Sunday, April 26, 2020

An AIM Small Cap holding: EnerSys (ENS, $ENS): “5G internet expansion is key” by: Brook Seifu, AIM student at Marquette University. Long-term hold...

EnerSys (ENS, $ENS): “5G internet expansion is key
By: Brook Seifu, AIM Student at Marquette University

Image result for enersys logo

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.

EnerSys. (NYSE: ENS) manufactures and markets industrial batteries. The firm engages in stored energy solutions for industrial applications, distributes reserve power and motive power batteries, chargers, power equipment and battery accessories to end markets.
• In light of the recent COVID-19 outbreak, EnerSys’s management is expecting to see revenue decline and cancelation in customer orders.
• EnerSys’s strong balance and flexible liquidity is key to weather the impact of the virus and capture acquisition opportunities.
• The delay of 5G network and expansion will have a material impact on EnerSys revenue in fiscal year 2021 and 2022.

Key points: After considering the impact of coronavirus, ENS announced the withdrawal of its guidance for the Q4 ending March 31, 2020. Following the suspension of Q4 guidance, management just released a preliminary unaudited result for the quarter ending March 31, 2020. In the report, the company projected a revenue of $782, which represented a 3% reduction, excluding currency exchange impacts. Operating expenses were $5 million lower than initial projection. This was as a result of cost initiatives in response to COVID-19. Based on this new result, it is evident that EnerSys will face top-line and bottom-line challenges.
In this unprecedented time, companies with strong balance sheet and liquidity tend to have the capability to weather the current crisis. EnerSys is amongst those companies that have the financial arm strength to sustain short-term headwinds. As of March 31,2020, the company had $350 million in cash, $600 million in short-term receivables and $700 million revolving credit line. The company is set to benefit from its strong balance with no significant maturities related to its term loans, revolving credit line or notes until FY 2024. In addition, EnerSys will have the flexibility to explore acquisition targets with a potential discounted price.

EnerSys was pitched back in November 1,2019, and 5G Rollout was one if its primary drivers. However, the outbreak of Coronavirus is expected to delay the expansion of this project to fiscal years 2022-2023. In addition, capital expenditures from telecom may fall under pressure due to the shrinking revenue and decreases in consumer spending. Due to the delay, ENS will have to wait additional years to capture the expected revenue opportunity of $2B.

What has the stock done lately?
Since the mid of March, EnerSys’s stock has surged 38% after trading at its 1-year low of $38.24. The stock is currently trading at $52.85. However, the stock is down 14% from the purchase price of $68.45. EnerSys’s high beta and high exposure to the economic impact of the virus are the two factors the contributed to plunge and volatility.

Past Year Performance:
EnerSys’s stock has had a stagnant year, it is currently down 26% since April 2019. The stock has been trading between the range of $60-80 for the past five years. The current P/E ratio is at 14.1x, which is well below the five-year average of 20.9x. COVID-19 is a major threat for ENS and other players in the industry. However, the stock has an enormous potential to yield returns to its investors, once 5G floods the world.

1 Year Stock Chart vs. Benchmark from FactSet
Source: FactSet

My Takeaway
EnerSys is a company with exciting opportunities ahead and strong balance sheet to weather the anticipated economic downturn. The company has adequate cash balance and liquidity to pay current liabilities and capture fragmented competitors. As the overall market is adjusting, the stock will bounce back to its previous level. Acquisitions from FY 2019 have proved to be integral part of EnerSys future growth. I believe we are still waiting to see the best out of EnerSys, which is well positioned to capture significant market share of 5G internet expansion. Therefore, I recommend that the AIM portfolio holds on to its position in ENS.

1 Month Stock Chart from FactSet

Source: FactSet

An AIM Small Cap Fund holding: Envestnet, Inc. (ENV, $53.72): “Envestnet Investment” by: Shant Poladian, AIM student at Marquette University. One of our largest holdings is still a solid hold!

Envestnet, Inc. (ENV, $53.72): “Envestnet Investment”
By: Shant Poladian, AIM Student at Marquette University

Envestnet Announces Advisor Analytics Tools with Five New Features ...

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.

Envestnet, Inc. (NASDAQ: ENV) is a leading provider of intelligent systems for wealth management and financial wellness. Envestnet’s unified technology systems enhances advisor productivity and strengthens the wealth management process. Envestnet empowers enterprises and advisors to more fully understand their clients and deliver better outcomes.
• For the fourth quarter, adjusted revenue grew by 15%, adjusted EBITDA grew 30% and adjusted earnings per share grew 13% from last year.  
• Envestnet acquired PortfolioCenter. PortfolioCenter is a portfolio management solution to help emerging registered investment advisers (RIAs) streamline their daily operations and enrich their client reporting.
• Envestnet also acquired MoneyGuide. MoneyGuide provides leading goals-based financial planning solutions to the financial services industry.
• Envestnet signed application programming interfaces (API) agreement with Charles Schwab.

Key points: On April 1, 2019, Envestnet acquired the liabilities of the PortfolioCenter business from Performance Technologies, Inc. The PortfolioCenter business provides investment advisors and investment advisory service providers with desktop, hosted and outsourced software solutions. These solutions provide data-management and performance-measurement tools, as well as customizable accounting, reporting, and billing functions delivered through the commercial software application products known as PortfolioCenter Desktop, PortfolioCenter Hosted, PortfolioServices and Service Bureau.

On May 1, 2019, Envestnet acquired all of the outstanding shares of PIEtech, Inc., a Virginia corporation. PIEtech empowers financial advisors to use financial planning to efficiently motivate their clients to create, implement and maintain financial plans that best meet their lifetime financial goals. The technology and operations of PIEtech, which now operates as Envestnet MoneyGuide, has been integrated into our Envestnet Wealth Solutions segment.

MoneyGuide was named the number one financial planning software by the 2020 edition of the Inside Information Survey, as astonishing 12 years in a row. MoneyGuide’s popularity spans firms of all sizes, experience levels, and business models. Recently, Morgan Stanley licensed MoneyGuide’s entire planning offerings for an additional three years.

Lastly, Envestnet recently announced that it has reached a financial data-access agreement with Charles Schwab. Per the agreement, Envestnet will allow Charles Schwab clients to connect to the Envestnet platform and share their financial data with more than 1,200 third-party financial service providers powered by the platform. Furthermore, this platform provides clients visibility and transparency into the linked accounts allowing them to view what type of data is accessed by which third party.

What has the stock done lately? On April 17, 2020, ENV closed at $53.53 per share, and incurred a 7.3% gain the following day, closing at $57.44 per share. Following ENV fourth quarter earnings results, the stock price has remained between $47.07-$78.99. At ENV’s most recent earnings call, the CFO announced 2020’s first quarter outlook of expected growth between 21% and 22% compared to the prior year.

Past Year Performance: Over the past year, ENV reached a 52-week high at $87.75, and a 52-week low at $45.53. Over the past year, ENV is down $16.36, or 23.34%. YTD HCKT is down $17.91, or 24.24%.

Source: FactSet

My Takeaway
Uncertainty in American markets, due to the COVID-19 pandemic, is unpredictable, but I believe in times of crisis we need additional guidance in financial management services. I am optimistic that ENV will continue to recognize revenue growth in the U.S., as demand increases for financial management tools, such as MoneyGuide and PortfolioCenter. Moreover, growing relationships with Charles Scwab and Morgan Stanley will enable ENV to position itself ahead of competitors. With these reasons, I believe ENV represents a hold.

Source: FactSet

An AIM Small Cap Fund holding: AppFolio Inc. (APPF, $104.89) “AppFolio stays in this Portfolio” by: Haley Gaffner, AIM student at Marquette University. Growth lies ahead!

AppFolio Inc. (APPF, $104.89) “AppFolio stays in this Portfolio”
By: Haley Gaffner, AIM Student at Marquette University

AppFolio Jobs and Company Culture

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.


AppFolio Inc., Inc. (NASDAQ: APPF) provides Saas cloud-based solutions for small to mid-sized property management businesses. APPF operates within three business segments: Value + Services (59.5%), Core Solutions (37.1%), and Other (3.4%). Value + Services include online payment systems, data analytics, marketing, and workflow configuration. Core Solutions consist mainly of subscription revenue for AppFolio Manger, AppFolio Manager PLUS, and MyCase. Other revenue includes one-time instillation fees or use of solutions without a subscription. AppFolio Inc. was founded in 2006 and is head quartered in Santa Barbara, CA.
• APPF entered the real estate market in 2008 and operate solely in the cloud.
• The company saw a 35% revenue growth, $16.3 million, net income increase, and EPS almost double in 2019.
• Management said in March earnings call that they expect 2021 revenue to range $312-$320 million.

Key points: APPF, just released their 10-K in March with a few updates on of them being the Chief Strategist and Co-Founder, Klaus Schauser, will be retiring in May, but will remain on the board and continue to work closely with the company. They have yet to announce who will take his place.

The company highlighted their growth in customers using either AppFolio Manger or AppFolio Manger PLUS. Real estate property managers using these solutions grew to 14,385, compared to 13,046. Units managed grew from 3.9 million to 4.64 million. This growth is reflected in their top line and net income growth. However, APPF had increased some of their expenses such as research and development and sales and marketing, which is why we haven’t seen that margin expansion play out. The company has seen strong top line growth, but it does not trickle down to EBIT and EBITDA margins quite yet. APPF did not buyback any shares in 2019, but rather reinvest that capital back into the company.

The company acquired Dynasty in January for $60 million dollars. Dynasty brought artificial intelligence to the company and is used in their leasing assistant Lisa, which is included in the AppFolio Manager PLUS. Although this acquisition seems immaterial in comparison to the company’s enterprise value, the technology it brings to APPF is a building block to how the company wants to reinvent the property management space. The company recently rolled out Smart Bill, which is an automated invoice system which is based on AI, freeing up manual labor.

The only guidance the company gave in the past earnings call was that they suspect revenue for 2020 to range from $312 - $320 million. APPF release Q1 earnings at the end of April, so there is hope to get some clearer guidance soon.  Given the current disruption, COVID-19, APPF has offered additional recourses to guide property managers through this time.

What has the stock done lately?
Since the REIT industry is a lagging indicator, the stock did not take a plunge until mid-March due to COVID-19. Since that initial plunge, the stock has slowly been climbing with a minuet hit in early April. The stock has underperformed the benchmark by 11% in the past month, but that is to be expected with the connection to the REIT industry which has been one of the worst performing industry in this global pandemic. In the past week, the stock has only performed roughly 1.5% below the Russell 2000.

Past Year Performance: APPF has seen major growth within the past year. The stock really took off in October and reached its highest price, $144.90, February 19. As mentioned before, the stock did take a dive mid-March, but has still outperformed the benchmark by nearly 9% for the year. The stock is currently sitting at $104, compared to last April at $86.

Source: FactSet

AppFolio has seen some substantial growth since we added it to the portfolio in January. Although the stock has taken a dip from the price that we bought it, I believe the company can still rebound. The company has maintained a strong balance sheet holding a relatively small amount of debt and decent amount of cash. The company saw an increase spend in Research and Development which I believe we will see that pay off in 2020, especially with the integration of AI into the real estate market. Although their revenue guidance given at the last earnings call may be a bit lofty given the current circumstances, I do not suspect the company to be in distress. Their liquidity remains intact and they have not taken out more debt. APPF continues to have a strong ROE, ROA, and ROIC. It is recommended that we hold this company to capture a greater portion of their growth story.

Source: FactSet

An AIM Equity Fund holding: EnerSys (ENS, $47.98): “Recharging Upside” by: Solomon Dworsky, AIM student at Marquette University. A solid long-term holding ready for 5G.

EnerSys (ENS, $47.98): “Recharging Upside”
By: Solomon Dworsky, AIM Student at Marquette University

EnerSys - Power/Full Solutions

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.


EnerSys. (NYSE:ENS) provides energy storage solutions for industrial applications operating under two main segments, Motive batteries representing 49.6% FY’19 Revenue, and Reserve power representing 51.4% FY’19 Revenue.
•Management recently suspended 2020 guidance due to the lack of visibility caused by Covid-19.
•The company has continued operations in select locations during the pandemic as well as began reopening additional plants.
•The Reserve power segment maintains long term growth opportunities with the 5G rollout.

Key points:
Covid-19 significantly impacted the company as seen with the -37.30% drop in stock price from the 2020 high in early February. ENS has rebounded since to $47.98 following management’s decision to suspend 2020 guidance due to the lack of visibility from the virus. EnerSys responded to the pandemic by donating 8,000 masks and 18,000 nitrile gloves to local hospitals located in Pennsylvania and France. Additionally, the firm announced they are continuing operations at select manufacturing facilities as EnerSys was deemed an essential business.

EnerSys recorded an increase of sales by 8% YoY for Q3 which was largely driven by the American Motive segment. Other segments experienced decreased demand due to unfavorable trade conditions as well as OEM orders declining. The firm increased their leverage ratio to 2.5x, far below their required ratio of 3.5x per a new credit agreement. Covid-19 caused shutdowns across several plants located in China and are beginning to reopen for operation to meet consumer demands. 

EnerSys holds roughly $300 million in cash on their balance sheet with additional access to $750 million in revolvers providing the firm a strong balance. The firm currently holds 1,125 million in debt outstanding with the majority of their debt due 2022 and beyond. Management recently stated share repurchases are will not be utilized given current market conditions.

EnerSys experienced minor setbacks due to Covid-19 and are beginning to reopen manufacturing facilities located in China, Europe and the United States. Additionally, EnerSys will continue to work remotely for non-manufacturing employees and follow the guidelines set for the pandemic. The 5G rollout has experienced slowdowns although demand for telecommunications is increasing as the workforce shifts to online services. The recent acquisitions of Alpha and NorthStar position the company to increase their market share within the telecom sector as well as significantly increase output.

What has the stock done lately?
EnerSys was pitched November 9th, 2019 at a price of $68.00 with a target price of $87.92. The stock reached a 2020 high of $77.82 in February before crashing to $38.35 following the market’s response to Covid-19. The stock is currently trading at $47.98, above the 52-week low of 35.21 and below the 52-week high of $78.97. The majority of analysts, according to FactSet, have the stock as a buy with an estimated price target of $74.33. Using these factors, the stock continues to hold a potential upside of 66%.

Past Year Performance:
ENS has decreased by -31% YTD due to unfavorable market conditions with Covid-19 as well as a plant fire located in Richmond Kentucky. The firm seems to be holding strong through the virus as they were deemed an essential business enabling them to continue production. Additionally, management recently stated operating expenses were $5 million lower than expectations. Despite the current headwinds, EnerSys is positioned to continue to gain value with the current adverse market conditions.

Source: FactSet

My Takeaway
Covid-19 has caused both headwinds for the firm and an opportunity for investors to purchase the stock at a discount. The company began reopening manufacturing facilities to fill outstanding orders and meet the pending demand for the 5G rollout. Management recently suspended 2020 guidance due to a lack of visibility providing investors uncertainty. In the event of a larger than anticipated downturn, EnerSys has a strong balance sheet and access to revolvers to increase their liquidity. As the economy begins to recover from the pandemic, EnerSys has the potential to increase in value by expanding into the telecom sector with the 5G rollout as well as continuing to rely on their strong core businesses. Using these factors, EnerSys has the potential of reaching the original target price of $87.92 as the economy recovers.

Source: FactSet

Friday, April 24, 2020

Ryan Hamilton was the last Marquette AIM program speaker of the Spring 2020 semester

 Ryan Hamilton talked about his stock screening process and the importance of learning Python or R to improve automation of the investment research process

Ryan Hamilton was the last guest speaker to visit the AIM program in Spring 2021 semester and he shared a reading list with the students

Ryan Hamilton of Morgan Dempsey
On Friday, April 24, 2020, Ryan Hamilton, Vice President / Portfolio Manager of Morgan Dempsey was the virtual guest speaker in the AIM program. 

Dr. David Krause, AIM director, commented on Ryan’s visit, “Ryan is a great Friend of AIM and has been generous with his time. He is a frequent on-campus guest speaker and today he did an excellent job connecting with the students via Microsoft Teams. We always appreciate his straight-forward approach to stock research and his support of the CFA Institute and local CFA Society of Milwaukee.”

Ryan Hamilton joined Morgan Dempsey in May 2014, and prior to joining the firm he was a portfolio manager, research analyst and trader with Voit & Hamilton. He joined Morgan Dempsey with over 12 years of experience in securities analysis, portfolio management and trading.

Ryan Hamilton's visit in 2019 to AIM
Ryan is a CFA candidate, a former United States Marine, a combat veteran, and an Eagle Scout. His primary role at Morgan Dempsey is as a Portfolio Manager on the Small/Micro Cap Value team.

Krause continued, “Ryan talked about the importance of automating his processes and become a master of Excel and knowing enough programming to be able to automate his data collection, wrangling and statistical processes. I think he did a superb job of giving the AIM students the rationale for becoming more proficient with coding and understanding data analytics.”

“Ryan also provided the students with the following reading list, which was appreciated by all,” Krause said. “Over the past two weeks in AIM we’ve had four different class meetings where the students were exposed to practitioners who utilize programming, data analystics and blockchain technology. I think they received a good dose of FinTech to conclude the semester.”
Ryan Hamilton during the 2019 AIM visit


* Achelis, Steven B. (2001), Technical Analysis From A to Z, New York, McGraw-Hill
(great reference for almost everything on technical analysis, good reference for the non-believer).

Ellis, Charles D. and James R. Vertin (ed) (1989).  Classics: An Investor’s Anthology Homewood, IL: Business One Irwin.  (short stories, places the reality of investment management in historical context, non textbook, easy and interest reading for summer)

Dreman, David (1998). Contrarian Investment Strategies: The Next Generation:
Beat the Market by Going Against the Crowd.  Simon & Schuster

Fisher, Phillip A. (1958). Common Stocks and Uncommon Profits. New York: John Wiley & Sons, Inc.
(simple but concise summary of company analysis)

Gordon, Robert (2005-06). Macroeconomics.  Addison-Wesley, 10th edition.

Graham, Benjamin and David Dodd (1934). Security Analysis (pp. 451-460). New York: McGraw Hill. (textbook orientation)

* Graham, Benjamin. (Revised Edition, 2003 by Jason Zweig Harper Business Essentials, based on the 1973 edition). The Intelligent Investor.  New York: Harper & Row.
(great review of past Graham’s investing experience.  Basic common sense advice on stock selection and portfolio management.  Good book for the value or growth investor).

* Lehmann, Michael B. (2000).  The Irwin Guide to Using the Wall Street Journal, McGraw-Hill
(Title is a bit misinterpreted.  This the most hands-on book covering the business cycle and does so within historical context.  A necessary reference for the non-economist.)

* Lefevre, Edwin (1923).  Reminiscences of a Stock Operator, New York: John Wiley & Sons, Inc
(easy read, about the experiences of one of the most successful traders/speculators of all time, Jesse Livermore.  Takes place in the early part of the 1900’s.)

Livermore.  How to Trade in Stocks

Brock:   Grain Trading (probably too expensive to buy)

Lindert, Peter H. and Thomas A. Pugel, International Economics, McGraw-Hill/Irwin.
(well written text on International Economics, some economics background will help).

* Neff, John (1999). John Neff on Investing, New York: John Wiley & Sons, Inc.
(simple, easy read.  Neff managed the Vanguard Windsor fund from 1964-1995, proponent of PEG style of investing).

* Nofsinger, John R. (2005).  The Psychology of Investing, New Jersey: Pearson-Prentice Hall. 
(excellent application of psychology to the decision making process of investing, required for CFA).

Reilly, Frank K., Keith C. Brown (2003).  Investment Analysis and Portfolio Management
7th , 8th, or 9th editions, Dryden Press.

*Schwager, Jack (1989, 2008), Market Wizards Collins Business and The New Market Wizards, John Wiley & Sons.  Format of the books is based on interviews of successful traders and investors.  Author is an experienced trader himself and knows how to ask the right questions of those investors and traders he interviews.  Easy read and a must read for serious investor.

Train, John (2000).  The Money Masters. New York: Harper Business
(although the author is a bit conceited, the book has substance as far as stock screening information)

Zweig, Martin.  (1997).  Martin Zweig’s Winning on Wall Street, New York: Warner Books. (not very useful for today, but interesting)

Being Right and Making Money: Lewis

Lewis, Michael:   The Big Short

O'Shaughnessy: What Works on Wall Street (latest edition)

Rappaport, Alfred: Expectations Investing: Reading Stock Prices for Better Returns

Dreman, David: Contrarian Investment Strategies: The Psychological Edge

Freeman-Shor, Lee: The Art of Execution: How the world's best investors get it wrong and still make millions

Gramm, Jeff:      Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism