Edison Investment Research

Qualcomm – Tooth and nail.

This time around, Qualcomm should fight.

Uber in the sky

Could flight sharing apps rejuvenate the ailing bizjet market?

I recently read an interview with Embraer’s CEO where he discussed the ‘Uberization of business jets’. As an uber devotee, I started to investigate what this actually means and discovered that we may be on the brink of a structural change in the bizjet industry.

Market Commentary - Housing, Infrastructure, Construction and Services 26th January 2016

Kier and Countryside have updated this morning and both companies report that they are trading in line with expectations and that demand is at a high level in residential and, in Kier’s case, property as well. The main moves yesterday involved Mears touching 500p, rising 4.1% on the day. We have spoken positively about the company for some time.

LINE Q4 16 – Game off.

Gaming could save LINE but the focus appears to be elsewhere.

Market Commentary - Housing, Infrastructure, Construction and Services 25th January 2017

Renew Holdings and McCarthy and Stone have issued news this morning, both have provided updates to coincide with their AGMs. Both companies tell us that trading is in line with expectations so there is not much we can add. The main news yesterday was that companies were there are debt and/or pension and/or accounting concerns were the main losers (Capita -3.3%, Interserve -3.1%, Carillion -3.0, Mitie -2.4%, Babcock -2.0, Atkins -1.7%). It would be unlikely that the moves in this way are random.

Market Commentary - Housing, Infrastructure, Construction and Services 24th January 2017

Lakehouse and Crest Nicholson treat us with news today, both with year end results. The former to end September, the latter to end October. Lakehouse has done a lot in the last six months under its new Chairman, Bob Holt. The key has been to restructure the division that was called Regeneration, now rebranded as Property Services. Crest is riding the housing wave as might be expected from an experienced leadership team.

Snap Inc. – Valuation snaps.

Snapchat looks more like Twitter than Facebook.

    Snapchat appears to be intending to focus on engagement metrics to justify its $20bn-$25bn valuation in the coming IPO.
 We see this as a sure sign that real metrics such as revenue and profit will fall far short of that which a regular company would need to justify that valuation.
 Snapchat is essentially an instant messaging platform with the ability to send video and pictures as well as some cool and fun video annotation features.
 Although video is a big part of the appeal of Snapchat, we do not consider this to be a Media Consumption platform meaning that Snap Inc.’s coverage of the Digital Life pie is actually pretty low.
 Given its current offering, we would be prepared to give it Instant Messaging and Telephony giving it total coverage of 14%.
 We do not think that its offering is yet broad enough to allow it to monetise either Social Networking or Media Consumption.
 Edison estimates that this would give it the ability to grow revenues to around $2.5bn per year in the best instance at which point it would then grow around 7-8%.
 We suspect that the long-term promises being made will be far higher than this as we see no way in which this scenario could underpin a valuation of $20bn – $25bn.
 Furthermore, we remain concerned that Snapchat’s core user base of 12-24 year olds is not as interesting to advertisers as the older demographic groups.
 This is because this age group does not have a lot of money to spend on products and therefore is of less value to advertise to.
 The net result is that Snap Inc. looks more like Twitter than Facebook and also has a user base less capable of generating revenues.
 This means that Snap Inc. will need to innovate and develop its strategy beyond its core offering to have any chance of justifying the IPO valuation.
 Snap Spectacles are an interesting move in this direction and are unique as the only product that has made wearing technology on one’s face cool.
 However, they are not going to do anything to revenues and so will not directly alleviate the situation in which Snap Inc. will find itself.
 The net result is that we see the following scenario without a major innovation on the part of Snap Inc:
 First: An IPO at $20bn-$25bn which goes reasonably on the back of promises that don’t have to be met for a little while.
 Second: A big miss on a set of quarterly results as revenues don’t come though as promised causing a collapse in the valuation.
 Third: Recovery will only come with a major innovation from Snap Inc. or the company will be acquired by one of the much larger ecosystems.
 On the basis of what we can see at the moment, we think a rosy future is already being paid for at $20bn – $25bn and so we would stay away from this one.

Market Commentary - Housing, Infrastructure, Construction and Services 23rd January 2017

Berkeley Group gets in the news twice today. Once for the article you will all have read about the company being encouraged to take a close look at Bovis as an M&A target and secondly for its progress in modular house construction methods. The sector performed roughly in line with the market’s 1.8% fall last week. We are expecting in-line performance this year and so far the sector is slightly ahead YTD. But the housebuilders have lost some of their early pace, triggered by positive market updates from Persimmon and TW as interest rate and Brexit fears creep back in.

Market Commentary - Housing, Infrastructure, Construction and Services 20th January 2017

Short version today as there is little new to add. The departure of Neil Cooper as FD at Barratt after roughly a year in the role, announced at 4pm yesterday is an odd one. The explanation that the chemistry was just not working after around a year in the role is understandable and a swift break is best in that situation. Berkeley continue to buy back their own company shares, a process started around a week ago. Tony Pidgley and his board would only do that if they regarded the shares as good value.

2017…the year of the rooster, Trump and flying cars

What does the year have in store for Aerospace & Defence stocks?

The Aerospace & Defence sector has two distinct sides to it, with civil aerospace and defence often proffering very different investment narratives. Historically, terrorism and political instability have tended to cause the two sides of the sector to diverge, with defence valuations surging and civil valuations falling. This happened most notably after 9/11 in 2001. At the end of 2016 though, a year defined by terror attacks and political turmoil, the situation was quite different. Defence stocks were the stand out performers during last year, driven initially by the fact global defence spending is now growing, having been in decline from 2011 – 2015, and more latterly by Donald Trump’s US election victory. However, civil stocks have also performed well. Although there have been a high number of terror attacks during 2016, improved airport security measures have forced terrorists to seek new targets and so aerospace stocks have been largely unaffected, and in fact have continued to benefit from the structural growth of passengers numbers which continues to drive output growth. So what does 2017 have in store for aerospace and defence?