Investidea: TD SYNNEX, because now more

Investidea: TD SYNNEX, because now more

Today we have a moderately speculative idea.: take shares in IT company TD SYNNEX (NYSE: SNX), to make money on expensive gadgets.

Growth potential and validity: 12% behind 12 months excluding dividends; 23,5% behind 2 years excluding dividends; 7,5% per annum during 10 years including dividends.

Why stocks can go up: because there is a lot of money in IT.

How do we act: we take shares now by 104,19 $.

When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.

No guarantees

Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.

And what is there with the author's forecasts

Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.

So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.

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What the company makes money on

We already had an idea for Synnex, but since then a lot of water has flowed.: it spun off its Concentrix division and merged with Tech Data.

But the essence remained the same.: the company is engaged in the distribution of IT iron and services. As a matter of fact, this is the reseller, but it solves a bunch of problems for its customers: from finding the right solutions to transportation, — and therefore it can be considered very useful for customers. Consumers of Synnex products are other resellers, system integrators and retail stores.

Synnex's annual report is generally useless for us: there is no breakdown by segment.

In the US, the company makes 63% proceeds, and 37% - In others, unnamed countries.

Arguments in favor of the company

Arranged virt. Digitalization of the economy and the spread of remote work plays into the hands of Synnex, contributing to the high demand for its goods and services. I would expect, that the mass transition to remote will continue, among other things, and that's why, that it is beneficial for employers in the IT sector. The cost of living in different cities of the United States varies significantly, therefore, when moving from a large technological agglomeration such as New York or California, programmers begin to receive slightly less than thousands of dollars per nanosecond..

Large investments in high technology are becoming increasingly popular with large companies from a wide variety of industries., so it's not just about deletion.. In general, both trends create a positive conjuncture for Synnex's business as in the long term., and in the short term.

Economics of scarcity. I believe, that an endless pandemic will make logistical disruption the norm. In such circumstances, we should expect a sharp increase in the importance of intermediaries like Synnex in the eyes of customers.. When components are constantly in short supply and they do not come on time, people services are very important, who "know, where to get it".

Not a fact, that this situation will last forever, but in the face of constant epidemiological and logistical uncertainty, I would bet on it., that companies like Synnex will be in high demand some other uncertain, but, very likely, long time.

It will also help to increase Synnex's market share by more than two times after the merger with Tech Data: this will allow the company to dictate its prices to customers.

Cheap. Given the expansion of the company's business almost twice its future P / S is located in the area 0,13, which is very small - almost two times lower, than the closest competitors from Arrow and ScanSource. Капитализация у Synnex не очень большая — 10 billion dollars. P / E приемлемый — 16,7 без учета последствий слияния с Tech Data.

So that, taking into account all of the above, I would count on an influx of investors into these stocks., wishing to “make money on the non-obvious beneficiaries of the pandemic”, after they get tired of playing with overvalued shares of obvious beneficiaries like Zoom.

Dividends. The company pays 1,2 $ per share per year, what gives 1,15% per annum. But her earnings per share are about 6,24 $ per year excluding Tech Data affiliation.

Even if her income does not increase due to the fact that, that its market share has grown and its negotiating position with customers has strengthened, then there is still a very large scope for increasing payments.

Actually, в планах компании начать с 2023 года платить больше дивидендов — примерно 25% from free cash flow – and still spend a comparable amount on share buybacks. You can expect, that in a year the company's dividends will double, maybe, and more. It also seems to me, that a company may have an activist investor, who can shake more dividends from it, — и это может произойти значительно раньше 2023 of the year.

What can get in the way

Concentration. According to the report, HP products account for 12% company revenue. Also, an unnamed large client accounts for 17% proceeds. Changing the relationship with one of them can have a negative impact on Synnex's reporting..

"You're fighting the wrong way". The current logistics crisis is not only benefiting the company, but also plays against her: it also has to deal with the lack of the required goods and increased prices for transportation.. Given the extremely low margin of its business – the gross margin is slightly less 6% from proceeds, and the final margin is about 1,3% from proceeds, - I'd be wary, that these problems will affect its reporting.

But, may be, it will be able to put the growth of costs in the price of its services without losses to the business and shift these problems to customers.. Finally, increasing its market share allows it to do so.

Accounting. The company has a fairly tangible debt burden: долгосрочный долг у нее составляет чуть меньше 4 billion dollars. About 50% free cash flow