Auction Technology Group
Equity Market Cap (M) £704
Consumer discretionary
John-Paul Savant, CEO, Tom Hargreaves, CFO
Auction Technology Group (ATG) is a provider of online auction marketplaces. It provides a platform for over 4,000 auction houses to list their lots online, giving auctioneers access to a wider range of potential customers and affording bidders a wider selection of items.
50% of revenue currently comes from commissions taken as a percentage of the ‘hammer value’. This revenue is most closely linked to transaction volume and implicitly has an inflation linkage baked in. ATG also derives fees from auction houses for a range of value-added services. ATG has built these value-added services out in recent years, and they provide, Savant argued, an increasingly significant contribution to growth. Services range from marketing, paying services and shipping.
In shipping, the company has created a marketplace for fulfilment and has arrangements with Parcelforce and FedEx among others. ATG provides a price to a bidder, leaving them to determine what shipping they require.
In terms of ATG’s main industry verticals, beyond the more traditional Art & Antiques (A&A) channel, it also targets the Industrial and Commercial (I&C) vertical where auction houses sell equipment, machinery and vehicles for a range of industries such as manufacturing, industrial and pharmaceutical.
Since its Initial Public Offering (IPO), ATG’s performance has been mixed. Management argued at the time of the IPO that whilst A&A is cyclical, the I&C vertical would exhibit countercyclicality due to an increased level of transactions from liquidation sales. This has not been borne out. The hope is that the network effects exhibited by marketplaces such as eBay may apply here too. The network effect provides a formidable competitive advantage, but ATG will have to build more scale if it is to secure this advantage.
NetApp
Equity Market Cap (M) $20,303
Information technology
Mike Berry, CFO
NetApp can be thought of as a data infrastructure company that facilitates more streamlined handling, storage and management of data. NetApp’s single pane products allow its customers to access and control data regardless of where it is stored, be it on-premise or in the cloud from a singular location. This has clear benefits to customers from an operational efficiency standpoint. This core offering is supported by value-added cyber security and ransomware protection services. NetApp offers an externally verified 99% data recovery rate from these services in the event of a hack or breach, provided the customer has correctly set up and configured the NetApp product.
Competitors include Ace Data Storage, Pure Storage and the incumbent market leader Dell. NetApp has been able to grow ahead of the market by capturing market share from Dell and Pure Storage. Whilst unique in configuration, the hardware each employs is generic, and so it is the quality and usability of the software element that is the key differentiator. As a testament to NetApp’s quality, Mike highlighted Amazon Web Services' (AWS), Azure’s and Google Cloud’s reliance on NetApp’s technology in supporting their distribution of cloud products, with owners Amazon, Microsoft and Alphabet respectively unable to replicate this technology successfully in-house thus far.
As things stand, it does appear that NetApp has a compelling competitive positioning within its market. However, given there are several well-established players in this market and the rate of change within the industry is fairly high at present, it would not be unreasonable to question the durability of NetApp’s competitive advantage on a forward-looking basis.
Universal Display Corporation
Equity Market Cap (M) $7,292
Information technology
Brian Millard, CFO
Universal Display Corporation (UDC) is a US-listed company, specialising in research, development, and commercialisation of organic light-emitting diode (OLED) technologies and materials, which is a key component in the creation of electronic screens. They hold over 6,000 patents globally, where they are the dominant player in the OLED market, supplying proprietary materials and licensing their technologies to leading manufacturers like LG Display and Samsung Display.
They hold a near-monopoly in key OLED components, particularly high-performance red and green phosphorescent materials. Competitors Merck and BASF entered the market but struggled to bypass the patent barriers. Currently, the largest threat to the business is seen in emerging technologies such as microLEDs – however production costs for these are currently high, making them uncompetitive.
OLEDs face further competition from cheaper alternatives seen in liquid crystal displays (LCDs), limiting their use to high-end electronics. As a result, UDC captures ~40% of the smartphone display market, but has a smaller share in TVs, tilting towards high-end devices. Growth opportunities exist in tablets, wearables, and automobile displays.
UDC’s financial positioning remains strong, with a solid net income margin and return on invested capital, although its valuations remain high at 35-45 times earnings.
Looking towards the future we talked about the pioneering work which is being undertaken in phosphorescent OLED (PHOLED) technology, improving power efficiency, which is especially useful in handheld devices where battery power is often a limiting factor. The company is also advancing OLEDs for portable devices.
UDC’s focus is to continue to innovate in this fragmented market, attempting to capitalise on emerging trends and applications.
CONSUMER DISCRETIONARYTechnogym
Auction Technology Group
Greggs
CONSUMER STAPLESNestlé
Cranswick
FINANCIALSDLocal
HEALTH CAREGE Healthcare
Bruker
INDUSTRIALSSchneider Electric
Rational
engcon
Diploma
INFORMATION TECHNOLOGYSkyworks Solutions
AppLovin
Blackbaud
NetApp
Rambus
Reply
Siltronic
SPS Commerce
Universal Display Corporation
Jack Summers, Research Assistant
William McCubbin, Assistant Research Analyst
Henry Birt, Research Analyst
