Closing Stock Market SummaryThe S&P 500 decreased 0.2% on Wednesday in an indecisive session that was attributed to the uncertain outcome of stimulus talks. The Nasdaq Composite (-0.3%) and Dow Jones Industrial Average (-0.4%) posted comparable declines, while the Russell 2000 underperformed with a 0.9% decline.
After making progress in negotiations yesterday, House Speaker Pelosi said she was feeling optimistic and still wanted an agreement before the election. Negotiations continued today without a clear indication of the next steps, though. On a related note, the Senate failed to pass a $500 billion stimulus bill today, as expected.
Essentially, stimulus was a non-story today. One of the more interesting developments was the strong performance of the communication services sector (+1.3%), which was powered by Alphabet (GOOG 1593.31, +37.38, +2.4%), Facebook (FB 278.73, +11.17, +4.2%), and Twitter (TWTR 50.23, +3.88, +8.4%) following stellar earnings results from Snap (SNAP 36.50, +8.05, +28.3%).
Obfuscated was the 7% decline in Netflix (NFLX 489.05, -36.37, -6.9%), which missed subscriber estimates. Elsewhere, the energy sector dropped 2.0% amid lower oil prices ($40.03/bbl, -$1.48, -3.6%), and the industrials sector fell 1.0% amid broad-based selling.
Separately, Verizon (VZ 56.75, -0.50, -0.9%), Abbott Labs (ABT 105.93, -2.43, -2.2%), and Texas Instruments (TXN 146.13, -4.70, -3.2%) closed lower despite each reporting better-than-expected earnings results and providing upbeat guidance. PayPal (PYPL 213.07, +11.11, +5.5%) pleasantly surprised investors by implementing cryptocurrency services.
In the Treasury market, the 10-yr yield increased for the fifth straight session, closing two basis point higher at 0.82% on growing expectations for inflation resulting from another stimulus package. The 2-yr yield was unchanged at 0.15%. The U.S. Dollar Index fell 0.5% to 92.64.
Wednesday's economic data was limited to the weekly MBA Mortgage Applications Index, which decreased 0.6% following a 0.7% decline in the prior week. Looking ahead, investors will receive the weekly Initial and Continuing Claims report, Existing Home Sales for September, and the Conference Board's Leading Economic Index for September on Thursday.
- Nasdaq Composite +28.0% YTD
- S&P 500 +6.3% YTD
- Dow Jones Industrial Average -1.2% YTD
- Russell 2000 -3.9% YTD
UMG IPO/Vivendi: not going for a song
Investors have growing confidence in €30bn valuation ascribed to music company
Vincent Bolloré’s Vivendi has hit the right notes to get investors bobbing along to his tune. The French media conglomerate said streaming revenues in the third quarter rebounded sharply and confirmed a public offering of its main asset Universal Music Group for 2022. Investors, who were previously sceptical, have growing confidence in the €30bn valuation ascribed to the world’s largest music company.
Digitisation was at first a curse rather than a blessing to music rights holders. Piracy hit CD sales. Now streaming — thanks to the convenience of services such as Spotify — has created a new business model.
A pandemic-induced slowdown earlier this year raised questions over whether streaming was as defensive as fans claimed. But UMG, reporting via Vivendi’s numbers, showed revenues have returned to growth of 23 per cent year on year. That supports the €30bn price tag implied by Vivendi’s sale of a one-tenth stake in UMG to China’s Tencent earlier this year.
The successful initial public offering of Warner Music is further proof of concept. The US group came to market over the summer for almost $16bn. Its current enterprise value is 21 times forward ebitda. UMG is widely expected to attain a premium to its smaller rival. Expect Tencent to take up its option for an additional 10 per cent of UMG.
The big question is what Mr Bolloré will do with the cash from selling shares in UMG. High valuations in video games may prohibit a deal. Moreover, Ubisoft, the studio behind Assassin’s Creed, rebuffed Vivendi in 2018. Bernstein’s Matti Littunen would like to see broadcaster Canal+ expand. He thinks the satellite operator has an edge in parts of Africa, where internet penetration is likely to remain low for years.
The UMG float should crystallise some value. Vivendi’s market capitalisation of some €28bn ascribes almost no worth to the group’s remaining assets. A current conglomerate discount of 19 per cent is above the long-run average of 10 per cent, says Barclays. Expect further interest in UMG to fine tune the discount.
Ferragamo family explores stake sale to drive Italian fashion brand revamp - sources - Reuters News
21-Oct-2020 16:41:43
Adds share price reaction, detail
By Pamela Barbaglia and Claudia Cristoferi
LONDON/MILAN, Oct 21 (Reuters) - The family owners of Italian fashion house Salvatore Ferragamo SFER.MI have held informal talks with financial investors to sell a minority stake in their holding firm as they seek to turn around the luxury brand and cope with the fallout of COVID-19, five sources told Reuters.
The company's chairman Ferruccio Ferragamo, son of late founder Salvatore, held the talks some time after the summer, offering about a 20% stake in the holding vehicle that controls the Milan-listed business, banking and private equity sources said on condition of anonymity, as the matter is confidential.
A spokeswoman for the company - which has a market value of 2 billion euros ($2.4 billion) - denied that the Ferragamo family planned to sell the stake.
The sources told Reuters that the family is still in the preliminary stages of testing market appetite, and that a deal might face resistance from investors since the family is not willing to give away any governance control.
Shares in Ferragamo were up 11% at 1428 GMT and were automatically halted from trading after Reuters first reported on the talks.
The Florentine leather goods brand saw its revenues plunge 60% in the second quarter, piling pressure on its family members - who control an overall 65% - to turn around the business. (Full Story)
"They have been calling around for a few months, targeting both private equity investors and sovereign wealth funds for a minority deal," one of the sources said.
A stake sale to deep-pocketed financial investors would help resolve internal disagreements over the company's turnaround strategy, allowing some of its family members to cash out, the sources said.
However, the Ferragamo family is not willing to give away any governance control, the sources said, making a deal less attractive for private equity investors who could alternatively buy more liquid shares on the market.
"Most investors would demand a big discount or at least some governance control to buy directly into the family holding rather than on the market," one of the sources said.
Some sovereign wealth funds such as Singapore state investor GIC and Temasek, as well as the Qatar Investment Authority (QIA), are also being targeted as possible investors due to their long-term investment strategy, the sources said.
Temasek teamed up with Dufry's chairman Juan Carlos Torres in 2016 to buy a stake in the family holding of Italian luxury firm Moncler.
Iberdrola is making a punchy early call on the U.S. election. The $8.3 billion including debt that the Spanish utility is paying for Texas and New Mexico-focused PNM Resources points to meagre returns. But with Joe Biden potentially in the White House and oil majors rushing into renewable energy, choosing to expand in a windy and sunny corner of the United States right now is far from unwise.
Even though PNM’s board gave a whole-hearted thumbs up to the $82 billion Spanish company’s approach, its shareholders will hardly be exultant. Iberdrola’s $50.3 per share offer is just 10% above Tuesday’s closing price – and 10% below PNM’s pre-coronavirus high in February.
That said, Iberdrola is not buying on the cheap. The deal values PNM at more than 14 times last year’s EBITDA, compared to just over 11 times for the average U.S. utility. Based on zero synergies – a reasonable assumption given the lack of geographic overlap between PNM and Iberdrola’s $17 billion listed subsidiary Avangrid – a 21% tax rate and this year’s forecast $323 million of additional operating profit, Iberdrola Chief Executive Ignacio Galan only gets a return on investment of around 3%. That’s measly even against utilities’ lowly cost of capital.
Yet buying PNM now still makes sense. New Mexico’s geographical position means it ranks third among U.S. states for wind and solar energy potential, and a population of just 2 million people means few planning headaches. If Biden wins in November and follows through on Democrat promises to reinvigorate the U.S. economy via a green-investment boost, the value of green assets could rise.
There’s another breeze blowing in Iberdrola’s direction. Oil majors like Total and BP, which already operates 1.7 gigawatts of U.S. wind farms – enough for 450,000 homes – are rushing into renewable energy to offset the potential demise of hydrocarbons. Hitting their combined target of 55 GW of wind and solar energy capacity by 2025 will be tough without acquisitions. With a market value almost equal to Total and 50% more than BP’s, Iberdrola is issuing a reminder that it can be a buyer as well as a seller.