NUR November 2021 Edition

Page 1

Contents Page

3 Page


Quick Take on Iberian Markets

Norway: Government Pension Fund Global



Inflation, or Deflation?


Business Deep Dive: Blackline

10 Page


NIC-UD Fund: Monthly Performance


Quick Take on Iberian Markets Miguel Amaral Portugal’s State Budget was rejected on October 28th, in an unprecedented political friction. The State Budget presented by Partido Socialista (PS), led by the current Prime Minister António Costa, was rejected having registered 117 votes against, with 108 in favour plus 5 abstentions not being able to shift the tide. After weeks of negotiation, trouble loomed when far-left allies of PS deserted the party, namely Bloco de Esquerda and Partido Comunista Português. Now, it is up to the President, Marcelo Rebelo de Sousa, whether to call anticipated elections. However, he was recently quoted seeing “positive consequences” in going forward with the aforementioned elections. Spain’s economic recovery slows due to slips in household consumption. Spain’s GDP remains below pre-pandemic levels, still trying to recover from the Covid-induced drop. Despite highlighting great momentum in previous quarters, economic recovery slowed in the Q3, with a real GDP growth of 2%, slower than the 2.7% predicted by analysts. This was heavily related to the slip in household consumption, albeit the country’s high rates of Covid-19 vaccination. Important to mention is that in October, core inflation was 1.4% in Spain, the highest rate in nearly 30 years, threatening living standards. What remains to be seen is how rising energy prices will affect it further, added to the worldwide supply chain disruptions seen recently. Spain pressures Algeria to guarantee natural gas supply. With energy prices soaring, and winter coming up, Spanish authorities have raised all alarms to find a solution to the imminent closure of the Maghreb-Europe Gas Pipeline (MGE), a major source for the peninsula. Spain imports from Algeria over a third of the natural gas it consumes in a year, and thus have sent Spanish ministers to meet with Algerian officials twice this month. However, Algeria has mentioned it will not renew the agreement that has kept natural gas flowing to the Iberian Peninsula, given the deterioration of Algerian relations with Morocco. One solution would be to expand Medgaz, a second Algerian pipeline, but the timing is far from perfect, and Spain is already suffering from surges in prices.

Greenvolt, the recent PSI-20 member, acquires 42% of Perfecta Energia for an undisclosed fee. Perfecta Energia is a Spanish company that works in efficient energetic solutions, such as Solar panels for auto consumption. Greenvolt assures the possibility of acquiring the company in full, something that is not out of the question for the foreseeable future according to the management team. What drove Greenvolt to make the acquisition official was Perfecta Energia’s contribution towards a more decentralized model of transition to renewable energies, through small installations for the average consumer. IBEX 35 with 1.68% growth in October, highlighting strong fluctuations. The index reached 9018.20 points, driven by strong increases by Acciona (+16.61%) and Solaria Energetica (+23.36%). However, strong fluctuation was felt throughout the month, induced by 15 members having registered decreases between 0.5% and 10%, namely Grifols (-9.94%), a pharmaceutical company, due to frictions in business volume. PSI-20 reached 5743.10 points, in a 6.10% increase in October. EDP (+12.51%) and Greenvolt (+14.43%) drove the increase, followed by The Navigator Company (+11.33%). Greenvolt, the latest addition to the index, registered the highest increase in the month following an IPO in Portuguese history, driven by its acquisition of Perfecta Energia. On the flipside, Galp Energia highlighted the strongest decrease at 8.27%, mainly due to the energy crisis felt throughout Europe. S&P Global Ratings reaffirms BCP and Banco Santander Totta’s ratings. Banco Comercial Português (BCP) saw Standard & Poor’s keep a ‘BB’ rating for long term and ‘B’ rating for short term. Banco Santander Totta kept the ‘BBB’ long term rating and ‘A-2’ for short term. According to Standard & Poor’s, the recent restructuring by BCP in Portugal will drive its efficiency upwards, while Santander Totta kept its rating given S&P’s projection for profit recovery in the following 12-18 months. 3

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Norway: Government Pension Fund Global

Guilherme Santos

A local solution with a global impact History In 1960, the government led by prime minister Einar Gerhardsen claimed sovereignty over the Norwegian continental shelf. It was the beginning of the approach to petroleum resource management following strict guidelines intended for long-term growth. Six years later, the exploration started with licenses awarded to international oil companies that kicked off the drilling process in 37 distinct locations. Not until 1969 was the first oil field found in Ekofisk. Following this discovery, the Ministry of Finance submitted the parliamentary report “The role of petroleum activity in Norwegian society” discussing how the wealth generated from oil exploration should be used to benefit society. In 1983, the Tempo Committee, chaired by former Norges Bank Governor Hermod Skånland, submitted a report proposing the creation of a fund where the government could store the current temporary rush of oil revenue and spend the real return. As a result, in 1990, the Parliament passed a law establishing the Government Petroleum Fund. Effectively, the structure of the fund was and is based on regular transfers of capital from the government’s petroleum revenue to the fund, being its core purpose supporting the long-term management of petroleum revenue. Additionally, it also envisioned giving the government room for manoeuvre in fiscal policy in case of oil prices drop or mainland economy contraction. The investment destination should always be outside Norway to prevent the economy from overheating. In 1996, the fund received its first capital transfer that built up to NOK101,544,321,291 ($22,081,133,151 in today’s value) in the following year with all the capital invested in government bonds. In 1998, the Norges Bank Investment Management was created to manage the fund on behalf of the Ministry of Finance. With the beginning of the new century, ethical guidelines for the fund were established, and the Government Petroleum Fund changed its name to the

Ricardo Freitas

Government Pension Fund Global. Five years later, due to a strengthening of the world major currencies against the US dollar, combined with strong equity markets, the Government Pension Fund Global value hit $1tn for the first time. By 2019, half of its market value was from returns on the investments, thus no longer being majorly dependent on capital inflows from petroleum revenue. Additionally, the Q1 of 2019 was the best quarterly return. More recently, in 2021, the sovereign fund conducted its first investment in unlisted renewable energy infrastructure, representing a vital change in the ethical guidelines and investment strategy. The Fund's market value was NOK11,673bn at the end of the first half of 2021. Its value resulted from returns on investments (NOK7,417bn), government inflows (NOK2,942bn) and currency gains (NOK1,369bn). Note that currently $1 is equal to NOK8,7.

Structure & Organization The Governance Structure is designed to ensure that decisions regarding the investment’s framework, risk and return are overseen by the Norwegian Parliament. Additionally, it is planned to guarantee that there is sufficient delegation of authority to ensure that operational management decisions are made close to the markets. The structure is composed by the Norwegian Parliament, the Ministry of Finance, the Executive Board of Norges Bank, Norges Bank Investment Management (NBIM), and internal and external managers, by hierarchic order respectively. Effectively, the Norwegian Parliament has laid down the formal framework for the fund in the Government Pension Fund Act, while the Ministry of Finance has overall responsibility for the fund and and issues guidelines for its management. The role of effective management of the fund is attributed to the Norges Bank, while NBIM is responsible for managing it while safeguarding and building financial wealth. 4

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The Unlisted Real Estate Investments cover 14 countries in Asia, Europe, and North America, focusing on office, retail, and logistics properties. The first investment in this investment area was made in 2012 in London. The fund has a maximum of 5% that can be invested in this area. The Unlisted Renewable Energy Infrastructure Investment category was only created at the beginning of 2020, with its first investment on the 7th of April of the following year. The fund has a maximum of 2% that can be invested in this area.

Mission & Values There is a broad political consensus on how to manage the fund. Effectively, the Norwegian Government can only spend the real return, estimated to be around 3% per year, the fund’s capital can be neither accessed nor spent. Budget surpluses are transferred to the fund, while deficits are covered with money from the fund. The core objective is to distribute the current wealth derived from oil exploration across generations, thus benefiting both present and future generations. Furthermore, the Government Pension Fund Global enables the Central Bank to stabilize the Norwegian economy.

Composition The oil fund assets are divided into four categories, namely Equities, Fixed Income, Unlisted Real Estate and Unlisted Renewable Energy. At the end of the first half of 2021, the respective market value was NOK8,452bn (72.4%), NOK2,925bn (25.1%), NOK281bn (2.4%) and NOK14bn (0.1%). Regarding geographical distribution, Equity investments cover 69 countries with more than 9000 investments. Fixed-Income Investments extend through 45 countries with 1245 investments. In the table below, one can see the exposure in each asset class to the different regions. It is worth mentioning that the data below does not account for cash and derivatives, hence why the values do not add up to 72.4% and 25.1% respectively.

Looking Forward Not only is the Oil Fund a vehicle to wealth creation but also a driver of global impact. It embraces one of its fundamental standards, Responsible Investment, through a set of 8 principles that must be satisfied, namely Children's Rights, Climate Change, Water Management, Human Rights, Anti-Corruption, Biodiversity and Ecosystems, Tax and Transparency and Ocean Sustainability. Besides having a positive contribution to society, both socially and environmentally, this ethics panel enforces maintenance of a long-term investment strategy as it focuses on the topics at the forefront of tomorrow's debate.

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Inflation, or Deflation? The question of our time António Gouvêa

Introduction As Investors, we always try to understand how short and long-term macroeconomic trends affect market developments by applying theory we so tirelessly study on to the outside world. However, the relation between theory and reality is often a highly complex one. Since the intricacies of monetary dynamics are so vast and hinge on so many factors, to understand theory we must simplify, take a slice of the grand and puzzling picture which is macroeconomics. More often than not, this creates discrepancies between the interpretation of data and its realisation in real economies and markets. Due to a lack of critical and temporal distance (and the lack of PhDs in Economics for that matter), it is easy for investors to be biased of certain opinions and consensus on what the future of the world economy might look like. A prime example of a majorly polarizing topic in Finance is Inflation: How it is developing, what are the likely reactions of Central Banks and their consequences, and the impact this will have on the world economy. The debate between all these factors is a grand one, and it is set to be one of the defining paradigms which will define the behaviour of capital markets for the foreseeable future. The intuition behind this article is not to achieve a miraculous breakthrough on the interpretation of monetary policy, nor is it to defend a position of a keen economist or investor. It is, instead, to shed light on this much-heated argument, the discussion between Inflation or Deflation.

reinforced its efforts on it was doing since the 2008 financial crisis, injecting broad money into the economy.

According to the quantity theory of money, as price levels are given by money supply times velocity over output, one would expect that such a large increase in the monetary supply caused by an expansionary monetary policy, like the Covid-19 quantitative easing programs, would vastly drive price levels in an inflationary course. And, if we look at price levels, this already seems to be the case. The US Consumer Price Index (CPI) has risen sharply in the past months, currently at a new decade high of 6.2% YoY inflation rate. The October CPI increase represented the fastest annual pace since 1990, and a sharp increase from September’s levels of 5.4%.

Money and Pandemics Never in history, have Central Banks been so expansionary in dealing with an economic recession, in the US alone the Federal Reserve has more than doubled its balance sheet from prepandemic levels, and is estimated to reach $10tn by the end of 2021. This had led to a major augmentation in the money supply (M2), which during just one year rose by 26% in the US, as the Federal Reserve 6 NIC Undergrad Review

Supply Chain Bottlenecks In 2019, before the Pandemic, the cost of sending a container from China cost around 2500$, today that same container needs around 15000$ to be shipped. This simple, but telling figure illustrates one of the most important macroeconomic phenomena shaping the current global economy: Supply-Chain disruptions. The Pandemic came to disrupt both supply and demand, by shutting down factories and enclosing people at home. The consumer pattern shifted. People spent more money on goods rather than services, creating an imbalance of quantities searched and available in the market. Stimulus and other government interventions only insinuated this unbalance, promoting spending and therefore demand. This recovery appeared to be far faster than supply, which told a different story. Lockdowns across Asia continue to limit production to this day and transportation companies had to restructure their operational models, exponentially increasing the price of commodities, production components, and transportation. Unsurprisingly, this phenomenon has been driving Consumer Prices on an upward trend. And despite the slump of shipping costs in the past few weeks, it is still considered to be one of the main forces behind current inflation acceleration. Eventually, through market adjustment, these bottlenecks are expected to be resolved, and the inflationary pressures ease off. However, with new Covid-19 strains, contagion peaks, and Lockdowns occurring sporadically across the world, it is uncertain when this will happen.

there is no consensual timeframe when this will happen, places another argument in favour that the inflation might not be so " transitory" after all. Yet, it is important to note that Corporate Margins are getting squeezed by these bottlenecks, as input prices increase. Companies have then to decide whether to pass on this inflation to consumers, contributing to effective “real” or structural inflation, or letting their margins dimmish. The dangers of the first scenario come as demand might not have recovered from prepandemic levels as expected, meaning that this inflation without real economic growth would lead to a shock in demand (stagflation). In the second scenario, a decrease in margins comes with layoffs and/or declining profits, which ends up affecting aggregate demand in its way. Possibly creating disruptive shocks in an all-time-high equity market due to earnings erosion. Both scenarios look grim, and the truth is that Central Banks cannot do much to avoid them since these shocks are mainly due to supply shortages, which they cannot control. What the Central Banks can do is reduce the current stimulus (tapering) to try and combat this “shortage” inflation, not knowing for certain when it will end. Central Banks of countries like the US, Australia and Canada have already announced tapering, but in a world where economic growth is not recovering as expected, the economy may not be able to “hold on its own” and the decrease in demand following an interest rate increase might cause great problems for households and companies.

Lack of real economic growth

Whether or not inflation will greatly decrease with the resolve of Supply-Chain disruptions, given that

In the US and particularly in the equity markets, there is this sense that the economy has fully rebounded from the depths of Pandemic levels. And in some sense, this is true. Real GDP is expected to grow 6.9% in 2021 (OECD) and the labour market continues to gradually recover from the pandemic hit, helped by a surge in demand for labour, with record levels of job openings. Consequently, the unemployment rate has been steadily decreasing to around 4.6% (although still above the pre-crisis level of about 3.5%). However, when analysing these values further, we realize that they show a concerning tell. All-time highs in job openings imply that business cannot highgggg

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cope with the wages demand of the labour force. Consequently, the unemployment rate is falling not because more people are becoming employed, but instead because people are dropping out of the search for employment, which is why the labour force participation rate has plummeted. As Jeffrey Snider of Alhambra Investments puts it:

“It is not a labour shortage when businesses say they want more workers but won’t or can’t offer nearly enough for those prospective employees to come off the side-lines. Not a labour shortage but an economy shortage.” If we consider tapering unlikely until the economy reaches full employment (that is, reaches a steady state) what the labour market implies is that the US economy continues to show signs of weakness, and the end of the money pumping is not currently due.

injection from the vast expansion of the Central banks’ balance sheet is not filtering through into the real economy as expected, being “held up” at commercial banks and consequently affecting prices. Since the financial crisis, banks have been reluctant to loan large amounts of their excess reserves, preferring to hold large amounts of Fiat money and deposits at the Central Bank, even if paying a premium to do so. Velocity has been sharply decreasing through time, implying money is exchanging hands increasingly less frequently and therefore reducing the effectiveness of monetary policy and reducing price inflation. It is important to note that this applies mainly to goods and not asset inflation. In fact, most of the money proposed to stimulate during the economy ended up placed into equity markets, which have soared to all-time highs even in the days were nationwide lockdowns were in effect.

Debt Monetisation Influence Ineffective Monetary Policy According to the quantity theory of money, as price levels are given by money supply times velocity over output, one would expect that such a large increase in the monetary supply (proportional to the money base) caused by an expansionary monetary policy like the post 2008 quantitative easing programs would vastly drive price levels in an inflationary course. However, we can see in the graph below, across the past years this has not been the case. In reality, over the past decade, the money



At a political level, there are several incentives for delaying tapering. For instance, debt monetization allows unprecedented amounts of money to flow into government budgets and the economy, a prime example being the European Asset Purchase Programme (APP). And the rollback of such programs would have to be replaced with more conservative government spending and deficit control (as new debt would have to be issued at higher interest rates). While expansionary monetary policy serves, in the short run, as an oxygen supply for intensive fiscal spending, in the long- run, there are also political highggggggg

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incentives for high inflation that could play a key role in the long series of tapering decision that are to come. Inflated consumer prices are also associated with inflated tax revenue and thus increased government budgets. And although public spending likewise subject to inflation (albeit not always in a synchronous matter), old government debt levels remain constant. Consequently, this allows for governments to “Inflating the Debt away” and diminish its weight on nominal GDP, all without the need for austerity measures. Of course, whether or not this will factor in the decision of raising rates lies on your belief if Central Banks are fully independent or not, but that is a question for another time. Cannot follow a similar pattern (although not always in a synchronous matter) to tax revenues, old government debt levels remain constant. Consequently, this allows for governments to “Inflating the Debt away” and diminish its weight on nominal GDP, all without the need for austerity measures. Of course, whether or not this will factor in the decision of raising rates lies on your belief if Central Banks are fully independent or not, but that is a question for another time.

Bond yield curves All that being said, it is important to analyse what the market is telling us about inflation. With the current bonanza on equity markets, which seem more and more detached from the economic reality, looking at the bond market we can try and figure out some indicators of how the market expects the world will look like tomorrow. Importantly, the yield curve is flattening as the spread between the 10-Year and the 2-Year dropped below 1%, after peaking at above 1.5% during the pandemic. This is a key indicator that investors are significantly less worried about longterm inflation expectations across the market. Central Banks across developed economies (such as the US) have already started to make decisions

to scale back their stimulus programs. Consequently, for the past days, we have seen an accentuation of the increase of 2-Year Yields, as the market priced in the scaling back of bond purchases. The long end of the curve, however, which moves with inflation expectations and economic growth, has not moved much. This indicates the market might be hedged only for short-run price pressures whilst longer-run inflation expectations remain well-anchored in the same disinflationary stance as was the case for more than half a decade.

Conclusion The question is not whether consumer price levels are going to increase since inflation is already in decade-long highs, but how are they going to behave once current short-term inflationary effects wear off. On one hand, the large expansion of the money supply, accoupled with strong political incentives for low-interest rates are set to drive Consumer Prices on an upward trend in the next years. On the other hand, the apparent insufficient real economic growth, and the historical ineffectiveness of monetary policy in generating inflation indicate us otherwise. In the meantime, Central Banks will have some tough decisions to make. They will have to manage their very particular situations, balancing the risks of hyperinflation with economic growth. If tapering is done too early, they risk the economy not having recovered sufficiently from the Pandemic and is not able to stand on its own two feet, which would have major implications for the wider economy and capital markets. If it is done too late, they risk inflation levels becoming unsustainable for households and companies.

U.S. 2Yr/10Yr Spread (1 month)

Source CNBC

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Business Deep Dive: Blackline Inc.

João Serrasqueiro Founded by Therese Tucker and business that aims to simplify and manually or through spreadsheets. fundamental accounting processes receivable and financial close.

Rui Coelho

headquartered in Los Angeles, Blackline is a Software-as-a-service automate accounting processes that otherwise would be performed With its cloud-based software the company provides solutions to such as account reconciliation, intercompany accounting, accounts

Markets Intuitive Blackline is listed in the NASDAQ under the ticker (BL). The company went public in 2016 closing its first day of trading at $23.70 per share after being priced at $17 per share. The stock has risen over 370% since its IPO giving it a 34.66% CAGR over 5.2 years. The bulk of this return came after the 2020 market crash, with stock prices hitting a low of $38.22 in March 2020 and peaking at $152 in February 2021, leading to a fourfold return in just 11 months. The shares have since then declined, hitting a year-to-date low of $100.14 in March and then recovering to $127.77 over the following six months, still trading below their all-time high. With investors recognizing the potential demand for Blackline’s services, the stock has had outstanding performance. Not all of this return can be attributed to the improvement of the fundamentals in the business as the price to sales multiple has expanded from 11.6, at the time of the

IPO to 18.3, while sales have increased roughly 130%. This implies that, today, the average investor views the prospects for the company more favourably than when the company first went public. As of November 2021, Blackline’s shares are mainly held by institutional investors with the largest holder being Vanguard. 11.2% of the shares are currently held by insiders. However, insider ownership was as high as 22% at the IPO, signalling that insiders are not as optimistic on the stock as the average investor. Company Data Price (USD) 52-week range (USD) Shares Outstanding(M) Market Cap(Bn.) Enterprise Value(Bn.) P/S ratio

127.77 98.06 – 154.61 58.7 7.505 7.457 18.3

Source: Bloomberg

Price Performance

Source: Bloomberg

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Industry Overview 100% 80% 60% 40%





ER Su P pp ly ch ain En gin ee rin g

Se cu riy


Source: Bloomberg

5% 5%


Co lla bo ra t iv

SaaS market breakdown


0% e

Intuitive Blackline is inserted in a niche sector of the SaaS market. With its cloud-based application, it concentrates most of its business within the Enterprise resource planning (ERP) sub-industry, which accounts for ~14% of the SaaS market when broken down by application type according to the market intel igence firm IDC.

Cloud penetration by functional market (%)

2019 Market size $149 bn.

The research firm IDC estimated that the average penetration of cloud in the SaaS market was 41% and that for ERP was just a little over that at 46%. Such low penetration is expected to reverse, and after the Covid-19 pandemic, the rate of this transition is expected to happen at an even faster pace. This increase in penetration added to the higher spending in SaaS ERP applications forecasted by IDC yielded a total spending on SaaS of ~$277 bn in 2024.



11% 12%

Cloud ERP market spending forecast



Content workflow


Collaborative Production

Security System & Service mgmt.

Billions (USD)


60 50 40 30

The future of Cloud

20 10 0 20 16 20 17 20 18 20 19 20 2 20 0 21 20 E 22 20 E 23 20 E 24 20 E 25 E

But even inside the ERP sub-industry, many firms operate in different segments, Blackline provides its services within the Finance controls & Automation sector. The firm faces little to no competition in its market and is operational in 46% of fortune 500 companies.

35% 30% 25% 20% 15% 10% 5% 0%

Source: Bloomberg

Company overview

The trend of cloud adoption had great prospects even before the Covid-19 pandemic. The need for firms to adapt to an ever-increasing digital reality highlighted the need for structural changes, many of which cloud technology could facilitate such as security and flexibility. Still, cloud adoption is low in much of the SaaS market segments, including the ERP sub-industry, in which Blackline operates.

Business strategy & Products

Blackline provides accounting automation solutions through cloud-based applications. Many accounting processes today are still composed of repetitive, error-prone tasks. Spreadsheets and manual number-inputting are common practices among large enterprises all around the US, and high 11

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Blackline built its business model based on the dire need for. The company currently has 3 core solutions: Financial close management, accounts receivable automation, and intercompany accounting. Financial close is comprised of all processes by which enterprises reconcile, consolidate, and report their financial information at the end of each period. The possibility to automate the financial close reduces the possibilities of accounting mistakes and makes it more productive. Among the solutions offered by Blackline to assist in the Financial close are Account reconciliations, transaction matching, journal entry, and compliance among others. The accounts receivable automation solution transforms the order-to-cash cycle by pairing the cash receipts to open invoices in the ERP. By doing this the system reduces the amount of unapplied cash and increases the amount of working capital. Finally, the third core solution offered by Blackline is focused on intercompany accounting. Automating processes such as intercompany workflow and processing. Such solutions allow for CIOs and CEOs to have a better understanding of their company as a whole, considering transactions between other companies and subsidiaries. Blackline follows a business model in which it leverages partnerships with SAP and other collaborators to implement their solutions, as their client base grows, they focus on implementing additional solutions in their already existing clients. In that way, Blackline manages to better monetize their existing clients while benefiting from networking effects promoted by their clients and partners. The positive impacts of such strategy can be translated by their dollar-based net revenue retention rate, which in 2019 was 110%. It fell to 106% in 2020 but already increased in the LTM 3Q21 to 108%. Rimilia acquisition

Another core pillar of Blackline’s growth strategy is through focused acquisitions to broaden the services it can provide to each client. Such is the case of the acquisition of the United Kingdombased accounts receivable automation firm Rimilia in October 2020. The deal valued at $150m, provided Blackline with much of one of its core solutions, the accounts receivable automation.

Sap Partnership & sales strategy

Sales & marketing efforts are performed through a direct sales force that leverages relationships with ERP providers such as SAP and NetSuite, consulting firms such as Deloitte, Ernst & Young, and KPMG and business process outsourcers such as Cognizant, Genpact and IBM in order to drive costumer and revenue growth.

Performance Analysis Income Statement

Blackline’s income statement has shown improvement since going public. Revenues have increased 28.33% per year on average, going from $124.2m in 2016 to $406.1m in the last twelve months. As Blackline develops new products and demand for more efficient accounting accelerates, revenues are expected to continue increasing at high rates. Gross profit margins have also improved from 75% to 83%. These very high gross profit margins are in line with the industry as software-asa-service businesses tend to have low costs of goods sold. Blackline benefited from the impacts of homeoffice and digitalization caused by the pandemic, increasing sales in a time most companies suffered substantial declines in revenues as more companies looked for more efficient accounting systems. Although the topline has been rapidly improving the company is still unprofitable. Millions (USD)

Income Statement




-5% -10%





0 -100







-25% -30%

Operating Income

Operating Margin Source: Bloomberg

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Most of the operating expenses have not benefited from significant economies of scale yet and are still a large percentage of revenues. It is, however, worth noting that some of these expenses are related to investments in new projects that are not capitalized. Operating income was positive for the first time in the quarter ending on September 30, 2021, and it is expected that the bottom line will improve significantly over time as the business scales. Balance Sheet

The company added $384m in debt to its balance sheet in 2019, and $689m in 2021. Before issuing this debt, the company had no long-term debt whatsoever. Out of this debt, most of it is through convertible senior notes. Most of this new debt was used to invest in marketable securities while a significant portion was kept in cash on the balance sheet. At the end of Q3 2021 the company had $378m in cash and $799m in marketable securities. Taking into consideration these are highly liquid assets we can expect Blackline to eventually deploy this capital to finance growth opportunities as the business doesn’t generate enough cash flow to do so on its own. This new debt has pushed the debt/equity ratio to 305% and added new interest expenses that the company isn’t currently able to fully pay with earnings generated from the business. While liabilities have been increasing, book value per share is still roughly the same as when the company went public. Millions (USD)

goodwill and intangibles making up most of the long-term assets. Statement of Cash Flows

Blackline has reported positive free cash flow since 2017, having increased 2550% since then. Operating cash flow has risen more than tenfold since 2017. It is however worth looking at some of the free cash flow adjustments. Stock-based compensation is a significant expense that is added back since it is not a cash expense. However, it represents considerable dilution for the shareholders and the company’s share repurchases are not enough to offset this dilution. We expect operating cash flows to continue to greatly improve as Blackline invests more capital in new projects. There were cash outflows from investing activities of $400m in 2019 and $700m during 2021. These new investments were financed with newly issued debt as previously mentioned. In 2020 Blackline acquired Rimilia, an AI-powered cloud-based platform that enables accounts receivable automation and digital transformation for $150m, showing up as a considerable investing cash outflow for the year.

100 0 -100




800 400 200 0 Assets





-400 -500 Operating


Source: Bloomberg


Peer analysis

0% 2018








Balance Sheet



Cash Flows

Millions (USD)



Debt to Assets

Source: Bloomberg

As a software company, there are not any significant PP&E investments being held, with highhhhhhhhhhh



As previously mentioned, Blackline operates in a very specific sub-industry within the SaaS ERP market. Given the firm’s position within the industry, any peer group selected won’t be able to provide a close comparison. The peer group used encompasses most players 13 highhhhhhh

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Mkt Cap


Blackline Workday Veeva SPS commerce SAP SE Salesforce Oracle Okta Coupa ADP Anaplan Adobe Average

$7.52 bn $73.52 bn $48.74 bn $5.27 bn $175.48 bn $300.21 bn $255.71 bn $40.57 bn $15.96 bn $97.31 bn $8.96 bn $312.89 bn $61.13 bn

18.33 15.39 29.05 14.34 5.37 11.99 6.58 34.96 24.15 6.38 17.17 20.83 16.28

EV/ est sales 14.56 11.91 21.3 11.4 5.57 9.65 6.8 23.37 19.51 5.77 12.1 17.09 12


Quick ratio

Cash ratio

63.24% 23.40% 1.75% 3.48% 23.91% 17.79% 67.29% 22.24% 51.76% 5.80% 7.60% 17.92% 20.08%

5.01 0.98 3.84 3.03 1 0.79 1.9 2.97 0.74 0.09 1.05 1.25 1.15

4.6 0.77 3.41 2.65 0.65 0.55 1.7 2.71 0.58 0.03 0.76 1 0.88

Source: Bloomberg

in the SaaS ERP market and some of the human resource management sub-industry. From the price to sales ratio, we can observe that Blackline is valued slightly above the industry average at 16.3, such can be explained by the fact that Blackline beat earnings estimates for more than 4 quarters in a row and shows investor confidence on the firm's ability to earn new revenues. As discussed in the balance sheet analysis, Blackline has acquired new debt in both 2019 and 2021 to support its growththrough-acquisitions strategy, its Debt to total assets ratio is way higher than the industry average of 20.08% but since most of this cash hasn’t been applied yet and instead invested into liquid marketable securities, it does not pose any liquidity risk. The cash and quick ratios are further evidence of such surplus of cash, both way higher than the industry average at 5.01 and 4.6 respectively.

Outlook Blackline benefited a lot from the sped-up transition to a more digital environment brought up by the Covid-19 pandemic. Its unique positioning within the Cloud ERP SaaS sub-industry allows for almost no competition, meaning that the firm still

have some time to cement its position and broaden the services provided. There are still opportunities in the market as cloud still has low penetration. The announcement that SAP would also start transitioning its strategy from legacy to cloud also benefits Blackline since SAP is its largest partner. All in all, both the industry and Blackline itself have strong long-term drivers. Strong financials and the constant positive earnings surprise are a strong argument for Blackline’s momentum. As revenue increases, either through new clients or new revenue streams derived from additional products and services provided, Blackline will be able to leverage its high gross margin to invest in its operating costs in order to further grow. Focus on R&D either through direct investment or through strategic acquisitions have benefited the firm in the past, and the increasing focus on such strategy is viewed positively by us. Like most technology companies, its valuation is highly correlated to interest rate movements as most of its expected cash flows are due to occur in the future. Such risk must be considered, although we believe that the long-term drivers far outweigh the medium to short term risks that a high inflation environment may pose.

14 NIC Undergrad Review

NIC Fund: Monthly Performance Supply chain bottlenecks, soaring energy prices and persistent inflation were not enough to drop the market’s mood

Hugo Weber

Global Markets Global Markets After a slow start in the month of October, the equity market reversed the previous contraction, as growth rates almost mirrored those of September. US stocks climbed to record highs, supported by a strong start to the Q3 earnings season, with more than 80% of companies beating earnings expectations, which helped to drive the S&P 500 to a new peak. Chinese indices bounced back, partially as the troubled property sector has shown progress. Energy prices moved to record highs as a result of the combination of a supply constraint and a strong demand. Also, before the Russian President Vladimir Putin ordered the Russian state-run gas exporter Gazprom to start filling its European storage facilities, the price of natural gas jumped by 60%. Fixed income market showed irregularity, as a

merger of persistent bottlenecks in the global supply chain and booming energy prices are contributing to longer-than-expected inflation worldwide, which is not showing signs of slowing down (Inflation in the Eurozone rose to 3.4% YoY, Germany above 4% YoY, US 5.4% YoY). For instance, the pressure regarding supply chain bottlenecks is something to be aware of in the short-run, as November and December are months when demand for goods increases and, historically, people are more willing to spend a higher share of their income than in the previous months. At the end of the month, the Federal Reserve confirmed tapering plans, kickstarting the process in the middle of November and concluding it by mid2022, although still rejecting the necessity to increase interest rates in the close future.

Current Positions Currently, our cash position weights almost 15% of the portfolio, while an increase is expected by the beginning of November due to an injection of liquidity by the members. The destination of this cash is still up to discussion and evaluation, while we look for opportunities that fit into our long-term value investing philosophy. The best performers for this month were Pacific Gas and Electric Company (PGC), 20.83% , Nextera (NEE), 8.67%, and Blackline (BL), 7,46%, while the ones which performed the worse were Gilead (GILD), -7.12%, Facebook (FB), -4.66%, and Danone (BN), -4.57%. Nº

Positions Weight on Total Equity



14,00% 5,49% 3,93% 5,62%





7,23% 4,07% 3,69%

5,66% 3,65% 5,66%


Entertainment US Internet US Pharma US Utilities Gaming ETF Electric Batteries ETF Consumer Products Gold Miner Renewables Pharma Retailer US Sovereign China Bonds Aero & Defense Tobacc o UK Oil & Gas US Ac counting Software Cash



Streaming/Entertainment US Equity

Current Price Open Price $169,17









US Equity




Accounting Software

US Equity




Social Media/Internet

US Equity





US Equity





US Equity




EV Battery





Consumer Products

EU Equity

€ 59.05

€ 56.35


Gold Miner

CND Equity




Pharma Retailer

US Equity




Sovereign China Bonds

Bond ETF




Aero & Defense

UK Equity





UK Equity




Oil & Gas

US Equity



15 NIC Undergrad Review

NIC-UD Share Price (Inception Cumulative Returns) 9% 8% 7% 6% 5% 4% 3% 2% 1% 10/16/2021

20% 15% 10% 5% 0% -5% -10% St

1 k# oc


3 k# oc


5 k# oc



8 k# oc



10 k# oc


12 k# oc

Portfolio return vs Benchmarks 12%


10% 6,91%



6% 4%






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In October, most of the companies that publicized quarterly earnings releases have beat the market expectations. As already stated, 82% of the S&P companies presented earnings growth with an average beat of 9,7%. The result was the US market reacting positively, as the S&P 500 rose 6,91%. Fang+ index, which is composed of the biggest bluechips tech companies around the world, saw Tesla stock price rising 43,27% pushing the monthly return of the index up by 10,32%, being the best performing index in our selection of benchmarks. Chinese equities rebounded over October, suggesting that following several months of substantial underperformance, greater regulatory uncertainty may now be better priced in. Also, rising vaccination rates in Asia are enabling countries to gradually open. Europe kicked off the Recovery fund, as Spain and Italy announced their intentions to pursue expansionary fiscal policies. In the end, our portfolio’s share price increased 0.62% and has not outperformed most of the selected benchmarks.


Monthly Performance



Benchmark Analysis




Pr ice



0% 10/1/2021

Sh a

Corporate News

The first highlight is the sudden announcement that Facebook was changing its name to Meta in a corporate rebranding process. The company has also had better-than-expected results in its third quarter earnings release. Some of the results: Revenue of $29.01bn vs $29.57bn expected by analysts; EPS of $3.22 vs $3.19; Monthly active users of 2.91bn vs 2.93bn. Walgreen’s earnings top estimates, as the drugstore gives twice as many Covid-19 vaccines as expected, providing 13,5m vaccinations in the quarter and 34,6m in fiscal 2021; and delivering strong operational performance. EPS were expected to be $1.02 but climbed to $1.17 instead and reported a quarterly revenue of $34.26bn contrasted with $33.30 expected. Danone’s sales top estimates, with a total of €6.158bn in the quarter, contrasted with a predicted €6,060bn. The growth in sales came from steady increases in the European Market, with a 7% increase YoY, and a 4.9% increase in American and Asian markets. Blackline continued the momentum of the previous quarter, as post-pandemic companies saw a greater urgency in upgrading outdated back-office systems and improve financial processes. For the third quarter, EPS were -$0.02 whilst analyst consensus was -$0.16, and revenue increased 21% YoY, to $104.4m. However, FCF fell from $18.5m to $9.8m. 16 NIC Undergrad Review

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