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All- I have received hundreds of DM asking where the stock is going. I have received questions such as: where do you think it stops, is it over valued, undervalued, should my mom invest, should i Yolo, should i sell and take profits? blah, blah blah. Here is some DD- stop asking me about where this ends up because I don't know for sure but I have some Feely Good estimates. I hope this post makes your nipples hard and if it doesn't you're probably a gay bear.submitted by dhsmatt2 to wallstreetbets [link] [comments]
I am going to give you a quick run down of what my expectations are for Q2 earnings and it will include the good, the bad and the ugly. The ugly being the warrant accrual that will hurt GAAP.
First of all, There is little that needs to be determined for Q2 top-line as they have already released April and May Sales. April Sales Came in around ~62M based on my math and May Sales came in at 88M and some change. Based on these numbers, we can safely assume that we will at a minimum have somewhere around 225M in revenue for the quarter by using the average of April and May to determine June. I believe 225M to be on the low side and I have continued to up my estimates as I believe E-commerce is still thriving, especially purple. Purple continues to climb the web traffic ladder and has moved up another ~500 spots to be the 13,000 most popular site in the world.
For simplicity sake, I am going to use some historical numbers to estimate profits. If you'll look at previous posts that I've made then you'll see how I arrived at these numbers. There are some quick napkin calculations below. We can safely assume that the average wholesale selling price of a mattress is ~1350 dollars and we can assume that GM for wholesale is around 30%. This means the average cost of a mattress to manufacture is ~945 on average. From my previous posts, we knew that pre Covid the business was split by units, not by gross sales. On average, wholesale consumed 50% of capacity and DTC consumed 50% of capacity. In order to determine average DTC selling price then we can equation .5*1350 + .5*(DTC Price) = 1900. PRPL indicated their average selling price per mattress was ~1900.00, I found this in their s-3.
.5*1350 + .5*(DTC Price) = 1900=========== DTC average price is 2450.00, 1350 is average Wholesale price.
DTC Margin is ~62% Estimated
Wholesale Margin ~30% Estimated
Historically, advertising costs have been about 30% of revenue. I have been tracking advertisement for purple and from a TV cost standpoint, they have not increased their commercial count at all in the last three months. See link, PRPL is still only performing 125 commercials per day. This commercial rate has held steady for 6 months.
I believe purple has increased their ad spend online but I believe it will be proportional to their new capacity on a unit basis.
Previously purple had 6 Machines of capacity and spent 38M in advertising, I believe they will spend (7/6)*38M which is 44M or roughly 15M per month. Just because revenue is up, doesn't mean they will spend more per unit- they are capacity constrained and that is terribly inefficient.
The following table shows my best guesses on their major category costs. This includes the gross Margin and the other costs subtracted from the Gross Margin.
If we used 66.5M, PRPL would report 1.23 EPS on an adjusted Basis.
The warrant Accrual will unfavorably push the EPS down on a GAAP basis and we will likely see something around .59 EPS. If they can achieve this for the next 4 quarters then in a years time there is a huge potential for stock increases based on the following P/E's.
People may say that this is super inaccurate..... but if you look at the following cash statement then you will realize that PRPL has been generating more than 1M per day in cash for the last two months - that is absolutely insane.
purple has generated 70M in cash in 60 days.
Mark my words, PRPL is going to be more profitable than TPX this quarter. TPX reported earnings of .68 EPS today on revenue of 665M. TPX is trading at 80+ per share. if purple reports a similar .68 EPS then it would be valued about 60% lower than TPX on an EPS basis. if purple posts EPS of ~1 dollar then it would be undervalued as compared to TPX by about 80%.
I hope your NIPS are tender now. Hope this helps you understand why I believe PRPL to be so undervalued.
Although AEF uniquely benefits from the structural tailwinds of both superannuation and ethical investing, we believe it remains misunderstood as an expensive traditional fund manager.submitted by Bruticus91 to ASX_Bets [link] [comments]
Australian Ethical Funds (ASX.AEF) is a public market superannuation fund manager. The perception of the company itself vs. the industry is nicely summarised by the two figures below. Herein lies the opportunity.
AEF is a renowned Australian fund manager that fits within the ESG trend. It represents one of the only pure play superannuation investments in the Australian public market, with 67% of funds under management (FUM) coming from superannuation. The stock bounced exceptionally from a low of $2 in March, reaching a high of $9 in June, and has since retraced towards the low $4s. Previously, the business traded at $6+ following its announcement of end of year FUM and expected earnings figures. On 8th August IOOF Holdings (ASX.IFL) – 19.9% shareholder – announced it was divesting 15% of its stake in AEF. IOOF is a peer and platform provider which offers AEF products to its clients. The investment was sold at $5.24 vs. market price of $5.90. IOOF disclosed it was selling its AEF investment (at a gain) to raise much needed liquidity. The block trade was viewed negatively by the market, with AEF immediately re-rating to below $5.24 and trending downwards (towards low $4s) ever since. The current share price of $4.17 (24 August close) implies the stock is trading at ~51x FY20 earnings guidance, which is slightly above historical levels despite substantially improved performance and outlook. We suspect that the FY20 results will be aligned with guidance (as demonstrated historically) provided in the quarterly FUM update and guided earnings figures. Results have also been positive across its peers throughout mid to late August (see ‘Roadmap’).
AEF began as Australian Ethical Investments (AEI) in 1986 and was owned by 600 insider shareholders before listing. It is a superannuation fund – so revenue is derived from fees on managing invested funds. By 2005, the business managed four unit trusts and a superannuation fund:
· Australian Ethical Balanced Trust (est. 1989)
· Australian Ethical Equities Trust (est. 1994)
· Australian Ethical Income Trust (est. 1997)
· Australian Ethical Large Companies Share Trust (est. 1997)
· Parent of Australian Ethical Superannuation (est. 1998)
The investments of the trust and super fund are guided by ‘The Charter’ – a series of positive and negative investment screens that must be taken into account when selecting securities for inclusion.
In July 2005, the government enacted policy that afforded more choice to individual employees with regards to their superannuation provider (marking the beginning of a positive era for the superannuation industry). In that same year, AEF registered for a superannuation license which it was granted in 2006. Back in 2005/06 the company did not split out superannuation FUM, but FUM increased from $311m in Jun-05 to $380m in September-05 following this policy shift – suggesting there was an existing demand for ethical investment products in superannuation.
From 2005 to 2011, AEF grew total FUM from $311m to $644m, despite muted FUM growth through the GFC-era. In 2012, the business began separating out its superannuation FUM-growth to improve its visibility. This era saw FUM increasing from $617m in 2012 to $4.05bn as at 30 June 2020.
From 2016-19 reduction in FUM-based fees has seen suppressed revenue growth vs. FUM growth. This has resulted in several step changes in FUM-based revenue margins (revenue / FUM) as a result of lower overall fees earned on products. We view this shift as a positive in the long-run since AEF has competitively priced its funds, entrenching their competitive advantages (discussed below) and reducing the temptation that fee-conscious members switch funds. Since AEF has ratcheted the cost of their funds downwards (often ahead of their peers and industry averages), we believe fee compression improves the durability of AEFs revenue compared to peers who are yet to compress their margins.
AEF has a relatively simple business model – revenue is derived from fees on managing invested funds. The funds it manages includes retail, institutional and wholesale (non-super) funds, as well as superannuation funds. We are most interested in the superannuation business although the direct and indirect benefits associated with the funds management business are a noteworthy component to the brand and investment management infrastructure (i.e. ideation / performance fee generating / high performing ESG). Until 2012, AEF did not explicitly separate its super vs. non-super FUM. We believe this contributed to its (mis)perception as a traditional fund manager rather than a superannuation fund. Thankfully, since 2012 AEF has provided details relating to the composition of its FUM (below), and noticeably the growth in its superannuation FUM has been the driving force of the business.
1. Superannuation Exposure: Superannuation FUM is higher growth and lower risk than traditional managed funds. Superannuation funds are regulated to grow at 9.5% due to the Superannuation Guarantee (the Australian Government mandated superannuation contribution). The regulatory framework could see this increase up to 12% in the medium-term and 14% in the long-term. For the purpose of our analysis, we have assumed a constant 9.5% contribution – so any increase would be additional upside. More importantly, excluding fulfilling conditions of release (i.e. death) an individual's superannuation cannot be withdrawn until retirement. Much like the Superannuation Guarantee, withdrawals are also mandated on a schedule that increases as a percentage of FUM with age (beginning at 4% and increasing to 14%). Consequently, the minimum inflows and withdrawals are predictable (and we note the vast majority of individuals do not deviate from these minimum levels due to inertia). Because of this mandated growth, Australia has the fourth largest pension sector in absolute terms and second largest relative to GDP (below). In 2020, the total superannuation pool is ~$2.1trn and growing. It is estimated that by 2040 superannuation assets could be as much as $9trn according to the Australian Treasury.
Alternatively, traditional managed funds are subject to redemption risk, caused (typically) by performance and myopic investor behaviour associated with general market movements. Therefore, FUM growth for traditional managed funds must be attracted through marketing and distribution channels. This inextricably links fund inflows and outflows to performance and marketing efforts, which in turn causes a clientele that is more expensive to acquire and retain, and a more volatile pool of assets. Alternatively, traditional managed funds may access capital through secondary capital raisings and the reinvestment of distributions; both of which are a country mile from a 9.5% government mandated contribution.
Logically, we wondered which (listed) asset could provide us with exposure to the exceptionally robust superannuation tailwind. We will not spend too much time detailing the industry dynamics and public market players as there is a lot of information to be found in various prospectus’ (see Raiz or OneVue prospectus). The main thing to understand is that superannuation funds can be separated into five buckets:
After screening for diversified financials and financials businesses on the ASX there were 53 players with at least some revenue linked to superannuation. The revenue exposure desired is revenue linked to superannuation FUM (explained further in the ‘Valuation’). However, it is important to understand that gaining access to this lucrative industry is difficult for several reasons:
· Private industry funds – the gems of the industry have been private superannuation funds such as CBUS, Hostplus, and ESTA. We cannot access them as public market investors.
· Conglomerate financials – it is possible to gain some retail superannuation exposure within the banking majors such as CBA, WBC, ANZ and NAB. However, they represent insignificant exposure by revenue and profit and the stocks are driven by other risk and growth factors.
· Fund managers – fund managers may directly manage retail superfunds or SMSF funds such as Magellan, Platinum and Perpetual. However, there is limited visibility over superannuation FUM exposure.
· Superannuation adjacency businesses – superannuation exposure can also be housed within wealth / platform advisers such as like HUB24, Netwealth and OneVue. However, to varying degrees, these businesses are not purely exposed to superannuation-FUM linked revenue.
· Pure play sub-scale – the final example can be found in Raiz, which is a sub-scale business that has ~$450m in FUM of which 85% is funds management. It is possible to envisage this business as an AEF in 10-15 years with larger superannuation FUM exposure. Although the superannuation exposure representing $70m in FUM currently (vs. AEF $2.72bn) is vastly inferior to AEF.
For this reason, AEF is the closest to a pure play (at scale) superannuation player.
Putting this together, we believe AEF is likely to continue to grow its FUM at 20% p.a. YoY. This is principally due to AEF's ability to acquire new members and retain existing members. Therefore, to monitor this continued FUM growth going forward we encourage readers to look out of the number of superannuation members added in these upcoming results and beyond. AEF has grown its member base YoY consistently in an industry which has, on average, been relatively flat in terms of member growth. In 2019 AEF was the highest growing superannuation business in Australia across the previous 5-years.
1. Ethical, Social and Governance (ESG): Beyond the obvious tailwinds in superannuation, AEF is also exposed to another important trend: ESG. Needless to say, ESG investing is becoming not only popular but almost mandatory for corporate money managers. Younger demographic investors are increasingly concerned with the ethical and social impacts of corporate activity. This report by Harvard and another by State Street provide some interesting commentary on the issue. ESG ETFs have been growing at a CAGR of >30%, and State Street forecasts that the global ESG ETF market will increase from US$170bn in 2020 to US$1.3trn in 2030. Momentum for ESG ETFs has been building specifically in Australia, where AUM surged almost 300% — from A$554.1m in 2017 to A$2.2bn in 2019.
Whilst the ESG-shift has been occurring since the 2010s, State Street argue that COVID-19 will only further catalyse this shift by highlighting the inherent inequalities in society and health care systems, in turn, spurring social conscience. We note the following data points as indicators of this more recent catalyst:
· Perpetual’s recent acquisition of Trillium, a US-based ESG fund, shows the desire of traditional asset managers to become exposed to this space.
· BlackRock has started publishing more frequently and consistently on ESG trends and continued rolling out ESG products.
· Forager’s investment blog received frequent commentary from investors talking about negative screening on their gambling holdings which has never been the case in the past.
The key insight is that a growing proportion of the investment community through time is becoming concerned with ESG issues and this will drive fund flow. Industry data is pointing to the fact that this is a prolonged structural shift rather than a short-term trend.
2. Performance: AEF has improved upon their exposure to structural industry trends in superannuation and ESG through excellent fund performance. AEF's performance (below) has been consistently strong across all of their strategies (we highly recommend reading page 4 of Sequoia's June 15, 2020 "Investor Day Transcript" to highlight how governance and performance are complimentary). Such strong performance not only disincentivises members from switching to competitors and assists member acquisition, but also significantly enhances earnings at the group level. For instance, FY20 guidance provided on 7 July 2020 vs. 22 June had a midpoint difference of ~$2m. Given the long track record of the managers it is expected performance will remain strong.
· FUM = funds under management
· FUA = funds under administration
· MA = managed accounts
· FU\ = total funds (FUM + FUA + MA)*
Valuing a Superannuation Member: Our valuation technique here will be somewhat unconventional. We will attempt to value the lifetime revenue per member (LRM) for AEF and for a traditional fund and then highlight the incongruity of their relative valuations.
The long-term nature of lifecycle retirement saving (and by virtue the true value of a superannuation fund) demands a long term perspective. Fortunately, the mandated nature of AEFs cash flows facilitates evaluating the lifetime value of a superannuation member. To estimate the LRM we consider the following: (i) life cycle expectations (i.e. retirement age and life expectancy); (ii) salary expectations; (iii) superannuation contribution rate; (iv) investment returns; (v) member "type;" (vi) fee structure; and (vii) a discount rate.
We begin by assuming a member makes $5,000p.a. at age 20, which grows to $130,000p.a. through the middle of their working life (35-50) and then declines to $90,000p.a. at 65 (noting these are gross values not inflation adjusted). Since the average member account balance for AEF is ~$60,000 (FUM of $4.05bn ($2.72bn of which is superannuation) / 43,000 members = $60,000 as at 30 June 2019), we can roughly assume that the average age of their member is between 30-35, which places them at the profitable end of this member acquisition cycle. Further, this member regularly contribute 9.5% of their earnings to their superannuation, which compounds at a rate of 6% p.a. Moreover, the prototypical member starts working / paying superannuation into AEF at age 20, retires at age 65, and redeems according to the minimum withdrawal schedule until age 85. However, how many members live according to this prescribed lifecycle; supported by an uninterrupted working life? What about people that take time off to raise children, either returning to part-time work or full-time work? We can model these archetypes also, which assumes much lower income growth and some years of earning no income. If we assume that society is roughly split into thirds by these archetypes (i.e. 1/3 uninterrupted, 1/3 interrupted and return part time, 1/3 interrupted and return full time), then we can calculate a weighted average LRM for the average member. Compressing fees by more than half to 50bps and assuming a 7% discount rate we arrive a weighted average discounted LRM of ~$18,000.
Whilst comparing this to the average member in another non-super fund is difficult for an array of reasons (i.e. average acquisition age, average income, average balance, average contribution, redemption allowance etc.), we can loosely estimate what this looks. Adopting the same framework as above, to estimate the LRM of an average managed fund member we must first define the managed fund member "archetype." First, we assume the average traditional fund member has a higher income profile (as lower income earners typically do not invest in managed funds). We tweak the income profile to peak at $180,000 between 35-50 and taper down to $120,000 by age 65. Second, we assume the acquisition age is 30 years rather than 20 to reflect that most individuals do not invest in traditional managed funds until later in life. Thirdly, we account for the non-compulsory nature of managed fund contributions. If we start with the marginal savings rate (10-year average of ~7%) as a proxy for available funds for investment and increase this to align with our ‘managed funds’ archetype who has higher income to 15%. We then assume that from this 15%, about 1/3 will be invested into a managed fun (or ~5%). Therefore, for our individual earning $180,000 during peak working years, this is an annual contribution of $7,200. Finally, we increase the discount rate to 9% since because redemptions are more likely in a traditional fund. Using these alternative assumptions, we arrive at a LRM of ~$5,000.
The significant difference in LRM helps explain why a superannuation business can command a much higher multiple of FUM or earnings. Further, we believe our estimate of LRM for a traditional fund manager is quite bullish (i.e. overstated) due to the following: (i) it assumes the individual works full-time for their entire life; and (ii) it assumes the individual stays with the fund from age 30 to 65 and makes uninterrupted and stable contributions. Although dollar cost averaging is touted as an eighth wonder of the world, we are doubtful it is applied as often as it is spoken.
Trading Multiples Valuation: Valuing AEF on a relative basis is difficult given the lack of peers. Against traditional fund managers (i.e. Magellan, Perpetual and Platinum), which trade between 5-20x earnings, and superannuation exposed platforms (i.e. Netwealth and Hub24), which trade between 25-40x earnings, AEF looks relatively expensive. We are acutely aware that AEF is currently (at ~$4.2) trading at 12.6% of FUM and ~51x earnings; and at its peak (~$9) was trading at 25% of FUM and 120x earnings. We believe the valuation difference is driven by the quality of the FUM managed and, therefore, the quality of the earnings growth.
Given their high alignment to superannuation, NWL and HUB are the two most comparable firms to AEF. As the trailing figures show, AEF appears to be trading on par with its peers. However, an important nuance is the trailing figure for AEF is based on 2019 earnings, whilst for NWL and HUB it is based on FY20 earnings given they have already reported. As such, on a like-for-like basis AEF’s ‘trailing’ earnings multiple (based on the mid-point of management’s guidance) is actually ~51x. This means it is trading below NWL and HUB, despite the fact that the majority of those businesses’ FU* is linked to FUA rather than FUM, which has a lower monetisation rate. Not to mention, the split between superannuation and managed funds is not as clearly delineated as is the case with AEF. What is also evident is limited analyst coverage of AEF and lack of forecast guidance assisting the market to predict growth (as is the case with NWL and HUB).
Relative to traditional fund managers (i.e. PPT, PTM and MFG), we note the substantial difference in FUM and business quality. AEF hosts the highest monetization rate (Rev/FUM), even whilst facing fee compression, with the highest FUM growth among its investment management peers. Furthermore, we expect EBIT margins will improve from ~30% toward its larger traditional fund managers peers due to economies of scale over time that we believe will more than offset any fee compression. AEF has also supported a very high ROE due to its sticky clientele and service-based business model. The combination of: (i) best in class monetization; (ii) high LTM and increasing membership base; (iii) improving margins; and (iv) high ROE will make for an incredible growth engine on earnings in the long term. Thus, AEF is a higher quality business with ~4x+ the LCM of a traditional fund trading at only a 2-3x premium using current ratios...
We note the following investment risks with AEF:
Peers’ Earnings Updates: In summary, the FY20 results of peers indicate that businesses with revenues dependent on investment funds have performed quite strongly during this period.
Earnings Announcement: Earnings release on 26 August 2020 should provide for the first catalyst to remind the market of the AEF's fundamental performance. The key figures here will be superannuation FUM, superannuation members and FY20 earnings. AEF will also provide ongoing quarterly FUM announcements, with the following update due in early October. We may also see a mid-August FUM figure in the most recent announcement. Finally, AEF has historically provided updated FUM in back-dated results announcements. Evidence of this occurring can also be found in HUB's most recent announcement:
Private Market Activity: Whilst we think that a private equity buyout is unlikely for AEF, further media exposure and transaction data points should help the public value these assets. There have been some recently executed and rumoured deal activity in the space through 2020. Notably, KKR – one of the largest US-based global private equity funds – bought a 55% stake in Colonial First State valued at ~$3bn from CBA. The implied valuation was ~16x EBITDA, despite the quality of business model and LTM of members being substantially weaker than AEF. There is similar PE interest in NAB’s MLC Wealth, with US funds CC Capital and FC Flowers on second round bids for the asset. NAB's MLC Wealth business caught the attention of Carlyle, BlackRock, and KKR earlier in the year although deals were not executed. The interest from KKR in Colonial is particularly notable, given Scott Bookmyer (KKR partner) who refers to Australian superannuation as the ‘the envy of the western world’. We believe AEF may benefit indirectly from private equity interest, which will confirm both the long-term value and viability of their business model.
Note: Margin trading is highly risky, crypto margin trading even riskier. So it is a strict NO for beginners given veteran traders also incur huge losses in margin trades. However, if you are good at regular day trading, you can start trying margins for smaller amounts for crypto trading. Margin trading became highly popular among ordinal markets. Perhaps, many of you not only have heard but also have already tried to trade through Forex currency market brokers. Futures trading soon to be launched by the world’s largest cryptocurrency exchange by trading volume, Binance. 20X Leverage Crypto futures trading released in July by Binance Exchange. Founder and CEO of the exchange, Changpeng “CZ” Zhao showcased a futures trading interface on Binance with features including longs and shorts on crypto ... Step 2: Calculate Required Margin. You want to go short EUR/USD at 1.20000 and want to open 5 micro lots (1,000 units x 5) position. The Margin Requirement is 1%.. How much margin (“Required Margin“) will you need to open the position? Since our trading account is denominated in USD, we need to convert the value of the EUR to USD to determine the Notional Value of the trade. Margin explained Margin trading is the practice of buying or selling financial instruments on a leveraged basis, which enables clients to open positions by depositing less funds than would be required if trading with a traditional broker.
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