Monday, 12 March 2012

Stock update: Apple and Ipad 3.

Apple @ $545.17, +$3.18 (+0.59%).

OK so thats quite a milestone for me and my investment in Apple particularly as my entry point was chosen to be ahead of the big Apple announcement in early 2010 which ultimately turned out to be the first Ipad. 
The Ipad and the Tablet computer market have come along way since that first announcement and the big "whats that then?" from the underwhelmed media.
Now 2 years on, the third iteration of the eponympous, genre defining, tablet computer has just been announced but where does that leave Apple with rivals at every turn.
Well I think that although not yet an envelope busting spec this latest model does represent a strategic milestone for the Ipad range.
As, although most rival tablets have failed to make the grade, the major danger (Samsung aside) has come from Amazon's Kindle Fire which, despite being a much more basic, stripped down media device, has brought a product that seriously undercuts Apple's pricing strategy.

However, Ipad 3 (I will refer to it as that even though Apple has chosen to call it the new Ipad), enables Apple to begin to push its price/product range downwards into their competitors' pricing strategy with the introduction of a new price for Ipad 2 which makes the question of the Apple experience v. the rest an even tougher one.
This has proven a huge success with the Iphone where in the last quarter (incl. Christmas) the top 3 best selling smartphones in the US were: 1) Iphone 4S; 2) Iphone 4; 3) Iphone 3GS; which means that the 3GS outsold such rivals as the Samsung Galaxy SII and HTC's army.

Back to the spec. the retina display and the new A5X chip will further enhance the polished and slick feel to the Ipad experience but the 4G compatibility will not benefit those countries (like the UK) which have not yet advanced onto such modern networks. 
However, the majority will continue to be used on various wireless networks so still enabling the new hardware to show itself off.

4G does give a glimpse of a fully enabled mobile future though.

Currently, at $545, Apple shares are on a forecast price to earnings of just 12.8 times but the caveat here is that this does require Apple to deliver a 54% increase in profits but the comparables are getting tougher against 2011 pre-tax profits of $34.2bn and sales of $108bn.
On the plus side there is:
- still that $100bn cash pile which arguably accounts for 20% of the company's $500bn capitalisation. 
- Ipad 3
- Iphone 5??
- Itv?? Yes that could be actual Apple tv, although I presume the Itv name is already taken by ITV in the UK!

So, despite the caveat, there is still lots to be excited about in Apple and the fast developing integrated mobile future that appears to be upon us.

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  1. With the goverment backed indemnity mortgages in partnership with all major house builders and few of the high street lenders.....which would be your pick of house building shares?

  2. Hi Ritsut,
    difficult sector to evaluate and I think there is going to be a large leap of faith with it.
    Traditionally very cyclical and geared to interest rates but there are obvious fears around lending, liquidity and recession.
    However, all seem to have some kind of healthy recovery priced in with strong forecast earnings growth putting all onto healthy mid to high teen ratings (which is a surprise to me).
    Taking a quick look at the ones on my watchlist:- Persimmon, Berkeley, Barratts and Bovis. Profit margins and cash balances seem relatively low. Dividend yields are usually good from this sector but are negligible currently reflecting the cashflow concerns for me.
    Although it is the right decision to cut dividends in this case it begs the question of why the share prices seem so healthily rated.

    The other obvious metric is around landbanks and (if I am guessing the category correctly) I have looked at balance sheet inventory v sales as an indicator of how much is already in place to protect future growth. Values are subjective but you would hope they are all using a comparable criteria.
    Borrowings also warrant looking at particularly if they have overpaid at the height of the last boom and therefore could still be paying for the inventory not being built upon.

    Anyway Persimmon looks the weakest here as it has around £2bn of inventory v £1.5bn sales. So if inventory is the land bank it has land in place to cover 1.3 years (not sure of the proportionate cost of land to sales so will assume it is 1:1 e.g If it is 25% land cost then this would be 5.2 years and so on and so forth).
    Barrats figure is £3.3bn to £2bn, Berkeley is £1.6bn to £742m, and Bovis is £800m to £364m.

    Berkeley has the highest gearing of debt to equity at 24% gross but the most amount of cash at £266m which is enough to make the net debt position 0. Bovis is similarly in a net no debt position.
    Barrats at 14% gross gearing and Persimmon at 11.7% aren't in this luxurious position and carry net debt (not enough cash to cover borrowings).
    So thats a plus for Berkeley and Bovis for me particularly when cashflow is a concern in this industry as so much needs to be paid out upfront before a sale actually brings money in.
    But on a general level Persimmon and Barrats have the higher sales figures so if margins were the same then this would potentially generate a larger profit figure. But is there a quantity over quality factor as well?

    So I would probably go for Berkeley due to it being in the strongest cashflow position but also look at the "brands" being sold and the perception of premium that is being realised although your view might be that this might not be the area that would benefit most from the new initiative.

    Its interesting though and will be interesting to see if it results in greater volumes or just helps to shift "sticking" stock with the insurance premium serving the same purpose as a discount.

    Happy hunting