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Long-awaited project to arrive as soon as January, with just one dollar-backed coin

The long-awaited Facebook-led digital currency Libra is preparing to launch as early as January, according to three people involved in the initiative, but in an even more limited format than its already downgraded vision.

The 27-strong Libra Association said in April that it had planned to launch digital versions of several currencies, plus a “digital composite” of all of its coins. This followed concerns from regulators over its initial plan to create one synthetic coin backed by a basket of currencies.

However, the association would now initially just launch a single coin backed one-for-one by the dollar, one of the people said. The other currencies and the composite would be rolled out at a later point, the person added.

Libra’s exact launch date would depend on when the project receives approval to operate as a payments service from the Swiss Financial Market Supervisory Authority, but could come as early as January, the three people said. Finma said it would not comment on Libra’s application, which was initiated in May. 

First launched in June 2019, the scaling down of Libra’s vision comes as it has received a sceptical reception from global regulators, who have warned that it could threaten monetary stability and become a hotbed for money laundering.

While the restricted scope may appease wary regulators, critics have complained that a move to single-currency coins could hit users looking to convert currencies with additional costs, undermining its ambition to enable greater financial inclusion.

Originally launched by Facebook executives, Libra suffered a difficult birth when a wave of its founding members — including PayPal, Mastercard, Vodafone and eBay — quit over in late 2019 and early 2020 and distanced themselves from the controversial project.

The association then announced in April that it was overhauling its vision to address regulators’ worries, limiting its scope and promising extra measures to police its system for abuse. 

Libra had also come under fire for its close association with the social media network, which has faced multiple privacy scandals. 

But several Libra members said that they believed the appointment of HSBC legal chief and former George W Bush-era terrorism finance tsar Stuart Levey in May as its first chief executive marked a turning point for the project, as it sought to cast itself as independent from Facebook.

Since then, a handful of members have been racing to build and test their own products to launch on top of the digital currency network when it goes live. 

Among them is Novi, the Facebook subsidiary rebranded from Calibra that has been creating a digital wallet to allow Facebook users to hold the Libra currency. 

One person involved in Novi said that the wallet was “ready from a product perspective”, but would not be rolled out everywhere initially, with the company prioritising “half a dozen high-volume remittance corridors” including the US and some Latin American countries.

Novi needed its own licence in each US state, the person said, adding that it had been granted many of these but was still waiting on “as many as 10” — including a New York Bitlicense.

It remains unclear how some of the major members of the consortium — such as Uber and Spotify — plan to wield the currency, with some telling the Financial Times that they would wait to see how it was received after its launch, before investing in use cases.

The news comes as Bitcoin, the original cryptocurrency, rallied to record highs of close to $20,000 this week, amid rising interest in digital currencies from professional investors and central banks, and as the coronavirus pandemic has quickened a shift from cash towards digital payments.

Meanwhile, PayPal, which was the first founding member to drop out of the Libra initiative, announced last month that it would launch support for cryptocurrencies, including at the checkout, with Dan Schulman, chief executive, calling the shift to digital forms of currencies “inevitable”. 

The Libra Association and Novi declined to comment.

Bitcoin rode another ferocious bull run into Thanksgiving this past week, rising 50% over a month, to a new 52-week high of $19,345 on Tuesday.

That was 2% off its all-time high of $19,783 reached in December 2017, soon after the digital asset had been the talk of many a Thanksgiving table.

Bitcoin’s latest surge seems different, however. For one thing, it’s not just millennials who were talking excitedly about cryptocurrencies this Thanksgiving. Long-established billionaires and even public companies are holding Bitcoin now, and are discussing it publicly—a major step in what early Bitcoin adherent Bill Miller called a “march to respectability.” Barron’s took a look at this march in a December 2017 cover story.

These investors are willing to accept Bitcoin’s volatility. (And indeed, within two days of hitting its highs, Bitcoin tumbled 15%.) To them, Bitcoin serves as an inflation hedge because they believe that it will save them from a long period of monetary debasement brought on by the Federal Reserve’s easy money policies.

Gold has historically been the preferred way to hedge against inflation, and the value of gold still dwarfs Bitcoin, with total above-ground gold reserves worth more than $10 trillion to Bitcoin’s $320 billion. Wealthy investors who have money in Bitcoin often say they have continued to bet on gold. Still, gold demand could suffer if Bitcoin captures the attention of the next generation.

There’s some evidence of that happening. On the apps that young people use to invest, Bitcoin is becoming an accepted asset class. Robinhood, Square (ticker: SQ), and PayPal Holdings (PYPL) all allow users to buy digital assets just like stocks, giving one-click access to tens of millions of people.

“Customers are demanding it,” says Anthony Denier, CEO of online trading platform Webull, which got over 100,000 sign-ups to its crypto trading platform in its first week this month.

Those factors—and a gradual acceptance of Bitcoin by regulators—have added up to drive the price steadily, and then ferociously, higher.

“I don’t think there’s any single trigger for it,” says Ari Paul, chief investment officer of digital asset investment manager BlockTower Capital and a former portfolio manager for the University of Chicago’s endowment. “It’s just this accumulation of data points where people see PayPal support, they see public companies buying it in their treasury, they see sell-side research” on Bitcoin, he says.

Some Bitcoin trading still takes place on unregulated exchanges, but an increasing portion is moving to familiar platforms. Bitcoin futures offered by CME Group (CME) have spiked in popularity, with open interest rising 102% this year over 2019 levels, including 221% so far in the fourth quarter. The big money has arrived. The number of traders making bets on at least 125 Bitcoins (over $2 million at current prices) has more than doubled since the start of the year to a record 102 this month.

“That hedge fund manager who doesn’t know much about Bitcoin and has never owned it, they’re actually a week away from buying it,” Paul contends. “We’re at a point in time now where it’s established enough and validated enough that basically if two of their billionaire buddies tell them, and they hear from me for 30 minutes explaining why it might be an interesting value proposition” they’re often ready to make a purchase, he says.

Some billionaire investors remain skeptical. Ray Dalio recently tweeted that Bitcoin is “not very good as a store-hold of wealth,” later adding that he was open to changing his mind. Yet others are believers, and the billionaire whisper network has been a potent force.

In May, prominent hedge fund manager Paul Tudor Jones said that he had bought Bitcoin, and Stanley Druckenmiller announced his purchase in November. Both are the kinds of investors who others rely on for direction in uncertain times.

But the most important proselytizer may be a lesser-known name: Michael Saylor, CEO of business intelligence firm MicroStrategy (MSTR), has taken one of the most aggressive bets yet.

Once a Bitcoin skeptic, Saylor suddenly got interested in March as the government passed Covid-19 stimulus measures and the Federal Reserve cut interest rates and bought assets. MicroStrategy stock had tumbled and was worth $1.2 billion, even though it had $550 million in cash. His investors told him they valued the cash at “literally nothing,” forcing a realization that cash had become a dead weight. Saylor believes that the dollar will lose “anywhere between 10% and 15% every year for the next five years.”

Inflation in the U.S. remains subdued and has been for years. Yet Saylor believes that traditional methods of measuring inflation are inadequate. A more accurate gauge, he says, would involve assets, including “highly desirable” ones like real estate in the Hamptons or a Picasso painting.

What Saylor liked about Bitcoin was that the software controlling it caps the supply at 21 million, so it can’t be debased in the same way as fiat currencies. He bought $175 million of Bitcoin with his own money, and then suggested to the company that it shift its reserves into the digital asset.

To allow skeptical investors to cash out, MicroStrategy launched a tender offer before it bought any Bitcoin. Only then did the company buy Bitcoin, $425 million worth at an average price of $11,111—meaning that it has since gained about 50% on that investment. And Saylor has been spreading the word to other business leaders and wealthy investors.

“Everybody’s got an opinion,” he tells Barron’s. “But I’ve got legitimately $1 billion of skin in the game. And so, if you are considering whether you’re going to invest a billion, or $100 or $200 million, you’re going to want to talk to the person who has $1 billion to lose.”

Bargain hunting has become more accepted in these challenging times, and this has helped boost shares of United Kingdom discount retailer B&M European Value Retail by 42%, to 498 pence ($6.65), over the past six months.

The FTSE 100 stock (ticker: BME.UK), which sells personal-care products, groceries, and low-cost seasonal goods such as gardening equipment and Christmas decorations, has broadened its appeal to wealthier middle-income customers, bumping up its average spend per transaction.

B&M has also benefited from soaring sales of food, home decor, and furniture during the pandemic because it remained open during lockdowns as an essential retailer.

In September, B&M raised guidance for adjusted half-year Ebitda (earnings before interest, taxes, depreciation, and amortization) to 285 million British pounds from a range of £250 million to £270 million. It posted an even higher £295.6 million for its half-year update, with a separate £250 million special dividend. The adjustment removes gains or losses from one-off events, such as profit from the sale and re-leasing of a warehouse.

Historically, B&M’s growth has come from its ambitious store-opening program, which has seen the retailer expand rapidly across the U.K. and France. It had 657 shops in September, and typically opens 40 stores a year.

Even though the stock is up 18% this year, it has been trading at a discount due to concerns over whether B&M can maintain that momentum because of constraints over suitable locations.

A November report by Richard Chamberlain, an analyst at RBC Capital Markets, suggests such worries are unfounded. His note, which includes research from data scientists, shows there is sufficient capacity to roll out enough new stores over the next seven years.

Chamberlain has marked the stock Outperform, estimating a 16% increase to reach his 580 pence target. “We think the market has overestimated the likely fade in profitability for B&M in 2021, and its long-term space potential in the U.K.,” he said.

“Our data-science work suggests B&M offers a strong rollout story in the U.K., and we see upside risk to consensus profit before tax forecasts for this year and next.”

He points to B&M’s product ranges—it replaces its bottom-performing 100 products regularly—and the benefits from a high proportion of directly sourced products, which should see it gain more market share.

Ben Hunt, an analyst at Investec Securities, is even more bullish, forecasting a 26% increase to 630 pence.

B&M, which is registered in tax-efficient Luxembourg, employs about 34,200 and has a market value of £4.8 billion. It fetches 14.8 times this year’s expected earnings and is valued at a 10% discount to its peers.

It posted an adjusted profit before tax of £260 million for the 52 weeks ended March 28, 2020, an increase from £252.4 million from the year before. It had sales of £3.8 billion.

B&M co-founder and CEO Simon Arora said in a recent statement: “We are well placed for the golden quarter [the holiday shopping season] in our main B&M U.K. stores business. Despite the continued uncertainty in the economic environment generally, we are very proud to say that each of the top five store-opening days in our history have all been in stores we have opened in the last 12 months.”

Arora, a Cambridge University law graduate, created Orient Sourcing Services with brother Bobby in 1995, selling soft furnishings to retailers Argos and BHS. They sold that business, and in 2004 bought B&M, which had 21 discount stores with a turnover of £65 million. They expanded to 300 stores in just seven years, with a £1 billion in sales, and began trading shares on the London Stock Exchange in 2014.

Key to sustained growth is the rollout of new stores, and RBC’s Chamberlain has estimated B&M’s potential for additional locations in the U.K., using population and consumer-income criteria.

“Our base case suggests potential for at least a further seven years growth at current expansion rates (net 40 or so per year),” he says, arguing the consensus is 10% to 15% too low. “Historically, its P&L has been more driven by space growth, which should be key to its longer-term rating.”

Greg Lawless, an analyst at Shore Capital, said in a November note that the company “has clearly benefited from essential retailer status and has had a tailwind during lockdown. B&M has been a definite Covid winner,” and the new customers it has attracted “are sticky.”

An increased contribution from France, efficiencies from a new warehouse, and nonrecurring costs associated with Covid-19 means the discounter could be trading at a discount.

Ford Motor is the fifth-largest auto maker in the world based on the number of vehicles it sold last year, but it barely cracks the top 15 in stock market value. The gap says everything about how Ford is viewed today—and the potential opportunity for investors.

Once near the pinnacle of global auto-making in reputation, revenue, and profits, Ford these days is considered by many investors and Wall Street analysts as an also-ran. It’s trailing far behind some of its rivals in the race to produce electric and autonomous vehicles. And even in gas-powered autos, Ford (ticker: F) is struggling to match competitors, such as General Motors (GM) and Volkswagen (VOW3.Germany), on quality and profitability.

Its shares, saddled with a single-digit price/earnings ratio, have been laggards, too, returning a negative 3.9% annually, on average, over the past five years, while the stock market has been pumping out double-digit gains. Ford’s market capitalization recently was $36 billion, versus $65 billion for GM and $95 billion for VW, not to mention Tesla’s (TSLA) more than $550 billion.

Ford’s standing with investors hasn’t been helped by the fact that it is on its third CEO in six years. Its current leader, James D. Farley, faces formidable challenges. The 58-year-old auto industry veteran, who took over in October after serving as Ford’s chief operating officer, must streamline the company’s design and procurement processes, re-establish its “quality is job No. 1” reputation, drive it into an all-electric future, and clearly communicate its strategy. Says Credit Suisse analyst Dan Levy: “Farley has to turn around performance, and make cost improvements on the warranty and material side.”

The good news is that the new boss’ domestic and international experience at Ford and at Toyota Motor’s luxury Lexus brand probably have equipped him to deal with Ford’s quality and efficiency issues, and to lead it into an electric future. If he succeeds, Ford shares could surge. “There is work to be done,” says Benchmark analyst Mike Ward. “But Ford stock can double.”

Despite its recent woes, Ford is still massive, annually selling about $150 billion worth of cars and trucks. Its iconic F-150 pickup has been the top-selling vehicle in the U.S. for nearly four decades.

Sales of that model and its heftier F-250, F-350, and F-450 stable mates helped Ford post adjusted earnings of 65 cents in the third quarter, well above the 19 cents consensus forecast, prompting the company to boost its full-year forecast. It now expects to be profitable in 2020; earlier, it had foreseen a loss.

A redesign of the 2021 F-150, now at dealerships, could help maintain the momentum. So should the launches of the Ford Bronco and the electric Mustang Mach-E. The Bronco, which will be available soon, is a descendant, at least in name, of the truck that was discontinued a quarter-century ago. It will compete with Fiat Chrysler Automobile’s Jeep Wrangler, a darling of off-roading enthusiasts around the world. The Mach-E, which has started shipping, isn’t a coupe like the gas-powered Mustang. Instead, it’s a cross between a sedan and an SUV, with a range, Ford claims, of up to 300 miles.

About a fifth of Ford’s automotive sales—it also has a huge finance unit—comes from its European operations, with the remainder from the U.S., save for a smattering in Asia and South America.

For years, mediocre profitability has bedeviled Ford. It makes money in the U.S., but loses it in Europe and some other markets. Last year, it reported adjusted earnings of $1.19 a share, down from $1.30 in 2018 and, tellingly, about 27% less than it had made six years earlier.

The company doesn’t disclose profits by product line, but the lion’s share of its earnings comes from its North American light-truck business. Ford Motor Credit—the auto-loan unit—is its other big money maker, routinely churning out about $2 billion to $3 billion in annual pretax profit.

Over the past three years, the company has produced about $23 billion in cumulative adjusted operating earnings on sales of $473 billion. That works out to an operating profit margin of about 4.9%. That compares with GM’s and Fiat Chrysler’s (FCAU) 7.6%. BMW (BMW.Germany) and Toyota Motor (TM) generate some of the strongest operating margins in the industry, at 8.8% and 7.9%, respectively.

A big part of the problem is quality, which shows up in Ford’s payments for repairs done under warranty. They totaled close to $13 billion, or about $700 a car, on the 18 million cars it sold over the past three years. GM, in comparison, spent about $9 billion on 26 million vehicles, or around $350 each, in the same span, while Toyota forked over roughly $15 billion, or $555 per vehicle, on almost 27 million cars and trucks. Reducing its warranty costs to GM’s level would save Ford almost $2 billion annually.

Ford’s brass understands the problem and has brought a sense of urgency to addressing it. “We are laser-focused on fixing the automotive operations,” Chief Financial Officer John Lawler recently told Credit Suisse clients.

The operational issues, however, are less of an existential threat than the shift to electric vehicles. To put it plainly: Ford is far behind some other auto makers, especially GM and Volkswagen, in the race to switch from internal-combustion engines to electric motors.

GM plans to spend $27 billion on electrification and autonomous-driving systems by 2025, and to offer 30 all-electric vehicles globally by then. Two years ago, Ford announced that it would spend $11 billion on vehicle electrification, launching 40 EVs by 2022. But there’s a big difference between “electrified”—which covers hybrid and plug-in hybrid cars and trucks, as well as fully electric vehicles—and “electric,” which denotes only vehicles fully powered by batteries.

Ford has focused on adding hybrid technology to existing platforms. That improves fuel efficiency, but adds complexity. And, as battery costs fall, hybrid vehicles look less like an answer. EVs certainly are coming to Ford—the Mach-E is now shipping—but the Dearborn, Mich.–based car maker is playing catch-up.

Its plight, however, should be eased by an alliance that it has negotiated with Volkswagen. Under it, the two will jointly develop eight million cars and trucks, with Ford responsible for some commercial vehicles and VW supplying electrification technology and small-car expertise. The deal will save cash for both companies.

Ford said that it couldn’t provide Barron’s with access to its leaders before the Thanksgiving holiday, but a representative commented, “The partnership is part of our plan to be more capital-efficient and assure access to expertise, our own and from others. We will design an EV for Europe on Volkswagen’s platform.” (There has been speculation about the companies more closely allying, perhaps eventually even merging, but both have denied such a possibility.)

Better capital allocation and sharing platforms could help the U.S. car maker bolster its profits. Ford is targeting operating margins of 10% in North America, 6% in Europe, and 8% overall. An 8% global margin over the past three years would have produced $15 billion in additional operating income. The opportunity for improvement is enormous.

In addition, Ford already has announced billions in cost-cutting programs that are at various stages of implementation. In North America, responding to consumers’ continuing shift to sport utility vehicles, crossovers, and pickups, Ford has stopped making sedans. In fact, it now sells only one car in the U.S.—the gasoline-powered Mustang.

That makes sense. Ford sold about 2.1 million trucks in the States in 2019, versus just 350,000 cars. And each platform—the basic structure, including the body and suspension, underpinning a vehicle—adds costs. From now on, Ford will employ just five global platforms, versus nine in 2017 and 30 in 2007.

A pressing need for the U.S. auto giant is to fix its European operations. Ford Europe has lost money in two consecutive years. To hit its profit goal in the region, Ford must wring out $1 billion to $2 billion in annual costs, without compromising quality.

A big plus is the company’s leadership overseas in commercial vehicles, such as vans. In Europe, Ford has about a 14% share of the commercial market.

And trucks are where Ford is focusing its electrification push. The company is launching electric versions of its popular Transit delivery van in 2021, and the F-150 in 2022. And the Rivian, an all-electric pickup truck from a start-up in which Ford took a $500 million stake last year, could arrive before the F-150.

“Our electrification strategy plays to our strengths, pickups, vans, performance vehicles, utilities—segments where we are strong, segments where margins are good,” said Ashwani Kumar Galhotra, president of Americas & International Markets Group at Ford, at a recent investor conference. “Our F-Series vehicles have been bestselling vehicles for 43 years, and an all-electric F-150 will be a great addition to that portfolio.”

Vehicle electrification should help Ford deal with its problems in Europe, a market that GM has almost entirely abandoned. Climate change and pollution reduction are major issues there. Some European governments offer tax and other incentives to encourage sales of EVs. This should aid sales of Ford’s electric Transit vans. Ford even believes that it eventually will be able to generate revenue by selling regulatory credits linked to commercial vehicles that exceed emission-control standards. Over the years, Tesla has sold about $3.5 billion in credits earned by its zero-emission electric vehicles. Without them, it would have been hard-pressed to report any profits.

In Europe, Ford already exceeds emission standards for commercial vehicles. But it hasn’t been able to meet the standards on the passenger-vehicle side, in part because of problems with its Kuga plug-in hybrid crossover, a European version of the Ford Escape sold in the U.S.

Despite its grand plans, Ford hasn’t convinced Wall Street that its electrification campaign will be broad or swift enough to meaningfully boost its future prospects.

Its stock was downgraded to Equal Weight from Overweight by Morgan Stanley analyst Adam Jonas this past week, partly because, he says, he doesn’t have a clear grasp of Ford’s EV strategy. Right now, no one knows whether an electric F-150 will be profitable and, if so, how much revenue and profit it’s likely to generate. Indeed, one of Farley’s big challenges is to persuasively communicate Ford’s goals for electrification, particularly its effect on margins. If investors doubt that the auto maker is on the right track, its shares will keep spinning their wheels.

Ford doesn’t need to immediately make a big splash in electrification for the stock to be a winner. Value investors point to Ford’s dismal valuation as a reason to own the stock, which trades at about nine times next year’s estimated 2021 earnings of $1.04 a share. But the company’s renewed focus on improving operations, and the continuing rebound in U.S. car sales, could push profits much higher.

If Ford hits its margin goals of 8%, it could generate $10 billion to $11 billion, or $2.50 to $3 a share, in net income, says Benchmark’s Ward. If it could command just its five-year average of seven times earnings, the stock could trade above $20. Producing earnings that high might be a stretch. But if Ford manages to raise profits to even $2 a share—a number it approached in 2015—a P/E of seven would put its shares at $14, more than 50% above its recent close of $9.08.

Ward has an $11 target on Ford—nine times his estimated 2021 earnings of $1.25 a share—but he is bullish on the future beyond 2021 and believes that the stock could hit $20 again.

Not everyone is sold of the company’s outlook. “The near-term fixes might not be enough,” Credit Suisse’s Levy warns. “[Farley] has to prove Ford is ready for electrification.”

The alliance with Volkswagen should help that. And if the Mach-E sells well, and the Rivian is a success, investors might start to give Ford some electric cred.

The auto maker has another big thing going for it: a solid balance sheet.

In normal years, Ford generates billions in annual free cash flow. While it had negative adjusted cash flow of $5.3 billion in this year’s Covid-battered second quarter, that rebounded to a positive $6.3 billion in the third.

A lot of Ford’s cash has been used to trim debt or fortify its pension plans, which have gone from less than 80% funded a decade ago to more than 90% funded now. This means that Ford will need to put only a manageable amount into them in the future; $1 billion a year looks sustainable.

In addition, the corporation’s net debt position has fallen by about $24 billion since the 2008-09 financial crisis. Ford’s core automotive operations now have $24 billion in obligations and $29.5 billion in cash.

All of this has freed up cash for investments and, when the pandemic eases, restoration of share buybacks and dividends. Many investors probably don’t realize this; it’s another important point that Farley & Co. must emphasize to investors. (For more on Ford’s payout prospects, see “GM and Ford Could Start Paying Dividends Again. What It Means for Their Stocks.”.)

A comeback is no slam-dunk. But the car maker’s financial strength gives it some time to figure out the transition to battery-powered vehicles and to raise profitability. If Farley’s team gets it right, the stock could shed the single-digit multiple that has dogged it for years. For Ford shareholders, that would be truly electrifying.

The hotel favoured by movie stars, rock stars and Winston Churchill is reopening after a major refurbishment