Gapping up
In reaction to earnings/guidance:
- WBA +3.3%
Other news:
- SLGC +6.4% (SLGC and ILMN announce collaboration relating to genomics and proteomics platforms)
- OPFI +5.8% (authorized share repurchase program of up to an aggregate of $20 mln of its Class A common stock)
- APTX +5.8% (Highlights Key Goals and Anticipated Development Milestones for 2022)
- BHVN +5% (announced preliminary net product revenue of NURTEC ODT (rimegepant) for the fourth quarter of 2021)
- PTEN +4.8% (reported that for the month of December 2021, it had an average of 110 drilling rigs operating in the United States)
- OBSV +2.9% (announces positive topline results for Linzagolix 200 mg with add-back therapy in the phase 3 edelweiss 3 trial in patients with moderate-to-severe endometriosis-associated pain)
- GDDY +2.7% (names new COO)
- BLD +2.6% (acquired Insulating Products, a residential and light commercial insulation distribution company headquartered in Lewisville, Texas)
- ROCC +2.4% (announces a 20 percent increase to the Company's borrowing base under its revolving credit facility from $600 mln to $725 mln)
- STLA +2.3% (announces plan for brand's first battery-electric vehicle by 2025, all-electric lineup by 2028)
- AMBA +2.2% (Seeing Machines Limited announced a collaboration with Ambarella to bring integrated Advanced Driver Assistance System and occupant and driver monitoring system solutions to the market)
- MF +2.1% (signs 20+ major regional grocery store chains to use its retail cloud services)
- WMB +2.1% (delivers record volumes driven by continued Transco expansions)
- IHG +1.9% (seals four-hotel destination resorts portfolio deal with strategic partner Sun Group)
- DDOG +1.7% (announces partnership with AWS for observability and security),
Analyst comments:
- DVAX +5.2% (resumed with a Buy at Goldman)
- BIRD +4% (upgraded to Overweight from Equal-Weight at Morgan Stanley)
- CMA +2% (upgraded to Neutral from Underperform at BofA )
- FIVN +1.6% (upgraded to Buy from Hold at Jefferies),
Three big questions in energy for 2022
1. Can energy inflation be tamed?
Oil’s surge last year saw the return of the $100 a barrel oil price forecast — a tried and true way for Wall Street analysts to grab their clients’ (and our) attention. Will it come to fruition in 2022?
Some of Wall Street’s blue-chip analysts think so. Francisco Blanch, Bank of America’s head of commodities research, says prices could spike as high as $120/b in the first half of the year as crude demand continues to race ahead of supply. Goldman Sachs, which has argued the market is in the early stages of a supercycle, is also among those predicting that triple-digit oil is in the cards for 2022.
The forecasts hinge on a couple of key factors playing out this year. First is the global economic recovery continuing at a healthy clip. This would help pull crude consumption back up to pre-pandemic levels of around 100m barrels a day.
At the same time, oil bulls expect the supply recovery to continue to lag behind demand, fuelling the higher prices. They argue that not enough is being spent around the world to rebuild oil production capacity, America’s shale industry is in a new low-growth era, and OPEC+ will not — or cannot — bring on enough output to cover the gap.
The bull case is no sure thing, but surging global crude prices would cause economic and political shockwaves.
The global economic recovery, already beset by high inflation, would struggle to withstand $100 oil for long and soaring fuel prices would threaten further political instability (of the sort seen in Kazakhstan this week) in a world already set on edge by the continuing pandemic.
Meanwhile, Europe faces an uncertain winter as natural gas prices have surged and stores of the fuel plunged. A cold snap on the continent could bring big bills to European consumers and gas providers. Europe’s gas shortages will also feed a tense showdown between Russia and western nations over Ukraine.
2. Can US oil and gas boom again under Biden?
Joe Biden has promised a long-term transition away from fossil fuels, but he is likely to oversee a booming domestic oil and gas industry in his second year in office. America’s fossil fuel producers are set up for a banner year of bumper earnings and growing output.
The country’s shale producers look to have finally landed on a profitable formula: limited output growth, tight control over spending and a focus on dividends and share buybacks. If oil and natural gas prices remain elevated, analysts are predicting a gush of cash from the shale sector. That is, if they stick to the plan. After a decade of cash-burning growth, the industry has not yet shaken off its reputation for profligacy.
Still, there is likely to be substantial growth from America’s shale patch. The country’s oil output is forecast to be around 12.2m barrels a day by December 2022, up 600,000 b/d from the start of the year, according to the Energy Information Administration. It would firmly install the US as the world’s largest oil producer after output collapsed during 2020’s pandemic-driven downturn.
The US is also set to become the world’s largest exporter of liquefied natural gas in 2022 — at least in terms of capacity — surpassing both Qatar and Australia. Strong demand for the fuel, especially from China, has put a tailwind behind a new wave of export facilities and expansions to existing projects.
3. Can the world stop the rise in carbon emissions?
Climate will remain at the heart of policymaking efforts this year as world leaders seek to make good on pledges to “build back better” after the pandemic and urgently stem the rise in global temperatures.
But politics will continue to dog green efforts, as the underwhelming outcomes of the COP26 climate talks in Glasgow last year laid bare.
Countries are being encouraged to increase the ambition of their emissions pledges ahead of COP27 in Egypt this November — though as things stand they are struggling to put substance behind their current commitments.
In the US, Democrats will look to resuscitate Biden’s sweeping $1.75tn spending bill, which would have made a record $555bn investment in climate and provided huge tax incentives for renewables. The legislation hit a wall last month when Senator Joe Manchin, a pivotal swing vote, said he would not back it. The West Virginia moderate offered some hope to progressives on Tuesday, however, by suggesting a compromise on the bill’s climate provisions was possible. “The climate thing is one that we probably can come to an agreement much easier than anything else,” he said.
The spending bill plays a big role in how Biden intends to deliver on his pledge to cut emissions in half by the end of the decade against 2005 levels. Passing the legislation will only become more crucial if the US Supreme Court curtails regulators’ ability to clamp down on greenhouse gases later this year, as expected by many court watchers.
In Europe, Brussels is also pushing to cut emissions through its Green Deal plan. But the divisions within the EU over how to get there were made clear this week as member states clashed over which forms of energy could be classified as green — and therefore benefit from the billions of euros in investment that will be pumped into decarbonising the bloc’s economy.
And whatever the progress made in the west, much will ultimately hinge on China’s ability to unlock the roughly $6.5tn needed over the next four decades to reach carbon neutrality by 2060.
All of this means the aspiration of the Paris agreement to limit warming to 1.5C will be remain an uphill battle.
Early premarket gappers
- Gapping up:
- OPFI +10.2%, OBSV +6.8%, SLGC +6.4%, DDOG +2.7%, STLA +2.2%, MF +2.1%, LGIH +2.1%, IHG +2%, AMBA +1.6%, JOBY +1.1%,
- Gapping down:
- BLI -30.9%, STRO -15.2%, HEAR -3.8%, RIOT -1.6%, CNM -1.1%,
Toshiba: activists are right to oppose bananas split
A partial sale to private equity funds looks much more attractive to investors
Toshiba’s second-largest investor is calling for a showdown. Singapore-based hedge fund 3D wants an extraordinary meeting where shareholders would vote on the break-up plan of the Japanese conglomerate. For now, activists are the more convincing advocates of a turnround than Toshiba’s own management.
Toshiba plans to split into three separately listed parts: infrastructure services, devices and an asset management group dealing with holdings such as memory chip business Kioxia. If other shareholders back 3D’s proposals in a vote, Toshiba’s break-up plans might fall through.
Showdowns between Toshiba and foreign investors, many of them activist funds, have been frequent over the past four years. It would be easy to dismiss the latest proposal from 3D as just another flurry.
But 3D, which owns more than 7 per cent of Toshiba, has a point. The costs of the split, which Toshiba has said would run to $86m, look steep. Toshiba does not even know if it will get shareholder approval in a vote at the annual meeting in 2023.
Even if all goes as planned, the split would not be complete until the second half of 2023. Investors would then have to wait several more years to see if the surgery has worked. That suggests a turnround would be slow, if it occurs at all.
A partial sale to private equity funds looks much more attractive to investors. They have little faith left in the company following its 2015 accounting scandal. Toshiba has reportedly walked away from several potential buyout offers at substantial premiums.
There is value to unlock. Toshiba shares trade well below the group’s sum-of-the-parts valuation. The infrastructure systems unit, assuming $430m of operating profit in the current fiscal year to March, could fetch about $6.5bn. Kioxia has an estimated value of about $30bn, implying Toshiba’s 40 per cent stake is worth $12bn. The value of the two units already surpass its market value of $18bn.
That sum does not even include four other main business units, including energy systems and printing. Investors are right to expect better from Toshiba.
Football’s future is in the metaverse
Virtual stadiums will kick off a new debate over the sport’s ‘real’ fans
When European football was having conniptions last year over plans for a breakaway Super League, a key theme in the row was the concept of the “real fan”. The term was deployed to bludgeon the dozen football clubs that had signed up for the enriching elopement to a new league at the expense of traditional domestic competitions.
Their decision was, said critics, one that appeared to declare the cold supremacy of commercial interests and the quest for new fans over the will of the “real” supporters, who showed their devotion by protesting outside their teams’ stadiums.
The broader implication was that the globalised base of fans that these big clubs were chasing, most explicitly in Asia, might well be lucrative, but would never earn the same influence or consideration of “real fans” — no matter how fervent the love of Liverpool in Lahore, or for Barcelona in Beijing.
The Super League faltered then, but technology is about to give this debate an intriguing new dimension. The metaverse is still some distance from a comprehensive definition; one fairly basic, but as yet unanswered question is whether the main point of entry will be via immersive VR headsets, augmented reality mobile phones, lightweight glasses or a host of other speculative hardwares.
There is, however, more agreement that the metaverse will push us towards a situation where certain “realities” are defined by experience rather than physicality. As millions of fans flock to virtual “concerts” in games such as Fortnite, it’s clear that the reality lines are already blurring.
Which brings us to the recent announcement by Manchester City FC and Sony that they are working towards rendering an accurate metaverse version of the Premier League champions’ home stadium, the Etihad, which could be visited by fans around the world through their avatars. Sony, which describes the project as a proof-of-concept, is already significantly embedded in sport, and with huge interests in music, games and entertainment, is attempting to plant flags in the spaces that it believes consumers will eventually arrive at en masse.
Even so, the company is still supremely cautious over where this joint project is heading and what the implications for football fandom might be. Given the highly complex nature of football screening rights, for example, Sony cannot yet comfortably talk about whether the digital twin Etihad could eventually become a venue for huge numbers of global fans. Everything about the company’s approach, though, suggests it is setting things up for precisely that outcome.
For now, let’s assume that something along these lines is indeed what Sony, Manchester City and many other sports clubs (not just in football) have in mind. The virtual stadium, which looks likely to be free for now, is an exercise in the elusive “fan engagement” that clubs so desperately want to get right out of fear that the old guarantees of an audience are gone. These clubs are obsessed with enlarging their fanbases and gaining loyalty (and income) from a younger generation that spends a lot of time watching stuff, but in small, self-curated chunks in which a 90-minute football match must compete for a spot. Sony itself says it is aiming to bring the “club and its global fans closer together”.
It is in this space that future friction may occur. The idea of the Super League is dormant, rather than dead. It was forced into retreat last time because those protesting in Liverpool, Manchester and Madrid were the fans “closest” to the clubs. In a new and perhaps not terribly distant world, where every major club also has a virtual twin stadium, the global fan base will not only feel closer, but also be regarded as such by the game’s decision-makers.
The potential migration into metaverse stadiums is beginning at a time when increasing numbers of consumers are less bothered about the distinction between super-realistic digitised experience and hard (and perhaps dangerous or inaccessible) reality.
Somewhere down that line, an individual’s physical presence in a real stadium becomes a much lower-value testament of their fandom than it is at present. They may see the real thing as infinitely more fulfilling, but when reality stops being quite so easily defined, who, at that point, are the “real fans” and will they be able to make as effective a stand against change they do not like?
For now, the tribal language of sport ensures that “real fans” conjugates as an irregular verb: we are, you might be, they aren’t.
The metaverse may, among its many promises to transform life as we know it, be poised to end that grammatical quirk.
>>> Up
* Allianz Raised to Outperform at Exane; PT 250 euros
* Darktrace Raised to Overweight at Piper Sandler; PT 600 pence
* Ipsen Raised to Buy at SocGen; PT 94.30 euros
* Ipsen Raised to Buy at SocGen; PT 94.30 euros
* Julius Baer Raised to Market Perform at KBW; PT 66 Swiss francs
* Restaurant Group Raised to Buy at Berenberg; PT 125 pence
* UBS Group Raised to Outperform at KBW; PT 19 Swiss francs
* WH Smith Raised to Buy at Berenberg; PT 1,900 pence
>>> Down
>>> Down
* Banco Santander Cut to Sector Perform at RBC; PT 3.40 euros
* Cellectis ADRs Cut to Equal-Weight at Wells Fargo; PT $16
* Credit Suisse Cut to Underperform at KBW; PT 9.80 Swiss francs
* Generali Cut to Neutral at Exane; PT 21 euros
* Italgas Cut to Sell at Citi; PT 5.70 euros
* Johnson Matthey Cut to Market Perform at Bernstein
* Lundin Energy Cut to Hold at Jefferies; PT 358 kronor
* Lundin Energy Cut to Hold at Jefferies; PT 358 kronor
* On The Beach Cut to Hold at Berenberg; PT 320 pence
* RELX Cut to Neutral at Citi; PT 2,450 pence
* Terna Cut to Neutral at Citi
* Vifor Pharma Cut to Hold at Stifel; PT 164 Swiss francs
>>> Initiation
>>> Initiation
* Alfen Rated New Buy at Bryan Garnier; PT 105 euros
* Anpario Rated New Buy at Canaccord; PT 800 pence (+)
* Azelio Rated New Neutral at Bryan Garnier; PT 23.40 kronor
* Duerr Rated New Outperform at Oddo BHF; PT 53 euros (+)
* GEA Group Rated New Outperform at Oddo BHF; PT 59 euros (+)
* Hydrogene de France SACA Rated New Neutral at Bryan Garnier
* Hydrogene de France SACA Rated New Neutral at Bryan Garnier
* Jungheinrich Rated New Underperform at Oddo BHF; PT 51 euros (+)
* Kion Rated New Outperform at Oddo BHF; PT 124 euros (+)
* Krones Rated New Underperform at Oddo BHF; PT 102 euros (+)
* Stellantis Rated New Sector Perform at RBC; PT $19.26
* Swedish Stirling Rated New Buy at Bryan Garnier; PT 22 kronor
>>> Call
>>> Call
* Goldman Strategists Say Rising Rates May Favor European Equities
* Berenberg Shuffles U.K. Leisure Coverage, Pandemic Recovery Key
* Berenberg Shuffles U.K. Leisure Coverage, Pandemic Recovery Key
* Sodexo Keeping FY Guidance Should Be Taken Well: Bernstein (+)
* Italgas, Terna Cut, Snam Remains Sell on Full Valuations: Citi
* Johnson Matthey Downgraded at Bernstein on Lack of Catalysts
* Next Is Well Placed to Beat Guidance, RBC Says
* RELX Cut to Neutral at Citi, Should Consider Sale of Exhibitions