Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

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.

Equity Capital Markets

<p>The Chinese financial technology company <a href="https://www.smartkarma.com/entities/bairong" target="_blank" data-smartkarma-citation="entities:31486:1" rel="noopener">Bairong (1569395D CH)</a>  has set the terms for its IPO. Bairong plans to issue 123.8m shares at an indicative IPO price range of HK$26.5-31.8 per share and will raise approx. HK$3.4bn (US$447.2m) at the midpoint of the IPO price range of HK$29.15 per share.</p><table class="table table-striped"><tbody>
<tr><td colspan="2" style="width: 100.0pt;"><p style="text-align: center;"><strong>Bairong IPO Details</strong></p></td></tr>
<tr>
<td style="width: 50.0pt;"><p>No. of Shares Issued</p></td>
<td style="width: 50.0pt;"><p style="text-align: right;">                      123,822,500</p></td>
</tr>
<tr>
<td style="width: 50.0pt;"><p>IPO Price per Share (HK$)</p></td>
<td style="width: 50.0pt;"><p style="text-align: right;">26.5-31.8</p></td>
</tr>
<tr>
<td style="width: 50.0pt;"><p>Offer as a % of Outstanding Shares</p></td>
<td style="width: 50.0pt;"><p style="text-align: right;">25.00%</p></td>
</tr>
<tr>
<td style="width: 50.0pt;"><p>Total Shares Outstanding</p></td>
<td style="width: 50.0pt;"><p style="text-align: right;">495,289,330</p></td>
</tr>
<tr>
<td style="width: 50.0pt;"><p>Net Proceeds (HK$m)</p></td>
<td style="width: 50.0pt;"><p style="text-align: right;">3,440.70</p></td>
</tr>
<tr>
<td style="width: 50.0pt;"><p>Market Capitalisation (HK$m)</p></td>
<td style="width: 50.0pt;"><p style="text-align: right;">14,437.68</p></td>
</tr>
<tr>
<td style="width: 50.0pt;"><p>Enterprise Value (HK$m)</p></td>
<td style="width: 50.0pt;"><p style="text-align: right;">10,807.23</p></td>
</tr>
</tbody></table><p><em>Source: Company disclosures, LSR (net proceeds, market capitalisation and EV are at the midpoint of the IPO price range, EV is adjusted for net IPO proceeds and net cash)</em></p><p>Bairong plans to spend approx. 45% of the net IPO proceeds over the next three years on funding business expansion, particularly the company’s FSP (Financial Service Provider) client base while also penetrating the existing FSP client base. The company also plans to use 30% of the net proceeds on R&amp;D over the next three years to develop and improve its technology infrastructure such as AI algorithm and automatic real-time analysis.</p><p>The company also has entered into cornerstone investment agreements with Cederberg, China Structural Reform Fund and Franchise Fund who have agreed to purchase approx. US$220m (HK$1.7m) worth of shares offered at the IPO.</p>

The Chinese financial technology company Bairong (1569395D CH)  has set the terms for its IPO. Bairong plans to issue 123.8m shares at an indicative IPO price range of HK$26.5-31.8 per share and will raise approx. HK$3.4bn (US$447.2m) at the midpoint of the IPO price range of HK$29.15 per share.
Bairong IPO Details

No. of Shares Issued
                      123,822,500


IPO Price per Share (HK$)
26.5-31.8


Offer as a % of Outstanding Shares
25.00%


Total Shares Outstanding
495,289,330


Net Proceeds (HK$m)
3,440.70


Market Capitalisation (HK$m)
14,437.68


Enterprise Value (HK$m)
10,807.23

Source: Company disclosures, LSR (net proceeds, market capitalisation and EV are at the midpoint of the IPO price range, EV is adjusted for net IPO proceeds and net cash)Bairong plans to spend approx. 45% of the net IPO proceeds over the next three years on funding business expansion, particularly the company’s FSP (Financial Service Provider) client base while also penetrating the existing FSP client base. The company also plans to use 30% of the net proceeds on R&amp;D over the next three years to develop and improve its technology infrastructure such as AI algorithm and automatic real-time analysis.The company also has entered into cornerstone investment agreements with Cederberg, China Structural Reform Fund and Franchise Fund who have agreed to purchase approx. US$220m (HK$1.7m) worth of shares offered at the IPO.

Bairong IPO Valuation: Appealing Valuation

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

<p>Despite our concerns regarding the growing performance disparity between the haves (e.g., Technology, FAANG, mega-caps, growth) and the have nots (e.g., Materials, Energy, small-caps, value), the silver lining continues to be that the latter group is not breaking down on an absolute (price) basis. Due to this fact along with several observations highlighted below, we remain bullish. Continue to buy the dips. In today’s report we highlight attractive Groups and stocks within Health Care and Technology: Hospitals, Pet Health, Software, Enterprise Applications, Large-Cap, and Software, Enterprise Applications, Small-Cap.</p>

Despite our concerns regarding the growing performance disparity between the haves (e.g., Technology, FAANG, mega-caps, growth) and the have nots (e.g., Materials, Energy, small-caps, value), the silver lining continues to be that the latter group is not breaking down on an absolute (price) basis. Due to this fact along with several observations highlighted below, we remain bullish. Continue to buy the dips. In today’s report we highlight attractive Groups and stocks within Health Care and Technology: Hospitals, Pet Health, Software, Enterprise Applications, Large-Cap, and Software, Enterprise Applications, Small-Cap.

TMT & Consumer Independent Equity Research Analyst, Obex Capital Research

Aaron Gabin

TMT & Consumer Independent Equity Research Analyst

TMT & Consumer Independent Equity Research

Obex Capital Research

“Obex” is Latin for Barriers to Entry. Obex Capital Management’s investment philosophy is driven by an intense focus on which business model’s Barriers to Entry are able to withstand the ever increasing competitive disruption in the TMT and Consumer Sectors.

Equity Bottom-Up

<div><div><div class="content-highlight"><p>Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</p></div></div></div><div><p>Summary: <a href="https://www.smartkarma.com/entities/guidewire-software-inc" target="_blank" data-smartkarma-citation="entities:15448:1" rel="noopener">Guidewire Software (GWRE US)</a>, the leading provider of core system software for the P&amp;C insurance industry is in the early stages of a SaaS business model transition. While the market is pricing in a smooth <a href="https://www.smartkarma.com/entities/adobe-systems-inc" target="_blank" data-smartkarma-citation="entities:8357:1" rel="noopener">Adobe Systems (ADBE US)</a> or <a href="https://www.smartkarma.com/entities/autodesk-inc" target="_blank" data-smartkarma-citation="entities:13211:1" rel="noopener">Autodesk Inc (ADSK US)</a> like transition, Guidewire will fail to deliver the expected “Adobe-like” rebound in revenue growth and profits due to a weak value proposition and inability to migrate much of its installed base. Our EPS estimates are ~25% below consensus. Despite the recent pullback on 1Q20 earnings, Guidewire still trades 10-11x price / forward sales, or ~25-30% above its historical 7-8x range. Put together, Guidewire could see as much as 50-60% downside from today’s ~$105.</p></div><div><ul>
<li>Base Case PT: $80                     </li>
<li>Upside PT: $120                                   </li>
<li>Bear Case PT: $55</li>
</ul></div><div>
<p>In Part I, we examined Guidewire's history, TAM, and competitive positioning. </p>
<p>In Part II, we walked through why the Street is misunderstanding the short case.</p>
<p>In this part, we walk through Guidewire's management and culture, along with its holders, investor positioning, and how we arrive at our price target. </p>
</div>

Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.Summary: Guidewire Software (GWRE US), the leading provider of core system software for the P&amp;C insurance industry is in the early stages of a SaaS business model transition. While the market is pricing in a smooth Adobe Systems (ADBE US) or Autodesk Inc (ADSK US) like transition, Guidewire will fail to deliver the expected “Adobe-like” rebound in revenue growth and profits due to a weak value proposition and inability to migrate much of its installed base. Our EPS estimates are ~25% below consensus. Despite the recent pullback on 1Q20 earnings, Guidewire still trades 10-11x price / forward sales, or ~25-30% above its historical 7-8x range. Put together, Guidewire could see as much as 50-60% downside from today’s ~$105.
Base Case PT: $80                     
Upside PT: $120                                   
Bear Case PT: $55

In Part I, we examined Guidewire's history, TAM, and competitive positioning. 
In Part II, we walked through why the Street is misunderstanding the short case.
In this part, we walk through Guidewire's management and culture, along with its holders, investor positioning, and how we arrive at our price target. 


Guidewire Software: Short This SaaS Transition III (Management, Culture, Valuation)

<div>
<div>
<div class="content-highlight">
<p>Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</p>
</div>
</div>
</div>
<div>
<p>Summary: <a href="https://www.smartkarma.com/entities/guidewire-software-inc" target="_blank" data-smartkarma-citation="entities:15448:1" rel="noopener">Guidewire Software (GWRE US)</a>, the leading provider of core system software for the P&amp;C insurance industry is in the early stages of a SaaS business model transition. While the market is pricing in a smooth <a href="https://www.smartkarma.com/entities/adobe-systems-inc" target="_blank" data-smartkarma-citation="entities:8357:1" rel="noopener">Adobe Systems (ADBE US)</a> or <a href="https://www.smartkarma.com/entities/autodesk-inc" target="_blank" data-smartkarma-citation="entities:13211:1" rel="noopener">Autodesk Inc (ADSK US)</a> like transition, Guidewire will fail to deliver the expected “Adobe-like” rebound in revenue growth and profits due to a weak value proposition and inability to migrate much of its installed base. Our EPS estimates are ~25% below consensus. Despite the recent pullback on 1Q20 earnings, Guidewire still trades 10-11x price / forward sales, or ~25-30% above its historical 7-8x range. Put together, Guidewire could see as much as 50-60% downside from today’s ~$105.</p>
</div>
<div>
<ul>
<li>Base Case PT: $80                     </li>
<li>Upside PT: $120                                   </li>
<li>Bear Case PT: $55</li>
</ul>
<p>In Part I, we examined Guidewire's history, TAM, and competitive positioning. In this piece, we walk through the mechanics of the short case. </p>
</div>




Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.




Summary: Guidewire Software (GWRE US), the leading provider of core system software for the P&amp;C insurance industry is in the early stages of a SaaS business model transition. While the market is pricing in a smooth Adobe Systems (ADBE US) or Autodesk Inc (ADSK US) like transition, Guidewire will fail to deliver the expected “Adobe-like” rebound in revenue growth and profits due to a weak value proposition and inability to migrate much of its installed base. Our EPS estimates are ~25% below consensus. Despite the recent pullback on 1Q20 earnings, Guidewire still trades 10-11x price / forward sales, or ~25-30% above its historical 7-8x range. Put together, Guidewire could see as much as 50-60% downside from today’s ~$105.



Base Case PT: $80                     
Upside PT: $120                                   
Bear Case PT: $55

In Part I, we examined Guidewire's history, TAM, and competitive positioning. In this piece, we walk through the mechanics of the short case. 


Guidewire Software: Short This SaaS Transition II (Building the Short Case)

<div class="content-highlight">
<p>Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</p>
</div>
<p><strong>Summary</strong>: <a href="https://www.smartkarma.com/entities/guidewire-software-inc" target="_blank" data-smartkarma-citation="entities:15448:1" rel="noopener">Guidewire Software (GWRE US)</a>, the leading provider of core system software for the P&amp;C insurance industry is in the early stages of a SaaS business model transition. While the market is pricing in a smooth <a href="https://www.smartkarma.com/entities/adobe-systems-inc" target="_blank" data-smartkarma-citation="entities:8357:1" rel="noopener">Adobe Systems (ADBE US)</a> or <a href="https://www.smartkarma.com/entities/autodesk-inc" target="_blank" data-smartkarma-citation="entities:13211:1" rel="noopener">Autodesk Inc (ADSK US)</a> like transition, Guidewire will fail to deliver the expected “Adobe-like” rebound in revenue growth and profits due to a weak value proposition and inability to migrate much of its installed base. Our EPS estimates are ~25% below consensus. Despite the recent pullback on 1Q20 earnings, Guidewire still trades 10-11x price / forward sales, or ~25-30% above its historical 7-8x range. Put together, Guidewire could see as much as 50-60% downside from today’s ~$105.</p>
<ul>
<li><strong>Base Case PT: $80                      </strong></li>
<li><strong>Upside PT: $120                                    </strong></li>
<li><strong>Bear Case PT: $55</strong></li>
</ul>
<p>The Insight is meant to be used by investors as a road map to evaluate Guidewire’s  progress over the next few quarters. We start with a Best Working Thesis which reflects our initial conclusions from the case study. Key Questions positively answered would make us incrementally more bullish, while evidence of rising Thesis Threats may potentially puncture our view.</p>


Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.

Summary: Guidewire Software (GWRE US), the leading provider of core system software for the P&amp;C insurance industry is in the early stages of a SaaS business model transition. While the market is pricing in a smooth Adobe Systems (ADBE US) or Autodesk Inc (ADSK US) like transition, Guidewire will fail to deliver the expected “Adobe-like” rebound in revenue growth and profits due to a weak value proposition and inability to migrate much of its installed base. Our EPS estimates are ~25% below consensus. Despite the recent pullback on 1Q20 earnings, Guidewire still trades 10-11x price / forward sales, or ~25-30% above its historical 7-8x range. Put together, Guidewire could see as much as 50-60% downside from today’s ~$105.

Base Case PT: $80                      
Upside PT: $120                                    
Bear Case PT: $55

The Insight is meant to be used by investors as a road map to evaluate Guidewire’s  progress over the next few quarters. We start with a Best Working Thesis which reflects our initial conclusions from the case study. Key Questions positively answered would make us incrementally more bullish, while evidence of rising Thesis Threats may potentially puncture our view.

Guidewire Software: Short This SaaS Transition I (Fundamentals)

United States

Guidewire Software Inc. develops and publishes enterprise software for the property and casualty insurance industry. The Company's software supports the workflow, collaboration with external partners, and rule-based decision-making that characterize modern underwriting and claims operations.

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Guidewire Software (GWRE US)

Bairong IPO Valuation: Appealing Valuation

We believe Bairong’s IPO is attractively priced given strong key FSP client base, ability to generate higher revenue per key FSP Client and better...

Shifara Samsudeen, ACMA, CGMA

U.S. Equity Strategy: Buy The Dips

Despite our concerns regarding the growing performance disparity between the haves (e.g., Technology, FAANG, mega-caps, growth) and the have nots...

Vermilion Research

Guidewire Software: Short This SaaS Transition III (Management, Culture, Valuation)

Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental...

Aaron Gabin

Guidewire Software: Short This SaaS Transition II (Building the Short Case)

Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental...

Aaron Gabin

Guidewire Software: Short This SaaS Transition I (Fundamentals)

Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental...

Aaron Gabin

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