FT : Cellnex says European towers M&A is ‘over’ as it seeks to rein in debt

Cellnex says European towers M&A is ‘over’ as it seeks to rein in debt
Chief executive is sceptical of private equity firms snapping up assets in the industry

Spanish masts company Cellnex said that the European towers market is now “pretty much closed”, as soaring inflation makes it increasingly difficult to finance new deals and the availability of assets dwindles.

“M&A activity is over,” said Tobías Martínez Gimeno, who has been chief executive of Cellnex since 2014, and has led the company through an acquisition spree that has built it into the biggest tower group in Europe. “Material, inorganic growth, for the next 24 months, is over.”

Cellnex said last week that it was seeking to improve its credit rating to investment grade from agency S&P, which will mean reducing its leverage from eight times earnings before interest, tax, depreciation and amortisation to below 7 times.

When interest rates were low and debt was cheap, mobile towers — the metal structures on which radio antennas sit — were some of the most attractive and valuable assets in telecoms, offering lucrative returns in an increasingly connected world.

But since June, the share price of most towers groups has tumbled as rapidly rising interest rates drove up the cost of capital for these heavily indebted businesses.

Negative interest rates over the past few years meant that “money was almost free”, Gimeno said, allowing Cellnex to snatch up 130,000 towers across 12 European countries.

But now “we have to face and beat inflation”, he said. “Inflation is the worst thing for everyone — individuals, societies, companies. It’s damaging the whole economy, and no one is escaping.”

In spite of being one of the most acquisitive groups in European telecoms, Cellnex was not involved in major recent deals involving towers assets, when two of the biggest European operators sold stakes in their masts to private equity groups that were able to offer attractive valuations.

In July, Deutsche Telekom agreed to sell a majority stake in its towers business to Brookfield Asset Management and private equity group DigitalBridge Group, valuing the business at €17.5bn, or 27 times ebitda.

And earlier this month, Vodafone agreed to sell up to 50 per cent of its masts business to KKR and Global Infrastructure Partners, bankrolled by Saudi Arabia’s Public Investment Fund, which valued the company at €16.2bn, or 26 times ebitda.

Gimeno said he was sceptical about the business model being adopted by private equity groups that have begun acquiring towers in search for steady, reliable returns.

“It doesn’t work, the business plan,” he said, adding that when they are buying at around 26 or 27 times ebitda now, they will struggle to sell the assets at a premium in five to seven years time.

“PowerPoint, Excel — they can be very creative,” he said, but “you have to deliver in the end, and the exam will come”.

“This industry is about capex, it’s about investing, it’s not about running the company and doing nothing,” he added.

Over the next two-year period, Cellnex will focus its attention on reducing debt and limiting capital expenditure, among other things.

Though the group has no debt due to mature until 2024, it said obtaining an investment grade rating would ensure that its bonds trade at a lower yield.

Two weeks ago, Cellnex’s bonds were trading at 6 per cent, while bonds of investment grade companies were trading at 4 per cent, Gimeno said, which means the company could be paying around €80mn to €90mn more per year.

Cellnex’s net debt rose to €17.1bn from €14.3bn in June due in large part to the acquisition of CK Hutchison’s European towers, which closed in the UK this month.

>>> Weekend Papers Summary

Weekend Papers Summary

NEW YORK TIMES
-A special counsel will oversee the investigations into former President Trump’s role in the lead-up to Jan. 6 and the documents kept at Mar-a-Lago. Attorney General Merrick Garland’s decision allows the Justice Department to insulate its inquiries against Mr. Trump from political considerations.
-Jack Smith, the Justice Department’s new special counsel, has been prosecuting criminal cases for nearly three decades.
-Elon Musk’s Twitter teeters on the edge after another 1,200 leave. Mr. Musk sent emails on Friday asking to learn about Twitter’s underlying technology as key infrastructure teams have been decimated. So many workers have left that Twitter users have questioned whether the site would survive.
-Elizabeth Holmes has been sentenced to more than 11 years for fraud. Ms. Holmes was convicted in January of four counts of wire fraud for deceiving investors with claims about her blood testing start-up Theranos.
-Hakeem Jeffries, pressing to lead Democrats, marks a generational shift.
The congressman, who has served in the House for a decade, would be a far different leader from Speaker Nancy Pelosi, whom he is running to succeed.
-Representative Lauren Boebert’s rival, Adam Frisch, conceded in their race in Colorado.
-Ukraine’s reclaimed city of Kherson is reconnected to Kyiv by rail. The train connecting the key southern city to the capital set out on its 11-hour journey for the first time since before Russia’s invasion.
-Russia raised hopes for Brittney Griner’s release, but the US said it was just talk.
-Maryland finds ‘no parish was safe’ for hundreds of clergy abuse victims.
The state attorney general identified over 600 young victims of sexual abuse in eight decades in the Archdiocese of Baltimore, a court filing showed.
-Maryland Attorney General Brian Frosh is pressing for the release of his office’s full investigation.
-Ban on Beer is latest flash point in World Cup Culture clash
Qatar’s about-face on alcohol in stadiums signaled that FIFA, soccer’s governing body, may no longer be in full control of its showcase championship.
-Justice Department Is said to investigate Ticketmaster’s parent company. The inquiry predates the botched presale of Taylor Swift tickets and is said to focus on whether Live Nation has abused its power in the live music industry.
-The suspect in U. of Virginia shooting had guns in his dorm room. Authorities found a semiautomatic rifle, a pistol and ammunition in the room of a man accused of killing three fellow students, according to a newspaper.
-Iranian protesters attack Khomeini’s childhood home as unrest spreads.
The house where the Islamic revolution’s founder, Ayatollah Ruhollah Khomeini, grew up was set on fire amid anger over the government’s killing of children.
-Kim Jong-un took his daughter to witness a missile test launch. Little is known about North Korea’s ruling family. Yesterday was the first public appearance of the child, who is thought to be named Ju-ae.

THE FINANCIAL TIMES
-Chinese authorities are recruiting workers from villages and busing them to Foxconn’s iPhone assembly lines after the Apple partner suffered a staff exodus from its central China factory last month during a Covid-19 outbreak. The problems at Foxconn’s Zhengzhou plant caused by Beijing’s strict zero-Covid regime forced Apple to cut estimates for high-end iPhone 14 shipments this month in a rare warning to investors ahead of its peak holiday sales season.
-As details of FTX’s finances and chaotic bookkeeping have been revealed this week by the FT and others, the focus of the investigations and legal battles is now on the gaps in the crypto exchange’s balance sheet — and especially $8B of missing customer deposits. The most innocent version of events that Bankman-Fried can present is that the missing customer funds were simply an oversight.
-The whole FTX episode “undermines trust in financial markets”, Citadel’s chief Ken Griffin said in an interview with Bloomberg this week. “The confidence of a generation in financial markets has also been shaken. That’s really awful because the 20-something-year-olds to 40-year-olds who have are so engaged with crypto, they have got to save for their retirement, and if they don’t believe or trust in financial markets, this is a huge problem.”
-Elizabeth Holmes, the disgraced founder of failed blood-testing start-up Theranos, has been sentenced to more than 11 years in prison for what prosecutors called one of the “most substantial” white collar crimes ever seen in the US. The 135-month sentence handed down Friday marks the climactic point in a saga that ignited a debate on the US tech sector’s “fake it ‘til you make it” ethos and the investment community’s willingness to embrace charismatic company founders.
-Climate negotiators are locked in a stand-off in frantic eleventh hour talks at the UN climate summit in Egypt in a bid to agree a new deal for rich countries to provide financial support to poorer nations. The summit was due to end on Friday but negotiators said they would continue talks over the weekend in an effort to strike an agreement.
-A curious side effect of Musk’s divisive leadership — backing Republican candidates at the recent US midterm elections, drawing up plans to loosen content moderation, and firing staff by tweet — has been that engagement among Twitter’s more than 245M users appears higher than ever.
-Attorney-general Merrick Garland on Friday said the counsel, Jack Smith, would oversee an investigation into Trump’s handling of government documents and parts of a probe into potential interference in the 2020 presidential elections, including certification of the electoral college votes on January 6 2021, when a crowd of Trump supporters attacked the US Capitol.
-Coinbase CEO Brian Armstrong says: “I’m just as bullish on crypto as ever.”
The founder-CEO on his enduring belief in blockchain, his ‘no politics in the workplace’ policy, and why the solution to crypto chaos is . . . more crypto.
-Oil prices fell sharply in the week as mounting concerns about weakening fuel demand in China outweighed fears that Russian supply could drop next month when tighter EU sanctions on its crude exports come into force.
West Texas Intermediate, the US benchmark, lost about 10% this week, falling 1.9% on Friday to settle at $80.08 a barrel. It was the biggest weekly loss since March. US oil prices fell by more than 4% to $78.50 a barrel earlier in the day, to what was the lowest price since September.
-The head of Japan’s travel agents’ association has warned that the post-pandemic recovery of the country’s tourism industry will hinge on whether it can reshape itself to cater to the spending habits of western travelers, in the continuing absence of tourists from China.
-Workers were still fitting toilets, building bedroom furniture and painting cabins just 72 hours before the FIFA World Cup tournament is due to kick off in Doha at 4pm GMT on Sunday. Each unit carries a banner with a message in English and Arabic - Welcome, Play, Now! -a few simply say: Cheer Up. But fan groups worry that the facilities will not be ready in time.
-The mother of a nine-year-old boy who died during protests in Iran this week has accused security forces of killing her son, as funerals take place across the country for some of those who died in the biggest anti-regime demonstrations yet in the Islamic republic. Authorities have blamed “terrorists” for the deaths of Kian Pirfalak, nine, and Artin Rahmani, 14, in Izeh. This follows an alleged armed attack by two men on a motorcycle that killed at least seven people.
-In 2016, Tom Ford told FT that he was “determined” to turn his eponymous beauty, eyewear and fashion company into a $3B business by 2025. He didn’t quite make the mark, but he got close. On Tuesday, Estée Lauder Companies announced that it had acquired the Tom Ford brand in a deal that values it at $2.8B. The sale is poised to make a billionaire of 61-year-old Ford, who made his name transforming a near bankrupt Gucci into a fashion powerhouse before launching his eponymous company in 2005.

NY POST
-An armed man was killed during a shootout with law enforcement officers during an undercover drug operation in Upper Manhattan Friday night, police and sources said. Members of a joint federal task force, which includes NYPD officers, were trying to execute a controlled drug buy at an apartment on Vermilyea Ave near Academy Street in Inwood when the mayhem erupted around 8:45PM, police and law enforcement sources said.
-Hundreds of Twitter employees are estimated to have quit after their new boss, Elon Musk, sent out a memo demanding “long hours at high intensity” as a condition of their employment. Musk had already fired half of Twitter’s employees, leaving only 3,000 or so when he then sent out a team email that gave Twitter workers a choice, to become “extremely hardcore” or leave. Many apparently chose to leave.
-Manhattan federal prosecutors are investigating whether Nadine Arslanian, the wife of Democratic Sen. Bob Menendez (D-NJ), received gifts or services from individuals who sought favors from her husband, the Wall Street Journal reported Friday.
Arslanian’s associates have been subpoenaed in the investigation by the US Attorney’s Office for the Southern District of New York — and have been asked for information about both Arslanian and Menendez, according to the outlet.
-Former Attorney General Bill Barr says he thinks the federal government has enough evidence to indict former President Donald Trump. In an interview with PBS that aired on Friday, Barr told “Firing Line” host Margaret Hoover that the Justice Department “probably have the evidence” to “legitimately” charge the 76-year-old former president with a crime related to sensitive presidential documents that he allegedly stored at his Mar-a-Lago estate after leaving the White House. “If the Department of Justice can show that these were indeed very sensitive documents, which I think they probably were, and also show that the president consciously was involved in misleading the department, deceiving the government, and playing games after he had received the subpoena for the documents, those are serious charges,” Barr said.

>>> Barron’s Weekend Summary

Barron’s Weekend Summary: Jack Kleinhenz says, skyrocketing prices have made it difficult to suss out how consumers are spending—or not—their rapidly devaluing dollars

Cover Story:
Jack Kleinhenz, chief economist for the National Retail Federation, has been making projections about consumer spending and other economic measures for more than 25 years. Kleinhenz says, skyrocketing prices have made it difficult to suss out how consumers are spending—or not—their rapidly devaluing dollars. Add in the general volatility and uncertainty plaguing everything from stocks to interest rates to the job market, and you can understand why he and his fellow forecasters are at a bit of a loss.

Interview:
No interview this week

Tech Trader:
-The self-declared Apple bull Erc Savitz admits that ‘even’ he is starting to worry about AAPL stock’s performance. “I’ve generally been pretty bullish in this column about the outlook for Apple stock. But when I assess the situation now, I see reasons for concern—growth is slowing, and might go negative, and valuation is elevated. Apple shares look vulnerable. The stock is down about 15% this year. That would be a bummer in most years, but in a tough stretch for tech, Apple has outperformed its peers, and by a wide margin. Microsoft is off 31%, Alphabet is down 35%, Amazon.com has tumbled 43%—and Meta Platforms has plunged 67%. Apple is now worth more than Microsoft and Meta combined.

The Trader:
-Match stock has failed to make a connection with investors this year, falling 65% in 2022, far worse than the S&P 500 17% drop. Shares have been hurt by the stronger dollar—the company gets more than half of its sales overseas—and by delayed product rollouts. Still, there’s a lot to like about Match, almost as much as Bumble, its smaller competitor, which Barron’s recommended a week ago. Product fixes could help restore its former high growth rate, particularly if new features can entice users to buy higher-priced subscription plans and make a la carte purchases. And its most recent earnings report shows that it’s signing up new users and finding ways to monetize them.
-The stock market appears to have moved on from worrying about the Federal Reserve—even if it’s not out of the woods just yet. What’s keeping observers awake is whether the US economy shall sink into recession and if this will trigger a retest of stock market lows. It wasn’t a great week for the stock market, but neither was it a bad one. The Dow Jones Industrial fell by just 0.01%, and the S&P 500 dropped 0.7%. The NASDAQ fell by a more substantial 1.6%. That loss was especially disheartening coming just one week after the NASDAQ staged its biggest rally since March amid optimism about slowing inflation.

Features:
-Twitter has had a tumultuous month since Elon Musk took control of the social-media platform, but the FIFA World Cup (in Qatar) is about to start, and this sporting event has triggered significant user engagement spikes in past editions of this most watched of world sporting events: Every four years, when the World Cup is on, soccer fans jump on the platform to see video highlights, react to the action and interact with one another. The quadrennial event begins Sunday, and any preparation that Twitter employees would normally make for the event have taken a back seat to confusion and disarray that has snowballed since Tesla CEO Musk acquired the company and began making massive changes. Musk laid off roughly half of Twitter’s more than 7,000 employees a week after closing his convoluted, on-and-off $44B acquisition, then continued to fire contractors as well as workers who voiced displeasure with his tactics publicly and on internal Slack discussions.

European Trader:
-Clean-energy developer Ceres Power Holdings has created fuel-cell technology that produces low-cost green energy, and which it licenses to partners such as Germany’s Bosch, China’s Weichai, and South Korea’s Doosan. These companies manufacture and sell this technology. This intellectual property has mass-market potential and was set to generate even more fees this year. But negotiations with partners of a China joint venture have been delayed until next year, the company said. The loss-making UK-based company has said that means those earnings won’t appear until next year.

Emerging Markets:
-After securing his third consecutive term as president of the People’s Republic of China, Xi Jinping has sprung some pleasant surprises on markets, starting from a 16-point plan to bolster an imploding property sector. Investors have liked the initiative, which, among other things, backstops “high quality” developers with big credit extensions and the right to access some escrow funds that buyers have prepaid for their apartments. The Global X MSCI China Real Estate ETF has jumped by a third in the past week, paring its year-to-date loss to a mere 30%. But Beijing’s emergency measures only go so far, and they may have gone there already. “The first leg of the rally was sentiment,” says Vivian Lin Thurston, an emerging markets portfolio manager at William Blair. “To go up from here, you need to see some fundamental macro recovery.”

Commodities:
-The European Union’s ban on seaborne imports of Russian oil, along with the Group of Seven’s plan to cap prices of oil from Russia early next month, won’t guarantee that prices for the commodity will see a lasting rally, or that supplies will tighten further in the days ahead. “In isolation, the sanctions on Russia should be bullish for prices,” says Matt Smith, lead oil analyst, Americas, at Kpler. However, they may have a limited effect, as Russian barrels get “rerouted and not taken off the market,” while a price cap still has so much uncertainty surrounding it that its impact may be “muted due to workarounds or may simply be ineffective.”
Streetwise:
-This week, Jack Hough looks a role-playing games and what he calls ‘strange finance.’ A Wall Street bank this past week turned decidedly bearish on shares of Magic: The Gathering (a 30-year-old role-playing game) owner Hasbro, sending them down 10% in a day: “The fact that I’m now discussing the underperformance of orcs and goblins is related, I can’t help but think, to the recent crypto collapse and broader decline in what I’ve been calling weird finance. Not that role-playing games are weird or nerdy or juvenile. OK, they’re all of those things, but in the best possible sense. I missed out on Dungeons and Dragons get-togethers in high school, only because I was busy doing macho things—like putting on shorts and bouncing a ball around a parquet floor with nine other guys. Friends who played grew up to be more interesting than those who didn’t. And during the pandemic, tabletop role-playing games—TTRPGs to insiders—enjoyed a renaissance, with help from a D&D-filled story line in the Netflix hit Stranger Things.”

Barrons : China’s Property Plan Looks More Like a Bandage Than Bailout

China’s Property Plan Looks More Like a Bandage Than Bailout

Xi Jinping has sprung some pleasant surprises on markets since securing his third term as China’s leader last month. Not least a 16-point (count ’em) plan to bolster an imploding property sector.

Investors like the initiative, which, among other things, backstops “high quality” developers with big credit extensions and the right to access some escrow funds that buyers have prepaid for their apartments. The Global X MSCI China Real EstateCHIR –5.45% exchange-traded fund (ticker: CHIR) has jumped by a third in the past week, paring its year-to-date loss to a mere 30%.

But Beijing’s emergency measures only go so far, and they may have gone there already. “The first leg of the rally was sentiment,” says Vivian Lin Thurston, an emerging markets portfolio manager at William Blair. “To go up from here, you need to see some fundamental macro recovery.”

That could take a while, given the depth of the hole Chinese property has dug. New home sales are down by half this year, Thurston reports. More than half of Chinese developers’ high-yield dollar bonds are in default, adds Joyce Bing, a Hong Kong–based investment manager at asset manager abrdn. Hapless families who paid for unbuilt apartments have mounted “mortgage strikes” in nearly 100 cities.

Animal spirits probably can’t return to real estate until Xi’s government lifts “zero Covid” restrictions on physical mobility, which looks elusive despite parallel measures on that front. Meanwhile Chinese developers face a fresh liquidity crunch: $72 billion in offshore bond payments in early 2023, a 35% jump from this quarter, plus settlements with contractors that traditionally come due at Lunar New Year.

Foreign investors, who feasted on developers’ double-digit yields in better times, are literally the last thing on Beijing’s mind as it lines up its 16 points, says Samy Muaddi, portfolio manager for T. Rowe Price ’s emerging markets bond strategy. Mandarins will focus, logically enough, on completing half-built projects and protecting their own banks. “There’s a hierarchy of capital flow in China, and foreign equity and bondholders are at the bottom,” he says.

China is also heading into four months of bulldogs-beneath-the-carpet political turmoil, Bing notes. While the Communist Party Congress cemented Xi’s supremacy, line positions critical to the property rescue’s implementation will be up for grabs until a new government takes shape next March.

What’s nearly certain is that Xi wants to manage the decline for Chinese real estate, not restore its former headlong growth. A raft of measures aimed at discouraging “speculators” and lowering prices for “genuine” buyers remain in place: including bans on second-home mortgages, price caps in top-tier cities.

The vague but sweeping goal of redirecting China’s enormous household savings—more than twice the U.S. level proportionally—toward more “productive” avenues also remains in place. “They would prefer that the savings pool go into equity or bond funds, and bank lending toward job creation, not mortgages,” says Andrew Mattock, portfolio manager for Matthews Asia’s China Fund.

How Xi & Co achieve this shift is less than clear. It’s a bad look for developers, though. Equities manager Thurston is looking for consumer-facing companies, not real estate, to benefit from a post-zero Covid rebound. “Property’s structural growth story in China is over,” she says.

Bond investor Muaddi is underweighting China in favor of high-yielding sovereign issuers like the Dominican Republic, Ivory Coast, and Morocco. “These credits can provide similar returns with much better visibility,” he says.

Barrons : This British Clean-Energy Developer Is Making Big Bets

This British Clean-Energy Developer Is Making Big Bets

Europe’s urgent rush for new energy sources since Russia invaded Ukraine is creating a wide range of investment opportunities, including some intriguing speculative plays.

Clean-energy developer Ceres Power Holdings (ticker: CWR.UK) has created fuel-cell technology that produces low-cost green energy, and which it licenses to partners such as Germany’s Bosch, China’s Weichai, and South Korea’s Doosan. These companies manufacture and sell this technology.

This intellectual property has mass-market potential and was set to generate even more fees this year. But negotiations with partners of a China joint venture have been delayed until next year, the company said. The loss-making U.K.-based company has said that means those earnings won’t appear until next year.

The delay disappointed investors. The stock has fallen 68.9% to 3.41 pounds sterling ($4.04) over the past 12 months and could present a buying opportunity because, as Panumure Gordon analyst Lacie Midgley says, “there is no change to the long-term investment case or timeline to recurring, high-margin royalty fees in 2024” from the rolling over of license fees.

What makes the case for Ceres as a buying opportunity is the patented technologies partners use to make machines to generate power. The production process is more efficient than the traditional gas technology typically used to generate electricity. The company’s fuel cells are powerful enough to power ships or large houses, but are too big and heavy for vehicles or aircraft at the moment.

Second, this process can be reversed, providing a second revenue stream producing hydrogen using the same kit. But the commercialization of this solid oxide electrolyser technology is less advanced. Ceres, however, has struck a partnership with Shell to produce low-cost green hydrogen. Ceres has mitigated the cost of production, and associated inflationary pressures, by licensing its technology to partners instead of manufacturing it themselves.

The timing for the technology is good because President Joe Biden’s Inflation Reduction Act incorporates tax credits to support green hydrogen production for the next decade.

Berenberg analyst James Carmichael cites Biden’s bill as a positive, and forecasts the stock could rise 310% to £15.60. While Ceres doesn’t yet have a partner with a U.S. license, it considers it an important market to target, with any potential partner benefiting from the tax credits. “Any short-term weakness related to timing of the license fee is an opportunity,” Carmichael wrote in a note. He has a Buy rating on the stock.

The company has a market valuation of more than £650 million. It is focused on investing in research and development and gaining market share, and doesn’t make a profit. It posted a loss before taxes of £24.1 million for the six months through June 2022, much wider than the £7.1 million loss for the same six months the year before. Revenue was £9.9 million for the six months, less than the £17 million for the six months to the end of June 2021.

This past week’s COP27 climate summit “has illustrated once again that the transition to cleaner energy has never been so important to the way we live,” Ceres CEO Phil Caldwell told Barron’s. Ceres’ role as a developer of clean-energy technology will “allow companies to decarbonize at scale and pace, which means we are well-positioned to help make that a reality.”

A further catalyst for the stock will be its commitment to move from London’s junior Alternative Investment Market to the London Stock Exchange , which will raise its profile and trigger its inclusion in a broader portfolio of funds. This is likely to happen next year.

>>> Weekly Market Update

Weekly Market Update: Slowing economic activity and persistent hawkish rhetoric outweigh constructive inflation tea leaves


US stock markets came into the week riding a wave of momentum after last week’s slowdown in inflation sent stocks ripping higher and the dollar and bond yields into retreat. Hopes that the Federal Reserve will back off its campaign of aggressive interest-rate increases faded though as the week progressed. Despite benign October US PPI data which complimented last week’s CPI, and a series of weaker than expected economic readings, a chorus of US and EU central bankers reiterated their belief that rates still need to move higher to tame inflation. Fed maverick Bullard spooked investors on Thursday when he suggested that the Fed's policy rate could rise “significantly” higher than both traders and futures markets were expecting. Not overly surprisingly then, recession worries remained clearly prevalent in the minds of traders. Deteriorating economic readings came alongside a slew of corporate earnings reports which painted a worsening picture for the US consumer who has become stretched in dealing with stubbornly high prices and tightening financial conditions. The inversion between the long and very short end of the US Treasury yield curve deepened to new cycle highs. The US 2-10-year spread neared -70 basis points for the first time since 1980. The historically dependable recession predictor 3-month 10-year spread popped below -40 bps. Oil prices started to decline on Wednesday after it became clear that an explosion that killed two people near the Ukraine border in Poland was not a deliberate attack by Russia. On Friday the lingering global growth concerns and a worsening Beijing Covid outbreak helped push WTI crude prices below $80/barrel after the front month futures contract moved into contango for the first time in over a year. Stocks traded in a narrowing range this week, with the S&P slipping 0.7%, the DJIA unchanged, and the Nasdaq off 1.6%.

Big box retailers were the headliners in earnings news this week. Walmart impressed the market with substantial top and bottom line beats as it works through inventories. Target and Kohl’s couldn’t keep pace as the former saw profits and demand softening, while the latter said demand has become unpredictable and withdrew guidance. Home Depot was more down the middle, reporting somewhat better than expected results while reaffirming its fiscal year forecast, implying a softer Q4. Micron issued the latest warning in the semiconductor industry, sounding the alarm about deteriorating market conditions heading into 2023 and sharply reducing wafer starts.

SUN
(US) Fed's Waller (voter): Given level of inflation, rates are not that high; CPI report was "just one data point" and markets are "way out in front"; Rates will not fall until there is "clear, strong evidence" inflation is falling; market over reacted to one CPI data point; looking at a possible 50bps next meeting
(US) Democrats maintain control of the US Senate, to have at least 50 seats following victory in Nevada; Control of the House still remains uncertain - press

MON
8306.JP Reports H1 Net ¥231.1B v ¥781.4B y/y, Op ¥591.1B v ¥986.0B y/y, Rev ¥4.31T v ¥2.96T y/y; To buy back ¥150B in shares (2.4% of total) and cancel them
(US) President Biden: US and China should play key roles addressing challenges and manage differences without conflict; Ready to work with China if that is what China seeks
(RU) Russia and US delegations said to be holding some previously unannounced talks in Ankara, Turkey - Russian press
(US) Goldman Sachs analysts expect a significant decline in US inflation in 2023; Expect the core PCE measure to decline to 2.9% by Dec 2023 v 5.1% currently
TSN Reports Q4 $1.63 adj v $1.70e, Rev $13.7B v $13.3Be; Targets $1B in savings, program accelerated ahead of schedule and now expected to be achieved by end-FY23 (prior end-FY24)
(CN) China President Xi: Taiwan question is the first red line that must not be crossed in China-US relations - comments after meeting US Pres Biden
(BR) Brazil Pres-elect Lula's team reportedly considering more conservative spending plans - press
(US) The International Brotherhood of Boilermakers (IBB) has failed to ratify rail union labor agreement (3rd union of 12 to reject the deal brokered by the White House) - press
LPX Berkshire takes new stake; Also a new stake in JEF - 13F filing
CN) CHINA OCT RETAIL SALES Y/Y: -0.5% V +0.7%E; YTD Y/Y: 0.6% V 0.8%E
(FR) ECB's Villeroy (France): Clearly approaching normalization range est ~2.00%; Will probably continue to raise rates, but may do so In a more flexible and possibly less rapid manner

TUES
VOD.UK Reports H1 adj EPS €0.06 v €0.05 y/y, adj EBIITDAaL €7.24B v €7.57B y/y, Rev €22.9B v €22.5B y/y; Cuts FY23 outlook; Announces €1B cost-savings target by FY26
(US) US, Japan and Indonesia unveil $20B deal to wean Indonesia off coal; Said to be largest single climate deal ever – press
AMZN Introduces Amazon Clinic, new virtual health service; Will operate in 32 states, does not yet accept insurance - press citing blog post
IEA Monthly Oil Report (OMR); Raises 2022 global oil demand growth, but cuts 2023 global oil demand growth forecast
(DE) GERMANY NOV ZEW CURRENT SITUATION SURVEY: -64.5 V -69.3E; EXPECTATIONS SURVEY: -36.7 V -51.0E
HD Reports Q3 $4.24 v $4.11e, Rev $38.9B v $37.9Be; Affirms FY22 outlook
WMT Reports Q3 $1.50 v $1.31e, Rev $152.8B v $147.4Be; Announces $20B share buyback (5.3% of market cap); Notes significantly improved its inventory position in Q3
WMT CEO: Focused on bringing our costs and prices down as quickly as possible; m/m inflation levels seen 'less significant'; Guidance assumes consumer could slow spending - conf call comments
(US) NOV EMPIRE MANUFACTURING: +4.5 V -6.0E (1st positive print in 4 months); New Orders: -3.3 v +3.7 prior
(US) OCT PPI FINAL DEMAND M/M: 0.2% V 0.4%E; Y/Y: 8.0% V 8.3%E
(NZ) Fonterra Global Dairy Trade Auction Dairy Trade price index: +2.4% v -3.9% prior
(PL) Social media reports suggest Russia missile strayed over Ukraine border and hitting Polish village (unconfirmed report)
AAPL CEO Cook: Decided to source chips from Arizona plant currently under construction due to open in 2024 - investor meeting comments
(US) Former President Trump has filed to run for President in 2024 (as speculated)
Semiconductor foundries said to prepare for weak sales during Nov and Dec; cites industry sources - Digitimes

WED
ALO.FR Reports H1 Adj Net €179M v €172M y/y, Rev €8.05B v €7.44B y/y
(UK) OCT CPI M/M: 2.0% V 1.8%E; Y/Y: 11.1% V 10.7%E (highest annual pace since Oct 1981)
700.HK Reports Q3 (CNY) adj Net 32.3B v 30.2Be, Op 51.6B v 35.4Be, Rev 140.1B v 141.4Be; Notes it is appropriate time to transfer most of Meituan stake; Declares special interim dividend
AMZN Said to be asking some retail vendors for lump sums of cash to make up for lower profit margins; Also instituted inventory and restock limits on third-party sellers - press
(CN) China govt advisors said to recommend 2023 growth forecast between 4.5-5.5% at Dec meetings – press
TGT Reports Q3 $1.54 v $2.14e, Rev $26.5B v $26.4Be; Notes softening Rev and profit trends that emerged late in Q3 and persisted into Nov; To cut costs $2-3B over 3yrs
Redfin: Asking rents rise 7.8% y/y in Oct, to $1,983, the smallest annual increase since August 2021
(CA) CANADA OCT CPI M/M: 0.7% V 0.8%E; Y/Y: 6.9% V 6.9%E
(US) OCT ADVANCE RETAIL SALES M/M: 1.3% V 1.0%E; RETAIL SALES (EX-AUTO) M/M: 1.3% V 0.5%E
MU Market Conditions further deteriorate; Reducing wafer starts by ~20% v Q4'22; NAND bit supply growth will need to be significantly lower than previous estimate; Market outlook for FY23 has weakened
(US) OCT INDUSTRIAL PRODUCTION M/M: -0.1% V 0.1%E; CAPACITY UTILIZATION: 79.9% V 80.4%E
(US) NOV NAHB HOUSING MARKET INDEX: 33 V 36E
(US) Atlanta Fed GDPNow: Raises Q4 GDP forecast to 4.4% from 4.0%
(EU) Reportedly ECB members may decide to move 50bps in Dec rather than another 75bps; Inflation surge could still lead policymakers to go 75bps – press
(US) TREASURY $15B 20-YEAR BOND AUCTION DRAWS 4.072% v 4.395% prior, BID-TO-COVER 2.64 v 2.50 PRIOR AND 2.40 OVER LAST 8 REOPENINGS
(US) Fed's Waller (voter): Fed still has a ways to go on raising rates; Could become more comfortable downshifting to a 50bps hike but that would still be a significant move
TSLA Board Member James Murdoch: Elon Musk identified a potential successor in the last few months – press
(US) Republicans projected to have won majority in the US House with 218 seats (as expected); House Democrats control 210 seats – press
(AU) AUSTRALIA OCT EMPLOYMENT CHANGE: 32.2K V +15.0KE; UNEMPLOYMENT RATE: 3.4% V 3.5%E

THRS
SIE.DE Reports Q4 EPS (pre PPA) €3.59 v €1.61 y/y, EBITDA €4.85B v €2.19B y/y, Rev €20.6B v €17.4B y/y; Raises annual dividend
3333.HK Said to start negotiations on restructuring terms with offshore bondholders in Dec 2022; terms are expected to be finalized in early 2023 - press
(EU) EU27 Oct New Car Registrations: 12.2% v 9.6% prior (3rd straight monthly rise)
BRBY.UK Reports H1 adj EPS 44.3p v 33.5p y/y, Op £238M v £196M y/y, Rev £1.35B v £1.21B y/y; See recessionary risks in Americas and Europe
(CN) China Health Commission official: China drafting plans to accelerate COVID vaccination; Reiterates commitment to targeted COVID prevention; Kids younger than 3 no longer need to show COVID-19 results
UR) Ukraine Infrastructure Min: Black Sea grain initiative to be extended for 120 days until Mar 202
(EU) Goldman Sachs analysts see Europe to end winter with better-than-expected gas storage, near 30% full at the end of Mar 2023 (v prior 21-23% forecast); Expect weak Chinese LNG demand also would mean more supply for Europe
(EU) EURO ZONE OCT FINAL CPI Y/Y: 10.6% V 10.7%E; CPI CORE Y/Y: 5.0% V 5.0%E
(RU) Russia and US to hold new START treaty talks on strategic nuclear stability in Egypt on Nov 29th-Dec 6th (the first time since Ukraine war escalation started in Feb 2022)
Sept Trucking Conditions Index (TCI) -2.35 v -0.25 - FTRintel.com
T CFO: US consumer demand remains healthy; Inflation related costs have added $1B to expenses - investor conf
KSS Reports Q3 $0.82 v $0.81e, Rev $4.28B v $4.29Be; Withdraws FY22 outlook
(UK) DMO REMIT: Plan FY22/23 Gilt Sales: £169.5B v £185BE
(US) Fed's Bullard: Hikes have only had a limited impact so far on observed inflation; Policy not yet at a restrictive level
(US) OCT HOUSING STARTS: 1.425M V 1.410ME; BUILDING PERMITS: 1.53M V 1.514ME
(US) INITIAL JOBLESS CLAIMS: 222K V 228KE; CONTINUING CLAIMS: 1.51M V 1.51ME
(US) NOV PHILADELPHIA FED BUSINESS OUTLOOK: -19.4 V -6.0E (lowest since May 2020)
(US) Fed's Mester (FOMC voter): Inflation is unacceptably high in the US
(US) Atlanta Fed GDPNow: Lowers Q4 GDP forecast to 4.2% from 4.4%
AMAT Reports Q4 $2.03 v $1.72e, Rev $6.75B v $6.38Be

FRI
(UK) OCT RETAIL SALES (EX-AUTO/FUEL) M/M: 0.3% V 0.6%E; Y/Y: -6.7% V -6.8%E
(CN) China PBOC: Issues capital rule for foreign investors in bond market effective from 2023; Will make it easier for foreign investors to repatriate funds from China
(EU) ECB announcement on TLTRO repayments: Banks to repay €296B of TLTRO III funds (lower-than-expected; Estimates were between €0.2-1.5T with median of €0.6T)
(US) OCT LEADING INDEX: -0.8% V -0.4%E
(US) AG Garland appoints war crimes prosecutor Jack Smith as the Special Counsel taking over two major criminal investigations involving former Pres Trump

>>> US Close Dow +0,59% S&P +0,48% Nasdaq +0,01% Russell +0,58%

Closing Stock Market Summary

On this options expiration day, the stock market started the session on an upbeat note. Investor sentiment was boosted by the market's resilient performance yesterday and a slew of better-than-expected earnings reports out of the retail and technology sectors.

Palo Alto Networks (PANW 167.48, +10.92, +7.0%) was a winning standout for the tech sector while Ross Stores (ROST 107.59, +9.66, +9.9%) and Foot Locker (FL 35.88, +2.88, +8.7%) enjoyed some of the biggest gains for the retailers.

The initial upside momentum was dampened following a report of the ninth straight monthly decline in existing home sales and a dour-looking 0.8% month-over-month decline in the Leading Economic Index that marked the eight straight monthly decline for that series. 

Stocks then took another leg lower around midday as Treasury yields crept higher and the dollar built up strength. The U.S. Dollar Index was up 0.3% to 106.98. The 10-yr Treasury note yield rose four basis points to 3.82% and the 2-yr note yield rose five basis points to 4.50%.

The performance of mega cap stocks also contributed to this midday lull, but they eventually found their footing.

By 2:00 p.m. ET, some fairly broad buying interest picked up again and the major averages were able to close well off session lows. Nine of the 11 S&P 500 sectors closed in the green, led by utilities (+2.0%) and real estate (+1.3%). The communication services (-0.4%) and energy (-0.9%) sectors were the lone holdouts in negative territory. The latter felt the pinch of falling oil prices today. WTI crude oil futures fell 2.2% to $80.13/bbl. 

The pullback in oil prices was a reflection of market participants' continued worries over an economic slowdown. Comments from Boston Fed President Collins (2022 FOMC voter) piled onto this concern. She said in a CNBC interview that the Fed is not done raising rates and that a 75 basis point rate hike in December is still on the table.

The Vanguard Mega Cap Growth ETF (MGK) closed flat while the S&P 500 logged a 0.5% gain.

Advancers led decliners by a 3-to-2 margin at the NYSE and an 11-to-10 margin at the Nasdaq.  

Looking ahead to Monday, Li Auto (LI), Jacobs Engineering (J), J.M. Smucker (SJM) will report earnings ahead of the open.

There is no U.S. economic data of note on Monday.

Reviewing today's economic data:

  • Existing home sales decreased 5.9% month-over-month in October to a seasonally adjusted annual rate of 4.43 million (consensus 4.38 million) versus an unrevised 4.71 million in September. That is the ninth straight month that existing home sales have fallen and it is the weakest pace of sales since late 2011, excluding the 2020 pandemic period. Total sales in October were down 28.4% from a year ago.
    • The key takeaway from the report is that higher mortgage rates are taking a bite out of existing home sales, having created affordability pressures for prospective buyers and deferred listing decisions for potential sellers who see an expensive repurchase proposition.
  • The Leading Economic Index for October fell 0.8% (consensus -0.5%) after the prior revised decline of 0.5% (from 0.4%).
  • Dow Jones Industrial Average: -7.1% YTD
  • S&P Midcap 400: -11.7% YTD
  • Russell 2000: -17.6% YTD
  • S&P 500: -16.8% YTD
  • Nasdaq Composite: -28.8% YTD

>>> US weekly biggest % gainers/losers

This week's top % gainers
  • Healthcare: GLYC (2.24 +80.36%), CTMX (1.72 +32.95%), PRQR (1.20 +31.48%), STIM (5.79 +23.19%), SIEN (0.31 +22.72%), CLVS (0.36 +22.45%), PBYI (3.70 +16.35%), EVH (27.99 +15.42%)
  • Industrials: ATKR (115.99 +14.09%)
  • Consumer Discretionary: QRTEB (7.86 +56.96%), TAL (5.58 +17.12%), TOUR (1.01 +14.25%), BABA (80.67 +13.99%)
  • Information Technology: AMBA (75.45 +18%)
  • Financials: LX (1.77 +16.45%)
This week's top % losers
  • Healthcare: BKD (3.15 -35.55%), QTNT (1.07 -33.41%), AXDX (1.01 -28.87%), IOVA (6.54 -26.41%), CDXS (5.09 -25.58%), GTHX (6.46 -24%), NVAX (19.65 -21.53%), EBS (12.36 -21.51%), NVTA (2.85 -21.05%), NKTR (3.44 -19.74%)
  • Consumer Discretionary: CVNA (7.77 -34.64%), FTCH (7.92 -22.81%), AAP (146.17 -21.58%), SFIX (3.72 -20.28%), CLAR (7.54 -19.79%)
  • Information Technology: LPSN (10.56 -24.93%), AVYA (1.29 -22.59%), EBIX (18.50 -21.68%)
  • Financials: TREE (22.53 -21.03%)
  • Energy: TUSK (5.58 -22.82%)

FT : Gay dating app Grindr soars on stock market debut

Gay dating app Grindr soars on stock market debut
Price rise supercharged by widespread share redemptions before Spac merger

Shares in gay dating app Grindr shot up more than 300 per cent in its public markets debut after completing a merger with a special purpose acquisition company, making it one of the few businesses over the past year to have its stock price pop following a Spac deal.

Shortly after Grindr executives rang the bell at the New York Stock Exchange on Friday, the stock leapt from an opening price of $16.90 to $71.51.

The jump was likely because few shares were being traded on the market after 99 per cent of shareholders opted to redeem their investment in the Spac following the deal’s completion. Spacs are listed vehicles set up to acquire target companies and take them public, and shareholders have the right to redeem their investment when they approve the merger.

Grindr announced in May it had agreed to go public through a merger with Tiga Acquisition Corp, a Spac set up by Ashish Gupta in 2020. The deal gave the business an implied valuation of $2.1bn and an expected $384mn in proceeds that the company said it would use a significant portion of to pay down debt.

With almost all of the shareholders opting to redeem their investments, Grindr will only receive a nominal sum of the $284mn in proceeds from Tiga Acquisition's initial public offering. It has a $100mn forward purchase agreement in place with the Spac’s backer that will make up for some of the shortfall. Grindr’s shares had pared gains to $39 on Friday afternoon, still up more than double on the day.

Grindr announced a new management team in September as it readied for the public listing. George Arison, founder of online car sales company Shift, was named chief executive and started his role last month. Vanna Krantz, who was previously chief financial officer at fintech company Passport and Disney Streaming Services, took up the same role at Grindr.

Spacs, which had largely lurked in the backwaters of finance since the 2008 crisis, made a roaring comeback during the pandemic. Investors ploughed billions of dollars into blank-cheque companies and the pace of dealmaking created chaos on Wall Street as banks and lawyers tried to find enough resources to meet demand.

But blank-cheque companies have since fallen out of favour because of a number of high-profile failures and low demand from investors who found better returns elsewhere. Even with an IPO market that has largely been closed, Spacs have failed to make a comeback.

Grindr found itself at the centre of a political storm in 2019, when the US government forced app owner Beijing Kunlun Tech to sell it on concerns that it threatened national security. The Spac deal gave Grindr a valuation that is more than triple what San Vicente Acquisition paid to acquire it from the Chinese gaming and technology company.