>>> Europe : Brokers Upgrades & Downgrades - 9th of March 2023

>>> Up
* ABN AMRO GDRs Raised to Market Perform at KBW; PT 19.50 euros
* Bayer Raised to Buy at AlphaValue/Baader
* Deliveroo Raised to Outperform at Credit Suisse; PT 141 pence
* Gerresheimer Raised to Overweight at JPMorgan; PT 144.10 euros
* Hilton Worldwide Raised to Overweight at Barclays
* ITV Raised to Buy at Deutsche Bank
* LVMH Raised to Add at AlphaValue/Baader
* Vimian Raised to Buy at Handelsbanken

>>> Down
* 2020 Bulkers Cut to Hold at SEB Equities; PT 120 kroner
* Care Property Invest NV Cut to Neutral at Oddo BHF; PT 15 euros
* DiaSorin SpA Cut to Underperform at Exane; PT 95 euros
* Etsy Cut to Underperform at Jefferies; PT $85
* Hyatt Cut to Equal-Weight at Barclays
* National Express Cut to Sell at Liberum; PT 115 pence
* Saab Cut to Neutral at Citi; PT 643 kronor

>>> Initiation
* Norsk Hydro Rated New Outperform at RBC; PT 90 kroner

>>> Call
* Deliveroo an Unrewarded Outperformer, Upgraded at Credit Suisse
* Gerresheimer Raised, PT Hiked at JPM on GLP-1 Products Upside
* LVMH to Be Major Winner From China Rebound, AlphaValue Upgrades
* Norsk Hydro New Outperform at RBC on Decarbonization Positioning
* Saab Cut to Neutral at Citi With Good News Now Priced In

WSJ : U.S., EU to Start Trade Negotiations on Minerals

U.S., EU to Start Trade Negotiations on Minerals
President Biden and European Commission President Ursula von der Leyen are set to discuss a plan to reduce their dependence on China

The U.S. and European Union are moving forward with crafting a trade agreement focused on critical minerals, with President Biden and European Commission President Ursula von der Leyen expected to discuss on Friday the plan to reduce their dependence on China.

As part of the White House meeting on Friday, the U.S. and EU are aiming to announce that they are starting negotiations on the terms of such a deal, according to U.S. and EU officials, though U.S. officials said an announcement would only come after consultation with Congress.

The talks on a bilateral deal are a first step toward forming what officials have described as a buyers club for materials central to the clean-energy transition. The trade deal and broader buyers club are aimed at addressing a dispute over U.S. subsidies for electric vehicles, as well as moving clean-energy supply chains away from China.

The Inflation Reduction Act, passed last year, revamped U.S. tax credits for electric vehicles. It required that EV batteries largely contain minerals from the U.S. or a country with which the U.S. has a free-trade agreement. That angered close U.S. allies who don’t have a free-trade agreement with the U.S., including the EU and Japan.

The U.S. is now beginning to craft a deal with the EU that would narrowly focus on environmental and labor standards for producing critical minerals, such as lithium and nickel, according to the people familiar with it. In the U.S., it would be an executive agreement that doesn’t require Congressional approval, according to the people.

While such a deal wouldn’t be a traditional free-trade agreement that lowers tariffs, the Biden administration thinks such a deal would allow the EU to meet the minerals-sourcing requirement for the subsidies, according to the people.

“There could be a designation that the EU, at least in the sector of critical minerals, could be considered a free trade partner,” said Erik Brattberg, a senior fellow at the Atlantic Council.

With an agreement focused on critical minerals, which the U.S. is also pursuing with Japan and the U.K., the Biden administration is trying to appease allies abroad while also not rankling the lawmakers on Capitol Hill who crafted the new rules for the subsidies. Striking that balance might prove difficult.

Sen. Joe Manchin (D., W.Va.), a centrist at the center of crafting the law, has loudly criticized the Biden administration’s previous decisions on how to implement the law, arguing they run afoul of his intent to bring manufacturing to the U.S. Mr. Manchin said Wednesday he would vote against Mr. Biden’s nominee to lead the Internal Revenue Service because of his disapproval of the Treasury Department’s previous efforts to give allies eligibility for elements of the subsidies.

Some lawmakers are also concerned that the Biden administration could create trade policy without their approval. Sen. Ron Wyden (D., Ore.)—the chairman of the Senate Finance Committee, which oversees trade policy—has called on the Biden administration to work with lawmakers on its trade moves.

“We’ve made it clear that there is a constitutional imperative that the Congress and the Senate be involved in trade policy,” he said.

The Biden administration is consulting with Congress, as well as labor unions, on the talks, U.S. officials said.

Under the Biden administration’s design, agreements with the EU, Japan and the U.K. would be the first step toward creating a new buyer’s club for critical minerals among the Group of Seven advanced democracies.

The G-7 group would then approach countries in Africa, Asia or Latin America that are rich in minerals and seek agreements with them. U.S. and European officials have started that outreach, according to people familiar with it.

As part of those arrangements, the G-7 would offer to provide financing for developing the infrastructure for procuring the minerals, according to the people familiar with the plans. China is currently a major supplier of minerals for critical clean-energy technologies, drawing concern from Western officials.

The goal of the buyer’s club is to ensure that the Western world has reliable access to critical minerals, while preventing a bidding war between the G-7 economies over them. The Inflation Reduction Act will eventually bar vehicles with any minerals sourced from countries of concern like China from receiving the subsidy.

FT : China’s local governments boost revenue by selling land to their own entiti

China’s local governments boost revenue by selling land to their own entities
Official think-tank report hints at extent of financial woes in crucial economic engine for country

Cash-strapped local governments in China artificially boosted their revenues last year by selling swaths of land to their own investment vehicles, an official think-tank said, raising concerns about the extent of their financial woes.

More than half of the Rmb2.2tn ($316bn) in residential property plot sales by local Chinese authorities in 2022 were made to local government financing vehicles (LGFVs), according to a report published last week by the Chinese Academy of Fiscal Sciences, which warned some transactions “might be fake”.

The report suggested local governments had overstated their revenue after LGFVs, which are responsible for financing infrastructure construction, stepped in as the biggest land buyer. “Local authorities have a strong incentive to sell assets at inflated prices or have LGFVs purchase land to artificially prop up fiscal revenue,” the think-tank said.

Land sales are a crucial source of revenue for China’s local governments, which are responsible for everything from roads to healthcare and education but whose budgets have been hit hard by the Covid-19 pandemic and a property market crisis.

The report and the suggestion that LGFVs have helped prop up land sales suggest their financial challenges are more dire than even official statistics suggest.

Local governments reported the biggest decline in fiscal revenue in decades last year as Beijing’s zero-Covid policy stifled growth and forced them to foot the bill for mass testing and quarantines. Spending on healthcare added “significant uncertainty” to their fiscal budgets, the think-tank said.

“Local governments have run out of options to have a balanced budget,” said Bo Zhuang, a Singapore-based economist at asset manager Loomis Sayles.


Income from land sales, the biggest source of the cash that local authorities raise directly, plunged 23 per cent in 2022 as debt-stricken private developers stepped back, home sales sank and Beijing tightened credit.

Local authorities have also faced a jump in outlay. Many have increased wages in an effort to stem corruption, with personnel expenses rising more than a third in the four years to 2020. “It is increasingly difficult to control government personnel spending,” the think-tank said.

Their budget problems are exacerbated by a surge in debt service costs. Interest payments accounted for 4 per cent of total fiscal income last year, up from 2.6 per cent in 2019, according to the think-tank. In under-developed western provinces local authorities were spending up to a third of income paying interest, it said.

“That has undermined fiscal sustainability,” the think-tank said.

This is the context in which many turned to LGFVs, long a tool for local authorities to raise money for infrastructure projects without having to take debt on to their own balance sheets

Official data show LGFVs accounted for a record 54 per cent of the total value of China’s residential land sales last year. The spending boom was fuelled largely by debt. Some cities then logged the sales in their books before refunding LGFVs so the latter could bid for land in future auctions, the report said.

“We were basically faking land transactions so our government budget would look good,” said an official in the central city of Zhengzhou, where LGFVs accounted for four-fifths of transactions in its latest land auction last month. “That will cause bigger pain in the long run.” The city of Zhengzhou did not respond to a request for comment.

Many LGFVs are ready to cut back on land purchases as they have made it a priority to pay down debt, analysts say. This year, Moody’s estimates that a record Rmb4.7tn in LGFV bonds will come due this year, up from Rmb3.7tn in 2021 and Rmb1.2tn in 2017.

“We are not going to bid for another plot until we reduce our leverage to a reasonable level,” said Li Wei, an executive at a Henan-based LGFV that spent more than Rmb300mn on land purchases last year.

FT : UK start-up developing hologram technology for in-car monitors valued at £5

UK start-up developing hologram technology for in-car monitors valued at £500mn
Milton Keynes based group says technology will improve safety on busy urban roads

A UK start-up developing hologram technology to replace car monitors to improve driving safety has been valued at $500mn following investments from Stellantis, General Motors and Hyundai.

Envisics says projected displays could reduce driver distraction and warn motorists of oncoming hazards earlier, particularly on busy urban roads.

Founder and chief executive of the Milton Keynes based group Jamieson Christmas said the group raised more than $50mn from backers that also include Jaguar Land Rover, valuing the company at $500mn.

The business, which has an office in Detroit and staff in Tokyo, is in the process of considering expanding its international footprint to cater for growing interest in its technology among global carmakers.

The group has also attracted interest from other European governments, which have put pressure on the start-up to relocate.

“We have been approached by a number of European nations that have offered to help us relocate HQs to their locations. They recognise the value of high-tech, high-growth companies,” he said.

The group, which employs about 100 people, is committed to the UK but has struggled to attract international staff.

“Convincing people that the UK is open minded and welcomes highly skilled people is not easy frankly,” he added. “We have got to be careful to shape the message we send, that we are not a closed nation.”

Subsidies in the US and Europe for technology companies were also making the UK less attractive by comparison, he said. “I want to remain a UK company, but it needs to be a level playing field.”

The current uncertainty over government support for technology is “not conducive” to growing a business in the UK.

Envisics’ systems are a step ahead of technology in some cars that allow drivers to view speed limits and navigation information on the windscreen, rather than on a screen lower down within the car.

The latest generation of its technology, which uses self-driving cameras fitted into cars to warn drivers of hazards they may not have spotted, will be in GM’s electric Cadillac Lyriq from next year.

Envisics raised $50mn in a series C round, the fourth stage of start-up financing, typically focused on scaling up the company, that it will use to roll out its system.

It also aims to use the money to speed up the next stage of the product’s development to enable it to project three-dimensional images on the road ahead, allowing drivers to see turns or other signs in advance.

“Big screens in cars are not the answer” to driver distraction, said Christmas.

“Car companies are looking at their interiors, the experience, and realising that augmented reality, with information on the glass that gives much better situational awareness, is a better solution.” 

GM and Hyundai were early backers and reinvested during the funding round, while Stellantis and Jaguar Land Rover bought into the company for the first time during the round.

Californian family fund Tarsadia Investments is its largest shareholder.

Typically, carmakers take about three years to integrate technology into new models, meaning vehicles from its new investors are unlikely to feature its systems until after 2025.

FT : Private company valuations defy fall in listed stocks, adviser says

Private company valuations defy fall in listed stocks, adviser says
Hamilton Lane warns venture capital-backed companies face downgrades

Fears that private investments are due for a price crash to match the drop in stock markets are overblown, says a prominent manager and adviser for private portfolios.

The conclusion from Hamilton Lane, with $832bn in assets under management and supervision, stands in contrast to warnings from JPMorgan and others that valuations of private companies may be too high or are coming down. While listed equities trade daily, private equity holdings are assessed less frequently and their values have not moved down as sharply since early 2022.

Hamilton Lane’s annual report on the industry, to be published on Thursday, said most private equity holdings are appraised conservatively and should hold their value. At the start of last year, most private companies were priced at a substantial discount to public companies in the same sector, the report found.

Falling public markets have narrowed the gap, but privately held communications and consumer discretionary companies were the only ones held at a higher multiple of earnings than their public peers as of late last year, the report said.

“We feel that valuations broadly in the private markets are fair,” said Hartley Rogers, Hamilton Lane’s chair. “The revenue growth in private companies, the [earnings] growth in private companies, and therefore the enterprise value of those businesses exceeded the public markets. You had better operating performance in private equity-owned businesses.”

Hamilton Lane, based in Pennsylvania, runs private funds, advises clients on third-party managers and provides data on private markets.

Rogers cautioned that the venture capital investments in early-stage companies are an exception to Hamilton Lane’s conclusions and face significant downgrades. VC holdings, which represent 21 per cent of private market commitments over the past three years, are generally held on balance sheets at the value of their last financing round.

But global VC funding dropped 35 per cent last year, according to Crunchbase, and the few companies that have been able to raise more money have had to do it at lower valuations.

Hamilton Lane said history supported its predictions. Despite some spectacular failures, private equity-owned companies as a whole held their value through the 2000s dotcom bust and after the 2008 financial crisis, the report found. Since 1995, private market buyout funds delivered a positive return even during their worst five-year period from 1998 to 2003, while equities dropped 5.7 per cent over the same stretch, Hamilton Lane calculated.

Private equity owners can often avoid taking writedowns by holding on to their investments until public markets bounce back and support higher sales prices. The private structure also makes it relatively easy to provide extra financial support to portfolio companies struggling with a cash crunch.

“Private equity owners tend to have more mechanisms to cure periods of stress than publicly traded companies,” Rogers said.

Private companies are also spread across economic sectors, while S&P Global calculated that Big Tech groups including Apple, Amazon and Tesla were the major drivers of last year’s 19.4 per cent fall in the S&P 500.

Hamilton Lane’s analysis of private markets’ past performance may be limited because private markets are much larger than in earlier crises, and significantly more money is in private credit and infrastructure funds, which have less of a historical record.

The semi-liquid funds being marketed to wealthy individuals are also dominated by a handful of providers, notably Blackstone’s Breit real estate fund, which has had to limit withdrawals. That means the sector’s success or failure is closely linked to the performance of a few managers, Hamilton Lane said.

>>> US After Hours Summary: SI -37.1% on news it will liquidate Silvergate Bank; MDB -9.9% falls on earnings; ASAN +28.4% higher on earnings; MGNX +10.7% on news it will sell its royalty interest on TZIELD

After Hours Summary: SI -37.1% on news it will liquidate Silvergate Bank; MDB -9.9% falls on earnings; ASAN +28.4% higher on earnings; MGNX +10.7% on news it will sell its royalty interest on TZIELD

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: ASAN +28.4%, SOVO +5.2%, HDSN +4.9%, NDLS +1.7%, KRO +0.2%

Companies trading higher in after hours in reaction to news: MGNX +10.7% (to sell its royalty interest on TZIELD to DRI Healthcare Trust for up to $200 mln), UBER +2.1% (considering spinning off its Freight Logistics arm, according to Bloomberg), AXP +1.7% (increases dividend; also approves share repurchase program for up to 120 mln shares), AAPL +0.1% (reshuffling its intl ops to place greater emphasis on India, according to Bloomberg), TGI +0.1% (announces agreement for logistics support in Asia)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: MDB -9.9%, SMRT -0.2%, EOLS -0.1% (also files for $250 mln mixed securities shelf offering), ONL -0.1%, NAPA -0.1%

Companies trading lower in after hours in reaction to news: SI -37.1% (to wind down operations and voluntarily liquidate Silvergate Bank), SIVB -14.5% (announces proposed offering of $1.25 bln of common stock and $500 mln of depositary shares; also in sympathy with SI news), STGW -9% (16 mln share offering launched by selling shareholders), CWAN -5.3% (files for offering by selling shareholders; also announces that it may offer and sell shares of its common stock), SBNY -3.7% (in sympathy with SI news), TNL -2.2% (increases dividend), COIN -1.7% (in sympathy with SI news), PTON -1.7% (US import ban over its streaming technology, according to Reuters), SONX -1% (files for $100 mln mixed securities shelf offering), SPOT -0.8% (launches Spotify for Podcasters), OGS -0.7% (stock offering), LLY -0.5% (provides update on A4 Study of Solanezumab), SLGN -0.1% (names new CFO), GPRK -0.1% (increases dividend)

TechCrunch : Humane, a secretive AI startup founded by ex-Apple employees, raise

Humane, a secretive AI startup founded by ex-Apple employees, raises another $100M

A startup founded by ex-Apple design and engineering team Imran Chaudhri and Bethany Bongiorno, Humane, today raised another $100 million to build what it calls an “integrated device and cloud services platform” for AI.

Humane’s work is shrouded in mystery. But its latest round of funding, a Series C, attracted a laundry list of notable investors, including Kindred Ventures (which led the round), SK Networks, LG Technology Ventures, Microsoft, Volvo Cars Tech Fund, Tiger Global, Qualcomm Ventures and OpenAI CEO and co-founder Sam Altman.

To date, Humane has raised $230 million from existing and previous investors, including Salesforce CEO Marc Benioff. Its workforce has grown correspondingly larger, now numbering exactly 200 employees.

“This Series C round presented an opportunity to raise money through equity, and to bring on board great VCs and strategic partners who would like to participate in equity as the company grows,” Chaudhri told TechCrunch in an email interview. “At Humane, we’re building a first-of-its-kind device and services platform — we’re growing fast, and we’ve been focused on innovation, research and development.”

Those lofty promises are characteristic of Humane, which generated buzz after bringing on dozens of decorated ex-Apple employees responsible for the iPhone’s touchscreen keyboard, elements of Apple’s industrial design and infrastructure for Apple services like iCloud, Apple Pay and Home. Chaudhri himself spearheaded the design of the iPhone’s home screen, while Bongiorno helped to lead software development for iPhone, iPad and later the Mac.

Neither Chaudhri nor Bongiorno are ready to talk about what Humane’s been building for the past five years — yet. The husband-wife duo promise a reveal this spring. But Humane’s patent portfolio and hiring reveals some clues.

In 2020, Humane filed an application with the USPTO (spotted by 9to5Google) for a “body-worn device” that uses a “laser projection system” instead of a display — essentially projected AR glasses that can identify objects in the real world and apply digital imagery to them. And as recently as three years ago, Humane was hiring Android developers to create apps for “personal live broadcasting” as well as “senior monitoring,” “memory recall” “and “personal guide.”

Peeling back the curtains on its process somewhat, Humane did reveal several strategic tie-ups with its investors today.

Humane says that it’s partnering with SK Networks and Microsoft to bring its platform and services to market, with Microsoft supplying the cloud processing power and SK Networks handling distribution. Meanwhile, Humane’s collaborating with OpenAI to integrate its tech into the startup’s device — whatever form it ends up taking, exactly. LG, for its part, is working with Humane on R&D projects for the next phase of its product lifecycle as well as adapting Humane’s tech for smart home devices. And Volvo’s teaming up with Humane on a potential automotive industry offering.

Qualcomm is also a partner, Chaudhri says, which would make sense if the aforementioned patent is anything to go by. In addition to the laser projection system, the patent diagrams show a Qualcomm Snapdragon chip paired with a camera, 3D camera, depth sensor, heart rate sensor and a wearable battery.

If that all sounds rather vague, it is, from the caveated language (e.g. “potential automotive industry offering”) to the lack of concrete practical details. Is the collaboration with OpenAI merely a customer-vendor relationship or something deeper, given Altman’s personal involvement? How could Humane’s tech find a fit both in the smart home and automotive spaces?

Beyond asserting that Humane is focused on “trust and privacy from day zero,” the company isn’t saying. Chaudhri emphasized, repeatedly, Humane’s investment in AI.

“AI can have a transformative impact on most aspects of our everyday lives, but it does require a large amount of data to do so,” she said. “We are effectively building devices and platforms for a new era, which means an ongoing process of development and redevelopment.”

Call me cynical, but I’m wary of startups with huge war chests of capital but no commercialized product to speak of.

One that comes to mind is Magic Leap, which generated enormous hype years before revealing its first prototype but ultimately fizzled and very nearly died. Like Humane, Magic Leap had impressive investors attached to it, including AT&T, Google and Alibaba Group, and partnerships with content creators like Disney’s Lucasfilm. But the company’s tech disappointed, leading backers to cut Magic Leap’s valuation and company leadership to pivot from the consumer market to enterprise.

Magic Leap’s not the only high-profile hardware misfire in recent years. Android founder Andy Rubin’s Essential shut down after promising an entire ecosystem of products but delivering only a single Android smartphone. Nothing, started by ex-OnePlus CEO Carl Pei, has been marginally more successful — but experienced its own challenges.

I’m not suggesting Humane will go the way of Magic Leap, Essential or Nothing. It’s been managing expectations better, for one. But even with the best tech talent under one roof, history has shown us that there are no guarantees.

I’ll leave you with this quote from Steve Jang, the founder and managing partner at Kindred:

“When I originally met the Humane team and led their seed round in 2019, we were blown away by the vision of AI and contextual computing. The founders, Bethany and Imran, and much of the team also led by Patrick Gates, CTO, had come from Apple and served as an integral part of designing and building the iPhone, iPad, Watch and iOS platform. In their time and work there, they experienced the power and the limitations of the smartphone era. In our very first discussion, we were excited by their vision to bring a more humane and personalized computing experience. The Humane team continues to make great progress toward a future of AI that is human-centric and enabling.”

A tantalizing prospect? Sure. I’ll believe it when I see it, though.

FT : Germany slams the brakes on the EU’s engine ban

Germany slams the brakes on the EU’s engine ban
The clean energy transition requires painful trade-offs

Talk about a legislative car crash. Ambitious plans by the EU to ban the sale of new vehicles powered by internal combustion engines by 2035 have been thwarted after last-minute opposition by Germany, the powerhouse of Europe’s car industry. What was meant to be a simple rubber-stamping by ministers this week of measures agreed last year by member states and recently approved by the European parliament has instead been indefinitely postponed. Not only does Germany set a terrible example to other countries tempted to hold legislation hostage to national interests, it also threatens the credibility of Berlin on the green transition, and that of the EU. The bloc’s proposed ban is a key component of its target to reach carbon neutrality by 2050. That journey has now hit a roadblock.

The dangers of a changing climate require a global shift from fossil fuels to cleaner alternatives at a scale and pace never attempted before. It is necessary to remove one of the biggest contributors to the climate emergency. There will be painful trade-offs, including job losses in polluting industries. In the auto industry’s case, the figures are stark: scrapping internal combustion engines in favour of electric vehicles could lead to 40 per cent fewer workers, reckons the chief executive of Ford, which has just cut 3,800 jobs across Europe. Given that Germany’s traditional car manufacturing industry makes up a fifth of the country’s industrial revenues, it is easy to understand why its politicians may be keen, particularly in a cost of living crisis, to preserve jobs in one of the country’s most totemic industries.

Without Berlin’s backing, the combustion-engine ban will not pass. Italy, home to the Ferrari, is supporting Germany. Poland has already stated its opposition to the law, while Bulgaria has said it will abstain. Germany is insisting that the European Commission includes an exemption for cars using so-called e-fuels, synthetic fuels made from hydrogen and carbon dioxide. E-fuels can be used by regular engines, which could mean a lifeline for traditional manufacturers. But e-fuels are far from being the panacea they are sometimes presented as: they are expensive, inefficient and emit as much nitrogen dioxide as burning fossil fuels would, even if they are technically climate neutral.

Neither are manufacturers particularly pushing e-fuels, beyond Bosch, the German engine supplier considered a laggard on battery manufacturing. Porsche wants to continue using engines for its 911 model, and Ferrari has said it is considering — although is yet to commit to — using e-fuels. But other German and Italian carmakers, including Volkswagen, Fiat and Mercedes-Benz, have bet on EVs for the future and have set dates for the phaseout of traditional engine manufacturing.

Infighting among Germany’s ruling three-party coalition goes some way to explaining how the current impasse has been reached. From both a productivity and a climate perspective, the country’s politicians have to prioritise clean energy and find ways to address the resulting pressures. But the debacle over engines highlights that while the EU is among the world’s leaders in setting clean-energy targets, those now need to be matched with concrete action to meet them and to attenuate the collateral damage of doing so. Brussels must also consider how meaningful targets are if they are not enforced: France missed its renewable energy target from 2020, the only state to do so, and the commission is yet to decide whether and how to place sanctions on it. Transitioning to carbon neutrality by 2050 will be fiendishly difficult. But given that member states agreed to targets, it is now incumbent upon them to do all they can to meet them.