Friday, 14 February 2014

Lenovo - an update on the world's number one PC company

Lenovo has had a lot of newsflow recently including (pre regulatory approval) buying IBM's small server business and Google's Motorola Mobility division.  But what about their own corporate results?  These came out yesterday and despite an ok market backdrop...the shares have not responded much at all (after their big fall post the analyst absorption moment around the deals).

Looking at the numbers, sequentially they were strong with good operating leverage.  Additionally - and for once - the company generated cash flow consistent with operating profitability too. 

In PCs, the company has regained its global number one status from HP which included market share gains across the globe. 

In tablets and smartphones they are not so well-positioned...but in the latter in particular, they should move to global #3 post the Motorola deal

Of course what we must always remember about Lenovo is that Chinese profitability is far superior to any other region.  Part of the aim of the aforementioned deals (especially the Motorola one) is to start to try and balance this out a bit.  This will take time and, of course, will be taking place in markets where the company's inherent market share is lower than in China. 

Lenovo numbers are moving around but, as discussed at my previous posting link, the IBM server / Motorola deal rationales make sense, even if it takes the company into a mild net debt position.  Extrapolating the Q3/9m numbers suggests the share is trading at x10.6 EV/ebit which does not seem super high.  The yield at 1.4% is just ok. 

Overall, from the technical chart posted above, I see strong historic support/resistance at the HK$8 level.  The ideal is to buy at/below this level.  That's what I will be focusing on. 

No comments:

Post a Comment