Salesforce.com

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English: salesforce.com Deutsch: salesforce.com Français : salesforce.com (Photo credit: Wikipedia)

CRM

NYSE : US$43.65 BUY 
Target: US$54.00

COMPANY DESCRIPTION:
14-year-old Salesforce.com sells cloud computing and social enterprise solutions for businesses that range from Enterprise to
SMB. The firm’s core products include Sales Cloud (sales automation), Service Cloud (customer support applications),
Marketing Cloud (marketing tools), Force.com (a development platform) and Chatter (enterprise collaboration).

Technology — Enterprise Software — Software as a Service
AN UPSIDE QUARTER, AND MORE GOOD NEWS LIKELY ON THE WAY FROM CUSTOMER EVENTS; REITERATE BUY
Investment thesis
Salesforce’s Q2/14 results were nicely ahead of forecasts across the board. The firm remains by a wide margin the fastest growing company of its size, and with the addition of marketing automation functionality and still nascent adoption of its platform capabilities, we believe CRM should be able to keep its impressive growth trajectory relatively intact for at least the next 6-8 quarters.
The combination of a reasonable valuation and likely favorable commentary into and following upcoming customer events – ExactTarget Connections in September and Dreamforce in November – sets the stock up for a nice run through year-end. CRM is one of our top picks and should be a core growth holding for software investors. Reiterate BUY, increasing target to $54.00.


A solid print: upside revenue, FCF, and billings. CRM reported July quarter revenues and non-GAAP EPS of $957M and $0.09, which were respectively $22M and $0.02 ahead of our estimates. Adjusting for $16M of acquired ET revenue and a $7M FX headwind, organic revenue growth was ~30%.
FCF of $80.6M in the quarter, or $0.13 per share, was nicely ahead of our $57.0M estimate. Calculated billings of $1.014B was $80M ahead of our forecast and up roughly 34% y-o-y after adjusting for ET contribution, the impact of changing billing terms and FX. CRM ended Q2 with a $5.6 billion backlog of booked business, which is up ~$1.2 billion from a year ago.
 Outlook

Q3 slightly better, FY estimates inch modestly higher. CRM inched higher F2014 revenue and EPS guidance by approximately $35M and a penny largely due to an earlier-than-anticipated close of ET. Our updated estimates are for F2014 revenue growth of 32%, non-GAAP operating margins of approximately 9%, and operating cash flow growth of 15%

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Mitel Networks

Image representing Mitel Networks Corporation ...
Image via CrunchBase

MITL

 NASDAQ : US$4.52 BUY 
Target: US$6.00

COMPANY DESCRIPTION:
Mitel is a premier provider of IP telephony infrastructure, principally to small and mid-size organizations characterized by 1,000 or fewer lines. Products include IP-PBX systems, desktop hardware, UCC applications and managed services. Based in Ottawa, Canada, Mitel employs ~2,400 individuals and has 1,600 channel partners across 90 countries.
All amounts in US$ unless otherwise noted.

Semiconductor Devices and Related Technologies
UPSIDE LIKELY ON EXPANDING SOFTWARE SALES
We reiterate our BUY rating and increase our price target to $6 from $5 following largely in line Jul Q results and healthy gross margin guidance.
While the outlook for Oct Q revenue is a little light versus our previous model, gross margin expansion is proceeding at a strong clip, and we expect MITL to further capitalize on traction for its MiCloud UC-as-aservice offering and recently-acquired prairieFyre’s contact center  solution. We continue to view MITL as well positioned in leading virtualized UC applications and see upside potential to our estimates on continued gross margin expansion driven by expanding software sales.
Investment highlights
 MITL reported Q2/C13 (Jul) results. Revenue was $141.6 million compared to our estimate of $142.5 million and consensus of $143.5 million. EPS was $0.17, compared to our inline estimate of $0.15.
 Management guided Q3/C13 (Oct) to revenue of $142-148M, and implied EPS at the mid-point of $0.19. This compared to consensus estimates of $149M/$0.21 and our estimate of $148M/$0.21.
Management highlighted that the guidance includes caution based  on the softness seen by Avaya and Cisco.
 Mitel completed the acquisition of prairieFyre, a contact center  software provider, for $20 million in cash in the quarter.
prairieFyre provides Mitel’s existing contact center solutions and  management highlighted the acquisition was accretive in the  quarter.
Valuation
MITL’s price target of $6 (was $5) is 6x our C2014 EPS estimate of $.95

Joy Global : Less Joy

Joy Mining Machinery Founder Joseph Francis Joy
Joy Mining Machinery Founder Joseph Francis Joy (Photo credit: Wikipedia)

Joy Global (JOY : NYSE : US$49.16), Net Change: -2.15, % Change: -4.19%, Volume: 7,519,489
Joy Global, a maker of mining equipment, reported a 36% slide in quarterly orders and warned of
sharply lower revenue for a further year as coal producers cut back capital spending in the face of a supply glut and low prices.
Net income fell 5% to $183.2 million, or $1.71 per share. Revenue dropped 5% to $1.32 billion.

Excluding items, Joy Global earned $1.70 per share while analysts expected earnings of $1.37 per share, excluding items, on revenue of $1.18 billion. Joy Global maintained its 2013 forecast for earnings of $5.60-5.80 per share.

The company, which derives two-thirds of its revenue from sales to coal miners, said it would increase cost cutting to offset the slide in orders. Management maintained its forecast of revenue for the year to October 2013 of $4.9-5.0 billion, down from last year’s $5.66 billion, and it warned the following year would be worse.

“The current outlook (for 2014) is unlikely to support annual revenue above $4 billion,” Chief Executive Mike
Sutherlin said in a statement. This is sharply lower than the previous average expectation from analysts for revenue of $4.57
billion for the year ending October 2014.

Novus Energy : China Connection ? Jack A. Bass Managed Accounts

Novus 2
Novus 2 (Photo credit: Wikipedia)

Novus Energy* (NVS : TSX-V : $0.86)
Chinese buyers emerge? The Hong Kong Economic Times reports that China-based Yanchang Petroleum International Ltd.
plans to acquire Novus Energy for C$500 million (or ~C$2.00 per share). At the time of this writing, Yanchang shares remain
halted in Hong Kong and Novus was halted on the TSX Venture Exchange. Recall, Novus reported Q2/13 results last week and commented on its ongoing value maximization process.

The company confirmed that it is currently in exclusive negotiations with respect to a potential transaction. In that regard, Novus received an order of the Court of Queen’s Bench of Alberta, as well as confirmation from the TSX Venture Exchange, that it may delay its annual general meeting of shareholders until October 24, 2013. This may save the company the expense of holding an additional meeting, should the company undertake a transaction which requires shareholder approval. On December 4, 2012, Novus announced that it had retained financial advisors to assist the Special Committee of the Board of Directors in exploring and evaluating a broad range of options to optimize shareholder value. The company cautions that there can be no assurance that a potential transaction will result from the current negotiations, and Novus does not intend to disclose future developments with respect to the process unless and until the Board of Directors has approved a specific transaction or otherwise determines that disclosure is appropriate or required.

Novus’ Q2/13 production averaged 3,452 boe/d (80% liquids) falling short of Canaccord  forecast of 3,844 boe/d and consensus of 3,939 boe/d. Production was down 15% quarter-over-quarter due to weather conditions which adversely affected its field operations. Second-quarter CFPS of $0.07 was commensurately below Toth’s estimate and consensus of $0.08 given reduced production volumes.

The company has ramped up activity in Q3 with current production of 4,050 boe/d. Subsequent to June 30, Novus has drilled an additional 17 wells in the Dodsland area with continued focus on well costs that have averaged ~$875,000.

Sprott Physical Gold

Gold Buddha
Gold Buddha (Photo credit: @Doug88888)

Gold (GC : NASDAQ : US$1415.40), Net Change: 22.30, % Change: 1.60%, Volume: 146,830
Sprott Physical Gold (PHYS : NYSE : US$11.84), Net Change: 0.11, % Change: 0.93%, Volume: 1,469,493
Go for torque, go for quality or go for the physical? Worries about a potential U.S. military strike against Syria sent oil and
gold prices higher on Tuesday. After almost a 30% fall in the gold price (peak to through) in H1/13, all gold producers without
exception have had to adjust to the new environment.

Even producers with a better quality asset base have had to improve their working capital management, adapt exploration budgets, and in some cases postpone/suspend lower priority development projects. Higher cost producers, have had to come up with new business models (new mine plans) in order to survive in the world of lower gold prices. Higher leveraged companies have had to go even further by postponing key capital projects and searching for alternative ways to generate cash (non-core asset sale for example).

Over the past month, gold shares have recovered some of their losses following the rebound in the gold price and more clarity on managements’ revised plans. At this stage, it is important to look at gold equities by evaluating a number of key parameters in order to select those companies that are best positioned to weather likely higher gold price volatility in the near term without needing to make significant changes to their growth plans and/or business models.

Investors should more on defensive gold equities with a low-cost asset base, low leverage and the ability to deliver development plans even in a volatile gold price environment. Barron’s published an interesting technical comment on gold this week, “the [gold] market negated its June breakdown and now has its sights set on a much more important feature – the former price floor in the $1,542 an ounce area…If gold can reclaim that level, it would be a 30% gain and a bull market by definition.”

Separately, it is worth noting that Sprott Physical Gold Trust now trades at NAV or at a slight discount. Historically, PHYS’s premium/discount to NAV (since inception on February 25, 2010) has ranged between a discount of 2.49% (May 27, 2013) and premium of 23.68% (May 25, 2010).

Avago Technologies Limited

AVGO : NASDAQ : US$36.56
BUY 
Target: US$45.00

COMPANY DESCRIPTION:
Avago Technologies Limited is a designer, developer and global supplier of analog semiconductor devices. Avago offers products in three primary target markets: wireless communications, wired infrastructure, and industrial and automotive electronics. Applications for Avago products include smartphones, connected tablets, consumer appliances, data networking and telecom equipment, and enterprise storage and servers.

Technology — Communications Technology — Semiconductors
STRONG Q3/F13 RESULTS; WIRELESS AND WIRED DIVISIONS DRIVE STRONG Q4/F13 GUIDANCE
Investment recommendation:

Avago reported strong Q3/F13 results above our estimates with strong Wired and Industrial division sales offsetting weaker-than-expected Wireless demand. Further, Avago guided to strong sequential sales growth in Q4/F13 driven by strong
trends in the company’s Wireless and Wired divisions. We believe Avago’s proprietary technologies, strong IP portfolio, and diverse customer base in several growth markets position the company for strong long-term growth trends with industry-leading margins.

We reiterate our BUY rating and increase our price target to $45.
Investment highlights
 Q3/F13 sales of $644M and pro forma EPS of $0.74 were above our $623M/$0.68 estimates driven by 18% Q/Q sales growth in the higher-margin Industrial and Wired Infrastructure (excluding CyOptic sales) divisions versus our mid-single digit growth estimates for each division. CyOptics contributed $21M in sales during the quarter and should contribute $55M in Q4.
 Wireless sales increased only 3% sequentially or below management’s high-single digit sequential growth guidance, but
this is consistent with our analyses indicating softer high-tier smartphone sales trends during Q3/F13.
 Avago management guided to a 12-15% Q/Q sales increase for Q4/F13 driven by solid Q/Q growth in the Wireless and Wired Infrastructure divisions. Management anticipates mid-teens percent Q/Q growth in the Wireless division due to sales ramping into new smartphone programs at both Apple and Samsung, as Avago is benefitting from increased content share in high-end LTE smartphones.
 Given the strong results and our expectations for sustained growth trends, we have increased our F2013 pro forma EPS from $2.76 to $2.82 and F2014 from $3.29 to $3.30.
Valuation: Our $45 price target is based on shares trading at roughly 13x – 14x our F2014 pro forma EPS estimate.

Workday

Image representing Workday as depicted in Crun...
Image via CrunchBase

WDAY

NYSE : US$76.01
BUY 
Target: US$85.00

COMPANY DESCRIPTION:
Workday provides enterprise-scale, cloud applications that deliver the core functions for global customers to manage the human capital and financial resources of an organization. Solutions include: HCM, Financial Management, Payroll, Time Tracking, Procurement, Employee Expense Management, etc. Workday was founded by the former founders of PeopleSoft in 2005 and is headquartered in Pleasanton, CA.
All amounts in US$ unless otherwise noted.

Technology — Enterprise Software — Software as a Service
ANOTHER BLISTERING QUARTER — ENOUGH TO KEEP THE HIGH MULTIPLE REASONABLY INTACT; REITERATE BUY
Investment thesis
Workday reported another excellent quarter as once again virtually every metric bettered forecast. It remains our opinion that for at least the next half decade,
Workday is well positioned to be one of the largest beneficiaries of the massive enterprise upgrade cycle to cloud-based applications. This standing does not come cheap, and at more than 18x C2014 revenues, WDAY is the most expensive stock in all of software. That acknowledged, we continue to believe that rapid revenue growth (63% in F2013) and the likelihood of continued upward estimate revisions will keep potential (and likely gradual) multiple compression at bay so that investors can logically expect at least 15%+ annual returns. WDAY should be a core growth holding; reiterate BUY.
 Another upside quarter. Workday reported revenues, calculated billings, and FCF loss of $107.6M (+72% y-o-y), $132.2M (+36%) and ($42.6M), which were respectively $7M, $14M, and $22M better than our estimates.
Subscription revenues grew 92% in the quarter, and non-GAAP operating margin of (20.1%) was better than forecast as the firm marginally lagged hiring plans – the firm’s outlook incorporates a catch-up in Q3. Calculated billings benefitted from a couple of large deals with >1 year upfront cash  payments, but y-o-y reported growth is muted due to an effort to return to
annual invoicing from pre-IPO incentives to collect multiple years up front.
 Outlook:

Estimates moving higher again. WDAY provided FQ3 revenue guidance that at mid-point was roughly $2M ahead of consensus. Guidance ranges imply October quarter subscription revenue growth of ~75%. We have increased our F2014 revenue estimate to the high end of guidance, which is $446M (+63%), and now expect a FCF loss of roughly $83M.