FT : Hedge fund Marshall Wace takes large stake in BA owner IAG

Hedge fund Marshall Wace takes large stake in BA owner IAG
Bet is sign London-based group believes there is value in UK stocks despite pandemic

Hedge fund Marshall Wace has taken a large stake in British Airways owner IAG, one of the first big investment groups to bet on a sector battered by the coronavirus pandemic.

The London-based group, one of the world’s largest hedge funds with about $48bn in assets, disclosed a 3 per cent holding on Wednesday. Marshall Wace and IAG declined to comment on the trade.

The bet is a sign the group believes there is value in UK stocks, said a person familiar with its thinking.

Hedge funds have been looking at sectors savaged by the coronavirus pandemic such as airlines in recent months as they hunt for bargains in the wake of plunging share prices.

IAG’s shares have tumbled 60 per cent to 98p since the end of February as the collapse in passenger numbers has forced it into survival mode, along with other airlines.

The company, which owns carriers including BA and Iberia, launched a discounted €2.75bn rights issue last month to cope with second quarter losses.

Some funds have profited from well-timed bets in the airlines and aerospace sectors. Dan Loeb’s Third Point made money from buying Boeing bonds this year.

Some hedge funds also built up short positions against IAG ahead of its rights issue, according to data from IHS Markit, which are likely to have proved profitable as the shares fell.

However, other funds have been burnt, creating wariness over betting on an industry that may take years to recover. Lansdowne Partners chalked up big losses in its main hedge fund this year in part due to airline bets.

Said Tazi, senior portfolio manager at Syz Private Banking, said airline stocks had fallen “probably for good reasons”.

He added: “Let’s remember that, even in normal times, most airlines have not performed well relative to the market.

“The economics of the industry are unappealing: tough competition, high capex, strong unions, and of course oil price volatility.”

Richard Marwood, a fund manager at Royal London Asset Management, said airlines had a “speculative appeal” as a bet on the long-term recovery from the pandemic.

But he has remained on the sidelines because he considers airlines volatile businesses, even at the best of times; it was also tricky to forecast how quickly the industry could recover.

On Monday, IAG installed new leadership at BA, its largest airline, replacing Alex Cruz with Aer Lingus boss Sean Doyle as it struggles to turn its business round.

Airlines have been slashing costs and raising capital for more than seven months, but are heading into the lean northern hemisphere winter in weak shape.

Industry body Iata warned this week that its forecasts for industry losses of more than $80bn this year were too conservative, given an expected recovery had not materialised, and it called for more government support.

WWD : Joseph Names Anna Lundbäck Dyhr and Frederik Dyhr as Co-Creative Directors

Joseph Names Anna Lundbäck Dyhr and Frederik Dyhr as Co-Creative Directors
Anna Lundbäck Dyhr and Frederik Dyhr will be based in the Paris design studio and workshop.

PARIS — Joseph has named Anna Lundbäck Dyhr and Frederik Dyhr as co-creative directors, based in the Paris design studio and workshop.

“We are excited to be able to work side-by-side and to have the opportunity to continue building on the brand’s success,” the husband-and-wife team said Wednesday.

Joseph had named Susan Clayton creative director in 2018, following the departure of her predecessor, Louise Trotter, who moved to Lacoste. Clayton had worked a minimalist style for the label with loose, masculine tailoring in rusty, solid colors.

Anna Lundbäck Dyhr joined Joseph in November 2018. She previously held senior design roles at Bottega Veneta, Lanvin, Uniqlo U and Cos. Frederik Dyhr, who joined the company last month, was creative director for men’s wear at Tommy Hilfiger and has also held design roles at Belstaff and Burberry.

“They have an impressive range of experience and expertise. Together they bring an invaluable combination of creativity and commercial thinking,” noted Barbara Campos, chief executive officer of Joseph.

The pair will share responsibility for women’s ready to wear and accessories collections, the label said.

Prada is a high-profile example of a fashion label that has put a design team at the head, with Raf Simons joining Miuccia Prada earlier this year.

Luke and Lucie Meier, a husband-and-wife design team, have given Jil Sander a jolt of sensuality, femininity and chic minimalism since taking over the label in 2017.

WWD : Porsche, Gucci and Louis Vuitton Top Most Valuable Luxury Brands’ Ranking

Joseph Names Anna Lundbäck Dyhr and Frederik Dyhr as Co-Creative Directors
Anna Lundbäck Dyhr and Frederik Dyhr will be based in the Paris design studio and workshop.

PARIS — Joseph has named Anna Lundbäck Dyhr and Frederik Dyhr as co-creative directors, based in the Paris design studio and workshop.

“We are excited to be able to work side-by-side and to have the opportunity to continue building on the brand’s success,” the husband-and-wife team said Wednesday.

Joseph had named Susan Clayton creative director in 2018, following the departure of her predecessor, Louise Trotter, who moved to Lacoste. Clayton had worked a minimalist style for the label with loose, masculine tailoring in rusty, solid colors.

Anna Lundbäck Dyhr joined Joseph in November 2018. She previously held senior design roles at Bottega Veneta, Lanvin, Uniqlo U and Cos. Frederik Dyhr, who joined the company last month, was creative director for men’s wear at Tommy Hilfiger and has also held design roles at Belstaff and Burberry.

“They have an impressive range of experience and expertise. Together they bring an invaluable combination of creativity and commercial thinking,” noted Barbara Campos, chief executive officer of Joseph.

The pair will share responsibility for women’s ready to wear and accessories collections, the label said.

Prada is a high-profile example of a fashion label that has put a design team at the head, with Raf Simons joining Miuccia Prada earlier this year.

Luke and Lucie Meier, a husband-and-wife design team, have given Jil Sander a jolt of sensuality, femininity and chic minimalism since taking over the label in 2017.

WWD : Porsche, Gucci and Louis Vuitton Top Most Valuable Luxury Brands’ Ranking

Porsche, Gucci and Louis Vuitton Top Most Valuable Luxury Brands’ Ranking
According to Brand Finance’s annual report, the top 50 most valuable luxury labels will lose over $20 billion of brand value from COVID-19.

MILAN — The world’s 50 most-valuable luxury and premium companies are expected to lose over $20 billion worth of brand value as a result of the pandemic, according to a report released by brand valuation consultancy Brand Finance.

The London-based firm assessed the impact of COVID-19 based on the effect of the outbreak on enterprise value, compared to what this was on Jan. 1 this year, and ranked companies hailing from the fashion, automotive and cosmetics and personal care industries based on clusters ranging from high positive impact — up to 20 percent brand value growth — to heavy negative impact, up to 20 percent brand value loss.

In general, the study showed that fashion and automobile brands will be the most negatively impacted, facing a drop of 10 percent in brand value, while cosmetics labels are expected to better withstand the crisis.

Overall, Porsche topped the ranking, as its brand value was up 15.6 percent to $33.9 billion, according to the study.

“There is no denying the importance of the Chinese market in ensuring the good health and growth in the luxury and premium sector. We have witnessed the Chinese successfully keep the sector above water following the 2008 [financial] crash and luxury brands will be relying on this market once again in the wake of the coronavirus pandemic. Porsche sold a staggering 86,000 units in China in 2019 alone, and the auto giant, along with fellow brands across the sector, will be hopeful that keen spenders will keep demand high,” said Alex Haigh, valuation director at Brand Finance.

Gucci ranked second, with a brand valuation that jumped 20.2 percent to $17.63 billion. Following the Italian fashion house, Louis Vuitton got the bronze medal but was also the fastest-growing brand in the top 10, increasing its brand value by 21.4 percent to $16.5 billion.

Overall, five French brands featured in the top 10 positions, registering average brand value growth of 14 percent. Cartier slipped to the fourth position from the third with a brand value of $15 billion, while Chanel and Hermès retained their fifth and sixth spots in the ranking with brand values of $13.7 billion and $11.9 billion, respectively.

Ferrari and Rolex followed, while Dior gained a spot to ninth, surpassing Coach, which reported a brand value loss of 9.7 percent to $6.8 billion.

In particular, nine LVMH brands appeared in this year’s top 50 ranking with a total brand value of $39.3 billion and an average growth of 19 percent.

Givenchy did particularly well, becoming the fastest-growing label in Brand Finance’s ranking, as its brand value jumped 74.2 percent to $2 billion, and the company climbed 11 spots to the 26th position. According to the research, Givenchy’s strong performance and growth were driven in particular by its makeup division and its L’Interdit perfume.

Honorable mentions also went to Tom Ford, Clé de Peau Beauté, SK-II and Estée Lauder, whose brand values grew 42.7 percent, 32.6 percent, 32.5 percent and 27 percent, respectively.

On the other hand, Valentino’s brand value dropped 39.1 percent, along with those of automotive powerhouses Bentley, Maserati and Aston Martin, which were down 24 percent, 43.7 percent and 49.5 percent, respectively.

In addition to measuring the overall brand value, Brand Finance also evaluated the strength of brands — and, consequentially, their power in influencing consumers’ choices — based on criteria including marketing investments, familiarity, loyalty, staff satisfaction and corporate reputation. Ferrari topped this ranking with a Brand Strength Index — or BSI — score of 94.1 out of 100.

The company, which last year established a manufacturing agreement with the Giorgio Armani Group to help push its collections into a more premium space, has banked on merchandise for years to support brand awareness and diversify its revenue streams. But it is now taking steps to preserve the exclusivity of the brand, as Ferrari forecast to reduce its current licensing agreements and cut 30 percent of product categories.

“The embodiment of luxury, Ferrari continues to be admired and desired around the world, and its outstanding brand strength reflects this,” said Haigh. “It is no wonder that many consumers, who might never own a Ferrari car, want a bag or a watch emblazoned with the Prancing Horse. But it is also crucial that management remain at the steering wheel of the brand’s future and maintain its exclusive positioning by monitoring the licensing output closely.”

Rolex, Gucci and Louis Vuitton followed Ferrari in the top 10 strongest brands ranking, which also included Lancôme, Estée Lauder, Hermès, Moncler, SK-II and Bottega Veneta.

Both Brand Finance’s rankings showed Italian and French labels’ leadership in the luxury arena. Italian companies performed better than French ones in terms of quantity and brand strength, but weren’t up to the trans-Alpine labels for brand value and growth.

In particular, out of the top 50 companies, the ranking showcased 15 Italian brands and 12 French firms, with the former registering an average BSI score of 80 out of 100. But French players totaled an average of $7 billion in brand value, while Italians had $3.4 billion.

In addition to Valentino and Maserati, the Italian firms reporting brand value losses included Dolce & Gabbana and Salvatore Ferragamo, down 20.8 and 13.2 percent, respectively.

Bottega Veneta, which was included in the strongest brands ranking, registered a 20.2 percent brand value loss, due to factors unrelated to brand awareness and reputation, according to the study.

Looking beyond the luxury and premium sector, Brand Finance forecasts the value of the 500 most valuable brands in the world to fall by an estimated $400 billion because of the pandemic, with the aviation sector being the most affected. In comparison, the 2003 SARS outbreak cost the global economy an estimated $50 billion.

“However it is not all doom and gloom. Some brands will fare better under COVID-19: Amazon, Netflix, WhatsApp, Skype, BBC and BUPA [health care company] are all booming,” concluded David Haigh, Brand Finance’s chief executive officer.

FT : Rolls-Royce and Jaguar Land Rover pay up for bond deals

Rolls-Royce and Jaguar Land Rover pay up for bond deals
Investors demand high coupons from companies under strain of coronavirus and Brexit

UK engineering stalwarts Rolls-Royce and Jaguar Land Rover have both dipped into the bond markets for much-needed funding in the past week, with investors demanding hefty interest rates from the coronavirus-hit businesses.

Rolls-Royce was set to issue £2bn worth of bonds on Wednesday as part of a rescue package that also includes a rights issue of equity. Two years ago, the company was able to borrow six-year debt for just 0.875 per cent. This time, debt spread across three currencies comes with coupons between 4.625 per cent and 5.75 per cent, far above the European benchmark of 3.73 per cent reflected in the ICE BofA index of high-yield debt.

The deal, coming after JLR last week issued $700m worth of five-year bonds with a coupon of 7.75 per cent, shows that yield-hungry investors are receptive to companies disrupted by the pandemic. But they are demanding generous compensation for putting money to work with badly-affected names in UK automotive and aerospace sectors, particularly with the full effect of Brexit still pending.

“JLR is tied in with Brexit, tied in with whatever rules get made around that. Those risks run right the way through the company . . . whereas it’s a simple question for Rolls: whether planes will be back in the sky,” said one Rolls-Royce investor.

In May, rating agency S&P downgraded Rolls-Royce by two notches, giving it a speculative “junk” rating for the first time in 20 years. JLR’s rating sank from BB- to B+ in April, deeper into junk territory — a status that excluded it from accessing the Bank of England’s finance support scheme.

Despite the high price tag, it is clear that the upbeat bond markets are still a viable source of funding.

“You are seeing challenged companies take advantage of this market,” said Fraser Lundie, head of credit at asset manager Federated Hermes. JLR “would not have had the market open to them in the recent past but now do”, he said, noting the “significant coupon” needed to get the deal off the ground.

“You’re getting paid a lot more than you have been historically for Jaguar,” said another high-yield bond fund manager. One of the company’s previously issued bonds, which matures next year, offers investors slimmer 4 per cent returns.

Investors said a clause in the new bonds that could give the debt collateral in the event of further borrowing helped to get the deal over the line.

The carmaker’s sales rebounded in the three months to September 2020, with retail sales up 53 per cent compared with the three months to June, according to an investor presentation seen by the FT. 

Rolls-Royce’s key challenge comes from the collapse in global long-haul air travel, which analysts do not expect to recover until at least 2024. One European fund manager likened investing in Rolls-Royce to “catching a falling knife”. 

“The industry is facing huge headwinds [including] a drop in demand and environmental stakes . . . no thanks,” he added.

A banker working on the Rolls-Royce deal said it was interesting that “these credits have access full stop”, adding that investors are clearly willing to support sectors hit by the pandemic-induced downturn.

WSJ : Israeli Businesses Seek Workarounds as Covid Lockdown Hits Their Bottom Li

Israeli Businesses Seek Workarounds as Covid Lockdown Hits Their Bottom Lines
Retailers describe cat-and-mouse games with police as they try to stay open, and vow to defy further closures

TEL AVIV—Israel’s second national lockdown is fraying as businesses buck operating restrictions and Israelis grow desperate to secure their livelihoods while the government assesses whether to extend an unpopular shutdown.

A shoe-store owner in Tel Aviv became a symbol of the growing frustration earlier this week when a video clip of him tossing his stock into the street for people to cart away went viral. “I thought that if I can’t make money, at least I can give to others,” Avi Samay, a father of three, told Israel’s Army Radio. “I’m ready to pass out newspapers or clean up trash, whatever it is, as long as I can make a living.”

Israel’s central bank estimates the country’s second lockdown—one of the few in the world so far—is costing the economy more than $2 billion a week. Prime Minister Benjamin Netanyahu’s government amassed a two-year 140 billion shekel, equivalent to $41 billion, economic-aid plan at the start of the shutdown in late September, but businesses say the money has been slow to arrive and is insufficient to keep them above water.



Many are now looking for ways to work around the lockdown as the government deliberates whether to extend the closures. In some cases they are ignoring them entirely, as other countries in Europe and elsewhere also begin to introduce their own localized and sometimes nationwide restrictions.

Some store owners describe playing what they say is a game of “cops and robbers” with the authorities, shutting down their stores and shooing away customers when police are nearby, opening again when they have passed.

Cafes and coffee shops across the country are operating as delicatessens and bakeries so customers can enter. They then place coffee cups in brown paper bags to disguise them and are offering delivery several meters away to skirt closure orders.

One Tel Aviv cafe owner is offering to deliver to a table in front of his popular shop on a crowded thoroughfare in the city’s trendy south. He accepts payment only through an app.

On a recent visit, three men sat on public benches several meters from the cafe sipping drinks and chatting. The smell of coffee and baked goods wafted across the street as customers waited for their orders.

“The overall target is not to lose money,” said the cafe owner, who declined to be named for fear of being fined by the police.

Israel was initially a success story when the coronavirus forced countries around the world to impose sweeping shutdowns in early March. It imposed a strict lockdown earlier than many other countries and appeared to stop the virus in its tracks.

But after its government moved to quickly reopen the economy in May, infection rates quickly rose to become among the highest in the world per capita. Last month Israel became the first developed nation to impose a second nationwide lockdown, more strict than the first, inflicting another wave of economic pain and also stirring tension between secular Israelis and ultra-Orthodox Jews, who account for around a tenth of the country’s 9 million people but a quarter of new coronavirus infections.

Some retailers have urged the government to follow a previous plan that applies stricter measures to only the worst-affected communities, often densely populated neighborhoods where many ultra-Orthodox live. The ultra-Orthodox say they are being unfairly singled out.

Public anger at Israel’s elected leaders is palpable.

Mr. Netanyahu’s fractious coalition with the rival Blue and White party is widely considered to have contributed to his government’s erratic response to the outbreak over the summer and into the early fall. Demonstrators recently adopted the slogan “Go” in a distinctive font used by Mr. Netanyahu’s Likud party to express their frustration. It can now be found spray-painted on sidewalks and buildings across the country as the economic pain from the lockdown mounts.

Now, after Israel’s cabinet voted to extend the lockdown at least until Sunday, some of the country’s largest retailers warned that they would no longer abide by the restrictions, which require them to keep their shops closed and allow for delivery only. At present, only essential business such as groceries and pharmacies are allowed to operate normally.

“We are ready to get into a situation where we break the law. Desperate times call for desperate measures,” said Shachar Turjeman, chairman of the board for Brill Group, which operates shoe stores throughout Israel.

Officials from the Israel Association of Retail Chains, which represents 400 chains and some 18,000 stores, have said more than a third of its members’ stores would open their doors for business again next week, even if it means breaking lockdown regulations, though they said they wouldn’t open in areas with high infection rates.

On Wednesday, the association said many mayors around the country had ordered city inspectors to refrain from fining stores that open Sunday. Some mayors sent inspectors on paid vacation to prevent them from issuing fines, the association said.

Mr. Turjeman at Brill Group said many businesses have resorted to operating off the books, hiding the evidence by choosing not to print receipts. Other shop owners have said they have received little guidance from the government and often have to determine for themselves whether their businesses can open under the current rules or how they can comply with the restrictions.

David Linden, who owns two bookstores in Jerusalem, said he has been operating as “semi-open” since the first lockdown in March. He encourages customers to call the shop or order books online, to be either picked up at the store or delivered at home. He suggests that those who want to browse arrange to do so ahead of time, and they are permitted inside one by one, with masks.

“To close the store completely is impossible, you can’t do that. You have expenses that are running, you have debt,” he said. “If you can operate in a way with some revenue, that’s much, much better.”

>>> USGapping down

Gapping down
In reaction to earnings/guidance:

  • BAC -2.3%, WFC -1.6%, ASML -1.2%

Other news:

  • CYCN -41.7% (announces top-line results from its STRONG-SCD study of olinciguat, an investigational, orally-administered, once daily, vascular sGC stimulator for the potential treatment of sickle cell disease)
  • SRNE -11.5% (R&D investor update on COVID-19 last night)
  • LAZY -7.7% (stock offering)
  • OCUL -7.5% (prices offering of 7.18 mln shares of common stock at $9.75 per share)
  • RPRX -4% (stock offering)
  • LOOP -2.2% (responds to "inaccurate" Hindenburg Research report)
  • SPNS -2.1% (stock offering)
  • ACGL -2% (provides update on catastrophe losses)
  • KDMN -1.1% (to move from NYSE to Nasdaq on Oct 26)

Analyst comments:

  • ALB -2.6% (downgraded to Underperform from Sector Perform at RBC Capital Mkts)
  • WIT -2.6% (downgraded to Hold from Buy at Investec)
  • PGRE -2.1% (downgraded to Underperform from Neutral at BofA Securities)
  • NVTA -1.4% (downgraded to Neutral from Overweight at JP Morgan)
  • STZ -0.8% (downgraded to Neutral from Overweight at Atlantic Equities)
  • DOYU -0.6% (downgraded to Neutral from Overweight at JP Morgan)

>>> US Gapping up

Gapping up
In reaction to earnings/guidance:

  • GS +2.5%, USB +1.8%, PNC +1.8%, ABG +0.7%, UNH +0.6%

Other news:

  • MDRX +36.9% (to sell CarePort Health business to WellSky for $1.35 bln)
  • TLC +13% (reports the first subject has been enrolled in the Phase I clinical trial of TLC19 for treatment of COVID-19)
  • THTX +8.8% (confirms issuance of US patent covering use of tesamorelin)
  • VERI +8.3% (announced a new agreement with South China Morning Post)
  • GME +5.6% (Senvest Mgmt discloses 5.54% stake)
  • BBBY +5.4% (to sell certain non-core assets)
  • PLAY +2% (provides an update on the status of store re-openings)
  • FROG +1.7% (announces free subscription of its DevOps Platform)
  • PASG +1.4% (announces publication of preclinical data)
  • NVMI +1.4% (prices offering of $175 mln of 0% Convertible Senior Notes due 2025)
  • RNR +1.3% (provides update on catastrophe losses)
  • VNOM +1.1% (provides operational update for Q3)
  • ATEC +1% (prices offering of 11,428,570 shares of its common stock at $8.75 per share)
  • ETON +1% (stock offering)

Analyst comments:

  • NIO +10.3% (upgraded to Overweight from Neutral at JP Morgan)
  • AXTA +2.4% (added to Conviction Buy List at Goldman)
  • AZO +1.4% (upgraded to Strong Buy from Outperform at Raymond James)
  • FOUR +1.2% (upgraded to Neutral from Sell at Compass Point)