Early premarket gappers
- Gapping up:
- ABUS +50.8%, DVAX +41.8%, DOC +7.6%, AAP +7.6%, BIDU +7.1%, SINA +3.7%, SDC +2.7%, KRYS +2.6%, DY +1.8%, HP +1.5%, SNE +1.2%, IIVI +1%
- Gapping down:
- GMDA -20.3%, BLPH -14%, GOSS -11.1%, CLVS -9%, CVNA -8.2%, NVAX -6.4%, IQ -5.6%, NVST -5.4%, MRNA -5.3%, BVN -4.8%, HLI -2.9%, TMUS -2.8%, CABO -2.6%, HD -2.6%, AVTR -2.4%, TPTX -2.3%, BILI -2.3%, EXP -1.8%, DIS -1.6%, SE -1.5%, BLUE -1.5%
Weibo reports EPS in-line, beats on revs; sees Q2 revs down 7-12% yr/yr (36.60)
- Reports Q1 (Mar) earnings of $0.30 per share, excluding non-recurring items, in-line with the S&P Capital IQ Consensus of $0.30; revenues fell 19.0% year/year to $323.4 mln vs the $315.02 mln S&P Capital IQ Consensus.
- Monthly active users were 550 million in March 2020, a net addition of approximately 85 million users on year over year basis. Mobile MAUs represented approximately 94% of MAUs. Average daily active users were 241 million in March 2020, a net addition of approximately 38 million users on year over year basis.
- For the second quarter of 2020, Weibo estimates its net revenues to decrease by 7% to 12% year-over-year on a constant currency basis.
TikTok Taps Disney Executive Kevin Mayer as New CEO
Head of Disney+ streaming service to lead video app owned by Bytedance as Chinese company seeks global expansion
Kevin Mayer, who was passed over for the top job at Walt Disney Co., DIS 7.15% is becoming chief executive of TikTok, in a jump from one of the entertainment industry’s most venerable names to one of its buzziest new arrivals.
The longtime media executive, recently in charge of the Disney+ streaming service, is joining Chinese tech giant Bytedance Ltd. in newly created roles as chief operating officer and head of its blockbuster short video app TikTok. He will be in charge of Bytedance’s global expansion, including in its music and gaming businesses. He will start June 1.
Both TikTok and Disney+ have logged pandemic-fueled surges in popularity as people stuck in lockdowns are glued to their phones and TVs for entertainment.
MORE ON TIKTOK’S NEW CHIEF
Disney+ Launch to Test Longtime Deal Maker Kevin Mayer (Nov. 9, 2019)
Mr. Mayer is currently chairman of the entertainment giant’s direct-to-consumer and international segment, including Disney+, Hulu and ESPN+, making him one of the highest-profile American executives to move to a Chinese company.
He had been considered the in-house favorite to get the Disney CEO job by many colleagues within Hollywood, given the role he played in orchestrating Disney’s biggest deals and his recent work in charge of its streaming strategy. But in late February, Disney said that Bob Chapek, then the head of its parks and consumer products division, would become CEO.
Bringing in a seasoned American could boost Bytedance’s recent efforts to distance itself—and TikTok specifically—from its Chinese roots.
“Bytedance and TikTok are enormously powerful opportunities,” Mr. Mayer said in an interview. “I think the business is growing rapidly and serving a need.”
Mr. Mayer said he would be growing Bytedance’s various businesses and seeking new opportunities.
“I will be looking at TikTok and looking at closely related and adjacent businesses that are large,” he said. “Gaming, music comes to mind. Video, writ large, is an interesting opportunity.”
Known for its short, often lighthearted user-created videos, the TikTok app has been downloaded over 2 billion times on Google Play and Apple Inc.’s App Store since 2017, according to research firm Sensor Tower. In the first three months of 2020, TikTok racked up more than 315 million downloads, the most of any app in a single quarter.
In joining Bytedance, Mr. Mayer will help run one of the world’s most valuable private companies, estimated at $75 billion, and one that boasts more than 700 million global daily active users of its apps. Bytedance has a stable of apps and services, including a Chinese version of TikTok called Douyin.
But Bytedance isn’t consistently profitable, The Wall Street Journal has reported, and a key part of Mr. Mayer’s mandate will be generating more revenue from its millions of users, many of whom are teenagers with limited spending power.
Bytedance is facing challenges in the U.S., where TikTok’s growing popularity has attracted the scrutiny of American lawmakers concerned that its Chinese roots could lead the app to censor content to appease Beijing or share information with Chinese authorities. The company has said Beijing doesn’t dictate content decisions and that no data on American users is stored in China.
Disney+, the flagship streaming service Mr. Mayer oversaw, has long been considered a key element of the company’s strategy to compete against at-home rivals like Netflix Inc. He leaves at a fraught moment: Even as the service adds subscribers at a clip, it has become all the more vital as other Disney revenue streams crater during the coronavirus pandemic.
>>> Up
* Eurofins Scientific Raised to Buy at Oddo BHF; PT 600 euros (+)
* Geberit Raised to Equal-Weight at Barclays; PT 400 Swiss francs
* Greggs Raised to Buy at Berenberg; PT 1,860 pence
* El.En. Raised to Buy at Alantra Capital; PT 25 euros (+)
* Hannover Re Raised to Hold at HSBC; PT 139 euros
* Homeserve Raised to Overweight at JPMorgan; PT 1,400 pence (+)
* Howden Joinery Raised to Buy at Liberum; PT 600 pence
* Network International Raised to Overweight at Morgan Stanley
* Piaggio Raised to Buy at Banca Akros (ESN); PT 2.50 euros (+)
* Poste Italiane Raised to Buy at Banca Akros (ESN); PT 10 euros (+)
* Renew Raised to Hold at Liberum; PT 430 pence (+)
* Talanx Raised to Buy at HSBC; PT 36.50 euros
* TF1 Raised to Buy at Oddo BHF; PT 6.50 euros
* Uniper Raised to Buy at Deutsche Bank; PT 30 euros
* William Hill Raised to Overweight at Morgan Stanley
>>> Down
* Ashtead Cut to Hold at Liberum; PT 2,250 pence
* Avanza Cut to Hold at DNB Markets; PT 135 kronor
* Elekta Cut to Hold at SEB Equities; PT 104 kronor
* HSS Hire Cut to Sell at Liberum; PT 25 pence
* Inditex Cut to Neutral at Citi
* ProSieben Cut to Neutral at Oddo BHF; PT 11.50 euros (+)
* Remy Cointreau Cut to Neutral at Goldman; PT 105 euros
* Siemens Gamesa Cut to Neutral at Goldman; PT 15.50 euros
* Tubacex Cut to Underperform at CaixaBank BPI; PT 1.30 euros
>>> Initiation
* M8G GR Rated New Corporate at Edison Investment Research
* Seri Industrial Rated New Buy at UBI Banca; PT 6 euros
* Victrex Reinstated Buy at Jefferies; PT 2,200 pence
>>> Call
* European Gyms’ Structural Growth Story Remains Intact, RBC Says
* Greggs Raised With Balance Sheets Key in U.K. Leisure: Berenberg
* New Era Coming in Gambling, William Hill Up to Overweight: MS
* MS Still Positive on Payments, Upgrades Network International
* Royal Mail Sale Speculation Inflates Value; Berenberg Cuts PT
* Climate Change Puts Sampo’s If, Gjensidige in ‘Sweet Spot’: SHB
* Victrex Medical Arm Can Lead Recovery, Jefferies Starts at Buy
Hedge funds: No market for small firms
Fallout from coronavirus pandemic is favouring some of the industry’s largest names
Big US hedge fund platforms such as Izzy Englander’s Millennium Management, Ken Griffin’s Citadel and Steve Cohen’s Point72 Asset Management look set to emerge from the coronavirus crisis as some of the industry’s biggest winners.
After chalking up gains this year, they are on the front foot. Meanwhile, their unusually high fees, which have long proved a stumbling block to some investors, could now help them have the pick of talent in a hedge fund industry reeling from the S&P 500’s fastest descent into bear market territory.
Their gains reflect a wider phenomenon that is growing in prominence: the hedge fund industry is becoming increasingly concentrated in a small number of larger players, as bigger groups outpace some of their supposedly more nimble rivals.
“Larger managers, with a few exceptions, have managed well through this period of volatility, they've reacted well,” said Danny Caplan, managing director in Citigroup’s prime finance business. He cited managers with years of experience, who tend to run more money, as some of the better performers.
In March, for example, hedge funds managing more than $5bn lost 6.2 per cent, according to data from investor Aurum Fund Management. That beat by some margin the performance of funds with $2bn-$5bn, $1bn-$2bn, $500m-$1bn or up to $500m in assets. It meant that over the 12 months to the end of April, the biggest hedge funds were the only one of the five categories to make money.
“There had been a frustration that larger funds weren’t generating the returns that they did in the past, but going forward the smaller funds will struggle more,” said Stuart Fiertz, head of London-based hedge fund Cheyne Capital, which runs $7bn in assets.
Hedge fund managers with huge asset bases have been slowly growing more dominant for years, as ever-greater demands from cautious institutional investors and higher costs of complying with regulation have squeezed out smaller funds. Some two-thirds of the industry’s assets are now run by about 5 per cent of the managers, while just under half of the firms are small outfits that oversee under $100m, according to data group HFR.
“Covid-19 has accelerated a trend that was already under way in our industry,” said Mark Connors, global head of risk advisory on Credit Suisse’s hedge fund desk. “It’s only going one way. You need to have scale and resources.”
Meanwhile, the number of new fund launches has steadily been dropping.
More than 1,100 new launches occurred in 2011, but only 480 last year, the lowest level since 2000, said HFR. Launches are fewer but often bigger. In recent years mega start-ups include ExodusPoint Capital Management, the $8bn launch in 2017 from Millennium alumnus Michael Gelband; and D1 Capital Partners, which was founded by Daniel Sundheim, formerly of Viking Global Investors, and kicked off with $4bn in 2017.
The relative paucity of new launches reflects how traders would increasingly prefer to join an established name rather than take the business risk of setting up on their own. The big platforms take care of time-consuming back office and marketing functions, freeing up the traders to focus on navigating the markets. Launching one’s own fund “becomes purely a question of ego”, said one hedge fund investor.
Many of the biggest names have protected investor capital — and even made money — during the latest downturn. In the first four months of the year, Chicago-based Citadel’s flagship Wellington fund is up 10 per cent, Point72 has gained 1.8 per cent and Millennium is up 3.7 per cent, according to investors. Meanwhile, ExodusPoint gained about 3 per cent.
All of these funds often leverage up their winning bets, meaning their footprint in the market can be many times their asset bases. However, they are also known for the strict risk parameters under which traders operate, and for limiting losses by swiftly cutting risk and dismantling underperforming teams.
For example, during the violent market swings in March triggered by the coronavirus pandemic, Millennium shut several of its trading units in response to losses, and at least four portfolio managers departed Citadel.
Hedge fund consultants, who act as gatekeepers to vast swaths of the industry, have for years had concerns about the high charges at multi-manager platforms, which employ tens or hundreds of traders running their own portfolios.
They typically operate a “pass-through” expenses model that lets them charge investors for anything from paying their traders to hiring trading terminals. In effect, this can amount to a fee of anywhere between 3 and 10 per cent of assets, say industry insiders.
Consultants have been slowing coming around to the multi-manager platforms, and making money this year will only have helped their cause, prime brokers said. These funds emphasise their strong long-term track records, net of all charges.
“If you look at the platforms, historical performance over 10 or 15 years has been pretty good. Then they hit the turmoil and everyone's OK — that's what institutional investors are looking for,” said Citigroup’s Mr Caplan.
Prime brokers said the pass-through expenses model can help multi-manager platforms retain top talent during tough periods. Funds that charge a conventional fixed management fee may face the headache of how to pay a star trader who has done well when the overall fund has done poorly, as there will be no performance fees to share around. In contrast, the platform model of passing through expenses allows them to reward the traders they most want to keep, even if the fund’s overall returns are poor.
“This [crisis] will only help them recruit new portfolio managers,” said one hedge fund investor.
Underscoring the investor appetite for industry titans over minnows, several big funds — such as Citadel, Millennium, DE Shaw, Baupost and TCI — are raising billions of dollars from investors this year to take advantage of the market dislocations.
Larger hedge funds are also likely to have benefited during this crisis from a phenomenon seen in 2008 — because their business is worth so much to the banks they trade with, lenders are less likely to rein in a fund’s borrowing at short notice, according to Patrick Ghali, co-founder of Sussex Partners, which advises institutions on investing in hedge funds.
“Counterparties helped bigger managers more than smaller managers. Having a certain size was helpful,” he said.
A prime broker at a large bank said the lender had become increasingly selective among its hedge fund clients. “To get resources in a resource-constrained environment you have to be meaningful,” he said. “We have to be very judicious, and every prime broker is doing this.”
Though most industry insiders expect the trend to continue, not everyone is thrilled at the prospect of the biggest hedge funds becoming even bigger.
“If they become too big it’s a problem,” said Con Michalakis, the chief investment officer of Statewide, an Australian pension fund. “If you have a few lumbering giants and one of them mis-steps, you will have turmoil.”
Bond investors balk at use of ‘ebitdac’ to skirt debt restrictions
Investors warn companies not to make coronavirus-related adjustments to boost profits
Bond investors have hit out at the growing trend of companies reporting “earnings before coronavirus”, warning that this new pandemic-era financial metric could allow businesses to use imaginary numbers to raise more debt than they can handle.
Fund managers have long complained about the heavy adjustments riskier companies make to their earnings when borrowing from the high-yield bond market, often as part of an attempt by their private-equity owners to massage leverage levels — or the ratio of debt to operating profits — to make buyouts look safer.
But several companies recently pushed this one stage further by reporting their “ebitdac” — earnings before interest, tax, depreciation, amortisation and coronavirus — for the first quarter of 2020. The number is supposed to reflect profits the companies believe they would have made, were it not for virus-related lockdowns and disruptions to supply chains.
The European Leveraged Finance Association, a group representing investors in higher-risk corporate bonds and loans, has warned that it would be “inappropriate” for companies to use the metric to calculate how much debt they are allowed to raise under their arrangements with lenders.
ELFA, which formed last year to protect the interests of corporate debt investors, added that “reliance on fictitious figures” could lead to a downward spiral of companies raising money that they cannot repay.
Debt deals often include terms and conditions known as covenants, which are designed to protect investors by imposing restrictions that stop businesses from taking on debt they cannot afford to pay back.
Investors are worried that businesses could use “ebitdac” to calculate leverage ratios under these covenants and therefore evade restrictions on how much they can borrow.
“Using ebitdac to paint a rosier picture on an investor presentation would be bad enough, but using it to raise additional debt which [ranks ahead of] the existing investors would simply be inappropriate,” said Brian Abdelhadi, senior portfolio manager at Allianz Global Investors.
German manufacturer Schenck Process last week became the first European company to include the phrase ebitdac in its financial reporting according to 9Fin, a financial data service that tracks about 500 high-yield bond issuers.
The metric allowed Schenck, which is owned by US private equity firm Blackstone, to report a lower leverage multiple than if it had used the traditional ebitda measure, bringing down its ratio of net debt to earnings from 5.3 times to 5 times.
Covenant Review, a research firm that specialises in analysing debt documents, said that the language in Schenck’s presentation indicated that the company “may be intending to use this measure as the basis for testing metrics under its financing documents”.
“Other companies might push the envelope even farther with larger and still more attenuated adjustments,” analysts at Covenant Review warned.
Schenck said ebitdac was included “to give an idea of the estimated impact of the pandemic on the company so far” and that “this did not distort any disclosure”.
The manufacturer added that the metric was “included in relation to covenant compliance where the adjustment is permitted following the stipulations of the contractual framework”.
Investors also voiced concerns about companies raising debt based on coronavirus-adjusted historic earnings figures. Peter Aspbury, lead portfolio manager for European high yield at JPMorgan Asset Management, said this would allow businesses “to basically distort the reality enough to the detriment of creditors”.
He added that loose definitions becoming the norm could allow companies to relax covenant terms for any number of unfavourable events.
“It shows how far the moral compass has deteriorated,” said Tatjana Greil Castro, a portfolio manager at Muzinich & Co. “They’re living in a parallel universe.”