Netflix is raising another US$2 billion in debt to fund additional content creation and other expenses, the company announced on Monday. The company routinely raises debt to help fuel its growing library of original TV shows and movies. The streaming giant offered US$2 billion in new debt in April after issuing another round of notes several months earlier. Netflix said it plans to use the proceeds to fund "Content acquisitions, production and development, capital expenditures, investments, working capital and potential acquisitions and strategic transactions.". We’re unsurprised and anticipate the competition will also up their game to capture market share – all the better for the localisation market.
Companies: 7DIG KAPE ZOO AMO AVST CNS DFX ECSC FLX IGP NCC OSI MIRA
Cloudflare, a California-based digital content delivery and Internet security company, raised its IPO price range this morning from a prior $10 to $12 interval to $12 to $14 per share. At its new prices, Cloudflare would be valued between $3.5 billion and $4.1 billion. Cloudflare's maximum IPO fund raise is now $563.5 million. Investors’ appetite for cloud offerings appears to remain robust. Ex- Oculus founder, Palmer Luckey’s new business, Anduril Industries, is building a virtual wall on the southern border of the US. His new venture is being valued at more than $1 billion in a new fundraising round, according to sources. Anduril describes itself as a company that "Invents and builds technology to secure America and its interests.". Virtual border controls feel like a natural evolution of physical barriers for a digital era. The Tokyo Game Show, Japan’s video gaming mega-conference, opened on Thursday with enthusiasts testing how ultra-high-speed 5G mobile data networks will impact the gaming experience ahead of the technology's commercial rollout in Japan in 2020. Game makers, related network developers, and esports promoters cite expect to benefit from nextgeneration wireless networks that are expected to allow players of increasingly popular online games to utilize faster downloads and smoother connections. 5G’s influence is only beginning to rise as coverage is rolled out.
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Alan Howard’s push into crypto is a badly kept secret that appears to be crystallising into reality. In our view, the crypto space has undergone a very interesting transition from rampant retail speculation to, well, rampant retail speculation underpinned by a broad base of institutional interest. Google search volumes have fallen, transaction sizes appear to be escalating and the latest wave of equipment upgrades suggest consumer interest and potential to participate is now very low. Meanwhile, increased macro risk, currency controls and privacy concerns may be fuelling increased interest. We await further signs of whether we are at a turning point or whether this is (another) flash in the pan. Apple’s woes appear to be mounting as the group undergoes a difficult transition from a lifetime of focus on aesthetically pleasing hardware with a highly refined user experience, to a services focus. On one hand, the group’s key product the iPhone (which accounted for most revenues until very recently) is rapidly entering commoditised territory. Consumers have the option of a powerful and near fully-featured £160 generic Android handset or a cutting-edge iPhone for £1,000; for many, the choice is a simple one. The supply chain woes of having massive exposure to China in the context of the US-China trade war is also likely to weigh heavily on short term strategy. On the other hand, the group’s services are consumer focused and face strong competition from the likes of Amazon, Spotify, Microsoft and Netflix. If the thesis was to build the services on a firm foundation of the Apple hardware base, the cracks in security are worrying.
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VMware said on Thursday it bought two providers of cloud security and cloud developer services in separate deals valued at about $5 billion, as it expands offerings for corporate clients. VMware bought Pivotal Software Inc in a $2.7 billion deal. Separately, VMware said it would buy software maker Carbon Black Inc for about $2 billion in cash.
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Tencent shares slumped as much as 3.88% on Thursday after the Chinese technology giant missed analyst expectations, despite beating forecast on earnings. Revenue rose 21% year-on-year to 88.82 billion yuan. Profit attributable to shareholders beat analyst forecasts, rising 35% year-on-year to 24.14 billion yuan. The company's gaming division returned to growth, posting revenue of 27.3 billion yuan, up 8% year-on-year, with mobile games performing particularly well.
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British Airways said its flights were returning to normal after passengers had to endure cancellations, delays and long queues at London airports as the airline suffered its third major computer failure in a little more than two years. More than 60 flights to and from Heathrow and Gatwick were cancelled and more than 100 were delayed, according to the departure boards at the two airports.
Companies: KAPE AVST CNS DFX ECSC FLX IGP NCC OSI SOPH SWG
Capital One announced on Monday that a data breach identified earlier this month exposed personal information of its customers, including social security details and bank account numbers. The Virginia-headquartered bank said in a news release that about 140,000 Social Security numbers of its credit card customers and around 80,000 linked bank account numbers were compromised. In total, Capital One said, "This event affected approximately 100 million individuals in the United States and approximately 6 million in Canada." Qualcomm and Tencent said on Monday they will cooperate on projects that could include making the Chinese company's videogames play better on devices with Qualcomm chips, and create a 5G version of a Tencent-backed gaming phone. Microsoft yesterday announced the acquisition of BlueTalon, a start-up whose software can prevent people from accessing certain high-value data that companies keep. Over time, the acquisition could help Microsoft's campaign to get companies feeling more comfortable with the idea of keeping sensitive data in its Azure public cloud, which competes with Amazon and other companies.
Companies: KAPE AVST CNS DFX ECSC FLX IGP NCC OSI SOPH BIDS CDM GFIN FDEV KWS SUMO TM17 SWG
The Senate Banking Committee on Monday released the testimony of David Marcus, the head of Facebook's cryptocurrency projects ahead of his testimony Tuesday. In his prepared remarks, Marcus perfectly outlines the business model behind the social network’s upcoming Libra digital currency and its Calibra digital wallet. Microsoft might be the primary competitor for Slack, but the widespread adoption of Microsoft's software is not a major problem for Stewart Butterfield, co-founder and CEO of the messaging app. Last week, Microsoft said Teams had more daily active users than Slack. Cybersecurity company Symantec Corp has walked away from negotiations to sell itself to chipmaker Broadcom over price disagreements, people familiar with the matter said on Monday. Symantec's decision raises new questions over the future of the US antivirus software provider, which is looking for a new CEO and has been struggling to grow its business serving companies.
Australia's top three banks said on Thursday they have agreed to partner with IBM and shopping mall owner Scentre Group to test blockchain technology to digitize bank guarantees. The companies are exploring how to move away from paper-based bank guarantees to cut processing time and the risk of fraud, Australia and New Zealand Banking Group, Westpac Banking Corp and Commonwealth Bank of Australia said in a statement. The US government said on Wednesday it was reviewing licence requests from US companies seeking to export products to China's Huawei "Under the highest national security scrutiny" since the company is still blacklisted. In an email to Reuters, the Commerce Department said that as it reviewed applications, it was applying the "Presumption of denial" standard associated with Entity Listed companies, meaning applications are unlikely to be approved. Symantec shares surged more than 20% in extended trading on Tuesday after Bloomberg reported that Broadcom is in advanced talks to acquire the security software vendor. The deal is reported to be worth more than $16bn, implying an EV/Sales multiple of 3.40x (Bloomberg). Agreement on a deal was close but could be delayed until after the July 4 holiday, according to people briefed on the move.
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Companies: KAPE AMO IQE AVST CNS DFX ECSC FLX IGP NCC OSI SOPH
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The FY 2020 results are in line with our expectations and reflect the impact of the previously announced switch from large perpetual licences to recurring annual term licences during the year. Despite the COVID strictures, with its large global partnerships, D4t4 continues to close numerous lucrative data gathering and data management contracts with major blue-chips around the world. It is successfully converting a high proportion of its new sales to recurring revenue contracts, but this will sacrifice growth and earnings in FY 2020 and FY 2021. Nevertheless, with growing recurring revenue base, an exciting pipeline and a very strong balance sheet, D4t4 is very well positioned for continued long-term growth and security.
Companies: D4T4 Solutions
GB Group reported strong performance in FY20 and started taking measures to preserve cash in Q420. Trading in Q121 has been mixed and while management is unwilling to provide guidance for FY21, it has confidence that in the longer term it is well positioned to benefit from the acceleration in digital transformation that should drive demand for its identity data intelligence services. We have upgraded our EPS forecasts by 5% in FY21 and 3% in FY22.
Companies: GB Group
CentralNic’s capital markets day (CMD) on 24 June 2020 introduced the divisional management team and provided insight on each of the three key segments as they will report in FY20: Indirect (Wholesale, Registry); Monetisation (Team Internet); and Direct (Retail, Corporate). We have picked out what we believe are the four key themes from the CMD: FY20 performance, COVID-19 and seasonality; organic growth; M&A; and, pulling it all together, the benefit of scale. CentralNic continues to trade on an FY20 EV/EBITDA of 9.1x and a P/E of 15.8x, a material discount to its peer group, with our DCF indicating further share price upside. M&A could bring CentralNic’s multiples down further.
Companies: Centralnic Group
Touchstar is a supplier of mobile data computing solutions and managed services to a variety of industrial sectors. This morning, the group has provided a trading update to coincide with its AGM.
Encouragingly, the business continues to perform in line with the trends seen at the time of the full year results in May and the Board anticipates Touchstar will be profitable in the six months to 30 June. Cash generation is again reported to have been good, with ‘significantly higher cash balances' expected to be reported than at the beginning of the year (FY 2019A £850k). The group has drawdown a CBIL of £150,000, which provides additional liquidity alongside its undrawn banking facilities of £300,000. Looking ahead, the order book is a more normal level than last reported at over £500,000 at the end of June, which compares to an exceptionally strong £1.2m at the beginning of the year.
FY20 results: inline with guidance
LoopUp has provided an update on trading to coincide with today’s AGM…in essence, the group continues to see activity “materially” above pre-COVID levels, and is confident of exceeding expectations for 2020. We choose to leave our forecasts (that we believe to be roughly in line with consensus estimates) unchanged for now, in advance of further detail likely with a fuller H1 update in early July.
Companies: Loopup Group
CentralNic's CMD gave us new positive insights into the company's investment case. CentralNic's organic growth is stronger than we thought, the Direct division generates high ROI, the monetisation market was shown to be critical to the domain name market, Team Internet's market leadership was further reinforced and acquisition opportunities were shown to be larger than anticipated. These investment views are not reflected in CentralNic's low valuation multiples, in our view.
Blackbird plc* (BIRD.L, 19.25p/£64.7m) | Mirada plc* (MIRA.L, 92.5p/£8.2m) | Tern plc* (TERN.L, 10.75p/£29.0m) | Checkit plc (CKT.L, 39.5p/£24.5m)
Companies: BIRD MIRA MIRA TERN CKT
Gresham continues to show strong progress in difficult times. 18% yoy organic growth in Clareti ARR is amongst the fastest growth of any UK software company. It is being achieved because Gresham has built a disruptive product that is now replacing incumbents at Tier 1 financial institutions around the world. These results underpin our FY20 EBITDA expectations. The implied valuation of Clareti’s ARR is <6x revs, which we think offers value for an emerging leader.
Companies: Gresham Technologies
ECSC Group plc* (ECSC.L, 71.5p/£7.2m) | Trackwise Designs plc (TWD.L, 90.5p/£20.0m) | Transense Technologies plc (TRT.L, 59.5p/£9.7m)
Companies: ECSC Group Trackwise Designs
The Coronavirus pandemic is a human tragedy of vast proportions – as well as the terrible human toll, COVID-19 has led to economies across the globe going into physical lockdown and financial freefall. Entire populations are adapting to the “stay at home” edict, to safeguard the vulnerable – and some of these changes will lead to long-lasting or perhaps permanent changes in the way we live or work. This note describes some of our client companies whose business models are well adapted to these changes, or who might see a change in long-term structural demand.
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Today’s update is a positive one and acts as a reminder of DOTD’s solid and recurring business model. Such visibility, combined with excellent profitability (30% AOP margin) and strong cash resources (£22.6m net) means the company is strongly placed for a challenging macro environment, and worthy of attention in view of indiscriminate SP weakness. At a time, when many companies are seeing sales fall, DOTD has today revealed that demand continues to grow – evidencing DOTD’s secular growth drivers and omnichannel opportunity. New business is however taking longer to convert, as events and businesses have seen disruption. Offset against this, retention has improved, as customers’ digital transformation plans have slowed. Related to this, we also highlight that key customer risk is very low, as no customer represents >1.5%/sales, furthermore sector exposure is diversified. In view of today’s update, we therefore reduce FY20E sales by £2m to £46.8m, but flag that this still implies 6% growth in H2. DOTD has meanwhile identified savings (by reallocating its marketing budget) such that FY20E profit remains unchanged. Notwithstanding the company’s solid (90% recurring) business model, we view it conservative to withdraw FY21&22 estimates, given the potential for prolonged disruption. Despite this, much confidence can be taken from the company’s strong financial profile and growth opportunities, which (we view) will be unaffected longer term.
Companies: Dotdigital Group
Idox has reported strong financial and operational progress in its H1 FY20 (the six months to April, only latterly affected by COVID-19) with headline numbers in line with its recent trading update and notable cost control and margin improvement. H1 20 reflects a good performance by a business that has been revitalised, with a ‘cloud-first’ approach, by the current management team. The Group also introduced new marketing strategies which are more closely aligned with product management. Idox continues to trade in line with market expectations and cash collection has been better than expected while the Group continues to win new business and deliver services. Management states that Idox remains in line with its existing forecasts and we note the resilience shown by the business in the current environment. We leave estimates unchanged.
We are introducing our Best Ideas for 2019 and also review the performance of last year’s picks. We suggest ten solidly financed stocks with good business dynamics that ought to be considered for core portfolio holdings and six UK domestically focused stocks that our analysts believe should perform strongly in the event that uncertainties unwind. We also introduce a new style of research from N+1 Singer which presents a Company’s dynamics and metrics in a clear and concise manner and concentrates on the pivotal issues affecting that Company and an investment decision.
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