Monday, February 6, 2017

A current AIM Fund holding: Gemalto (GTOMY) by Taylor Smith “Gemalto translated means volatility!"


Gemalto (GTOMY, $29.23): “Gemalto Dances with Giants”
By: Taylor Smith, 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.

 Summary 

Gemalto (GTOMY) is the world’s largest supplier of enterprise cybersecurity solutions and services. The company also provides identification products and services and contributes to the IoT space.

• Gemalto seeks to add to its Government and Enterprises segment through the acquisition of 3M’s Identity Management business

• In a race against Verizon, AT&T selected Gemalto to help jumpstart its internet of things development franchise  

• China mobile has sought out Gemalto for supply of its ODC and eSIM solutions in order to jump ahead in the autonomous car sphere

Key points: Gemalto has been on the move over the past couple of months with new partnerships and new acquisitions. In December, management announced a new acquisition for 3M’s Identity Management business, adding to Gemalto’s Government & Enterprise segment by providing end-to-end biometric solutions catered to border control, law enforcement, and civil identification. The acquisition is priced at $850 million (cash) and is expected to keep the ball rolling on the company’s government segment and be roughly 11% accretive to 2017 EBIT. 

If you have watched or read any business news in the past year, you would know the internet of things is set to explode. Estimates have the number of connected devices reaching 50 billion by 2020. Companies around the world are racing to develop their IoT services, especially telecommunications giants. In January, AT&T announced that it chose Gemalto to help create its internet of things development franchise. Gemalto’s GSMA-compliant ODC and eSIM solutions are primary aids for global mobile operators that can fast-track device onboarding and reduce costs.

It’s no shock that many giants are seeking to early get access to the internet of things market. The market for driverless vehicles is expected to be worth over $130 billion across the globe by 2021. In December, Gemalto reached an agreement with China Mobile to supply ODC Subscription Management solutions and GSMA eSIMs to help prosper and secure connectivity in cars. The new additions will provide passengers with connected services including infotainment, navigation support, and vehicle diagnostics.

What has the stock done lately?
GTOMY has experienced an excellent climb over the past couple of months, starting at $24.90 on December 2nd and closing at $29.23 on January 31st. The company made a number of announcements (some mentioned in this article), that have demonstrated strong potential for future business in a number of its segments.

Past Year Performance: Volatile would be the most appropriate word to describe the stock trend for GTOMY over the course of the past year. One of the most recent price drops was in October when the company missed earnings. Gemalto experienced a price decrease of 12.6% in three days. Outside of this, GTOMY has reached a high of $37.29 in March and a low of $24.90 in early December.

Source: FactSet


My Takeaway
The volatile year is not indicative of the company’s future performance. Gemalto represents a company that has successfully pivoted over time. What we are seeing today is advancements in the company’s lesser segments: Machine-to-Machine and Government & Enterprise. These segments are positioned in industries that have extremely high and immediate growth potential. I believe that new additions of partners coupled with the plethora of pre-existent reliable clients will help the stock to continue moving in a healthy direction.


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