Stocks’ Details

Apple Inc.

Fostering Innovation in Education: Apple Inc. (NASDAQ: AAPL) is a multinational technology company, involved in the manufacturing of mobile phones, personal computer, laptops, and other electronic gadgets. The company also provides software platforms like iOS, macOS, watchOS and tvOS to its clients. As at 8 October 2020, the company had a market capitalisation of ~$1.99 trillion. On 8 October 2020, the company announced about its collaboration with Gallaudet University under which the company is providing essential learning tools like new iPad Pro, Apple Pencil, and Smart Keyboard Folio to every student and faculty. This will help the University in facilitating online classes amid COVID-19 pandemic.

Health Record Feature for iPhone Users: The company recently brought ‘Health Records’ feature within the Health app for iPhone users in UK and Canada. This feature will allow users to securely view and store their medical records on their iPhones.

June Quarter Highlights: For the quarter ending 27 June 2020 or Q3FY20, the company reported revenue of $59.7 billion, up 11% on pcp, driven by double-digit growth in both products and services and growth in each of its geographic segments. AAPL reported quarterly earnings per diluted share of $2.58, up 18% on pcp. For the quarter, the company declared a cash dividend of $0.82 per share, which was paid on August 13, 2020. At the end of the quarter, the company had cash and cash equivalent of $33,383 million and marketable securities of $59,642 million. One of the important highlights of June quarter was the approval of four-for-one stock split by the Board of Director. This will make AAPL stock more accessible to a broader base of investors. The company intends to release its Q4 FY20 results on 29 October 2020.

June Quarter Results (Source: Company Reports)

Well-Funded to Continue Operations: With decent cash, cash equivalents and marketable securities, along with commercial paper and other short-term liquidity arrangements, the company seems to be well placed to continue its operations including capital asset purchases, dividend payments, share repurchases, debt repayments and other liquidity requirements.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (illustrative)

EV/Sales Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of AAPL has provided a return of 20.15% in the last three months and is currently inclined towards its 52-weeks high price of $137.98. On the technical analysis front, the stock has a support level of ~$105.84 and resistance of $120.44. We have valued the stock using an Enterprise Value to Sales multiple based illustrative relative valuation method and arrived at a target price with lower double-digit upside (in % terms). For the purpose, we have taken peers like Microsoft Corp (NASDAQ: MSFT), Motorola Solutions Inc (NYSE: MSI) and Qualcomm Inc (NASDAQ: QCOM), etc. Considering the company’s flagship products, its decent June quarter results, healthy balance sheet, and valuation, we give a ‘Hold’ recommendation on the stock at the closing price of $114.97, down by 0.1% on 8 October 2020.

International Business Machines Corporation

Accelerating Hybrid Cloud Growth Strategy: International Business Machines Corporation (NYSE: IBM) is a leading hybrid cloud and artificial intelligence (AI) company. As at 8 October 2020, the company had a market capitalisation of ~$117.10 billion. In a recent strategic update, the company informed that it is going to ramp up its hybrid cloud growth strategy to drive digital transformations for its clients while maintaining its focus more on its open hybrid cloud platform and AI capabilities. The company intends to build hybrid cloud foundation and focus more on its open hybrid cloud platform, which represents a $1 trillion market opportunity. The company also informed about the separation of its Managed Infrastructure Services unit of its Global Technology Services section into a new public company, which will have greater agility to design, run and modernise the infrastructure of leading organizations. The separation is anticipated to be completed by the end of CY 2021.

June Quarter Results: For Q2FY20, the company reported total revenue of $18.1 billion, down by 5.4% on pcp. Notably, the company’s total cloud revenue stood at $6.3 billion in Q2 FY20, up 30% on pcp. For the quarter, the company reported gross profit of $8.7 billion and net income of $1.36 billion. At the end of the June quarter, the company had cash on hand of $14.3 billion and debt of $64.7 billion.

June Quarter Highlights (Source: Company Reports)

What to Expect: For September 2020 quarter, the company expects to report revenue of $17.6 billion, and operating (non-GAAP) earnings per share of $2.58. The final September quarter results are expected to release on 19 October 2020. The company is of the view that it has the financial flexibility to keep investing in business and return value to shareholders.

Valuation Methodology: P/E Multiple Based Relative Valuation (illustrative)

P/E Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Over the last three months, the stock of IBM has provided a return of 13.63% and is currently inclined towards its 52-weeks high price of $158.75. On the technical analysis front, the stock has a support level of ~$119.26 and resistance of ~$138.9. We have valued the stock using price to earnings multiple based illustrative relative valuation method and arrived at a target price with lower double-digit upside (in % terms). For the purpose, we have taken peers like Accenture PLC (NYSE: ACN), Hewlett Packard Enterprise Co (NYSE: HPE), Oracle Corp (NYSE: ORCL) etc. Considering the company’s recent decisions to accelerate its hybrid cloud growth strategy and to separate its Managed Infrastructure Services unit of its Global Technology Services division into a new public company; its financial flexibility and valuation, we give a “BUY” recommendation on the stock at the closing price of $131.49, up by 5.98% on 8 October 2020, owing to the release of strategic update.

Netfin Acquisition Corp

Business Combination With Triterras Fintech Pte Ltd: Netfin Acquisition Corp (NYSE: NFIN) is a blank check company focused on effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. The company recently announced that it is going to combine with Triterras Fintech Pte Ltd, a leading platform for global trade and trade finance, to form a publicly-traded fintech business with one of the world’s leading commodity trading and trade finance platforms. The combined business is expected to have a pro forma enterprise value of $674.1 million, implying 8.0x FY21E EBITDA. The transaction is expected to close in Q4 2020, subject to SEC review of Form F-4, Netfin shareholder approval and satisfaction of closing conditions.

Financial Performance of Triterras Fintech: Founded in the year 2018, Triterras Fintech Pte Ltd is a leading trade and trade finance fintech company operating one of the world’s largest commodity trade and trade finance platforms. Triterras Fintech has a growing customer base, providing it increased revenue diversification. The company uses its disruptive proprietary technology platform – Kratos, to solve critical industry problems, giving it the first mover advantage. For the six months ended August 31, 2020, the company reported total revenue of $23.7 million and net income of $14.2 million. Notably, over the six-month period, the company’s Kratos platform generated around $5 billion of total trade and trade finance volume. The company expects its FY20 revenue to be around $56.6 million, as compared to $16.9 million in FY19. Further, the company expects revenue and net income to grow subsequently over the next few years, as demonstrated in the below table.

Results Estimates (Source: Company Reports)

What to Expect: Looking ahead, Triterras Fintech expects several catalysts and management initiatives to drive continued growth for the company. The business combination with Netfin Acquisition Corp will provide the company with greater access to capital, and visibility that attracts new customers and currency for acquisitions.

Key Risks: The future performance of Triterras Fintech is exposed to the impacts of COVID-19 on Triterras’ business and Netfin’s ability to complete the business combination. Further, the company is exposed to regulatory and legal risks. It must be noted that Triterras Fintech was founded in 2018, hence, it has a limited trading history.

Stock Recommendation: The stock of NFIN has provided a return of 12.39% in the last six months. The stock has made 52 weeks high and low of $11.39 and $8.70, respectively. Currently, the stock is inclined towards its 52-weeks high price of $11.39. On the technical analysis front, the stock has a support level of ~$10.47 and a resistance of ~$11.24. On the face of the expected top and bottom-line growth of Triterras Fintech, its growth catalysts, sound fundamentals, we are of the view that NFIN is likely to witness further upside in the coming times. Hence, considering the aforesaid facts and investments risks, we give a “Speculative Buy” recommendation on the stock at the closing price of $11.15, up 4.79% on 8 October 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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