Barrons : M&A Is Back. 4 Stocks That Could Be Targets.

M&A Is Back. 4 Stocks That Could Be Targets.

Mergers are back—and that means opportunity for small-cap investors.

Small-caps don’t have a lot going for them. The Russell 2000 index has gained 0.2% this year, lagging the S&P 500’s 15% return. But they do have one thing in their favor: This year, there has been $847 billion of merger and acquisition activity in the Americas, up 43% over the same period last year, according to LSEG Group. That puts activity on pace to hit just over $1.87 trillion for the entire year, only a few hundred billion dollars below the 2021 peak. And small-cap companies are usually the target.

The return of M&A has been helped along by a number of factors, including a stabilization in interest rates. With the Federal Reserve done hiking—and, instead, considering cuts— interest rate volatility has declined and Treasury yields across the yield curve remain below their peaks. Yields on corporate bonds have dropped, too, reflecting market optimism over the ability of companies to repay their debt. Lower rates make it more attractive for companies to borrow money to make acquisitions. “We have stability on rates,” says Glenn Mincey, head of private equity at KPMG. “M&A activity will continue to increase for the rest of the year.”

Where should investors look for possible deals? Healthcare looks like a good place to start. Pharmaceutical giants such as Bristol Myers-Squibb and Amgen have drugs that will be coming off patent, leaving them exposed to potential competition. They’ll be looking to refresh their pipelines of drug candidates, and with billions of dollars in annual free cash flow, they have the capacity to buy smaller biotech players.

Opportunities are plentiful. The SPDR S&P Biotech exchange-traded fund has 131 stocks with an average market value of $14 billion and dozens of companies valued between $1 billion and $2 billion. Possibilities include the $5.9 billion Ionis Pharmaceuticals, which develops human therapeutic drugs, the $14 billion Incyte, which focuses on oncology and hematology, and the $2.2 billion Iovance Biotherapeutics, which makes cell therapies and novel cancer immunotherapy products. All three appeared on a Wolfe Research screen of small-cap stocks that have underperformed the biotech fund this year and have seen CEO changes in the past 12 years.

Larger software companies— Microsoft, Salesforce, and Adobe, to name a few—could be looking to bolster their artificial-intelligence capabilities and could find plenty of opportunity in smaller, AI-centric names. And there’s opportunity as well, with the Invesco S&P SmallCap Information Tech ETF down about 10% from its 2021 high.

One possibility: The $3.6 billion C3.ai. The company, which provides a platform for businesses to develop new AI applications, appeared on Wolfe’s screen of small-cap buyout candidates that have net debt less than three times expected profits, have Buy ratings from less than half of analysts covering them, and operate in consolidating industries. C3.ai’s revenue is mostly subscription-based, its sales are expected to hit $1 billion by the end of the decade, and it has no debt. It would look good nicely tucked into a larger software firm.

Barrons : A Veteran Value Investor on 3 Things to Avoid—and Why He Likes Meta St

A Veteran Value Investor on 3 Things to Avoid—and Why He Likes Meta Stock
Kevin Holt, manager of Invesco’s Comstock fund, studies companies over a 20-year cycle. Energy, healthcare stocks also make his list.

Managing one mutual fund for 25 years is a rare feat. Managing that fund and beating your peers and respective index is tougher still.

Just ask Kevin Holt, 56, who has managed the large-cap value Invesco Comstock fund (ticker: ACSTX) since August 1999. From that distant date through May 31, the fund’s Class A shares have returned an annualized 8.3%. The fund, with $11.5 billion in assets, has outperformed its Russell 1000 Value Index benchmark by 1.2 percentage points on an annualized basis, and its large-value Morningstar category by 1.8 percentage points, according to Morningstar Direct.

This year, Comstock is up 8% compared with peers and the index, which have returned about 7% each.

Holt, who has run the fund with Devin Armstrong since 2007, applies classic value-investing techniques espoused by Benjamin Graham, considered the father of value investing. The pair seeks to identify a company’s normalized profitability and cash flows, and might dig through 20 years of history to better understand a company and its industry. Diligent research and patience have allowed Holt to make contrarian bets and wait five years or more for them to pay off.

In addition to managing Comstock, Holt is Invesco’s chief investment officer for the asset manager’s $63 billion in value strategies. He recently spoke with Barron’s about his focus on free-cash-flow yield and management incentives, and why he likes Meta Platforms, health insurers, and other unloved shares.

An edited version of the interview follows.

Barron’s: Why go back 20 years when investigating a company as a potential investment?
Kevin Holt: I’ve always been big into history and analytical proof. You want to make sure you’re accounting for cyclical tendencies in businesses. One of our competitive advantages is our ability to look at businesses over a long period and say, this is your normalized earnings and cash flow. If businesses don’t change, then it’s relatively easy, but businesses change.

Relying on cash flows is tangible. At the end of the day, what’s in your checking account is what you’re worth, not what you say you’re worth. It’s a fundamentally based, conservative approach to investing.

We start with a screening process, looking on a long-term basis for stocks that are selling at a historical discount on the metrics most relevant to identify value. In financials, price-to-book relative to a company’s history still has a lot of relevancy. For growth areas such as technology, consumer staples, and healthcare, we’re looking at historical price-to-cash flow multiples relative to the market.

Where do you go from there?

Once we identify inexpensive stocks, we ask why they are inexpensive. We look at three or four key issues and ask ourselves whether we agree or disagree with the consensus view. Maybe there is a cyclical reason why the stock is cheap, or maybe there is a short-term blip in capital allocation. Maybe it’s a misstep by the management team that is correctable.

When we talk to management at any company outside of financials, we ask if revenue and operating margins are depressed, and if so, why. We ask banks what the market doesn’t understand about their loan book or business model. What is the normal return on tangible common equity?

What are some lessons you’ve learned in the past 25 years?

Companies that make a lot of acquisitions typically don’t integrate the acquisitions. They typically don’t have good returns on capital because they buy earnings and overpay for them. That dilutes shareholder value. Also, there is no substitute for good management. You need compensation metrics that drive the CEO and boards to run the company for shareholders.

About five or six years ago, my co-manager Devin Armstrong and I reviewed our performance, studying how we could have improved. We found those three common characteristics in about 20 stocks that we had owned: owning acquisitive companies, owning companies whose management wasn’t as strong as it could be, and owning companies whose managers weren’t acting in shareholders’ best interest. If we could have eliminated those stocks, our performance, while good, could have been a fair bit better. We’ve put more emphasis in these three areas with the younger members of our team, and it has helped with execution of the strategy.

You own Meta Platforms, which most people don’t think of as a value stock. What is the attraction?

I don’t like when people call stocks growth or value stocks. There are inexpensive stocks and expensive stocks. You have to understand how to value different industries and what to look at.

We got fortunate with an opportunity to buy Meta in 2022, when there were privacy-rights issues with the Apple iPhone and Meta’s advertising went down. [Apple’s 2021 iOS 14 update hurt Meta’s revenue by affecting how the social-media giant served ads to its users.] It became more challenging to project advertising growth. Advertising set a new base, and now it just grows off that base.

We were able to buy Meta with a 6% free-cash-flow yield when the market was selling at a 4% free-cash-flow yield, so we paid a 50% discount to the market. Free-cash yield—or free cash divided by market value—is the ultimate litmus test of value for a stock. It doesn’t require discounting any growth. We have sold some of our Meta holding because the risk/return calculus has changed, but I still like it a lot.

You made a contrarian bet on energy a few years ago that paid off, and it started with persuading management in the industry to change its compensation metrics. Explain what happened.

We liked the assets of energy companies, and they had a lot of cash-flow potential, but managers were compensated for growth, not returns. To make the cost of capital, companies needed oil to be around $75 a barrel. Instead [in 2015-16], oil was trading around $40-$45 a barrel because there was too much oil around.

We approached a lot of companies and said, you’re not making your cost of capital, and you should run your business appropriately. The stocks hadn’t performed in eight or nine years. In any industry, there is a high correlation between increased return on capital and improving stock prices. We went substantially overweight energy in 2017-18. When Covid hit and oil prices went negative in 2020, we bought more.

From 2017 to 2020, the energy industry slowly changed its compensation metrics to emphasize cash-flow generation and return on invested capital. It is now an investible group over a whole cycle, as opposed to an industry growing just for growth’s sake. The companies’ value proposition is the dividends that they pay and the cash they return to shareholders. By the end of 2022, the stocks’ returns were astronomical.

What do you think of energy today, and the energy acquisitions we’re seeing? Chevron is buying Hess, and ConocoPhillips is buying Marathon Oil, to cite two examples.
I still like oil stocks; I just don’t like them as much as I used to because valuations have gone up a lot. There were stocks that we bought in 2020 with a 25% to 30% free-cash-flow yield on normalized oil prices. Now, the group sells for an 8% or 9% free-cash-flow yield based on today’s oil price.

Acquisitions are mostly happening because the shale-oil companies are running out of inventory, so they have to either merge with someone else, or sell to a larger company. Chevron is in my top 10. We were historically owners of Pioneer Natural Resources and Hess, which were bought by Exxon Mobil and Chevron, respectively. It all comes down to, what are the prices? Are you buying good assets, and are you buying at a fair price? I own all those companies. I’m happy with the transactions, in general.

Among bank stocks, Wells Fargo and Bank of America are your top two holdings. Why?

With rates at 5%, you have 5% top-line growth. You have to pay a lot of it back to [depositors], but not all. Higher rates give banks more latitude to generate revenue.
Banks had to write down their tangible book value because they invested customer deposits in five- and six-year-duration bonds, and those bonds went down in value when rates went up. We view that as a transient issue. Unless you have a run on the bank, those bonds will mature, and the tangible book value will creep back up. We can wait for it because of our five-to-seven-year time horizon.

The book value weakness affects regional banks more, but even Wells Fargo an Bank of America suffer from this. These are good, stable banks with good deposit bases. Wells Fargo still has the government-mandated asset cap in place, which we’re hopeful will be lifted at some point in the next year or two.

What is undervalued now?

We like the health maintenance organizations, which are cheap on the basis of price/earnings multiples relative to history. HMOs and health-insurance stocks are going through government reimbursement changes because the government is paying a little bit less in the near term for Medicare. Elevance Health [formerly Anthem] is a top 10 holding.

More people used Medicare in 2023 as they underwent medical procedures after Covid ebbed. The companies that turn in Medicare pricing bids didn’t price the business appropriately. Some are losing money, some are marginally profitable, and all the stocks have sold off. We think the Medicare HMO stocks are oversold.

In the next two years, we expect these companies to get operating margins on their Medicare business back to 3.5% to 4%. This isn’t a high-margin business, but it is still a good business. Looking out a few years, the market is underappreciating the return of earnings power, maybe not all the way back to where it was, but to 80% of where it was.

Value is underperforming as artificial intelligence pushed up tech stocks, so why might value perform better in the future?

I can’t predict where the economy is going, but it feels like inflation is going to be in the 2% to 3% range for a period. When inflation is over 2%, our studies show, value typically performs quite well against growth.

Inflation creates a little more cyclicality in the economic backdrop. The Federal Reserve is more active. You see more rotation between cyclical and noncyclical groups. That creates a more dynamic market backdrop than when rates were zero and everyone owned growth.

>>> Barron’s Weekend Summary

Barron’s Weekend Summary: The 2024 Barron’s Top CEOs list rewarded customers and investors with companies that have smart plans

Cover:
-The 2024 Barron’s Top CEOs list rewarded customers and investors with companies that have smart plans for the future, including companies like e.l.f. Beauty's Tarang Amin and Meta's Mark Zuckerberg. Over half of these companies factor into the current artificial-intelligence investment rapture, selling chips, buying them and offering computing as a service, putting algorithms to work sharpening advertising or pricing, or selling the electricity used for all of the above. Jensen Huang, whose Nvidia became the most valuable US company, did not just climb to the top of the AI market; he created it. The list is compiled each year by a panel of writers and editors through a process of screening, nomination, preliminary harrumphing, and extended debate. Some trends and twists stand out, not all of them related to silicon, such as the expiration of excuse-making, the Covid-19 pandemic, and the recovery of many markets. S&P 500 companies that are still struggling should consider the possibility that it's them, not the economy.

Interview:
-Barron’s speaks to Kevin Holt, who has managed the Invesco Comstock fund since August 1999, with Class A shares returning an annualized 8.3%. The fund, with $11.5B in assets, has outperformed its Russell 1000 Value Index benchmark by 1.2 percentage points and its large-value Morningstar category by 1.8 percentage points. This year, Comstock is up 8% compared to peers and the index, which have returned about 7% each. Holt, along with Devin Armstrong, applies classic value-investing techniques espoused by Benjamin Graham, the father of value investing. They seek to identify a company's normalized profitability and cash flows, often digging through 20 years of history to better understand the company and its industry. Holt is also Invesco's chief investment officer for the asset manager's $63B in value strategies.

Tech Trader:
-Nvidia, a leading player in the artificial intelligence market, has seen its revenue increase 262% YoY in April, resulting in a 629% increase in profit. However, the company's quarter-over-quarter growth has slowed from 88% to 34%, 22% to 18% over the past four earnings reports. This suggests that Nvidia's market cap is unsustainable.
The company's forward price/earnings multiple has increased from 25 at the end of last year to 45, and it trades for 20 times expected revenue for the January 2026 fiscal year, based on Wall Street estimates. This raises concerns about the potential for AI to become the most important technology development since cloud computing, the internet, mobile phones, or personal computers. Nvidia's market value is now nearly 5X the industry estimate for next year's global chip sales, surpassing Microsoft and Apple. However, there are picks-and-shovels AI bets that don't require the same heroic assumptions as Nvidia stock. These include picks-and-shovels AI bets that don't require the same heroic assumptions, such as picks-and-shovels AI bets that don't grow triple digits but will all benefit from the continued growth of AI.

The Trader:
-The stock market rally has reached its 31st record high of 2024, with the S&P 500 index rising 0.7% this week and the Nasdaq Composite gaining 0.2%. The Dow Jones Industrial Average has advanced 1.4%, but remains below its record high. Economic data shows moderate growth, with inflation expectations and interest rates remaining below their multiyear peaks. Federal Reserve governor Adriana Kugler has suggested a rate cut could come this year, which would keep the economy growing. However, the market's high valuation has left many scratching their heads. The chief concern is that the Fed won't cut rates due to inflation remaining sticky. Service prices, such as energy and utility costs, rose 5% year over year in May, while shelter prices rose more than 5%. If shelter remains elevated, overall inflation won't drop to the Fed's 2% target this year. The market has never lost faith in a rate cut, though delayed, but shaking that confidence would be a problem. Wolfe Research strategist Chris Senyek warns that the most significant downside risk for U.S. equity markets is for investors to lose faith in the 'Fed Put,' referring to the central bank's willingness to cut rates if the economy or stock market appears to be falling on hard times.
-FedEx stock has been struggling since March, with the shares dropping 0.2% in 2024. The market is not convinced that the company can meet its earnings targets, and FedEx will have a chance to prove investors wrong when it reports on June 25. In March, management guided full-year earnings to $17.75 a share, but FedEx reported fiscal-third-quarter sales of $21.7B, below estimates for $21.9B and down 2.2% year over year. Analysts expect sales of $22B, up almost 1% from the same quarter last year, given that shipping volumes were stabilizing in February. For its FedEx Ground segment, the volume backdrop remains soft but stable. Combined with continued cost-cutting, the earnings picture looks decent. The company is looking to improve route efficiency, reduce flight hours, and limit head count. Salary and other administrative expenses comprise a large chunk of operating costs, and should only grow 1% for fiscal year 2025, allowing margins to increase from 7.1% to 7.9%. This means fiscal 2025 earnings can rise to $20.97, especially with a few billion dollars in free cash flow to repurchase shares.

Features:
-Penn Entertainment is considering a buyout offer from Boyd Gaming, which has sparked a 9.9% increase in Penn stock. The news comes after a Reuters report suggested that Boyd is interested in making an offer to buy the gambling company. Neither Penn nor Boyd immediately responded to Barron's request for comment. The Donerail Group, a merchant bank and shareholder of Penn, believes that a sale of the company's assets could generate value creation for equity investors. However, analysts are mixed on whether an acquisition of Penn by Boyd is a positive move. Penn stock fell 3.1% to $19.43 on Friday, and shares have fallen 25% this year. Craig-Hallum Capital Group analyst Ryan Sigdahl upgraded Penn shares to Buy from Hold and increased his price target to $30 from $20. He believes this presents a compelling risk/reward opportunity and recent activist involvement and M&A rumors provide a floor on valuation. Raymond James analyst RJ Milligan also noted that while BYD acquiring Penn makes sense on the surface, he sees few other compelling reasons other than potentially getting the portfolio at a cheap price.
-The aid industry is facing unprecedented challenges due to the shifting geopolitical environment, conflicts, climate change, and debt distress. Traditional donors must reinvent themselves, focus on impact, and give more voice and representation to developing countries and emerging markets. Aid is becoming politicized and weaponized, with superpowers like the U.S., China, and Europe opposing developing countries. This weaponization is causing famine in Sudan and reducing migration in countries like the UK and Rwanda. The new geopolitics also erosion the legitimacy of multilateral institutions, including the Bretton Woods institutions. Policy interventions in the utility sector in recipient countries are necessary for concessional lending and guarantee schemes to be bankable. The aid industry is becoming more reactive, with flows reaching historical highs. This shift towards humanitarian aid is due to intensifying conflicts and climate-related shocks. This reactive nature of aid is concerning, as less development aid is going towards structural objectives, which could have reduced vulnerability to shocks.

Europe:
-Political upheavals in Europe have slowed growth and caused bond yields to rise, while the UK is set to have its first center-left government since 2010. However, economic prospects for Europe are brightening, as growth has been slower than in the US since the end of the pandemic. Business surveys indicate a recovery in Europe, with inflation coming down, the labor market being strong, and wage growth running at a fair old clip. The European Central Bank sees growth improving, raising its growth forecasts in 20 euro countries to 0.9% in 2024 and 1.4% in 2025. The US growth rate halved in the first quarter of this year, and euro-zone unemployment fell to a record low in April. Slower inflation has allowed the ECB to lower interest rates for the first time since the pandemic, which could prove a big help to growth. The head start of the ECB, which has yet to cut, could prove a big help to the region's economic fundamentals.

Emerging Markets:
-China is focusing on the "low-altitude economy" - the airspace below commercial and military aircraft traffic, where civil-manned and unmanned vehicles operate. As the low-altitude economy takes off, China is introducing new products and experiences, including drones for package delivery, winged taxis for daily commutes, and hobbyist sightseeing helicopters. These operations could also play critical roles in aerial logistics, emergency medical rescue, and firefighting efforts. Beijing has recognized the sector as a key emerging industry, with the size of the sector exceeding 500B yuan ($69B) last year, up 34% from the previous year. The civil drone sector saw its market share rise by 32% to 120B yuan, while industrial drones reached 77B yuan. China has 1.11M registered civilian unmanned aerial vehicles at the time of last year. Provinces and cities across the country are also investing in the low-altitude economy, with officials in Sichuan province allocating 200M yuan to support the sector.

Commodities:
-Exxon Mobil is expected to generate $14B in earnings by 2027, primarily due to cost reduction and growth in Guyana's oil reserves. CEO Darren Woods has already secured $9B in savings since 2019, and is seeking an additional $6B over the next few years. Exxon's acquisition of Pioneer Natural Resources provides more untapped acreage for advanced drilling technology. Woods is expanding refineries and integrating more chemical production to drive profitability, building a global network for shipping liquefied natural gas, and exploring carbon capture and lithium mining. Woods' countercyclical investment strategy has given Exxon a financial edge, with most oil and gas investments earning yearly returns over 10% even at oil prices of $35 or less. The barrel price needed to cover Exxon's dividend is among the lowest in the group.

Streetwise:
-Delta, the largest and fastest-growing airline in the US, is turning 40% of its profit while operating 20% of its capacity. The company's success can be attributed to its on-time rate and customer satisfaction in premium classes. Delta's upswing began during its complicated integration with Northwest Airlines after a 2008 merger, which led to significant investments in technology. A predictive engineering program and a new baggage-tracking system reduced maintenance delays and made lost luggage rare. Front-line workers, such as flight attendants and gate agents, noticed the changes and benefitted from them. Today, a third of each Delta plane is fitted with premium seating, resulting in 10 points higher profit margins than in the main cabin. Delta's flywheel effect extends to American Express, which is its largest and fastest-growing card program. Delta's premium seats generated $19B of revenue last year, and AmEx remuneration was $6.8B, which combined for 55% of total revenue. This reduces Delta's sensitivity to economic swings.

>>> Weekend Papers Summary

Weekend Papers Summary

FINANCIAL TIMES
-The US is expected to fund a significant increase in its budget deficit with short-term debt, potentially impacting money markets and the fight against inflation. The Congressional Budget Office predicts that aid packages for Ukraine and Israel will push the US deficit to $1.9T this fiscal year, compared to its February prediction of $1.5T. This increase has raised concerns among fiscal hawks, who warn that the US's lack of discipline will increase borrowing costs and that neither President Joe Biden nor his Republican challenger Donald Trump have substantive plans to stabilize the country's finances.
-Between the European parliament elections and the French parliamentary elections, France appears to have returned to a traditional pattern of left against right, with progressives against fascists. The liberal centre, led by President Emmanuel Macron, has collapsed, while the left is dominated by the radical La France Insoumise (France Unbowed), led by Jean-Luc Mélenchon. The Greens provide only a marginal boost for the left. The far right has advanced, with the Rassemblement National (RN) of Marine Le Pen winning 31.5% of the French votes for the European parliament. Macron won the presidency in 2017 by uniting the centre-right and centre-left under his new party, En Marche (now called Renaissance), splitting the Socialists and Les Républicains.
-French President Emmanuel Macron's centrist alliance is gaining ground in the first round of France's snap parliamentary election, according to recent opinion polls. The far-right Rassemblement National is predicted to win the first round vote, with 34% of the vote predicted by IFOP and 33% by Harris. The leftwing Nouveau Front Populaire bloc is at 29% and 26%, respectively. A third poll by OpinionWay put the RN at 35% and the centrists at 20%. Harris' seat projections suggest France is likely heading for a hung parliament, potentially leading to political gridlock. Macron's alliance, which includes his Renaissance party and two others, won 14.6% in European parliament elections on June 9, prompting him to dissolve parliament. Polls in the aftermath showed his party languishing in the mid-teens.
-Apple has ruled out releasing its iPhone's new artificial intelligence features in Europe during its global launch later this year, citing uncertainty stemming from Brussels' new competition rules. The company unveiled features two weeks ago, including Apple Intelligence services and a partnership with OpenAI. However, Apple has said that the complexities of making the system compatible with EU rules, which require critical parts of its iOS software and App Store services to be interoperable with third parties, will result in EU users being denied certain features when they launch in other parts of the world later in 2024. Apple stated that due to regulatory uncertainties caused by the Digital Markets Act, it is unlikely to roll out iPhone Mirroring, SharePlay Screen Sharing enhancements, and Apple Intelligence to EU users this year.
-Wealthy foreigners are leaving the UK due to the abolition of the "non-dom" regime, which allowed them to avoid paying tax on overseas income. The change, supported by both the Conservative and Labour parties, has led to a decline in the UK's attractiveness, according to interviews with wealthy foreigners and their advisers. Other deterrents include Brexit, fiscal and political instability, and concerns around security. A billionaire businessman who has lived in London for 15 years and is now moving his tax residency to Abu Dhabi cites security as a major issue contributing to the tax reasons for leaving. Labour shadow chancellor Rachel Reeves has proposed toughening the planned crackdown, including reversing a Tory decision to permit non-doms to shield foreign assets held in offshore trusts from inheritance tax permanently.
-Chinese term "runxue" or "run-ology" refers to the practice of escaping China and bringing wealth with you. The term originated in 2022 during the Covid lockdown, which prompted people to dream of a life abroad. This year, the "running" has become a concerted sprint for the exit, with record numbers of Chinese millionaires and multimillionaires expected to emigrate from their homeland. An estimated 15,200 Chinese millionaires are predicted to emigrate this year, up from 13,800 who left China last year. This migration is a canary in the coal mine, signaling a profound shift in the global landscape and tectonic plates of wealth and power.
-Four members of the Hinduja clan, the UK's wealthiest family, have been convicted of exploiting their domestic staff and sentenced to lengthy jail terms by a Geneva court. The panel found Prakash Hinduja, his wife Kamal, their son Ajay, and his wife Namrata guilty of serious employment offences related to Indian staff. The case sheds light on the punishing conditions the Hindujas subjected their workers, who were mostly illiterate and flown directly from India to work at the family's Swiss home. The court cleared the Hindujas of the more serious charge of human trafficking.
-Airbus is in talks with Spirit AeroSystems to take over parts of the aerospace supplier's work on its A220 and A350 aircraft programs, allowing Boeing to purchase the rest of the group. The agreement would see Airbus take over Spirit's work at several global sites, including Belfast in Northern Ireland. Boeing is expected to take over the bulk of Spirit's operations, including its main facility in Kansas. The talks are "moving in the right direction," and an announcement could come as early as next week. Boeing has been in talks with Spirit since March to improve the supplier's manufacturing processes after a mid-air blowout of a section of one of its 737 Max aircraft in January. The talks come after Boeing and Airbus admitted to using titanium parts in their jets, purchased from Spirit, whose certification documentation was counterfeit.

THE NEW YORK TIMES
-President Vladimir V. Putin of Russia visited Asia to disrupt the world order and anger Washington, undermining Beijing. He embraced North Korea and signed deals with Vietnam, injecting more potential threats into a region already strained by Taiwan tensions and South China Sea clashes. North Korea, a rogue nuclear state, was at the center of the map of risk in Asia, empowered by Russian promises of military aid and a mutual defense pact. Putin also signed deals with Vietnam, a country of growing importance for both China and the United States as they vie for influence. He insisted that "reliable security architecture" could not be built with closed military-political blocs. Putin's visit to Asia left a redrawn map of risk in Asia, with North Korea at the center of the map.
-As Ukraine expands its military draft, some men are hiding to avoid draft officers who roam the streets. Fearful that conscription is a one-way ticket to bloody trench warfare, these men spend their days holed up at home to avoid draft officers who roam the streets. Military officials stopped men in Kiev, the capital of Ukraine, this month to check whether they have updated their information with the draft office. Vladyslav, a 45-year-old Ukrainian man, stopped going into Kyiv's city center to avoid draft officers checking papers and exercising at the gym due to patrols in his neighborhood. Now, he spends most of his days holed up in his apartment, often using binoculars to watch officers serving draft notices to commuters leaving a nearby subway station.
-Louisiana Governor Jeff Landry has signed bills to expand the presence of religion in the state's public schools, allowing them to hire chaplains and post Ten Commandments in classrooms. The new laws require transgender students to be addressed by the pronouns for gender on their birth certificates, and public schools to employ chaplains. Landry also signed a mandate that the Ten Commandments be hung in every public classroom, demonstrating a new willingness for Louisiana to go where other states have not. Louisiana also became the first state to classify abortion pills as dangerous controlled substances last month. The Ten Commandments law signals a broader Christian agenda, as Louisiana aims to be at the forefront of a national movement to advance legislation with a Christian worldview.
-During the annual Hajj pilgrimage in Saudi Arabia, at least 450 people died due to scorching temperatures and throngs of people. The pilgrims, some of whom have saved their lives for the hajj, spent days walking and sleeping in tents during their journey to Mecca, the holiest city for Muslims. The heat was a contributing factor to many of the deaths, with Indonesia reporting the most deaths at 199, and India at 98. The countries said they could not be sure that heat was the cause of all the deaths, but relatives of the missing and dead and tour operators have said the heat was at least a contributing factor. The hajj is one of Islam's five pillars, and all Muslims who are physically and financially able are obliged to embark on the pilgrimage.
-Pope Francis used an offensive anti-gay slur during a conference with Italian bishops, causing shock and confusion among Catholics. The pope, known for his openness to and acceptance of LGBTQ people, used homophobic slang and cautioned priests about admitting gay men into seminaries. The apparent inconsistency in Francis' messaging reflects the deep contradictions and tensions that underlie the Roman Catholic Church's and Francis' relationship to homosexuality. The church holds that "homosexual tendencies" are "intrinsically disordered," and its guidelines state that people with "deep-seated" gay tendencies should not become priests.
-A Southern California school board president was recalled after his conservative majority approved policies on critical race theory and transgender issues. The conservative board members of the Temecula Valley Unified School District passed a resolution banning critical race theory from classrooms in December 2022. Months later, they fired the superintendent, believing the district needed someone with new ideas. They also passed a rule requiring parents to be notified whenever a student requests to be identified as a different gender at school. The moves were applauded by conservatives, many of them Christian churchgoers who had helped install the new board members, hoping that Temecula Valley could remain an island of traditional values in a liberal state. The culture wars came to a California suburb, and a leader has been ousted.
-Israeli cabinet minister Bezalel Smotrich has been accused of a secret government bid to cement control of the West Bank, despite Israeli judges stating that the territory is a temporary military occupation. In a taped speech, Smotrich, a member of Prime Minister Benjamin Netanyahu's coalition, told settlers in the Israeli-occupied West Bank that the government is engaged in a stealthy effort to irreversibly change the way the territory is governed, cementing Israel's control over it without being accused of formally annexing it. Smotrich suggested at a private event earlier this month that the goal was to prevent the West Bank from becoming part of a Palestinian state. He described the changes as "mega-dramatic" and "change a system's DNA." The speech, which was reviewed by reporters, highlights the government's efforts to change the way the West Bank is governed and cement its control without being accused of formally annexing it.
-A new antiviral drug, lenacapavir, has been found to provide total protection from HIV in a clinical trial of young African women. The injection, given twice a year, was found to be better than the current oral drug for pre-exposure prophylaxis, which is taken as a daily pill. The every-six-months injection was found to be more effective than the current oral drug for pre-exposure prophylaxis. Dr. Linda-Gail Bekker, an investigator in the trial of lenacapavir, described the startling sight of a line of zeros in the data column for new infections as "surreal." Advocacy for Prevention of HIV and AIDS in South Africa leader Yvette Raphael called the news "the best news ever." The study highlights the importance of early detection and treatment for HIV in the population with the highest infection rates.

THE NEW YORK POST
-Former President Donald Trump has announced that Teamsters General President Sean O'Brien has accepted his invitation to speak at the Republican National Convention in Milwaukee. This is a significant win for Trump, who is edging ahead of President Biden in polling with traditionally backed Democrats, including union members. A survey this year found Biden and Trump tied at 47% among union members in the six closest swing states Biden won in 2020, Arizona, Georgia, Michigan, Nevada, Pennsylvania, and Wisconsin. O'Brien has a controversial history, having been criticized by Post columnist Charlie Gasparino last year for failing to compromise with a major union employer, Yellow, which led to 22,000 Teamsters jobs lost. With support from the National Republican Congressional Committee, Pennsylvania House candidate Deb Haaland debuted his campaign's "Battle Station" office.
-Chinese battery manufacturer CATL has become the top recipient of state subsidies among all mainland listed companies, indicating a strategic focus as government support in the West becomes scrutinized. Last year, the company ranked No. 1 in subsidy receipts among over 5,000 mainland businesses, according to data from Chinese information provider Wind and surveyed by Nikkei Asia.
-US stocks could face a dip of 5% or more before the end of this year, according to veteran Wall Street analyst Sam Stovall. Stovall warned that tech is the only outperforming sector, as AI chipmaker Nvidia surged to become the world's most valuable company, worth over $3.3T. He warned that US stocks could fall further due to consumer confidence hitting its lowest level since November. Stovall also compared a possible downturn to a "resetting of the dials" or "digestion" after a big meal. He warned that the tech-driven recent rally of share prices could come to an end as Americans were feeling gloomy about the economy.

Barrons : Nike Stock Can Just Do It. It’s Time to Buy.

Nike Stock Can Just Do It. It’s Time to Buy.
Shares of the athletic shoemaker have fallen, but the arrival of the Olympics could signal that a turnaround is set to begin.

It feels like a golden age for athletic wear. So why is Nike struggling so badly?

Nike investors aren’t used to watching the stock take this kind of beating. Shares have tumbled 12% this year—and it isn’t hard to see why. China’s uneven economy has meant slower sales, while the high cost of living has also weighed on consumers elsewhere. Nike’s long innovation cycle resulted in inventory problems and created an opening for competitors like Hoka maker Deckers Outdoor and On Holding, which have both climbed roughly 50% this year.

It’s a lot of bad news, but much of it is already baked into the stock, with shares trading at a 25% discount to their historical average. What’s more, Nike appears to have new shoes coming that could excite shoppers again, while the Summer Olympics, set to start in late July, should be another catalyst for the stock. Add it up, and the tough times fo

r Nike, which is due to report earnings on June 27, should be coming to an end.

“It takes time for a comeback of this scale, but it’s clear Nike is focused on the right things,” says Maria Lernerman, a portfolio manager at Harding Loevner. “I don’t see it as a question of if, but of when, performance will improve.”


The Nike turnaround starts with the Olympics. Although Nike has gotten some blowback from the uniforms it designed for some female athletes, the Summer Games are still a likely catalyst for its shares. Given the company’s sport-first approach, it’s a time for some of its star athletes to shine. It’s also outfitting the American break-dancing team with a new, specially designed shoe as the sport makes its Olympic debut.

The Games coincide with what’s likely to be a fresh wave of new Nike products. The company hasn’t been sitting idle as brands like Hoka and On push the boundaries of athletic footwear, but R&D takes time. Now it’s likely on the cusp of a new wave of sneakers that could reignite interest in the brand. During earnings calls in May, Foot Locker and Dick’s Sporting Goods , key retail partners for Nike, highlighted the company’s recent innovation as a potential for future sales. This spring, the company’s innovation summit in Paris highlighted some of its coming products, like new iterations of its Nike Air franchise.

“We have seen Nike in this spot twice before over the past 10 years, and when they really focus on new innovation, it has translated to great results over the following years,” Edward Jones analyst Brian Yarbrough told Barron’s in an email.

Just don’t expect Nike to report great results when it releases its financials. Recent quarters have been disappointing. Downbeat guidance sent the shares tumbling after its most recent earnings report in March, a repeat of what happened in December, when Nike had its worst day in years after its sales forecast disappointed. The company is expected to report a fiscal fourth-quarter profit of 84 cents a share, up from 66 cents from the same period a year ago, on sales of $12.9 billion, up a tick from $12.8 billion. Those numbers matter less than its fiscal 2025 outlook. A positive change in tone could do a world of good for the shares.

“We don’t expect green shoots to translate into sales growth in the first half of fiscal 2025, but building evidence of Nike’s innovation pipeline would bolster confidence in a second-half turnaround,” notes BofA Securities analyst Lorraine Hutchinson, reiterating a Buy rating on the stock.

Of course, there’s no guarantee that Nike’s newest products will hit the mark, especially given how new entrants have started to grow a loyal consumer base. Likewise, ongoing pressure on the consumer means that the company’s coming results could be another quarter plagued with a conservative forecast.

Reflecting that, Truist Securities analyst Joseph Civello kept the stock at Hold with a $99 price target, citing his belief that management’s tone won’t change.

Still, Nike seems like a bet worth making. Right now, the stock trades for 24 times forward earnings. That’s higher than the S&P 500’s 21.7 times but well below Nike’s five-year average of 31.5. Stifel analyst Jim Duffy admits that the shares won’t be able to expand their multiple again “until inflection to growth and resulting operating leverage becomes more tangible.” That said, he still argues that the stock—which he believes should trade to $117, up more than 20% from Thursday’s close of $95.57—is “worth a premium,” given its market-leading position and the opportunity for the brand to rebound.

When it comes to Nike stock, just do it.

WSJ : Nvidia Is No Cisco, but It Is Getting Expensive

Nvidia Is No Cisco, but It Is Getting Expensive
Chip maker’s valuation is nowhere near those seen in dot-com boom, but recent gains have erased the stock’s discount relative to its projected earnings

Is a great business worth any price? Nvidia NVDA -3.22%decrease; red down pointing triangle investors finally seem to be asking themselves that question.

The chip maker powering the artificial-intelligence revolution blew past $3 trillion in market capitalization earlier this month barely three months after passing $2 trillion. It even became the world’s most valuable company earlier this week, briefly surpassing Microsoft and Apple. That seems to have given investors some pause; Nvidia’s share price has slipped nearly 7% since trading resumed after the Juneteenth holiday.

Still, with a value of a little over $3.1 trillion as of Friday’s close, Nvidia is hardly cheap. That is merely 2% below that of Apple, a company with more than 2½ times Nvidia’s trailing 12-month free cash flow. The stock is also now at nearly 45 times projected earnings for the next four quarters. That is 11% above its five-year average multiple and about 35% higher than what the stock was fetching when the company’s market value first crossed the $2 trillion threshold in March.

Nvidia’s sharp rise—and big gains made by stocks such as Dell, Super Micro and Broadcom that are also seen as AI enablers—has spawned inevitable comparisons to the dot-com bubble that burst nearly a quarter of century ago. There are some parallels: The early days of the Internet favored companies selling the necessary hardware to get homes and businesses online. Cisco CSCO 1.22%increase; green up pointing triangle, IBM, Lucent Technologies and Intel were four of the 10 most valuable companies on the market by the end of 1999, according to data from S&P Global Market Intelligence. Cisco overtook Microsoft to become the most valuable public company about four months later.

Cisco’s stock price is about 40% below that level now, adjusted for splits. That seems like a cautionary tale for Nvidia’s shareholders. But there are also some important differences to consider. Cisco swelled to a much frothier multiple of 131 times forward earnings at its peak in March 2000, according to FactSet data. And that was on less impressive financial performance, as the company’s revenue grew 55% in the fiscal year that ended that July with an operating margin of 17%, down from 24% the year before, according to data from S&P Global Market Intelligence. Nvidia’s trailing 12-month revenue at the end of the April quarter was more than triple that of the same period last year, while its operating margin has more than doubled in that time to 60%.

Cisco’s business also cratered the following year as orders from financially shaky customers that had been propping up its bookings quickly vanished. It actually lost money in the 2001 fiscal year after earning $3.2 billion the year before.

“This may be the fastest deceleration any company of our size has ever experienced,” Cisco’s then chief executive, John Chambers, said in the company’s earnings release in May of that year.

Such a drastic turn is highly unlikely for Nvidia. Deep-pocketed tech giants such as Microsoft, Google and Amazon that operate extensive cloud computing networks account for more than 40% of the company’s data-center sales, and they all have clearly signaled plans to spend even more in the coming year.

“Unlike the ‘dot-com boom’ that was funded by risky debt-taking, genAI deployment is a mission-critical race between some of the best-funded (cloud) customers,” Vivek Arya of BofA Securities wrote in a note to clients this week.

Nvidia will also have more software revenue coming into its mix as the growing base of its AI systems will necessitate more use of its software tools by developers.

That doesn’t necessarily make Nvidia’s shares safe at their current level, though. The stock has seen a big influx of individual investors since the company’s latest financial results last month. Daily retail inflow has averaged nearly $141 million since the earnings compared with a daily average of about $39 million during the month prior, according to Vanda Research.

Sell-side analysts are also getting rather exuberant. Several have pushed up their price targets since the stock’s June 10 split. And at least four of those targets are now at $160 and higher, which would put Nvidia’s market capitalization near $4 trillion at its current share count. Nvidia may be the top gun of AI, but investors should be careful not to write checks the stock can’t cash.

WSJ : Apple, Meta Have Discussed an AI Partnership

Apple, Meta Have Discussed an AI Partnership
The longtime rivals have held talks about potentially integrating Meta’s generative AI model into Apple Intelligence

In its hustle to catch up on AI, Apple AAPL -1.04%decrease; red down pointing triangle may be turning to a longtime rival: Meta.

Facebook’s parent has held discussions with Apple about integrating Meta Platforms’ META -1.38%decrease; red down pointing triangle generative AI model into Apple Intelligence, the recently announced AI system for iPhones and other devices, according to people familiar with the matter.

Meta and other companies developing generative AI are hoping to take advantage of Apple’s massive distribution through its iPhones—similar to what Apple offers with its App Store on the iPhone.

A latecomer to generative AI, Apple has developed its own smaller artificial-intelligence models but has announced it will turn to partners for more complex or specific tasks. When Apple Intelligence was unveiled earlier this month at the company’s Worldwide Developers Conference, OpenAI’s ChatGPT was announced as the company’s first partner.

“We wanted to start with the best,” said Apple software leader Craig Federighi, noting that ChatGPT “represents the best choice for our users today.” He also said Apple wanted to integrate Google’s Gemini as well.

In addition to Google and Meta, AI startups Anthropic and Perplexity also have been in discussions with Apple to bring their generative AI to Apple Intelligence, said people familiar with the talks.

If Apple strikes deals with partners beyond OpenAI, Apple said customers could choose which external AI models they want to use in addition to Apple’s internal systems.

The discussions with Meta highlight the unlikely alliances that are forming between major technology companies in the artificial-intelligence era. OpenAI’s tech is set to be embedded in Microsoft and Apple devices. And an Apple and Meta deal would be noteworthy given how much the two companies have been at loggerheads over other emerging tech issues.

In its talks with other AI companies, Apple hasn’t sought for either party to pay the other, the people said. Instead, the AI companies can sell premium subscriptions to their services through Apple Intelligence. As it does on its app store, the iPhone maker would keep a cut of subscription revenue from its devices.

The discussions haven’t been finalized and could fall through. Even though deals with Apple would help AI companies obtain massive distribution of their products, it is unclear how much of a financial windfall it would be.

OpenAI will be offering a free version of ChatGPT through Apple Intelligence, but users can also link a premium ChatGPT account to their Apple device.

While ChatGPT usage is expected to double with the Apple partnership, OpenAI’s infrastructure costs are expected to grow 30% to 40%, said Gene Munster, a longtime Apple analyst and managing partner at Deepwater Asset Management. Munster expects 10% to 20% of Apple users will opt into paying for a premium AI subscription to a product like ChatGPT. That could mean billions of dollars for AI companies that integrate successfully with Apple’s new platform.

“Distribution is hard to get,” Munster said. “The beauty of what Apple has built is that you’ve got this engaged distribution at scale.”

A partnership with Meta would help elevate the stature of its efforts in the tech industry’s AI race and represents a rare olive branch between the social-media giant and the iPhone maker. Meta launched Llama 2, its large language model, in July 2023, and in April, the company released the latest versions of its AI models, called Llama 3. While Llama has gained support and adoption within the tech industry and among startups, a deal with Apple would represent a major victory for Chief Executive Mark Zuckerberg and his company’s AI division.

Tensions between the two companies have persisted for more than a decade. Most notably, Apple in 2021 introduced privacy changes to its mobile devices that Meta later said would cost it $10 billion in lost revenue in 2022. In April, Meta published instructions encouraging advertisers to use a workaround to avoid paying a 30% service charge to Apple for “boosted posts,” a form of advertising that the two companies bickered over for years, The Wall Street Journal has reported.

By holding discussions with a range of AI companies, Apple is able to avoid becoming overly reliant on OpenAI. But it remains to be seen how open Apple will make its new AI platform available to these external AI companies. These AI deals take time because for now they have to be struck on a per-company basis, unlike the App Store where an established process exists in which developers can more freely submit their apps for Apple’s approval before showing up in its digital storefront.

Apple’s Federighi said it makes sense for the company to offer numerous AI options because users will prefer different models for different tasks, such as creative writing or researching medical information. “People are going to want to draw on that kind of expertise that might not be part of our core,” he said at the developers conference earlier this month.

News Corp, owner of the Journal and Dow Jones Newswires, has a content-licensing partnership with OpenAI.

FT : Cut-price anti-drone weapon could be ready next year

Cut-price anti-drone weapon could be ready next year
The Thales-led radio frequency directed energy weapon is being field tested with the UK military over the summer

A cut-price weapon that can take down multiple drones at once by disrupting their electronics could be available as early as next year, says the head of the company spearheading the development for the UK.

Alex Cresswell, chair and chief executive of Thales UK, said the new radio frequency directed energy weapon (RFDEW) which is being field tested with the UK military over the summer, should be ready for use “quite quickly”.

“Going from something that works in real life on Salisbury Plain to something that you would send off to Ukraine is still quite a jump. It’s a year’s jump but not many years’ jump,” said Cresswell in an interview with the Financial Times.

“Could the system that we have demonstrated be available for someone to field [as early as next year]? Yes, of course it could,” he added.

Thales UK, the British subsidiary of the French defence and technology group, is leading the development of the weapon as part of an industrial consortium under contract with the Ministry of Defence. A decision on when and where to deploy the system would be up to the UK government.

At a cost of only 10p per use and with a range of up to 1km, the system will offer a cheaper alternative to traditional missile air defence systems, which typically cost upwards of hundreds of thousands of dollars. The technology can be mounted on military vehicles and uses a mobile power source to produce radio frequency waves or pulses to interfere with the electronics of a moving target.

The industry, said Cresswell, has been working on countermeasures against incoming attacks for decades. However, since Russia’s invasion of Ukraine both sides have relied heavily on drones to attack from the skies, spurring investment from governments and industry in ways to counter such attacks.

What people are trying to pursue, he added, is weapons that are “much more cost effective for the combat mass that they provide”.

Thales, which has the French government as its biggest investor, generated €18.4bn in revenues in 2023 and is recruiting heavily worldwide. In the UK, where it employs more than 7,000 people, sales have risen 20 per cent over the past two years to just over £1.1bn by the end of 2023.

Cresswell said he expected sales in the UK to increase another 10 per cent this year as the company benefits from higher government orders. It makes missiles and launchers at two sites in Belfast in Northern Ireland, as well as providing sonar systems for the Royal Navy’s nuclear submarines.

Missiles made in Belfast have been supplied, via the UK Ministry of Defence, to Ukraine. Russia’s invasion of Ukraine has not only depleted governments’ weapons stockpiles but also underlined that most were too small to cope with a long and intense conflict.

Output at the Belfast facilities, where Thales builds the Starstreak short-range air defence system and assembles the Saab NLAW anti-tank system, has doubled over the past 18 months to its highest level for the past two decades. Cresswell said Thales plans to double output again over the next two years to meet demand.

There has been a “seismic shift” in the way weapons and munitions are procured, with a “much higher focus on resilience being built in, capacity being built in and the ability to scale up being built in”, he said.

FT : Beyond imitation: how designers are reimagining China’s cars

Beyond imitation: how designers are reimagining China’s cars
Electric-vehicle makers are setting new standards with unique designs and focus on gadget-packed interiors

As soon as Chinese tech billionaire and Xiaomi founder Lei Jun took the wraps off the world’s first car produced by a smartphone company, automotive enthusiasts knew the source of the design’s inspiration: the Taycan by the 93-year-old German carmaker Porsche.

The Xiaomi SU7, unveiled in December and launched in March, has rocked the world’s biggest car market. Xiaomi had orders for more than 88,000 cars by the end of April. Last month, the company raised its sales target for this year to 120,000 vehicles from 100,000.

Porsche, by comparison, suffered a 24 per cent year-on-year decline in first-quarter sales in China to 16,340 cars.

Xiaomi’s stunning debut has highlighted the rapid advance of China’s electric vehicle industry from bygone perceptions of ugly and low-quality models to sleek, high-tech and affordable cars.

Lei Xing, founder of Chinese consultancy AutoXing, said opinions of local industry leader BYD, which now rivals Tesla for the title of world’s biggest EV producer, started to shift about four years ago with its Han saloon. Also in 2019, local start-up Nio released its ET concept, which later became the group’s flagship luxury model, in another example of Chinese design progress.

“Styling, proportion, sportiness were different from anything BYD had done before,” said Xing. “Likewise for the Nio ET.”

Since then, China’s EV industry has boomed, and the local industry’s design credibility has made huge strides. The International Energy Agency forecasts that 10.1mn EVs will be sold in China this year, compared with 3.4mn in Europe and 1.7mn in the US.

Tu Le, founder of the Sino Auto Insights consultancy, pointed to Human Horizons’ HiPhi X, a luxury SUV launched in 2020 by a now-struggling Shanghai EV maker, as the “first real-life cyberpunk vehicle that was meant to stand out”.

At the other end of the spectrum, the Wuling Hongguang Mini EV, produced since 2020 by a joint venture involving General Motors of the US and two Chinese state-owned carmakers, “started a huge trend” for microcars that can be accessorised.

Yet, some experts said the Xiaomi SU7’s unmistakable resemblance to the Porsche design also put the spotlight on the industry’s long-running struggle to find its own identity.

Xiaomi’s first car “very clearly emulates” the Porsche Taycan, said Robert Dooley, a strategist with UK-based advisory Car Design Research. “From a design perspective, it is a wasted opportunity.”

In many elements of car design, including user experience, technology and interiors, some Chinese brands are “leading” their western rivals, said Dooley, yet many still struggle to highlight “their unique qualities of being Chinese”.

“Although they are more technologically advanced in some cases, they are largely trying to emulate a western brand,” he said. “What are our strengths? What does the market know us for positively? How do we deliver upon those things? . . . To me, that is a big challenge which is not being addressed.”

Companies are now hiring more local staff who better understand Chinese consumers. Xiaomi brought in Li Tianyuan, the first Chinese designer hired by BMW, as head of its car design team in 2021, while Chinese employees comprise 90 per cent of Geely’s Shanghai-based design team.

The rise of the country’s EV industry is also enabling the integration of advanced driver assistance and entertainment systems into car designs at a faster pace than the rest of the world.

“Foreign brands’ infotainment systems might not be as good as Chinese EV makers,” said Guo, a 27-year-old car buyer in Beijing who expressed a preference for spacious interiors and luxurious decor. Her favourite brands, Li Auto and Huawei-backed Aito, are known for their full-size SUV models equipped with huge in-cabin screens and seats with built-in massagers.

Chinese carmakers are increasingly rethinking — and redesigning — interiors around the lifestyles of their local consumers. In many premium models, far greater attention is paid to the layout of the so-called second row, where most business executives sit while they are driven by private chauffeurs.


These efforts follow years of poaching top design talent from the west, including Kris Tomasson, a former Ford and BMW designer who joined Nio in 2015 when it was an ambitious start-up founded by serial entrepreneur William Li.

Tomasson, whose industrial design credits range from the Gulfstream G650 business jet to a Coca-Cola bottle, said Li understood from the beginning that a “strong design DNA” would be critical for the company as it challenged rivals with decades of experience.

“The capabilities have grown here, the talent has grown here, the expertise has grown here. It’s just experience,” he said. “Now they’ve actually gone through the process of designing cars.”

Tomasson added that foreign rivals still underestimated the speed at which Chinese companies could move through the design process, “working almost from the gut” with fewer design iterations.

Stefan Sielaff, who spent 30 years working at European carmakers including Audi, Volkswagen and Bentley, before joining Geely, said the “high demands” of China’s tech-savvy consumers had pushed him to develop increasingly connected and autonomous cars at an unprecedented speed.

“They are very energetic, open to technology and living a fast-paced lifestyle . . . [while] in other parts of the world, people still think a car is [merely] an object which you drive from A to B,” he said.

Zeekr, the Geely brand Sielaff has helped launch, typically takes two years to turn around a new model, shorter than half the development cycles at most of the established European carmakers.

Sielaff attributed the pace to a “low hierarchy” at the company that has helped it respond to recent changes in Chinese consumer tastes, with simplicity and understatement being new watchwords.

“[Western carmakers] have the advantage of a very good name and high value in the eyes of customers,” he said, “but when it comes to reinventing and disrupting themselves, this is also a burden. This is a burden we don’t have.”

FT : Abu Dhabi’s Masdar seeks European acquisitions

Abu Dhabi’s Masdar seeks European acquisitions
State-backed green energy group to ‘pump more capital’ into region after buying Greece’s biggest renewables company

Abu Dhabi’s state-backed green energy group Masdar is on the hunt for more European acquisitions after buying Greece’s biggest renewables company last week, as financial strains in the sector drive down valuations and create room for deals.

Mohamed Jameel Al Ramahi, chief executive, told the Financial Times the deal for Terna Energy at a €3.2bn valuation was just the start of a further expansion into central and eastern Europe.

“The reality is we are not just acquiring this platform and portfolio,” he said. “We are going to be pumping more capital into Greece and into Europe.”

“This is a strategic deal for us where we reinforce our presence in Greece but, more importantly, in eastern Europe,” he added, citing the company’s presence in Serbia, Montenegro and Poland, as well as its “strong pipeline” in the region.

After a decade of rapid growth, the renewables industry has come under pressure from higher interest rates, particularly in Europe where several companies have scaled back or cancelled plans. 

But Al Ramahi said higher interest rates had brought the sector back to reality and made people “come to their senses” over deals.  

“When interest rates were at zero, or negative, people were expecting high valuations. If you didn’t give them the value that they dreamt of, they could go to the bank and borrow at zero interest and continue their growth story. They don’t need you.

“Now [higher rates] triggered a realisation to the market that the valuation they were thinking of is not real.”

In recent months, cash-rich buyers from the US and the Gulf states have stepped up their dealmaking in the capital-intensive sector. 

Masdar, which is funded by the UAE’s sovereign wealth fund Mubadala, its power and water company Taqa and its national oil company Adnoc, has amassed a $30bn portfolio of renewable projects.

As well as Terna, it recently bought 49 per cent of the UK’s £11bn Dogger Bank wind project, a €1.6bn slice of a wind farm in the Baltic Sea and a 50 per cent stake in US wind, solar and energy storage group Terra-Gen.

Meanwhile, Canadian infrastructure investor Brookfield and Singaporean state investment fund Temasek said last month they were in exclusive talks to buy French solar and wind developer Neoen at a €6.1bn valuation, after the company said it needed more capital for growth. 

Connor Teskey, head of renewable power at Brookfield, said at the time the talks were announced that he expected to see more deals. 

“In order to capture all this demand [for renewable electricity], these businesses need to be supported by very well-capitalised, deep-pocketed shareholders. That is in no way a criticism of the shareholders of the past that have built these great businesses and turned them into great platforms but there is simply a different scale that is required for this next chapter of growth.”

Other big deals in the space include KKR’s €2.8bn takeover of Germany-headquartered renewable power producer Encavis, which is expected to close at the end of this year

Masdar has turbocharged its dealmaking in order to meet its target of 100GW of renewable capacity by 2030. It currently has roughly 20GW of projects either up and running, being built or in development.

“We needed to shift gear,” Al Ramahi said. “We needed to start looking at and assessing new opportunities that are large and at scale. We had to start thinking about making big acquisitions.”

Despite growing concerns in many European governments over foreign ownership of critical energy infrastructure, Al Ramahi said Masdar had so far not run into any issues.

“We have not seen that we are not welcomed anywhere,” he said. “On the contrary, all doors have been opened for us everywhere we have gone.”

He added that he was neutral on using Chinese-made solar panels or wind turbines. “We believe in an open liberal market. [We will buy from] anyone who can scale up and supply the product at the right time, at the right price.”