Introduction and executive summary This report tends to review financial performance, position and reporting for Seagate PLC. In data storage market across strength and weakness from other major competitors in order to make a decision for investment based on latest published financial reports and market analysis.
Market major Players based on below filters applied on Financial Visualization website, Morningstar and financial times :A- Technology Sector B- Industry on Storage Devices C- Market Capacity D- Internationally recognized stock share ( NASDAQ)Seagate financial performance is outstanding, it is the leader in data storage devices industry, with tangible average return on capital employed (ROCE) growth of 21% in last five years. Also with the highest assets turnover ratio (1.37) almost double than the industry peers average.From Gross profit margin perspective in average has a positive trend of 27.2% in recent five years, it is relatively higher than market competitors.Liquidity indicates that company in a good financial position and maturity is existed by balancing to cover debts and without excessive cash can be consumed on operations.
It also considered the highest dividend per share growth over five years in the industry peers, and recently at last quarter of 2017, the consensus forecasts investment analysts covering Seagate PLC recommends investors to hold their position in the company (FT, 2017). Coming sections will describe the performance and analysis in details, as well as the market review to be discussed. Return on Capital Employed (ROCE) ROCE=(Net profit before interest,Tax and dividend(PBIT))/(Total Assets-current liabilities)Relative profit measure showing the return generated from investments in assets ( Morrisons,2017) , in other words to determine how efficiency a company utilizes their long- term investments in order to create income (Atrill and Mclaney, 2017), ROCE is calculated based on the 5 years annual reports from each company as below graph:Seagate kept ahead of its competitors on the years from 2013, till 2015.The year of 2016 was lagging behind Western Digital company, this because market shifting and fast transforming to the cloud storages technology, as well as Seagate was heavily concentrating on video surveillance storage to penetrate the Video market “from the industry player to market leader”(A&S magazine, 2016), as well as Western digital has expanded its market share and acquired foreign subsidiaries in China and other Fareast countries (Nasdaq, 2017).In the year 2017 Seagate recovered the top of the industry peers.Gross profit margin is one of the indicators to assess overall company health financially, in other words, the funds left over for debt, distributions to shareholders and miscellaneous expenses (the balance, 2016). The in the figure above presents a positive trend, the difference from the average level is decreasing the gap by 6.04% in 2017 with overall average decrement 2.
02% only since 2013.It could increase more if management gives a direct attention to the cost of revenue/sold goods, and fixed cost reductions which are relatively high than industry peers. It could also be improved if purchasing strategy developed for manufacturing products with values added and less expensive materials to be purchased without losing required quality. While another major competitor Western digital has improved the profit by reducing the cost of goods sold, selling, administrative expenses and other interests paid these improvements contributed to 64.05% net income growth (financial times,2017).The current ratio that incorporates all current assets and liabilities for Seagate PLC indicate that it is near constant and obviously represents good financial health with ability to pay its short and long-term liabilities (debt and trade payable) via (cash, inventories, account receivable and liquid financial instruments) even though it is below than average in the industry “usually 2 or above” (Nasdaq, 2017).
By excluding inventories and other difficult assets that can be turned into cash to pay short terms liabilities, the quick ratio has been used to assess liquidity and develop the current ratio conservatively (Mc Graw Hill,2017).It is noticeable that the three companies are above 1and obviously also in a good financial health. Seagate PLC it is indicated that on 2013 till 2014 slide increment from 1.
6 to 1.9 then decreased noticeably to 1.1 in 2016 due to company sales decreasing, the account receivables period were 43.11 days had small affect. Recently in 2017, it was recovering back to 1.4 due to the revenue growth and improvement in receivable collection period to 40.63 days and turning over inventories quicker than NetApp Inc.
but less than Western Digital Corp. The Assets turnover of Seagate PLC is1.23 times for years 2016 and 2017 presenting the stability and efficiency of the company and leading in this industry .The performance of the company in this area has seen slight decrement over the last 5 years from 1.48 USD dollar to 1.23 USD of sales for every dollar invested in assets but not affected on its rank.
Also this slight drop would not effect on efficiency but need to be monitored during coming years. On the other hand debtor collection period reduced from 44 days in 2013 to 40.63 days in 2017 indicating improvement in the period taken to collect debts owed the company. A noticeable deterioration in the period 2015 to 2017 taken to pay for goods by suppliers. This is clearly presenting a bad efficiency, risks to be associated and tangible threat of legal actions and penalties on late payments.In 2017 Seagate PLC receivables turnover presents improvement than the previous year , the Increase in account payable by approx.
109 USD Million reflects an increased level of production and activities that resulted in the increased sales.Above graph compares 5 years ordinary share prices of Seagate PLC (Symbol: STX) in origin overlay, Western Digital Corp. (Symbol: WDC) and NetApp Inc.(Symbol: NTAP), along with a simple moving average indicator (Grey). The three companies grew 68%, 167%, and 87% respectively, however Western Digital (WDC) grew better than NetApp and Seagate, a sign that investors believe that WDC is future promising (Market realist,2017) While others ( NTAP and SXT) competing in the second rank.
Dividend Per Share (Diluted) had a remarkable growth of 3.7% for this year and considered the highest growth ranked in the industry taking in consideration that most of the industry peers not paying for dividends (FT, 2017).While (P/E) indicate that moderating in last 3 years that gives a naturally defensive stock of STX (current 14.77).For the pay-out ratio for SXT is (94.02%) is a good indicator that Seagate Plc can raise its Dividend ratio.Seagate PLC.
Total Debt /Total equity ratio in its balance sheet (403%) and this exceeds than market recommendation (20% in average). For Earing Price per share (EPS), on five -year growth, NetApp Inc. ranked as the highest in its industry, while Seagate PLC and Western Digital corp. considered indicates low persistence in earning growth. Seagate Technology PLC has a Debt to the total Capital ratio of 80.11%, a lower figure than the previous year’s 268.50%, but it is still risky in term of long- term investment in this industry. (NASDAQ, 2017).
While Western Digital Corp and NetApp have reduced this ratio to Approx. 52%, lower than the previous years. In cash flow, Seagate Plc Increased its cash reserves by 1.41Billion USD approx. While Western Digital in 2017, cash reserves decreased by (-1.80) Billion USD approx.For NetApp decreased by (-424.00) Million USD Approx.That indicates Seagate PLC liquid assets are increasing better than other industry peers Figure 12 Dividend and EPS for Seagate PLC