Monthly Archives: March, 2014

SolarWinds Inc

Does SolarWinds Inc (SWI) Merits a Buy?

March 12th, 2014 Posted by Company Research Report No Comment yet

SolarWinds, Inc. (SWI) designs, develops, markets sells and supports enterprise information technology (IT), infrastructure management software to IT professionals in organizations of all sizes. The Company’s product offerings range from individual software tools to more comprehensive software products that solve problems encountered by IT professionals. Further, its products are designed to help the management of their infrastructure, including networks, applications, storage, and physical and virtual servers, as well as products for log and event management. Furthermore, it offers a portfolio of products for IT infrastructure management.

Forbes named SolarWinds the “Best Small Company in America,” citing high-functioning products for low costs and impressive company growth.

Who runs SolarWinds and are they competent?

Mr. Kevin B. Thompson, President, Chief Executive Officer, Director of SolarWinds Inc

SWI CEO

Mr. Kevin B. Thompson is President, Chief Executive Officer, Director of SolarWinds Inc. He has served as the President since January 2009 and the Chief Executive Officer since March 2010. He previously served as the Chief Financial Officer and Treasurer from July 2006 to March 2010 and the Chief Operating Officer from July 2007 to March 2010. Prior to joining the Company, Mr. Thompson was Chief Financial Officer of Surgient, Inc, a software company, from November 2005 until March 2006 and was Senior Vice President and Chief Financial Officer at SAS Institute, a privately-held business intelligence software company, from August 2004 until November 2005. From October 2000 until August 2004.

More experience,

Mr. Thompson served as Executive Vice President and Chief Financial Officer of Red Hat, Inc, a publicly-traded enterprise software company. Mr. Thompson holds a B.B.A. from the University of Oklahoma. He also serves on the board of directors of NetSuite, Inc. (NYSE: N).

Mr. Jason Ream, Chief Financial Officer, Executive Vice President – Finance of SolarWinds Inc

SWI CFO

Mr. Jason Ream has been appointed as Chief Financial Officer, Executive Vice President – Finance of SolarWinds Inc, effective October 1, 2013. Mr. Ream joined the Company in April 2009 as Vice President, Business Development, and Investor Relations, and has been instrumental in expanding the Company’s market opportunities by guiding the Company’s Merger and Acquisition activity. Later, he was promoted to Vice President of Growth Strategy in 2012. Prior to joining the Company, Mr. Ream worked for J.P. Morgan as an Executive Director in investment banking from July 2006 to January 2009. From July 1999 to July 2006, he held various roles in investment banking at UBS, Piper Jaffray, and Credit Suisse First Boston. Mr. Ream holds an A.B. in Mathematics from Amherst College.

Moreover,

For the financial aspects of the company, these are uncovered in the company’s financial statements. Shown here are the data from 2009 to 2013:

SolarWinds Financial Liquidity

swi liq

The average current ratio of SolarWinds, Inc was 2.1 which shows that its current asset was 210 percent over its current liabilities. Likewise, the quick ratio average was 2 which means that the monetary asset of the company was 200 percent when compared current liabilities. While, debt to equity ratio was only 0.06 and solvency ratio was 73 percent.

Income

Income or revenue is the amount of money that is brought into a company by its business activities.

swi inc

The company’s revenue from 2009 to 2013 was going up year over year with a growth rate of 31, 30, 36, 25 and 30 respectively. On the other hand, operating income was also increasing every year by 41, 35, 36, 7 and 30 percent. Further, net income, it is also increasing yearly by 50, 38, 31, 11 and 32 percent.

Margin

The margin is a percentage result of revenue after taking the corresponding expenses. We applied the gross margin, operating margin, and net margin. The gross margin was the result of gross profit over revenue and the operating margin was the result of operating income over the revenue of the period, on the other hand, the net margin was the result of net income over revenue of the period.

From 2009 to 2013, gross margin, operating margin and net margin of SWI are:

swi marg

SWI’s gross margin yearly was quite high at 97, 95, 94, 93 and 92 with an average of 94 percent which is very impressive. While the operating margin was 39 percent average, also high enough and the net margin was 26, 30, 31, 30 and 27 percent. Its average is 28 percent.

Overall results showed that SWI is financially stable and more progressive.

SolarWinds CASH FLOW

Cash Flow from Investing Activities

Investing transactions generate cash outflows, such as capital expenditures for property, plant and equipment, business acquisitions and the purchase of investment securities. Likewise, inflows come from the sale of assets, businesses and investment securities. As a result of the companies investing cash flow from 2009 to 2013 were negative which means the company’s expansion was more on capital expenditures.

Cash Flow from Financing Activities

Debt and equity transactions dominate this category. Companies continuously borrow and repay debt, issuance of stock and payment of cash dividends. Moreover, the financing cash flow of SWI was positive except in 2009 which has a negative result of -21. It shows that the company repaid debts and repurchase stock during this particular period.

Free Cash Flow

Free cash flow is the result after deducting capital expenditure from operating cash flow. SWI’s free cash flow shows positive results from 2009 to 2013 with an average of $109M. It indicates funds available to retire additional debts, increase dividends or invest new lines of business. However, if negative, it indicates the financing is needed to support current operations and programs.

In addition, the cash flow margin of the company was 49 percent average while free cash flow ratio was 95 percent.

Cash Flow Ratios

Others view cash flow ratios are more reliable indicators of liquidity than balance sheet or income statement ratios such as the quick ratio or the current ratio. Lenders, rating agencies, and wall street analysts have long used cash flow ratios to evaluate risk. Other cash flow ratios measure a company’s ability to meet ongoing financial and operational commitments.

Cash Flow

swi fcf

With the result of the formula “Sustainable growth rate=ROE x (1- dividend payout ratio)”, it shows that the average SGR of SWI from 2009 to 2013 is 45.73 percent. This indicates how fast a company can grow.

swi sgr

Explanation

It protects the investor from both poor decisions and downturns in the market. The Margin of Safety requires knowing when the buying price is low in absolute terms, rather than merely relative to the market as a whole. This formula is used to identify the difference between company value and price, in short, it is the difference between the real value of the stock and the market price.

 

Relative Valuation Methods

This valuation method compares the market values of the stock with the fundamentals (earnings, book value, growth multiples, cash, flow, and the metrics) of the stock.

swi relative

For SolarWinds Inc, the current book value per share was $6.45, with an average of $4.24. Its price to earnings ratio in the trailing twelve months (ttm) was 39.4% and 38.25% average per share. Moreover, the earning per share at ttm was $1.17 and $0.90 average while the return on equity (ttm) was $20.72 an average of $45.73 per share due to high ROE in 2009 at $145.68 per share.

swi growth

The growth rate 30 percent, with 0 dividend yield. The value of appreciation or MOS was $71.60, the required 40 percent. In addition, the computed value dividend was $0 because of 0 yields which resulted in the total value was $107.40. The price that the investor is willing to pay in 5 years was $414.05. Likewise, the market price of SWI to date was $46.49 per share. If we compare this to the total value of $107.40 per share, it indicates that the stock is trading at an undervalued price.

Conclusion

To sum it all, the results show that SolarWinds, Inc (SWI) was financially healthy as far as its current resources are concerned.

Moreover, income-wise, the company is continuously generating income and growing year over year. On the other hand, expenses were properly controlled which resulted in a commendable profit margin. On the other hand, when it comes to generating cash flow, the company has sufficient cash flow used for operating activities and high free cash flow.

CITATION:

https://www.google.com/finance?q=NYSE%3ASWI&ei=7oMeU8jJM86kkgXLRQ

Written by Rio

Re-edited by Cris

Holly Frontier Corporation HFC

Holly Frontier an Independent Petroleum Refiners in The US

March 6th, 2014 Posted by Company Research Report No Comment yet

hfc 0

Holly Frontier Corporation (HollyFrontier), formerly Holly Corporation, is a petroleum refiner, which produces light products, such as gasoline, diesel fuel, jet fuel, specialty lubricant products, and specialty and modified asphalt.  Operates in two segments: Refining and Holly Energy Partners, L.P. The Refining segment includes the operations of its El Dorado, Tulsa, Navajo, Cheyenne and Woods Cross Refineries and NK Asphalt. The HEP segment involves all of the operations of HEP.

As of December 31, 2011, it operated five refineries having a combined crude oil processing capacity of 443,000 barrels per day that serve markets throughout the Mid-Continent, Southwest and Rocky Mountain regions of the United States. The Company merged with Frontier Oil Corporation (Frontier), on July 1, 2011. On November 9, 2011, HEP acquired from the Company certain tankage, loading rack and crude receiving assets located at its El Dorado and Cheyenne Refineries. The Company owns a 39% interest in Holly Energy Partners, L.P. (NYSE: HEP), which includes our 2% general partner interest.

How does the company make money?

HEP owns and operates logistic assets consisting of petroleum product and crude oil pipelines and terminal, tankage and loading rack facilities. Revenues are generated by charging tariffs for transporting petroleum products and crude oil through its pipelines and by charging fees for terminal petroleum products and other hydrocarbons, and storing and providing other services at its storage tanks and terminals.

Who is running the business?

holly frontier corporation

Mr. Michael C. Jennings, also known as Mike, has been the Chief Executive Officer and President of HollyFrontier Corporation since July 2011, also serves as Chief Executive Officer and President at HEP UNEV Pipeline LLC. Mr. Jennings has been the Chairman of the Board at HollyFrontier Corporation since January 1, 2013, He has 18 years of experience in finance and acquisitions with Cameron International Corporation (formerly, Cooper Cameron Corp.), Unimin Corp., British Petroleum and U.S. Trust Company of New York.

Mr. Jennings served as the Executive Vice President of Finance & Administration and Chief Financial Officer of Frontier Oil Corp. from June 14, 2005 to January 1, 2009. He served as Vice President and Treasurer of Cameron International Corporation from May 2000 to June 2005. From December 1998 to May 2000, he served as Vice President of Finance and Corporate Development of Unimin Corporation. Mr. Jennings holds a Bachelor of Arts degree in Economics and Government from Dartmouth College and a Master of Business Administration degree in Finance and Accounting from the University of Chicago.

holly frontier corporation

Mr. Douglas S. Aron is Chief Financial Officer, Executive Vice President of HollyFrontier Corporation. He served as Executive Vice President and Chief Financial Officer of HLS since November 2012, a position he previously held from July 2011 through December 2011. Prior to joining the Company, he was Executive Vice President and Chief Financial Officer of Frontier from 2009 until 2011. Additionally, he served as Vice President-Corporate Finance of Frontier from 2005 to 2009 and Director-Investor Relations from 2001 to 2005. He was responsible for the treasury department, investor relations and capital markets for Frontier Oil Corp. He served as a Commercial Lending Officer of Amegy Bank (formerly Southwest Bank of Texas) from March 1998 to March 2001. He served as Senior Vice President of Holly Logistics Services, L.L.C. Mr. Aron earned an MBA from the Jesse H. Jones Graduate School of Business at Rice University and a B.J. from the University of Texas at Austin.

Financial health

Let’s look into the liquidity and solvency ratios as our measurement of financial stability of Holly Frontier Corporation.

The current ratio of Holly Frontier Corporation showed an average of 1.73times. And it has been trending up since 2010 to 2012 and dip down in 2013 due to decrease in total current asset. This indicates their market liquidity or their ability to meet creditor’s demands is within the limits of generally accepted range of 1.5 to 3.0.

Holly Frontier’s quick ratio has an average 1.21 times and has been going up since 2008 but in 2013 it decreased in total cash. This means that a company has $1.21 of liquid assets available to cover each $1 of current liabilities.The company has  solvency  average of 68 percent and has been increasing after it decline to 17 percent in 2009.

Income Statement

 

Holly Frontier Corporation has an average of 11 percent. This number represents the proportion of each dollar of revenue that the company retains as gross profit. And the higher the percentage, the more the company retains on each dollar of revenue to service its other costs and obligations. As shown in above data it had increase from 2009 to 2011 and declined in 2012 and 2013 because of the decrease in gross profit.

They have a net margin an average 4 percent, this shows how much of each dollar earned by the company is translated into profits. As shown on table above HFC has increase in 2011 and then slightly declined in 2012 and 2013 due to decrease in net income.

Holly Frontier Corporation has an average 53 percent cash flow margin and TTM of 57 percent. This means the higher the percentage, the more cash available from the sales. Meanwhile its free cash flow ratio depicted an average of 5 percent and TTM of 68 percent. The more free cash flows are embedded in the operating cash flows of a company, the better it is. This is a very good indicator of the financial health of a company.

Investment Valuation

Valuation is at the heart of any investment decision, whether that decision is a buy, sell or hold. Totem’s Pricing Model adopts the investment styles applicable to the company. One valuation style is that,seeks out undervalued companies whose stock price are temporarily down but whose fundamentals are sound in the long run. The philosophy was to buy wisely when prices fall and to sell wisely when the price rise a great deal

Relative Valuation Methods

This is to compare market values of the stock with the fundamentals, their earnings, book value, growth multiples, and other metrics.

holly frontier corporation

The book value per share showed an increasing trend with TTM of $31.02 and an average of $19.09 per share. Its price to earnings increased 1,010 percent in 2009 then declined for the last two years and increase again 5.6 and 13.6 in 2012 and 2013 with TTM of  12.5 and an average of 21.36 per share. Earnings per share drop down $0.20 and 0.97 in 2009 and 2010, abruptly increased in 2011 and 2012 then declined to $3.64 in 2013 with an average of $3.72 per share. Holly Frontier Corporation return on equity drastically showed an up and then down trend with an average of $19.40. Generally, these indicate a good gauge of their profitability and was able to generate favorable returns on their earnings.

The summary data as seen in the table below:

Growth — 25%

Yield —  1.8 %

Value of Appreciation — $ 302.50

Value Dividend   —  5.47

Total Value  — 307.97

Price Investor is Willing to Pay — $ 1, 166.15

As computed Holly Frontier Corporation has an equity growth of 25 percent and dividend yield of 1.8 percent. To get the total value or the worth of the company using the formula value dividend plus the value appreciation. Wherein value appreciation of $302.50 is equivalent to Warren Buffet’s margin of safety of 40 percent of the calculated present value. And the value dividend of $5.47 is dividend divided by interest rate of 15% (which is constant). So, the total of the two resulted in $307.97 as their total value. Compares the total value of $307.97 with the current price per share of $45.57dated February 28, 2014. This indicates that the stock is trading at an undervalued price meaning a candidate for a buy. And price investor is willing to pay as computed by multiplying historical P/E with expected earnings in five years amounted to $1,166.15 per share.

Conclusion

 Holly Frontier’s current price was $45.57 over a total value of $307.95.   Plus, value investing is buying with a sufficient margin of safety of 50 percent as computed which is above 40%. Overall, with data as computed Holly Frontier Corporation is financially healthy and merits a buy.

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