WSJ : Auto Makers Start 2021 Strongly Despite Supply Constraints

Auto Makers Start 2021 Strongly Despite Supply Constraints
Sales pace approaches pre-pandemic levels as the industry cuts production because of shortages in chips and other crucial parts

Auto makers are reporting a jump in U.S. vehicle sales in the opening months of 2021, boosted by continued consumer demand and some easier year-ago comparisons, but chip shortages and other supply-chain snags threaten to derail that momentum.

Overall, U.S. auto sales rose 11.3% for the three-month period, according to industry data firm Wards Intelligence. The industry’s annualized selling pace in March could hit 16.8 million vehicles, according to Wards, a sign that the level of demand is about on par with what it was before the Covid-19 pandemic.

The increase is in part being driven by the collapse in business at the end of March 2020, when the economy began to shut down to limit the spread of the coronavirus.

Auto-industry sales in January and February were still off 3.3% and 13%, respectively, according to automotive-data firm Motor Intelligence. March sales, however, are expected to leap, with car companies posting double-digit gains for the month compared with a year earlier, industry forecasts show.

For the U.S. car business, it has been a choppy start to the year. A global shortage of semiconductors has disrupted production at many U.S. factories, hitting car-company earnings and leaving dealerships with lower inventory, particularly on popular trucks and sport-utility vehicles. Then, in February, winter storms in Texas further disrupted the production of plastics used in seat foam and other materials, adding to the industry’s supply-chain woes.


Still, customers kept buying.

“Honestly, the numbers probably would have been even higher,” said Judy Wheeler, Nissan Motor Co. ’s U.S. sales chief. “Between the chip shortage and the weather—it definitely did have an impact.”

Nissan reported a nearly 11% increase in U.S. sales for the first quarter.

Among the U.S. car companies, General Motors Co. on Thursday posted a nearly 4% increase in its U.S. sales for the January through March period and said it expects auto demand to remain strong throughout the year.

Stellantis NV, formerly Fiat Chrysler Automobiles, reported a 5% increase in U.S. sales during the first quarter, and Ford Motor Co. ’s U.S. sales were near flat for the period, according to company figures.

Toyota Motor Corp. and Honda Motor Co. , which weren’t hit by the chip shortage until later in the quarter, said U.S. sales in the first quarter increased 22% and 16%, respectively.

Meanwhile, South Korean auto maker Hyundai Motor Co. said it was able to keep U.S. dealer inventory steady during the first quarter, and reported a 28% increase in sales.

New-vehicle demand is expected to grow in the coming months as the car business hits the busy spring-selling season and the distribution of new stimulus checks puts more money in shoppers’ pockets.

Tight inventory levels didn’t have much of an impact on buyers in the first quarter, but that is likely to change in the coming months, Cox economist Charlie Chesbrough said.

Already, at the end of February, vehicle stock levels at dealerships and in transit were down 26% compared with a year earlier, according to research firm Wards Intelligence. That is near the lows reached last summer when auto makers were starting to recover from the pandemic-related factory closures in the spring.

Ford said Wednesday that it would halt production in April at several U.S. factories, including its two major truck plants.

Stellantis, the maker of Jeep, Ram and Chrysler, said it would halt production at five North American plants through mid-April, following other major car companies that have paused work at factories in the region because of parts shortages and backups at West Coast ports.

While demand continues to outstrip supply, car companies have pulled back on deep discounts offered early in the pandemic and consumers are spending more to drive off the lot in a new ride.

The average price paid for a new vehicle in the first quarter was $37,314, the highest ever recorded for the quarterly period, according to J.D. Power.

Some dealers worry the extended inventory shortages could disrupt some important new-model launches this year.

Joe Shaker, owner of Shaker Automotive Group, which has stores in Connecticut and Massachusetts, said he is most concerned about any delays of long-awaited vehicles such as the Ford Bronco and Jeep Wagoneer.

“We’ll keep battling through and hopefully be better for it when we’re on the other side,” Mr. Shaker said of the inventory crunch.

Jeff Dyke, president of Sonic Automotive Inc., a publicly traded dealership chain based in North Carolina, is more optimistic. Mr. Dyke said that while sales during the summer months could be lean as dealers restock, he is encouraged by the strength in demand throughout the pandemic.

“As we roll into the third and fourth quarter, this too shall pass,” he said.

WSJ : TSMC to Invest $100 Billion to Increase Semiconductor Output

TSMC to Invest $100 Billion to Increase Semiconductor Output
The investment to meet surging demand builds on a record annual capital-expenditure budget for the world’s largest contract chip maker

TAIPEI— Taiwan Semiconductor Manufacturing Co. TSM 5.51% , a major chip supplier to Apple Inc., said it would invest $100 billion over the next three years to increase production capacity as demand surges.

The planned investment is a record for the world’s largest contract chip maker as well as the broader industry, analysts said, at a time when chips are in short supply around the world. In a statement, the company said it expects strong demand over the next several years, a trend driven by growth in 5G and high computing capabilities and accelerated by the Covid-19 pandemic.

“TSMC is working closely with our customers to address their needs in a sustainable manner,” the company said Thursday.

In a letter to clients seen by The Wall Street Journal, Chief Executive C.C. Wei said that the company hadn’t been able to keep up with demand over the past year despite running its fabrication plants at over 100% utilization. Mr. Wei wrote that TSMC had started hiring thousands of new employees, and planned to both build new fabs and expand existing ones.

The $100 billion allocation for the next three years would be more than double what the company spent in the previous three years, according to New Street Research analyst Pierre Ferragu.

In January, TSMC announced a record capital-expenditure budget for 2021 of $25 billion to $28 billion to develop advanced chips and building plant capacity.

Other chip makers are also pouring money into increasing capacity, though none as heavily and quickly as TSMC. Intel Corp. recently said it would spend $20 billion on two new chip factories in the U.S., starting in 2024. The semiconductor giant had lagged behind competitors such as TSMC and Samsung Electronics Co. in market share and technology capabilities, leading to the ouster of Bob Swan as chief executive.

Samsung plans to invest about $116 billion by 2030 to further diversify its semiconductor production. Globalfoundries Inc., a major U.S.-based contract chip maker, has said it is doubling its capital investment this year to boost capacity.

Semiconductors are an important component in many consumer goods from phones to cars, and the pandemic created new demand for electronics such as work-from-home equipment and gaming consoles. As a result of the supply constraints, auto manufacturers such as Ford Motor Co. and Volkswagen AG VOW -0.84% have halted production of vehicles that use chips for functions such as engine management, automatic braking and assisted driving.

The shortage has also highlighted the supply chain’s dependence on TSMC and Taiwan’s semiconductor industry. President Biden’s $2.3 trillion infrastructure plan included $50 billion for the U.S. semiconductor industry in an effort to mitigate reliance on overseas suppliers.

TSMC said last year, in a decision praised by the Trump administration, that it would invest $12 billion to build a chip factory in Arizona with the support of the federal and state governments. The two factories that Intel announced in March will also be built in Arizona.

FT : England’s elite private schools face reputational damage over sex claims

England’s elite private schools face reputational damage over sex claims
Lawyers warn of wave of litigation for some of country’s best-known educational establishments

England’s leading independent schools could face legal claims and reputational damage over claims of sexual abuse, after youth-led campaigns alleged that misogyny, sexual violence and harassment flourished among pupils in their care.

Top London schools, including Dulwich College, Kings College Wimbledon and Westminster, have now set up formal investigations into alleged “rape culture”, after Everyone’s Invited, an online platform, published more than 12,000 accounts of sexual abuse against young people, often involving peers. 

This week, Gavin Williamson, education secretary, announced an emergency inquiry, asking state school inspectorate Ofsted to examine welfare, inspections and safeguarding in both government and fee-paying schools, and setting up a national helpline for complaints.

While the testimonies on Everyone’s Invited document the problem of rape culture across all of society, including state schools, universities and workplaces, independent schools feature prominently.

Unlike the tax-funded state schools which educate the majority, England’s historic private schools can charge upwards of £20,000 annually and are attended by more than 7 per cent of English children. With world-class facilities, historic buildings and alumni disproportionately represented in powerful positions, many trade on an elite reputation to recruit extensively from overseas or run franchises abroad.

Zan Moon, who attended Benenden boarding school, is among those calling time on a “widespread culture of rape, coercion, slut-shaming and compliance” at “some of Britain’s most elite private schools”. 

After posting a call online last month, the 24-year-old was able to quickly fill 14 pages with testimonies including rape, sharing of nude photos, and sexual assault. In an open letter, she said accounts demonstrated a “worrying pattern of behaviour” at private boys’ schools, where “chauvinism . . . runs deep”.

Benenden, a girls’ school, said it was “looking to take a collaborative approach with boys’ schools” on educating pupils about appropriate behaviour.

St Paul’s Boys School is one all-male institution facing claims that some of its pupils have been part of the mysoginistic culture highlighted by Everyone’s Invited.

In one anonymous account, a girl described how a pupil from the west London school stalked her at her home and dedicated a Twitter account to abusing her. However, when she raised the issue with the school, the then-16-year-old was apparently told “there is nothing we can do”.

“Everyone was supporting him,” the victim wrote. “That was the whole culture of the school.”

St Paul’s said it was taking the allegations “extremely seriously” by notifying authorities, meeting with pupils, and reviewing sex and relationships teaching. “We would always investigate fully matters of this nature,” it said. “We need to ensure that this is a turning point moment for young people.”

Other schools have responded equally stridently. After former pupil Ava Vakil described Kings College Wimbledon as a “hotbed of sexual violence” — and documented dozens of abuses including ranking young women and “stealthing” (removing a condom without consent during sexual intercourse) the school said it was “shocked and appalled” and pledged to carry out a “forensic review”.

Dulwich College said alleged abuse was “distressing and entirely unacceptable” and had commissioned an independent inquiry and was working with victims. Westminister School called the testimonies “harrowing”, and said it was commissioning a review, engaging with authorities including the police, and running a #noexcuses social media campaign to raise awareness of the issue.

“While one school administrator said parents and staff had been “unaware” of the “horrific” extent of alleged abuse, many students are sceptical.

“The priority was to suppress any bad press and ensure that as little harm could be done to their reputation as possible,” Moon said. “The schools want to keep numbers up for Oxbridge and high-paid roles — sexual assault cases getting out will jeopardise all that.”

Andrew Lord, a solicitor at Leigh Day, said the outcry could bring a wave of legal clams, potentially on the grounds of negligence if schools had failed in their duty of care.

“I do think there is perhaps a moment of reckoning,” he said. “It could lead to children finally feeling empowered and speaking to parents [and] to parents feeling they want to take action.”

Richard Sweetman, a solicitor at Irwin Mitchell, said the “overwhelming” number of disclosures was “suggestive of wider cultural and safeguarding issues” which needed to be addressed in both state and independent schools.

“It is really encouraging to see young people coming forward recently,” he added.

At another west London private school, Latymer Upper School, in Hammersmith, a committee of 50 sixth formers are now tackling questions of rape culture, after more than 800 current and former pupils signed a letter describing the school as a “Petri dish” where ideas that normalised sexual abuse could “flourish without consequence”.

Students now working on the issue said the school was being “supportive” and was considering policies including improving awareness of counselling and hiring specialist teachers for sex and relationship lessons.

“The real shift has been from the students and from parents who have said, this has had to change,” Maddy Grantham, 17, said. “This is not just something we want to see as a trend on social media.”

Since the rapid rise of Everyone’s Invited, founder Soma Sara has pushed for a shift in focus from private schools, and the number of reports from other institutions has risen. She said rape culture was a “cultural, widespread, universal problem” — one in which “everyone is complicit”.

Tom Oliver, a 27-year-old former Eton pupil, agrees that rape culture is an issue across society. But he believes that reputation, a drive for achievement, and a lack of pastoral or mental health support could be acting as a driver of the toxic culture in fee-paying, elite schools.

“When your parents are paying 35k a year, you don’t feel you can complain about your welfare,” he said. “A lot of money has been spent on our education — they want to see results, and everything else gets sidelined.”

FT : ‘He never struck me as a big risk-taker’: Bill Hwang blows up

‘He never struck me as a big risk-taker’: Bill Hwang blows up
Fund manager’s comeback ends with fire sale of tens of billions of dollars in stock

In early 2013, Bill Hwang was barred from the US investment business. Authorities alleged his Tiger Asia Management hedge fund had violated promises it made to some of the world’s most powerful investment banks as part of an insider-trading scheme.

A pastor’s son who moved from South Korea to the US as a teenager, Hwang quickly bounced back. Steeping himself in scripture, he set up a family office — Archegos Capital Management — and eventually built up trading positions running into the tens of billions of dollars with Wall Street banks, including some of the ones his old firm was accused of cheating.

In recent days Hwang’s world has unravelled. Banks dumped more than $20bn of stock tied to his derivatives trades, counterparties warned of billions of dollars in potential losses and associates wondered how a quiet, abstentious family man who gave much of his money to Christian causes had wound up as the central figure in a colossal Wall Street mess.

“He never struck me as a big risk taker,” said a Korean businessman who worked with Hwang in New York. “But when you hear the news you wonder what happened that he built such a massive fortune and now it’s being unwound so quickly.”

Hwang’s rise was remarkable. When he arrived in the US, he reportedly did not speak English. In a talk given to Sandy Cove Ministries in Maryland last year, Hwang said he was so out of his element that he did not know how to call emergency services when his father died at the age of 50.

Nevertheless, Hwang made it to the University of California, where he studied economics before earning an MBA at Carnegie Mellon. He began his business career at Hyundai Securities and the now-defunct investment bank Peregrine before cutting his teeth as a trader at Julian Robertson’s legendary hedge fund Tiger Management.

He joined the firm in 1996, according to his LinkedIn profile, and focused his stockpicking efforts on South Korea and parts of east Asia, reporting to Robertson, according to one person who worked with Hwang.

Robertson encouraged his protégé to launch his own firm, prompting Hwang to declare himself an “accidental investor”. He struck out on his own in 2001 with Tiger Asia, a fund seeded by his former boss, and emerged as one of Robertson’s most successful “Tiger Cubs”.

“Bill’s story is a real Cinderella story. He is a devout Christian. He doesn’t even drink beer and has donated a lot of money to churches,” said a close friend of Hwang. “Only months after he moved from Peregrine to Tiger, Peregrine went bankrupt. Everyone who knew him at that time said Bill was blessed and protected by God.”

Hwang, who lives with his family in the leafy suburbs outside of Manhattan, in Tenafly, New Jersey, remains close to Robertson. After the travails of Archegos emerged, Robertson wrote to Hwang, who is now in his 50s, to express his concern, according to a person with knowledge of the matter.

“I’m just very sad about it,” Robertson told the Bloomberg news service. “I’m a great fan of Bill, and it could probably happen to anyone.”

But Hwang had been in trouble before.

In 2012 Hwang had shut down Tiger Asia, which managed more than $5bn at its peak, after it was hit with the insider-trading allegations. He entered a plea of guilty on behalf of the New York-based firm that year to wire fraud charges brought by the Department of Justice and the Securities and Exchange Commission ban followed in January 2013.

Prosecutors said Tiger Asia was allowed to see confidential information ahead of block trades — big stock sales often made at a discount — that were orchestrated by banks including UBS and Morgan Stanley. As part of the arrangement, Tiger promised to keep the information confidential and not trade on it. Instead, the firm entered into short sales from which it earned millions of dollars, the US authorities said.

“This criminal activity by a hedge fund operator, one of the biggest in the world, is unacceptable,” Paul Fishman, the US attorney in Newark, New Jersey, said at the time of the charges in 2012.

Hwang has credited his faith with helping him get through the difficult times. He told Sandy Cove Ministries last year that, after Tiger Asia’s demise, he had listened to recordings of the Bible for hours, with actor Samuel L Jackson as a narrator.

When Hwang re-emerged with a family office, he named it Archegos, an ancient Greek word meaning a leader. In the Bible, Jesus was described as the Archegos, the “author” of salvation.

Hwang also founded the Grace and Mercy Foundation in 2007, where his wife is a director and the co-chief executive of Archegos — Andrew Mills — was the vice-chair. The foundation’s tax records show it made substantial donations to the Fuller Theological Seminary, an evangelical institution where Hwang is a trustee, and the Museum of the Bible.

“My goal is to nurture capitalists that benefit the world that God loves,” Hwang said in an interview five years ago. “Money is a gift that God has given me to share with others.”

Hwang’s downfall last week came after he was unable to meet margin calls on derivatives trades, known as equity swaps, that he struck with investment banks. These instruments gave him a chance to gain from stock positions without having to own the underlying shares himself.

The result was rich in irony. The banks sold shares they held for the swaps in giant block trades. However, instead of offering to sell millions of dollars of shares to Hwang, the likes of Morgan Stanley last week sold billions of dollars worth of stock because of him.

Hwang did not respond to multiple requests for comment. A spokesperson for the fund has said it was “a challenging time for the family office . . . our partners and employees”.

FT : Milk alternative Oatly on a quest to become a £10bn brand

Milk alternative Oatly on a quest to become a £10bn brand
Changing consumer tastes and marketing savvy have propelled the Swedish company towards an IPO

The Swedish brand Oatly surprised Americans in February with an eccentric Super Bowl ad in which its chief executive lustily sang “wow, no cow” while playing an electric piano in a field.

Later this year, the plant milk maker is expected to flash up on a different set of screens: it plans a New York listing that could value the group as high as $10bn.

The ambition of the once-niche brand has raised eyebrows in the food industry, with one executive calling it “plant-based bitcoin”. But the group’s backers point to a shift towards environmentally friendly products among consumers powering sales at Oatly, which is attempting to conquer the Chinese and US markets.

Oatly launched in Sweden in the 1990s, but growth accelerated after chief executive Toni Petersson took over in 2012 and overhauled its marketing, picking fights over sustainability with the dairy industry. It gained an international following after entering the US in 2016, focusing on coffee shops with its “barista edition” whose froth on cappuccinos resembles that of cow’s milk.

The buzz around the brand led to shortages at cafés in 2018, but after the pandemic hit, it rerouted to ecommerce and now expects sales to double to $800m this year. 


Petersson described the oat milk boom as at “the very beginning of the curve”, telling the Financial Times last year that its core generation Z and millennial consumer base would have even more purchasing power in five years.

Oatly is the top-selling oat milk among retailers in the US, Sweden, Germany and the UK, helping oat milk become the second best-selling plant milk in the US after almond, beating once-popular soya, according to data groups IRI, Nielsen and SPINS.


But as demand has grown, so has competition, leading some executives and analysts to question whether Oatly can maintain momentum.

There are now “hundreds of brands” piling in, said Camilla Barnard, co founder of London-based plant milk maker Rude Health. “The [market] is getting really crowded — there seems to be a new oat milk brand every day.”

In addition to the raft of start-ups, international food groups have entered the fray, including France’s Danone, owner of Alpro, and Nestlé, the world’s largest foodmaker, which has dipped its toe in the water with products in Brazil.

One multinational food group executive noted the gulf between Oatly’s potential valuation and the modest multiples usually paid for food and drink companies of about three times revenues. The $10bn figure for lossmaking Oatly “almost seems like plant-based bitcoin”, the executive said.

Plant milk will also face competition from new technology: entrepreneurs are producing synthetic animal-free milk and dairy products using modified copies of cow DNA.

There are also questions about the nutritional value of plant milks. US medical and nutrition groups including the American Academy of Pediatrics have said most children under five should not be given plant milk because most — apart from fortified soya drinks — lack key nutrients found in milk.

David Julian McClements, professor of food science at the University of Massachusetts, said dairy milk has “a really good nutritional profile. Plant milks try to simulate the appearance, texture and mouth feel of real milk but they often lack the nutritional properties.”

As technology improves, plant milks will incorporate more nutrients, but they currently lack essential amino acids present in dairy milk, while sugars in plant milks often have different effects from the lactose in cow’s milk, he added.


Oatly’s growth has been underpinned by funding deals that critics argue run counter to its stated mission.

After a majority stake was bought by a joint venture between state-owned conglomerate China Resources and Belgian family investment group Verlinvest in 2016, Swedish media accused Oatly of hypocrisy, citing China’s environmental and human rights record.

But Oatly’s backers point to the growth opportunities that China Resources brings, given its ownership of thousands of stores and coffee shops. “The big push is going to be in China,” said one.

Daisy Li, associate director in Shanghai at consumer analyst group Mintel, said China’s market for plant milk — seen as healthy, low-fat and high-fibre — had grown rapidly. As in the US, Oatly has grown via coffee shops, but has also had “outstanding sales performance on ecommerce channels”, she said.

More recently, the company faced a backlash on social media as consumers railed against a $200m fundraising led by Blackstone, attacking the private equity group’s sustainability record and chief executive Stephen Schwarzman’s support for Donald Trump.

Fredrik Gertten, a film-maker in Malmo, where Oatly is based, criticises the company for “selling out its values”. “Malmo is a small town. Everybody knows them, I know them. I’ve been proud of the company from my own town . . . [the funding is] very disappointing,” he said.

Oatly’s backers say the controversies have not substantially affected sales. After Blackstone’s investment, the company told critics: “Helping shift the focus of massive capital towards sustainable approaches is potentially the single most important thing we can do for the planet.”

Oatly’s VC backers remain enthusiastic. The company is scaling up production, with three plants running in three countries, two more opening this year — including one in Singapore — and another in the UK due in 2023.

Myrthe van Bijsterveld, a director at Rabo Corporate Investments, said Rabobank would remain an investor after the float. “[Oatly’s growth] will be really out of tie-ups like the one they have with Starbucks, and growth in the US and China,” she said.

For now, the company, which also counts Oprah Winfrey and Jay-Z’s Roc Nation as investors, may have scarcity value on its side in equity markets.

Apart from Beyond Meat, which floated in 2019, stock markets lack large plant-based protein companies, said David Gowenlock at ClearlySo, a London-based financial adviser focused on environmental, social and ethical investments. He said: “Investors can’t back the other foodtech, alt-dairy brands, so demand for Oatly is going to be high.”

At the time of Blackstone’s backing, Petersson admitted there would be “some controversial things around us in future” but said Oatly had no desire to emulate big food companies. He added: “We put ourselves out there, challenging the dairy industry, challenging how companies should think, without being a perfect company . . . [but] these are true values that we have.”

FT : Deliveroo crystallises investor anger over imminent dual-class reforms

Deliveroo crystallises investor anger over imminent dual-class reforms
Advisers now hope companies will reconsider structure after delivery platform’s IPO flop

Deliveroo’s ill-fated initial public offering has cemented investors’ anger over planned reforms to UK listing rules that will make it easier for company founders to keep tight control over their businesses.

The delivery food company failed to win the backing of many of London’s biggest investors, with Aberdeen Standard Investments and Legal and General Investment Management citing concerns about the company’s dual-class share structure among the reasons for avoiding the IPO.

The UK is looking to overhaul its listing rules to allow companies with dual-class shares to be admitted to the London Stock Exchange’s “premium” segment. Under this system, company founders often retain greater voting rights compared with minority investors.

But Tom Powdrill, head of stewardship at Pirc, an adviser to big investors, said he hoped companies and their advisers would now think twice about coming to the UK market with a dual-class share structure, arguing it was clear it had a “negative impact” when it came to attracting domestic investors.

“They are called equities, they should be equitable,” he said.

James Bevan, chief investment officer at CCLA, a UK asset manager, said there was a reticence among British investors “to any system that isn’t one share, one vote”.

“[Companies] have to accept that you want to raise capital, you are going to lose an element of control. There is a delicate balance between control and the appetite to draw investors.”

At Deliveroo, Will Shu, co-founder and chief executive, retains 57 per cent of the voting rights. But minority shareholders complained the structure left them with little protection. Under the current rules, the company did not qualify for a premium listing.

Many other tech companies have opted to list in the US, where dual-class shares are common. The British government, however, has been keen to boost the City’s attractiveness, with Rishi Sunak, chancellor, endorsing Deliveroo’s decision to IPO in London a day after he recommended the series of reforms to loosen listing rules in the UK.

The review by Lord Jonathan Hill said London needed to maintain high standards of governance, but argued that dual shares should be allowed for premium listings, while also recommending safeguards such as a five-year limit.

Powdrill said he was sceptical about whether the push to introduce dual-class shares would encourage more tech listings.

“We want good companies to list. But is it the lack of dual-class structures that are preventing that? I don’t think so,” he said. “[Dual shares] are weakening the shareholder voice.”

His views were echoed by several big investors. Andrew Millington, head of UK equities at Aberdeen Standard Investments, said the UK needed to “be very careful” about how it approached dual-class shares.

“We want the UK to be an attractive place for growing businesses to list. But at the same time the UK corporate governance standards are world leading. For me, what is important is that we don’t water down what it means to have a premium listing,” he said.

Sacha Sadan, director of investment stewardship at LGIM, said the UK’s largest asset manager was lobbying the UK’s financial regulator over the proposals.

“What’s wrong with one share one vote? It has worked for a long time,” he said.

Others, however, warned that founders wanted to be able to retain control over the businesses they had grown. Christian Nentwich, a private equity investor and CEO of fintech Duco, said the results of the Deliveroo IPO and the backlash from big UK investors would be deflating for many working in UK tech.

But he added: “Protests about dual-control structure, about the strategy of burning cash to fuel growth, and so on, are irrelevant — companies can simply list elsewhere.”

Ahead of Deliveroo’s listing, Ophelia Brown, venture investor at Blossom Capital, said the success of food delivery company’s IPO would matter for London’s attractiveness.

“More founders will decide whether to list in the UK depending on how the listing goes.”

FT : Deliveroo failed to deliver, but don’t throw out the calzone with the cardb

Deliveroo failed to deliver, but don’t throw out the calzone with the cardboard
Despite the IPO debacle, retail investors should not ignore future listings

Spare a thought for the Deliveroo customers who went for the company’s latest special offer — the chance to invest in its IPO. They were left wishing they’d gone for a discount pizza instead.

This week’s disastrous flotation, which saw the shares plunge 31 per cent at the opening, has left around 70,000 retail investors licking their financial wounds instead of tucking into a Napoli with extra anchovies (full disclosure: personal favourite).

The failure of London’s most widely-publicised offering since metals group Glencore joined the market in 2011 will send shockwaves through the ranks of savers considering backing some of the other high-profile IPOs expected in London this year.

And it will reinforce the arguments of those City professionals who claim retail savers are best kept away from IPOs because they’re too risky.

But, stretching the metaphor to breaking point, let’s not throw out the calzone with the cardboard. It would be wrong for either investors or policymakers to decide their approach to future flotations on the basis of this mess.

Here’s why: Deliveroo is a debacle largely of its own making. It was priced high. Even at the final reduced offer price of 390p, the company aimed for a multiple of 6.2 times last year’s revenues, compared with listed rival Just Eat Takeaway on 5.7 times. Founder Will Shu and his advisers were looking for a premium when a discount would have been prudent to get the sale away and leave investors a few crumbs on the table.

Deliveroo came to market with the tech wave it is riding losing its force. Well aware of the sell-off in the US, investors on this side of the Atlantic are also increasingly picky. The Hut Group, the highly regarded website operator, is down around 20 per cent this year. So, more to the point, is Just Eat.

Deliveroo has also been hit by ride-hailer Uber’s decision to give its drivers limited employee rights after the UK Supreme Court ruled they couldn’t be treated as self-employed. The move, which will raise costs, rattled other companies in the gig economy, not least Deliveroo.

Finally, influential fund managers took umbrage at Deliveroo’s control structure. Anticipating a likely government move to relax UK governance rules to attract more tech entrepreneurs, the company established a dual-class share structure under which Shu has 58 per cent of the vote but only 6.3 per cent of the financial capital.

Deliveroo can legitimately say it’s only passing through a door opened by chancellor Rishi Sunak. He has welcomed a listings review by Lord Jonathan Hill which backs greater flexibility, including ending some restrictions on dual-share companies.

But this is like a chef boasting that she’s going to satisfy the health and safety inspectors when the customers are boycotting the takeaway. Deliveroo’s advisers should have seen this coming.

To add insult to injury, retail investors who bought up to £1,000 worth of shares each in Deliveroo’s customer scheme cannot sell until next Wednesday. So they’ve plenty of time to rue their misfortune without being able to do anything about it.

But none of this means retail investors should stay clear of other IPOs. The idea of getting into a stock at the start has magic about it. It’s the closest the average saver can get to backing an entrepreneur early; it carries the hope, however remote, of finding the next Apple or Amazon. It’s an emotional appeal, but one worth nurturing at a time when capitalism is under fire and business is often a dirty word.

Of course, IPOs don’t always deliver. In the four years to 2020, IPO stocks on the London main market brought average returns in the first month of trading of 5.2 per cent. That easily beat the FTSE 100 index, which fell 9.6 per cent. But given the volatility often involved in IPOs, as Deliveroo has highlighted, it’s hardly earth shattering. London’s second-tier Aim, which is more volatile than the main market, rose 42 per cent over 2017-20.

The key, as always, is to be comfortable with the risk. IPOs are less predictable than stocks in general, which in turn are riskier than funds. Savers should not let the thrill of the chase blind them to the financial realities, nor bet too much money on one unpredictable delivery.

Private investors rightly complain about the lack of access to IPOs. Companies don’t often set aside stock for the retail market, because it’s easier to focus on the big City funds.

Writing to the Treasury in February, the chief executives of three retail platforms — Hargreaves Lansdown, AJ Bell and Interactive Investor — said that retail investors had been cut out of 93 per cent of London’s IPOs in the three years to October 2020.

“Retail shareholder rights are almost completely ignored when it comes to the vast majority of IPOs, which largely take place between City institutions behind closed doors,” they said.

The Treasury tells me it is preparing its response to the Hill report. We shouldn’t expect radical change. Hill focuses on making the post-Brexit London market more competitive internationally and not on promoting savers’ rights, though he does talk of trying to “empower retail investors”.

But why wait for the government? Bankers are missing a trick. They can do much more under existing rules. London’s financial markets are hardly popular with the general public; they need support, especially when new rules are being written for the post-Brexit economy.

If financiers cannot engage with investors — hardly society’s most anti-capitalist element — with whom can they engage? If they don’t try harder, they’ll be producing pizzas not prospectuses.

>>> US Close Dow +0.52%S&P +1.18% Nasdaq +1.76% Russell +1.50%

Closing Stock Market Summary

The S&P 500 (+1.2%) set intraday and closing record highs on Thursday, topping the 4000 level for the first time, in a relatively broad-based advance. The Nasdaq Composite (+1.8%) and Russell 2000 (+1.5%) outperformed the benchmark index with solid gains, while the Dow Jones Industrial Average (+0.5%) rose modestly. 

There was a confluence of positive developments today. To name a few, the ISM Manufacturing Index for March jumped to 64.7% (consensus 61.2%) from 60.8% in February for its tenth straight expansionary reading, first-of-the-month inflows helped drive equities higher and Treasury yields lower, and the mega-caps provided influential leadership. 

The mega-cap leadership was represented in the outperformances of the S&P 500 information technology (+2.1%) and communication services (+2.1%) sectors, although the energy sector (+2.7%) advance the most. The defensive-oriented health care (-0.2%), consumer staples (-0.2%), and utilities (-0.02%) sectors closed lower. 

The Philadelphia Semiconductor Index (+3.7%) was another pocket of strength after Micron (MU 92.41, +4.20, +4.8%) beat EPS estimates and issued upbeat Q3 guidance and Taiwan Semi (TSM 124.80, +6.52, +5.5%) announced plans to invest $100 billion over three years to expand production capacity.

Energy stocks drew additional support from higher oil prices following an OPEC+ policy meeting. The group agreed to cautiously increase output from May through July with Saudi Arabia easing on its extra 1 million barrel/day cut. WTI crude futures settled higher by 3.8%, or $2.22, to $61.41/bbl.

It was interesting to see buyers return to the Treasury market, and the industrials sector (+0.4%) lag, despite the better-than-expected manufacturing data and President Biden unveiling a $2.3 trillion infrastructure spending plan yesterday.

As noted, first-of-the-month inflows presumably had an influence on Treasury prices, but there might have also been a cautious mindset in front of a three-day weekend that will include the March employment report tomorrow. 

The 10-yr yield decreased seven basis points to 1.68%. The 2-yr yield decreased one basis point to 0.15%. The U.S. Dollar Index decreased 0.4% to 92.90. The CBOE Volatility Index (17.33, -2.07, -10.7%) dropped below 18.00. 

Reviewing Thursday's economic data:

  • Initial jobless claims for the week ending March 27 increased by 61,000 to 719,000 (consensus 679,000) from last week's revised count of 658,000 (from 684,000). Continuing claims for the week ending March 20 decreased by 46,000 to 3.794 mln from last week's revised level of 3.840 mln (from 3.870 mln).
    • The key takeaway from the report is that while claims have been trending in the right direction for months, the overall downtrend continues hitting speed bumps like the unexpected increase that was captured in today's report.
  • The ISM Manufacturing Index for March jumped to 64.7% (Briefing.com consensus 61.2%) from 60.8% in February, reaching a level not seen since late 1983. The dividing line between expansion and contraction is 50.0%. March marked the tenth consecutive month the ISM Manufacturing Index has been above 50.0%.
    • The key takeaway from the report is that the Index reached its highest level in more than 37 years in the March reading, thanks to a growing backlog, rising prices, and low customer inventories.
  • Total construction spending decreased by 0.8% m/m in February (consensus -0.9%) after increasing a downwardly revised 1.2% (from 1.7%) in January. Total private construction spending fell 0.5% m/m and total public construction spending decreased 1.7%.
    • The key takeaway from the report is that construction spending showed a smaller than expected decrease in February despite severe winter weather in many regions of the country.
  • The IHS Markit Manufacturing PMI increased to 59.1 in March from 59.0 in February. 

Looking ahead, the Employment Situation Report will be released on Friday (market will be closed for Good Friday), followed by the ISM Non-Manufacturing Index for March and Factory Orders for February on Monday. 

  • Russell 2000 +14.1% YTD
  • Dow Jones Industrial Average +8.3% YTD
  • S&P 500 +7.0% YTD
  • Nasdaq Composite +4.6% YTD