Sunday, May 2, 2021

2021 Strategy Series: Palantir Technologies - PLTR (Post 2) + Thoughts On Investing

Warning: This post is not for you if you do not have an open mind.

Aside to the regulars readers, I don’t know what came over me recently. Maybe I am older now. So I am more confrontational. If I think I am right, unless proven I am wrong, then I think it is very important to stand by what I said.

On my last post, there are some hate coming from various channels on my observation and opinions on Palantir. I did not expect this much hate from my current post as compared to some of my previous posts.

Thus, I felt its important to clarify. But I am not trying to clarify to justify my piece. It is for (1) I think I need to record this down as a post for myself to remember and (2) I think its important to let people understand that ignorance is NOT bliss when it comes to investing.

Then again, if you are don’t mind being an average, you can continue to think ignorance is bliss.

And then again, if you want to be an average, why not just focus on the index funds or Ark Invest? Don’t waste the time on looking at shares. Really.

In my opinion, if you want to excel in investing in this current internet age, we should be open and ask around and try to understand stuff that we don’t understand. This will only allow you to make better decisions.

It is always easier to say or write that I want to invest in Amazon, Google, Facebook or even Tesla now.

But have you ever thought about why you did not invest in Amazon or Google years ago? Why invest only now? Why are you unable to see the potential when it is at the lows 10 years ago?

I remember looking at Amazon at almost S$1000+ per share and inform my participants of a seminar that I felt it was too high. Just look at the share price now. I was the ignorant one that time!

Furthermore, on the point of being ignorance, I personally felt it is fine if you are not investing in a company because (1) you understand the risk and it is not for you, (2) you still do not understand what the company is producing regardless how much you tried, (3) you are fully allocated and (4) you have a way that you invest that already made you A LOT OF MONEY.

But don’t go saying, because Buffet say to invest only in your core competencies then you don’t invest. Do you really know what is your core competencies?

Let me clarify on the term core competencies – If you are in finance, you should have a better understanding of CBA (a Singapore listed entity) and how it makes money, etc – this will probably give you more conviction of the company and allow you to hold better if the tough gets going.

If you are in the IT field, you will probably be able to understand the requirements of a company and you will probably have an easier understanding of the platforms by Palantir.

If you are… etc etc…

I hope you get my point.

Googling for answer is also NOT a Core Competency. Googling for answer and digging more in-depth is an important skill to have.

So back to Palantir, I like to clarify specially on the point of - No Competitor.

When I stated there is “No competition/competitor”, I meant that from my point of view. Obviously, there are definitely some competitors in the market such as Salesforce or Snowflake or Splunk, etc.

I don’t know every one of them. But I do know Salesforce first-hand cause I am a user of it at work. 

Firstly, it is super expensive. 

Secondly, the Salesforce that I used is sold through a vendor/consultant. For those whom have worked with a vendor models (correct me if I am wrong, because this is what I felt first hand), vendors only execute up to the point of what you require or stated. They do not know what you do not know/do not tell. They also do not try to experience/understand the requirements of your business.

Thirdly, when I use Salesforce, I felt that I am definitely under-utilizing it. Where is the big data? Where is the user-friendly UX? If we want to do analysis, it is actually much harder because data is everywhere and I do not know where to locate every single bit of it.

In the end, regardless how bright the user is, they are limited by the process within the platforms.

Oh…and I also used tableau before. It is just a big nice display application that excel can also do.

So what I want to say is, from my experience – platforms that have SaaS business model – tend to require clients to adjust their business models to suit them. It does not really make your work more efficient.

BUT I must also clarify that I do believe Salesforce or Tableau is definitely much more than how I am using them now. It is probably due to the limitations set by the users/corporate and how they interpret their requirements to the consultant/vendors, that limits the potential of these SaaS platforms.

Now that I have explain the above, I like to explain more on the positives of Palantir that make me deem that there are no competitors.

As per 10k, Palantir actually goes down to the frontline to understand the client’s issue. That is why they have Forward Deployed Engineers (FDE). This also allows for direct consulting with the clients and understand the industry more. Solving 1 main problem in the industry helps them engaged better with other clients in the same industry as well.

If you are interested in Palantir, do look up these 2 youtube videos (this and this). These 2 videos made me believe that Palantir’s Gotham has done what none of the other SaaS platforms will be able to do the same.

With that, I hope that I have clarified clearly why I believe there are no competitors out there.  

Another point to clarify is on the Risk.

I understand the risk of the potential further dilution, the insider selling and potential “niche” market.

On dilution – I believe this is the same as Tesla putting up a share offering at the end of Dec 2020. If you believe the company can continue to increase its revenue, net profit, FCF over the next few years, I do not think this is an issue.

On Insider Selling – If you do not get bonus for MANY YEARS and only in the form of stock options, will you exercise them? Nevertheless, I do believe that the insider selling will stop soon but continue at a faster pace if the share price increases significantly in a short period of time. This is a risk one should consider if you are not a long term investor.

On Niche Market – If you really think about it, it is not that niche. If all US Allies work with Palantir, I believe the potential revenue is definitely MUCH GREATER. Think about it, if you are a US allies, do you think using Palantir’s Gotham could potentially be more efficient in terms of communication with the US government or US Army during exercises?

Before I end this post, I like to explain on some other points that people have commented – 

(1) I am not stuck in this position. I don’t need you to buy for it to go up so I can sell. I really don’t care if you don’t buy. This is because I will be happier if you don’t buy. Because I have a better chance of buying at the current prices now. 

(2) Even if Palantir is at $40 today, I will still say it is undervalued. 

(3) If you are really bear on Palantir, I suggest we return to this article 1 year or 2 years later. I am very sure I will be correct. 

(4) I see many bears out there and I am happy. This meant that when most of you are converted to Bulls. I will probably be UP in capital gains many folds now (just look at Tesla now). In addition, many of the bears’ comments are mostly on the share price and stating it is volatile, if one buy now, he/she will need to hold for many years. Not many of them have argued from the product or business point of view.

Finally, I like to thank everyone for this hate/negativity because it made me realise about my conviction on Palantir.

I have been reading up on 100 baggers. Its really great!

Saturday, May 1, 2021

2021 Strategy Series: Palantir Technologies - PLTR

Vested with an initial price at US$22.25.

This company came out of nowhere, went on a direct listing and caught everyone by surprise.

I remember the marketing was that this company helped the US government catch terrorist. At least that was what I remembered. I was a bit turned off by it. This made me lose out on looking at this company at the initial very low prices.

Nevertheless, after an extensive review on the company, I decided that this is a company that one must have for a long-term investor.

Part 1 - What the Company Does?

So the company is Palantir Technologies.

I believe a lot of people do not invest in Palantir because they do not understand their business and product. I agree it is hard to understand the products they sell. Thus, let me use some human language to explain the company to you.

I will leave the product to this extensive piece written by Sgstockmarketinvestor.

On the other hand, let me explain about the company to you.

  1. It sells 2 platforms – Gotham and Foundry – to its customers. Gotham is mainly for the US government and its allies, while Foundry is for the commercial public businesses.
  2. In 2016, Palantir won a lawsuit against the US Army. This judgement eventually forces the US government agencies to purchase a commercial product, rather than self-build, if there are existing products out in the commercial world that fulfils their needs and are much better than the self-build versions.
  3. It has 139 customers. Average Revenue Per Customer – increase from 5.6m in FY19 to 7.9m in FY20, a growth of 41%.
  4. No marketing or sales for a lengthy period of time since the inception of the company.
  5. Don’t work with Russia or China.
  6. Their Strategy is “Acquire > Expand > Scale”. In addition, they will only make money once a customer is at scaling stage. But Palantir platforms are sticky and had significantly help customers. Thus, customers tend to spend more after getting onboard. The same group of customers spent 47% more in FY20 from US$742m to US$1.1bn. The new customers acquired in FY2020 generated $41.8m and were assigned as a different cohort.  In FY19, the new customers in acquired phase only generated $0.6m. OMG…!
  7. In FY20, they signed 21 new deals that are more than $5m. Out of these 21 new deals, 12 are more than $10m.
  8. In my opinion, these are the main competitive edges of Palantir:

·       Main edge 1 – FDE (forward deployed engineers) are on front lines. travelled to bases in Afghanistan and factories in the industrial Midwest to deploy our platforms. Observe user challengers first hand.

·       Main edge 2 – Platforms deliver multi-tenant cloud (such as AWS Public Cloud, AWS GovCloud, Microsoft Azure and others), as well as reads unstructured information plus different languages.

·       Main edge 3 – Palantir are at iL5 as per US DoD classification (1 of the 4 companies)In FY20, they signed 21 new deals that are more than $5m. Out of these 21 new deals, 12 are more than $10m.

With that, if you want to know more about Palantir, you can also watch this youtube video.

There are 2 points that caught my attention. (1) When Alex Karp mention that his product is to continue to create jobs and to allow everyone in the company to use it, from the CEO to the blue-collar worker on the ground, and to benefit from it, (2) He also mention that many of the SaaS platforms is trying to replace the manual jobs but that is not what he wants to do.

After hearing these, I am like GIVE ME THE SHARES NOW!

Part 2: The Segment of Fundamental Scorecard That Caught My Eyes

Fundamental Scorecard is a visualization tool that simplify all quantitative information into graphs while calculating the intrinsic value using timeless theories, and providing conclusions about the company for the reader to have an easier time to make decision.

Basically, Palantir is like a new listing. Thus, we do not have over 10 years of financials to review. However, the main characteristic that caught my eye was (1) the revenue was growing at a higher rate and (2) the company did not have any issue in its company health.

Fundamental Scorecard currently is running a 30 days free trial. We have also established a FSC Premium Service, which is solely for Fundamental Scorecard members, where we have segments like “Ideas Wednesdays” and “Investment Nuggets”. I will also be providing the write up of my companies prior to releasing on any social media platform. Sign up now!

With that, I decided to go ahead to do an in-depth qualitative analysis using USCCR Framework.

Part 3: My Qualitative Research with USCCR

Similar to Fundamental Scorecard, USCCR is my own simple way of doing Qualitative Research. Qualitative research is important because it Builds Conviction of a company you are intending to buy or is holding, even if the whole world is against you. It will Reduces the chances for you to make Rash Decisions that you may regret later.

Understand The Business – As per its latest 10K revenue breakdown,

  • Government and Commercial – 56% vs 44%
  • US vs US allies – 52% vs 48%

Scalable / Macro Trend – It’s all about Big Data analysis. The fact is we don’t know what we don’t know – this is where, at times, Big Data provides you a different perspective and it will either allow you to make or save much more money! 

This will allow companies to run more efficiently. One of the main issues is the companies want to find out where their blind spots are, especially the Fortune 500 firms. The TAM, by statista, is about 64bn in 2021, 70bn in 2022.

Competition – In my opinion, SaaS users may have to change their business model to suit platform. Palantir, on the other hand, improves platform to help customers. When they solve a problem in a certain industry, it also tends to help other customers in same industry.

After many discussions and searches, my opinion is that Palantir do not really have a competitor. The closest existing competition/company could be Salesforce.

I don’t think there is another platform out there that can assist the US army to catch terrorist. Other than the Self-develop option.

Catalyst / Future Growth – Recently Palantir announced that they will provide their platform for free to countries and companies to cope with the recovery from the Covid-19 pandemic. The fact is that Palantir platforms are very sticky and will definitely have short term expenses effect along with long term significant revenue gain.

Another catalyst is their partnership with IBM and Palantir could tapped onto IBM 2500 direct sales force.

Risk –

  • Lack of scalability – because of their own restriction of China and Russia.
  • Mainly works with governments and big companies with huge revenue
  • Significant insider selling + Future Dilution

Conclusion

The FY20 presentation provided the following:

  • FIVE-YEAR OUTLOOK: Revenue of $4 billion or more in 2025
  • FULL YEAR 2021: Revenue growth in excess of 30%, Q1 2021 Revenue growth of 45%, Adjusted operating margin of 23%

TL;DR: No competition, platforms are super sticky, almost monopolized the platforms in the US govt and potentially all its allies govts, increasing average revenue per customer, significant future growth

After such an in-depth study of the company, I personally think that this company will definitely have a chance of being a multi-bagger.

Enough said, I will be adding this company to my portfolio – making it one of the core positions to the initial few I mentioned.

Once again, if you like to read first about the write up on the companies I have. Do sign up for Fundamental Scorecard Free Trial and you will also have access to FSC Premium. See you!

Wednesday, April 28, 2021

Market Fatigue For The Impatient Investor

There has been a lack of write up or sharing since end March 2021.

Maybe it was the packed 1st quarter I had – Reviewing companies, writing posts, the rise and fall of market during the same period of time, the significant high number of collaborations here and there during the 1st quarter, as well as my full time job.

I have been feeling a bit of market fatigue since end Mar 21 – the end of 1st quarter. Basically, I am just not able to generate enough passion/energy to follow and update of the market.

At times, I felt I should be investing ALL MY EXCESS CASH and then wait till a few months or even a year, and then go back to look at the market. 

This is because I know the companies I have are amazing.

I have also been reducing and consolidating my holdings – trying to just hold onto my highest conviction companies.

Another point to note is that I have yet to sell any of CRNC, APPS, AZT and NIO since I wrote about them. In fact I added more. This is because I know they will do better especially in the next year.

The impatient self will want to hop onto a time machine – Just to move ahead and witness the amazing gain I will have in the future.

Nevertheless, due to my role as a blogger, collaborator, and investor, I am unable to shut the market out totally. I should also not leave my readers.

Finally, this post is just to explain why I am so quiet lately.

Anyway don’t worry. I will be back soon.

The 2021 series will be back with a bang!

Thursday, April 8, 2021

Orbcomm Got Acquired. 3x My Position.

Short Post.


Basically, Orbcomm got acquired at US$11.50 per share. I have written in this post before that I had purchase Orbcomm at US$3.820 in Oct 2020. 

Thus, the acquired share price is 301% above my initial purchase price!

One of the methods I did was compared all the telematics companies in the industry (as per the excel pic below), and see where each company is located.


Other than the number of geographical countries/regions that it is located, Orbcomm also stands out as one of the main companies/or the only company that has a dual service system where it has satellite and cellular system. 

This allowed them to be a leader in tracking vessels in the marine sector as cellular does not work well in sea water.

In short, my opinion is that analysing the Qualitative information is as important as analysing the Quantitative information.

Now that Orbcomm is acquired, it is time to find the next company to re-deploy the cash!

If you are interested, please do bookmark this Blog or follow me on TUBInvesting FB, or Fundamental Scorecard Telegram Group (please google for the links!).

Stay tune for my next post!

Monday, March 29, 2021

2021 Strategy Series: Nutryfarm – AZT

Not Vested at Point of Writing and may/may not invest in it over the next 72 hrs.

If you remember my strategy of my portfolio, I do STILL invest in SG companies. It is my form of recovery stocks or it acts as a hedge towards my heavily invested US growth stocks. In other words, rather than going to the US and find recovery stocks, I tend to prefer to find them in SG market here.

So here I am going to talk about another company that I am still considering whether to buy in view of its recent run up.

I got to know this company when a friend asked me about it.

Part 1 – What the Company Does?

Ignore what the company does in the past.

Basically, to know this company. we should know what it could possibility become.

This company will eventually become a trading firm to assist Thailand Durian farms to shipped their Durians to China.

Yes and to repeat, the business will eventually become a trading durian business between Thailand and China.

The reason for this is the change in CEO as of Jan 21. 

As per Next Insight Article stated, “an industry veteran of the durian business in Thailand, Mr. Cheng was the founder and director of One Family (Thai) Company Limited incorporated in Thailand in 2016.
It is principally in the business of plantation, and value-added processing of durians and exporting durians from Thailand to China mainly.

After a series of corporate moves, including a placement of 13,300,000 shares to him (at 4 cents apiece), Mr Cheng was appointed its CEO on 6 January 2021. 

His stake in NutryFarm stands at 11.52%. 

Why did Mr Cheng switch from his family business to join NutryFarm? It is likely that he saw the listed company as a vehicle that can significantly scale up the durian/fruit business and manage large working capital and receivables.”

Upon coming on board as the CEO, rapid changes have follows:

Based on Press Release on 17 Mar 21 - “Reference the announcements on 28 December 2020 and 8, 18 and 29 January 2021, the Group has entered into various agreements to sell over 1,480 containers of fresh durians from Thailand to major Chinese fruit importers since December 2020. The total contract value of these agreements is estimated at approximately RMB 962.0 million as announced on 13 February 2021. At the same time, together with RFG and TTT, the Group has todate entered into purchase agreements to purchase 870 containers of fresh durians from the plantations to fulfill the orders. Shipments have already started since 20 February 2021 and will continue through the course of the year.”

Note that this press release is in RMB. Their Annual Report and Q1 are in HK. After converting RMB$962m, the estimated revenue is about S$197m or HK$1.14bn.

Part 2: The Segment of Fundamental Scorecard That Caught My Eyes

Fundamental Scorecard is a visualization tool that simplify all quantitative information into graphs while calculating the intrinsic value using timeless theories, and providing conclusions about the company for the reader to have an easier time to make decision. (If you are interested, do click on this link).


Just to be clear, everything looks quite bad. The main positive is that the cashflow is looking good and on a improving trend. 

Nevertheless, as I stated, these are PAST financials. We have to LOOK FORWARD when reviewing this company.

Part 3: My Qualitative Research with USCCR

Similar to Fundamental Scorecard, USCCR is my own simple way of doing Qualitative Research. Qualitative research is important because it Builds Conviction of a company you are intending to buy or is holding, even if the whole world is against you. It will Reduces the chances for you to make Rash Decisions that you may regret later.


Understand the Business – To be honest, I am not interested in its health food products. But based on its latest Q1 report, the income statement has shown some improvement. Nevertheless, what I am interested in the company is in near term (by 2021), most of its revenue will be from this Durian trading business.

Scalable / Macro Trend – China demand from Durian. 

Competition – Malaysia Frozen Durian (?).

Catalyst / Future Growth – Possibility of renewing of contracts from the China customers.

Risk – Change in Government Policy, Possibility of higher operating cost, Unforeseen Delays
To explain further:

1. On demand from China. 

As per the Nextinsight Article, it is stated that:
  • Between 2009 and 2019, China’s fresh durian imports grew nine-fold, from US$124 million (S$169 million) to US$1.1 billion, according to a Channelnews Asia report.
  • If that sounds unbelievable, consider that in 2020, the figure doubled to US$2.2 billion, according to the Ministry of Agriculture and Cooperatives of Thailand. 
  • Thailand is the only country allowed to export fresh whole durians directly to China under a 2003 trade agreement.
2. Malaysia Frozen Durian - There are talks that Malaysia Durian are also in demand. But Malaysia Supply will also need to cater to Singaporeans, which has a huge . Thus, if the China prefer Fresh Durian, Thailand will become their sole supplier.

3. On Risks - there are just too much risk involved currently with significant uncertainty and the share price running up in a short time frame. 

On the other hand, as per the NextInsight Article, Raffles Financial Pte Ltd invested $5 million for 10,000,000 shares in Singapore-listed NutryFarm through a married deal with a substantial shareholder, as announced on the SGX website on 12 March 2021. I don’t think any finance house will just any how invest like that.

Conclusion

I did some maths. Solely on a financial point of view and from a PE perspective –



*Do note that most of the existing business figure are extrapolate from Q1 financials. 
*For Durian Business, Gross Margin of Durian Business is taken from a press release. Operating Expenses are deemed as 1 times or 1.5 times of the existing business.

It seems that based on the current share price, the good news is already priced in. But if the company shows signs of expanding the durian business beyond the current volume, then there is a good chance that the current share price maybe deems undervalued. After all, Raffles Financial Pte Ltd purchased at S$0.5 per share.

I may just dip and nibble a bit and then wait for more possible good news.

If you are interested, please do bookmark this Blog or follow me on TUBInvesting FB, or Fundamental Scorecard Telegram Group (please google for the links!).

Stay tune for my next post!