SINGAPORE (Aug 14): Venture Corporation has seen mixed fortunes over the last year. In early 2018, the stock was riding high with record revenue and profits that left analysts gushing for more.
The share price soared to just below $30, and was threatening to break through the barrier. However, a negative short seller report put a stop to the climb and its share price plummeted to below $20 per share.
See: Short-selling attack stalls Venture’s run, raises questions about its secretiveness
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A blog post by short sellers Valiant Varriors tore into the company, claiming that Venture’s exposure to Phillip Morris International (PMI) via its I Quit Ordinary Smoking (IQOS) products was higher than it let on. The short sellers also predicted Venture’s 1Q18 ended March results would miss earnings forecast.
When this proved to be true, the short sellers released another report to hammer home their point. Venture’s share price plunged over $10 in two weeks, dropping to $19.60 by May 4, 2018 and since then, Venture’s share price has yet to cross $20.
For the latest 2Q19 ended June, Venture on Aug 8 reported revenue fell 5.1% to $903.5 million from $952.3 million a year ago while earnings declined 7.3% to $90.8 million from $97.9 million.
For the 1H19 though, revenue saw a slight increase of 1.3% to $1. 8 billion from a year ago although earnings fell 1% to $211.6 million from $213.8 million. Venture attributed the 1H19 revenue performance to a diversified portfolio of customers providing resilience against geopolitical and macroeconomic factors headwinds, notably the on-going US-China trade war.
“The group’s performance was underpinned by impactful value creation for its partners and relentless focus on operational excellence to drive productivity gains,” said Venture in the press release accompanying its financial statements.
Venture reported 2Q19 earnings per share of 31.4 cents, down 6.5% from 33.6 cents a year ago. The counter also declared a 20 cents per share dividend to be paid on Sept 19.
In its outlook statement, Venture says the immediate future appears uncertain as the US-China trade war continues to drag on, together with escalating geopolitical tensions. However, the company says it has put in place measures to help navigate this dynamic environment.
“Venture will continue to diversify its value creation/value capture pathways in the multiple ecosystems it participates in. Focus will be on selected domains that have growth and value creation opportunities. Strong emphasis will be placed on building new differentiating capabilities to enhance the Group’s competitiveness,” says Venture in its results release.
Venture also boasted of its strong financial resources, saying it has $761.8 million in cash and bank balances as of June 30 which will allow it to capture growth opportunities as and when necessary.
“Amid the headwinds, Venture will remain vigilant, agile to adapt and relentless in its pursuit of excellence,” it adds.
So will Venture see a brighter 3Q19? Based on the seven “buy”, one “hold” and two “sell” according to Bloomberg data, analysts seem confident Venture will ride out this difficult period.
In an Aug 13 report, UOB Kay Hian analyst John Cheong says the cut in revenue guidance by client Illumina, did not seem to have a major impact on Venture’s revenue. Cheong has upgraded the stock to a “buy” with a lower target of $17.70.
In a separate Aug 13 report, RHB Research analyst Jarick Seet is similarly bullish, upgrading the stock to a “buy” with a target price of $14.76. Seet expects Venture’s focus on its long-term strategy to pay off and although growth will still be tempered by the ongoing trade war, he expects higher contributions in 2H19 from customers won over past years.
On the other hand, Maybank Kim Eng analyst Lai Gene Lih expects Venture to be a beneficiary of the trade war as only 2% of its sales are affected by tariffs. In an Aug 13 report, Lai is maintaining a “buy” with a target price of $19.74. Lai also remains confident about Venture’s exposure to megatrends such as genomics, food safety, air quality, 5G infrastructure and smart buildings through its customers such as Illumina, Thermo Fisher, Aglient, Keysight, Broadcom, Honeywell and ABB.
DBS Group Research analyst Lee Keng Ling is also maintaining Venture at a “buy” and a price target of $18.60. “We remain positive on VMS’s ability to monetise its unique offerings, know-how and hard-to-replicate ecosystems. It continues to build new differentiating capabilities to enhance its competitiveness,” says Lai in an Aug 13 report.
Lastly, Daiwa Capital Markets analyst Royston Tan is maintaining Venture at “outperform” with a target price of $17.90. “We believe its recent share price selldown amid trade-war concerns is overdone, as evident from its earnings resilience this quarter and see the current share-price weakness as a buying opportunity,” says Tan.
“Shares of Venture continue to trade at a steep discount vs. its international peers, which we deem as unwarranted given what we see as the company’s superior earnings generation profile, and we expect a gradual re-rating of the shares in 2H19,” he adds.
As at 12.37pm, shares in Venture are up 20 cents at $15.48.
