Barrons : Mining Stocks Are Gaining From the War in Ukraine

Mining Stocks Are Gaining From the War in Ukraine

Geopolitical turmoil has restricted supplies of some commodities at the same time that postpandemic economic growth is boosting demand. This perfect storm could lift the valuation of mining giants like Anglo American .

Russia’s invasion of Ukraine has caused commodities prices to leap more than 40%, with nickel’s rise exceeding as much as 100% in recent weeks. Anglo derives the bulk of its earnings from platinum group metals, or PGMs, which accounted for 34% of earnings before interest, taxes, depreciation, and amortization, or Ebitda, in 2021, followed by iron ore, copper, diamonds, and nickel. Anglo has no operations or offices in Russia or Ukraine.

Anglo (ticker: AAL.UK) shares are up 31%, to 39.39 pounds sterling, so far this year, surpassing Rio Tinto (RIO) but trailing Vale (VALE). Christopher LaFemina, an analyst at Jefferies, says Anglo’s stock could rise 16.1%, to £43, partly because commodities are likely to outperform even through a period of potential stagflation.

“Anglo shares may be in a holding pattern in the very near term, but the company is well positioned to benefit from what we expect to be a decadelong structural upturn in demand and prices for some of its key commodities (especially copper and nickel),” LaFemina says.

About 40% of the world’s palladium supply comes from Russia, and a possible tightening of supply for palladium, one of the PGMs used in the manufacture of autos, could help lift Anglo’s stock, says Jonathan Guy, an analyst at Berenberg.

Anglo has a market value of £64 billion. It fetches 8.3 times this year’s expected earnings and is valued in line with its peers. For 2021, the company posted underlying Ebitda of $20.6 billion, more than double the $9.8 billion from the prior year. Revenue for 2021 was $41.5 billion, up from $25.4 billion.

CEO Mark Cutifani, who divested Anglo’s thermal coal and other noncore assets to focus on platinum mining, told Barron’s in a statement, “The large majority of our output and investment capital is focused on metals and minerals” that are essential for decarbonizing global energy and transport systems.

Cutifani, who is stepping down in April after nine years, said the company will enhance its competitive position through organic growth of 35% over the next decade, starting with the new Quellaveco copper mine in Peru, which is set to start up later this year.

That demand will depend on continued economic growth, more infrastructure projects, and how inflation affects consumer spending. This means earnings and valuations will be largely dependent on the macro landscape.

Tyler Broda of RBC Capital Markets, rates the stock Outperform with a £42 price target. “Anglo American stands to benefit commodity-wise on most fronts,” he wrote, explaining that it is set apart because of its exposure to PGMs and diamonds.

Both commodities have supply constraints because of sanctions, but since Anglo’s mines are not in Russia or Ukraine, it benefits from unaffected supply and rising prices.

Anglo owns 85% of De Beers Group, the world’s leading diamond company. The diamonds business has contributed to annual Ebitda of $1.1 billion, according to Anglo’s annual report. The U.S. is Anglo’s biggest market for diamond sales, where it sells 51% of its stock, with China the second biggest at 13%.

Much of Anglo’s gains will depend on the economic recovery in China, which is where Anglo sees its largest annual revenue at 25.4%, according to FactSet. With fresh Covid outbreaks shutting down large parts of the country, the macro drivers are not all positive.

>>> US Close Dow +0.44% S&P +0.51% Nasdaq -0.16% Russell +0.12% VIX 20.81 -3.97%

Closing Market Summary


The stock market ended a decent week on a shaky note, though a late rally toward morning highs masked a bumpy session. The Nasdaq (-0.2%) finished just below its flat line while the Dow (+0.4%) and S&P 500 (+0.5%) recorded gains. The three indices gained a respective 2.0%, 0.3%, and 1.8% for the week while the Russell 2000 (+0.1%) ended little changed, narrowing this week's loss to 0.4%.

Equities climbed out of the gate, allowing the S&P 500 to touch its best level in almost six weeks in early trade while the Nasdaq underperformed from the start after showing relative strength earlier this week.

The market ran into resistance about an hour after the open as Treasuries widened this week's losses. The selling in Treasuries accelerated after a research note released by Citigroup called for four consecutive 50-bps rate hikes, followed by two 25-bps hikes. Treasuries retreated to fresh lows for the year with the 10-yr yield ending the day at 2.49%, up 15 bps for the day and up 34 bps for the week.

Higher yields put some renewed pressure on growth stocks, resulting in the midday underperformance in the Nasdaq and sectors like technology (-0.1%) and consumer discretionary (-0.1%). Meanwhile, the remining nine groups finished the day in positive territory.

Even with today's loss, the technology sector ended the week ahead of the broader market with a gain of 2.3%. NVIDIA (NVDA 276.92, -4.58, -1.6%) was among today's laggards, as it pulled back from yesterday's surge to its highest level since mid-January.

Homebuilders and improvement store names weighed on the discretionary sector as the ongoing weakness in Treasuries sets the stage for higher mortgage rates. The iShares Dow Jones US Home Construction ETF (ITB 61.31, -0.88, -1.4%) retreated for the third consecutive day, falling toward its February low (60.02).

On the upside, five sectors gained at least 1.0% with energy (+2.3%) spending the bulk of the session in the lead, even when crude oil traded lower in morning action. However, WTI crude turned positive amid reports of an attack on a Saudi oil field. There was more talk about another release from the strategic reserve while Chevron (CVX 169.31, +3.01, +1.8%) received clearance to resume operations in Venezuela. WTI crude climbed $2.59, or 2.3%, to $113.83/bbl, gaining $10.80, or 10.5%, for the week.

Energy was followed by the utilities sector (+1.5%) which benefited from the market's shaky showing, while financials (+1.3%) and real estate (+1.2%) bounced after lagging earlier this week.

The materials sector (+1.1%) finished near the middle of the pack, masking this week's strength. The group gained 4.1% for the week with fertilizer producers Mosaic (MOS 71.34, +2.77, +4.0%) and CF Industries (CF 109.52, +3.12, +2.9%) powering to fresh 52-week highs, alongside steelmaker Nucor (NUE 157.62, +4.10, +2.7%).

Reviewing today's economic data:

  • Pending Home Sales fell 4.1% in February (consensus 1.2%) after decreasing a revised 5.8% (from -5.7%) in January.
  • The final March reading for the University of Michigan Consumer Sentiment Index checked in at 59.4 ( consensus 59.5) versus the preliminary reading of 59.7. The final reading for February was 62.8. The March reading marks the lowest level for the index since October 2012.
    • The key takeaway from the report is that rising inflation is eating away at consumer sentiment, as consumers recognize their standard of living has been reduced because their income is not keeping up with inflation. Notably, it was indicated in the report that 32% of consumers expect their overall financial position to worsen in the year ahead, which is the highest level since the survey started in the mid-1940s.

February advance Retail Inventories (prior 1.9%), advance Wholesale Inventories (prior 0.8%), and the advance goods trade deficit (prior -$107.6 bln) will be reported on Monday at 8:30 ET.

  • Dow Jones Industrial Average -4.1% YTD
  • S&P 500 -4.7% YTD
  • Russell 2000 -7.5% YTD
  • Nasdaq Composite -9.4% YTD

FT : Natixis completes deal to cut ties with H2O Asset Management

Natixis completes deal to cut ties with H2O Asset Management
French bank finalises plan to dispose of troubled subsidiary

French bank Natixis has completed a long-delayed deal to cut ties with scandal-plagued subsidiary H2O Asset Management, after regulators pressed it to change the transaction so that H2O’s co founders were not given a bigger share.

Natixis, which first announced its intention to dispose of its majority holding in H2O in November 2020, said on Friday that it would initially sell a 26.61 per cent stake, with plans to sell its remaining 23.4 per cent in four to six years “pending the necessary regulatory approvals”.

The shares will go to H2O employees but Natixis added that the deal would see “no increase of the share capital held by the two founders”.

Natixis originally negotiated a deal handing a bigger share in the firm to its co-founder’s Bruno Crastes and Vincent Chailley, according to people familiar with the matter, but changed the terms after opposition from the UK’s Financial Conduct Authority.

It announced in June last year that it was “amending” its “proposed transaction” to sell its stake back to H2O’s management after “exchanges with regulatory authorities”.

Natixis declined to comment. H2O said that it would not comment on “market rumours”.

H2O is under investigation by the FCA and other regulators after a spate of scandals surrounding its risk controls.

It was previously the star Natixis asset manager until the Financial Times revealed in 2019 that the firm’s funds held more than €1bn in illiquid bonds linked to controversial financier Lars Windhorst. Panicked investors withdrew billions and regulators subsequently forced H2O to temporarily suspend trading in a series of its funds because of concerns over the valuations of investments.

Natixis initially gave full support to H2O, with the bank’s then head of asset management telling analysts and investors that H2O’s holdings linked to Windhorst were “quite diversified”.

But after the French market regulator forced H2O to freeze several of its funds in 2020 and more revelations followed, the bank said it would sell its stake in the business.

Natixis and H2O also announced measures aimed at “strengthening its governance” on Friday, with the asset manager introducing a series of new “supervisory boards” with a “majority of independent members”.

H2O’s risk controls have come under fresh scrutiny in the past month after some of its flagship funds posted large losses due to an outsized bet on the Russian rouble ahead of Russia’s invasion of Ukraine.

While H2O’s €1.5bn Multibonds fund lost as much as 40 per cent in the wake of the invasion, it has recovered as the rouble has rallied against the dollar and is now down about 18 per cent.

WSJ : Instacart Cuts Valuation by Nearly 40%

Instacart Cuts Valuation by Nearly 40%
Food-delivery provider says change reflects market turbulence affecting technology companies

Instacart Inc. said it has cut its valuation by about 38% to $24 billion, illustrating the difficulties of competing in the delivery market.

The San Francisco company said the valuation reflects the market turbulence impacting public and private technology companies. Instacart, which sends shoppers to pick and deliver groceries from supermarkets, was last valued at $39 billion about a year ago.

The pandemic was initially a boon to its business, as consumers avoided going out to stores and turned to grocery delivery. Since then, a flurry of newcomers have joined the industry and consumers have returned to shopping in person. Delivery remains expensive due to labor and transportation costs, while the work of picking out groceries has become harder as supermarkets face persisting shortages.

Instacart has had a string of executive changes and departures over the past year. The company named Fidji Simo as its chief executive officer, while Apoorva Mehta, co-founder and former CEO, became executive chairman of the board. Carolyn Everson, who joined as president from Meta Platforms Inc., left about four months after starting at the company. Seth Dallaire, chief revenue officer, left in the fall for Walmart Inc.

Instacart said market conditions have pushed down valuations of its peers and that market conditions are out of its control. Shares of DoorDash Inc.are down about 22% from a year ago, while Shopify Inc. is down about 35% from a year ago.

The valuation news was earlier reported by Bloomberg.

The company has been looking for ways to expand beyond its grocery-delivery business. It is expanding its advertising business while seeking to build out a range of services such as warehouses and in-store technology for retailers.

At the same time Instacart is trying to expand its grocery operations, offering 30-minute delivery with supermarkets such as Kroger Co. and Publix Super Markets Inc. Last year, it acquired a maker of automated shopping carts and a catering software company. It said this week that it will start building fulfillment centers for supermarkets that can deliver groceries in 15 minutes.

Instacart said it had a record-high number of orders, revenue, ad revenue and gross profit in 2021 and that its business outlook is strong. The company said it has more than $1 billion in cash and securities.

FT : SoftBank finalising loans of up to $10bn from banks before Arm IPO

SoftBank finalising loans of up to $10bn from banks before Arm IPO
Japanese conglomerate is seeking to list UK chip designer at valuation of more than $50bn

SoftBank is finalising loans worth as much as $10bn from banks ahead of a planned blockbuster initial public offering of UK chip designer Arm Holdings.

The loans, which will be secured against Arm, were a pre-condition set by SoftBank for banks to participate in the stock offering that is aiming to happen before the end of March next year, according to people close to the situation.

Goldman Sachs, JPMorgan Chase and Japan’s Mizuho Financial Group are poised to have leading roles in the offering, these people said. A handful of other banks are also in discussions with SoftBank about working on the listing.

SoftBank founder Masayoshi Son is pushing for a valuation of Arm of at least $50bn. But bankers involved in the talks told the Financial Times that a significantly higher valuation for Arm would be “very ambitious”, given market conditions. One person said discussions over a loan were set to be finalised in the next week, though warned the timing could slip. SoftBank declined to comment.

The planned IPO comes as a deal to sell the British company to Nvidia for $66bn collapsed last month over objections raised by regulators and antitrust authorities in Europe and the US. SoftBank took Arm private in 2016 for $32bn.

The competition among the banks to take part in Arm’s IPO is strong as the market has dried up elsewhere, with investor appetite damped by a sell-off in tech stocks, rising interest rates and the war in Ukraine.

Son has raised debt before IPOs in the past as a tactic to raise cash for other investments in global technology companies. A sharp fall in SoftBank’s share price has also put pressure on the group to raise funds in recent weeks, with the group liquidating its stakes in several ventures.

SoftBank’s balance sheet is under pressure after a huge sell-off in its China assets, including ride-hailing group Didi, ecommerce platform Alibaba and other Chinese tech companies after a regulatory crackdown in the country. The tech groups have rebounded after comments by Chinese regulators but the outlook remains murky.

SoftBank’s woes have been exacerbated by a recent departure of key figures from its Vision Fund, and unresolved turmoil in Arm’s China business. The head of the China joint venture, Allen Wu, is embroiled in a longstanding tussle over control of Arm’s crucial business unit in the world’s largest smartphone market, posing a thorny challenge to the IPO process. 

Arm is one of the most important companies at the heart of the global tech industry. Its chip designs are licensed to semiconductor companies and electronic manufacturers around the world and used in the majority of smartphones produced globally. The company has largely struggled to thrive under SoftBank’s ownership, as costs increased drastically and profits fell. But a course correction over the past year has driven a rise in revenues at the chip designer.

Shares in SoftBank have fallen 41.5 per cent over the past year to ¥5402. Bloomberg has previously reported on SoftBank seeking up to $8bn in loans tied to the IPO.

FT : Ferretti: yachtmaker is setting sail against political headwinds

Ferretti: yachtmaker is setting sail against political headwinds
China’s increasingly wealthy population forms an important part of boat builder’s plan

Synonymous with wealth and power, superyachts are in the spotlight as the ill-gotten gains of Russian oligarchs placed under sanctions. Italian boat builder Ferretti is not letting that sink its plans. The group announced pricing for a Hong Kong initial public offering this week with a valuation of up to $1.2bn.

Ferretti’s timing looks odd. Hong Kong yacht owners too, desperate to escape strict Covid-19 rules there, are rushing to sell or transport their vessels out of the city as quickly as possible. At the same time, Russian-owned yachts struggle to find safe harbours worldwide. Sanctions against wealthy Russians hint that demand to buy more may slip in the year to come.

Yet below this choppy surface things have rarely been better for boat builders. Booming global financial markets further enriched billionaires. Sales of superyachts, those usually more than 24 metres in length, reached new highs last year.

Ferretti has little exposure to the supersized yachts favoured by the likes of Roman Abramovich and Alisher Usmanov. The few mega yachts the group does build are under the flag of its CRN brand. But vessels more than 100m long represent under a tenth of sales. Most of the group’s turnover came in the 20m to 50m categories.

Ferretti’s strong growth last year expanded sales by half. On its trailing earnings the top-end valuation of $1.2bn puts Ferretti on an enterprise value-to-ebitda multiple around 12 times. That looks a tad pricey by comparison with powerboat makers such as MasterCraft but in line with luxury groups such as LVMH, Kering and Richemont.

As for most purveyors of toys for the rich, China’s increasingly wealthy population forms an important part of Ferretti’s plan. Listing in Hong Kong will partly reflect this and its ownership by the state-controlled Weichai Group. Even so, in the current environment, Ferretti’s shares will require some keen pricing to get them out of the showroom.