative for two months and yesterday’s January consumer lending data was about half consensus expectations.</li>
<li>The global mining sector has been selling off as expected with iron ore/copper prices – I remain tactically short the FTSE 350 mining index.</li>
<li>Overall, the US…</li>
</ul>


The Republican replacement for ‘Obamacare’ has been announced and looks an incoherent mess – resurgent healthcare inflation will be a drag on discretionary spending.
The US yield curve is flattening, overall bank credit growth has been negative for two months and yesterday’s January consumer lending data was about half consensus expectations.
The global mining sector has been selling off as expected with iron ore/copper prices – I remain tactically short the FTSE 350 mining index.
Overall, the US…


US Healthcare Overhaul Stumbling, Singapore Cyclical Rally Looking Premature

United States

Arch Capital Group Ltd. is a Bermuda-based insurance and financial services company that provides reinsurance and insurance products on a worldwide basis.

American International Group, Inc. is an international insurance organization serving commercial, institutional and individual customers. AIG provides property-casualty insurance, life insurance and retirement services.

MetLife, Inc. provides individual insurance, employee benefits and financial services with operations throughout the United States and the regions of Latin America, Europe, and Asia Pacific. The Company's products include life insurance, annuities, automobile and homeowners insurance, retail banking and other financial services to individuals as well as group insurance.

Arthur J. Gallagher & Co. and its subsidiaries provide insurance brokerage, risk management, employee benefit, and other related services to clients in the United States and abroad. The Company's principal activity is the negotiation and placement of insurance for its clients. Gallagher also specializes in furnishing risk management services.

Aon PLC is a professional services provider. The Company is comprised of risk and insurance brokerage consulting. Aon's services include helping manage risk for clients, negotiating and placing insurance risk with other carriers, and advising clients related to health and benefits, retirement, compensation, strategic human capital, and human resource outsourcing.

The Travelers Companies, Inc. provides commercial and personal property and casualty insurance products and services to businesses, government units, associations, and individuals.

Prudential Financial, Inc. provides financial services throughout the United States and several locations worldwide. The Company offers a variety of products and services, including life insurance, mutual funds, annuities, pension, and retirement related services, as well as administration and asset management.

Aflac, Inc. is a general business holding company. The Company, through its subsidiaries, provides supplemental insurance to individuals in the United States and Japan.  Aflac's products include accident/disability plans, cancer expense plans, short-term disability plans, sickness and hospital indemnity plans, hospital intensive care plans, and fixed-benefit dental plans.

The Hartford Financial Services Group, Inc. provides a range of insurance products.  The Company's products include property and casualty insurance, group benefits and mutual funds.  Hartford Financial is based and operates in the U.S.

Willis Towers Watson Public Limited Company operates as an advisory, broking, and solutions company. The Company provides a range of insurance brokerage, reinsurance, and risk management consulting services. Willis Towers Watson serves customers worldwide.

PICC Property and Casualty Company Limited provides insurance services. The Company provides property loss insurances, liability insurances, credit insurances, accidental injury insurances, short term health insurances, guarantee insurances, and other insurance products. PICC Property and Casualty also operates investment businesses.

MS&AD Insurance Group Holdings, Inc. is a holding company established through reorganization of Mitsui Sumitomo Insurance Company, Limited.  The Group writes marine, fire, casualty, automobile, life, and allied insurance policies. MS&AD Insurance Group also operates financial services and agencies.

The Dai-ichi Life Insurance Company Ltd. underwrites and sells life, health and annuity insurance to groups and individuals. The Company offers a wide variety of insurance products to suit different needs, ranging from children's school tuition to emergency funds for the elderly.

China Life Insurance Company Ltd. offers a wide range of life, accident, and health insurance products and services.

China Pacific Insurance (Group) Company, Ltd. is an integrated insurance services provider. The Company offers life and property insurance products through its subsidiaries.

Cathay Financial Holding Co., Ltd. is a holding company.  Through its subsidiaries, the Company provides traditional life, health care, and accident insurances, as well as banking, security underwriting, and brokerage services.

Assicurazioni Generali S.p.A. offers life and non-life insurance and reinsurance throughout the world.  The Company offers life, health, accident, automobile, marine, aviation, transport, fire, general liability, and credit insurance and reinsurance.

Hannover Rueck SE provides reinsurance services.  The Company offers life, health, accident, damage, property, and high risk specialty reinsurance.

Muenchener Rueckversicherungs-Gesellschaft AG (MunichRe) provides financial services. The Company offers reinsurance, insurance, and asset management services. MunichRe has subsidiaries in most major financial centers throughout the world.

Swiss Re AG offers reinsurance, insurance and insurance linked financial market products. The Company offers automobile, liability, accident, engineering, marine, aviation, life, and health insurance. Swiss Re also manages fixed-income and equity investments for itself and other insurance companies.

The Allstate Corporation, through its subsidiaries, provides property-liability insurance, as well as other types of insurance in the United States and Canada. The Company primarily sells private passenger automobile and homeowners insurance through independent and specialized brokers. Allstate also sells life insurance, annuity, and group pension products through agents.

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Allstate Corp (ALL US)

Root Inc IPO Preview - The Next Snowflake?

Root Inc could be one of those exceptional, disruptive SaaS companies that even the great value investors such as Warren Buffett could inject...

Douglas Kim

Lemonade (Financial Outlook and Valuation) - Expensive @ 12.4 EV/Sales

In our previous insight (Lemonade IPO Preview: A Public Benefit Loss Making Start-Up In a Competitive Environment ), we looked at Lemonade Inc...

Aqila Ali

U.S. Equity Strategy: Technical Indications Mixed; Outlook Remains Cautious

Key support levels we have been monitoring (the 200-day MAs on the S&P 500 and equal-weighted S&P 500) have failed to hold, something we...

Vermilion Research

U.S. Equity Uptrend Resumes; Outlook Remains Bullish

Technicals continue to endorse a bullish outlook. And with the S&P 500 breaking out to new highs yesterday, and insurance stocks recovering...

Vermilion Research

US Healthcare Overhaul Stumbling, Singapore Cyclical Rally Looking Premature

The Republican replacement for ‘Obamacare’ has been announced and looks an incoherent mess – resurgent healthcare inflation will be a drag on...

Sean Maher

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Root Inc IPO Preview - The Next Snowflake?

Root Inc could be one of those exceptional, disruptive SaaS companies that even the great value investors such as Warren Buffett could inject...

Douglas Kim

Lemonade (Financial Outlook and Valuation) - Expensive @ 12.4 EV/​​Sales

In our previous insight (Lemonade IPO Preview: A Public Benefit Loss Making Start-Up In a Competitive Environment ), we looked at Lemonade Inc...

Aqila Ali

U.S. Equity Strategy: Technical Indications Mixed; Outlook Remains Cautious

Key support levels we have been monitoring (the 200-day MAs on the S&P 500 and equal-weighted S&P 500) have failed to hold, something we...

Vermilion Research

U.S. Equity Uptrend Resumes; Outlook Remains Bullish

Technicals continue to endorse a bullish outlook. And with the S&P 500 breaking out to new highs yesterday, and insurance stocks recovering...

Vermilion Research

US Healthcare Overhaul Stumbling, Singapore Cyclical Rally Looking Premature

The Republican replacement for ‘Obamacare’ has been announced and looks an incoherent mess – resurgent healthcare inflation will be a drag on...

Sean Maher

Lemonade (Financial Outlook and Valuation) - Expensive @ 12.4 EV/Sales