NIO Inc.

NIO Details 

August 2020 Delivery Update: NIO Inc. (NYSE: NIO) is an automobile company mainly involved in the designing, manufacturing, and selling of smart and connected premium electric vehicles (EV). During the month of August 2020, the company delivered 3,965 vehicles, including 2,840 ES6s, and 1,125 ES8s. Notably, this was the company’s best-ever monthly performance on both deliveries and order growth. Including the numbers from August 2020, so far, the company has delivered 21,667 vehicles in 2020 in total, representing a YoY growth of 109.9%.

Completed Offering of American Depositary Shares: On 2^nd September 2020, the company announced that it has completed the offering of 101,775,000 American depositary shares. NIO intends to use the proceeds from the offering to boost the share capital and to repurchase equity interests held by certain minority shareholders of NIO China. The company also plans to use the proceeds for research and development in autonomous driving technologies, global market development and general corporate purposes.

Q2FY20 Results: For Q2 FY20, the company reported Vehicle sales were RMB3,486.1 million, up 146.5% on pcp. Further, the company reported total revenue of RMB3,718.9 million, up 146.5% on pcp.  During the quarter, the company delivered 10,331 ES8 and ES6 vehicles. Over the quarter, the company reported a gross profit of RMB313.1 million with gross margin at 8.4%.

Q2 FY20 Result Highlights (Source: Company Reports)

What to Expect: Looking ahead, the company is focused on improving operating efficiency while investing in the technologies and services to provide its users with the best products and experience in the future. In the September quarter, the company expects its total deliveries to be between 11,000 and 11,500 vehicles. The total revenues in the September quarter is expected to be between RMB4,047.5 million (US$572.9 million) and RMB4,212.3 million (US$596.2 million), representing an increase of approximately 120.4% to 129.3% on pcp, respectively.

Key Risks: The company is exposed to the risk related to the lack of demand for its vehicles and services, increasing competition, and challenging macro-economic environment due to the COVID-19 outbreak. The company is also exposed to the risks related to natural disasters, health epidemics and other outbreaks, which could impact the company’s operations.

Stock Recommendation: Over the last six months, the stock of NIO has provided a whopping return of 466.77%, and in the last three months, the stock was up by 200.16%. Currently, the stock is inclined towards its 52-week high of $21.05. On the technical analysis front, the stock has a support level of ~$16.836 and a resistance level of ~$19.749. On a TTM basis, the stock has an EV to sales multiple of 14.0x, higher than the industry average (Automobiles & Auto Parts) of 2.3x, demonstrating that the stock might be overvalued. Considering the substantial rise in the stock price over the last few months, current trading levels and valuations on TTM basis, we suggest investors to wait for better entry levels and hence, give an “Expensive” rating on the stock at the closing price of $17.74, down by 1.93% on 10 September 2020.

NIO Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Sibanye-Stillwater Limited

SBSW Details

Approval Received for an Intercompany Funding: Sibanye-Stillwater Limited (NASDAQ: SBSW) is a leading international precious metals mining company with a market capitalization of ~$8.93 billion as at 10 September 2020. Recently, the company received approval from its Board for an intercompany funding to facilitate conversion of a USD200,000 convertible bond issued by its wholly-owned subsidiary Sibanye Gold Limited. Notably, Sibanye Gold Limited is the issuer of USD450,000,000 1.875 per cent convertible bonds due 2023. The holder of these notes has the right to convert the Bonds into ordinary shares of the company.

H1FY20 Result Highlights: For the six months ended 30 June 2020 or H1 FY20, the company reported record basic earnings of SA 351 cps (US21 cps) and headline earnings of SA 350 cps. Despite the challenges and disruptions created by the global COVID-19 pandemic, the company witnessed year-on-year growth in the production from all the operating segments. From US PGM operations, the company reported 2E PGM production of 297,740 2Eoz, up 5% on pcp. The company’s adjusted EBITDA for H1FY20 stood at R16,514 million or US$990 million, up 718% on pcp.

H1FY20 Income Statement (Source: Company Reports)

Outlook: The company expects SA operations to achieve optimal production levels by Q4 2020. The company is optimistic about the operating and financial outlook for H2 2020.

Key Risks: The company is exposed to the risks and challenges created by the COVID-19 pandemic and associated restrictions by the Government. Further, the company is also exposed to the fluctuations in the commodity prices and exchange rates.

Stock Recommendation: Over the last six months, the stock of SBSW has provided a return of 172.09% and in the last three months, it has provided a return of 68.68%. The stock is currently trading close to its 52-week high of $13.53. On the technical analysis front, the stock has a support level of ~$11.36 and a resistance level of ~$13.09. On a TTM basis, the stock has a price to book value multiple of 3.6x, higher than the industry average (Metal and Mining) of 2.4x, demonstrating an overvalued position at the current juncture. Considering the substantial upside movement in the stock price in the past three and six-months, current trading levels and valuation, we suggest investors to wait for better entry levels and hence, give an “Expensive” rating on the stock at the closing price of $13.36, down by 0.6% on 10 September 2020.

SBSW Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Fortinet Inc

FTNT Details

Top choice of Service Providers: Fortinet Inc (NASDAQ: FTNT) is a network security company that provides cyber security solutions to a range of enterprises, service providers and government organizations across the world. On 26 August 2020, the company informed that various service providers are rapidly adopting the company’s Secure SD-WAN to provide their customers with value-added SD-WAN services that can be deployed across the home, branch, campus and multi-cloud. This is helping service providers in limiting their overheads and realizing significant return on investment. In another update, the company announced the expansion of its Security Academy Program as 20 new academic institutions joined the program to provide advanced cybersecurity training and certifications to students, veterans and veteran families.

Q2FY20 Results Highlights: For Q2FY20, the company reported a total revenue of $615.5 million, up 18% on pcp, driven by the decent demand for secure SD-WAN and work-from-home capabilities. Notably, the company witnessed decent growth in its product as well as service revenues during the quarter. For the quarter, the company’s gross profit stood at $480.4 million. During the quarter, the company paid $156.1 million for share repurchase.

Q2FY20 Results (Source: Company Reports)

What to Expect: For Q3FY20, the company expects its revenues to be in between $630 million and $645 million. The Non-GAAP operating margin for Q3 FY20 is expected to be in the range of 25.5% to 26.5%. With its unique security solutions, the company seems well placed to take advantage of the flourishing Cyber security market.

Key Risk: The company is exposed to the risks and uncertainties caused by the COVID-19 pandemic as it may impact the future results and operations. The stiff competition in security market also poses a threat to the company. 

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Over the last six months, the stock of FTNT has provided a return of 54.01%. On a technical analysis basis, the stock of FTNT has a support level of ~$113.52 and a resistance level of ~$138.76. We have valued the stock using Price to Earnings based illustrative relative valuation method and arrived at a target price with an upside of high single-digit (in % terms). For the purpose, we have taken peers like Palo Alto Networks Inc (NYSE: PANW), Check Point Software Technologies Ltd (NASDAQ: CHKP) and FireEye Inc (NASDAQ: FEYE). Considering the company’s decent Q2 FY20 performance, Q3FY20 guidance, increasing adoption of its Secure SD-WAN solution, we give a “Hold” recommendation to the stock at the closing price of 116.76, down by 0.3% on 10 September 2020.

FTNT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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