TheChek News Flow

The Fed pivot in December has reduced both the level and uncertainty about rates, and likely helped cement the now consensus view of a soft landing instead of a recession. We think the main impediments to capital market activity, therefore, look to be reversing all at once. Falling rates and more confidence in the economic outlook have already started to show up in M&A in Q3/4, with QoQ volumes and value picking up from the depressed levels of 2022/1H23.

SMIDs have de-rated significantly since rates began to rise, given their higher leverage and despite their resilient earnings. Their lower valuations and resilient fundamentals could make them more attractive as potential acquisition candidates, while the latest ECB Bank Lending Survey showed a small increase in demand for loans to firms for the first time in two years. More broadly, we believe the valuation argument also holds for European and UK large caps, which are trading on depressed valuations vs. their US peers (even excluding big Tech). We note that European companies tend to become potential targets when the currency depreciates vs. USD.

We think there are two benefits for the private capital industry: 1) increased deal volumes and exits in PE should allow carried interest to be realised within portfolios, which should drive incremental revenue growth; 2) realising cash into portfolios should allow cash distribution either for redeployment to new deals or to existing investors, which in turn could speed up new fundraising cycles and thus support higher valuations. Exchanges could benefit from seeing a return of higher margin IPO activity. More broadly, the prospect of rate cuts may prompt cash reallocation away from money market funds and into fixed income / equity funds, benefiting asset managers. EU banks are also potential M&A actors themselves, and IBs should be set to benefit from any increase in transaction volumes, in our view.

Our sector analysts see potential for a pick-up in M&A/capital market activity in Banks, Real Estate, Construction Materials & Infrastructure, UK Housebuilding & Construction, Airlines, Logistics, Aerospace & Defense, Telecoms, Internet and Pharmaceuticals. Within VC, we believe focus will remain on Artificial Intelligence enablers and applications as well as CleanTech.

• DD -11%, KMB -4.1%, T -3.9%, TRMK -3.4%, TXN -3.1%, EWBC -2.9%, VBTX -2.2%, ABT -2%, STLD -1%,

• BB -10.3% ($160 mln convertible notes offering)
• SGMT -3.2% (prices offering of 9 mln shares of its Series A common stock)
• MCHP -2% (in sympathy with TXN earnings)
• ADI -1.2% (in sympathy with TXN earnings)
• BA -0.8% (FAA discloses incident with BA 737: "Aircraft during line up and wait nose wheel came off and rolled down the hill"; no injuries reported)

• PLUG -3.5% (downgraded to Underperform from Market Perform at BMO Capital Markets)
• BRLT -3.2% (downgraded to Market Perform from Outperform at TD Cowen)
• DXC -3% (downgraded to Underweight from Neutral at JP Morgan)
• BIIB -1.7% (downgraded to Neutral from Buy at UBS)
• EPAM -1.4% (downgraded to Underweight from Equal-Weight at Morgan Stanley)
• CYTK -1.1% (downgraded to Neutral from Buy at UBS)
• UBER -0.9% (downgraded to Hold from Buy at Gordon Haskett)
• DHR -0.8% (downgraded to Equal Weight from Overweight at Barclays)

• EDU +10.4%, NFLX +9.4%, SAP +7.3%, LRN +6.5%, ISRG +6.2%, ASML +5.8%, TEL +4%, ELV +2.7%, TXT +2.2%, SF +1.4%, GD +1.1%, CNI +1% (also increases dividend, announces repurchase of shares under a new normal course issuer bid), IPAR +1%,

• KURA +36% (announces oversubscribed $150 million private placement)
• BZUN +6.7% (announces $20 million share repurchase program)
• BITF +5.4% (completed the purchase of land for its new 100 MW production facility in Yguazu Paraguay)
• HRTX +4.5% (receives FDA approval for ZYNRELEF indication expansion to include additional orthopedic and soft tissue procedures)
• EBAY +4% (announced a restructuring plan; expects that its financial results for the quarter will be at least consistent with or in the case of some measures slightly above the higher end of the guidance)
• FHN +3.6% (authorizes $650 mln share repurchase program)
• ROKU +2.8% (in sympathy with NFLX earnings)
• MAG +2.3% (reports Q4 production)
• RIO +2.1% (to drive development of Australia's largest solar power project)
• WBD +1.5% (in sympathy with NFLX earnings)
• LPG +1.2% (announced that its Board of Directors has declared an irregular cash dividend of $1.00 per share of the Company's common stock)
• EXK +1.1% (provides 2024 update for the Terronera Project; initial production remains on schedule for end of 2024)
• PARA +1% (in sympathy with NFLX earnings)
• CACI +1% (wins five-year $382 mln U.S. Army contract)

• FIGS +4.3% (upgraded to Equal Weight from Underweight at Barclays)
• ACAD +3.4% (upgraded to Buy from Hold at Needham)
• AMD +2.1% (upgraded to Buy from Neutral at New Street)
• CFB +2% (upgraded to Overweight from Equal-Weight at Stephens)