FT : US warns overdose crisis will spread overseas without action from China

US warns overdose crisis will spread overseas without action from China
White House drugs tsar says Beijing needs to tighten rules on supply of raw materials to make fentanyl

Washington is increasing pressure on Beijing to crack down on illegal supplies of raw materials used to make the synthetic drug fentanyl, warning the deadly overdose crisis sweeping the US could soon spread to Europe and Asia.

Dr Rahul Gupta, the White House drugs tsar, told the Financial Times it is only a matter of time before criminal cartels in China and Mexico expand their highly profitable trade in the drug, which is 50 times stronger than heroin.

He said the illicit manufacture of cheap and easily transportable synthetic drugs such as fentanyl and methamphetamine are transforming the drug market, posing a risk to global security. Only co-ordinated, international action involving China, which is a major source of the precursor chemicals used to make synthetic drugs, could thwart criminal cartels, he added.

“You can divide the world up into three categories,” said Gupta, who is the first medical doctor to hold the post of director of the Office of National Drug Control Policy.

“One, you have a fentanyl or meth problem and you know it. Second, you have a fentanyl or meth problem and you don’t know it . . . And the third, it is coming to a shore near you very soon.”

China introduced controls on two fentanyl precursor chemicals — known as NPP and 4ANPP — in 2018 following dialogue between the US Drug Enforcement Administration and Chinese government officials. But Washington’s efforts to engage Beijing are being hampered by diplomatic tensions between the two countries. In August China suspended co-operation with the US on the fight against narcotics after the visit by former House Speaker Nancy Pelosi to Taiwan.

Gupta said tackling the fentanyl crisis is one of the “top priorities” for secretary of state Antony Blinken, who is expected to travel to Beijing next month for talks with senior Chinese officials.

He said the US would also use a meeting of the UN Commission on Narcotic Drugs in Vienna in March to press China to further tighten rules on the transport of these raw materials.

“It is the criminal elements within the [People’s Republic of China] that are involved and engaged in production and shipping of the precursor chemicals,” said Gupta. “And we are going to say to the PRC this is an opportunity to demonstrate your global leadership on this issue.”

Washington is pressing China to enforce “know your end customer” regulations to ensure private businesses do not use middlemen that divert precursor chemicals to cartels. Proper labelling is required to track chemical cargoes and monitoring of shipping to ensure these are not diverted for illicit means while at sea, according to Gupta.

More than 107,000 people died in the US of overdoses in the 12 months ending August 2022, equal to one fatality every five minutes. Most of these deaths were linked to fentanyl and methamphetamine.

President Joe Biden’s administration is expanding access to opioid treatments to tackle the record number of overdose deaths and is reaching out to international partners to tackle the international supply chain.

Some US anti-drugs activists believe Beijing is deliberately allowing criminals to export precursor chemicals to Mexican drug cartels to further fuel the “overdose crisis” in the US and destabilise a competitor.

“This is a third opium war,” said Jim Rauh, founder of Families Against Fentanyl, in a reference to two wars fought by China to prevent trafficking in opium by British merchants during the 19th century.

“China had the same thing done to them and now they feel vindicated in doing this . . . This is a proxy war and without bullets being fired we are losing more people than we ever lost in wars.”

Gupta said there is no evidence to suggest Beijing is using illicit drugs as a tool to destabilise the US. But Washington did want to hold Chinese authorities accountable for the illicit actions of private criminal actors in their country, he said.

Concerns about the global spread of synthetic drugs are growing. Last month Europol warned Mexican drug cartels are becoming more active in Europe, including smuggling large amounts of meth into the bloc. The discovery of fentanyl production facilities in Europe raised concerns about “development of a fentanyl market in the EU”, according to a Europol report.

BArrons : He Might Be Tech’s Last Bull. Here’s Why the Founder of Thoma Bravo Is

He Might Be Tech’s Last Bull. Here’s Why the Founder of Thoma Bravo Is Still Buying.

Imagine everything you aspire to buy was suddenly available at 30% off. You could have an epic shopping spree. You might max out your credit cards. Because, some bargains are once in a lifetime.

That’s the situation facing Thoma Bravo, a private-equity firm with more than $120 billion in assets that invests primarily in enterprise software companies. Over two decades, Thoma Bravo has invested in more than 420 technology businesses—they currently have stakes in more than 70 companies—and they are stepping on the accelerator.

In 2022, the tech-rich Nasdaq CompositeCOMP +2.66% index fell more than 30%, with many cloud-based software companies suffering steeper declines. For a firm in the business of buying, fixing, and selling tech companies, the opportunity came loudly knocking.

In December, Thoma Bravo raised $32.4 billion in fresh capital, including $24.3 billion for its Thomas Bravo Fund XV, the single-largest tech buyout fund ever assembled. It has stockpiled cash.

In 2022, tech deals ground to a halt: The initial public offering market shut down; strategic buyers turned cautious, amid economic worries and greater regulatory scrutiny; and spiking interest rates slowed the buyout market.

The exception was Thoma Bravo. Since the start of 2022, either alone or in combination with other investors, the firm has bought or announced plans to acquire UserTesting, Nearmap, Coupa Software COUP +0.18% (ticker: COUP), Ping Identity, ForgeRock FORG +0.35% (FORG), SailPoint, Mercell, Anaplan, and Bottomline Technologies, to name a few. And there will be many more to follow.

This past week, I spoke with Thoma Bravo co-founder Orlando Bravo about private equity, software, Twitter, FTX, and several other things. Here are highlights from the conversation.

No one does more tech buyouts than you. What’s your edge?

We have the ability to turn creative innovators into great cash flow companies. Most companies we take private are great, but they’re usually not profitable. We have to generate 40%-plus Ebitda margins [earnings before interest, taxes, depreciation, and amortization] to make money at the prices we pay.

To drive up margins, you are slashing costs.

Yes, we take out costs, absolutely. There are times when a company is growing so fast that you can hold head count and grow into the margins. But in an environment like today—where we’re almost certainly facing a recession, and no one knows how deep—you are well served by decreasing costs.

With the selloff, has your approach changed?

There’s a lot more to buy. We just did this large fund raise, and the opportunity is many, many, many, many, many multiples of that.

Your model is to buy companies—and later sell them. How long do you own them?

We use four or five years as a guide. Our average holding period has been shorter—3.3 years. People ask how we can turn a company from zero margin to 40% with the existing management—that’s our secret sauce. You can make changes very quickly.

What are you hearing from portfolio companies about the outlook?

It’s not that bad. In the June quarter, purchasing managers were really pulling back. The September quarter was soft. But the December quarter was pretty decent. I feared the fourth quarter was going to be surprisingly bad, and it was not. I didn’t see anything nearly as bad as what we saw in the financial crisis, or what we saw in the first two quarters of Covid in Q1 and Q2 of 2020.

What’s happening on the exit side?

Not much. As an organization, we’ve never been afraid to sell. But right now there’s just not much going on. This past year we sold most of Veracode, to TA Associates. We sold Frontline, an education software company, to Roper Technologies ROP +2.18% (ROP). And we sold Kofax to Clearlake Capital and TA. But nothing in the last six months.

Do you see the software IPO market reopening soon?

Software companies that are 20% growers are trading at five times ARR [annual recurring revenue]. I’m not sure venture-backed companies want to go public at that level which might be a markdown from the last two to three rounds. The other question is whether investors want the same kind of companies where they just lost 80%. Investors are going to want high margins, reasonable prices, and good growth.

Did you bid for Twitter?

We looked at it seriously. If you just looked at the metrics, it looked like a Thoma Bravo deal, at around seven times forward revenue, growing around 15%. It had Ebitda, and a huge operating opportunity. But when we buy an enterprise software company, we have an exact plan on how we can create value. Here, we didn’t know how. Is it an extremely valuable company for society? It sounds like it. But that doesn’t necessarily translate into being an extremely valuable company as an investment. We didn’t make a formal offer.

Finally, I have to ask about your investment in FTX.

It was obviously a mistake. And we have personally apologized to investors in our growth fund. It wasn’t a large investment—$100 million—but it was a big mistake and an embarrassing one. It wasn’t a diligence mistake. Diligence mistakes are when you miss a lawsuit, or you miss a trendline. This was a judgment mistake. I said even before the issues at FTX that we’re not going to make any more crypto investments, because I was not loving the business practices we’re seeing in crypto.

Barrons : This Steel Maker Is Looking to Defy a Recession. That Could Drive the

This Steel Maker Is Looking to Defy a Recession. That Could Drive the Stock Higher.

Manufacturers are a bellwether for global economic health—when demand slumps, so does production.

ArcelorMittal , the world’s second-largest steel maker by volume, with facilities in 16 countries on five continents, has faced severe headwinds the past year as the cost-of-living crisis caused consumers to rein in spending. In addition, the company has had to navigate Covid-19 lockdowns in China, which caused companies to scale back production.

The stock (ticker: MT.Netherlands) has fallen 8.6% to 28.90 euros ($31.25) over the past 12 months, and the prospect of a recession in 2023 will make it a tough year. But this could prove to be a buying opportunity because ArcelorMittal is using its scale, its geographical spread, and its focus on growth markets to defy the odds.

Access to gas to power factories and offices is a key issue. And while Russia’s war in Ukraine hit gas supplies in Europe, ArcelorMittal has facilities spread across eight countries, which mitigates this impact. Energy is a big overhead, but prices have fallen and the steel maker stands to benefit because it had the foresight to not hedge its energy costs in the fourth quarter.

The business will also have the advantage of a series of self-help measures. During its third-quarter update, it said it had cut gas consumption in Europe by 30% and is also scaling back production.

It has shut down six megatonnes of capacity, or 15% of its total capacity, in Europe, according to a recent note by ODDO BHF analyst Maxime Kogge, who remains an ArcelorMittal bull but has scaled back forecasts for projected earnings before interest, taxes, depreciation, and amortization, or Ebitda, to $6.6 billion from $8.2 billion for 2023.

He is sticking with an Outperform rating on the stock, which he estimates could rise 25% to €35. The recovery is likely to come earlier in Europe, where market prices “have probably bottomed out,” he says.

He added that “the group’s solid fundamentals are unchanged,” and noted its strong cash generation and high level of returns to shareholders.

Deutsche Bank’s Bastian Synagowitz has a price target of €32.23, writing in a recent note, “ArcelorMittal holds potential for a strong rebound once steel markets bottom out, and although volatility is likely to remain elevated, we reiterate Buy.”

The company, which is a large supplier to the automotive industry, accounting for 12% of sales, has a market value of €23 billion and employs 157,909 workers. It fetches a multiple of 8.8 times this year’s expected earnings and is valued in line with its peers.

For the half year through June 2022, Ebitda jumped to $10.2 billion from $8.3 billion for the same period the year before. Sales in the period also increased, to $44 billion from $35.5 billion.

“The short-term outlook for the industry remains uncertain and caution is appropriate,” CEO Aditya Mittal tells Barron’s. The company has a strong balance sheet, he adds, and “we will continue to focus on executing our strategy, designed to ensure our long-term sector leadership, as well as deliver sustainable investor returns.”

Arcelor’s Kryvyi Rih plant in Ukraine has been affected by Russia’s war. It resumed producing some crude steel in April. There was a setback in December after it was shelled, but damage was minimal.

More solid upside could come from ArcelorMittal’s mining arm. While this isn’t a core business, only contributing 13.3% of group Ebitda, the price of iron has bounced back. “Mining should prove more resilient,” Kogge says.

Barrons : A Recovery in China’s Property Market? Not So Fast.

A Recovery in China’s Property Market? Not So Fast.

Three red lines? What three red lines?

China’s stunning policy U-turn hasn’t excluded real estate, which in better times powered a quarter of the No. 2 economy. Developers, who the government decided two years ago were overleveraged, were supposed to comply with the three infamous financial limitations by June 2023. Authorities are easing back that deadline now, if not junking it altogether. “Forestalling and defusing risks in the sector is the bottom line,” housing minister Ni Hong said recently.

Beijing has backed that dovish line with a raft of stimulus measures: soft credits for beleaguered builders, lowering mortgage rates and requirements. Investors like it. The Global X MSCI China Real Estate exchange-traded fund (ticker: CHIR) has gained 60% from a trough in October. Developers’ dollar bonds have done better than that, erasing most of the past year’s losses, says Tracy Chen, a portfolio manager for global credit at Brandywine Global.

If you blinked through this rally, you might have missed it, unfortunately. More volatility is likely to come. “The market is probably running ahead of itself,” Chen says.

Beijing may have handed its traumatized real estate sector a shovel. Digging out still won’t be easy. Builders defaulted on 140 different bonds worth $50 billion last year, Bloomberg reported. Housing prices, which increased 80-fold over two decades, have fallen for 15 straight months.

Recovery will require buy-in from a chain of now gun-shy market players, Chen says. Banks are reluctant to lend to developers, despite official exhortations. Developers are reluctant to buy land for new building. State-owned developers are slow-walking buyouts of flailing private peers to consolidate the market.

Most important, consumers have seen that prices can fall as well as rise, and won’t be in a rush to buy again. “The key is confidence, which is still weak for now,” says Larry Hu, chief China economist at Macquarie Group.

The state retains its long-term goal of easing China’s property addiction, and shifting supply from the most profitable luxury developments to subsidized affordable ones. It aims to staunch the sector’s bleeding without reigniting “wild speculation,” says Michael Kelly, head of PineBridge Investments’ multi-asset strategy.

Concretely that means targeting support to a dozen or so “quality developers,” and letting the rest fend for themselves. “A lot of private developers will go through restructuring,” Kelly says. “Maybe 20% will restructure to the point of not getting your money back.”

Some of the deserving quality developers are already telegraphed, including No. 2 China Vanke (2202.Hong Kong) and No. 6 Country Garden Holdings (2007.Hong Kong). Investors are still guessing at others, always a risky business in China.

Rising valuations are decreasing the offsetting rewards for such tea-leaf reading. Kelly estimates the average yield on his portfolio of “money good” Chinese developers’ bonds has dropped from 15% to 11% within the past month or so. It’s now about four percentage points better than what he projects for U.S. high-yield paper this year. “The trade is no longer crazy attractive,” he says.

Developers’ stocks he finds not attractive at all. Those stocks are a sliver of China’s equity market, but a bellwether for the economy. Property accounts for 70% of Chinese households’ net worth, by some estimates.

The country’s vaunted reopening will only go so far if the housing market can’t find a durable footing. Xi Jinping’s people haven’t found it yet, though they are trying.

Barrons : Activist Investors Will Keep Targeting Big Tech

Activist Investors Will Keep Targeting Big Tech

Don’t expect activist investors to lose their appetite for big-tech companies in 2023.

Last year, tech was the most targeted sector for U.S. activists, accounting for 27% of campaigns—well above the historical average of 16%, according to Lazard data. No target was too big: Meta Platforms META +2.37% (ticker: META), Salesforce CRM +3.31% (CRM), and Alphabet GOOGL +5.34% (GOOGL) were just some of the names in the crosshairs in 2022. And the new year already brought a fresh target with Chewy CHWY +3.58% (CHWY) co-founder Ryan Cohen targeting Chinese internet giant Alibaba Group Holding BABA +2.81% (BABA).

Market volatility is one of the reasons for targeting tech, whose sky-high valuations crashed last year, or at least settled into a lower orbit, creating a wealth of opportunity for activists.

“When we look at the overall sector penetration, tech is a large percentage of the public company universe,” Mary Ann Deignan, managing director and head of Capital Markets Advisory at Lazard, tells Barron’s. “You could look at tech and say there’s a lot of places to go for tech campaigns—a lot of untouched companies.”

But there’s more to it than that. While it’s true that market volatility may reveal new opportunities, activists also have to be careful about protecting their own portfolios in down periods. Large, popular tech names offer less trading risk than lesser-known companies, should an activist decide to make a quick exit.

“These very large names have more liquidity,” says Deignan. “When markets are volatile, liquidity is your friend.”

Barrons : Ferrari Is Shifting Into High Gear. Buy Its Stock.

Ferrari Is Shifting Into High Gear. Buy Its Stock.

Not everyone has a chance to get behind the wheel of a Ferrari in their lifetime, let alone own one, but anybody with a brokerage account can buy shares in the storied supercar maker. Now is a good time to take a ride.

With a promising near-term outlook followed by a coming transition to electric vehicles that should juice sales volumes, Ferrari shares (ticker: RACE) appear set to shift into higher gear in 2023.

RBC Capital Markets analyst Tom Narayan sees revenue almost doubling for Ferrari, and a key earnings measure nearly tripling by 2030.

Driving a Ferrari isn’t like driving a Chevrolet, and buying Ferrari stock isn’t like buying shares of a mass-market auto maker—it requires investors to stomach a steep valuation premium to other auto makers.

“One doesn’t buy a Ferrari just to go from A to B,” says Brian Lum, a portfolio manager at Baillie Gifford, which owns 5% of Ferrari shares. “This isn’t a car company, this is a luxury company that happens to make cars.”

It means wider profit margins, less cyclicality, and faster growth than mass-market auto makers—which supports a higher valuation multiple. The bulls argue that Ferrari stock should trade more like LVMH Moët Hennessy Louis Vuitton (MC.France), Kering (KER.France), Richemont (CFR.Switzerland), or Hermès International (RMS.France) than General Motors (GM) , Toyota Motor (TM), or Volkswagen (VOW3.Germany).

Like the makers of luxury clothing or watchmakers, Ferrari intentionally underproduces relative to demand to drive scarcity and price at a premium. The company’s gross profit margin exceeds 50%, versus 20% or less at GM and others. Waiting lists for new Ferrari models are long, making sales more consistent than at mass-market auto makers sensitive to the vagaries of the global economy.

Like a Birkin bag or a Patek Philippe timepiece, limited-edition Ferraris tend to appreciate in value over time. And brand loyalty is high—the company says that more than 40% of Ferrari owners own more than one. Deep-pocketed customers and more demand than supply gives Ferrari pricing power, insulating earnings from inflation and the negative impact of a recession.

Bernard Arnault’s LVMH goes for about 24 times forward earnings, Gucci and Saint Laurent parent Kering trades for 16 times, Cartier owner Richemont for 20 times, and Hermès for 47 times. At a recent 221 euros ($239), the Milan-listed Ferrari shares were at 36 times the coming year’s consensus earnings, having traded between roughly 30 times and 50 times over the past year and a half. Most auto makers— Tesla (TSLA) excepted—trade for mid-single-digit multiples of earnings forecasts.

Adjusted for expected long-term growth—the stock’s multiple divided by annual growth in earnings before interest and taxes, or Ebit, through 2030—Ferrari trades for less than Hermès and LVMH and at slight premiums to Richemont and Kering.

That expected growth comes from several new model launches planned for the coming years, powered by gas, hybrid, and all-electric drivetrains, and continued price increases. Ferrari’s first sport-utility vehicle, the Purosangue, is expected to hit the market in 2023.

The Purosangue is hardly a Chevy Suburban—it’s more like a slightly taller sports car with four seats, four doors, and a trunk capacity of only 17 cubic feet. It will pack a 725-horsepower V-12 engine that can propel a happy family from 0 to 60 miles an hour in 3.3 seconds.

Unlike rivals such as Lamborghini, which said that its Urus SUV made up some 5,000 of the 8,500 units it sold in 2021, Ferrari has promised to cap output of the Purosangue at 20% of annual production to maintain exclusivity and keep the brand image.

The Purosangue reportedly sold out in weeks in the fall, with deliveries not beginning until around the middle of this year. Ferrari’s plant in Maranello, Italy, has a capacity of up to 15,000 vehicles a year, suggesting no more than 3,000 SUVs will be sold annually. That could still make it one of Ferrari’s most popular models, alongside the $260,000 F8 Tributo and $225,000 Roma. But the Purosangue, Italian for “thoroughbred,” will start at $421,000.

Also helping to boost average sales prices in 2023 will be the limited-edition Daytona SP3, which goes for more than $2 million. Ferrari could deliver about 150 of those 840-horsepower beasts this year.

Thanks to Ferrari’s order book, 2023’s growth is pretty much guaranteed. Analyst consensus calls for a 22% increase in earnings per share this year, to €6.11, on revenue of €5.6 billion, which would be up 11%.

Beyond 2023, there’s the transition to electric vehicles—an impetus for change where Ferrari does resemble other auto makers. It is building a new production line in Maranello specifically for EVs and is targeting deliveries of its first fully electric model in 2025. As with the Purosangue, those will be greatly anticipated, supporting further price increases.

Narayan’s model has Ferrari delivering 20,000 cars in 2030, up from about 13,000 in 2022. Management is targeting a lineup of 20% internal combustion engine, 40% hybrid, and 40% all-electric vehicles in 2030.

By then, Narayan expects revenue to almost double to 8.8 billion euros, and for Ebit to reach €3.3 billion, up from €1.2 billion last year. He rates Ferrari stock at the equivalent of Buy, with a price target of €265 on the Milan-listed shares—roughly 20% upside.

“You have this double whammy of pricing power in addition to volumes,” he says. “That’s why the growth story here is really, really compelling.”

>>> Barron’s Weekend Summary

Barron’s Weekend Summary: This week’s cover features four panelists who participated in the 2023 Barron’s Roundtable


Cover Story:
-This week’s cover features four panelists who participated in the 2023 Barron’s Roundtable: Delphi Management’s Scott Black, Gamco Investors‘ Mario Gabelli, Epoch Investment Partners’ William Priest, and Abby Joseph Cohen, a longtime strategist at Goldman Sachs and now a professor of business at Columbia University’s Graduate School of Business. Collectively, they scoured the markets and dug deep to find 26 companies, both familiar and obscure, whose shares are poised to shine in the year ahead. Overall, the Rountable featured 10 participants, who were divided in their market outlook when the group met in New York on Jan. 9. Some expect stocks to lose further ground as the Federal Reserve hikes interest rates, likely pushing the economy into a recession in the back half of 2023. Others think the Fed will cease its exertions sooner rather than later, declaring inflation sort of tamed and paving the way for a market rebound.

Interview:
-No interview this week

Tech Trader:
-For over two decades, Thoma Bravo has invested in more than 420 technology businesses. They currently have stakes in more than 70 companies, and they are stepping on the accelerator. In 2022, the tech-rich NASDAQ Composite index fell more than 30%, with many cloud-based software companies suffering steeper declines. For a firm in the business of buying, fixing, and selling tech companies, the opportunity came loudly knocking. In December, Thoma Bravo raised $32.4B in fresh capital, including $24.3B for its Thomas Bravo Fund XV, the single-largest tech buyout fund ever assembled. It has stockpiled cash. In 2022, tech deals ground to a halt: The initial public offering market shut down; strategic buyers turned cautious, amid economic worries and greater regulatory scrutiny; and spiking interest rates slowed the buyout market. The exception was Thoma Bravo. Since the start of 2022, either alone or in combination with other investors, the firm has bought or announced plans to acquire UserTesting, Nearmap, Coupa Software, Ping Identity, ForgeRock, SailPoint, Mercell, Anaplan, and Bottomline Technologies, to name a few. And there will be many more to follow.

The Trader:
-Compass resembles a publicly traded middle-market private-equity firm, which buys, holds, and sells a portfolio of businesses in niche industrial and consumer markets. Its 11 subsidiaries sell everything from baseball bats, to diamonds, to foam packaging and insulation, to baby carriers. Altogether, Compass should generate about $2.2B in sales and adjusted Ebitda—short for earnings before interest, taxes, depreciation, and amortization—of about $465M in 2022. The company has a market capitalization of about $1.5B. Compass’ portfolio has evolved over time. Its management is shifting money toward faster-growing businesses, rather than cash cows that may generate more sales today, but operate in mature markets with less growth potential.
-Sometimes, being a value investor means going where others prefer not to go. For some, that means wading into controversial situations in which a business is unloved due to past transgressions. That describes Wells Fargo and Walt Disney, says Aaron Dunn, co-head of the value equity team at Eaton Vance. Wells Fargo, which dropped 1.1% this past week, has been subject to a Federal Reserve-mandated asset cap since 2018 and has paid fines to settle charges of illegal conduct. Its recent earnings report revealed that profits had been cut in half. But the stock trades for nine times 2023 estimated earnings and one time book value, versus about 10.5 times and 1.4 times, respectively, for JPMorgan Chase, which lacks the same drama—and that makes it attractive. “There’s a lot of internal change and cost cutting that the management team is bringing in [at Wells Fargo], and you have a relative-valuation tailwind,” says Dunn, who co-manages the Eaton Vance Value Opportunities fund.

Features:
-Several stocks highlighted in Barron’s fell victim to the same dynamics that sunk the broader market—inflation, high interest rates, and supply-chain slowdowns. But overall, its bullish picks fared better than their benchmarks in 2022. From the date of publication through the end of the year, Barron’s names fell 4.8%, while the indexes they are tracked against fell 5.2%. Its two bearish calls hit the mark, too, falling far more than their benchmark. Barron’s follows the performance of its stock picks throughout the year, to allow readers to see how well our predictions work out versus the S&P 500, or the S&P MidCap 400, or the Russell 2000 , depending on company size.
-Americans are flocking to electric vehicles (EV), pushing sales up 127% over the past two years. To encourage the EV market, the US Federal government is offering a tax credit of up to $7,500 for EVs and other “clean vehicles,” including plug-in hybrids. But to qualify, buyers will have to untangle a myriad of eligibility rules. Dealers aren’t likely to sell for anything below sticker price. And note that additional rules are expected from the Internal Revenue Service in March—cutting or eliminating credits for some models. “If you want an EV, now is the time to go after it,” says Ingrid Malmgren, policy director for Plug In America, an EV advocacy group.
The credit rules, revised under the Inflation Reduction Act, are a hash of good and bad news for buyers. One positive change is that models from General Motors and Tesla now qualify. The government no longer has an eligibility cap of 200,000 EV sales—a provision that restored the credits for GM and Tesla. Tax breaks are also available for plug-in hybrids like the Audi Q5 PHEV and BMW 330e. And, for the first time, you can get a credit on used cars.

European Trader:
-ArcelorMittal, the world’s second-largest steel maker by volume, with facilities in 16 countries on five continents, has faced severe headwinds the past year as the cost-of-living crisis caused consumers to rein in spending. In addition, the company has had to navigate Covid-19 lockdowns in China, which caused companies to scale back production.
The stock has fallen 8.6% to 28.90 euros ($31.25) over the past 12 months, and the prospect of a recession in 2023 will make it a tough year. But this could prove to be a buying opportunity because ArcelorMittal is using its scale, its geographical spread, and its focus on growth markets to defy the odds. Access to gas to power factories and offices is a key issue. And while Russia’s war in Ukraine hit gas supplies in Europe, ArcelorMittal has facilities spread across eight countries, which mitigates this impact. Energy is a big overhead, but prices have fallen and the steel maker stands to benefit because it had the foresight to not hedge its energy costs in the fourth quarter.

Emerging Markets:
-China’s stunning policy U-turn hasn’t excluded real estate, which in better times powered a quarter of the No. 2 economy. Developers, who the government decided two years ago were overleveraged, were supposed to comply with the three infamous financial limitations by June 2023. Authorities are easing back that deadline now, if not junking it altogether. “Forestalling and defusing risks in the sector is the bottom line,” housing minister Ni Hong said recently. Beijing has backed that dovish line with a raft of stimulus measures: soft credits for beleaguered builders, lowering mortgage rates and requirements. Investors like it. The Global X MSCI China Real Estate ETF has gained 60% from a trough in October. Developers’ dollar bonds have done better than that, erasing most of the past year’s losses, says Tracy Chen, a portfolio manager for global credit at Brandywine Global.

Commodities:
-Energy exploration and production company EOG Resources had a bullish 2022, and one of its directors made his second purchase of shares in three months. EOG stock surged 46% last year, lifted by rising oil prices. The company also announced a strong third quarter in November, along with a higher dividend. “EOG is in a better position than ever to deliver value for our shareholders and play a significant role in the long-term future of energy,” the company said. On Jan. 12, EOG director Mike Kerr paid $2.6M for 20,000 shares, at an average price of $130.49 each. According to a filing with the Securities and Exchange Commission, Kerr purchased the shares through a family trust that now owns 170,000 EOG shares. Kerr also owns 10,854 EOG shares through a personal account.

Streetwise:
-This week, Jack Hough talks about Davos, which, he complains, is a ski-resort and, therefore, is not very dress-shoe friendly. Hough does mention that there were plenty of substantive talks with companies about business conditions, growth strategies, and how investment do-goodism is evolving. At a Barron’s event, a private-equity CEO responded to our critical coverage of his real estate fund. Another described how she has turned skepticism around scorekeeping used in social-conscience investing into a revenue opportunity. Frédéric Lissalde, who runs BorgWarner, talked about a planned spinoff of a NewCo to sell fuel injectors and other systems tied to gasoline and diesel. The remaining company, still called BorgWarner, would be more focused on systems for electric vehicles, as well as drivetrains for fuel burners, where know-how can be put toward battery propulsion, too.

>>> Weekend Papers Summary

Weekend Papers Summary

NEW YORK TIMES
-Allies Fail to Agree on Sending German-Made Tanks to Ukraine. Officials tried to play down the rift. But Germany is insisting it will not be the country to take the first step, for fear of incurring Moscow’s wrath.
-One Saturday in Dnipro, life in Ukraine was almost normal (or it is at times). Then, suddenly, it all changes, as it did after a missile struck an apartment complex.
-The NATO alliance is holding strong on Ukraine. But Fractures Are Emerging. The allies differ on strategy for the coming year and the more immediate question of what Ukraine needs ahead of a major offensive in the spring.
-As tech companies lay off workers en-masse, a generational divide appears. The industry’s recent job cuts have been an awakening for young workers who have never experienced a cyclical crash.
-Despite some red flags, the GOP decided to back a candidate now charged in shootings. “We could have picked apart this guy,” one GOP leader in New Mexico said of Solomon Peña, who is accused of organizing attacks on the homes of Democrats.
-The March for Life kicks off in Washington, setting the stage for new ideas. The annual anti-abortion gathering to protest Roe v. Wade was the first since the Supreme Court overturned the right to abortion.
-A Supreme Court’s inquiry into a leaked draft opinion overturning Roe included interviews with Justices. But they were not asked to sign sworn affidavits, unlike others investigated about the, the court’s marshal said.
-Actors worry after Baldwin charges. The manslaughter charges Alec Baldwin faces after a fatal on-set shooting revived questions about who’s responsible for gun safety on film sets.
-How smart are the robots getting? The Turing test used to be the gold standard for proving machine intelligence. This generation of bots is racing past it.
-The ringleader of the sex cult at Sarah Lawrence College gets 60-year sentence. Ray was convicted of extortion, sex trafficking, racketeering conspiracy and other charges.
-David Crosby, the singer and songwriter, who died this week, created music that helped define an era. On Twitter, David Crosby relished sharing opinions big and small, sparring with fans and dispelling myths.
-He Invested $625,000 With George Santos. Now He Says the Money Is Gone. A wealthy businessman has been in touch with the SEC about Mr. Santos’s dealings on behalf of a company accused in a Ponzi scheme.
-British Prime Minister Rishi Sunak has been fined for not wearing a seatbelt. The police levied the fine after Mr. Sunak, the British prime minister, posted a video on Instagram that showed him riding in a car, unbuckled.
-The Justice Department is investigating troubled infant formula plant. Abbott shut down production at the plant last year amid “shocking” sanitation lapses, touching off a disruptive infant supply formula shortage.
-Chris Hipkins appears to be poised to rplace Jacinda Ardern as New Zealand’s prime minister. Hipkins, a household name in New Zealand for his role overseeing the country’s response to the pandemic, was nominated to succeed Ms. Ardern who resigned on Thursday.
-The police and paramedics accused in Elijah McClain killing plead not guilty. The 23-year-old Black man died in 2019, days after being placed in a chokehold and injected with a powerful sedative.

THE FINANCIAL TIMES
-Germany dashed its allies’ hopes that it would approve the dispatch of battle tanks to Ukraine on Friday when a high-profile defense ministers meeting failed to reach an agreement. Many western countries argue that the German-made Leopard 2 battle tanks would greatly help Kyiv mount a counteroffensive against Russia, but Berlin has yet to agree, despite weeks of intense pressure from its allies.
-The annual gathering of business, economic and political elites in Davos divides opinions. But it is an ideal place to take the global temperature on economic sentiment — and the consensus view seemed to be that conditions had bottomed out and were becoming more positive. Many had expected 2023 would bring a lasting hangover from Russia’s war in Ukraine, continued Chinese economic weakness and the devastating effects of high energy and food prices on living standards across the world.
Instead, delegates came to the mountains to cheer three new developments that improve the outlook.
-Since OpenAI launched the ChatGPT language-generation model before Christmas, New York’s public schools have banned pupils from using it. In Australia, universities are planning a return to supervised pen and paper examinations to evade the chatbot fakes. Teachers are rightly concerned that they won’t be able to help pupils who are falling behind if they can’t spot faked assignments. But one reason these bots pose such a threat is that so much of our education remains fixated on being able to elegantly regurgitate information.
-When FTX imploded, nervous investors rushed to pull their money from Genesis. The broker was unable to meet clients’ $827M worth of withdrawal requests, forcing it to suspend withdrawals from its lending business. On Friday, Genesis’ lending unit filed for bankruptcy.
-Lawyers for FTX have accused Sam Bankman-Fried of trying to disrupt the bankruptcy process of his crypto empire through an “assault by Twitter”. In recent weeks, Bankman-Fried has in numerous tweets and blog posts accused Sullivan & Cromwell, the law firm representing FTX in its Chapter 11 proceedings, of putting him under pressure to rush the companies into bankruptcy, including the US arm of FTX, which the former billionaire claims was solvent. The firm has denied those claims.
-Elon Musk disputed that his frequent Twitter posts necessarily moved Tesla’s stock price, as he began testifying on Friday in a trial over whether his 2018 “funding secured” tweet illegally manipulated the electric-car maker’s value.
Wearing a dark suit and tie, Musk was called to the witness stand late on Friday, the third day of a closely watched trial in a federal court in San Francisco scrutinizing the impact of Musk’s 2018 tweets saying he had the necessary funding to take Tesla private. No deal ever materialized, prompting shareholders to sue Musk, Tesla and the company’s board of directors at the time.
-Rentokil, the world’s biggest pest control group, is planning to annihilate the pesky rodents by using facial recognition to track their habits. Rentokil said its surveillance service, which live streams video of the vermin to its “central command center” for real-time analysis using artificial intelligence, can help decide where and how to hunt the fast-breeding undesirables. The UK-based group acquired the technology in a spree of hundreds of deals that has boosted its pest control capabilities.
-A governor on the board of the Federal Reserve has backed the US central bank further slowing the pace of its interest rate increases to a quarter of a percentage point at its upcoming policy meeting, even as he warned of further monetary tightening ahead.
-Chris Hipkins, the country’s education minister, had been regarded as a likely successor to Ardern, who announced this week she would step down as prime minister by February, ending her five-year term as leader. The 44-year-old was named in a Labour party statement on Saturday morning, local time, after his bid for the leadership of the party was unchallenged.
-President Emmanuel Macron promised to boost French defense spending to the end of 2030 to reinforce the country’s capabilities in response to new global threats after Russia’s invasion of Ukraine. “The new conflicts of our century will not be of our choosing,” Macron said in a new year speech on Friday at the Mont-de-Marsan air force base in south-west France. “There is no more peace dividend because of the aggression of Russia against Ukraine.”
-Steven Cohen’s Point72 has finally won approval to operate directly in the UK, a decade after the US trader’s previous firm pleaded guilty to insider trading and paid a record $1.8B in fines. Point72, a former family office that opened to outside investors in 2018 and which manages $26.7B in assets, succeeded in its years-long attempt to receive regulatory authorization last week, according to the Financial Conduct Authority’s website.
-Drinks group Diageo’s $1B deal for George Clooney’s Casamigos tequila brand brought plenty of Hollywood glamour but was also met with skepticism. “The stars must line up perfectly for this deal to create value,” one analyst cautioned when the acquisition was announced in 2017. More than five years later, it is clear they have.

NY POST
-Ivana Trump, who passed away last July after falling down the staircase of her Manhattan home, carefully divvied up her estate before her death. Probate records reviewed by Insider show that the 73-year-old left most of her estate to her three children — Donald Trump Jr., Ivanka and Eric — a $1M Miami Beach, Florida apartment to her former nanny, and zilch for her ex-husband, the former president.
-A box labeled “Important Doc’s + Photos” was left unsealed on a table ahead of a child’s birthday party in the Delaware home where the 80-year-old president has been discovered to have stashed sensitive government records, a photo from his son’s laptop, discovered by The Post Friday reveals.
Another image on the infamous laptop reveals that Hunter Biden apparently made more than 160 trips to the sprawling, lakeside house in just 52 days during the same time he was involved in controversial business dealings with a Chinese energy conglomerate — and while the home contained the discovered classified documents.
-Security guards at the theft-plagued pharmacy chain Walgreens have been instructed not to confront the shoplifters when they walk out without paying, according to a company executive. Walgreens, which operates 240 stores in the Big Apple, including Duane Reade, has been riddled by robberies to the point where the stores have had to put items like toothpaste behind lock and key. The chain hired unarmed guards and off-duty cops — but they haven’t been much of a deterrent. “[Security guards] are not there to protect the product,” said Joseph Stein, director of asset protection solutions for Walgreen, “They are there to de-escalate [a situation] and to protect the customer and the employees,” he added.

WWD : Barreling Toward $1 Billion With Inter Parfums’ Jean Madar

Barreling Toward $1 Billion With Inter Parfums’ Jean Madar
The fragrance company is capitalizing on the post-pandemic, fragrance-obsessed consumer landscape with a portfolio of brands that spans geographies and price points.

For Jean Madar, the road to $1 billion is paved in perfume.

The chairman, chief executive officer and cofounder of Inter Parfums Inc. has led the company to significant growth over the past two years, capitalizing on the boom in fragrance with licenses including Montblanc, Coach and Jimmy Choo, and snapping up a handful of new brands in the process.

In 2020, the company hit $539 million in net sales; 2021 saw a jump to $879.5 million, zooming past pre-pandemic levels. Inter Parfums raised guidance for the year to $1.08 billion following a larger-than-expected swell during the holiday season, and anticipates $1.15 billion in sales for 2023.

The company is helping fuel a renaissance in the fragrance business, thanks to an approach that prizes creativity and olfactive originality in terms of product development, and a global distribution infrastructure that encompasses key channels around the world.

The strategy is working. In 2021, Montblanc, Coach, Jimmy Choo and Guess, the company’s four largest brands, grew 46 percent, 45 percent, 61 percent and 83 percent, respectively, a performance reflected in Inter Parfums’ share price, up 13 percent in the past year to $110.68 at press time.

Inter Parfum’s growth outpaces the competition in a category that is soaring. For the third quarter of 2022, U.S. prestige scent sales increased 11 percent to $1.3 billion, according to the NPD Group, largely driven by brick-and-mortar revenues. Since the pandemic, designer fragrances and higher-priced collection fragrances have also been engines of growth.

“The fragrance segment has seen extraordinary growth, bigger than skin care and makeup. The past 18 to 24 months have been the time for fragrance, and this is going to continue,” said Madar, during a wide-ranging interview in his midtown Manhattan office. “Fragrance used to be the slowest of those three, with skin care booming in China and makeup booming in Europe.”

That is no longer the case.

“It has never been at this level,” continued Madar, who founded Inter Parfums in 1982 and took it public in 1988. “It’s the first time we’ve reached such a level — not just our business, but the segment of the industry. It’s worldwide, certainly in the U.S. and in Europe, and now it’s in China.

“If we didn’t have lockdowns there, that business would be booming,” said the executive. “Every year, we have 100 million new customers in China, discovering the world of fragrance, and we have fantastic brands for them, like Ferragamo and Anna Sui.”

Geographically, Inter Parfums is well diversified thanks to a portfolio of 24 brands that enables it to appeal to wide swathes of consumers around the world. In 2021, North America accounted for $354.1 million of sales; Europe, $202 million; and Asia, $128 million.
Inter Parfums’ core business comprises four key brands, each with $150 million to $200 million in net sales annually — Montblanc, Jimmy Choo, Coach and Guess.

While those names anchor its business, a slew of emerging brands diversifies its portfolio across price points and geographies, including Abercrombie & Fitch, Boucheron, Dunhill, Emanuel Ungaro, Graff, Hollister, Karl Lagerfeld, Kate Spade, Lanvin, MCM, Moncler, Oscar de la Renta, Rochas, S. T. Dupont and Van Cleef and Arpels.
In October 2021, the company acquired the Salvatore Ferragamo fragrance license, and Madar said that brand has already grown 45 percent in its first year under his purview. Most recently, Inter Parfums acquired the license for Donna Karan and DKNY fragrances after the Estée Lauder Cos. wound down its designer fragrance division, and picked up Lacoste after that brand was spun off by Coty Inc. That deal included an 80 million euro entry fee.
Madar anticipates that DKNY will develop into a fifth pillar for the company, estimating that it will reach $150 million in sales in the next 12 to 24 months. “We have big ambitions for DKNY,” he said.
Similarly, the Ferragamo acquisition hasn’t just added sales. It also led to Inter Parfums opening its first offices in Florence, Italy, with a headcount of around 50 employees. “We hired more people, and we think we can have more Italian brands because we now have that presence and production in Italy,” said Madar.
Analysts agree that Madar’s diversification strategy has been a winning one. “In addition to the market environment, the company has been successful in adding different brands to their portfolio. That’s helped them grow at a faster rate,” said Hamed Khorsand, analyst and founder of BWS Financial. “They’ve shown their ability to focus directly on the actual brand, market it well, distribute it well, and create new scents the customer likes. They’ve also shown their ability to get the sales of a brand to improve.”
Retailers laud Inter Parfums’ focus on storytelling. “Inter Parfums continues to capitalize on its position as a mid-sized beauty company. This position gives them agility in our partnership for both product innovation and new marketing tactics and this is all driven by consumer insights and data,” said Jennifer Capuano, vice president of fragrances at Macy’s Inc. “Anchored by the pillar brands, Coach and Jimmy Choo, the Inter Parfums team has focused on storytelling and animation in our stores.”

Madar applies a hands-on approach to product development, no matter the size of the business. “Our job is to customize each creation. We can’t take one bottle and say it’ll work for everyone,” he said. “Everything is customized, we don’t recycle ideas. If we don’t like a development, we’ll throw it in the garbage and start again. If we’re not ready, we delay a launch.”
The company focuses on four key tenets for a successful launch, although, as the CEO laughs, “it also takes a little bit of luck.”
“What works across the portfolio is the perfect equation between the brand, the packaging, the juice and the advertising,” Madar said. “Sometimes the brand is of very high interest, and sometimes less. It’s our job to make it happen.”
Licensors applaud that approach. “[Madar] is deeply involved in all things that go on in our business; it feels very much like a small company, despite the fact it’s not at all a small company,” said Alex Bolen, chief executive officer of Oscar de la Renta, of his relationship with Inter Parfums. “Jean is in almost all of the meetings I attend, both as a creative matter and a business matter. He brings a very unique approach that is both artistic and commercial, and he has a very strong opinion on the development of fragrances.”
The reasoning behind that style of collaboration, Madar said, is simple. “Think of us like a kitchen: we let the fashion houses into the kitchen to work with us. This makes the difference between us and the very large international companies,” he continued. “We work together, and we welcome [the brands in], because who knows better than them who they are? Our size allows us to do that.”
Inter Parfum’s size also enables it to be agile and responsive. “They’re beating our internal plans for sales, and it’s really, really early stage,” said Morris Goldfarb, chairman and CEO of G-III. “They’ve got aggressive changes planned for this coming year with Karl Lagerfeld, with the Met Gala being in his honor, and a film planned for the following year.
“Inter Parfums is committed to as aggressive of marketing as we are,” said Goldfarb.

The marketing piece is key, given that G-III’s fragrance business also gives its brands global reach. “From an economic point of view, it’s our largest license, but it’s a broad range of venues that make a brand relevant,” he said. “We’re much more global because of the interface with fragrance in consumers’ minds and visual contact, whether it’s duty-free stores or elsewhere in the world.”
Spinning brands into its global flywheel of distribution is also key to its growth over the last two years.
“They understand what it means for distribution of fragrance across the world, and that there’s differences in Europe versus department stores in the U.S. Our China and Asia markets for fragrance are just blowing up,” said Todd Kahn, CEO and brand president of Coach. “Every single one of our fragrances has been successful. They have really grown our business for beauty and for us, it’s an extension of the lifestyle that Coach is… you don’t feel any distinction between the licensor and licensee, they’re part of the family, and they’re incredibly knowledgeable about the beauty business globally.”
Indeed, Madar’s radar is finely tuned when it comes to picking up new licenses. “What we look for first of all is name recognition, but that alone is not enough,” he said. “Coca Cola is maybe the most recognized name, but does it mean people would like a fragrance from them? There also has to be desirability.”
While Madar is optimistic that the fragrance category will maintain its momentum in the year ahead, he’s also treading carefully in terms of new licenses. “The cost of launching a new fragrance today is astronomical — tens of millions [of dollars]. We have to be careful,” he said. “You need to study and learn that the product you’re coming with is right vis-à-vis the distribution, the brand.”
And despite seeing e-commerce sales multiply tenfold during the pandemic, he’s most bullish on brick-and-mortar. “I believe in brick-and-mortar because it’s an experience, and we’ve put so much effort into creating this theater,” he said. “Even when you have great digital assets for e-commerce, the physical contact in store is very important. It’s back and it’s back strong, and we won’t increase the amount of doors.”

Price points have also increased. “For fragrances a couple of years ago, it was difficult to go above $100. Now, for a larger size, under $100 would be an exception,” Madar said. “It’s not only because of inflation, it’s because of positioning, and we have to be careful not to lose customers, so we add smaller sizes with democratic prices. For Graff, $50 wouldn’t make a difference to the consumer, but for Guess, $10 would make a big difference.”
As with other categories in beauty, customers are more knowledgeable than ever. “I was at Macy’s, checking on the new launch of Oscar de la Renta, and a customer asked me where the lavender in the juice came from,” said Madar, noting the same dynamic exists in the Middle East and Europe. “These are questions that we’ve never had before.”
Despite changing market dynamics, success still boils down to the basics that have enabled the company to thrive: olfactive originality. “Philippe [Benacin], my partner, and I agreed we won’t do worldwide testing on our fragrances. We don’t want to create by committee,” said Madar.
“People want the difference — they want to be different. We’re going to pick the fragrance that has more character, more signature, that maybe is more difficult,” he continued. “Maybe some people are like, ‘Oh my God, I hate it!’, but that’s a good sign. The stakes are higher, and it’s very dangerous to stay in the comfort zone.”
All-Star Lineup

For the nine months ending Sept. 30, 2022, Inter-Parfums’ four top brands comprised 63 percent of overall business. Here, a breakdown of each one.

Montblanc
Montblanc Legend Eau de Toilette
Percentage of overall business: 19%
2022 Jan.-Sept. sales (est.): $147.4 million
2021 Annual Net Sales: $168.2 million
Top performing pillar: Legend Eau de Toilette
On Deck for 2023: Montblanc Explorer extension
Jimmy Choo
Jimmy Choo I Want Choo Eau de Parfum
Percentage of overall business: 18%
2022 Jan.-Sept. sales (est.): $139.7 million
2021 Annual Net Sales: $154.9 million
Top performing pillar: I Want Choo Eau de Parfum, Man Aqua
On Deck for 2023: Jimmy Choo Signature extension
Coach
Coach Floral Eau de Parfum
Percentage of overall business: 15%
2022 Jan.-Sept. sales (est.): $116.4 million
2021 Annual Net Sales: $136.8 million
Top Performing Pillars: Coach Floral Eau de Parfum, Coach for Men Eau de Toilette
On Deck for 2023: Coach Man extension

Guess
Guess Uomo Eau de Toilette
PHOTO COURTESY OF INTER PARFUMS, INC.
Percentage of overall business: 11%
2022 Jan.-Sept. sales (est.): $85.4 million
2021 Annual Net Sales: $101.9 million
Top Performing Pillar: Bella Vita Eau de Parfum, Uomo Eau de Toilette
On Deck for 2023: Uomo extension