FT Lex : Hong Kong stocks: Russian influx would be a problem, not a solution

Hong Kong stocks: Russian influx would be a problem, not a solution
The city should beware of becoming an international financial centre of last resort for Russian businesses

The $520mn superyacht of Russian billionaire Alexei Mordashov is at present moored safely in Hong Kong. The city decided not to seize the assets of the oligarch, who is under US, EU and UK sanctions. Some Russian companies also see Hong Kong as a haven. That is symptomatic of Hong Kong’s decline as a financial centre, rather than a solution to it.

Gold miner Polymetal is considering switching its domicile from Jersey to Hong Kong. Shares in aluminium group Rusal already trade there. Other Russian groups have been exploring the possibility of Hong Kong financings. These would be easier to pull off if Hong Kong’s market had not just hit an 11-year low, falling below the psychological barrier of 17,000 points.

That reflected Beijing’s vow to stick to its zero-Covid policy and the imposition of fresh US tech sanctions on China.

For years, the Hang Seng index had an inbuilt hedge against China weakness. This consisted of big Hong Kong-focused companies, such as Swire and MTR, as well as Macau groups including Galaxy and Wynn Macau. Their shares moved out of step with Chinese companies listed in the city.

No longer. Higher borrowing costs — the Hong Kong dollar is pegged to the greenback — and an exodus of foreign companies are weighing on confidence in real estate. Home prices are heading for a five-year low. Offices have reached record-high vacancies. Macau is struggling as gaming revenues tumble.

The city’s benchmark Hang Seng index has fallen a third in the past year, more than double the decline in the mainland Shanghai Composite index. Hong Kong’s economy shrank 1.4 per cent in the second quarter, following a 3.9 per cent drop in the first quarter. The index now trades below book value.

Hong Kong should beware of becoming an international financial centre of last resort for Russian businesses. Their collective reputation has been sullied by the Ukraine war regardless of individual probity. Superyachts and listings from Russia will prompt fastidious sailors and chief executives to moor up elsewhere.

FT : Ferrovial sells UK support services business Amey in £400mn deal

Ferrovial sells UK support services business Amey in £400mn deal
Buyout firms One Equity Partners and Buckthorn Partners to buy business that has been drag on Spanish owner

Ferrovial, the Spanish infrastructure group that is a part owner of Heathrow airport, has agreed to sell its UK services business Amey to buyout groups One Equity Partners and Buckthorn Partners in a £400mn deal.

The Spanish group has been seeking to sell Amey — whose services for the UK government range from maintenance for the Ministry of Defence to transporting prisoners for the Ministry of Justice — for several years.

However, progress on a sale was stymied by Amey’s long-running legal dispute with Birmingham council over a £2.7bn deal to maintain the city’s road network. The dispute has now been resolved.

“It’s been on the market for five years,” said Stephen Rawlinson, analyst at Applied Value. “Because they [Amey] had quite a number of troubled contracts.” 

The sale to the buyout firms was “part of a wider trend of highway and utilities services being sold to private equity, but there is money to be made in that space”, he added.

The deal values Amey’s equity at about £245mn, Madrid-based Ferrovial said in a statement on Tuesday. Ferrovial’s shares, which have fallen 16 per cent this year, rose 1 per cent in early afternoon trading.

For Ferrovial, the disposal of Amey is part of its so-called Horizon 24 plan, which seeks to prioritise infrastructure development, construction and management alongside its water business and those areas focused on the transition from fossil fuels.

“This transaction represents a step forward in our Horizon 24 business plan,” said Ferrovial chief executive Ignacio Madridejos. “The deal practically concludes the divestment of the services business.”

In 2019, Ferrovial took a €774mn writedown on Amey, marking it out as the most troubled part of the Spanish group’s portfolio. The sale excludes Amey’s waste treatment business, which Ferrovial is keeping.

Announcing the acquisition, Ante Kusurin, a principal at One Equity Partners, said that “Amey is a well-regarded, longstanding player in the critical infrastructure design and management space in the UK”, adding that it would have more opportunities as an “independent company”. 

Buckthorn Partners is chaired by Lord Colin Moynihan, a former minister in Margaret Thatcher’s government. Lord Philip Hammond, who was chancellor during Theresa May’s government, is a partner at the firm.

Nicholas Gee, founding partner at Buckthorn Partners, said: “Amey is at the heart of developing innovative routes to delivering the UK’s infrastructure needs.” 

The acquisition of Amey is expected to close this year and is subject to regulatory clearances.

FT : Viktor Orbán says only Donald Trump can end Ukraine war

Viktor Orbán says only Donald Trump can end Ukraine war
Hungarian prime minister calls for direct talks between US and Russia on resolving the conflict

Viktor Orbán, the Hungarian prime minister, said only former US president Donald Trump could end the war in Ukraine, as he called for direct talks between the US and Russia on establishing a ceasefire.

Speaking at a panel discussion in Berlin, Orbán said US president Joe Biden had gone “too far” in calling Russian president Vladimir Putin a war criminal and saying in March that he “cannot remain in power”.

“That would make it very hard for [Biden] to make peace,” Orbán said. “This is going to sound brutal, but hope for peace goes by the name of Donald Trump.”

Orbán, who won a fourth successive election victory in April, has positioned himself as the leader of an ideology he calls “illiberal democracy”, frequently railing against immigration, globalism and gender fluidity. He has repeatedly found himself in conflict with the European Commission over what it sees as Hungary’s abuse of the rule of law.

The EU has so far refused to approve Hungary’s bid for its share of EU pandemic recovery funds over corruption and public procurement standards. Budapest has pledged a series of reforms in an effort to get the funding approved by the end of the year. Last month, EU lawmakers in Strasbourg lambasted Budapest for further backsliding on democratic values, branding the country a “hybrid regime of electoral autocracy”.

Other EU states, particularly in the Baltic and eastern Europe, have also taken exception to Orbán’s close relationship with Putin. Though the prime minister has consistently voted with the rest of the EU on sanctions, he has refrained from attacking Russia as harshly as other western leaders.

Orbán, who was in Berlin for talks with Olaf Scholz, the German chancellor, described the EU Commission’s sanctions policy as “disastrous”, saying they were being implemented in a way that “harms European interests”.

He said sanctions against Russian energy had driven up prices for oil and gas, increasing the Kremlin’s revenues. “If we had implemented them properly, prices wouldn’t be so sky high right now,” he said. “In the question of energy, we are dwarfs and the Russians are giants. A dwarf sanctions a giant and we’re all amazed when the dwarf dies.”

Orbán dismissed suggestions that he was more on Russia’s side in the war than on Ukraine’s, saying Russia’s invasion was an “act of aggression” and a clear breach of international law.

But he said the international community had failed to “isolate” the conflict, as it had succeeded in doing in 2014, when Russia invaded and annexed Crimea — an achievement he attributed to the political skills of former German chancellor Angela Merkel, describing her diplomacy at the time as a “masterstroke”.

Asked whether Merkel may have prevented Russia’s war with Ukraine if she were still chancellor, he replied: “sure”.

Orbán implied that the US had become a party to the war by supplying money and weapons to Kyiv, and the war would continue as long as Ukraine continued to receive American support. It could, for that reason, only be stopped through direct negotiations between Russia and the US, rather than between Russia and Ukraine.

“Only the Americans can bring this war to an end,” he said.

His praise of Trump is not new. Orbán and his closest advisers have often implied they hope the Republican party will return to power.

“American politics could be very different very soon, and for them Hungary is a blueprint,” said Balázs Orbán, the prime minister’s chief political adviser, in a recent interview. “Hungary is no longer an outcast on the American right, and we are placing bets on their good performance in the midterms and in 2024,” he told the Financial Times.

In August, the Hungarian prime minister gave a speech at the Conservative Political Action Conference in Texas, the most influential gathering of the American right. In it, Orbán called on delegates to “unite our forces . . . because we Hungarians know how to defeat the enemies of freedom on the political battlefield”.

>>> US Research Calls II


Research Calls II

  • Upgrades:
    • Algonquin Power & Utilities (AQN) upgraded to Outperform from Neutral at Credit Suisse; tgt $15
    • Amgen (AMGN) upgraded to Overweight from Equal-Weight at Morgan Stanley; tgt raised to $279
    • e.l.f. Beauty (ELF) upgraded to Overweight from Neutral at Piper Sandler; tgt raised to $46
    • Getty Images (GETY) upgraded to Buy from Hold at The Benchmark Company; tgt $9
    • lululemon athletica (LULU) upgraded to Overweight from Neutral at Piper Sandler; tgt raised to $350
    • Seagen (SGEN) upgraded to Outperform from Market Perform at BMO Capital Markets; tgt raised to $178
  • Downgrades:
    • ACM Research (ACMR) downgraded to Underperform from Buy at Jefferies; tgt $8
    • Qorvo (QRVO) downgraded to Equal Weight from Overweight at Wells Fargo; tgt lowered to $85
    • Skyworks (SWKS) downgraded to Equal Weight from Overweight at Wells Fargo; tgt lowered to $95
    • SunPower (SPWR) downgraded to Underperform from Neutral at BofA Securities; tgt lowered to $18
    • Vitru (VTRU) downgraded to Neutral from Buy at Goldman; tgt $22
    • Zoom Video (ZM) downgraded to Equal-Weight from Overweight at Morgan Stanley; tgt lowered to $90
  • Others:
    • Arcus Biosciences (RCUS) initiated with an Overweight at Morgan Stanley; tgt $40
    • Boston Beer Co (SAM) initiated with a Neutral at Wedbush; tgt $350
    • Brown-Forman (BF.A BF.B) initiated with a Neutral at Wedbush; tgt $70
    • C4 Therapeutics (CCCC) initiated with an Underweight at Morgan Stanley; tgt $6
    • Celanese (CE) initiated with a Neutral at Mizuho; tgt $116
    • Celsius (CELH) initiated with a Neutral at Wedbush; tgt $90
    • Constellation Brands (STZ) initiated with an Outperform at Wedbush; tgt $275
    • CRISPR Therapeutics (CRSP) initiated with an Underweight at Morgan Stanley; tgt $37
    • Cytokinetics (CYTK) initiated with a Buy at UBS; tgt $80
    • Eastman Chemical (EMN) initiated with a Neutral at Mizuho; tgt $116
    • Enovis Corporation (ENOV) initiated with a Buy at Goldman; tgt $57
    • Intellia Therapeutics (NTLA) initiated with an Overweight at Morgan Stanley; tgt $84
    • International Seaways (INSW) initiated with a Buy at Deutsche Bank; tgt $40
    • Keurig Dr Pepper (KDP) initiated with an Outperform at Wedbush; tgt $43
    • MGP Ingredients (MGPI) initiated with an Outperform at Wedbush; tgt $125
    • Molson Coors Brewing (TAP) initiated with a Neutral at Wedbush; tgt $50
    • Monster Beverage (MNST) initiated with a Neutral at Wedbush; tgt $95
    • Neurocrine Biosciences (NBIX) initiated with a Buy at UBS; tgt $136
    • PepsiCo (PEP) initiated with an Outperform at Wedbush; tgt $185
    • POINT Biopharma (PNT) initiated with an Outperform at Oppenheimer; tgt $20
    • Qualys (QLYS) initiated with a Buy at Canaccord Genuity; tgt $180
    • Rani Therapeutics (RANI) initiated with a Buy at UBS; tgt $15
    • Rapid7 (RPD) initiated with a Buy at Canaccord Genuity; tgt $60
    • Revance Therapeutics (RVNC) initiated with an Equal-Weight at Morgan Stanley; tgt $27
    • Snowflake (SNOW) initiated with a Mkt Perform at Bernstein
    • Texas Instruments (TXN) initiated with a Market Perform at Cowen; tgt $170
    • The Duckhorn Portfolio (NAPA) initiated with an Outperform at Wedbush; tgt $18
    • United Therapeutics (UTHR) initiated with an Overweight at Morgan Stanley; tgt $288

>>> US Gapping down


Gapping down
In reaction to earnings/guidance:

  • LEG -7.7% (lowers FY22 outlook), AZZ -6.9%, ASX -4.1% (Sep revs)

Other news:

  • OFIX -11.7% (Orthofix and SeaSpine (SPNE) to combine in merger of equals to create leading global spine and orthopedics company; issue guidance)
  • RIGL -8.8% (not expected to file sNDA; reducing workforce)
  • ZS -3.6% (President resigning)
  • SON -3% (subsidiary expands packaging program in Europe)
  • USO -1.7% (crude oil futures trading lower)
  • CNS -1.2% (reports preliminary AUM)

Analyst comments:

  • CCOI -1.3% (downgraded to Neutral from Outperform at Credit Suisse)

>>> US Gapping up


Gapping up
In reaction to earnings/guidance:

  • NEWR +3.8% (guidance), AAL +2% (guidance)

Other news:

  • DICE +66.5% (announces "positive" topline data from its Phase 1 clinical trial of DC-806 an oral small molecule antagonist of the pro-inflammatory cytokine IL-17)
  • ALBO +17.2% (reports positive topline data from Phase 3 Trial of Bylvay (odevixibat) in Alagille Syndrome)
  • SPNE +16.7% (Orthofix and SeaSpine (SPNE) to combine in merger of equals to create leading global spine and orthopedics company; issue guidance)
  • JOBY +10.4% (Joby Aviation and Delta (DAL) partner to pioneer home-to-airport transportation)
  • TRC +4.8% (appoints Drew Hammer as CFO)
  • ANGI +4.4% (CEO steps down; appoints new CEO)
  • BKD +1.5% (reports September 2022 occupancy)
  • ANDE +1.3% (to purchase Mote Farm Service)

Analyst comments:

  • WMG +2.9% (initiated with a Buy at Goldman)
  • ABC +0.7% (upgraded to Buy from Neutral at BofA Securities)

>>> US Research Calls I


Research Calls I

  • Upgrades:
    • AmerisourceBergen (ABC) upgraded to Buy from Neutral at BofA Securities; tgt raised to $169
  • Downgrades:
    • Cogent Communications (CCOI) downgraded to Neutral from Outperform at Credit Suisse; tgt lowered to $56
  • Others:
    • Analog Devices (ADI) initiated with an Outperform at Cowen; tgt $180
    • Barnes Group (B) initiated with a Peer Perform at Wolfe Research
    • Boeing (BA) initiated with an Outperform at Wolfe Research; tgt $180
    • Bombardier (BDRBF) initiated with an Outperform at Wolfe Research
    • Coca-Cola (KO) initiated with an Outperform at Wolfe Research; tgt $63
    • Curtiss-Wright (CW) initiated with an Outperform at Wolfe Research; tgt $170
    • Embraer SA (ERJ) initiated with an Outperform at Wolfe Research; tgt $14
    • General Dynamics (GD) initiated with an Outperform at Wolfe Research; tgt $265
    • HEICO (HEI) initiated with a Peer Perform at Wolfe Research
    • Hexcel (HXL) initiated with a Peer Perform at Wolfe Research
    • Howmet Aerospace (HWM) assumed with an Outperform at Wolfe Research; tgt $44
    • Huntington Ingalls (HII) initiated with an Outperform at Wolfe Research; tgt $315
    • L3Harris (LHX) initiated with a Peer Perform at Wolfe Research
    • Lockheed Martin (LMT) initiated with a Peer Perform at Wolfe Research
    • Northrop Grumman (NOC) initiated with an Outperform at Wolfe Research; tgt $565
    • Raytheon Technologies (RTX) initiated with a Peer Perform at Wolfe Research
    • Spirit Aerosystems (SPR) initiated with an Underperform at Wolfe Research; tgt $24
    • Transdigm Group (TDG) initiated with an Outperform at Wolfe Research; tgt $650
    • Triumph Group (TGI) initiated with an Underperform at Wolfe Research; tgt $9
    • Virgin Galactic (SPCE) initiated with an Underperform at Wolfe Research; tgt $4
    • Warner Music Group (WMG) initiated with a Buy at Goldman; tgt $32
    • Woodward (WWD) initiated with an Outperform at Wolfe Research; tgt $100