Expedia (EXPE US)
Expedia was originally founded by Microsoft in 1996 and later spun off and acquired by IAC. In 2005 it was then spun off again by IAC as a stand-alone public company. Expedia then spun off travel research site, Tripadvisor, in 2011 and separately listed Trivago on the Nasdaq exchange in 2016. Expedia continues to hold a 64% stake in Trivago. Alongside the main Expedia platform, the group owns and operates Hotels.com, Vrbo, HomeAway, Orbitz, Travelocity, Hotwire, Wotif, ebookers, CheapTickets and CarRentals. com.
Although the company's portfolio of brands structure and operating model has historically led to higher operating costs, we expect margins to increase and booking demand to remain strong over the long term.
In its recent 2Q23 results, revenue was slightly lower than expected, but adjusted operating income was ahead of consensus forecasts. Gross bookings missed expectations but there has been a shift in mix towards more profitable lodgings - supportive of margins and the bottom line. The company reiterated double-digit revenue growth for FY23 with margin expansion.
On a forward PE of 9.8 times, Expedia trades on a significant discount to its main peer, Booking Holdings, and at a sizeable discount to its ratings history.
AMD (AMD US)
AMD is a US-based semiconductor company founded in 1969. It focuses on high-performance Central Processing Units (CPUs) and Graphics Processing Units (GPUs), and the integration of these with hardware and software to build differentiated solutions that are used in PCs, laptops, gaming, and data centres. AMD's CEO, Dr. Lisa Sue, is also the chairperson. AMD's primary customers for microprocessors are original equipment manufacturers (OEMs), original design manufacturers (ODMs), large public cloud service providers and independent distributors in both domestic and international markets.
For the rest of this year and FY24 we expect a recovery in electronics demand to underpin growth, along with high demand for AI-related chips. This part of AMD's business is similar to Nvidia but comes at a substantially lower cost (valuation wise). AMD trades below with its five-year average 12-month forward price to earnings and EV/EBITDA. AMD trades at a discount to its peers, however, some peers are foundries, some peers are integrated, and some peers are chip designers.
PayPal (PYPL US)
PayPal is a provider of online payment technology which, alongside the brand PayPal, also operates a family of brands including Venmo, Xoom, Simility, Paidy, Hyperwallet, Honey, Happy Returns, Chargehound, Braintree and Zettle. The company has gained a significant network of users and merchants, and now dominates the online payments sector. The company went public in 2002, before becoming a subsidiary of eBay later that year. The company was then spun off to eBay shareholders in 2015.
For 2Q23, top-line growth was ahead of expectations, bolstered by a further uptick in transaction volumes. Consumer spending habits within the e-commerce space were resilient throughout both the US and International markets (revenue: +9% and 7%, respectively).
Margins were, however, slightly lower than expected driven by a change in transaction mix. The company has experienced a shift in mix towards lower margin unbranded processing, this has, however, predominantly been as a result of rapid growth from the company's unbranded segment, rather than as a result of a slowdown in branded checkout. The reduction in non-transaction expenses has also helped to support margins in the near term, the company has reiterated 2023 guidance of circa 20% non-GAAP EPS growth.
The company trades on 11 times (forward) adjusted earnings per share, considering the upside potential and relatively low downside risk, we consider this an attractive valuation.
Samsung Electronics (005930 KS)
Samsung operates four business divisions: Consumer Electronics (CE), Information Technology & Mobile Communications (IM), Device Solutions (DS) and Harman. CE includes traditional electronics and IM includes mobile phones and computers. DS includes semiconductors and display, while Harman includes connected car systems, audio and visual products, and connected services.
For 2Q23, Samsung released a disappointing set of numbers mainly due to the consumer facing parts of its business taking strain and high inflation adding substantial pressure to input costs. The management team, was, however, upbeat on a 2H23 seasonal recovery for memory, TVs, smartphones, True Wireless Stereo, and semiconductors.
Samsung is trading on a forward PE of 19 times, which is in line with its peers, but still elevated compared to its five-year historic rating. The rating is expected to unwind quite quickly (24 months: 11 times) because of the cyclical nature of this business and an anticipated recovery of economic conditions through next year.
Vermilion (VET CN)
Vermilion Energy explores for, develops, and produces oil and natural gas. Funds from operations are therefore sensitive to gas and oil prices. The company operates in Canada, Australia, France, and the Netherlands.
Despite a fall y/y in 2Q23, the bottom-line result came in better than expected. The group was impacted by a sharp decline in realised commodity prices, as well as lower volumes sold and windfall tax charges. From an operations perspective, the group was resilient in ensuring a small decline in production y/y, despite facing significant headwinds. The group's active efforts to strengthen its balance through debt reduction was a key highlight. Production in the third quarter is expected to remain flat q/q because of the increased scope of repair work on the Wandoo platform in Australia, as well as the planned turnaround at the Corrib facility in Ireland. A ramp-up in production is expected in 4Q23.
The group's diversified asset base allows it to reduce volatility to a certain extent, with a strong exposure to premium price European gas and Brent Crude benefitting the group. We are particularly positive on the outlook for continued high free cash flow generation.
