In this briefing:
- UUUM (3990) Phenomenal Growth but at a Price.
- China Tower Results Confirm Lower Capex Outlook, but Were Otherwise Mixed
- Speedcast: Back on Track
- MYOB (MYO AU): Head for the Exit
- NIO (NIO US): Lock-Up Expiry – This Could Get Messy
1. UUUM (3990) Phenomenal Growth but at a Price.
This has been a fantastic performer. Since our buy note one year ago, the shares are up just over 3 times. Earnings growth has been very strong, and much better than we had anticipated. The story is even better now than it was then. Unfortunately, the valuations are not! The company is very focussed on growing revenue for the time being. If one is happy to buy a very fast growing new business, then this is still worth looking at.
2. China Tower Results Confirm Lower Capex Outlook, but Were Otherwise Mixed
China Tower (788 HK) reported 4Q18 results that looks slightly disappointing. However, they did deliver strong net profit, confirmation that capex is likely to materially undershoot guidance, and the first dividend for the company. However, while that is positive, there were areas of disappointment, with weaker revenue growth and EBITDA.
Our view remains that China Tower’s shares are relatively undervalued and expect share prices to continue to move higher over time, as the stock reflects its inflecting ROIC. It remains our favored name in China given the risks of policy driven over-investment into 5G (see Chinese Telcos: Rising 5G Capex Risk Leads to Another Downgrade).
3. Speedcast: Back on Track
Speedcast International (SDA AU) recently reported FY18 (Dec YE) results which showed a solid recovery in 2H. That has allowed the stock to start to recover from a torrid 1H18 performance which saw targets missed. The strong recovery in operating performance in 2H18 has allowed Ian Martin to reset forecasts and he now looks for the EBITDA margin to increase steadily as acquisitions are bedded down. By FY20, we expect Speedcast to be in a much stronger position as rising cash flow leads to lower debts. We have a new 12m target price of A$4.40 based on 11.7x FY20F EPS. We expect SpeedCast to be in a materially better operating position as it moves into FY20, and good cash flow will be used to reduce debt through the year. Operating execution in 1H19 is crucial.
4. MYOB (MYO AU): Head for the Exit
On 5 March 2019, Manikay Partners, an 11% shareholder, wrote to MYOB Group Ltd (MYO AU) chairman Justin Milne to reveal that it believed that KKR & Co Inc (KKR US)’s recommended offer of $3.40 cash per share was too low due to the significant market rally and normalisation of financing markets.
Manikay believes MYOB is worth well in excess of A$4.00 per share. Manikay intends to use the threat of a shareholder rejection to get KKR to sweeten its bid, in our view. However, we believe that KKR has little reason to increase its bid. With the shares just 1 cent below KKR’s revised proposal, we believe shareholders should cash out.
5. NIO (NIO US): Lock-Up Expiry – This Could Get Messy
Yesterday, NIO Inc (NIO US)’s share tumbled 20% on the back of poor 1Q19 guidance. NIO warned that deliveries of ES8, its electric SUV, have been sluggish so far in 2019 and scrapped plans to build its Shanghai Manufacturing Plant. NIO blamed the slump on uncertainty over government subsidies for electric vehicles, China’s slowing economy and disruption caused by the Chinese New Year holidays.
The weak guidance could not come at a worse time as its six-month lock-up period expires on 11 March 2019. We continue to remain bears on NIO and believe that the lock-up expiry will lead to further share price weakness.
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