Independent research on the U.S. markets, Baptista Research

Baptista Research

Independent research on the U.S. markets

Baptista Research is an independent financial research house focused on the U.S. markets. We provide equity research as well as credit research reports on the top-listed U.S. companies with most of our focus on technology, consumer goods and services, automobiles, industrials, oil and gas, pharma, and healthcare. Our research has served more than 3000 institutional investors including mutual funds, hedge funds, banks, family offices, and various buy-side firms. We operate a research subscription service where institutions, as well as retail investors, can have priority access to all our research. We also have a wide distribution of our research reports across some of the top global financial platforms. Apart from equity research and credit research, we also provide advisory services with respect to mergers & acquisitions (M&A), private equity/ venture capital fundraising, valuation reports, and investment management services for corporates.
Baptista Research is owned and managed by Ishan Majumdar, an ex-Venture Capitalist/ Investment Banker, a Chartered Accountant, and a Masters’ degree holder in Management from HEC Paris. Ishan has nearly a decade of experience in Mergers and Acquisitions, Leveraged Buyouts (LBOs), Venture Capital Investing, Corporate Strategy, and Valuation in front-office roles at the likes of BNP Paribas CIB, Credit Agricole CIB, Groupe Danone, and TIW Private Equity. He has worked on and closed multiple acquisition deals, leveraged buyouts, and start-up investment transactions.

Equity Capital Markets

Hewlett Packard Co / Equity Capital Markets

<ul><li>HP Inc delivered a mediocre result with a revenue growth of 7% that was below our expectations.</li><li>However, the company’s non-GAAP net earnings increased 71% to $1.2 billion which was far ahead of what the Wall Street had anticipated.</li><li>HP’s strong cash flow generation continued as it generated $1 billion of free cash flow, returning $1.7 billion to shareholders.</li></ul>

HP Inc delivered a mediocre result with a revenue growth of 7% that was below our expectations.However, the company’s non-GAAP net earnings increased 71% to $1.2 billion which was far ahead of what the Wall Street had anticipated.HP’s strong cash flow generation continued as it generated $1 billion of free cash flow, returning $1.7 billion to shareholders.

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

On Friday post market close, S&amp;P Dow Jones announced the results of the March review for the <a href="https://www.smartkarma.com/entities/s-p-500" target="_blank" data-smartkarma-citation="entities:22886:1" rel="noopener">S&amp;P 500 (SPX INDEX)</a> that will be effective after the close of trading on 19 March.There are 4 additions - <a href="https://www.smartkarma.com/entities/nxp-semiconductors-nv" target="_blank" data-smartkarma-citation="entities:9801:1" rel="noopener">Nxp Semiconductors Nv (NXPI US)</a>, <a href="https://www.smartkarma.com/entities/penn-national-gaming-inc" target="_blank" data-smartkarma-citation="entities:5588:1" rel="noopener">Penn National Gaming (PENN US)</a>, <a href="https://www.smartkarma.com/entities/generac-holdings-inc" target="_blank" data-smartkarma-citation="entities:16223:1" rel="noopener">Generac Holdings (GNRC US)</a> and <a href="https://www.smartkarma.com/entities/caesars-entertainment-corp" target="_blank" data-smartkarma-citation="entities:15532:1" rel="noopener">Caesars Entertainment (CZR US)</a>. To balance that out, there are 4 deletions - <a href="https://www.smartkarma.com/entities/flowserve-corp" target="_blank" data-smartkarma-citation="entities:20555:1" rel="noopener">Flowserve Corp (FLS US)</a>, <a href="https://www.smartkarma.com/entities/sl-green-realty-corp" target="_blank" data-smartkarma-citation="entities:1548:1" rel="noopener">Sl Green Realty (SLG US)</a>, <a href="https://www.smartkarma.com/entities/xerox-holdings-corp" target="_blank" data-smartkarma-citation="entities:17585:1" rel="noopener">Xerox Corp (XRX US)</a> and <a href="https://www.smartkarma.com/entities/vontier-corp" target="_blank" data-smartkarma-citation="entities:28857:1" rel="noopener">Vontier Corp (VNT US)</a>.We estimate one-way turnover will be around US$22.4bn and the funding trade will see selling on a lot of the current index constituents.The biggest impact of the changes will be on <a href="https://www.smartkarma.com/entities/nxp-semiconductors-nv" target="_blank" data-smartkarma-citation="entities:9801:1" rel="noopener">Nxp Semiconductors Nv (NXPI US)</a> where we estimate passive funds will need to buy around 11 days of ADV on the stock. The impact on the other stocks is much lower due to the move between the <a href="https://www.smartkarma.com/entities/s-p-500" target="_blank" data-smartkarma-citation="entities:22886:1" rel="noopener">S&amp;P 500 (SPX INDEX)</a> and the S&amp;P Mid Cap 400 indices.

On Friday post market close, S&amp;P Dow Jones announced the results of the March review for the S&amp;P 500 (SPX INDEX) that will be effective after the close of trading on 19 March.There are 4 additions - Nxp Semiconductors Nv (NXPI US), Penn National Gaming (PENN US), Generac Holdings (GNRC US) and Caesars Entertainment (CZR US). To balance that out, there are 4 deletions - Flowserve Corp (FLS US), Sl Green Realty (SLG US), Xerox Corp (XRX US) and Vontier Corp (VNT US).We estimate one-way turnover will be around US$22.4bn and the funding trade will see selling on a lot of the current index constituents.The biggest impact of the changes will be on Nxp Semiconductors Nv (NXPI US) where we estimate passive funds will need to buy around 11 days of ADV on the stock. The impact on the other stocks is much lower due to the move between the S&amp;P 500 (SPX INDEX) and the S&amp;P Mid Cap 400 indices.

S&P500 Index Rebalance: NXPI Is the One to Watch

Director | Exposing Creative Accounting, Bucephalus Research Partnership

Robert Medd

Director | Exposing Creative Accounting

Exposing Creative Accounting

Bucephalus Research Partnership

Bucephalus Research Partnership Limited. Exposing Creative Accounting.

At the Bucephalus Research Partnership (BRP) we analyse financial statements using our accountant's practical experience and our own quantitative algorithms for corporate governance, accounting risk and peer performance.

Our thematic research refines our unique algorithms while our single stock research focuses on examples where we discover a significant gap between published accounts and business reality.

​Bucephalus Research Partnership:
- Is an independent fee-based research service
- Does not take proprietary positions, long or short
- Does not solicit business or fees from the corporates we review

Equity Bottom-Up

Lenovo presents itself as a dynamic IT company, well positioned to benefit from the growth in connectivity. It talks about taking share and record profits. We think the reality is quite different. Lenovo is primarily a hardware manufacturer with commodity margins that grows via acquisitions. It has branched out into data centres and some tech services, but these remain limited and possibly loss making.  The problem is that both liabilities and funding costs are rising. The new US$1bn bond cost 5.875%, exceeding last year’s 4.5% operating return and above our forecast return for FY2021. Cashflow would have been negative without the fall in receivables and the endless fund raising suggests that the cash pile is not all that it seems. SELL.<iframe src="//www.youtube.com/embed/g-kFNPSUZiE" width="640" height="360"></iframe><a href="https://youtu.be/g-kFNPSUZiE" target="_blank" rel="noopener"></a>

Lenovo presents itself as a dynamic IT company, well positioned to benefit from the growth in connectivity. It talks about taking share and record profits. We think the reality is quite different. Lenovo is primarily a hardware manufacturer with commodity margins that grows via acquisitions. It has branched out into data centres and some tech services, but these remain limited and possibly loss making.  The problem is that both liabilities and funding costs are rising. The new US$1bn bond cost 5.875%, exceeding last year’s 4.5% operating return and above our forecast return for FY2021. Cashflow would have been negative without the fall in receivables and the endless fund raising suggests that the cash pile is not all that it seems. SELL.

Sell Lenovo (992 HK) FY2020: Falling Revenue, Rising Debts

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.

<ul>
<li>Lenovo, the world’s largest personal computer vendor (by unit sales) is currently trading close to its 12-month low at HK$3.89 per share. The company shares have lost around 44% of their value over the last 12-months from HK$7 per share to HK$3.89 per share (as at 30th March 2020).</li>
<li>Company earnings have been volatile over the years due to the cyclicality of its business (PCs and smart devices) and at the same time, the company’s product roll-outs in its mobile business (Motorola) have failed to impress tech savvy customers and as a result, failed to gain share in the market.</li>
<li>The PC and smart devices business remains a solid cash cow for Lenovo while its mobile business continues to decline. Lenovo’s data center business is the only promising business in its portfolio, however, the data center operations are still too small to make a large impact on the company’s earnings and valuation.</li>
<li>It makes sense for us to call Lenovo “a Fallen Angel” as the company has failed to make use of the growth opportunities in the market and has stumbled when trying to impress investors due to delays in product roll-outs, heavy competition in the markets in which the company operates, high leverage and exposure to the ongoing trade war between the US and China.</li>
<li>We expect the company to start generating strong cash flows in the next 2-3 years and we believe it would be an attractive candidate based on potential future cash flow generation.</li>
</ul>


Lenovo, the world’s largest personal computer vendor (by unit sales) is currently trading close to its 12-month low at HK$3.89 per share. The company shares have lost around 44% of their value over the last 12-months from HK$7 per share to HK$3.89 per share (as at 30th March 2020).
Company earnings have been volatile over the years due to the cyclicality of its business (PCs and smart devices) and at the same time, the company’s product roll-outs in its mobile business (Motorola) have failed to impress tech savvy customers and as a result, failed to gain share in the market.
The PC and smart devices business remains a solid cash cow for Lenovo while its mobile business continues to decline. Lenovo’s data center business is the only promising business in its portfolio, however, the data center operations are still too small to make a large impact on the company’s earnings and valuation.
It makes sense for us to call Lenovo “a Fallen Angel” as the company has failed to make use of the growth opportunities in the market and has stumbled when trying to impress investors due to delays in product roll-outs, heavy competition in the markets in which the company operates, high leverage and exposure to the ongoing trade war between the US and China.
We expect the company to start generating strong cash flows in the next 2-3 years and we believe it would be an attractive candidate based on potential future cash flow generation.


Lenovo: Does This Fallen Angel's Redemption Lie in an LBO

<ul><li>Xerox announced on Tuesday (31st March) that it is withdrawing its tender offer to acquire HP and will no longer seek to nominate its candidates for HP’s board of directors.</li></ul><blockquote>
“The current global health crisis and resulting macroeconomic and market turmoil caused by COVID-19 have created an environment that is not conducive to Xerox continuing to pursue an acquisition of HP Inc. (NYSE: HPQ) (“HP”). Accordingly, we are withdrawing our tender offer to acquire HP and will no longer seek to nominate our slate of highly qualified candidates to HP’s Board of Directors”
- Xerox
</blockquote><ul>
<li>The company has mentioned that it is prioritising the health, safety and well-being of its employees, customers, partners and stakeholders and its broader response to the pandemic over and above all other considerations.</li>
<li>As we highlighted in our previous insights on Xerox-HP deal, the deal was too big for Xerox who has a market cap of around US$4bn while HP has a market cap of around US$24bn. Though Xerox reiterated that it has obtained the financing required to fund the deal, we believe the ongoing Covid-19 pandemic and the resulting economic uncertainty would have made it difficult for Xerox to obtain the necessary funds.</li>
</ul>

Xerox announced on Tuesday (31st March) that it is withdrawing its tender offer to acquire HP and will no longer seek to nominate its candidates for HP’s board of directors.
“The current global health crisis and resulting macroeconomic and market turmoil caused by COVID-19 have created an environment that is not conducive to Xerox continuing to pursue an acquisition of HP Inc. (NYSE: HPQ) (“HP”). Accordingly, we are withdrawing our tender offer to acquire HP and will no longer seek to nominate our slate of highly qualified candidates to HP’s Board of Directors”
- Xerox

The company has mentioned that it is prioritising the health, safety and well-being of its employees, customers, partners and stakeholders and its broader response to the pandemic over and above all other considerations.
As we highlighted in our previous insights on Xerox-HP deal, the deal was too big for Xerox who has a market cap of around US$4bn while HP has a market cap of around US$24bn. Though Xerox reiterated that it has obtained the financing required to fund the deal, we believe the ongoing Covid-19 pandemic and the resulting economic uncertainty would have made it difficult for Xerox to obtain the necessary funds.


Xerox Calls Off Its Bid for HP Amid COVID-19 Pandemic; A 5-Months Long Battle Comes to an End

United States

HP Inc. provides imaging and printing systems, computing systems, mobile devices, solutions, and services for business and home. The Company offers products which includes laser and inkjet printers, scanners, copiers and faxes, personal computers, workstations, storage solutions, and other computing and printing systems. HP sells its products worldwide.

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Hewlett Packard Co (HPQ US)

HP Inc. - Investment Thesis

HP Inc delivered a mediocre result with a revenue growth of 7% that was below our expectations. However, the company’s non-GAAP net earnings...

Baptista Research

S&P500 Index Rebalance: NXPI Is the One to Watch

There are 4 changes to the S&P500 with NXP Semiconductors the largest beneficiary of the changes. Estimated one-way turnover is US$22.4bn and there...

Brian Freitas

Sell Lenovo (992 HK) FY2020: Falling Revenue, Rising Debts

Lenovo presents itself as a dynamic IT company, well positioned to benefit from the growth in connectivity. It talks about taking share and record...

Bucephalus Research Partnership

Lenovo: Does This Fallen Angel's Redemption Lie in an LBO

Lenovo, the world’s largest personal computer vendor (by unit sales) is currently trading close to its 12-month low at HK$3.89 per share. The...

Shifara Samsudeen, ACMA, CGMA

Xerox Calls Off Its Bid for HP Amid COVID-19 Pandemic; A 5-Months Long Battle Comes to an End

Xerox announced on Tuesday (31st March) that it is withdrawing its tender offer to acquire HP and will no longer seek to nominate its candidates...

Shifara Samsudeen, ACMA, CGMA

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