Are the wheels of its fortunes reversing?
Nasdaq-listed Grab Holdings is a holding company which develops delivery management, mobility, financial services, and enterprise software solutions through its subsidiaries. Grab currently trades at US$3.49 ($4.69) per share, giving it a market cap of US$14 billion.
This article was written just before Grab released its 4QFY2023 results on Feb 22. We believe Grab will likely exceed expectations and recover from its lacklustre IPO in December 2021. Chart 1 shows the total cumulative returns to investors since IPO, which is currently around –60%. We believe that the turnaround in cash flows achieved in 3QFY2023 will likely be sustained, along with the positive adjusted ebitda. Grab’s strategy of being a super-app can only be effective if it has a footprint across the entire value chain of the space in which it operates. One of the main advantages Grab has is its substantial market share in the key operating segments of deliveries and mobility that it can leverage for synergies across other business segments.
Also, we believe that Grab’s operating metrics have been on a strong growth trend and will continue to grow as the company further gains market share. One such operating metric is Gross Merchandise Value (GMV), which represents the sum of the total dollar value of transactions from Grab’s products and services. This metric enables investors to understand and compare Grab’s aggregate operating results and also captures significant trends in its business over time. Another metric is Monthly Transacting Users (MTU), defined as the monthly number of unique users who transact via Grab’s app. MTU is a metric necessary for investors to understand and evaluate the company’s business as they will be able to gauge preferences or shifts towards alternatives or competitors.
Highlights of Grab’s 3QFY2023 results include a y-o-y growth in revenue of 61% while losses narrowed by 71%. Grab’s first profitable ebitda-adjusted quarter was also achieved during this period and the outlook was raised as Grab’s business performance was much better than usual. For the upcoming results, Based on the expectations of most analysts, Grab is also expected to maintain its positive-adjusted ebitda. Beyond FY2023, management has indicated that it will focus on generating positive-adjusted ebitda and free cash flow while keeping its costs in check to drive further operating leverage.
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The company’s financials have been improving and the positive trend is expected to continue. This is supported by Grab’s significant footprint in the mobility segment and continued engagement in the deliveries segment. Other operating segments, such as financial services through digital banks, are likely to be a longer-term headwind, along with the enterprise solutions segment. Grab’s status as the largest online delivery and mobility app in Southeast Asia could also contribute to the adoption of more GrabUnlimited subscriptions as subscribers are likely to spend more than non-subscribers due to better promotions and offers from the subscription. Chart 2 shows the company’s operating cash flow and free cash flow over the past seven quarters. Chart 3 shows Grab’s gross margins over the past 10 quarters, which have also improved.
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In terms of financial safety, Grab has ample liquidity with a cash ratio, quick ratio and current ratio of 4.6, 5.0 and 5.2 times, respectively. Given the company’s net cash position, solvency is less likely to be a concern. The company has 24 “buy” calls, one “hold” call, and one “sell” call with an average target price of around 30% above its current trading price. Based on our in-house valuations, we believe that the company’s intrinsic value is at least over 50% above its current trading price. Given that the company could be profitable sustainably after turning around, Grab is suitable for investors willing and able to bear greater risk.
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