Tuesday, April 25, 2017

A current AIM Fund holding: Talend ADR (TLND) by Tim Milani. “This next generation IT firm is a solid hold"

 Talend SA Sponsored ADR (TLND, $29.30): “Big Data continues to have big potential”
By Tim Milani, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.

Talend SA Sponsored ADR (NASDAQ:TLND) is a next generation information technology company that specializes in big data and cloud integration. TLND strives to help companies become more data driven by simplifying big data through its open-sourced based solutions that allow companies to act using real time and accurate information regarding their business and industry. TLND was founded in 2005 in Suresnes, France and is currently headquartered in Redwood City, CA.  
• TLND had a great finish to 2016 with fourth quarter revenues of $30.5 million, up by 45% YoY, and the eighth consecutive quarter of increasing revenue growth.  This also represented a record revenue quarter for TLND.
• The company experienced a turnaround in its free cash flow and operating cash flow from the previous years.  In 2015 operating cash flow and free cash were both negative at -$10.0 million and -$10.8 million respectively whereas in 2016 both were positive at $3.4 million and $2.0 million respectively.
• Significant gains were made by the company in big data and active customers as a milestone of 1,500 customers was reached by the end of 2016. 130 new customers were added in Q4 2016 including Hewlett Packard. Other major customers for TLND include GE, Verizon, eBay, Comcast and Citi.
• TLND could represent an attractive target for a potential acquisition by another tech firm as it is still a smaller company with a market cap of $834.4 million and an excellent record and reputation in its industry.

Key points:  TLND is coming off its best quarter yet with a significant increases in its revenues, customers and operating cash flows and is poised to continue these trends well into 2017 due to several positive company indications.

The growth potential the company has in its largest areas of its business, big data and the cloud, which together represent over 50% of new client bookings, is substantial. The big data services market is predicted to grow at a CAGR of 22% from 2016 through 2020 as indicated in the most recent 20-F.  Moreover, the cloud services market is predicted to grow at a rate of 18% from 2017 through 2020 according to a new forecast released by Gartner. In addition, the revenue from big data and the cloud has already grown consistently for eight consecutive quarters and management is predicting this trend to increase total revenues to ~$32 million and ~$142 million for Q1 2017 and the full 2017 year respectively. 

TLND has also been actively developing a greater installed user base. Customers who pay the company over $100,000 in their annual subscription fees more than doubled in 2016 and increased to a total of 224 of TLND’s 1,500 customers. The subscription based model gives TLND’s customers an alternative to typical contracts and allows them to save money up front thus attracting them to TLND. This difference in strategy gives TLND a total cost ownership advantage of 3-8 times compared to its closest competition, Informatica.

Expansions into several Asia Pacific and emerging market European countries have proved highly successful for TLND. Revenue grew well past expectations for both regions by ~30% YoY in Europe and by ~130% YoY in the Asia Pacific region.  TLND is looking to continue its trend of successful expansions with its business in India, the largest region it has opened in recently.

What has the stock done lately?
TLND’s stock price had initially been quite volatile following its IPO on July 29, 2016.  The stock opened trading at $27.66 per share, and has had a 52 week high and low of $34.49 in August 2016 and $21.02 in December 2016 respectively. However, since its addition to the AIM fund in February 2017 at a price of $22.76 (2/6/2017) the stock has grown greatly and consistently by a total of ~29% to its current price of $29.30.  News of positive cash flow from operations, a record quarter and the addition of 130 new customers have helped propel the stock upwards since the earnings press release on 2/9/2017.

Past Year Performance: After an initial period of volatility following its IPO TLND has experienced a solid year in many areas of its business. Operating cash flow and free cash flow finally turned positive and both increased this year to $3.4 million and $2.0 million respectively. However, the company also had a net loss during 2016 of -$25.92 million.  The loss was due to a large R&D expense ($19.2 million) and SG&A expenses ($86.90 million) relative to gross income ($80.18 million).  

The reason for the large SG&A expense and R&D expense is that TLND is investing heavily in sales and marketing personnel that will be able to accommodate the greater than expected demand the company has experienced allowing for greater revenues in future years. Gross income grew by 40.81% YoY in 2016 from 2015 and the company’s stock has grown in value by 5.9% since its IPO in July.  Free cash flow and operating cash flow are predicted to be positive again in 2017.

Source: FactSet

My Takeaway
TLND was just recently pitched and added to the AIM fund in February of 2017 with a price target of $33.98 representing and upside of 49.30%.  Since that time TLND has already experienced growth of ~29% due to its increase in value from its unexpected record quarter in Q4 2016. The drivers that were originally pitched in addition to TLND’s growth potential in big data revenue, growth potential in cloud revenue, increasing installed user base and successful expansion all indicate that TLND has the potential to meet its target of $33.98. Therefore, it is recommended that TLND continue to be held within the AIM portfolio at its current position. 

Marquette University Philosophy Professor, Dr. Curtis Carter, presented his “Investing in Art” lecture to the AIM students

Dr. Curtis Carter provided a command performance for the Marquette students in the AIM and Alternative Investments classes on April 24, 2017

Dr. Curtis Carter in the AIM Room lecturing on 'Investing in Art'
On Monday, April 24, the students in Dr. David Krause’s Alternative Investments and AIM classes were visited by Dr. Curtis Carter. 

Krause stated, “Dr. Carter is a valued colleague. He is a professor of Philosophy at Marquette University, where his concentration is on aesthetics - he received a PhD from Boston University.

Image result for curtis carter marquette
Dr. Curtis Carter, Marquette professor 
Andy Warhol
Portrait of  Marilyn Monroe
Dr. Krause added, “Dr. Carter is acknowledged as an international expert and has accomplished much in his career; however, I believe his most significant achievement at Marquette University has been the creation of the Patrick and Beatrice Haggerty Museum of Art.  Dr. Carter was the founding director from 1984-2007 and he is responsible for its incredible success. The Haggerty Museum has built a greater appreciation for the arts in the Milwaukee and Marquette University community.”

Image result for rothko paintingsDr. Carter’s lecture focused on the theme of investing in art – and he showed and discussed some of the most significant works of art. Here are some of his major points about investing in art:
  • Buy Out of Style.  “The art market is cyclical”—artists go in and out of fashion, but so long as they are/were talented enough, and were popular enough, there’s a good chance that they will be back in style.
  • Buy Obscure but Important Work. Some collecting categories are improbably affordable because few people know about them.
  • Buy Outside the Narrative. The worth of a work is often tied to its art-historical significance. Yet, pieces that fall out of that historical narrative can be found for an outstanding bargain.

David Krause and Curtis Carter

According to Krause, “Dr. Carter’s lecture on both the personal and the societal importance of the visual and performing arts was greatly appreciated by the students. His lecture included material on ‘art as an investment,' which students found fascinating. He is a true friend of the AIM program and one of Marquette's greatest assets.” 

An AIM Fund holding: Golar (GLNG) by Armando Avila. “Still some solid upside for the rest of 2017"

Golar LNG Limited (GLNG, $26.67): “The Second Half of 2017 Can Prove to be Successful for Golar LNG Limited”
By: Armando Avila, AIM student at Marquette University
Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article

·      Golar LNG Limited (NASDAQ: GLNG) is a midstream liquefied natural gas (LNG) company that provides LNG shipping, storage and regasification services. The company has an established international presence in LNG and maintains a leading position in midstream.
·      LNG production is expected to increase to 292 mt in 2017, a 34 mt increase from 2016 which creates growth opportunities for Golar LNG.
·      The company has partnered with Schlumberger to maximize the efficiency of its operations in LNG.
·      Volatile charter rates, along with increased competition, are risks that can potentially reduce the company’s profitability in 2017.
·      Management remains optimistic that the company will continue to be a leader in the development of real solutions in Floating Liquefied Natural Gas (FLNG), Floating Storage and Regasification Units (FRSU) and shipping.

Key points: In 2014, the company ordered its first FLNG based on the conversion of an existing high quality LNG carrier, the Hilli Episeyo. Currently, the Hilli is in final stages of construction in Keppel, Singapore. The cost of the FLNG is on budget and expected to be completed before the end of 2017. In addition, management has stated that the company will make an initial investment in another FLNG project, the Fortuna, in Equatorial Guinea.

2017 LNG production is forecasted to exceed 2016 levels by a substantial amount. In 2017, global production of LNG is forecasted to be 292mt, a 34mt increase from 2016. Currently, there are projects underway to ramp-up liquefaction plants that are scheduled to begin operating in 2017. The vast number of projects should help the industry meet or exceed forecasts. Natural gas accounts for 25% of global energy with 10% coming in the form of LNG. These figures should increase in coming years as LNG use in transportation is expected to increase due to lower carbon dioxide emissions. GLNG is positioned to take full advantage of the industry growth through its FLNG projects and new LNG shipping agreements.

Despite recent investments and economic outlook, the company remains vulnerable to volatile charter rates. Due to the tanker markets cyclical nature, the company’s vessels profitability will depend on economic conditions in the tanker market, demand for oil and oil products, global economic conditions and changes in transportation patterns. Additionally, the company operates in the spot market, the market for chartering an LNG carrier for a single voyage, which leaves the company with more uncertainty and volatility due to shorter term contracts. In 2016, spot trading increased to 18% from 15% a year prior indicating that charter rates will remain a threat to company revenues if spot trading continues to increase.

Competition in the industry also poses a threat to GLNG. Many oil shipping companies are entering the industry leaving GLNG at a disadvantage since the company exclusively operates in the LNG shipping market. Major oil companies are positioning themselves to become major players in LNG shipping, failure to compete with large companies will lower GLNGs revenues.

What has the stock done lately?
So far this year the stock has increased 15.56%. Additionally, the company has sold $402.5 million aggregate principal convertible senior notes due 2022. The company intends to use the proceeds to cap the cost of initial capped call transactions and other general corporate purposes.

In a recent earnings call, managements expressed optimism that LNG production will increase and LNG carrier markets will improve in 2017 and in coming years. GLNG is focused in FRSU businesses and management has expressed their goals of positioning the company in the best possible place to develop future FLNGs and FSRUs.

Past Year Performance
Share prices have increased 35.95% from a year ago and shares are trading at $26.67. In Q4 2016, the company reported a net loss of $13.7 million and EBITDA loss of $15.9 million. The increase in losses was attributed to weaker performance in the overall fleet from the Cool Pool, a vessel in the Marshall Islands.  Despite Cool Pools underperformance, the company mitigated losses from WAGL for the Tundra, a FSRU built in 2015 chartered by West Africa Gas Limited (WAGL).

                                                                       Source: Factset
My Takeaway
Golar Limited is a company that is positioned to take advantage of the rising production of LNG in 2017. With low commodity prices, gas has the potential to displace other fossil fuels and play a bigger role in the energy sector. A joint venture with Schlumberger will allow the company to develop new FLNG opportunities and become a more important player in the industry. I anticipate the LNG industry to perform well in 2017 and once the company’s Hilli FLNG is finished later in 2017 the company will see more upside.

                                                                                    Source: Factset

Monday, April 24, 2017

Chris McGuire and Dan Farrell of Phalanx Capital Management Visited the AIM Students at Marquette on April 19, 2017

Last Week Marquette Students Learned About Arbitrage-Based Hedge Funds from Chris McGuire of Phalanx Capital Management

Chris McGuire of Phalanx Capital Management
Phalanx Capital Management, a Chicago-based Asian Volatility Multi-Strategy Hedge Fund, was founded in 2004 by Chris McGuire (a 1991 Marquette University alumnus). 

Dr. David Krause, AIM program director said, “The Phalanx fund has received numerous awards over the years and is considered to be one of the more creative (and non-correlated) hedge funds in existence. Chris McGuire has helped Phalanx investors receive positive year-over-year returns in 11 out of 12 years since the fund was founded.”

Chris McGuire told the AIM students – and those in the Alternative Investments class - that Phalanx pioneered the enhancement of traditional convertible bond arbitrage with volatility and credit strategies. 

Dr. Krause said, "Chris did an excellent job explaining how Phalanx gains its exposure through the buying of cheap or mispriced options in Japanese and other Asian firms. He noted that they deliver “alpha” through three main strategies: convertible bond arbitrage, volatility arbitrage, and equity opportunistic strategies."