BizNews Ricardo Portfolio update: Palantir, Uber, Lesaka, and Exemplar

Four companies BizNews owns reported in the same week, so Alec Hogg went back to his own valuations to see whether they still held. Palantir nearly doubled its revenue and its chief executive declared his intent to take "the entire market", yet one number nagged at Alec. Uber delivered a fifth straight quarter of 20%-plus bookings growth while Wall Street priced it as if its best days were behind it. Back home, Lesaka and Exemplar told a different story, and slowing growth forced a harder look at what the Ricardo portfolio was willing to pay. Some numbers went up, some came down, and the pattern said a lot about where growth was coming from..Listen on podcast.Listen on YouTube.Edited transcript.Good day, and welcome to the BizNews Edge. I'm Alec Hogg.Four sets of results landed in the past couple of days from companies that BizNews, and many of you as Ricardo portfolio members actually own. Palantir and Uber from the United States. Lesaka and Exemplar from home.And because these are our shares, not somebody else's, I'm going to do something we don't do often enough in this business. Go back to our own valuations and ask a simple question: do they still hold? Some of our intrinsic value numbers go up. A couple come down. Let's start with the one that makes the most noise. PALANTIR - CAN THIS GROWTH POSSIBLY BE PRICED RIGHT?The question I want to answer: can a company growing this fast possibly be worth what the market is asking?Palantir's revenue almost doubled last quarter. CEO Alex Karp out it aggressively - in the past year we’ve essentially created another business the same size of the one we had 12 months ago. That’s what 96% growth actually means. Nicely put. It’s not from a small base, either. More than two billion dollars in revenues now during a single quarter, with a profit of over a billion dollars. A year ago the same three months was about half that.And here's the bit the sceptics said would never come. The American commercial business, the part of Palantir that was supposed to be the hard slog, grew two and a half times. For the first time in the company's history, it is bigger than the government business.Karp's letter to shareholders, published alongside the results this week, is, as always, a piece of theatre. He says every industry on earth will either be remade or, in his words, set briskly aside. That the middle ground will be, quote, "a barren wasteland". And that sales cycles that once took months or years now take days and weeks.Then comes the line I would underline if I owned the shares, and we do: "It is our firm and unwavering intent to take the entire market, the whole thing."That is not a chief executive given to self-doubt or worried about his growth rate.And notice what he's actually claiming. His letter's central idea is that the large language AI models everyone has been so excited about are, on their own, in his words, "a virtually unlimited liability" inside a big organisation. Unless they're connected to the company's data, its people and its safeguards. That connection layer is what Palantir sells. Whatever you think of the prose, it's a clever place to stand. When every bank, insurer and hospital needs the plumbing before the taps will work, the plumber gets paid first.Let's separate Karp’s theatre from the arithmetic. Of every dollar Palantir earns, around sixty cents turns into operating profit before share-based pay, and about half turns into free cash. Management has raised its full-year forecast again, and is now guiding to almost five billion dollars of free cash flow this year.There's more than ten billion dollars in cash already sitting on the balance sheet, and no debt to speak of. That's a company that can be wrong about something and survive.One more thing about quality. Look at the gap between two profit margins. Sixty-two percent before share-based pay, forty-seven percent after it. That fifteen-point gap is what staff get paid in shares costs you, the owner. I always look at the lower number. But even that, a 47% profit margin, is a dripping roast. Now, what did we say these shares are worth? Our intrinsic value is one hundred and fifty dollars. And they're trading around one hundred and seventy. So the market has been running ahead of our number. These results make that harder to wave away.Here's how I think about it. Don't ask what Palantir is worth. Ask what you have to believe. At one hundred and fifty dollars, you need free cash flow to compound at roughly thirty-five percent a year for five years, then fade towards normal growth. At today's price, a little more than that. Sounds heroic, until you remember the past three months’ growth was ninety-six percent. Even if the pace is cut by half, you're still well in the zone.So I'm inclined to lift our intrinsic value to about one hundred and seventy dollars. That's a rise of roughly an eighth. Not because Karp writes like a poet, but because the cash is arriving faster than we modelled.But there's a flag, and it's the one that nags at me. Revenue is what Palantir delivers from deals signed earlier. The leading indicator is what it signs now. Total contract value signed grew only about six percent in the quarter. In American commercial, around eleven. Against ninety-six percent revenue growth, that is a very big gap.In fairness, the backlog tells a kinder story. The remaining value of American commercial contracts is up nearly eighty percent. So this isn't a cliff. It's a deceleration the market is already half-pricing, with the share price slipping a little after the numbers.What would change my mind? Two things. If contract signings stay in single digits for another quarter or two while revenue growth cools towards fifty percent, I'd cut our projected growth and thus intrinsic value number. And if share-based pay, now running at over a billion dollars a year, keeps rising faster than the profits it's meant to reward, I'd want to know why.So what? If our new number, $170, is right, today's share price is fair value. Not a bargain. It’s still a magnificent company, priced for magnificence. For Ricardo members that means hold what you have, but not chasing it. The margin of safety, the thing Buffett cares about most, simply isn't there. UBER - THE MARKET IS PRICING A ROBOT PROBLEMOnto Uber which is the mirror image. Palantir is loved at a price that leaves nothing for error. Uber is doubted at a price that leaves plenty of safety margin.For the fifth quarter in a row, during the three months to end September bookings growth was above twenty percent. A staggering sixty billion dollars of rides and deliveries in three months. From that, the operating profit was up almost forty percent. Profit per share up about a third. And more than ten billion dollars of free cash flow over the past twelve months - a record.Think about that in plain terms. Two hundred and fifteen million people use Uber every month. That translated into four billion trips in three months. That's the rough equivalent of one for every two people on the planet, in a single quarter.Uber’s finance chief, Balaji Krishnamurthy, called the record profit margin proof that the model is durable, and said a high bar for new investment. Translation: Uber has stopped burning money to chase growth. It is harvesting it. Next quarter's guidance is for bookings growth of eighteen to twenty-two percent and earnings per share up by more than a third. That's not what a business in decline promises.Ignore the reported headline profit number, by the way. It looks dreadful because Uber booked a nearly half-billion-dollar paper loss on its investments in other companies. That's accounting noise, not the business.Revenue rose only about a tenth, which looks soft. But that's also mostly an accounting change - in the UK - worth about eight points of growth, with no change to the underlying economics. Bookings are the cleaner measure, and bookings are up twenty percent.What I liked about Dara Khosrowshahi's prepared remarks is that he didn't pretend the quarter was perfect. He admitted ride-hailing growth came in one to two points below plan. Fuel prices and a shortage of drivers held back supply in India, Brazil and Canada, and the war in the Middle East is a drag too. Demand is healthy. The drivers aren't there. His answer is to spend money recruiting them, and he says as a result October already improved.Notice what that tells you. In ride-hailing, supply is the bottleneck. And that, if you squint, is the robotaxi argument.So why is the share price only around seventy dollars? One word: those very same robotaxis. If cars drive themselves, why does anyone need a platform, an Uber, in the middle?Dara's answer, and it's the heart of the document with his prepared comments, is that once the technology works, value shifts to whoever fills the cars with customers. His evidence: Uber's own autonomous partners are getting about thirty percent more trips per vehicle per day than self-run robotaxi fleets. And in American cities where driverless cars operate, ride-hailing as a whole is growing seven percentage points faster than the rest of the country, with Uber's share rising. His phrase: it's not a zero-sum game.The plan is to have seven hundred driverless vehicles on Uber by the end of December, and more than two thousand by the end of 2027. Uber in Zoox launches in Las Vegas this month, and a Bay Area launch with Nuro and Lucid follows in the first quarter.Fair warning, though. That's management marking its own homework. The real question is whether the companies that own the driverless car technology will want a middleman once they reach scale.Here's the useful maths. At our one hundred dollar intrinsic value per share, Uber's free cash flow, now over ten billion dollars a year, only needs to grow at less than ten percent a year for the next five years. That’s conservative. At the share price of seventy dollars, the market is forecasting growth of close to nothing. In other words, with Uber guiding twenty percent bookings growth, Mr Market is pricing the business as though its best days are behind it.Two other things shareholders should know. Uber spent three-quarters of a billion dollars buying back its own shares this quarter, cutting the share count by about three per cent. Good. But it is also borrowing heavily, with a fourteen billion euro bridge loan to pay for its pending Delivery Hero deal, though management says debt leverage stays below two times. It’s worth remembering those Delivery Hero shares came from SA-related Prosus which was forced to offload on anti trust grounds - it owns direct competitor Just Eat. Plus a billion and a half dollars of UK tax falls due in the fourth quarter, which will dent next quarter's cash.My view: leave our intrinsic value at one hundred dollars, with an upward bias. On these cash numbers, that figure now looks conservative. Ten percent growth for five years would be worth more like a valuation of one hundred and ten to one hundred and thirty. But I'm not raising it until the driverless car evidence shows up in the numbers, not just the slides. The gap between price and value has just got wider, which is exactly what we look for. And like. What would make me revisit and adjust downwards? If an autonomous operator starts selling rides directly at scale in Uber's biggest cities, and bookings growth drops below fifteen percent. Neither is happening yet. Until it does, I'd rather own the platform the robots have to plug into than bet it gets bypassed. LESAKA - IN LINE, BUT LOOK UNDERNEATHNow back home and starting with a stock we’ve paid quite a bit of attention to lately, informal market financial play Lesaka, where the headline says one thing and the detail says another.The headline: its first-quarter results released today are in line, guidance reaffirmed, and the company has now met its profit guidance for seventeen quarters in a row. That's a record worth respecting.The detail: group adjusted profit was down about a sixth. Earnings per share down about a quarter. And the Merchant business, the biggest part of Lesaka, saw its profit cut in half. The shares bounced around after the release of the numbers, up almost R10 before easing back to R1, each lower than yesterday’s close. Merchant is where Lesaka serves small shops: card machines, airtime, electricity and cash services. And these are rand figures, so this isn't a currency illusion. Net revenue, the cleaner measure, grew about eight per cent. So the business isn't shrinking. It's the conversion into profit that has slipped.There is good news too. The consumer business grew its profit by nearly forty per cent, and Enterprise by more than a quarter. The mix is shifting towards the parts that are growing.But the guidance has a problem. Management still expects roughly eight rand of earnings per share for the full year, up about a quarter. Yet the first quarter delivered under one rand, and the second quarter is guided at roughly one to one-and-a-third rand. That means roughly three-quarters of the year's profit has to arrive in the second half. That includes the pending Bank Zero acquisition, which still needs regulatory approval.One more thing I'd flag. Last year's comparative numbers have been restated to correct an error. The company's own filing says so. I don't know the detail, but it's the kind of footnote that deserves a question on the next call.You'll remember we sold Lesaka and then spent some time weighing whether to buy back in and duly did so with our decision to focus more on SA’s informal sector. Our intrinsic value is one hundred and twenty rand - way above the share price of R68.50, built on a conservative twelve percent growth for ten years. Conservative, that is, considering the scale of the market Lesaka is attacking. Each percentage point of growth is worth about ten rand a share. Up or down. I'd be happier with the twelve per cent growth forecast if Merchant profit stabilises and the second-quarter financials land inside the company’s guidance. But I'll cut the number to around 10% growth - R100 a share intrinsic value - if the company misses, because with so much of the year loaded into the last six months, there's not a lot of cushion left. EXEMPLAR - GROWTH BOUGHT, NOT BUILTExemplar, the township and rural shopping centre owner, delivered an interim distribution up about seven percent. That sounds fine. But BizNews reported last year's interim as up around twenty percent. So the pace has dropped sharply.Headline earnings per share fell about seven percent, but that's noise. There's a one hundred and twenty-four million rand share award charge, mostly for the CEO and CFO in recognition of past performance, offset by a fifty-odd million rand gain on interest rate hedges. Strip out both, and the underlying figure is up only about five percent.The real story is where growth comes from. Net property income grew thirteen percent, but only about six percent on a like-for-like basis. The rest was bought: new centres at Vosloorus and Steelpoort, and a redeveloped iTonka. That growth was funded with debt and new shares, and the share count is up about four percent.Operationally, though, the centres are healthy. Vacancies are under three percent. About three-quarters of tenants whose leases came up resigned, and rents on renewal rose nearly six percent. But the anchor tenants, the big supermarkets and chains that draw the crowds, grew their sales per square metre by only two and a half percent showing the strain South African consumers are feeling at the bottom end of the pyramid. The township shopper is stretched. It's a theme we keep seeing across South African retail and household surveys this year - and may well have fed through to the shocking results the ANC posted in this week’s Local Government Elections. And within exemplar, costs - electricity, rates, security and cleaning - keep outrunning rents, so the cost-to-income ratio has crept up to about forty-two percent.Two numbers worth watching. Debt as a share of property value has crept up to thirty-eight percent. Still sensible. But the share of debt protected against interest rate rises has fallen from about three-quarters to about forty percent. That's a bet that rates start falling soon. The company confirmed guidance for its payout or distribution growth of nine to eleven percent this year. Do the sums, and the second half has to grow around eleven to fifteen percent, double the first half, with the new Ntuzuma and KwaMashu centres only opening in March.To qualify for the dividend keep an eye on the last day to trade cum-dividend: it’s Tuesday 24 November, with payment on 30 November.Our intrinsic value on exemplar was thirty-four rand, built on twelve-and-a-bit percent growth. That’s a number for a company growing by acquisition at full tilt. Management's own guidance says nine to eleven. So I’m bringing our growth assumption down to ten percent, which takes our intrinsic value down to R28.50. Still comfortable and I’m pleased we’ve got the stock in the portfolio. But with the discipline of a 30% margin of safely, we will be waiting for the shares to ease back to R20 before buying any more. That’s below where it has been trading lately. What would change my mind and force an upwards adjustment on the intrinsic value? Delivery. If the March openings arrive on time and the second-half step-up shows in the numbers, then expanding the next decade’s average growth number to eleven percent is arguable. If not, we’ll stay with ten.And one question I'd put to the board: a very large share award in a year when the dividend grew seven percent. It's non-cash, but it's not free. It dilutes us, the owners. OUTRO - THE RICARDO SCORECARDSo here's the scorecard for Ricardo members.Palantir: incredible growth warrants intrinsic value being pushed up from one hundred and fifty to one hundred and seventy dollars. The cash is arriving faster than we modelled. But the price has caught up. So hold, don't chase.Uber: intrinsic value unchanged at one hundred dollars, but with an upward bias. These quarterly results are better, the price is lower, the gap is wider. The robotaxi risk is the reason Wall Street seems to be taking a wait and see approach.Lesaka: our number down from one hundred and twenty to about one hundred rand, but still a very deep discount even with our decade ahead average growth projection trimmed from twelve percent to ten. The next quarter will hopefully give us some more confidence. Exemplar: intrinsic value here down from thirty-four to about twenty-nine rand, as the projected growth has been trimmed from twelve-and-a-bit percent to ten. Still good value especially looking at the market opportunity, but less spectacular for the moment.The pattern is interesting. The two American companies are accelerating, and we're raising or holding our valuations in the wake of the latest numbers. The two South African companies are slowing, so we're being more conservative. Own the thing that's speeding up at a fair price rather than the thing that's slowing at a hopeful one.And a reminder of what these numbers are for. Intrinsic value isn't about being right to the last rand. It's about forcing us to say what we believe about growth, and noticing when the facts move. This week, the facts moved.That's the Edge for today. You’ll find the portfolio details updated 24x7 on BizNews.com. I'm Alec Hogg. Until next time.

BizNews Ricardo Portfolio update: Palantir, Uber, Lesaka, and Exemplar

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