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  • NXP Semiconductors To Outperform Over Medium-Term


    Business description

    NXP Semiconductors N.V. is a Dutch global semiconductor company and a supplier. The Company provides High-Performance Mixed-Signal and Standard Products solutions. NXP's product solutions are used in a wide range of automotive, identification, wireless infrastructure, lighting, industrial, mobile, consumer and computing applications. It is engaged with original equipment manufacturers (OEMs) worldwide and over 58% of its sales are derived from Asia Pacific (excluding Japan).

    Fundamentals (Financial year end 31st December)

    NXP's Security & Connectivity business consists of Secure Identification Solutions (SIS), Secure Connected Devices (NYSE:SCD) and Secure Interfaces & Power (SIP). The company expects the addressable markets for all three segments to see steady expansion, driven by ongoing strong demand for secure mobile payment solutions and secure bank cards in China and the US. It recorded 2014 revenue of $5.5 bn (+17% y/y).

    Secure Identification Solutions - (SIS, 18% of 2014 sales, growth target - high single-to-low double digit). The SIS segment includes secure MCUs, low-power RFID tag & labels, low power RF interfaces, and secure Java-card operating system software that enable a wide range of applications for secure identifications such as eGovernment documents, chip-based secure bank cards, secure transit cards and RFID tags. Largest growth opportunity for SIS is from the secure bank card segment, where the company expect continued strong demand from the US and China markets.

    Secure Connected Devices (SCD, 19% of 2014 sales, growth target - high teens to low twenties). Growth prospect for SCD is expected to be driven by continued adoption of mobile payment in architecture of (NFC+eSE+OS), adoption of NFC payment infrastructure, demand for improved mobile audio, market shift toward 32-bit ARM MCU and Secure monitoring & control solutions for IoT

    Secure Interfaces & Power (SIP, 19% of 2014 sales, growth target - low double to mid-teens). Growth drivers for SIP segment include increased demand for cellular data adoption of USB Type C and other high performance interface, adoption of energy efficient lighting, adoption of more IoT applications that require low-power RF connectivity and increased demand for mobile charging and increased demand for accessory authentication

    Moat Trend

    Double-digit growth in the Secure Connected Devices business and Secure ID

    Continued market share gains in General purpose and Auto MCUs

    Continued growth in automotive content per vehicle

    Strong IP and patent portfolio position

    Broad mixed signal product portfolio and Differentiated process technology

    Leader in cryptography, low-power RF, high-speed interface and mixed -signal MCU system design

    Key Catalysts for NXP's stock

    Continued digitization of government documents, as the penetration rate is only 33% as of today

    Ongoing global rollout of chip-based secure bank cards

    Unified transit and retail payment platforms and Authentication of products & people

    Rebound in eGOV business and multi-year EMV rollout for the US

    Major Risks

    Execution on Freescale Integration

    Competition in ID and Mobile payments from Infineon, ST Micro, and Broadcom

    Declining auto production if the macro weakens, particularly in China

    Peer analysis

    NXP vs. Peers - Financial comparison

    Peers for NXP include - Intel, Texas instruments, Qualcomm and TSMC (Taiwan Semiconductor Manufacturing Company Ltd.)

    Qualcomm and TSMC leads the peer set in terms of Revenue growth and profitability per employee

    TSMC leads the peer set in terms of profit margins and ROA

    NXP performs worst among peers in terms of operating margins, net profit margins, ROA and profit per employee

    NXP's outperformance in terms of growth in operating profit is because of the base effect as the company had a very small operating profit of $89 mn in FY 2009

    5 year CAGR for Revenue and Operating profit is as per growth between FY 09 and FY 14

    Latest financials are for FY 2014 (FYE Dec 31st) and financial for all the peers are in USD sourced from Reuters/Company Financials

    Investment Rationale

    Secular trends driving sustainable and above-market long-term growth - NXPI is among the best positioned high-performance mixed signal (HPMS) semiconductor company to outgrow the semi industry over the long term with multiple secular growth drivers, specifically in automotive (15% CAGR) and security space (12% CAGR)

    FSL deal takes the company in the big league and provides attractive cost leverage- NXPI's acquisition of FSL makes strategic sense as it provides boost to NXPI's long-term growth sustainability as the FSL acquisition nearly doubles the addressable market size for HPMS, which is the company's strongest franchise with the best competitive positioning and margin structure, to more than $40 billion.

    Continued debt de-levering drive upside to free cash flow - Management has indicated that at the time of the merger close the company would be 2.5x levered, but could achieve its long-term goal of 2x by mid-16.

    NXPI currently trades at $78.73 (closing price as on 17th Nov) with its 52 week range of $70.35 - $114 and looks attractive with strong potential upside over medium to long-term -

    Stable end-market exposures over the long term in automotive, industrial and general purpose

    Continued debt delevering which drives further FCF growth

    Synergy realization from FSL acquisition to drive its stock price near its 52 week high

    Tags: NXPI, long-ideas
    Nov 18 12:41 PM | Link | Comment!
  • BioMarin's Strong Pipeline And Recent Success Expected To Turn It Profitable

    BioMarin Pharmaceutical Inc. (BMRN)

    Recent Fundamental Highlights

    Founded in 1996, BioMarin Pharmaceutical (NASDAQ:BMRN) develops and commercializes drugs primarily for orphan indications. The company's product portfolio consists of five approved products and multiple investigational product candidates. Approved products include Naglazyme, Kuvan, Aldurazyme, Firdapse and Vimizim.

    Genzyme (now Sanofi) and BioMarin formed a 50/50 joint venture to market BioMarin's first drug, Aldurazyme, for the treatment of mucopolysaccharidosis I, or MPS I. BioMarin's MPS VI drug, Naglazyme, is seeing strong growth due to use in emerging markets like Brazil and higher (more expensive) dosing as young patients mature; we think peak sales expected to surpass $500M.

    Moat Trend

    • BioMarin's life-saving therapies may serve only a few thousand patients globally, but with six-figure price tags on most products and high barriers to entry, we see this as a very attractive marketplace
    • BioMarin's drugs target rare chronic conditions that often require treatment from a very young age, and while locating eligible patients on a global level is challenging, the firm has high patient retention rates
    • BioMarin's acquisition of Prosensa brings BioMarin a potential blockbuster drug for DMD with near-term approval potential in both the U.S. and E.U.
    • With a deep in-house pipeline, new manufacturing capacity, and the ability to supplement growth with strategic acquisitions like Prosensa, BioMarin is in a strong position for growth in the coming years

    Major Risks

    • Patents- BMRN does not have composition of matter patents on BH4, the active ingredient in Kuvan. Its intellectual property strategy entails use patents and manufacturing patents in PKU and hypertension/vascular disease. These patents are generally recognized as weaker than composition of matter patents, and therefore, BMRN could be subject to patent challenges
    • Clinical, regulatory and commercial risks are major risks for biotechnology companies
    • Biotechnology companies require significant amounts of capital in order to develop their clinical programs, and raising capital is always challenging as there is a risk that the necessary capital to complete development may not be readily available


    • Vimizim's launch continues to progress, along with sales of more mature products, Naglazyme and Kuvan
    • AdCom is expected to be a key growth driver given the robust catalyst path and analyst see many paths to additional value creation, with an FDA AdCom for drisapersen in late 2015 among the most visible and highest impact events in biotech this year
    • FY 2015 guidance for total revenue of $840M-$870M represents a 10-13% increase over 2014 revenue and with 2Q sales of $249M it is expected to reach upper end of its guidance
    • Translarna's E.U. approval a positive for drisapersen - CHMP's about face last year on PTC Therapeutics' (NASDAQ:PTCT) Translarna and its subsequent E.U. approval demonstrate a willingness to use post hoc analyses and natural history data to approve DMD (Duchenne muscular dystrophy) drugs. Translarna's approval in Europe set a positive precedent and lowered the bar for drisapersen

    Investment Rationale

    BioMarin has five marketed products with three enzyme replacement therapies (NASDAQ:ERT), and two small molecules for ultra-rare diseases. The ERTs are Aldurazyme, Naglazyme, and VIMIZM for three different types of mucopolysaccharidoses (accumulation of waste products within cells): MPS I, MPS VI, and MPS IV, respectively. BioMarin has established itself as a leader in the orphan space with growing revenues and a sizeable pipeline and is focused on the development of novel therapeutics for orphan diseases.

    Strong rare disease pipeline - BMRN is developing drisapersen for DMD, with potential US approval by YE15, PEG-PAL, and an enzyme replacement therapy for PKU, which has entered Phase III testing for Kuvan non-responders. In addition, BMN-701 is advancing into late-stage clinical testing in Pompe Disease, and BMN-673 (PARP inhibitor) is in a Phase III trial in BRCA-mutated breast cancer

    BioMarin is also well-positioned to treat the entire spectrum of patients with phenylketonuria, or PKU, one of the world's most common metabolic disorders. Kuvan is approved to treat mild to moderate PKU, and Peg-Pal is expected to see pivotal data in severe PKU in 2016. PKU is well-diagnosed with state-mandated newborn screening programs, and no alternative drug therapies exist.

    Stock performance

    BioMarin currently trades at $136.02 (closing price as of Aug 11th) and looks attractive with strong upside potential over medium to long term with high visibility of growth and optimism arising from its key products, including Drisapersen, BMN-111 and BMN-190. With key clinical read-outs and additional POC (proof of concept) data on BMN-701 for Pompe within the next 12 months, BMRN remains a core biotech holding with strong positive outlook for the stock in 2015 and 2016.

    Tags: BMRN, long-ideas
    Aug 13 8:20 AM | Link | Comment!
  • Adobe's (ADBE) Strategic Shift Will Lead To Growth In The Long-Term

    Adobe Systems Inc. (NASDAQ:ADBE)

    Headquartered in San Jose, CA, Adobe Systems, Inc. delivers powerful graphic design, publishing and imaging software for print, web and video production to help professionals express, share, and manage their ideas. Founded in 1982, Adobe created printing technology that inspired the desktop publishing revolution. Since then, Adobe has assembled the premier portfolio of graphic design, imaging and publishing software on the market. In 2005, the company acquired one of its closest competitors, Macromedia, bringing together Adobe's content creation and collaboration products with Macromedia's web design and animation tools. Market-leading, Adobe, creative products in include Creative Suite, Photoshop, Acrobat, Illustrator, Flash and Dreamweaver. Adobe entered the digital marketing market with its acquisition of Omniture in 2009, and has since made several investments in this business, which is the fastest growing revenue segment today. The company's five-year price to volume performance can be seen below.

    (click to enlarge)

    (Yahoo Finance)

    Fundamentals (Financial year end Nov)

    The company's recent fundamental highlights are shown:

    • Adobe reiterated FY2015 EPS guidance of $2.00, which is below consensus of $2.07. The company also reiterated FY2016 EPS guidance of $3.00, which is below consensus of $3.26.
    • Adobe's guidance looks conservative, especially since the company set these goals several years ago. The company also increased its estimate of Media total addressable market (NYSE:TAM) to $14 bn from $10 bn, increasing overall TAM to $35 bn from $31 bn in March.
    • Adobe continues to see the Media business growing through continued migration to Creative Cloud, increased ARPU, and ongoing market expansion, as evident through the expanding TAM.
    • Adobe Creative Cloud (NYSE:CC) adoption has grown rapidly over the past two years, with total subscriber count hitting 2.8mn at the end of 3Q2014, up 171% y/y, while the pace of new subscriber adds has accelerated every quarter since CC was released.

    For investors, the investment rationale for the company should be derived from the analysis of four key factors: Financial strength, management, economic moat, and dividends.

    Financial Strength

    The company's consolidated balance sheet can be seen below, it has not been updated to reflect 2014 as of yet, but some key trends do emerge. Firstly, the company has been able to increase its cash on hand 67% since 2009 and this should remain positive in 2014. Secondly, the company's current ratio has always remained above 2.5. This means the company is always able to cover its liabilities without any risk of default to its creditors. Lastly, the company's "total liabilities to total assets" has remained steady between 0.14 and 0.36 for the past 10 years. This means the company has been using a proportionate amount of debt to fund its growth.

    (click to enlarge)


    The key focus of management should always be on the creation of free cash flow for the company. As you can see below the company has remained strong in this aspect.

    (click to enlarge)

    Economic Moat

    The key focuses of a company's economic moat have to do with competitive advantage and pricing power. A company's competitive advantage allows the company to earn higher profit per unit sold than competitors and creates barriers to entry into the market. Gross margins have stayed strong over the past 10 years, while net margins have come down in recent years. Expect this to be a key focus for management as they head into the future.

    (click to enlarge)

    (click to enlarge)

    Dividends and Buybacks

    The focus of many investors investment decisions is on the basis of income streams and buybacks to warrant the risk of holding a company while waiting for capital appreciation. ADBE has not paid a dividend since 2005 and looks unlikely to do so in the coming years. The focus of the company instead has been the issuance and buyback of shares. The trend is unclear and the company fluctuates between issuances and buybacks as it sees fit. The 10-year trend can be seen below.

    (click to enlarge)

    Investment Rationale

    Adobe is making several major strategic changes in the company's business model, which are intended to raise the company's long-term revenue growth potential and increase recurring revenue. The company's creative cloud offering which includes all creative desktop products, is priced at a compelling monthly subscription price and is expected to provide consistent long-term benefits.

    Adobe currently trades at $73.47 (closing price as of Dec 2nd ) with its 52 week range of $53.93-$74.69 and provides potential in the long-term as long as three things occur. One, the move to cloud revenue increases top line growth. Two, creative cloud offering is increasing the number of new users because of a lower entry price. Three, marketing cloud is well suited for growing demands of CMOs.

    All information and data was taken from For further insights into the company or any of the 5000+ companies listed, visited the page.

    Tags: ADBE, long-ideas
    Dec 02 11:36 PM | Link | Comment!
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