TheChek News Flow

If you’re watching the latest season of the HBO drama “The White Lotus,” you’ll know that the aging cable channel (represented on streaming through Max) can still capture the zeitgeist. That’s not so true of HBO’s owner, Warner Bros. Discovery, whose fourth-quarter results on Thursday—showing revenue fell 2% for the quarter and 5% for the year—demonstrated the sorry state of the traditional TV business that makes up much of WBD.

The company’s streaming operations are doing fine, expanding its subscriber base 20% in 2024, mostly overseas where Max is moving into new markets. But as the slowly shrinking cable channels account for half of WBD’s revenue, streaming’s growth can only do so much. Things would be much easier if WBD spun off the cable channels, as Comcast’s NBCUniversal is already doing. WBD’s streaming business is profitable, and a new company composed just of streaming, HBO and the Warner film studio should prosper—drawing a much better valuation than the company does now.

Consider that WBD’s stock price has been bobbing around the $10 level for the past 17 months, giving the company an enterprise value now of just $61 billion. That’s roughly one-seventh the value Netflix enjoys, even though the two companies had the same revenue last year. Netflix deserves a good premium, no question. Apart from anything else, it’s much more profitable: Netflix generated free cash flow of $6.9 billion last year compared with WBD’s $4.4 billion. But the valuation difference is mostly owing to the fact that half of WBD is steadily shrinking.

Recent signals from WBD suggest a spinoff of the cable channels may just be a matter of time. After the Financial Times reported last summer that management was contemplating such a step, executives didn’t exactly shoot the idea down when asked about it later. WBD has introduced a new corporate structure that separates the cable channels from streaming and the studio, seeming to make a split-up along those lines more likely. On Thursday, CEO David Zaslav said the new structure would “enhance our strategic flexibility and also create potential opportunities to unlock additional shareholder value.” That translates from corporate gibberish into plain English as: “Yes, we might dump these slowly dying channels the first chance we get.”

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Moscow seeks to use economic ties to lure US under Trump as businesses take early steps towards returning

Not long after the US and Russia sat down for their first high-level talks since Moscow’s full-scale invasion of Ukraine, one of the US’s biggest multinationals received a call.

The Russian government was planning a meeting to discuss the path for western companies to re-enter the country. Would this particular multinational, the Russian government official on the phone asked, be interested in bringing back some of its brands? 

As Moscow and Washington re-engage politically at warp speed — discussing a possible end to the Ukraine conflict and an in-person meeting between presidents Vladimir Putin and Donald Trump — the US-Russian economic relationship has become a key proxy for restoring ties.

On Monday, Trump wrote on Truth Social that he was in “serious discussions” with Putin about “major Economic Development transactions which will take place between the United States and Russia”.

The same day, Putin said Russia was ready to co-operate with the US extracting minerals from Russian-occupied areas of Ukraine, and that American companies could make “good money” from aluminium extraction in Russia.

The public comments mirror what market participants are witnessing behind the scenes: since Trump’s election, Moscow has been planting the seeds for a return of foreign businesses, even as some Kremlin-friendly voices lambast such companies for leaving and claim there may be no space left for them in the market.

David Lorello, a partner at Covington & Burling, said the Kremlin was “pitching to the United States the economic opportunities of a resolution to the war”.

Any returning companies would face formidable obstacles including emboldened local competition and an uncertain legal environment in a country that remains at war and targeted by comprehensive sanctions.

Yet few western multinationals are looking to rule out a return; many want to hold on to buyback options for their Russian businesses.

“These guys are commercial beings,” said a western veteran of the Russian market. “As Lenin [reportedly] said, the capitalist will sell you the rope by which you will hang him.”

According to the Kyiv School of Economics, 475 foreign companies have quit the Russian market since the invasion of Ukraine, while another 1,360 companies have scaled back their business there.

Kirill Dmitriev, Russia’s newly appointed special envoy for foreign economic co-operation, has claimed that US companies lost $324bn as a result of pulling out — a number disputed by the KSE — and has said US companies that left could start returning within months.

According to KSE estimates seen by the Financial Times, foreign companies have suffered at least $167bn in direct losses over three years of the full-scale war, including write-offs and court rulings that resulted in partial seizures.

More than $4bn of assets of American companies were seized, including those of ExxonMobil, JPMorgan and Universal Beverages, with US groups accounting for about a third of western companies’ overall losses.

Western executives and their advisers on Russia said it was premature to expect a surge of big-name foreign brands returning. Many endured a painful, costly process of leaving, as Moscow imposed escalating fees, regulations and pressure to sell to certain powerful buyers. At one point, two major multinationals trying to leave — Carlsberg and Danone — had their Russian businesses seized by the state.

At the same time, the Russian market has shifted since the full-scale invasion of Ukraine, with newly powerful businessmen — backed by government figures — benefiting from the spoils left behind by foreign brands.

Such players have also gained from an emboldened prosecutor-general’s office that has seized a string of Russian companies, citing the foreign passports of their owners or what they said were illegal privatisations as grounds to seize and sell them to friendly bidders.

Despite this backdrop, people working with companies that left Russia said that since Washington and Moscow held talks in Saudi Arabia this month, they had seen increasing interest in returning — particularly from the US.

“I wouldn’t say there is an avalanche, but there are a lot of companies dipping their toe in the water to see what the temperature is,” said one western executive in Moscow.

Over the past two weeks, Kremlin-friendly media outlets and Telegram channels have claimed that big-name brands ranging from fashion chains Zara and Uniqlo to Coca-Cola, Visa and Mastercard were actively examining a return.

None of the cited multinationals have publicly confirmed such plans, and people close to the companies said there were no concrete plans to immediately re-enter.

The US multinational contacted by the Russian government, which did not want to be identified, said it told the government it was too early to discuss the return of its household-name brands.

However, a representative said: “It’s quite obvious that many companies are looking for these opportunities.”

In Moscow, foreign market participants said they had seen small signs of interest. An adviser to western companies, who did not want to be named, said he had been contacted by a multinational hoping to safeguard the option it secured to buy back its Russian business.

Other people working on behalf of western businesses in Moscow said there had been tentative inquiries in the Russian real estate and advertising markets, or outreach to legal counsel about steps involved in a return.

A source familiar with Uniqlo’s Russia business said it had been in a “sleeping state” since the company suspended operations at about 50 stores. The person said reopenings were not yet being actively considered, but could be carried out quickly if the Russian economy opens up again.

“Some [foreign] companies really have started testing the waters,” said Ilia Rachkov, partner at the Moscow-based NSP law office. “There is a gentle feeling and sniffing around.”

Executives and advisers said companies producing fast-moving consumer goods or running restaurants could move rapidly.

“If you’re a Netflix or Coca-Cola or McDonald’s with a non-technology-sensitive industry with an easy-to-engage business model, then you probably come back more quickly,” said the western executive in Moscow.

Rachkov, the lawyer, said companies face a ticking timeline unrelated to the Trump-Putin talks: some received buyback options for their Russian businesses that will soon expire. 

“Many are now negotiating, bargaining. I’ve heard this about food producers, the consumer sector,” Rachkov said. “The new management demands that they remain minority shareholders in exchange for an option extension, or provide a golden parachute after the option is exercised.”

In Moscow, Putin has ordered his cabinet to prepare for the return of western companies, albeit with conditions favouring local players. The finance ministry has suggested that returning companies from so-called unfriendly countries would need approval from the government’s commission on foreign investment.

Denis Manturov, Russia’s first deputy prime minister, suggested that any retail chains planning to return would need to also open in Russian-occupied Ukraine. He indicated that conditions could be imposed on particular companies and sectors, such as a bar on foreign automakers returning to their previous market positions.

“It will no longer be possible to get [the asset] and return the way they got it and left,” Manturov said in a TV interview.

Western market participants in contact with Russian officials said they expected companies that “left and gave the middle finger” — as one of US executive put it — would have a harder time coming back than those that left quietly.

They said the road to return was likely to be easier for US companies as their government pursues rapprochement with Russia. One European executive in Moscow expressed concern about the “danger and risk for a level playing field”, while other market participants seized on comments by Dmitriev suggesting that US companies could replace European players in Russia’s market economy.

Experts and former officials said the rapprochement was unlikely to bridge the structural gap between the two economies. The US and Russia’s trade volume in 2021, the last full year before the war, was $36bn, a fraction of the EU’s $270bn trade with Moscow.

“We’re competitors on the global stage. Anything that the Russians export and in major volumes are things that the United States would also want to export in large volumes,” said Thomas Graham, a former senior director for Russia at the US National Security Council.

But that may not be immediately apparent to Trump and his entourage, said a former major US investor in Russia. “Putin thinks that Trump’s soft spot is trade and money,” they said. “If he could make an announcement about American energy companies coming back, Trump would view that as a victory.”

Ben Whitmore starts building new fund, but will they come?

Veteran fund manager Ben Whitmore launched the debut fund at his new shop, Brickwood Asset Management, yesterday.

But demand for actively managed UK equities is weak, and unease around the merits of investing in boutiques means Whitmore may face greater challenges than simply taking a ‘build it and they will come’ approach.

The investment management space is littered with the graves of boutique fund houses who had relatively short lifespans such as Sanditon, Crux and Tellworth.

Ben Yearsley, investment director at Fairview Consulting, said: “I am certainly not against investing in boutiques, but the hurdle is higher than for investing in other funds. There are more questions to ask around governance, who is the fund manager’s boss, for example? But we do own some.

“With regard to Whitmore, we owned the funds he ran at Jupiter, but see no reason to switch out of them now, because in Adrian Gosden and Alex Savvides, they have found excellent replacements. There is also a question around whether the manager will have the same level of resource at their new firm as they did previously, though the counter to that is, they may have more time to focus on the stocks at a boutique with less bureaucracy.”

Darius McDermott, investment adviser to the VT Chelsea range of multi-manager funds said he owned Whitmore’s UK fund when the manager was at Jupiter, “and was on the point of buying the global fund.”

But he said: “There are definitely more questions to ask of a boutique, mostly around governance. We are reassured that Ben Whitmore has Kevin and Dermot Murphy with him, so he isn’t a one-man band.”

Peter Dalgleish, chief investment officer at Parmenion, said: “Capital allocation doesn’t tend to vary between boutique and non-boutique. The more critical element determining capital allocation is based on the risks associated with a particular asset class/sub asset class or investment style that the fund is aiming to deliver, to ensure consistency of attractive risk adjusted returns for clients over time.”

But perhaps the most crucial fact to know about Whitmore’s new boutique relates to his old fund: since his departure the Jupiter UK Dynamic Equity fund (the new name for Jupiter Special Situations) has shrunk from more than £2bn in size to less than £1bn.

Key man (or woman) risk is real and allocators are attuned to it, particularly after the past year.

The biggest challenge Whitmore faces may be to convince fund buyers that his new fund shop isn’t a solar system where he is the sun and everything orbits around him.

Some consumers will pay almost 50% more from April as confusion mounts over price rises

Thames Water customers have expressed shock at higher than expected annual increases to April’s bills as the struggling water group “front-loads” the impact of permitted regulatory increases.

The utility, which supplies about a quarter of the UK population, was allowed by water regulator Ofwat to raise bills by 35 per cent by 2030. However, some customers have been flummoxed to receive bills that are 47 per cent higher than a year ago, as demands for payment landed on doormats and in email inboxes this week.

Thames Water says the discrepancy arises because Ofwat’s stated increases apply to the total sum billed over the five-year period, and have been front-loaded this year to fund vital infrastructure improvements. Percentage increases should be flatter in the years to 2030, though water companies are permitted to adjust Ofwat’s figures in line with inflation.

“It’s beyond scandalous for Thames Water to implement such huge financial increases,” said Ruth Hawkins, who was not prepared for the annual bill for her two-bed flat in Hackney to increase by 47 per cent from £432 to £639 this year.

Difficulties fitting water meters in blocks of flats means Thames Water estimates her water consumption using the “assessed household charge”. This year, it has increased estimates of the volumes of water used by unmetered customers on this tariff. In addition, fixed annual standing charges for all water customers have increased to £191.71, making up a bigger proportion of bills for customers in smaller properties.

Customers with water meters have also been surprised by the size of increases, although they have the option of cutting their consumption to reduce bills. Michael Martin, a financial adviser, said the annual bill for his home in Wimbledon had increased by 45 per cent this year to £1,186.

“Since 2018, the total increase in my water bill is not far off the performance of the S&P 500 index,” he said.

Rival bidders are currently circling the UK’s largest water utility as it struggles with a debt mountain of nearly £20bn and attempts to head off the threat of temporary renationalisation.

Ofwat’s permitted 35 per cent increase to bills was much lower than the 53 per cent increase Thames Water had asked for. This month, it lodged an appeal with the UK competition regulator, meaning customer bills could yet surge even higher, though a decision is not expected until later this year.

“For us to continue to deliver billions of litres of clean water and take wastewater away from millions of homes, it’s vital that we invest in our network and infrastructure over the next five years,” Thames Water said.

“We’re already helping around 450,000 customers pay their bills, and by 2030, one in 10 households could be in receipt of support.”

Thames offers a 50 per cent discount on bills for customers on low incomes who can prove their bill is more than 5 per cent of their net annual income.

It also offers a single occupier tariff for customers without water meters who can prove they live alone, which could reduce annual bills by about 10-20 per cent depending on the number of bedrooms. However, this discount is not extended to single parents.

“We would encourage any customer that is concerned about their ability to pay to reach out to us so we can assess the right package of support for their circumstances,” Thames Water added.

Almost half of households in England and Wales struggled to pay for their water over the past 12 months, while more than 8 per cent of households — or 2.5mn people — were in payment arrears, according to research published by Ofwat in January.

Ofwat said: “It is essential that all companies clearly communicate changes to bills so that customers fully understand how much they are expected to pay, and why this is the case.”