Manole Capital Management, April 2020
COVID-19s Impact on FINTECH
Introduction:
At Manole Capital, we focus all our time on FINTECH, or doing bottoms up, fundamental research on financial and technology companies. In this note, we highlight our thoughts on risk, being prepared for volatility and we have sprinkled in a few tidbits about some of the long-term ramifications, both positive and negative, for our FINTECH stocks.
Information:
Normal recessions do not just upend the economy, but they typically "clean out" any excesses. Our early read on this virus is that two of the overall winners will be technology companies, as well as high-quality growth companies. Luckily for us, these are heavily weighted in our portfolios.
Over the next several weeks, as companies begin to report 1st quarter results, it will be critical to listen to management teams and gauge whether or not they have a good grasp of their fundamentals. Do these management teams and companies have a plan forward? Do they have the capital needed to survive this downturn? How are they positioned for the next 3 months or the next 3 years?
Sell-side analysts crave insights from their covered companies. Anybody can build a model in Excel forecasting future results, but most outcomes and estimates fall in-line with company guidance and expectations. Right now, companies are dealing with the unknown and many companies are not being forthright. Some management teams will discuss earnings power and capital needs, while others will simply remove 2020 guidance and say, "We don't know."
We believe public companies should disclose to shareholders their plans and strategies for dealing with this crisis. SEC Chairman Jay Clayton recently said investors are "thirsting for information" and "companies should be telling the market where they stand from a capital needs perspective." This is a fundamental shareholder right, but many companies will shy away
