Thursday, April 30, 2020
Wednesday, April 29, 2020
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...
By:
Brook Seifu, 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.
• 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!
By:
Shant Poladian, 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.
• 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
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
• 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
Takeaway
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
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
• 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.
Friday, April 24, 2020
Ryan Hamilton was the last Marquette AIM program speaker of the Spring 2020 semester
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 |
RYAN HAMILTON’S
RECOMMENDED READING LIST (Updated 4/24/2020)
* 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
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