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Pim Keulen
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I started trading on a permanent scale two years ago. My goal is to create a stable portfolio over a period of time, whichs generates good stock- and dividend returns. I have a fundamentel approach towards investments decisions.
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  • Dialog Semiconductor Third Quarter Earnings Underestimated

    Dialog Semiconductor (OTC:DLGNF), a provider of highly integrated innovative power management, audio, AC/DC and short range wireless technologies, published third quarter earnings ending September 30, 2013. Despite 22% year on year revenue growth share prices are down 9.7% since third quarter earnings were published on October 29, 2013 (see graph below). This article will discuss third quarter earnings and full year outlook.

    (click to enlarge)

    Operational highlights

    During the third quarter Dialog Semiconductor made solid progress regarding the integration of iWatt, a market leading AC/DC and LED SSL manufacturer. Dialog Semiconductor completed the acquisition of iWatt on July 16, 2013. Dialog Semiconductor entered into an agreement to acquire iWatt on July 2, 2013 for a cash payment of approximately $310 million, with additional contingent consideration of up to $35 million, based on achieving future revenue targets. iWatt contributed $18.4 million in revenue and $1.3 million EBIT to third quarter earnings on a underlying basis.

    Third quarter was a great quarter when in comes to product development. The company delivered new products to meet customers demand. Dialog Semiconductor licensed Tensilica HiFi Audio/Voice DSP IP, which positions the company to develop next-generation audio solutions for connectivity products. Further, the company made progress in the migration to 0.13nm BCD technology. First sampling products will be available next quarter. Additionally the company disclosed information regarding a fourth platform win with Samsung, announced October 24, 2013.

    Financial highlights

    The company reports according to IFRS accounting principles. Revenue was up 22% year-on-year to $219.5 million. Gross margin declined by 250bps to 35.5%. EBITDA amounted $24.4 million, a 7% decline compared to 2012. Net income in third quarter 2013 was just $3.6 million or $0.05 per share. Operating cash flow increased to $18.4 million compared to negative cash flow of 19.6 million in third quarter 2012.

    Financial IFRS results in third quarter 2013 were influenced by the acquisition of iWatt. iWatt consolidation adjustments lowered IFRS revenue by $5.4 million and IFRS EBIT by $16.2 million. Revenue on a underlying basis was up 25% to $224.8 million. Gross margin improved 180bps instead of a 250bps decline on a IFRS basis. Underlying basic earnings per share increased 18% to $0.33 a share.

    (click to enlarge)

    Outlook and analyses

    Dialog Semiconductors expects stronger demand for its products during second half of the year. Given third quarter results and intake of orders year-to-date the company expects revenue growth momentum to continue in fourth quarter 2013. Underlying revenue will be in the range of $270 million to $295 million, including adjustments made for the acquisition of iWatt. Full year underlying revenue will be in the range of $826 million to $851 million, a 10% year on year increase compared to 2012.

    The company's stock performance does not cope with strong third quarter earnings. Stock performance is flat year to date. IFRS results were down compared to Q3 2012 due to one-time IFRS adjustments regarding the acquisition of iWatt. When the IFRS adjustment are not taking into accountant, underlying revenue increased 25% year-on-year, earnings per share were up 18% year-on-year and operating cash flow was $18.4 million positive.

    Dialog Semiconductors also made progress in expending customer base, given the agreement with Samsung published on October 24, 2013 and the acquisition of iWatt announced on July 2, 2013. As a result of these announcements, the company is less depended on Apple sales in the future. Product improvements and new licenses positioned the company for further growth in 2014.

    Disclosure: I am long OTC:DLGNF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: DLGNF, earnings
    Nov 10 1:24 AM | Link | Comment!
  • Portfolio Trade: Brunel Out, Kelly Services In

    Brunel (BRNL.AS) was one of the best performing stocks in our defensive portfolio. Yesterday we decided to take our profits at €46.50 a share. We bought Brunel on April 2, 2013 at €33.10 a share. In the meantime we received dividend payments, €1.00 a share. Total return 43.5% (including dividend payments) in five months time. Another staffing company replaced Brunel in our portfolio: Kelly Services (NASDAQ:KELYA).

    Brunel, founded in 1975, is a staffing company, providing workforce solutions for higher educated personnel. The company operates in The Netherlands, Germany, Belgium and Canada and focus on ICT, legal, finance and insurance & banking. The stock is trading at all-time high levels.

    Kelly Services, founded in 1946, provides workforce solutions to various industries worldwide. The company operates all around the world, with a focus on the United States. It offers trained employees for a variety of clients. Full time employees amounts 8.100. The stock is trading at 52wk high levels.

    Our decision to switch Brunel for Kelly Services was made on a fundamental basis. Current dividend yield, an important consideration for our portfolio, favors Brunel (Yield: 2.15%) over Kelly Services (Yield: 0.94%). On the other hand, Kelly Services has a more attractive valuation (P/E: 16.82) compared to Brunel (P/E: 25.13).

    Next we evaluated the markets in which the companies operate. Brunel focuses on Western Europe, where Kelly Services focuses on the United States. In our opinion is the labor market more likely to recover in the United States then in Western Europe, where especially The Netherlands and Belgium are struggling with high levels of debt.

    Last part is our evaluation of other economical and political factors, in this case: currency effects. We anticipate EUR/USD currency effects more favorable for Kelly Services compared to Brunel. A stronger EUR currency will hurt the competitive strength of Brunel, where a weaker USD favors the competitive strength of Kelly Services.

    Current stocks in our defensive portfolio: Ahold (OTCQX:AHONY), Boskalis (BOKA.AS), Casino Guichard Perrachon, Dialog Semiconductor (DLG.F), Freenet (FNTN.DE), Gemalto (GTO.AS), Glaxosmithkline (NYSE:GSK), Kelly Services (KELYA), Kimberly-Clark (NYSE:KMB), Nestle (NESN.VX), Olin (NYSE:OLN), Royal Dutch Shell(OTCQB:RYDAF), Standard Chartered (OTCPK:SCBFF), Ziggo (ZGGF)

    Disclosure: I am long KELYA.

    Additional disclosure: I am long all mentioned stocks, except Brunel.

    Tags: KELYA
    Nov 06 5:07 PM | Link | Comment!
  • Dr Pepper Snapple Group Effective Tax Rate: A Weakness And An Opportunity?

    In a world of globalization and global expansion most companies are looking for international growth. Not so much for soft-beverage company Dr Pepper Snapple Group (hereafter: DPS). DPS is the no. 1 flavored carbonated soft drink company in the Americas, with operations across the United States, Mexico, the Caribbean and Canada. Their mission is, according to their corporate website: "Be the Best Beverage Business in the Americas."

    DPS third quarter earnings came in October 23, 2013. The company reported 1% increase in net sales and 20% increase in reported earnings-per-share for the third quarter year-on-year. The company expects full year net sales to be around flat and core earnings to be in the $3.04 to $3.12 range. Current Forward P/E ratio stands at 15.25. DPS pays a quarterly dividend, of $0.38 (2012: $0.34; up 11%), a yield of 3.20%.

    DPS is known for its flavored beverages. Their brand portfolio includes 7UP, A&W, Canada Dry, Clamato, Crush, Hawaiian Punch, Mott's, Mr & Mrs T mixers, Penafiel, Rose's, Schweppes, Squirt and Sunkist soda. The company focuses on building, improving and strengthening current market position of their brands in existing markets. Improving operating efficiency and distribution channels should contribute to better operation margins in the future.

    It is clear DPS strategy is different from competitors like The Coca-Cola Company and Pepsico. These two competitors are looking at a more global strategy and anticipate future growth to come from emerging markets. The global strategy enables the two companies to distribute their profits to countries with low tax rates compared to DPS's American strategy.

    According to the press release attached to the third quarter earnings report, DPS core effective tax rate in the third quarter of 2013 amounts 35.5%. Core effective tax rate is defined as the effective tax rate on core earnings. Effective tax rates for The Coca-Cola Company (27.4%) and Pepsico (25.5%) in the third quarter of 2013 are significantly lower then DPS effective tax rate.

    As a result of the strategy to focus on American markets, DPS is currently unable to benefit from lower corporate tax rates abroad. It is fair to say corporate tax in the United States causes competitive disadvantage for DPS considering the significantly lower effective tax rates for more global oriented companies like The Coca-Cola Company and Pepsico.

    However, DPS current competitive disadvantage could turn out to be a great opportunity to create more value for the shareholders. I would like to see DPS considering a more global approach regarding future growth. In my opinion a more global approach triggers a multiplier effect in earnings-per-share growth.

    First of all DPS will increase revenue because the company enters new and fast-growing markets, for example: Africa and Asia. DPS earnings-per-share could grow even faster, because DPS will benefit from lower corporate tax rates in countries abroad. Earnings-per-share could potentially grow by 10%, as a result of lower tax rates (difference between DPS and Pepsico effective tax rate in the third quarter of 2013).

    All factors combined I would consider DPS as a long-term investment, given the current valuation and dividend return (P/E: 15.26; Yield: 3.20%). Considering current valuations of The Coca-Cola Company (P/E: 20.48; Yield: 2.80%) and Pepsico (P/E: 19.81; Yield: 2,70%) my initial target for DPS shares is $56 per share, excluding an international strategy.

    In my opinion DPS has great earnings-per-share growth potential if the company should consider a more global strategy. Earnings-per-share could further benefit from increase in revenue (new and fast-growing markets) and lower tax rates. Including an international strategy my target for DPS shares would be around $68 per share.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: DPS, KO, PEP
    Nov 05 11:32 AM | Link | Comment!
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