TheChek News Flow

Housing market downturn pushes UK estate agents to consolidate

Shrinking market offers opportunities for larger players looking to move into lettings

Acquisitions have helped solidify Connells’ position at the forefront of the UK’s property market as the country’s largest network of estate agencies, according to chief executive Richard Twigg.

With 80 local agencies to its name after a string of takeovers including one of its biggest rivals Countrywide in March 2021, Connells is just one of a number of major property companies eyeing fresh acquisitions in a UK market trending towards consolidation.

“We remain acquisitive and seek to buy inherently good businesses,” Twigg told the Financial Times, adding that the downturn in sales presented more opportunities for large groups with strong balance sheets and big cash reserves to acquire smaller rivals.

Consolidation in the UK’s residential property market has accelerated in the past year as higher rates have hit sales and put pressure on smaller independent agencies.

“When markets are tougher, smaller [and] less successful businesses may look to sell,” Twigg said.

Foxtons, London’s largest letting agency, underlined that trend when it snapped up residential estate agency Ludlow Thompson on Tuesday for £10mn.

Like Connells, Foxtons has expressed its ambition to buy up rivals as it seeks to expand its letting business in the sales slowdown.

Other deals include last month’s sale of Chestertons, one of the UK’s oldest estate agents, to European real estate services and technology group Emeria, also for £10mn. 

One week earlier US-based real estate company CoStar revealed that it had tabled a £100mn bid for UK property portal OnTheMarket, which sent rival property site Rightmove’s shares down 12 per cent on the day.

Purplebricks, the online estate agent that promised to disrupt the market by undercutting traditional agents, also sold its business for just £1 to another online estate agency Strike after its turnaround plan hit a wall.

Since experiencing a pandemic boom, house prices have slumped as higher rates have sent mortgage costs up and purchases tumbling.

A study by property portal Zoopla has estimated that UK house sales are set for their slowest year since 2012, driven by a year-on-year drop of 28 per cent in mortgage-backed sales.

Although UK house prices recently increased for the first time since March, as sellers opted to put fewer properties on the market, the 1.1 per cent increase between September and October still leaves prices down 3.2 per cent compared with October last year.

This weakness in the sales market has pushed groups towards lettings, which have been made more profitable by rising rents.

These have been forced up by higher rental demand after buying became too expensive for many.

Rents in the UK climbed in July at the fastest pace on record, rising 5.3 per cent in the 12 months to July, the largest annual percentage increase since the Office for National Statistics started publishing the data in 2016.

Rents shot up 5.5 per cent in London in July, another record rate since the data series for the capital began in January 2006.

Groups such as Foxtons have since used acquisitions as a way to expand into the lettings market. 

Foxtons chief executive Guy Gittins said: “We know that operating within the M25 there are 3,600 estate agencies; it's a highly fragmented market. That highly fragmented market for us is an opportunity for consolidation.”

Following its Ludlow Thompson acquisition, Foxtons said that it “is now a lettings focused business, with over 70 per cent of group revenue derived from lettings”.

Richard Donnell, executive director of research at Houseful, which owns the property portal Zoopla, added: “When it comes to investing for growth, the focus tends to be on lettings.

“It’s all about predictability of income stream. The lettings market is well suited to that narrative.”

Gittins said looking for “non-cyclical recurring revenue from lettings” had been an important pivot for Foxtons in recent years.

Older, independent agency owners are also more tempted to sell in a more challenging market, according to some property executives.

While acquisitions are largely opportunistic and aimed at increasing market share, the ability to gather more data on consumer behaviour and historic market trends has also provided larger groups with an incentive to expand through deals.

“When we make these acquisitions, we’re also buying old historic data that we’re able to place into our Foxtons’ business to generate even more opportunities,” Gittins said, highlighting Foxtons’ enhanced speed to market and ability to tailor offerings to better meet customer needs.

Twigg said that acquisitions have helped Connells achieve “enhanced offerings for customers and a growth of intelligence” having increased the amount of data it can analyse.

“Greater investment in software, data and automation of processes is going to deliver better experiences for the consumer and will support the profitability of the sector,” Donnell said.

He added that greater data capabilities achieved through consolidation may benefit consumers, who still have a large number of independent agents to choose from, but will now also have access to personalised offers from larger groups.

The ever-changing regulatory nature of the lettings industry is another aspect that makes scale an advantage. While Foxtons has 10 employees working purely on compliance, smaller rivals sometimes struggle to afford one, Gittins said.

“Lettings is a complex and involved process,” Donnell added. “It’s about embracing technology and software to drive efficiencies because once you’ve built the platform, you can put more into it, it’s just more efficient.”

Austrian property billionaire René Benko this week lost control of his luxury development company Signa

For months, rumours around the financial health of Austrian property giant Signa had been swirling. So its founder René Benko did one of the things he did best: he threw a party. 

Champagne flowed under the Christmas lights at the ultra-luxurious hotel Interalpen in Telfs, high above Innsbruck, the capital of Tyrol in western Austria where Signa is based, and the billionaire’s birthplace.

Boney M, the disco sensation known for 1970s hits such as Daddy Cool and Rasputin, regaled employees. And a defiant Benko gave a speech. 

People present said the entrepreneur sought to project an image of strength that promised an even more lucrative future than the past had delivered for his sprawling property empire.

But in the end the rumours caught up with Benko — a charismatic businessman who made his first billion before the age of 40.

On Wednesday, nearly a year after that party, Signa, one of Europe’s highest profile luxury property developers with assets worth as much as $27bn, announced it was urgently restructuring. In the process, Benko was forced out of the boardroom by his minority co-investors. 

Signa is not a household name, but many of its assets are: the Chrysler building in New York, London department store Selfridges, its Berlin equivalent KaDeWe, and countless other high-value developments in some of the most expensive metropolitan real estate in the world.

Quite what the scale of Signa’s debts are remains unclear. They run into the billions, according to two people familiar with the company’s balance sheet. 

According to one Signa document seen by the Financial Times, Signa Holding — the central hub of the corporate network — was due to pay back €1.3bn in borrowing this year alone. 

The company’s ownership structure is complex: Many Signa debts, including hundreds of millions lent by European banks, on a scale that has concerned the ECB, are collateralised directly against individual properties, according to two Signa lenders. Others are not. 

Benko’s foundation is still the majority owner through a network of trusts and holding companies in Austria, Liechtenstein and offshore, according to Signa. But it has become clear in recent months, as the need to raise fresh capital became ever more desperate, that some of his co-investors have grown unhappy with the way he was running the business.

That Signa’s investors include some of the wealthiest families in Europe is a testament to Benko’s skills as a salesman and networker — and to the years in which the group was an irresistible moneymaking machine. 

The shareholder book reads like a Who’s Who of European capitalism: among them are France’s Peugeot family; Tetra Pak’s Rausings; logistics magnate Klaus Michael-Kühne; Roland Berger, founder of the eponymous international management consultancy; Swiss chocolate group Lindt & Sprüngli’s chair Ernst Tanner; Austrian industrialist Hans Peter Haselsteiner; and pet food tycoon Torsten Toeller. Even the heirs of Austrian formula 1 racing legend Niki Lauda own shares.

The man brought in to mediate between their needs, and to hold, for now, Benko’s voting rights, while trying to shore up Signa’s finances, is the German restructuring expert Arndt Geiwitz. His last big project was helping to restructure and save Lufthansa in 2020.

“The aim is to find long-term solutions, and that’s why it is both responsible and necessary to initiate a comprehensive consolidation for the company now,” Geiwitz said in a statement on Wednesday. On Friday, Geiwitz, 54, announced the appointment of Ralf Schmitz as “chief restructuring officer” for the group.

“The aim is to draw up a plan for the main steps of the restructuring by the end of November and present it to the shareholders,” Geiwitz said. “All areas of the Signa Group must be put to the test.”

Signa declined to comment for this article. Benko could not be reached for comment. 

Geiwitz said he believed the quality of Signa’s underlying assets was sound. But he might not avoid financial pain: the executive must either raise fresh capital or sell assets in a commercial real estate market strained by higher interest rates and undiminishing office vacancies.

Then there is the problem of large unfinished projects such as the Elbtower in Hamburg — inaugurated by Germany’s current chancellor Olaf Scholz while still mayor of the city — and the Lamarr luxury department store development in Vienna, both of which were launched before the property downturn.

Geiwitz’s more immediate issue however could be a €200mn private bond issued by Signa is due for repayment at the end of this month.

Financial regulators are racing to determine the extent of the possible financial damage and who would be hurt. The ECB last year started asking European banks to report their exposures to Signa, and has since stepped up its surveillance, according to the Frankfurt institution’s officials. In August, the ECB told lenders to begin setting aside provisions for possible losses.

Austrian banks are particularly exposed, chiefly Raiffeisen, the country’s largest lender, according to financial regulators.

The Vienna-based lender has sought to reassure its business partners and shareholders over its exposure to the property group. Much of its lending is secured against properties it says overcollateralise its exposure.  

A spokesperson for RBI said it could not comment on client matters. 

The Thai Central Group, which co-owns some of the most valuable properties in the Signa stable, such as the Chrysler building in New York and British department store Selfridges, may emerge as a possible buyer.

A cash-hungry Signa may find itself willing to accept a lowball offer to bail it out, one person close to Signa said.

In his native Austria, meanwhile, Benko’s troubles are being picked over with glee by some.

The 46-year-old has long been a fixture of the society scene in Vienna, cultivating celebrities and politicians. Officials close to the former chancellor Sebastian Kurz jokingly called Benko “Mr 64 metres”, in reference to the yacht in the Adriatic they sometimes found themselves invited aboard.

One high profile annual event was his Törggelen — a traditional November-time festival celebration from Tyrol that Benko imported to Vienna and turned into a sumptuous society fixture.

But Benko’s prominence also made him a target. While no charges have been brought, he is being investigated as part of a sprawling Austrian probe into government corruption. Signa’s Innsbruck headquarters were raided by Austrian police last October.

Public anger has also mounted over Benko’s business tactics. Two major European retail chains he bought, Germany’s Galeria Karstadt Kaufhof and Austria’s Kika/Leiner were placed into bankruptcy in the past year.

In 2018, Benko bought a quarter of Austria’s biggest newspaper, the tabloid Kronen Zeitung — and made it clear he wanted more control. That put him into conflict with the majority owner — the Dichand family, of whom Christoph Dichand is also the paper’s editor.

It was the Krone, as it is known, that was the first to reveal Benko was gone from the empire he built. “This is the death knell,” it declared.

Wegovy found to have ‘quite profound’ effect on reducing risk of heart attacks, says pharma group

Novo Nordisk’s weight-loss drug Wegovy cut the risk of death by 18 per cent in a trial that the Danish pharmaceutical company hopes will convince more health systems and insurers to pay for the treatment. 

Martin Holst Lange, executive vice-president of development at Novo Nordisk, said new data showed in more detail how the drug was “incredibly powerful” in tackling cardiovascular risk. 

Lange said that payers would be interested in the impact the drug had on mortality and expensive conditions, pointing to the “quite profound” effect it had in cutting the risk of heart attacks by 28 per cent. 

In August, initial data from the Select trial sent shares in Novo Nordisk up as much as 16 per cent, as investors became excited that the results could win over any health systems and insurers reluctant to cover the new class of weight-loss drugs. Wegovy has a US list price of more than $1,300 a month.

The full data was announced on Saturday at an American Heart Association congress and published in the New England Journal of Medicine. 

The results were published at the end of a week when Eli Lilly received US Food and Drug Administration approval for its obesity treatment Zepbound, which will compete with Wegovy, and AstraZeneca entered the race for a weight-loss pill after a partnership deal with Chinese biotech Eccogene.  

Novo Nordisk’s trial studied more than 17,600 people aged above 45 with obesity who had cardiovascular disease, but not diabetes. About 458 patients taking a placebo died during the trial, compared with 375 people taking Wegovy, representing an 18 per cent reduced risk of death.

There was a 15 per cent decline in the risk of death from cardiovascular causes specifically, though the numbers did not quite meet the bar for statistical significance. 

The paper comes after the preliminary results showed that patients who took Wegovy had a 20 per cent lower chance of suffering a cardiovascular event such as a stroke or heart attack than participants who received a placebo. 

Lange said the trial also showed the drug had an impact on other conditions such as kidney disease. Last month, Novo Nordisk ended a trial designed to monitor the effect of Ozempic, a diabetes drug that contains semaglutide, the same active ingredient as Wegovy, on chronic kidney disease because the early results showed it was likely to be very successful. That data will be published in the next couple of months. 

“I expect to see really, really interesting and exciting data on the impact of semaglutide on chronic kidney disease,” Lange said.

The chief executive of Telecom Italia has argued the group’s proposed €22bn deal to sell part of its business to KKR is the only way to ensure its future, despite objections from its biggest shareholder Vivendi.

In his first interview since a nine-month negotiation over the deal ended, Pietro Labriola said: “It’s not like we’ve suddenly pulled a rabbit out of a hat . . . the group has discussed the network sale at least five times since 2013.”

Telecom Italia’s board this week accepted the offer for its fixed-line phone and internet network, which would be split from its services business.

French media conglomerate Vivendi, which had sought a more than €30bn price for the deal, has said the board’s decision was “unlawful” without a shareholder vote. It is now threatening the company with legal action but Telecom Italia’s lawyers told analysts on Thursday that no complaint had been lodged yet.

“The board of directors, including representatives of our largest shareholder, unanimously approved an industrial plan which envisaged a sale of the network as a way to deleverage the company, and that’s exactly what we did,” Labriola told the Financial Times.

The deal will allow junk-rated Telecom Italia to cut its debt from the current €26bn to €14bn and has prompted rating agencies Fitch, S&P and Moody’s to place the group in review for a rating upgrade this week. 

“In the past it was easier to take a wait-and-see approach,” Labriola said, adding: “Now, with our interest payments rising, it was no longer possible.”

Telecom Italia’s interest payments have risen to €1.3bn in the nine months to September, wiping out its margins over the period. 

In 2022, it took a €2bn impairment charge after issuing three profit warnings in 2021, the last one right after KKR’s first €33bn offer, which envisaged taking the company private and led to the ousting of Labriola’s predecessor. 

The reshaping of the company has often pitted management against Vivendi — which has spent €4bn since 2015 to build a 24 per cent stake. Telecom Italia’s share price has fallen from €1 per share in 2015 to the current €0.26 and Vivendi has had to write down its investment twice.

“We took the company apart and put it back together like a Lego set multiple times to see if there were other ways forward and there weren’t,” said Labriola. 

He added that the group had also considered a demerger as well as selling other assets, including its profitable Brazilian operations, to reduce its debt. “But those weren’t viable plans . . . Brazil is where 30 per cent of our [earnings] come from,” said Labriola.

“Of course, we also looked at keeping the network and selling the services company, but the truth is that it wouldn’t have solved our debt problem and there wasn’t a queue of buyers beating down the door.”

Telecom Italia’s consumer business includes certain coverage and customer migration commitments with Fibercop, the company that is 37.5 per cent owned by KKR and that operates the last mile of the telecoms network in Italy. Any potential buyer would have had to take on such commitments weighing on the valuation, according to Labriola.  

He also rejected criticism that shareholders had not been given a vote on the KKR deal, saying this was not required because “Telecom Italia’s corporate purpose will not change”.

“It’s like saying that a restaurant’s business purpose changes if the owner sells the property in which the restaurant is located [while continuing to operate it],” he added. 

“Our bylaws don’t require us to own the infrastructure.”

However, he offered angry shareholders an olive branch: “Let’s sit down and talk,” he said, suggesting any legal action would be a distraction from business.

“This [deal] is not just a financial operation, it will finally give us the opportunity to invest both within our company and outside, which is pivotal amid the current transformation within our sector,” he said.

Having made one trading error already this month, I’m now buying energy stocks

Just back from Los Angeles and recovering from a friend’s 50th birthday bash. The highlight was his wife assuring us that she’s requested some old Paul Oakenfold tunes from our clubbing days. Turns out the DJ knew them only too well.

The legendary disc jockey was faultless on the decks. Unlike me last week, when I committed what is known as a “fat-finger” mistake. Typing in a trade, I pressed the wrong key and now have almost a fifth of my portfolio in Asian equities.

Oops! Time will tell whether I win or lose versus the roughly 15 per cent allocation I wanted. Has anyone else ever done this? And please email me your best examples of riches made from genuine screw ups.

I need reassurance because my error is giving me panic attacks due to a similar blunder more than 20 years ago. It was the worst of my professional life and also got my wonderful boss in a lot of trouble.

The asset management firm where I was running Japanese equity funds was implementing a huge allocation switch. At the same time we were rejigging every portfolio and I had been working all weekend.

Japanese stocks have high unit prices, so we had to make difficult investment calls, name after name. For example, although I might have wanted a 3 per cent weighting in one company, the maths meant only a 2 or 4 per cent allocation was possible.

All of which is to say that having entered what felt like was my thousandth trade of the evening, I didn’t notice the extra zero added to a buy order for NTT Data. Trigger warning, Gen Z: next morning I received a clip round the ear.

An asset manager’s fiduciary duty means we had to reverse the trade immediately. If the stock went up, the client’s fund would book the gain. If it fell, they are reimbursed by us.

Sod’s law guaranteed the share price dropped overnight, and so my mistake cost a lot of money. Worse was NTT Data then soared over the following days and weeks. I swore never to forget the lesson. It seems I have.

Fat fingers are not uncommon, though we probably can’t use that phrase any more. Let’s just say that a healthily proud digit was supposedly responsible for a 6 per cent fall in the pound in 2016. And the year before, a colleague of mine accidently sent £6bn to a client upon inputting a gross instead of net number.

Usually, errant trades are spotted by software. Or clients agree to reverse them, as in the case above. But the likes of you and me are stuck with our plus-sized errors. I couldn’t find any information on how to cancel or revise a trade on my broker platform.

That said, the correct response when a salad-averse finger takes a breather on the wrong button is the same for retail and professional investors alike. Correct the mistake, accept a small profit or loss, and move on.

Don’t do what I’m doing and hope markets go your way. Or, like me, try to retrofit a post-trade justification such as “I’m glad I bought too many Asian equities as they were cheaper than what I was supposed to buy. Actually a 20 per cent weighting does make more sense.”

Truth is, I wish I hadn’t spent the surplus cash at all, as I’m warming ever more towards buying an oil and gas ETF. Last week I explained that high- emitting stocks outperform, and why that might be. But I needed to review valuations first.

They are certainly more attractive than three weeks ago when Brent was approaching $95 per barrel. Since then, oil prices have fallen 15 per cent, taking most of the popular oil and gas ETFs with them.

But are they cheap? And what is the simplest way for a non-expert to value them? Like all companies, in the long run they are worth the present value of their future cashflows. What makes the resources sector unique, however, is that it generates cash by selling its fixed assets.

Most industrial firms derive revenues by continually producing current assets. By contrast, oil and gas companies deplete their reserves. This means cashflows dry up if they make no new discoveries, and exploration costs are capitalised if fruitful.

So just as normal assets are depreciated, reserve depletion hits the profit and loss account. Annoyingly, oil and gas companies sometimes do this at different rates. They also have hugely varying amounts of debt.

For both these reasons it is better to look at cashflows instead of earnings, and it is why analysts spend so much time assessing reserves as well as exploration and development costs. Production volumes and associated expenses also affect profitability.

All that before the nightmare of trying to work out the supply and demand for oil and gas worldwide. I take the view that markets have already discounted a best guess on geopolitics, macroeconomics and all the other fundamental and technical drivers. What do I know?

And the reality is that even the most diversified of energy stocks still have a 50 per cent-plus correlation to oil prices. Indeed, the latest JPMorgan sensitivity analysis shows that for Shell, say, free cashflows jump by a third if Brent rises from $80 to $100 per barrel.

The trouble is, oil is not a hundred bucks, and global valuations, while down some, aren’t as cheap as they were a year ago. But also remember that oil prices are nominal. If inflation stays high, the chances are oil will be in three figures again.

It’s a better inflation hedge than my inflation-protected bond ETF anyway, as I’ve explained in previous columns. I’m going to swap them — assuming I press the right button.

CNN

—

Iceland has declared a state of emergency, with police officials urging residents to evacuate the coastal town of Grindavík following an intense wave of earthquakes in the southwest of the country linked to a possible volcanic eruption.

Nearly 800 quakes were recorded between midnight and 2 p.m. on Friday, with the shallowest at a depth of 3-3.5 kilometers (1.86-2.18 miles), according to the Icelandic Meteorological Office.

In statements Friday, Iceland’s Civil Protection Agency said a magma tunnel that is forming could reach Grindavík. But as of Friday evening, the Icelandic authority said it has been impossible to tell if and where the magma might break through to the surface.

“Earthquakes may become bigger than those that have already occurred, and this sequence of events could lead to an eruption. However, there are still no signs that the magma is nearing the surface. Its progress is being closely monitored,” the Civil Protection Agency said.

Magma is a mixture of molten and semi-molten rock found beneath the surface of the Earth that can cause an eruption when it finds its way to the surface, becoming lava.

Authorities urged residents to evacuate calmly and emphasized that there is no imminent danger.

“We want to reiterate that residents MUST evacuate their homes and leave the town. But we also want to reiterate that this is not an emergency evacuation, there is plenty of time to prepare, secure things and drive out of town calmly,” the Civil Protection Agency said.

“It is clear that we are dealing with events that we Icelanders have not experienced before, at least not since the eruption in Vestmannaeyjar. We faced that together, we will face this together and we will not lose heart,” the Civil Protection Agency added.

The US Embassy in Iceland issued a volcano alert, warning about the increased signs of volcanic activity.

“If an eruption occurs, follow the instructions of Icelandic authorities. Volcanic hazards may include lava, toxic gases, and heavy smoke from fires ignited by lava,” it said.

The world-famous Blue Lagoon thermal pool in the area has already closed due to the ongoing seismic activity.

Since 2021, there has been an eruption almost every 12 months and the latest one took place in July south of Iceland’s capital Reykjavik.

Iceland sits on a tectonic plate boundary that continually splits apart, pushing North America and Eurasia away from each other along the line of the Mid-Atlantic Ridge. It is home to 32 active volcanoes.

Men's accounts for about 10 percent of turnover, with the goal of reaching 30 percent in two years.

French furrier Yves Salomon is expanding his reach in the menswear business. After presenting his first full men’s line for fall 2023, the brand’s first summer collection will launch in January during Paris Men’s Week.

It’s been a piece-by-piece progression since the brand created its first outerwear for men in 2015 after it discovered guys were buying military-inspired women’s parkas off the rack. Salomon has slowly added items since then.

“We had a lot of requests, so we decided to extend it,” Salomon said. “Actually, a lot of men like the way we approach fashion — especially our winter garments.”

The fall collection features slim-cut jackets, blue and khaki trousers with suspenders, cashmere sweaters and the smart casual quarter-zip collar popularized by “Succession.” Shearling coats are also offered.

Although the lightweight nature of the summer season initially presented a dilemma for the company — “It was a challenge because there is no fur and no shearling,” he said — Salomon is going full steam ahead with the ready-to-wear collections and sees the category as a main growth driver. Men’s represents about 10 percent of sales now, but he sees that increasing to 30 percent within two years.

To help achieve that goal, the brand has opened a corner in Paris’ Le Bon Marché, and will open a pop-up in London’s Harrods — the only department store in U.K. that still sells fur — in December. “We are satisfied with the results — it is one of the best[sellers] on the floor,” said Salomon of the Le Bon Marché corner.

In addition to the ready-to-wear, the brand has also developed a full men’s ski collection, which is sold mostly in its 15 company-owned stores, centered in resorts around the world. The ski line will also have a big push in China where the goal is sell in 1,000 ski resorts by 2030. “There is huge demand in the winter ski garment sector there,” he said.

Salomon sources fabrics from Italy and Spain, with fur coming from Scandinavia, with the majority of the collections produced in France. Salomon said they are “using their know-how” from the women’s lines for the men’s collection, which is designed by a team based in Paris.

“There is demand for a luxury product that is also fashionable, comfortable and done with beautiful material,” he said. “There is a little bit of a vacuum in the market.”

New products in the men’s line include cashmere sweaters, which have initially sold well and will be expanded. And it has developed a range of fur-alternatives for retailers and platforms such as Mr Porter, which have ethical policies.

“Because we do not have big distribution, we feel we have a huge potential for expansion,” he said.

As a way to beef up its wholesale presence, Salomon will participate in January’s Pitti Uomo show in an effort to reach new buyers. “We’re going to be quite aggressive commercially to extend our distribution.” The company’s ability to now offer two full collections a year should also help the brand reach its potential, he believes, as its previously limited range was a problem for retailers.

Pieces in the men’s line range from 300 to 3,000 euros for its signature fur-lined Army parka. Salomon believes this price range positions it competitively among luxury brands. “[Our target] is a man who can afford a beautiful, nice garment,” he said. “We are quite aggressive on price and so it is the man who is looking for a luxury product and value.”

In the U.S., the brand operates a store in Aspen and sells at Bergdorf Goodman in New York, but the country is a major growth target for 2024. “We find a lot of great potential there. For the moment it is not a big market but we expect it to grow,” he said, noting they will extend their reach through additional department and specialty store distribution instead of opening more standalone stores.

China also is a target, due to the rising popularity of skiing and snowsports. It’s available through Lane Crawford and Salomon will work to expand distribution with specialty stores as well. South Korea is also a target for the brand.

While expanding wholesale is a key strategy, direct-to-consumer is also a focus. Web sales account for around 20 percent of sales and Salomon is seeking to more than double that over the next two years. “We are doubling the investment in communication and the team will also be doubled,” he said.

Despite many luxury brands goinng fur-free, including Armani, Prada and all the Kering houses including Balenciaga, Gucci and Saint Laurent, Salomon will continue to use fur, particularly in men’s.

“What’s interesting is the attitude for men’s fur is not as aggressive as women’s,” he said. “I question myself every day but I think they feel that their own comfort is more important than the criticism they could get.”

The history of self-driving cars has been one disappointment after another. Tesla CEO Elon Musk has been promising fully autonomous vehicles since 2014, but the technology remains a science experiment.

Earlier this year, the National Highway Transportation Safety Administration ordered Tesla (ticker: TSLA) to recall more than 360,000 cars over safety concerns with its “full self-driving” beta software.

In October, California suspended General Motors’ (GM) Cruise robotaxi unit from operating in the state, after a series of safety incidents. And, this past week, Cruise announced a recall after one of its robotaxis hit and dragged a pedestrian in San Francisco.

Those drivers hoping to read Barron’s from the back seat of their cars will have to wait.

But, in some areas, the future of autonomous driving continues to make progress. And for investors, there’s a way to play the theme that doesn’t require a direct bet on Tesla, GM, or any other automobile manufacturer.

Mobileye Global

MBLY

3.32%

(MBLY) is a Jerusalem-based autonomous-driving systems company that first went public in 2014, before selling itself to Intel (INTC) for $15.3 billion in 2017. It returned to the public market late last year at $21 a share, opened for trading at $26.71, and now sits at $37, up 75% from the offering price. (Intel continues to own a majority of the stock.) It’s one of the few big initial public offerings of the past 18 months. As a successful IPO, it’s in even rarer company.

The momentum for the stock could continue, especially if Mobileye founder and CEO Amnon Shashua is right about the future of the business. Unlike Musk’s self-driving promise, Shashua sees a middle ground for autonomy, making cars safer while keeping drivers behind the wheel. At least for now.

Shashua founded Mobileye in 1999, capitalizing on his academic research on computer vision systems at Hebrew University. Fifteen years later, the company launched the largest-ever U.S. IPO by an Israeli company.

To be sure, the stock isn’t cheap. Wall Street estimates call for 2023 revenue of about $2.1 billion, with adjusted profit of 71 cents a share, giving the stock a valuation of 50 times projected earnings and 14 times forward sales.

But Mobileye’s business is about to change in a way that analysts don’t fully appreciate.

Currently, the company makes systems for auto makers—mostly front-facing cameras and related software—that help to make cars safer. They handle tasks like collision avoidance, emergency braking, and lane-keeping, protecting drivers from their own bad behavior.

Shashua estimates that 60% to 70% of new cars now ship with front-facing cameras for safety applications, and Mobileye thinks it has about 75% of that market.

Over time, those systems will grow in sophistication and power—and the focus will shift from saving lives to saving time. And that’s where the big money awaits.

Shashua is particularly excited about a Mobileye platform called SuperVision—an apt name for a technology that can see better than humans, while supervising automobile safety.

SuperVision has been installed in about 100,000 Zeekr cars, produced by China-based Geely, which is getting ready to expand sales of the line into Europe. Mobileye also has agreements in place to add SuperVision to new models from Porsche (PAH3.Germany), Polestar, and Volvo over the next three years.

Shashua says Mobileye is negotiating with 10 additional auto makers with a combined 34% of global auto production to add SuperVision, with “many more” in the pipeline.

The Mobileye chief concedes that some companies, including Tesla and Mercedes, are likely to continue to develop self-driving systems in-house, but he thinks many others will turn to Mobileye as a better alternative.

“Very few car makers will be able to sustain their own development of these high-end systems,” he says. “The rest will find their systems are not optimized in terms of time to market, in terms of costs, in terms of performance.”

Citi analyst Itay Michaeli recently wrote that Cruise parent GM could be considering a shift to SuperVision from its own proprietary UltraCruise program.

“One must wonder whether Cruise’s recent setback might compel GM to consider a Plan B so as to provide Cruise with more time to resolve recent issues—in turn keeping Cruise focused solely on robotaxis for the foreseeable future,” wrote Michaeli, who has a $72 target on Mobileye stock, about double the current price.

Mobileye’s hardware currently generates revenue of $54 per vehicle. Those cars offer ADAS—advanced driver assistance systems—with a front-facing camera that can provide features like emergency autonomous braking, lane-departure warnings, and adaptive cruise control.

Shashua says the company’s revenue per car can double to about $100 by adding cloud-connected features that access high-definition maps, enabling cars to achieve lane-keeping without road markers, for instance.

But even those numbers look tiny compared with the opportunity from SuperVision. Shashua says that system will generate revenue of about $1,500 per vehicle for Mobileye. With those systems, the car gets a network of 11 cameras, along with onboard computing capability, and in some situations a hands-free experience for the driver—a significant step toward full autonomy.

Shashua sees a market for SuperVision-level cars of one million vehicles by 2026. Cowen models 2024 SuperVision shipments of 200,000 units, twice the company’s own 2023 target.

Mobileye has also developed a less-expensive version of the self-driving system—SuperVision Lite—for lower-cost vehicles. That one comes with seven cameras, only works on highways, and provides more limited opportunities for hands-free driving.

Further out, Mobileye expects to sell auto makers a $3,000-per-vehicle system called Chauffeur, which will allow drivers to safely take their eyes off the road, initially on highways. Mobileye already has deals with FAW Group, a Chinese auto maker, and Polestar to use Chauffeur.

Shashua says that almost every auto maker will be using SuperVision—or something like it—in at least some models by 2026. “Autonomy is coming to consumer cars,” he says. “This is not speculation anymore.”

To be clear, this version of autonomy doesn’t match Musk’s back-seat experience. With SuperVision, Shashua says, you can take your eyes off the road and your hands off the wheel but you still need to be in the driver’s seat—and awake.

Eventually, though, Shashua says, the software will allow cars to drive from Point A to Point B without any human intervention—and without any need for human supervision. Which is to say, you’ll be able to go to sleep.

Shashua’s timeline has cars traversing highways with “eyes off” systems in 2026, adding arterial and urban roads by 2028. He says the cost of those systems to consumers will be about $10,000 per vehicle. And he thinks they will sell like hotcakes.

“I think $10,000 for a real eyes-off system is something that will have big traction,” he says.

If he’s right, Mobileye shares are going to get big traction, too.