In this briefing:
- Facebook Inc. – Is Consensus Overly Cautious?
- GMO Internet Reports Solid FY12/18 Despite Heavy Losses Incurred in Crypto Mining Business
- U.S. Equity Strategy: Upgrading Manufacturing Sector
1. Facebook Inc. – Is Consensus Overly Cautious?
Facebook Inc A (FB US) is a bellwether stock for the equity markets. Although the market capitalisation is approaching $475 billion, the Company is still considered a growth stock. In our view, 2019 could be a pivotal year for the Company after a lack lustre 2018, when FB, although volatile, underperformed the NASDAQ. We believe that investors are underestimating revenue growth for 2019 and that FB is likely to surprise to the upside in Q1-19.
2. GMO Internet Reports Solid FY12/18 Despite Heavy Losses Incurred in Crypto Mining Business
GMO Internet, Inc. (9449 JP) announced its consolidated financial results for its full-year FY12/18 yesterday (12th February). Despite heavy losses incurred in the cryptocurrency mining business in FY12/18, GMO managed to achieve a solid year with 20% YoY growth in top-line alongside a 23.5% YoY growth in operating profits. Excluding the crypto losses, the operating profit increased 35.7% YoY, with an OPM of 13.2% compared to 11.4% reported a year ago. For the full-year, the company has reported a net loss of JPY20.7bn as opposed to a net profit of JPY8bn in FY12/17, blaming the crypto losses for the decline. For FY12/18, the management has proposed a dividend of JPY29.5 per share (compared to JPY23 paid in FY12/17) in spite of reporting net losses for the fiscal year. Further, the company has also allocated JPY1.36bn (equivalent to 0.7% of outstanding shares at the current price) for share repurchases in FY2019.
JPY (bn) | FY12/17 | FY12/18 | YoY Change | FY12/18 Excluding Crypto | FY12/18 Excl. Crypto Vs. FY12/17 | Consensus | Company Vs. Consensus |
Revenue | 154.3 | 185.2 | 20.1% | 180.9 | 17.3% | 183.3 | 1.0% |
Operating Profit | 17.6 | 21.8 | 23.5% | 23.9 | 35.7% | 22.8 | -4.5% |
OPM | 11.4% | 11.8% |
| 13.2% | 12.4% |
| |
Net Profit | 8.0 | -20.7 | -357.9% | 8.4 | 4.1% |
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GMO is currently trading at JPY1,741 per share which we believe is undervalued compared to its combined equity stake in 8 listed subsidiaries. The company share price has lost more than 40% since it peaked in June last year due to the negativity surrounding its cryptocurrency and mining segment. However, we believe further downside is limited as the company has closed down a majority of its mining related business which weighs very little on the consolidated performance of the company. Further, the company’s key businesses, Internet Infrastructure, Online Advertising & Media and Internet Finance generate solid recurring revenues, which should help the company achieve strong growth. Following its earnings announcement, the share price gained 5.6% from the previous days close.
3. U.S. Equity Strategy: Upgrading Manufacturing Sector
The S&P 500 continues to hover below critical resistance at its 200-day moving average while market participants remain in a wait-and-see mode for new developments on U.S.-China trade and details on the latest border security proposal. At the same time, breadth improvements have extended to our Manufacturing Sector – a welcomed sight given its cyclical nature. We are Upgrading Manufacturing to market weight from underweight. Our cap-weighted Manufacturing Sector has steadily improved in our RSR ranks due in large part to strength in Aerospace & Defense Groups. In today’s report we highlight attractive Groups within Manufacturing and Technology..
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