Bundle of investment news: Automotive IT & Sales Mimecast

Large auto industry develops IT segment. Analyzing the sale of Mimecast.

Disclaimer: when we talk about, that something has grown, we mean a comparison with the same quarter a year earlier. Since all issuers are from the USA, then all results in dollars. When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.

Bus for programmers: car manufacturers develop the IT segment of their business

French car manufacturer Stellantis (NYSE: STLA) announced, which will tend to redistribute the revenue structure. The company will seek to, that by 2030, approximately $22.57 billion of its annual revenues would come from various software-based services. For comparison: all Stellantis revenue for the past 12 months is 99 billion dollars.

For this purpose, the company plans to hire thousands of programmers - approximately 4.5 thousand new employees - and conduct professional retraining of a thousand existing employees from other departments.. There are also plans to cooperate with the Taiwanese electronics manufacturer Foxconn Technology to create chips specifically for the needs of Stellantis.

Stellantis wants, so that all its machines can be upgraded online through various applications and subscription systems – much like cloud services update software for paying users. The company plans, that by 2030, 34 million connected cars will be dissected on the roads of the whole world.

Now from the software Stellantis offers users only services like satellite radio and combining navigation devices into one network. But the company wants to develop others., potentially more marginal areas such as software for insurance or remote inspection and modification of cars.

In its willingness to bet on software Stellantis is not alone: other automakers are also developing IT segments. General Motors plans to double revenue for the next 10 years to 280 billion, mainly due to software and related services, and Ford hired Doug Field to develop its own IT department - he was vice president of hardware at Apple and was engaged in Tesla development of the Model 3.

It's tempting to say, that Stellantis and its colleagues are simply following Tesla's lead, which, among the software services, offers its customers different options for subscribing to the autopilot. Moreover, the news about Stellantis appears in the broader context of the mass electrification of vehicles.. Specifically, Stellantis plans to invest 35.5 billion in the production of electric cars until 2025 and sets ambitious goals for sales of electric cars. By 2030, Stellantis wants, to 70% the cars she sold in Europe were electric cars, for the United States, more modest goals are set — 40% machines.

But I'll still hazard a guess., that the desire of automakers to develop their IT segment is dictated by somewhat different considerations.

Semiconductor shortages have led to machine shortages, despite the fact that there was a jump in demand, - this together led to an increase in prices. Therefore, the financial performance of the largest automakers in such conditions has improved slightly.. But this is a temporary anomaly.: visible at long distances, that automakers' revenue has been treading water for years. The world is already, in fact, got all the cars, which can accommodate existing roads – further growth in car sales may be only very small.

And the electric cars imposed on the world by the ESG lobby are generally low-margin and balance on the verge of unprofitability..

And unlikely, what will it change: if you increase the price of electric cars, then they will become too expensive for mass adoption, which, together with other major drawbacks such as the difficulties of long-distance travel in conditions of underdeveloped electric charging networks, can leave electric cars a niche history. So the automotive industry is interested in diversifying the business due to less virtuous areas compared to electric cars..

In particular, therefore, Ford and General Motors have been successfully developing their autoloan divisions for many years. Software for the large automotive industry is not a newfangled bliss, but the need: as the core business of selling machinery stagnates, it makes sense to diversify.

For shareholders of IT companies, working in the automotive industry, this news bodes well: you can expect the growth of orders. Intel seems to be the closest beneficiary, which will soon bring the relevant Mobileye division to the exchange as a separate issuer. The positive effect of multibillion-dollar investments in IT will be felt by the entire high-tech industry – from cloud computing to cybersecurity. It's good: means, the bubble of high-tech stocks will inflate even more by 2030.

"Why so expensive? Yes, because, that money is needed ": Mimecast is bought by a private foundation

In the comments to the proofpoint investment, our reader Shamil asked us to do an analysis of mimecast (NASDAQ: MIME). But, Unfortunately, we won't have time to do it: this week came the news that, that the company is being bought by the private fund Permira.

I've been following Mimecast for a long time, since September. 2020. Stocks have always seemed expensive, then P / E at the company was 577, and I was expecting a significant correction. Well, in the end, I didn't wait.: stock fell not too much, and then they started growing again..

Mimecast made cloud-based email management software, enterprise data and related features. The company's business functioned as a whole on the basis of subscriptions.

Let's analyze this issuer now and note the points, which contributed to the purchase of Mimecast or did not interfere with it - in order to be able to compare other similar companies with Mimecast in the future and predict the likelihood of buying these issuers by someone.

High cost. Mimecast is bought for $ 5.8 billion - or 80 $ per share. In this way, buyer received company with P / E 121 and P / S 9,58. Before the October news about the possible purchase of the company, these figures were about 1/5 less - the company was already very expensive before the sale., and became even more expensive.

At the same time, the total volume of the company's target market is $ 25.4 billion.. Mimecast stands as 22,83% your target market, although in terms of revenue it occupies there only 2,18%. This is good news.: means, potential buyers are not much confused by the high cost of startups they buy.

Good business performance. At the time of the company's sale, its revenue retention rate was 106% — from the existing customer base, the company extracted enough money to do so, to more than compensate for the financial damage from the outflow of users.

The company's business is very predictable: 98% the company received revenue on a renewable basis, helped by the subscription business model.

None of the company's clients gave her more. 1% revenues – all revenue is diversified. This strengthened Mimecast's negotiating position and generally insured it against the negative consequences of one of the clients' departure..

Also, the business was well diversified by sectors.:

1. Professional, technical, scientific services were given 15% proceeds.
2. Finance and Insurance — 16%.
3. Jurisprudence — 7%.
4. Production — 13%.
5. Healthcare — 8%.
6. Construction and mining — 7%.
7. Government and education — 7%.
8. Retail — 7%.
9. Transport and warehouses — 3%.
10. IT — 5%.
11. Real Estate — 3%.
12. Other - 9%.

This saved the company's reporting from a strong deterioration in performance in the event of troubles in one of the industries served..

Unlike many startups with fast-growing revenue, Mimecast has steadily increased margins and profits in recent years.. Although it is worth noting, that in 2020, a significant share of the company's profit was made up of non-core financial operations, actually its P / E was even higher then.

But at the time of the announcement of the sale of Mimecast, it was making its profits through specialized operations - I think, this added to its attractiveness in the eyes of buyers..

Minor bonus. First reports that, what is Mimecast looking for a buyer, arrived at the end of October. Shares of Mimecast were then worth 68 $. That is, the premium to the purchase of Mimecast was very small - a little less. 18% from price to sale. If you count from 7 December, before, as it became known about the deal with Permira, shares were worth 74,99 $ — so in this case, the premium will be even lower, about 7%. Given the high cost of Mimecast, It is explainable.

However, the deal has not yet been closed - perhaps, someone from the shareholders of Mimecast will oppose the sale of the company at such a low price and will begin to demand its increase.

The size. Permira buyers valued mimecast at $5.8 billion, which is generally a bit in absolute numbers. Think, will reasonably expect trades with similar numbers in the future.