Gapping up
In reaction to earnings/guidance:
- SAND +2.6%, BECN +0.8% (guidance update)
Other news:
- GRRR +78% (signs contract worth more than $270 mln with Government of Egypt)
- QTRX +8.1% (launches LucentAD)
- CRON +3.2% (receives unsolicited indications of interest from third parties)
- RNLX +3.1% (reports late-breaking KidneyIntelX evidence released at 83rd American Diabetes Association Scientific Sessions)
- EGLE +1.9% (Danos (DAC) affirms 16.7% active stake; intends to engage constructively with the Board and/or management going forward about operational and strategic improvements)
- MRNS +0.9% (Adage Capital discloses 5.45% stake)
- AAON +0.8% (announces 3-for-2 stock split)
Analyst comments:
- ATGE +2.6% (upgraded to Outperform from Market Perform at BMO Capital Markets)
- PLTK +2.3% (upgraded to Neutral from Underperform at BofA Securities)
- HBM +2.2% (upgraded to Overweight from Equal Weight at Barclays)
- JPM +0.8% (upgraded to Outperform from Peer Perform at Wolfe Research)
- COP +0.5% (upgraded to Outperform from Peer Perform at Wolfe Research)
BP in talks over insurance deal for £30bn pension scheme
Fund’s trustees considering paying an insurer to take over liabilities of energy group’s UK final salary plan
BP is in talks over a landmark insurance deal for its £30bn final salary pension fund as rising interest gives companies the chance to shift billions of pounds of liabilities off their books.
Trustees for BP’s UK defined benefit scheme, which has more than 60,000 members, are in talks with multiple insurers over a so-called buy-in deal, according to five people familiar with the discussions, which has the potential to be the biggest in the history of the industry.
Higher rates have transformed the health of corporate pension schemes, leaving many in surplus after more than a decade in which their bond portfolios provided lacklustre returns.
The turnround in their fortunes over the past year has kick-started the market for corporate pension deals, where schemes pay insurers to take on the responsibility for some or all of the pension promises made to staff.
The improvement in schemes’ funding has reduced the risk to insurers of such deals, which include members living longer than expected or returns falling short, while also making them cheaper for companies.
JPMorgan has estimated that about £600bn of the £2tn in UK defined pension scheme liabilities could be transferred to insurers in the next decade. A deal for BP’s scheme would likely set a new record, eclipsing the £6.5bn of pension liabilities that RSA agreed to transfer to the Pension Insurance Corporation in February.
“The market has really exploded this year on the back of improved funding and there’s a lot of large schemes looking at transactions,” said Charlie Finch, partner at LCP, the actuarial consultants.
A spokesperson for the BP pension trustees said they had a duty to “continually review and assess all investment options to manage the security of the fund and members’ benefits”, adding that “such options include long-term insurance policies”.
The spokesperson said that as part of the deal under consideration there would not be a full sale of the scheme, or buyout, and that it “would continue to operate as normal under the oversight of its independent trustee board” and communicate with members over the decision.
There is no guarantee the talks with insurers will lead to a deal.
Energy analysts suggested the move could help improve BP’s credit rating, because rating agencies can assess pensions as liabilities. S&P ranks BP’s long-term credit as A minus compared with Shell’s A plus, raising the cost of financing for the company.
For much of the past two decades, companies have had to inject cash from their operations into schemes stuck with deficits.
The UK final salary scheme, which has been closed to new members since 2010, had a surplus of at least $4bn as of the end of 2022, according to BP’s annual report. The fund and its surplus is carried on the company’s balance sheet.
BP has faced criticism from some members of the fund this year after it declined to raise annual benefits above a 5 per cent cap, despite a recommendation from the scheme’s trustees to award a 9 per cent raise, with inflation soaring in the UK.
BP said on Friday that not awarding a larger increase had been “a difficult decision”, arguing it had to balance the “interests of our many stakeholders, including customers, employees, retirees and shareholders across the world”. BP added that many of the company’s “retirees are outside the UK and most are not in inflation-linked final salary pension schemes”.
The BP pensioners group, made up of around 1,000 former staff in the UK, has questioned whether the company could be looking to “hive off” the fund and potentially take some of its surplus, warning in a letter to a parliamentary committee earlier this year of “an assumption about the company’s right to recover that surplus”.
Accessing the surplus would only be possible, however, with the full buyout or wind up of the fund, which the fund trustee says is not actively under consideration.
One former BP senior executive said it was “odd” that the company had not tried to reach some sort of compromise with pensioners in the fund by offering a large increase in benefits.
“They could have comfortably met them in the middle,” the former executive said, cautioning that any attempt to one day access the surplus would leave the company facing “20 years” of angry interventions at its annual general meeting.
Elon Musk’s SpaceX Now Has a ‘De Facto’ Monopoly on Rocket Launches
The company’s rockets are ferrying astronauts, launching satellites and dominating any competition
Satellite operators and government agencies doing business in space are increasingly dependent on one company to help them reach orbit: Elon Musk’s SpaceX.
SpaceX has cornered much of the rocket-launch market, with a proven fleet of reusable rockets that can fly at a pace that rivals can’t match—and at lower prices.
The company’s rockets powered 66% of customer flights from American launch sites in 2022, and handled 88% in the first six months of this year, according to launch data compiled by Jonathan McDowell, an astrophysicist who tracks space activity.
That dominance is set to continue. Russia’s invasion of Ukraine put one alternative, the Russian Soyuz rocket, off limits for many launch buyers. Rival vehicles from Jeff Bezos’ Blue Origin and the French launch company Arianespace haven’t flown yet.
And competitors are phasing out existing rockets as they transition to new ones. United Launch Alliance in June blasted off a government satellite on a Delta IV Heavy rocket, the second-to-last time it will use that vehicle.
July 5 marked the final launch of Arianespace’s Ariane 5 rocket.
“The fact is that the competition can’t field anything right now and that makes SpaceX a de facto monopoly,” said John Holst, a former Air Force space operations officer who now writes a newsletter about the space industry.
SpaceX’s grip on the launch business means many government agencies and satellite operators must tether their ambitions to the company’s timetables and capabilities. Most launches ferry different kinds of satellites to orbit, where they do everything from provide internet service in remote areas to track weather and capture images of Earth.
Some satellite-internet companies pay SpaceX to launch devices that help them compete with SpaceX’s own satellite-broadband service, Starlink.
SpaceX is also the only one ferrying NASA astronauts to and from the International Space Station.
Several years ago, SpaceX began handling U.S. national-security spaceflights, ending the virtual monopoly that United Launch Alliance previously held on them.
SpaceX and ULA now both conduct those launches.
SpaceX’s dominance means a steady stream of revenue to support the Hawthorne, Calif.-based company’s ongoing programs, such as Starship, the massive new rocket SpaceX has been developing.
The company wants to use Starship, which exploded after four minutes during its inaugural test flight in April, for satellite launches, human missions and the trip to Mars that Musk has long envisioned.
“We don’t really think about the competition,” Musk, SpaceX’s chief executive, said recently during a space-focused chat on Twitter.
A SpaceX spokesman didn’t respond to requests for comment.
Musk founded SpaceX in 2002 to pursue his ambition of one day transporting people to other planets.
The company has shaken up the launch business since then by aggressively testing and making improvements to vehicles, and showing it can deftly operate its fleet of reusable rockets.
Demand for launches has been rising, spurred by government priorities and fresh bets from commercial-satellite operators.
SpaceX’s powerful role in the industry is something that hasn’t gone unnoticed by Musk.
He estimated during his recent Twitter chat about space that the company would account for about 80% of the mass blasted from Earth to orbit this year, assuming it didn’t have any launch failures.
The entrepreneur, who is also CEO at Tesla and owns Twitter, relies on longtime SpaceX President Gwynne Shotwell to oversee SpaceX on a day-to-day basis.
Its engineers are well-regarded in the industry.
Rocket launchers peddle their services to satellite companies and government agencies, often charging tens of millions of dollars to ferry satellites, scientific instruments and other payloads to orbit.
The worldwide market for all rocket launches was estimated at around $8 billion in sales in 2022 and projected to grow to $13 billion by 2025, according to Deutsche Bank.
Through the first six months of the year, SpaceX has handled 21 flights for outside customers, or 64% of the worldwide total.
Those totals exclude SpaceX’s launches for its satellite-internet business, Starlink, which sells high-speed broadband connections powered by its fleet of satellites.
Starlink, which has played a prominent role in providing internet links for Ukraine during its war with Russia, said in a tweet in May it had more than 1.5 million customers worldwide.
The totals also don’t include rockets that are barred for many launch buyers due to sanctions or export controls, and when government agencies use their own rockets for their own missions.
SpaceX won more customers last year after sanctions stopped Western companies from using the Russian Soyuz rocket. France-based Arianespace had operated the vehicle from a South American launch site and through a joint venture from a site in Kazakhstan, but ceased those activities after the invasion of Ukraine.
Satellite-communications company OneWeb bought rides on SpaceX’s Falcon 9 rockets, as well as from a division of India’s space agency, after losing access to Russia’s Soyuz.
Last Saturday, SpaceX handled a flight for the European Space Agency that was originally planned for a Soyuz.
Rockets that have been in the works for years but haven’t yet launched include ULA’s Vulcan Centaur, Blue Origin’s New Glenn, and Ariane 6, which ArianeGroup is developing and Arianespace will operate. Technical challenges, which are common during rocket development, have cropped up at times for all three.
Each launcher has a busy schedule planned once the new rockets start flying, in part conducting dozens of launches between them for Amazon.com’s planned satellite fleet.
“We are, for the first time, really in the history of launch, in a situation where there is scarcity,” ULA Chief Executive Tony Bruno said at an industry event in March, adding that for the last three decades there has been an oversupply in launch capacity. “This will persist for many years.”
And it is growing more expensive.
SpaceX’s standard price for a Falcon 9 launch is $67 million.
The company has charged $97 million a launch for the more powerful Falcon Heavy.
SpaceX raised prices for both last year.
The company has said that rising costs also led it in 2022 to also boost prices for ride-share missions, in which multiple customers purchase rides for satellites on a single Falcon 9. SpaceX recently listed ride-share prices at $6,500 a kilogram for launches to what is called a sun-synchronous orbit, up from $5,000 a kilogram about two years ago.
Since January 2022 and the first half of this year, SpaceX has also conducted 56 launches for its Starlink business, 54% of its total.
Rivals have noticed.
“It’s of course a very uncomfortable situation, where you have a supplier that wanted to go down the value chain and start competing with its own customers,” said Christian Patouraux, chief executive at Kacific, a satellite internet company focused on Asia and the Pacific region. SpaceX launched a satellite for Kacific in 2019.
Englewood, Colo.-based satellite internet company EchoStar hired SpaceX to blast into orbit EchoStar’s roughly nine-ton Jupiter 3 satellite, intended to give the company more broadband capacity for residential customers, businesses and other clients in the Americas. EchoStar has faced heightened competition from Starlink, executives at the company have said.
Paul Gaske, operations chief at EchoStar, said when the company settled on Jupiter 3’s design, SpaceX’s Falcon Heavy was the only rocket ready to handle the flight on EchoStar’s preferred timetable.
“Really you have to be practical about what’s demonstrated and going,” Gaske said. SpaceX’s launch division has shown it has capacity and flexibility, setting it apart, he said.
Musk has said the company has launched satellites for competitors. He said if SpaceX had a goal of blocking rivals, it wouldn’t have done the launches for OneWeb. “We charged them the same as anyone else,” he said last month.
SpaceX executives have said the company plans to increase launches, this year aiming to conduct 100 flights, compared with 61 in 2022.
Tom Ochinero, senior vice president for SpaceX’s commercial business, said at the March industry event that reaching 200 launches a year is possible.
“We have the hardware. We have the infrastructure. We can scale the staffing,” he said.
McKinsey consultants said a capacity crunch for larger rockets in the next few years also depends in part on SpaceX’s Starship. Air-safety regulators must sign off another Starship flight. It isn’t clear when the company may be able to launch the rocket again.
If Starship doesn’t ramp up as expected, there will likely be a shortage unless SpaceX allocates more of its Falcon fleet for customers instead of Starlink, they said in a report.
Payam Banazadeh, chief executive at Capella Space, a satellite company that uses specialized radar to capture imagery of Earth, said he wants more choices. The company has flown satellites with SpaceX and Rocket Lab.
“In the short term, we plan to continue with SpaceX and Rocket Lab until some of these new launch vehicles demonstrate reliability and repeatability,” he said.
Birkenstock Interviewing Banks for Potential IPO: Sources
The sandal maker, which is owned by L Catterton and Financière Agache, is getting ready to explore its options.
Birkenstock is getting ready to make its move.
Sources told WWD the German sandal brand’s key owner — private equity giant L Catterton — is meeting with bankers as it prepares to explore options for the business, including a potential initial public offering.
While one financial source said the shoe company could move to go public this fall, another suggested that timing would be ambitious.
Regardless, Birkenstock is said to have gone from strength to strength lately as its comfy sandals resonate with consumers keen to stay casual post-pandemic.
A spokeswoman for L Catterton, which describes itself as the largest consumer-focused private equity group in the world, declined to comment on Thursday.
The Greenwich, Connecticut-based investor bought control of Birkenstock along with Financière Agache in 2021 — and while the valuation was never revealed, it was said at the time to be around 4 billion euros.
The blockbuster deal gave luxury titan Bernard Arnault two main points of contact at the brand as L Catterton counts his LVMH Moët Hennessy Louis Vuitton among its backers and Financière Agache is his family investment vehicle.
That means Arnault, if he wanted to own the brand outright, would have a head start on any competition, although there are very few investors other than Arnault or one of the other luxury titans who are able to buy fashion brands at that scale.
As for an IPO, much will depend on the market for new offerings, which went from red hot in 2021 — when Dr. Martens, On Holding, Allbirds Inc. and Warby Parker Inc. went public — and into a deep freeze last year when investors were thrown by inflation, the war in Ukraine and economic uncertainty.
Recently there have been signs of a thaw in the consumer IPO space, even though the economic environment remains uncertain.
The for-profit thrift store Savers went public last month, as did Mediterranean fast-casual restaurant Cava Group Inc. Likewise, beauty and wellness tech company Oddity Tech filed for an offering and Italian footwear company ACBC is gearing up to file for an IPO on the New York Stock Exchange, which could take place early next year.
That’s a lot of companies testing the waters.
If it did go public, Birkenstock would make a big splash and signal a major comeback for the market, which gains momentum with each new offering.
The process would also unveil Birkenstock’s financials for the first time, fleshing out the industry’s understanding of what is a singular fashion story. The brand is one of the oldest and traces its roots back to 1774, when Johann Adam Birkenstock was listed as “cobbler” in the church archives of Langen-Bergheim.
Birkenstock has played on that heritage as well as its anatomically shaped footbed to carve out a unique niche in fashion, through collaborations with the likes of Rick Owens and Jerry Lorenzo’s Fear of God or ads featuring Manolo Blahnik.
With that fashion profile, Birkenstock has a little bit of everything — a well-known brand, deep heritage, comfortable footwear, big designer connections, big finance connections and, maybe soon, a stock ticker.
There are certainly plenty of other brands watching the market closely and trying to gauge their own opportunities, although few companies can boast anything like the longevity Birkenstock has enjoyed.
Rihanna’s Savage x Fenty, which is also backed by L Catterton, is seen as another IPO candidate, along with Kim Kardashian’s Skims. Then there are companies that were said to be thinking of an IPO back in 2021 but never made the jump, such as Kate Hudson’s Fabletics, as well as other private equity-backed brands, including the Permira-owned Reformation.
But as the class of 2021 IPOs discovered, going public is just the first step. With the bright lights and big money of Wall Street comes investor scrutiny and new pressures to perform.
Just ask Allbirds, Rent the Runway, Olaplex, Warby Parker or Dr. Martens. They all went public in 2021 and of the bunch, Dr. Martens has held up the best — with a stock decline of about 74 percent.
UK house prices fall 2.6% in biggest annual drop since 2011
Average price stands at £285,932 as rise in mortgage rates hits market
UK house prices fell in June at the fastest annual pace since 2011 as the rise in mortgage rates hit the property market, mortgage provider Halifax said.
Halifax reported on Friday that the average UK property price was down 2.6 per cent in June compared with the same month last year, and more than double the drop of 1.1 per cent in May, marking the largest such fall since June 2011.
Kim Kinnaird, director at Halifax Mortgages, said that “the housing market remains sensitive to volatility in borrowing costs”.
Compared with the previous month, house prices were down 0.1 per cent, taking the average to £285,932.
Martin Beck, chief economic adviser to the EY Item Club, said that “given the scale of previous price gains and the headwinds facing the housing market from rising mortgage rates and other financial pressures, house prices continue to display a surprising degree of resilience”.
The Bank of England in May increased interest rates for the 13th consecutive time to 5 per cent, the highest in 15 years.
With persistent high inflation and hot wage growth, markets are pricing in UK interest rates hitting 6.5 per cent by March 2024 — which has pushed mortgage rates to their highest levels since the financial crisis.
Halifax’s Kinnaird said the resulting squeeze on affordability will inevitably act as a brake on demand in the UK housing market, “as buyers consider what they can realistically afford to offer”.
He added that while there was a lag effect when rates go up, many existing mortgage holders with variable-rate loans or rolling off fixed-rate deals would face an increase in payments in the next year.
Halifax also revealed that prices of existing properties, which had been driving the market up during the pandemic, were down 3.5 per cent year on year in June, the steepest decline since August 2009.
In contrast, prices of new build properties were up 1.9 per cent annually.
House prices in the West Midlands, Yorkshire & Humberside and Northern Ireland stagnated or rose marginally, while all other regions reported an annual fall.
The South of England registered the steepest annual fall at 3 per cent. London recorded an annual decline of 2.6 per cent, its weakest performance since October 2009 and a drop of about £15,000 over the past year.
Data from the mortgage provider Nationwide last week showed that house prices ticked up 0.1 per cent between May and June, but still contracted at the fastest pace since 2009 when compared with June last year.
Adam Smith, founder of Northampton-based Alfa Mortgages said: “The immense strain being put on people’s finances will almost certainly send prices lower during the months ahead.”
Early premarket gappers
- Gapping up:
- GRRR +57.9%, QTRX +8.1%, CRON +4.3%, SAND +2.6%, MRCY +2.1%, MRNS +0.9%, BIIB +0.4%
- Gapping down:
- LEVI -7.4%, BLZE -5.2%, RIOT -2.3%, KTB -2%, SRPT -1.6%, PLTR -1.4%, COST -0.8%, LGIH -0.5%
>>> Up
* Aena Raised to Buy at JB Capital Markets; PT 176 euros (+)
* Antin Raised to Overweight at Morgan Stanley; PT 20 euros
* ConvaTec Raised to Hold at HSBC; PT 200 pence
* ConvaTec Raised to Hold at HSBC; PT 200 pence
* Duell Raised to Buy at Inderes; PT 1.60 euros
* Elementis Raised to Overweight at JPMorgan; PT 144 pence
* Ferrari PT Raised to $340 from $310 at Morgan Stanley (+)
* MTG Raised to Buy at DNB Markets; PT 85 kronor (+)
* Newmont Corp Raised to Overweight at Barclays; PT $61
* Rotork Raised to Buy at Jefferies; PT 370 pence
* Saint-Gobain Raised to Buy at Stifel; PT 68 euros
* Scatec Raised to Overweight at Barclays; PT 115 kroner
* Wienerberger Raised to Buy at Stifel; PT 37.50 euros
>>> Down
>>> Down
* Atrium Ljungberg Cut to Sell at ABG; PT 170 kronor
* Autoneum Cut to Underperform at ZKB (+)
* Avance Gas Cut to Hold at Arctic Securities; PT 100 kroner
* BHP Cut to Hold at Berenberg; PT 2,400 pence
* BW LPG Cut to Hold at Arctic Securities; PT 100 kroner
* Deliveroo Cut to Underperform at BNPP Exane (+)
* Delivery Hero Cut to Underperform at BNPP Exane; PT 35 euros (+)
* Dorian LPG Cut to Hold at Arctic Securities; PT $25
* Getinge Cut to Equal-Weight at Morgan Stanley; PT 210 kronor
* Just Eat Takeaway Cut to Underperform at BNPP Exane (+)
* SMA Solar Cut to Neutral at BNPP Exane; PT 115 euros (+)
* United Internet Cut to Hold at HSBC; PT 15 euros
* Vincit Cut to Accumulate at Inderes; PT 4.80 euros
* United Internet Cut to Hold at HSBC; PT 15 euros
* Vincit Cut to Accumulate at Inderes; PT 4.80 euros
* Zurich Ins. Cut to Neutral at Citi; PT 445 Swiss francs
>>> Initiation
>>> Initiation
* Fuchs Petrolub Rated New Overweight at Barclays; PT 45 euros
* IBM Rated New Neutral at JPMorgan; PT $145
* IBM Rated New Neutral at JPMorgan; PT $145
* Rainbow Rare Earths Rated New Speculative Buy at Canaccord (+)
>>> Call
>>> Call
* Autoneum Cut at ZKB After Rally as Demand Outlook Stagnates (+)
* Deutsche Bank Strategists See European Earnings Weakening in 2H (+)
* Elementis Upgraded at JPMorgan on Better Earnings Backdrop
* GTCR’s Worldpay Takeover; Jefferies Turnaround: Financials Wrap
* Rotork Upgraded to Buy at Jefferies on Healthy Balance Sheet
* Swedish Banks Can Withstand Real Estate Collapse, SEB Says