Suveer Bhatia on Norton LifeLock, Thai Beverage Company

Suveer Bhatia of Bayard Asset Management presented his investment theses on Norton LifeLock (US: NLOK) and Thai Beverage Company (Singapore: THBEV) at Best Ideas 2022.

Thesis summary on NLOK:

Norton LifeLock is a cybersecurity solutions company, with a market cap of US$14 billion. The company was formed after Symantec sold its enterprise business in 2018 and rebranded into NLOK, which has the largest revenue market share in cybersecurity at 19%.

Global cybersecurity is an underpenetrated market, with 5% of the current five billion internet users using cybersecurity products. With growing digitization, security awareness, and heightened risk of cybercrimes, Suveer expects cybersecurity to be a growth space in the coming years. NLOK is setting itself up for success due to recent M&A, most notably a merger with Avast.

NLOK could achieve double-digit revenue growth and EPS of $3 in the next 3-5 years due to international expansion and further portfolio diversification due to M&A activity and the success of its flagship consumer product — Norton360.

Suveer also expects the company to return $6.5 billion to shareholders from FY 2023-25 if the Avast deal is completed. With a forward P/E of ~14x (March 2023E), dividend yield of 1.8%, and expected EPS growth of 18% from FY 2022-25E, NLOK appears undervalued in light of its position as a high FCF-generating market leader in an underpenetrated industry.

NLOK recently traded at $26.85 per share; assuming the Avast merger is successful, Suveer’s value estimate is just under $40 (nearly 50% upside). If the Avast merger is unsuccessful, Suveer’s value estimate is $32 (~20% upside).

Thesis summary on THBEV:

Thai Beverage Company is the largest alcohol beverage producer in Thailand, with a market cap of US$13.2 billion. Thai Beverage has 90% market share in spirits in Thailand, 40% in domestic beer (one of two major players), and 43% in Vietnamese beer through a 53% ownership of Sabeco. They derive 48% of revenue from spirits and 41% from beer; geographically, 75% of revenue from Thailand and 20% from Vietnam. Beer is their fastest growing segment.

Thai Beverage has demonstrated a resilient business model due to 80% of domestic revenue coming from off-premise sales, thus allowing them to continue growing EBIT during Covid lockdowns. They have also demonstrated EPS growth in nine of the last eleven years and have a minimum dividend payout ratio of 50%. Suveer expects earnings to compound at ~17% for the next three years due to growth in beer, cost synergies from recent M&A, and market share dominance in spirits.

The company is a long-term high performer, outperforming the Global ACWI Index and Global Consumer Staples Sector for the last one and two decades. Underperformance in the past 4-5 years, though, has created an opportunity.

The shares trade at a forward P/E of ~15x (September 2022E), EV/EBITDA of ~14x, and trailing P/B of 2.4x — significant discounts to the company’s two-year and five-year historic averages, both relative to itself and its peers. Thai Beveverage recently traded at SGD 0.66 per share; Suveer’s value estimate is SGD 0.80 per share (~20% upside).

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About the instructor:

Suveer Bhatia, CFA, began his investment career in 2018 after receiving an undergraduate degree in Business Administration from the University of Southern California’s Marshall School of Business. Upon graduating, he started working as an Investment Analyst at Bayard Asset Management, a long-only, bottom-up, concentrated, global equity fund manager based in Princeton, NJ. Suveer earned the CFA charter in August 2021 and enjoys golf, traveling, and producing films in his spare time.

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