BN 06/11 13:32 *GE COMMENTS IN E-MAILED STATEMENT ON SIEMENS-MITSUBISHI TALKS
BN 06/11 13:32 *GE `CONFIDENT' ON TALKS ABOUT ALSTOM ASSET ACQUISITION
BN 06/11 13:32 *GE SAYS `CONSTRUCTIVE DISCUSSIONS' CONTINUE WITH ALSTOM
BN 06/11 13:32 *GE `CONFIDENT' ON TALKS ABOUT ALSTOM ASSET ACQUISITION
BN 06/11 13:32 *GE SAYS `CONSTRUCTIVE DISCUSSIONS' CONTINUE WITH ALSTOM
*GE SAYS ‘CONSTRUCTIVE DISCUSSIONS’ CONTINUE WITH ALSTOM
2014-06-11 13:32:57.273 GMT
--LIBBY SALLABERRY
-0- Jun/11/2014 13:32 GMT
2014-06-11 13:32:57.273 GMT
--LIBBY SALLABERRY
-0- Jun/11/2014 13:32 GMT
“Show me the money!” improved capital allocation to drive returns
* Multiples high, but better capital allocation creates selective value
After 4.5 years of outperformance, the sector is down 3% ytd relative to the
European market driven partly by I/B/E/S consensus earnings revisions
(-11% for 2014 and -8% for 2015). 1Q14 earnings were lacklustre and
indications for 2Q14 show a slower growth trajectory for an advertising
recovery than expected. Despite a relatively high NTM P/E of 17.3x for the
sector, we still see selective value opportunities as repaired balance sheets
and more disciplined capital allocation should drive improvement in
structural outlooks and returns.
* M&A centre stage in pay TV, but limited elsewhere
In this report, we look more closely at capital deployment as a driver of
future growth and returns. We forecast €15bn of acquisitions in the next
five years, up from €10 bn in the last five, but see the focus as bolt-on
rather than transformational given: (1) integration risks in subsectors with
high personnel costs such as agencies and publishers; (2) ownership
restrictions in free TV; (3) market concentration in several TV and publishing
markets; and (4) blocking economic and voting stakes. We see consolidation
as most likely in European pay TV with BSkyB looking to acquire assets in
Italy and Germany and Mediaset exploring options for its pay TV unit.
* Greater cash returns to increasingly become a focus
With strong FCF conversion and a lack of major M&A opportunities, we
expect cash returns to increasingly become a focus. We forecast buybacks
to double in 2014-18 vs. the last five years and dividends to increase 83%
with overall cash returned as percentage of FCF rising from 46% to 57%.
Of the subsectors, we expect broadcasters to return the most cash.
* Key beneficiaries from uses of cash
We retain a 50% M&A weight in our valuation for SkyD (Buy) and add a
33% weight for Havas, which we upgrade to Buy. We expect greater capital
returns from ProSieben and DMGT (both CL Buy), Publicis (Buy), Vivendi
(NR) and Reed Elsevier (Neutral). We estimate more defensive capital
allocation at Pearson and Lagardere which we downgrade to Sell. Our top
picks remain stocks with several strategic options such as portfolio realignment
(DMGT, Mediaset), capital returns (ProSieben), restructuring
(Solocal) and cost savings (Mediaset).
SAP AG Awarded Contract by Shell for Cloud Services
- Shell has signed a long-term contract to help Shell extend ever more value from its current IT investments and help accelerate its transition to SAP HANA in the cloud. Shell is a longstanding SAP customer and this latest agreement extends the relationship between the two giants through the end of the decade.
- SAP will embed a team of experts into the Shell organization to work closely together with Shell to extend value from its current SAP environment.
Gapping down In reaction to disappointing earnings/guidance: BNNY -2%, UNFI -1.5%, I -1.5%, OXM -1.3%.
Select EU financial related names showing weakness: NBG -3.4%, UBS -1.9%, ING -1.8%, SAN -1.3%, DB -1%, BCS -0.9%.
Other news: OREX -15.9% (receives three month extension of FDA NB32 review), PVA -5% (announced proposed private offering of $250 mln of depositary shares representing convertible preferred stock), RCPT -3.7% (filed $150 mln shelf ), CTIC -3.2% (still checking), HLT -2.7% (files for 90 mln share common stock offering by selling shareholders), SN -2.5% (announces offering of 5 mln shares of common stock & private offering of $700 mln in Senior Notes), IDRA -2.3% (still checking), EXC -2.1% (plans to commence concurrent registered offerings of 50 mln shares of its common stock in connection with forward sales agreements and 20 mln equity units), STAY -2% (announced offering of 21 mln paired shares by selling stockholders), BAC -1.1% (settlement negotiations with DoJ hit a roadblock, according to reports), CHL -1.1% (Moody's said China Mobile's investment in True Corp is credit negative), PRAN -1% (seeing continued strength (+20% over past two days)), LLY -0.9% (announces top-line results of Phase III Hepatocellular Carcinoma trial; did not meet its primary endpoint; overall survival favored the CYRAMZA arm but was not statistically significant), DAL -0.8% (German carrier Lufthansa issued profit warning).
Analyst comments: DCIX -1.5% (downgraded to Underweight from Equal weight at Barclay), BA -1.2% (downgraded to Sector Perform at RBC Capital Mkts), BEAV -0.7% (downgraded to Hold from Buy at Jefferies, downgraded to Hold from Buy at Canaccord Genuity), DDD -0.6% (downgraded at Gabelli).
Gapping up In reaction to strong earnings/guidance: SYNA +20.6%, (also acquires Renesas SP Drivers; co will pay a purchase price of ~JPY48.5B ($475 mln) for 100% of Renesas SP Drivers, based on JPY52.5B ($515 mln) enterprise value. The acquisition will be immediately accretive to Synaptics' non-GAAP EPS), ULTA +11.6%, RMBS +7.2%, (also signs comprehensive license agreement with Qualcomm (QCOM)) HRB +3.8%, SPWH +2.1%
Select metals/mining stocks trading higher: AUY +1.1%, AG +0.8%, NEM +0.5%.
Other news: NAVB +8.9% (Lymphoseek injection demonstrates preferential accumulation in tumor-positive sentinel lymph nodes in post-hoc analysis), OSUR +7.2% (announces new co-promotion agreement for OraQuick HCV rapid antibody test), PTLA +7% (announces positive Phase 2 data with FDA-designated breakthrough therapy Andexanet Alfa and Enoxaparin), SPEX +6.7% (and Charter Communications (CHTR) file joint stipulation of dismissal), END +5% (cont strength following guidance), PSEC +4.9% (announces no restatement of historical financial statements based on discussions with the Office of the Chief Accountant of the SEC ), AMRN +3.3% (announces publication of case study results describing reductions in multiple lipid parameters for individual hyperlipidemic patients switched to Vascepa), INFY +2.9% (still checking), ITRN +2.8% (thinly traded, still checking), PBR +2.4% (still checking), GHDX +2.2% (announces positive topline results of second large, independent validation study of Oncotype DX in DCIS breast cancer), CRDC +2% (announced completion of laparoscopic appendectomy procedure with virtually no perceptible scar), NKTR +1.6% (FDA advisory committee to discuss peripherally-acting opioid receptor antagonists - halted), BSX +0.9% (announces clinical study results demonstrate therapeutics advantages of the Boston Scientific Vercise DBS System for patients with Parkinson's disease), BLRX +0.9% (receives notice of allowance for US Patent covering novel treatment for celiac disease ), PGNX +0.8% (FDA advisory committee to consider and provide recommendations regarding peripherally-acting opioid receptor antagonists - halted).
Analyst comments: ANGI +3.6% (upgraded to Buy at Wunderlich), MU +2.7% (upgraded to Buy from Underperform at BofA/Merrill), MRVL +1.1% (upgraded to Buy from Neutral at Nomura), AMZN +1% (added to Conviction Buy list at Goldman), SNDK +1% (upgraded to Buy from Underperform at BofA/Merrill), DSX +1% (upgraded to Equal Weight from Underweight at Barclays)
Stocks with favorable mention: UTX, GM, RAD, ALL, IPG, DNB, MON, BBY, MRO, SSYS, PXD
Stocks with unfavorable mention: POT, GME, CHK, GE, DDD
Stocks with unfavorable mention: POT, GME, CHK, GE, DDD
Hedge-Fund World's One-Man Wealth Machine
David Abrams Built His Fortune Effectively Going It Alone
In the Back Bay neighborhood of Boston, one man is building a moneymaking machine that rivals some of the hedge-fund industry's biggest names.
Calls to his office go unreturned even from those eager to fork over eight-figure sums, potential investors say. One industry veteran referred to him as "a unicorn," as few people have ever seen him.
The hedge-fund manager, David Abrams, has personally become a billionaire, and earned billions more for his wealthy investors, over the past five years running what is effectively a one-man shop, according to company and investor documents reviewed by The Wall Street Journal and people who have worked with him. His firm, Abrams Capital Management LP, manages nearly $8 billion across three funds and is discussing raising money for a fourth fund that could help push its assets past $10 billion.
In an era of star investors who appear regularly on television and talk up their ideas at hyped confabs, Mr. Abrams, 53 years old, has never spoken at an event open to the public.
"He probably would have preferred you not find him," said Roger Brown, president of Berklee College of Music, where Mr. Abrams is a trustee.
Abrams Capital's main funds have posted an average annualized return of about 15% since its founding in 1999, documents show, nearly double the average for hedge funds tracked by HFR Inc. and triple the S&P 500 index, including dividends.
The firm invests in a relatively small number of beaten-down companies at a time, mostly through stocks at present, though it has also dipped into some of the more-talked-about fixed-income deals of recent years, including the unwinding of bankrupt Enron Corp. Among its recent stockholdings have been bookseller Barnes & Noble Inc., retailer J.C. Penney Co. and money-transfer firm Western Union Co., securities filings and investor documents show.
Mr. Abrams also is among the small group of investors that has taken a big bet on government-controlled mortgage companies Fannie Mae and Freddie Mac, wagering that the Obama administration's plan to wind down and replace the entities will fail, according to investor documents.
The firm employs three analysts and a small back-office staff, but Mr. Abrams approves all trades personally, according to people that have worked with him. Other firms of comparable assets can have hundreds of employees.
He also built his fortune with the equivalent of one hand tied behind his back: His firm uses no leverage, or borrowed money, and often sits on billions in cash. It currently holds about 40% of its $8 billion under management in cash, investor updates show.
Mr. Abrams got his start in 1988 at Baupost Group LLC, also based in Boston. Run by Seth Klarman, Baupost is one of the world's largest hedge-fund firms, with $27 billion under management.
The two remain friends, and Mr. Klarman's personal foundation has put money into Abrams Capital's funds. Mr. Klarman described his protégé as "smart as a whip."
"He loves a good puzzle and a good treasure hunt," Mr. Klarman said.
People who have worked with him said the University of Pennsylvania graduate who majored in history is introverted and cerebral. The son of a stockbroker and psychotherapist and a father of two, he is an avid follower of jazz music and fan of the band Earth, Wind and Fire.
Like Mr. Klarman, Mr. Abrams is known to be patient to the extreme. He will sit on a static portfolio for months without making a move.
Investors in the firm, including institutions like Brandeis University, with an endowment of about $700 million, sometimes get scant information. Mr. Abrams's most recent quarterly letter consists of just six paragraphs, one of which is a single sentence.
"He's not going to waste a nanosecond to impress you, or convince you, or argue with you," said Mr. Brown of Berklee. "He knows what he thinks and if you ask him, he'll tell you. If you don't, he might just sit there in silence."
Mr. Abrams likely collected more than $400 million last year on the back of a 23% return for one of his main funds, according to Journal calculations based on his fees, performance and his personal investment in the firm. He doesn't appear on lists of top-paid hedge-fund managers because his performance figures are so closely guarded, but his estimated compensation last year would have put him ahead of David Einhorn, Daniel Och and even Mr. Klarman, according to industry publication Institutional Investor's Alpha.
A portion of his earnings came from a private-equity-style vehicle, which doesn't pay out gains until it is unwound, and a handful of firm executives may have shared a small slice of his payday. The hedge funds were up an additional 2% in the first quarter, investor documents show.
As a side gig, in 2007 Mr. Abrams was part of a group that bought a 20% stake in the National Football League's Oakland Raiders. Forbes estimates the team's worth at $825 million, the NFL's least valuable team. Before the purchase, he wasn't a big football fan but views the team as a distressed investment, a person close to him said. The person said Mr. Abrams prefers to play squash at the University Club of Boston.
Japan Tobacco Inc Acquires Leading E-cigarette Brand E-Lites; financial terms not disclosed
- Announced today that it has concluded an agreement to acquire all outstanding shares of Zandera Ltd. ("Zandera"), a leader in e-cigarettes and best known for its E-Lites brand. Founded in 2009, Zandera sells the most recognized range of high quality rechargeable and ready-to-use e-cigarettes in the United Kingdom.
- The executive management team of Zandera will remain with the JT Group post-acquisition in order to leverage upon their extensive knowledge and experience of the e-cigarette industry, their understanding of the product, technology and regulatory landscape.
- This transaction will be funded by the Group's existing cash and loan facilities and is expected to have a minor effect on the Group's consolidated performance and cash flows for the fiscal year 2014. JT expects to complete the acquisition in the second quarter of the fiscal year 2014 following regulatory clearance.