Dear Followers&Copiers, Another Financial Year (FY) has passed, the reporting season is over and it’s time to update the equity portfolio of the Global Leaders Portfolio (GLP) in terms of the SIAScore we use.
Let’s quickly remind what SIAScore is and how the process :
S1: growing sector 1pts/0pts,
S2: incumbent or prospective global leader 1pts/0pts,
S3: growing or stable wide margins (40%+ gross; 3yr avg) 2pts/0pts,
S4: Net Debt/EBITDA <1.5 (last 3 ended FYs) 2pts/0pts,
S5: above-average cash flows (FCF/MktCap (last 3 ended FYs) > S&P500 Dividend Yield or US 10yr Treasry Yield (higher of the values)) 2pts/0pts;
MAX TOTAL SCORE: 8pts/MIN TOTAL SCORE: 0pts/MIN SCORE TO QUALIFY: 4pts
In this post I run a SIAScore update for $EA, which “develops, markets, publishes and distributes games, content and services that can be played by consumers on a range of platforms, which include consoles, personal computers (PCs), mobile phones and tablets. The Company’s games and services are based on a portfolio of intellectual property that includes established brands, such as FIFA, Madden NFL, Star Wars, Battlefield, the Sims and Need for Speed. The Company markets and sells its games and services through retail channels and through digital distribution channels. The Company’s PC games and additional content can be downloaded directly through its Origin online platform, as well as through third-party online download stores. Its mobile, tablet and PC free-to-download games and additional content are available through third-party application storefronts, such as the Apple Application Store and Google Play.” (CNBC)
S1-S2: these qualitative points are clear. $EA both operates in a growing sector (S1) and is a clear global leader (S2) in gaming industry. In both cases the company gets 1 point.
S3: 2 points
2018——2019——-2020——-AVG——-last yr AVG
75,2%……73,4%…..75,5%……74,7%…….74,2%
$EA has a very wide Gross Profit Margin of appx 75%. It also managed to improve its 3yr avg on a YoY basis.
S4: 2 points
2018——2019——-2020——-AVG——-last yr AVG
-2,74…….-3,77…….-2,65……..-3,05…………-2,96
$EA has very safe net cash position and it improves of late. That means that the company can easily finance the development of its franchise portfolio or look for potential value-creative takeover targets.
S5: 2 points
2018——2019——-2020——-AVG——-last yr AVG
4,72%……5,74%…….5,1%…….5,19%……….4,9%
The FCF yield is easily above the minimum treshold level, which is currently at higher of the two: the $SPX500 dividend yield (1,53%) and the 10Y treasury note yield (1,7%). $EA is a stock creating long-term shareholder value.
Aggregate SIAScore for $EA : 8 points (stable YoY).
Conclusion: Fundamentals of $EA are very sound. The company keeps building long-term value. Valuation-wise it trades at a 35x TTM PE, lower than the $SPX500 Shiller CAPE of 36,6x. Additionally its 1yr forward PE stands at 23x, which can be deemd cheap on a comparative basis to its industry peers (for example: $TTWO (Take Two Interactive Software Inc) 29x, $0700.HK (Tencent) 28x, $ATVI (Activision Blizzard, Inc.) 23x). Technically the stock has been consolidating within a USD120-150 range for the last 6 months. With the general improvement on the markets seen lately, it can be expected that it’s a matter of time for $EA to break USD150 resistance. Average analyst tgt px is USD161 now.
Best regards, GlobalAlphaS
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