Research Calls
- Upgrades:
- Anheuser-Busch InBev (BUD) upgraded to Buy from Neutral at Citigroup
- Antero Resources (AR) upgraded to Buy from Hold at Truist; tgt raised to $50
- Excelerate Energy (EE) upgraded to Overweight from Equal Weight at Wells Fargo; tgt $29
- Universal Music Group N.V. (UMGNF) upgraded to Conviction Buy from Buy at Goldman
- Downgrades:
- Aegon N.V. (AEG) downgraded to Underperform from Neutral at Exane BNP Paribas
- Aveanna (AVAH) downgraded to Hold from Buy at Truist
- Burberry plc (BURBY) downgraded to Neutral from Outperform at Exane BNP Paribas
- HP Inc. (HPQ) downgraded to In-line from Outperform at Evercore ISI; tgt lowered to $36
- NovoCure (NVCR) downgraded to Underperform from In-line at Evercore ISI
- PerkinElmer (PKI) downgraded to In-line from Outperform at Evercore ISI; tgt $150
- Sony (SONY) downgraded to Neutral from Buy at Citigroup
- Talaris Therapeutics (TALS) downgraded to Equal-Weight from Overweight at Morgan Stanley; tgt lowered to $8
- Others:
- NetEase (NTES) initiated with an Outperform at Macquarie; tgt $129
- Shopify (SHOP) initiated with a Mkt Perform at JMP Securities
- Symbotic (SYM) initiated with a Buy at Needham; tgt $18
- Symbotic (SYM) initiated with an Outperform at Raymond James; tgt $18
- Teradyne (TER) initiated with a Neutral at JP Morgan; tgt $120
Gapping down
Select Index ETFs showing weakness:
- IWM -0.8%, QQQ -0.8%, SPY -0.6%, DIA -0.5%
News:
- NIU -6.4% (reports Q2 sales volume declined 17.4% yr/yr)
- CVM -6.1% (files for $150 mln mixed securities shelf offering)
- SRRK -3.2% (to Present Phase 3 SAPPHIRE Trial Design at the 17th International Congress on Neuromuscular Disease)
- PHG -2.8% (completes cancellation of 8.8 million shares)
- DWAC -2% (SEC filing that it has been subpoenaed in federal criminal probe)
- CME -2% (reports Q2 and June 2022 market statistics)
- ATAI -1.9% (files for $300 mln mixed securities shelf offering)
- CHPT -1.6% (files for $1 bln mixed securities shelf offering)
- TSLA -1% (reports Q2 production of 258,580 vehicles)
Analyst comments:
- AEG -6.5% (downgraded to Underperform from Neutral at Exane BNP Paribas)
Gapping up
News:
- COWN +14.4% (Toronto-Dominion Bank (TD) is considering possible bid for COWN, according to Bloomberg)
- DYN +11.1% (FDA lifts clinical hold, clears IND application to initiate clinical trial of DYNE-251)
- OCFT +10.8% (successfully lists on the Main Board of the Stock Exchange of Hong Kong)
- REI +6.4% (acquires Stronghold's Permian Basin assets)
- DRIO +5.9% (files for 226,586 share common stock offering by selling shareholder related to warrants)
- TRP +4.5% (agreed with Mexico to build a $5 bln gas pipeline in Veracruz, according to Reuters)
- VET +3.6% (receives TSX approval for normal course issuer bid)
- ASTS +3.5% (sells majority stake in NanoAvionics)
- FULC +3.3% (enrolls first patient in pivotal global Phase 3 clinical trial of Losmapimod)
- QD +2.4% (completes the optional repurchase of 1.00% Convertible Senior Notes due 2026)
- ISEE +1.6% (IVERIC bio and DelSiTech Ltd announce an exclusive global license agreement for new formulations of Zimura; ISEE to make upfront payment of €1.25 mln)
- OXY +1.2% (10% owner Berkshire Hathaway (Warren Buffett) bought 9,887,040 shares worth ~$582.4mln)
Analyst comments:
- AR +2.2% (upgraded to Buy from Hold at Truist)
Early premarket gappers
- Gapping up:
- COWN +12.2%, OCFT +10.8%, ASTS +7.7%, TUP +6.3%, DRIO +5.9%, VET +4.2%, QD +3.2%, CVM +2.4%, OXY +1.3%, HTA +1.1%, SGEN +1%, ICPT +0.9%, TRP +0.7%, ABC +0.6%
- Gapping down:
- NIU -6.2%, ATAI -6%, PHG -3.3%, SRRK -3.2%, BGXX -2.7%, DWAC -1.7%, CHPT -0.6%, ABOS -0.6%, IWM -0.6%, QQQ -0.6%, IPSC -0.5%, NEGG -0.5%, VERV -0.5%, SPY -0.5%
Find below an update on Porsche AG’s potential IPO
1/ Conclusion
We do not believe a long PAH3 holding discount is attractive.
Indeed, we calculate the PAH3’s holding discount post IPO to be around -25.3% and do not expect it to be tighter (holding’s risk profile increased by the €6.6bn net debt post Porsche AG’s IPO)
The key unknown remains the discount that will be applied by the market on Porsche AG’s unlisted Ord shares versus Pref (we use 20%)
However, we still believe there is value in a long PAH3’s position and hence suggest a Long PAH3/Short SXAP position
Even more so since such a position would have only returned a positive 1.8% IRR since Feb 18th but such IRR was as high as 18% early April
2/ Recent disclosures
PAH3 and VOW heads of agreement terms as of May 05 at Q1 2022 results:
- Porsche AG capital to be divided in 50% Pref shares and 50% Ord shares
- 25% of Porsche AG’s Pref Shares to be placed during IPO
- PAH3 to acquire 25% + 1 share of Porsche AG Ord shares at a 7.5% premium to Porsche AG’s Pref share’s placement price
- 49% of the total proceeds (IPO of Pref shares + sale of Ord shares) to be distributed to shareholders
- A progress update will be made in Late summer 2022
We are assuming that Porsche AG’s Pref shares will have no vote
3/ Expected structure of Porsche AG’s capital
4/ PAH3’s control of Porsche AG
We are assuming at this stage that Porsche AG is IPOed debt free as we have no details
We are now assuming that PAH3 would finance the acquisition of its 25% + 1 share of Porsche AG Ord shares 100% in debt
PAH3 controls 31.4% of VOW’s capital and 53.3% of VOW’s voting rights
PAH3 would control 65% of Porsche AG’s voting rights
5/ Detailed calculations
Find below our calculations on the potential Porsche AG’s IPO and impact for PAH3
We use a 55% discount to RACE IM’s multiple hence an implied €78.6bn equity value for Porsche AG
PAH3 would need to raise €7.4bn post special dividend to finance the acquisition of its 25% + 1 share of Porsche AG Ord shares (12.5% of Porsche AG’s capital)
6/ PAH3’s holding discount
PAH3 current discount to NAV is -32.6% but was as tight as -26% early April
Implied PAH3 holding discount post IPO:
- If we were not to consider any discount for PAH3’s position in Porsche AG’s Ord versus the Pref, the implied discount post IPO would be -30.5%
- When considering a 20% discount as per the SOP post IPO below, PAH3 holding discount would be -25.3%
PAH3 has currently no debt and would end up post IPO with a net debt of €6.6bn. This is acceptable but would raise the holding’s risk profile
Find below, PAH3’s current discount to NAV:
We make the following assumptions for our PAH3 SOP post Porsche AG’s IPO:
- An equity value of €79bn for Porsche AG
- We apply a 20% discount to PAH3’s position in Porsche AG’s Ord versus Pref’s IPO price (unlisted)
- PAH3 would pay €10.6bn for the stake but receive €3.1bn in special dividend which means they only have to finance €7.4bn
- We use VOW ex special dividend price to calculate the value of PAH3’s VOW post IPO
David
Olivier Rousteing Brought 200 Sketches to Jean Paul Gaultier
The designer references Madonna and iconic perfumes in his one-off couture collection.
Jean Paul Gaultier gave Olivier Rousteing only one nugget of advice for his one-off couture collection at the house of Gaultier: “Just be yourself.”
It’s a profound statement from a French fashion legend synonymous with unfettered self-expression — and foreshadowed a process of discovery for Rousteing, who has spent most of his fashion career at Balmain, which he has overhauled and energized in his image.
“This collaboration helped me to understand who I am without Balmain,” Rousteing mused during an exclusive preview at Jean Paul Gaultier headquarters on Friday, the ateliers at peak concentration realizing his intricate designs. “My femininity here is different than at Balmain. My girl is more tough.”
The designer said he left the “party” atmosphere around Balmain out of the equation, and felt free to play with Gaultier’s innumerable codes, tailoring being a favorite. “I don’t think glamour will be the word that you will use for this collection,” he offered.
Rousteing clearly relished the opportunity, praising the capabilities of the atelier and the design studio, confessing he was sad the project was coming to an end.
To be sure, he came to the task with towering respect for Gaultier’s innumerable contributions to fashion.
“As a designer, he was really inspirational because he was one of the few designers that could be a creative director, but also iconic, known around the world and popular. His face was as known as his clothes,” Rousteing marveled, putting Gaultier in a rare league with Yves Saint Laurent and Karl Lagerfeld.
He also hailed Gaultier as a role model for generations of designers, including his.
“Today we are talking about inclusivity; we are talking about gender; we are talking about binaries; we’re saying that a man can dress as a woman and a woman can dress as a man; about the freedom to be who you want to be without the judgment of society. And clearly Jean Paul Gaultier did that way before all of us,” Rousteing said. “We talk about inclusivity and diversity. Look at his first shows!”
Rousteing also lauded Gaultier’s reputation for superb craftsmanship, and his wide spectrum of expression.
“He’s a perfectionist,” he enthused. “Jean Paul Gaultier can do the most incredible gown, but also the most incredible suit. He can do a corset and then an incredible menswear look for a woman. So I think this is where he’s a genius. There are very few designers who can do so many different garments and still be a perfectionist. His tailoring is as good as his dress; his lingerie is as good as his menswear pants. He can do the most extravagant gown, and also most incredible denim. He was one of the few designers at the time who was actually bringing codes from the street and playing with them in the couture.”
Rousteing also considers Gaultier a pioneer in bringing entertainment to the fashion show, with emotive and campy modeling and guest performers, from dancers and singers to global celebrities.
Cue Madonna, whose 1992 appearance on a Jean Paul Gaultier runway with her breasts exposed made international headlines, including in Rousteing’s conservative hometown of Bordeaux, France.
“When you’re a kid, you don’t really know about fashion, but you know more about music,” he said. “My parents were also obsessed with Madonna at the time. I also remember her wearing the bustier with the cone bra.” He was referring to her landmark “Blond Ambition” tour in the 1990s.
Fast-forward a few years when Rousteing was a young adult and Gaultier released Le Male, a men’s fragrance in a bottle shaped like a muscular male torso dressed in a tight sailor top.
“It was the first time that you could see a male designer who was playing with sexuality…playing with that macho man image that actually is not what you expect, so breaking the codes,” he said. “I think that was genius.”
Gaultier’s bestselling fragrances — Le Male and Classique — will figure as inspirations for Wednesday’s show alongside Madonna, yielding boots shaped like the tin-can packaging of the scents and some glass corsets closely resembling the flacons. Rousteing also found new ways to interpret Gaultier’s pin-striped and caged tailoring, sailor tops, corsets, tuxedos and trompe-l’oeil creations. “What I love about Jean Paul Gaultier is that a jacket can become pants, or pants can become a gown. Don’t take anything for granted,” he said.
Rousteing is the third guest designer — after Sacai’s Chitose Abe and Y/Project’s Glenn Martens — to interpret the rich legacy of Jean Paul Gaultier following his retirement from the runway in 2020 after an illustrious 50-year career.
Like his predecessors, Rousteing also created a ready-to-wear side project: a menswear collection inspired by Gaultier’s spring 1994 show that introduced his iconic tattoo prints, and references to piercings and other body art.
Rousteing confessed that he was initially “scared” when Gaultier approached him to design a one-off couture collection.
“This house is such a treasure that I didn’t want to f–k it up. I just want to make the best. I kept saying to him, ‘I just want you to be proud of this collection,'” he related.
While he offered to show Gaultier his designs, the founder resisted, telling Rousting, “I want to be surprised. But I’m sure it’s going to be amazing.”
Rousteing moonlighted on the side project while preparing multiple Balmain collections this spring, and had sketched about 200 haute couture looks by the time he entered Gaultier’s stately headquarters on the Rue Saint Martin in Paris. He subsequently visited the archive, but did not stray far from his original concepts and sketches.
His impression of the archival garments? “They’re even more beautiful in reality than in pictures,” he marveled. “You’re blown away because the pieces are just insanely well made. And they don’t get old.”
He urged a visitor to spend time with Emilien Boland, the head of the Gaultier studio, and sang the praises of everyone in the studio and atelier. “They are all insanely humble, kind, respectful, helpful and talented. I feel like it’s a family,” he said.
Rousteing is seen as an innovator among fashion designers for fully harnessing the power of social media at a time when many luxury brands were skeptical about Instagram, where Balmain’s creative director has more than 8 million followers.
“I love couture. And I think there was a bit of a confusion these last couple of years when people talked about Gen Z and Millennials and they just associated these people with sneakers and hoodies. I think they’re really mistaken,” he said. “Couture is about aspiration; couture is about breaking boundaries. You can do your craziest dream, what you can’t do in ready-to-wear.
“Also, I don’t think people realize you can achieve a lot of engagement on social media with couture, because the crazier you go, the more people are going to follow,” he added. “Couture is about bringing magic. That’s how I imagine my couture, bringing magic to the City of Light, to Paris.”
Fashion Dealmaking Shifts Into Wait-and-See Mode
Buyers are waiting for prices to reset on acquisition targets.
Fashion and retail’s go-go dealmaking days ended earlier this year as inflation spiked, Russia disrupted the world and markets by invading Ukraine and the robust recovery melted into recession worries.
Two busted deal processes from Kohl’s Corp. and Walgreens last week just confirmed that — although the mergers and acquisition party has morphed into a waiting game that could see more transactions and more down-to-earth prices next year.
For now, it looks to be a quiet summer and fall with perhaps some deals underway wrapping up, but little new activity as the economy sorts itself out. The question is just how long that takes.
Kohl’s Corp. took itself off the auction block on Friday, ending its exclusive buyout talks with The Franchise Group and noting its downwardly revised offer of $6.8 billion reflected “the current financing and retail environment” and “was not fully executable or complete.”
Similarly, Walgreens pulled its British drugstore chain Boots off the market, noting that no one was able to make an offer that “adequately reflects the high potential value of Boots and No7 Beauty Company” and blaming the financial markets.
More indicative of what the market could see in the immediate future is Enjoy — Ron Johnson’s struggling commerce-at-your-door concept that successfully went public via SPAC last year, but fell into bankruptcy last week.
Enjoy was part of a rush to the public market last year that also saw Warby Parker, Rent the Runway, Allbirds, ThredUp and more make their way to Wall Street, taking advantage of sweet valuations only to get caught up quickly in the market whirlwind that is now testing their businesses and brands.
With the S&P 500 down 20.6 percent in the first half, inflation running at a clip not seen in 40 years, the supply chain still backed up and COVID-19 lingering, few companies are looking to do a deal today.
Next year could be another story.
Deborah Weinswig, chief executive officer and founder of the retail and tech-focused Coresight Research, is looking for a direct-to-consumer consolidation as e-commerce brands struggle.
“The companies that are left standing will get stronger because they’ll have cash on the balance sheet and they’ll be able to pick up some of these companies,” Weinswig said. “We’ll see less money being spent on tech and potentially more available for acquisitions.
“Everybody’s kind of building their wish list,” she said. “When the prices hit their expectations … we’re going to see things happen very quickly. It’s not that people don’t have the balance sheet to do it, it’s just that everybody thinks everything is going to get a lot cheaper. We’re not technically in a recession, but it certainly feels like we’re heading there.”
Weinswig said there could be a “very active” deal market in six months or a year.
William Susman, managing director at Threadstone Advisors and a veteran fashion dealmaker, said transactions that are nearing the finish line can still get done, but that few new deal processes would start until there is “more clarity on economic direction.”
Clarity on that score might still take some time — just as it will take a while for owners to let go of the valuations their companies were tagged with last year.
“Seller expectations haven’t changed, but buyers’ expectations are lower,” Susman said. “Additionally, private equity loves reward with no risk and in a cloudy, uncertain market, they sit on the sideline.”
While the beauty market remains hot — as it has been for years — Susman said pure play ecommerce is not.
“The bloom is off that rose,” he said. “Valuations have gone from three-times revenues to less than one-times revenue. And there’s a real sense that e-commerce is not growing as it was during the pandemic. People are talking omnichannel more so than direct.”
And companies are focusing on their core in a world of troubles.
“It’s back to basics,” Susman said. “If you have great merchandise at fair prices and things the customer wants, you’re going to do very, very well.”