Independent analyst Mark Hibben says Apple is still way out ahead of the pack, but needs a bit of a management shake-up

Apple. Picture: REUTERS
Apple. Picture: REUTERS

Mark Hibben is an independent analyst.

BUSINESS DAY TV: The iPhone is a decade old this week and its inception revolutionised the smartphone industry — but that was 10 years ago and the competition has stiffened. So, is Apple still an attractive investment destination, and will CEO Tim Cook deliver on his promise of more technological breakthroughs?

We’re joined on the line by independent analyst, Mark Hibben to discuss that. Mark … so where does your rating sit when it comes to the iPhone and its success as a consumer product? Are we looking at the most successful consumer product of all time, as some would put it?

MARK HIBBEN: There’s been an ongoing … concern about whether iPhone has peaked out [in terms of] sales. I don’t think it has. In fact Apple’s Macintosh hasn’t really peaked out in any discernible way in terms of sales. So I still believe there’s a lot of room for growth in Apple. It may not be apparent this year but in the long run there’s still plenty of growth ahead.

BDTV: Since the phone’s birth the market cap of Apple, according to Google Finance, has gone up 870%. That’s nearly a ten-bagger in 10 years — which, as most investors know, is an exceptional feat. Valuations now … where does that sit in your books?

MH: Actually in terms of price-earnings ratio Apple is not valued exceptionally high, whether you look at a trail of 12 months multiple or a forward P-E, so I believe because of the low valuation investors can probably still look forward to growth. I don’t see anything that intrinsically limits Apple’s growth, and there are potential new products on the horizon that could add revenue to what Apple already has.

BDTV: You talk about adding to growth, new technologies. It certainly has a supportive balance sheet — a $240bn-odd cash pile that it’s sitting with — and if you factor that into the equation, some are calling it pretty exciting metrics.

MH: Actually the overseas cash looks like it is serving to accumulate the stock price in the near-term, that’s probably primarily the Trump effect. Now that Donald Trump has been elected he is promising to lower the corporate tax rate in the US substantially, to 15%, as well as institute a one-time-only repatriation rate of 10%, and that would be very attractive for Apple and Apple’s investors.

I worked it out, it looks like if Apple repatriated roughly half of its overseas cash it could amount to a dividend for investors of roughly $18 a share. Now it’s not clear that they’ll pay that all out at once, but it’s still a pretty attractive dividend rate.

BDTV: All of that being said, some have put it out there that there isn’t a single instance where Apple’s management has demonstrated the level of clarity [Steve] Jobs displayed when he was at the helm, and I picked this up from a document on Seeking Alpha earlier today. What do you make of that kind of commentary, and are you convinced by management that it is actually leading the future here?

MH: Yes, as a matter of fact I wrote much to that effect in some of my recent articles. What I’ve talked about is a need for a product architect. When Jobs was in charge he was the product architect for Apple. He directed the R&D efforts to develop new products, he identified the key markets and he kind of put his imprimatur of his taste and sensibilities on Apple’s product line. You just don’t have that kind of a personality in charge of Apple now. Tim Cook is a very capable manager but I still believe that Apple does need a unifying vision with respect to its products that it’s not getting that from Tim. And I do believe there is a need to make some changes in Apple’s management in order to unlock the growth potential of Apple.

BDTV: If you take into consideration the competitive landscape right now — as mentioned earlier, very different to what it was 10 years ago … that competitive muscle [needs] to be worked on even more.

MH: There certainly is a lot of competition in the smartphone space and in computers but it is worth noting that all of Apple’s competitors have basically been chasing Apple and to the extent that they’ve caught up, they have become stronger competitors as a result. Apple just needs to push the boundaries forward and I would agree that we’re not seeing Apple do that right now. In fact what we’re getting from Apple is a stream of very evolutionary products that don’t really break new ground, and that is the problem that Apple has right now.

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