FT : More Heathrow shareholders plan to sell stakes

More Heathrow shareholders plan to sell stakes
Investors owning 35% of UK’s biggest airport push to exit as £2.4bn deal with Saudis and private equity under threat

Several shareholders in Heathrow that between them own 35 per cent of the London airport have said they want to sell out alongside majority owner Ferrovial, according to the infrastructure group, as part of £2.4bn deal agreed last year.

Ferrovial agreed to sell its 25 per cent stake in the UK’s biggest airport in November for £2.4bn to French private equity company Ardian and the Saudi Public Investment Fund, ending 17 years of ownership.

As part of that deal, the airport’s other shareholders were given the option to sell their own stakes at the same valuation, with the Saudis and Ardian offered first refusal. Ardian originally agreed to buy 15 per cent, and the Saudis 10 per cent.

On Tuesday, Ferrovial said that several other shareholders had decided to exercise their “tag-along” rights, throwing a potential roadblock in the way of the transaction. With 60 per cent of the airport now involved in the sale process, the £2.4bn deal could collapse if all the shareholders cannot find buyers.

Ferrovial added it was a “condition” of the transaction that the “tagged shares” were also sold.

Neither Ardian or the Saudis are compelled to buy the new shares on offer. The Saudis plan to stick with their original plan to buy 10 per cent and do not want to increase their stake in the airport beyond this, according to a person familiar with the deal. Ardian is considering raising its offer, the person said. 

Another option being considered is for the Saudis and Ardian to find a third investor to come on board to take the fresh stakes.

Ferrovial did not name the other shareholders who intended to sell. Heathrow’s other owners are Canadian pension fund Caisse de dépôt et placement du Québec (CDPQ), Singapore sovereign wealth fund GIC, the UK’s Universities Superannuation Scheme, Qatar Investment Authority, the Australian Retirement Trust and China Investment Corporation. 

The change in ownership would represent one of the biggest shake-ups in Heathrow’s boardroom since it was privatised under the Thatcher government in the 1980s.

Any new investors will buy into an asset that has been lossmaking for three years because of the pandemic and travel restrictions, but with a history of generating strong returns for shareholders.

Still, plans to build a third runway to generate significant new growth have stalled amid high inflation and rising interest rates.

Heathrow’s management has instead been exploring less radical options to increase passenger numbers, such as upgrading terminals and its road links, the Financial Times reported last month. 

>>> Europe : Brokers Upgrades & Downgrades - 16th of January 2024 V3(++)

>>> Up
* Addnode Group AB Raised to Buy at SEB Equities; PT 100 kronor
* Adyen Raised to Buy at Stifel; PT 1,450 euros
* Aegon Ltd Raised to Buy at Citi; PT 5.84 euros
* Allianz Raised to Buy at Citi; PT 272.80 euros
* Arkema Raised to Overweight at Barclays; PT 134 euros
* Boston Beer Raised to Market Perform at Bernstein (+)
* Componenta Raised to Buy at Inderes; PT 3 euros
* Dassault Systemes Raised to Buy at Deutsche Bank (+)
* DiaSorin SpA Raised to Outperform at Intermonte; PT 109 euros
* Direct Line Raised to Buy at Berenberg; PT 195 pence
* Dont Nod Entertainment Raised to Buy at Gilbert Dupont (+)
* Elisa Raised to Buy at Nordea; PT 49 euros
* Epiroc Raised to Buy at ABG; PT 210 kronor (++)
* Galp Raised to Neutral at JPMorgan; PT 16.50 euros
* Generali Raised to Buy at Citi; PT 21.97 euros
* Marks & Spencer Raised to Add at AlphaValue/Baader
* NXP Semi Raised to Overweight at Barclays; PT $260
* Oxford Nanopore Raised to Reduce at Peel Hunt; PT 155 pence
* Publicis Raised to Buy at Goldman; PT 106.10 euros
* SoftwareONE Raised to Buy at Baader Helvea; PT 18 Swiss francs
* Stroeer Raised to Neutral at Goldman; PT 62.20 euros
* UBS Raised to Buy at DZ Bank (+)
* WDP Raised to Hold at SocGen; PT 28.80 euros
* Western Digital Raised to Buy at Deutsche Bank; PT $65

>>> Down
* AB InBev Cut to Neutral at Citi; PT 64 euros
* ABN Amro GDRs Cut to Underweight at JPMorgan; PT 13.60 euros
* Also Cut to Add at Baader Helvea; PT 289 Swiss francs
* Aroundtown Cut to Sell at SocGen; PT 2.25 euros
* Banco BPM Cut to Underweight at JPMorgan; PT 4.50 euros
* Bank of Ireland Cut to Underweight at JPMorgan; PT 8 euros
* Bankinter Cut to Neutral at Alantra Equities; PT 7.40 euros (++)
* Believe Cut to Neutral at Goldman; PT 11.50 euros
* Boeing Cut to Equal-Weight at Wells Fargo
* Bufab Cut to Hold at DNB Markets
* Crest Nicholson Cut to Hold at Jefferies; PT 234 pence
* DNB Bank Cut to Hold at Nordea
* Drax Cut to Sell at Citi; PT 437 pence
* Fortinet Cut to Equal-Weight at Wells Fargo; PT $65
* Grand City Properties Cut to Hold at SocGen; PT 10.50 euros
* Hannover Re Cut to Neutral at Citi; PT 243.70 euros
* Harpoon Therapeutics Cut to Market Perform at Cowen
* HelloFresh Cut to Sell at Goldman; PT 12.20 euros
* Hyatt Cut to Neutral at Redburn; PT $120 (+)
* Inmobiliaria Colonial Cut to Hold at SocGen; PT 6.70 euros
* IntegraFin Cut to Add at Numis (++)
* ITV Cut to Sell at Goldman; PT 60 pence
* Marel HF Cut to Neutral at Citi; PT ISK462.69
* Moneysupermarket Cut to Hold at Jefferies; PT 265 pence
* Munich Re Cut to Neutral at Citi; PT 419.50 euros
* NX Filtration Cut to Reduce at KBC Securities; PT 4.50 euros (+)
* Novartis Assumed Buy at UBS (++)
* OKEA Cut to Hold at DNB Markets; PT 28 kroner
* Partners Group Cut to Sell at SocGen; PT 920 Swiss francs
* Persimmon Raised to Buy at Jefferies; PT 1,706 pence
* Recordati Cut to Neutral at Intermonte; PT 57 euros
* Richemont Cut to Hold at Investec; PT 121 Swiss francs
* Rightmove Cut to Underweight at JPMorgan; PT 493 pence
* Roche Cut to Underweight at Morgan Stanley; PT 260 Swiss francs
* Rolls-Royce Cut to Sell at Berenberg; PT 240 pence
* Sabadell Cut to Neutral at JPMorgan; PT 1.20 euros
* Sampo Cut to Hold at Berenberg; PT 44 euros
* Schibsted Cut to Neutral at Goldman; PT 332 kroner
* Stadler Rail Cut to Sell at UBS (++)
* Taylor Wimpey Cut to Hold at Peel Hunt; PT 145 pence
* Wartsila Cut to Neutral at Citi; PT 14 euros
* Wise Cut to Hold at Numis; PT 950 pence (++)
* Worldline Cut to Hold at Stifel; PT 15 euros

>>> Initiation
* AstraZeneca Assumed Sell at UBS (++)
* Better Collective Rated New Overweight at Cantor; PT 350 kronor (++)
* BLUENORD ASA Rated New Buy at DNB Markets; PT 660 kroner
* Craneware Rated New Overweight at Cantor; PT 2,300 pence (++)
* Elekta Reinstated Buy at Danske Bank Markets; PT 110 kronor (++)
* Eurocommercial Rated New Hold at SocGen; PT 24 euros
* Fission Uranium Rated New Buy at Paradigm Capital; PT C$2
* Fortnox Rated New Underweight at Cantor; PT 34 kronor (++)
* GSK Assumed Buy at UBS (++)
* IP Group Rated New Overweight at Cantor; PT 73 pence (++)
* Keywords Studios Rated New Overweight at Cantor; PT 2,450 pence (+)
* Kinnevik Rated New Overweight at Cantor; PT 157 kronor
* Mercialys Rated New Buy at SocGen; PT 11.50 euros
* Molten Ventures Rated New Overweight at Cantor; PT 315 pence (+)
* Murapol Rated New Buy at Erste Group; PT 49.80 zloty (+)
* Novartis Assumed Buy at UBS (++)
* Novo Assumed Neutral at UBS (++)
* QT Group Rated New Underweight at Cantor; PT 48 euros (++)
* Sandoz Group Rated New Buy at Citi; PT 35 Swiss francs
* Sanofi Assumed Buy at UBS (++)
* Seco Rated New Overweight at Cantor; PT 5 euros (++)
* SmartCraft Rated New Overweight at Cantor; PT 32 kroner
* Stillfront Rated New Neutral at Cantor; PT 13.50 kronor
* Syensqo Rated New Underweight at Barclays; PT 101 euros
* Team17 Rated New Overweight at Cantor; PT 270 pence
* Truecaller Rated New Overweight at Cantor; PT 43 kronor (++)
* Ubisoft Rated New Neutral at Cantor; PT 25 euros (+)

>>> Call
* BofA Strategists See Lower-than-Average 4Q EPS Beats in Europe
* Dassault Systemes Rises After Upgrade by Deutsche Bank (++)
* Europe Banks Decline as JPMorgan Sees Start of Downgrade Cycle (++)
* HelloFresh, ITV Cut as Publicis Raised by Goldman Sachs (+)
* Hugo Boss Narrows Outlook; Ebit Miss Could Weigh, Jefferies Says (+)
* Hyatt Cut to Neutral at Redburn Atlantic as Valuation Gap Closed (++)
* Lindt’s Good Momentum to Continue After Sales Beat: Vontobel (+)
* Morgan Stanley’s Wilson Says Rates to Keep Driving US Equities
* Moneysupermarket Drops After Jefferies, Investec Both Downgrade (++)
* Persimmon Gains as Jefferies Rejigs Ratings on UK Housebuilders (++)
* Rightmove Drops as JPMorgan Cuts on Underestimated CoStar Threat (++)
* Rolls-Royce Slips After Rare Sell Rating From Berenberg (++)
* Stadler Rail Falls as UBS Cuts, Sees Strong FX Hitting Profit (++)

FT : City brokers Panmure Gordon and Liberum to merge

City brokers Panmure Gordon and Liberum to merge
Combined business to be led by Panmure chief Rich Ricci and chaired by Liberum founder Shane Le Prevost

City stockbrokers Panmure Gordon and Liberum have agreed to merge as a dearth of listings and deals forces the industry to consolidate.

The companies said on Tuesday that combining would create a business with more than 250 clients, providing everything from advice on acquisitions to equity research.

Rich Ricci, chief executive of Panmure Gordon, will lead the new business while Liberum founder Shane Le Prevost will be its chair.

Since 2018, Panmure Gordon has been owned by former Barclays chief executive Bob Diamond’s investment group, Atlas Merchant Capital. Liberum is owned by its employees.

“This merger will lift the level and quality of service to mid and small-cap
businesses and investors in the UK and beyond,” Diamond said in a statement.

The new combined company plans to expand its offerings in merger and acquisitions and private capital raising, with new services set to include debt advisory.

Brokers reliant on London’s midsized companies have faced a challenging backdrop as the market has been hit particularly hard by the global drop in initial public offerings and dealmaking.

The London stock market saw just 23 issuers listing in 2023, according to data compiled by EY. Combined, those groups raised £953.7mn in total, down 40 per cent from the previous year.

Panmure Gordon swung to a loss of £16.3mn in 2022 as revenues plunged 43 per cent to £27.6mn, according to its latest annual accounts. That came after it turned its first profit under new ownership of £3.1mn in 2021.

Liberum said 2022 was “an unprecedented year”, posting an £8.4mn loss as revenues halved, compared with £5mn of income in the previous year.

The grim market conditions have already prompted several deals, including the merger of UK small-cap brokers Cenkos and FinnCap in March last year. In April, Deutsche Bank agreed to buy the UK broker Numis for £410mn.

Panmure previously held merger talks with FinnCap before the negotiations collapsed in November 2022. It also acquired small-cap broker Whitman Howard in 2020.

Liberum and Panmure each have roughly 150 employees with teams across investment banking, research, sales and execution.

Liberum was founded in 2007 while Panmure Gordon’s history dates back to 1876. Panmure has traded hands numerous times in its existence, including an acquisition by Lazard 20 years ago.

FT : America the possibly beautiful

America the possibly beautiful
US stocks have had a great decade. Double down or cut back?

The biggest two questions on Wall Street lately have been: how far will the Federal Reserve lower rates, and how soon with it start? The market’s reply has been: six rate cuts (or about 1.5 percentage points), starting in March. Investors still expect six cuts, but have become slightly less sure about how soon they’ll begin:

Some Fed officials have tried to talk the market down. But with six Fed speeches scheduled for this week, the market might listen selectively.

American exceptionalism
My personal stock portfolio, which is made up entirely of index products, is 75 per cent US equities. I wish it were 100 per cent. Or rather, I wish that it had been 100 per cent 10 years ago. If it were, I’d be a significantly wealthier man now. American stocks have clobbered almost everything else over the decade. Ten years ago, I was a huge believer in international diversification. Subsequent experience has drained a lot of that confidence away.

The excellent relative performance of US stocks has led to a big valuation gap with the rest of the world. Here, for example, is the S&P 500 against the MSCI world ex-US and MSCI emerging market indices:


This divergence has made “this is the year that international stocks catch up with the US” a perennial January pitch from brokers and fund managers alike. Fair enough: why pay 50 per cent more for a dollar of earnings in the US versus a dollar of earnings in Germany or Taiwan?

Goldman Sachs Wealth Management has consistently swum against this current. In a report released late last week, it acknowledges US stocks look expensive relative to other geographies and their own history, but argues investors should not cut their US allocation in response.

Its argument can be summed up as “pricey, but worth it”. The US, GSWM notes, is a unique combination: it is the only very large country with high gross domestic product per person and deep, liquid capital markets. It has a huge internal market that insulates it against global turbulence. It has the best demographic outlook of any large economy save India. It has the highest labour productivity in the world. It is the largest producer of oil and gas in the world. It exports more agricultural commodities than any other country. It is the undisputed technological and research leader globally.

There are lots of reasons, then, that the earnings of US companies have, over the long term, outpaced the rest of the world, and to expect them to continue doing so. And GSWM argues that while US stocks are expensive, they are not as expensive as they look. For one thing, if you remove the impact of the Magnificent Seven Big Tech stocks and Netflix, price earnings multiples look less inflated:


For another, if you adjust the multiples of other global indices for sector mix — adjusting, essentially, for the US’s overweight position in technology stocks — the valuation difference shrinks:


The other side of debate over US dominance has been taken up by the big factor-investing fund AQR. They think emerging market equities, in particular, are better positioned than their US counterparts. The view was laid on in a Bloomberg article yesterday:

“Emerging markets are almost certain to outperform the US over the longer term, according to Dan Villalon, head of AQR’s portfolio solutions group, who made a similar call in June of last year. “Emerging markets have the highest expected return over the next five to 10 years,” he said in an interview earlier this month . ..

For US stocks to continue beating the developing-world counterparts, “valuations of US equities would have to increase into tech-bubble land”, he said. “We think this is a risky proposition to say the least. We still think that there’s a case to be made for diversification outside the US.”

AQRs argument is laid out in detail in two white papers. First, the great performance of the US over the past 10 years — beating cash returns by 11.9 per cent a year — is simply unlikely to repeat. They show this by decomposing those great returns into real earnings growth (which contributed 4.5 per cent annually), dividend yield (2.1) and valuation expansion as measured by cyclically adjusted price/earnings ratios (3.6). Subtracting the real returns on cash adds 1.7 per cent to the excess-of-cash return (that is, real cash returns were negative). 

If you take the current dividend yield (1.5) and use the Fed projection for the long-term neutral rate as a proxy for cash returns (positive 0.5), then you need 10.9 percentage points of return from earnings growth and multiple expansion. So assume you get 6 percentage points a year from earnings growth — that is, a 90th percentile result relative to history. Even then you need valuations to reach absolute all-time highs over the next 10 years to get returns like the last 10. In sum,

to forecast a repeat performance from equity markets, you must forecast earnings growth at levels unprecedented [starting from a] non-recession economy and the market to trade at its richest level ever at the end of the decade . . . For the market to deliver even average performance [about 7 per cent a year] over the next ten years requires both strong earnings growth and richening valuations

The situation in emerging markets is almost the opposite. In theory, emerging markets should offer investors higher average returns than US markets, to compensate for the higher volatility. That happened in the first decade of this century, but not since, leaving EM shares with low valuations. Meanwhile, EM fundamentals have improved, as their economies have grown and their exposure to financial shocks has fallen:


Where does Unhedged land on this debate? Even the watered-down version of the efficient markets hypothesis to which we adhere suggests that all the advantages the US enjoys should be broadly reflected in prices. America’s tremendous advantages and strengths are well understood by everyone except a few declinist nitwits. The idea that the US’s ample resources, technological leadership and favourable demographics should be a persistent source of equity outperformance is therefore a bit odd.

What might be less well understood, and which might at least keep US valuations high, is the fact that the world is awash in savings and the US is the place most of those savings desperately want to go, because of our combination rule of law and deep, open capital markets. This, as I understand it, is one upshot of the work of people such as Atif Mian, Ludwig Straub and Amir Sufi; and Michael Pettis and Matthew Klein. If the world is becoming less stable, then the flow of capital into US stocks might only increase (even if some of the sources of that instability have their origin in the US).

The ultimate test for me is whether I am ready to rebalance away from US stocks. And I find myself hesitating. I’ve been hoping for and/or expecting mean-reversion of returns across my portfolio for years, and it hasn’t happened. Geographic diversification has been a huge loser for me for years, making it hard to keep the faith.

Jerusalem Post : Iran says Revolutionary Guards attack Israel's 'spy HQ' in Iraq

Iran says Revolutionary Guards attack Israel's 'spy HQ' in Iraq, vow more revenge
The strikes come amid concerns about the escalation of a conflict that has spread through the Middle East since the war between Israel and Hamas began on October 7.

Smoke rises in the aftermath of a missile attack by Iran's Revolutionary Guards on what they said was the headquarters of Israel in Iraq's semi-autonomous Kurdistan region, in Erbil, Iraq January 16, 2024.
(photo credit: Rudaw/Handout via Reuters)

Iran's Revolutionary Guards said they attacked the "spy headquarters" of Israel in Iraq's semi-autonomous Kurdistan region, state media reported late on Monday, while the elite force said they also struck in Syria against the Islamic State.

The strikes come amid concerns about the escalation of a conflict that has spread through the Middle East since the war between Israel and Hamas began on October 7, with Iran's allies also entering the fray from Lebanon, Syria, Iraq and Yemen.

"In response to the recent atrocities of the Zionist regime, causing the killing of commanders of the Guards and the Axis of Resistance ... one of the main Mossad espionage headquarters in Iraq's Kurdistan region was destroyed with ballistic missiles," the Guards said in a statement.

Reuters could not independently verify the report. Israeli government officials were not reachable for immediate comment.

Iran's Supreme Leader, Ayatollah Ali Khamenei looks on during a meeting at the IRGC Aerospace Force achievements exhibition in Tehran, Iran November 19, 2023 (credit: Office of the Iranian Supreme Leader/West Asia News Agency/Reuters)
Iraq condemned on Tuesday Iran's "aggression" on Erbil that led to civilian casualties in residential areas, according to a statement by the country's Foreign Ministry.

Iraqi government will take all legal measures against these actions that are considered a violation of Iraq's sovereignty and the security of its people, including filing a complaint at the United Nations Security Council, said the statement.

Iran had vowed revenge for the killing of three members of the Guards in Syria last month, including a senior Guards commander, who had served as military advisers there.

Since the October 7 rampage by Hamas into Israeli territory and the ensuing Israeli bombing campaigns in Gaza and Lebanon, more than 130 fighters of Lebanon's Iran-backed Hezbollah have been killed in hostilities.

"We assure our nation that the Guards' offensive operations will continue until avenging the last drops of martyrs' blood," the Guards' statement said.

In addition to the strikes northeast of Kurdistan's capital Erbil in a residential area near the US consulate, the Guards said they "fired a number of ballistic missiles in Syria and destroyed the perpetrators of terrorist operations" in Iran, including the Islamic State.

Reuters could not independently verify the report.

US condemns Erbil Attack as 'reckless'
The US State Department condemned the attacks near Erbil, calling them "reckless," but officials said no US facilities were targeted and there were no US casualties.

"We tracked the missiles, which impacted in Northern Iraq and Northern Syria. No US personnel or facilities were targeted," Adrienne Watson, spokesperson for the White House National Security Council, said in a statement.

"We will continue to assess the situation, but initial indications are that this was a reckless and imprecise set of strikes," she said, adding: "The United States supports the sovereignty, independence, and territorial integrity of Iraq."

Earlier this month, Islamic State claimed responsibility for two explosions in Iran's southeastern Kerman city that killed nearly 100 people and wounded scores at a memorial for top commander Qasem Soleimani.

Iran, which supports Hamas in its war with Israel, accuses the United States of backing what it calls Israeli crimes in Gaza. The US has said it backs Israel in its campaign but has raised concerns about the number of Palestinian civilians killed.

'Crime against Kurdish people'
In a statement from his office, Iraqi Kurdish Prime Minister Masrour Barzani condemned the attack on Erbil as a "crime against the Kurdish people."

At least four civilians were killed and six injured in the strikes on Erbil, the Kurdistan government's security council said in a statement, describing the attack as a "crime."

Multimillionaire Kurdish businessman Peshraw Dizayee and several members of his family were among the dead, killed when at least one rocket crashed into their home, Iraqi security and medical sources said.

Dizayee, who was close to the ruling Barzani clan, owned businesses that led major real estate projects in Kurdistan.

Additionally, one rocket had fallen on the house of a senior Kurdish intelligence official and another on a Kurdish intelligence center and air traffic at Erbil airport was halted, the security sources said.

Iran has in the past carried out strikes in Iraq's northern Kurdistan region, saying the area is used as a staging ground for Iranian separatist groups as well as agents of its arch-foe Israel.

Baghdad has tried to address Iranian concerns over separatist groups in the mountainous border region, moving to relocate some members as part of a security agreement reached with Tehran in 2023.