Unilever: three steps to beauty — cleanse, tone, moisturise
Margin reset treatments are painful — this is a stock for the very patient
What now, Unilever? The consumer group emerges from a bruising few weeks — pilloried by a sizeable shareholder, a £50bn bid in tatters — back where it began: a heavyweight defensive stock trading sideways.
Three steps would help clean up the mess. One, while other targets are out there, scratch big acquisitions off the agenda. Shareholders clearly are not fans; the depressed share price has undervalued its currency and executives cannot afford the distraction.
Next up, there should be discussion about whether new blood at the top is needed. Boss Alan Jope presumably pounced on GSK’s healthcare unit with board backing, so his should not be the only scalp if it comes to that. But executives failed to engage first with shareholders, something that could have avoided an expensive misjudgment. A similar case could be made for the ultimately abortive bid to unify the group’s structure under a single Rotterdam entity, before reversing course and settling on London.
Whoever is in charge should prioritise investment in the business, including in prices. Unilever, seeking to give investors reason to stick around after it rebuffed a $143bn bid from US food group Kraft Heinz, bought back shares and expanded margins. Operating margins rose an aggregate 250 basis points over the three years following the early-2017 bid, well above the historic run-rate. Top line growth wilted, from 3.7 per cent in 2016 to 2.9 per cent two years later.
This is the margin reset strategy deployed at consumer products peer Reckitt Benckiser under new boss Laxman Narasimhan. Tailwinds have helped: pandemic shoppers stocked up on Reckitt’s disinfectants and other cleaning products. Unilever’s timing is less fortunate given input cost inflation. Worse, Reckitt’s share price performance has trounced its rivals by some 17 percentage points.
Yet Unilever has been here before and so too have peers such as food giant Nestlé and distiller Diageo, both of which went on to stage impressive recoveries without recourse to big-ticket splashy deals. Unilever, with its cache of strong brands and savvy in marketing and distribution, can certainly do likewise. But margin resets are painful. Unilever is a stock for the very patient.
Animoca Brands has raised funding at a more than $5B valuation, triple where it was in October
Animoca Brands, an eight-year-old, 600-person Hong Kong-based outfit that has managed to put its stamp on many of the world’s most popular NFT and metaverse brands, has raised roughly $360 million in fresh funding at a valuation of more than $5 billion, the company announced today.
It’s a big leap from the $2.2 billion valuation the company was assigned in October when it raised a $65 million round. The number is even more notable considering that Animoca was valued at $1 billion in a $138 million round that closed as recently as July.
According to Crunchbase data, the company has now raised an estimated $604 million.
According to a spokesperson for the firm, the capital raise involved the issue of 111,173,515 new shares, which investors bought from Animoca Brands at the equivalent of $3.24 per share in a “pretty standard equity-based raise.” It’s worth noting, given that Animoca — which previously traded on the Australian Securities Exchange and was delisted in early 2020 because “it didn’t like the fact that we were dealing with crypto,” Animoca founder Yat Siu recently told us — now operates as an unlisted public company. (As Siu explained it, the company’s roughly 2,500 shareholders can sell their shares privately to other individuals. You just have to know who owns some to buy these.)
“Secondary placement of shares is occurring because there was high demand that could not be fulfilled in the primary placement,” added the spokesperson, “however secondary placement is not considered part of this capital raise and any sums exchanged via secondary sales do not count toward the company’s finances.”
Liberty City Ventures — and earlier investor in Animoca — led the new round, along with a mix of other earlier and new investors, including 10T Holdings, C Ventures, Delta Fund, Gemini Frontier Fund, Gobi Partners Greater Bay Area, Kingsway, L2 Capital, Mirae Asset, Pacific Century Group, ParaFi Capital, Provident, Senator Investment Group, Sequoia China, Smile Group, Stable Asset Management, Soros Fund Management, Wildcat Capital Management and Winklevoss Capital.
It’s easy to appreciate Animoca’s appeal right now. As we noted in our recent piece on Animoca, the outfit controls what it describes as a “broad portfolio of game products, both centralized and decentralized, branded and original, with coverage across most primary platforms including mobile devices, game consoles, PC, web, and blockchain” with products, including games, ranging from hyper casual to hardcore, as well as collectibles, utility tokens, e-sports titles” and more.
Some of those products tie to subsidiaries of the company, which got its start by developing games for smartphones and tablets and dove headlong into blockchain gaming roughly four years ago. Others represents stakes that Animoca has taken in other companies, including Dapper Labs; Sky Mavis, the developer of global sensation “Axie Infinity;” and the NFT trading platform OpenSea.
According to Siu, those various holdings were worth around $16 billion as of late November, though their value remains theoretical for now given that Animoca has not tried exiting from those positions. “They would be really what you describe as balance sheet items; they basically just accrue to the value of the equity of Animoca Brands,” he explained.
Unsurprisingly, Animoca is continuing to invest actively. Among the outfits that have announced Animoca’s involvement already this year are nCore Games, an Indian gaming firm that is preparing to enable users to “own” more of the assets they use to play and says it just raised $10 million in funding co-led by Animoca Brands and another high-profile investor in the crypto space, Galaxy Interactive.
Animoca also recently led a $9 million Series A round in CryptoSlam, a Kansas-based non-fungible token (NFT) industry data aggregator, and it led an $8 million Series A in Burnt Finance, a New York-based company developing an NFT auction protocol that’s built on the Solana blockchain.
Peter Schiff: The Fed Made This Bed And Now We Have To Lie In It
Link to podcast :
Inflation is running hot. Economic data is running cold. Stocks and bonds are under pressure. The Fed is scrambling. In his podcast, Peter Schiff talked about the trajectory of the economy. He said we’re on the cusp of the most obvious crisis that virtually nobody saw coming. The Federal Reserve made this bed. Now we have to lie in it.
Stocks and bonds are off to a rough start in 2022 with the expectation of rate hikes on the horizon. In fact, many analysts now think that the Fed could raise interest rates five times in 2022. And some also think the first hike in March could be 50 basis points.
Hedge fund manager Bill Ackman called a .5% rate hike “shock and awe.”
Peter called this “ridiculous.”
It’s not shock and awe. When you’re talking about 7% inflation, a move from zero to 50 basis points is still recklessly low interest rates. And for a Fed that’s actually serious about fighting inflation, raising interest rates to 50 basis points is not nearly enough for the task at hand.”
Even so, a .5% rate hike could have a profound impact and pop the bubble economy.
Given the incredible amount of leverage that’s in the system, a 50 basis point rate hike can still do a lot of damage. And I think Bill Ackman is underestimating the extent of the damage. But not just the damage from the initial hike, but from all the subsequent hike, which aren’t going to do any good about slowing down this inflation freight train.”
Peter noted the price of oil hit has continued its upward trajectory this week. The price of oil is at a seven-year high with plenty of room to keep running up. In 2021, a lot of producers ate their rising costs. But they may well begin passing on those costs in 2022, which would mean more big jumps in CPI.
There is going to be a lot more upward pressure on the CPI despite the Fed’s rate hikes, even if we get them, even if we get more than the market expects. It still won’t be enough to stop inflation from getting worse.”
Peter said it seems clear the bond market is slowly starting to grasp this reality. And when they really start to get it, the dollar is going to tank.
Interestingly, silver had a strong day on Tuesday, up almost 50 cents. Peter said this shows the underlying strength in the commodity complex due to all the inflation baked into the cake.
Gold faced headwinds with rising bond yields and was down about $5.
But at some point, investors are going to realize that surging nominal yields mean nothing to the gold market because real yields are not rising. The Fed is so far behind the curve. And even if real yields were rising, meaning that negative yields were becoming less negative, any negative yield is a positive for gold because you don’t want to lose money in bonds. Whether you’re losing 3% a year, or 5% a year, or 7% a year — all of that is bad. You want to avoid losses. And one way to avoid losses is by owning gold. And more people are going to recognize that gold is a much better alternative than negative yielding bonds.”
The Empire State Manufacturing Index came in at -0.7 versus an expectation of 25.7. This indicates contraction and is the kind of number you see during a recession. Peter said the Fed is starting its tightening campaign even as the economy is rolling over.
The economy is getting weaker and they haven’t even begun to raise rates yet.”
The economic numbers are getting weaker even as inflation continues to run hot.
It is stagflation. This is the perfect storm. The Fed has got itself in a box. There is no way out. And the fact that the Fed is in this no-win situation on inflation should not surprise anybody. This was the most obvious outcome that nobody wanted to acknowledge.”
The Fed says it can deal with inflation. But if the central bank uses the tools at its disposal to address the inflationary problem, it will bring down the bubble economy. Peter has been warning about this since the Fed first launched quantitative easing in the wake of the financial crisis.
The Fed has been operating looking in the rearview mirror for over a decade. What they do is they print all this money, keep interest rates artificially low, do QE, and then they look back at the CPI, or the core CPI, or the personal consumption expenditure index, whatever measure they like. And as long as that number is below 2%, they think the road ahead is clear, and they keep on printing money. They keep on stimulating, looking back over their should seeing where the inflation numbers are. And then, all of a sudden, they look forward, and they see 7% CPI in 2021. Of course, there was evidence that inflation was going to be bad early in 2021. But of course, they ignored all that. They kept saying, ‘Well, this can’t be. This is transitory.'”
Meanwhile, they just ignored all the money they were printing out of thin air.
Well, now, because they printed so much money because they were looking in the rearview mirror instead of looking ahead like I was doing from the beginning, now, all of a sudden, they’re in this situation. They’ve got 7% interest rates. They can’t slam on the brakes. So, now they’re trying to come up with some way to ease their foot off the gas. But that is impossible because that’s not going to slow down the inflation. So, the Fed made this bed and we all have to lie in it because they were too loose for too long, and they’ve let loose the mother of all inflation genies. And everything they’re talking about doing is inefficient to actually put a stop to it.”
Gapping down
In reaction to earnings/guidance:
- EVA -6.5% (also prices offering of 4.3 mln shares of common stock at $70.00 per share) WTFC -6.1%, RF -4.4%, DFS -3%, FUL -2.2%, UMPQ -2%, STL -1.3%, UAL -1.2%, FNB -0.7%, SASR -0.7%
Other news:
- AMH -4.4% (prices offering of 20 mln shares of common stock at for gross proceeds of $783.0 mln)
- EHC -2.8% (plans to spin off home health and hospice business)
- HT -2% (provided operating results for December)
- NNN -1.2% (retirement of Julian E. Whitehurst as CEO effective April 28)
Analyst comments:
- IP -3% (downgraded to Neutral from Buy at BofA Securities)
- F -2.3% (downgraded to Hold from Buy at Jefferies)
- BURL -2% (downgraded to Sell from Hold at Loop Capital)
- AMD -1.9% (downgraded to Neutral from Overweight at Piper Sandler)
- BLL -1.3% (downgraded to Equal-Weight from Overweight at Morgan Stanley)
- CVNA -1.2% (downgraded to Sector Weight from Overweight at KeyBanc Capital Markets)
Gapping up
In reaction to earnings/guidance:
- SIG +7.4%, AA +2.2%, AAL +1.4%, KMI +0.9%, BKR +0.8%, FITB +0.7%, SNV +0.7%, WNS +0.5%, KEY +0.5%
Other news:
- MCRB +9% (announced publication of data from Phase 3 ECOSPOR III study in the NEJM)
- PAYA +5.9% (announced acquisition of acquisition of VelocIT Business Solutions)
- ASTS +3.1% (discloses that launch provider now has confirmed a launch window in Summer 2022)
- CDXC +2.5% (announced a supply agreement with Designs for Health a U.S.-based manufacturer of premium dietary supplements for healthcare practitioners )
- ARGX +2.3% (receives approval of VYVGART in Japan)
- ENTG +2.1% (increases quarterly cash dividend to $0.10/share from $0.08/share)
- HUT +2% (acquires the cloud and data center business from TeraGo)
- AADI +1.8% (entered into certain negotiated purchase order terms and conditions for clinical and commercial product with Fresenius Kabi)
- NVAX +1.7% (receives provisional registration for COVID-19 Vaccine from Australia's TGA)
- KNTE +1.2% (to present preclinical data on KIN-3248 at ASCO GI Cancers Symposium)
Analyst comments:
- EBS +5.7% (upgraded to Buy from Hold at The Benchmark Company)
- NVCR +3.7% (upgraded to Buy from Hold at Truist)
- ETSY +3.3% (upgraded to Overweight from Sector Weight at KeyBanc Capital Markets)
- AMRC +3.1% (upgraded to Outperform from Mkt Perform at Raymond James)
Early premarket gappers
- Gapping up:
- MCRB +9%, SEMR +4.3%, NVAX +3%, ARGX +2.8%, ENTG +2.1%, AA +2%, AADI +1.8%, KNTE +1.2%, ASTS +1.2%, KMI +1%, PAYA +0.7%, OMER +0.6%, WNS +0.5%
- Gapping down:
- WTFC -6.1%, AMH -4.4%, RF -4.2%, ZYME -4%, EHC -2.8%, DFS -2.4%, FUL -2.2%, EVA -2.1%, EVA -2.1%, NNN -2%, HT -2%, UMPQ -2%, STL -1.3%, FITB -0.8%, FNB -0.7%, UAL -0.5%