WSJ : Samsung’s Galaxy S20 Ultra Has a 100X Zoom Camera. So We Tested It With a

Samsung’s Galaxy S20 Ultra Has a 100X Zoom Camera. So We Tested It With a Private Eye.
Samsung’s new high-end flagship phone has a camera with unprecedented digital zoom…so is it crazy cool, super-creepy, or both?

That’s definitely me, scratching (not picking!) my nose on the corner of Seventh Avenue and Charles Street. Even though the photo was snapped from inside a car…more than 150 feet away...using a smartphone, anyone who knows me would recognize me.

I would have had no idea it was taken, of course, if I hadn’t put New York-based private investigator Michael McKeever up to it. As you’ll see in the video, I had him follow me around with the new Samsung Galaxy S20 Ultra for half a day. How else was I supposed to test the craziest—and yes, creepiest—zoom camera on a smartphone to date?

The $1,400 Galaxy S20 Ultra, which goes on sale March 6, is being marketed for its “Space Zoom” capabilities. In addition to wide and ultra-wide cameras, its telephoto lens with a folded zoom provides 10X optical and 100X digital zoom.

Translation: Really clear photos from really far away.

We’re at a point where the line between traditional “optical zoom” and “digital zoom” are blurred. In olden times, a camera had one sensor, and lenses moved to magnify the picture. Now, you have several sensors and lenses, each one set to a different magnification. Where the iPhone 11 Pro’s telephoto has a “2X optical zoom” when it jumps from its wide-angle lens to its telephoto lens, the Galaxy S20 has a “10X hybrid optical zoom,” jumping from the ultrawide to the telephoto lens—the lenses themselves don’t move in either case. Going from 10X to 100X? That requires some software and engineering tricks.

In fact, the S20 Ultra stacked up better next to the $1,000 Nikon P1000 super-telephoto camera with a lens the length of a Diet Coke can. Both, for instance, allowed Mr. McKeever to read text in a 14-point font on my laptop screen from a little over 15 feet away.

This zoom is not without its faults. Once you hit anything past the 30X, you better hope your subject is a statue. The view finder is super-shaky, and it’s hard to tell what you’re looking at in the scene. The quality of anything past 30X is grainy, too. And good luck trying to make out anything in low light.

It often takes too long to lock focus on a subject, no matter which camera you’re using. Samsung Electronics Co. plans to release an update that helps “improve the camera experience.”

But to me there’s really only one question about the Ultra: How much smartphone camera is too much smartphone camera?

According to a Samsung spokesman, the enhanced digital zoom is there for when you find yourself further back from the main scene—like at a sporting event, concert or live show.

But as always, there’s a gap between what companies want us to do with their products and what people actually do with them.

Am I really that paranoid that photos are being snapped of me when I’m not looking? Truth is, with surveillance systems, camera-equipped doorbells and tiny Nest cams all over, they already are! Are most people going to buy this phone for its spy cam features? Probably not.

The Ultra illustrates how much further the cameras on our phones—and all around us—still can improve without getting noticeably bigger. This is a reminder that our phones are powerful, discreet tools… with major privacy implications.

The good news? We’re not all trained private eyes. “Eric Clapton is not a great guitar player because he bought the most expensive guitar in the world. It has to do with the skill of the operator,” Mr. McKeever said.

Feel better now?

FT : Celine does retro rock chic

Celine does retro rock chic
Designer Hedi Slimane continues his journey back to the Seventies

For the most hardcore Phoebe Philo acolytes, the pain of seeing their thinking woman’s brand taken over by the commercially savvy hitmaker Hedi Slimane in 2018 may still be raw. But fashion moves quickly, and whether you like it or not, Slimane has successfully taken aesthetic ownership of the French label.

After a bit of a false start with an overtly sexy and short debut collection, he changed tack towards a more bourgeois, grown-up, 1970s ouvré he has since continued. First, with a collection of culottes, bomber jackets and boots, and then for spring/summer 2020, flared jeans, denim skirts and boho blouses. While he may not have reinvented the creative wheel, he helped bring the 1970s bourgeois look back to the trend table.

With actress Isabelle Huppert and cult French singer Jane Birkin in the front row, the show was staged in a specially built venue, something that sets the biggest brands at Paris Fashion Week apart. As the monumental Saint Laurent and Dior sets were reduced to their metal skeletons after their shows, it was striking what a major investment they are.

As the show began at Celine, a black curtain was whisked away at the end of the stage to reveal a moving, and slightly menacing, flashing metal sculpture which resembled a malfunctioning fairground ride. It soon reassembled itself to form a giant illuminated Celine logo. The air was redolent with Reptile, one of a new range of £175 unisex scents that Celine launched late last year, which was worn by the models.

And then we were off, on a late 1960s and 1970s “I’m with the band” tip, via clothes that to an English person looked straight out of the Kings Road in that era, but must have had their equivalent French location, perhaps St Germain. There were also numerous indie musicians in the audience, including members of Phoenix and The Libertines.


It was a unisex collection, intended to be interchangeable, and revolving around skinny flares, heeled boots and little jackets or wool coats. For women, culotte suits came in check wool, or velvet, worn with ruffled silk blouses, 1970s dresses appeared in brown with white polka dots and gold lamé, some with pussy bows, and a pinstripe blazer was worn with a ruffled cream blouse and flared jeans. For outerwear there were capes in check wool and suede, as well as neat princess coats. Eveningwear included beaded, waisted dresses with billowing sleeves, a leopard print kaftan and a really lovely black velvet column dress with ornate, bejewelled gold sleeves that would suit both an ingénue or her mum.

And on the men, the story was similar: flared jeans and velvet trousers, wool trenches, a patchwork sheepskin coat and little bombers in leather or velvet. For evening, there were glittering tuxedos and beaded velvet, collarless jackets. Handbags too — some sleek and retro, others circular, some with chain handles — carried by both men and women.

Whisper it, but much of the collection suggested a haul from an upscale Parisian flea market. Is it new and innovative? Perhaps not. Do I want to wear all of it anyway, including the men’s? Hell, yes. And there, in a nutshell, is the Hedi effect.

FT : Schneider Electric: under the hammer

Schneider Electric: under the hammer
Software, much less capital intensive than manufacturing, has become key to the French electrical group’s future

Visit Le Creusot in Bourgogne and you’ll be sure to see the giant steam hammer. This 2,500-kilogramme monument was built by Schneider Electric, the company founded there in 1836. The French electrical group aims both to improve energy efficiency and automate industry. Results earlier this month beat analysts’ expectations as ebita rose to €4.2bn, up 9 per cent on last year. The shares spiked upwards until the broad market sell-off triggered by coronavirus took its toll.

Schneider, a group born out of the industrial revolution, is undergoing a 15-year transformation to a sustainable, digital age. Energy management is important for Schneider, accounting for almost all of its operating profits. Free cash flow jumped to €3.5bn in 2019 and has grown at 6 per cent per annum over five years, faster than earnings.

There is more room for growth. Schneider foresaw the trend of ESG investing. Most companies have committed to reducing their carbon footprint but do not know how. Electricity’s share of global energy consumption will double by 2040, the International Energy Agency forecasts. Improving energy efficiency is a key, neglected piece in the puzzle to reduce emissions. Electricals should profit.

Schneider has made acquisitions to focus on improving energy efficiency through digital tools. In mid-February it paid €1.5bn to acquire Rib Software, which offers a software platform to the construction industry. It paid a hefty 37 per cent premium on its three-month price. Schneider can now expand its efficiency-inducing software business from engineering — successfully scaled up through Aveva — to buildings and data centres.

Software, much less capital intensive than manufacturing, has become key to Schneider’s future. It makes up a quarter of group revenue. Schneider, though, is pricey on a forward price-to-earnings ratio of 17 — near a decade high, and rated above rivals Siemens and ABB.

There is a reason why Schneider’s valuation has been strong. Industrial-cum-tech companies, especially those offering up answers to the sustainability demands of their clients, have drawn investor attention. It has the best medium-term prospects for growth among peers.

Its original steam hammer found a better life as a tourist attraction. So too has the heavy industry group as a slick sustainability provider for the digital age. Better to buy Schneider when markets stabilise, before investors feverish for tech and sustainability make it soar too high again.

FT: Carrying out a successful mega-deal

Carrying out a successful mega-deal
Yves Perrier has won over staff to his unorthodox approach to the investment industry

Yves Perrier is a philosopher at heart. The one-time footballer who now runs Amundi, Europe’s biggest investment group, signs off meetings with analysts and journalists with his catchphrase “life is beautiful”. 

When we meet, after Amundi’s announcement of its latest acquisition, Spanish bank Sabadell’s investment arm, Mr Perrier, 65, offers a pearl of wisdom. “If you want to build a ship,” he says, quoting the writer Antoine de Saint-Exupéry, “don’t drum up people to collect wood and don’t assign them tasks and work, but rather teach them to long for the endless immensity of the sea.” 

Mr Perrier is explaining his approach to making sure large deals are well executed and integrated — especially when it comes to motivating staff through potentially traumatic transitions. Mega transactions in the investment industry have a notoriously low success rate. 

The tie-ups in recent years between Standard Life and Aberdeen Asset Management, as well as Henderson Global Investors and Janus Capital, have resulted in larger but still underperforming businesses, accompanied by staff cuts, lost clients, low morale and disenchanted shareholders. 

The question of how to combine investment businesses successfully has become more pressing, following a spate of recent transactions, from Franklin Templeton’s $6.5bn purchase of Legg Mason to Jupiter Fund Management’s £419m capture of Merian Global Investors. 

Mr Perrier is well placed to opine on M&A, having built Amundi up through a series of deals. The largest was the €3.5bn all-cash purchase of Pioneer Investments from UniCredit, the Italian bank. It stands out as the most successful of the industry’s recent large deals and catapulted Amundi into the trillion-dollar club, the world’s biggest investment groups by assets managed. 

Since the deal was announced in December 2016, Amundi’s share price is up more than 60 per cent, compared with a 16 per cent rise for S&P’s index of global asset managers. Amundi says it has not lost any significant clients or portfolio managers as a result of the deal — problems that typically blight investment tie-ups. 

On a range of financial measures, the deal also stands out as a rare success story in asset management M&A. The businesses were fully integrated within 18 months — an especially quick time for such a large transaction — while the €175m of cost savings was €25m over that originally planned. Amundi’s net income is up 41 per cent to €959m since the Pioneer acquisition. 

Mr Perrier formed Amundi in January 2010, bringing together the investment arms of French banks Société Générale and Crédit Agricole. He says that from the moment he and his fellow executives at the two lenders conceived the idea for the merger, they set out to become the biggest player in Europe. But he concedes that at the time the ambition was “not so realistic”. 

Over the past decade the group’s assets have more than doubled, from €670bn to €1.6tn, placing it inside the world’s top 10 investment businesses. 

Mr Perrier says that the early years after launching Amundi were the hardest, and lessons learnt then have made subsequent integrations easier. He says he initially struggled to convince staff that his belief that the industry needed to go through a period of what he calls “industrialisation” would work. “We were really presenting a view of the industry that was not mainstream,” he says. “Many people had doubts at the time. Today, nobody has doubts.” 

He says the task of convincing staff to follow his unorthodox approach started with getting workers to buy into his ambition of becoming the leading player in Europe. Then he set about hiring managers who were convinced of the merits of the transformation and could carry it out. But he says the most important aspect was being consistent with the approach, and how it was articulated inside and outside the business. “The strategy I defined in 2010 has not changed,” he adds.

Mr Perrier has a prosaic view of the investment industry. He compares it to car manufacturing, where core components such as equities or bonds are developed by the investment managers into products or savings vehicles, and then distributed to clients through a vast network of sales channels. 



“With this view, we practice value analysis in order to improve efficiency, quality and reduce cost,” he says, adding that low interest rates have put efficiency at the centre of the company’s strategy. 

The emphasis on cost reduction has inevitably led to large job cuts when businesses are bought and overlapping roles are made redundant. The Pioneer deal led to 600 roles being culled. Mr Perrier says the best way to avoid staff morale being affected is to select the best performers to stay regardless of which side of the business they come from, so management cannot be accused of favouritism, and to act swiftly to limit anxiety. 

Mr Perrier eschews the star fund manager culture that was so popular in the 1990s and 2000s. He insists there are “no stars at Amundi apart from Amundi itself”, and the group’s pay policy reflects that view. Managers are paid well but not excessively, with bonuses linked to personal targets as well as corporate ones. 

He received a 16 per cent pay rise last year, taking his salary to €1m with a €2m bonus, which in total was 21.9 times the average worker’s pay at the group. His pay rise was criticised by Institutional Shareholder Services, the proxy advisory group, but his overall remuneration is dwarfed by his peers at the top of UK and US businesses. 

As a teenager, Mr Perrier rejected the chance to become a professional footballer for French club Lyon, favouring a career in finance. He has a passion for the game, in particular Manchester United. But it is not the club’s former player and fellow amateur philosopher Eric Cantona whom he most admires. He looks instead to ex-manager Alex Ferguson for leadership inspiration. “He built not only a team, but a club and then a brand,” Mr Perrier says. “And that’s what I have tried to build with Amundi.”

FT : Coronavirus unmasks the vulnerability of the bull run

Coronavirus unmasks the vulnerability of the bull run
Policymakers must beware the market rout becoming a credit crunch

After spending much of the last decade in abeyance, fear has returned with a vengeance to the markets. Rattled traders returning to their desks on Monday will be braced for more volatility after last week’s sell-off in global equities, the largest since the depths of the financial crisis in 2008. Mounting concerns at the rapid spread of the coronavirus caused one of the quickest market corrections in the benchmark US S&P 500 since the Great Depression in the 1930s.

The speed of the decline in equities suggests there may be reasons for a bounce in the coming days but it also highlights that markets had been riding for a fall. Investors, used to an environment of persistently low interest rates and cheap money from central banks, had grown complacent and were ignoring the mounting signs of an economic slowdown. Equities, in particular US technology stocks, had begun to look overvalued. A revision was overdue even before the outbreak of the coronavirus. The market rout has been amplified by the increasing dominance of passive index funds as well as algorithmic trading.

Previous sell-offs in response to a global health epidemic provide only so much insight into where markets are headed. A recent assessment of the market impact of past outbreaks by JPMorgan, including Sars and swine flu, found that a sharp initial stock market decline quickly gave way to a recovery. There is no certainty that a similar rebound will happen this time. There are fresh concerns that the risks of a global recession are mounting. The yield on the US 10-year Treasury note dropped below 1.2 per cent on Friday for the first time to hit 1.167 per cent as investors sought safe havens. Goldman Sachs has warned that profits at US companies will stagnate this year.

The coronavirus outbreak — and the world’s policy response to it — are creating a negative shock to both supply and demand that will reduce growth. Strong consumer activity has underpinned the US and eurozone economies. Restricting travel, closing schools and isolating whole communities will have an inevitable effect on spending.

Given already low borrowing rates, monetary policy is limited in what it can do to sustain weakening demand and to prevent liquidity problems. Christine Lagarde last week played down the chances of the European Central Bank providing an imminent response to the virus. Mark Carney, outgoing governor of the Bank of England, meanwhile said Britain should prepare for a downgrade in economic growth. The Federal Reserve on Friday signalled it was prepared to act.

Despite the constraints, policymakers may need to deploy non-standard monetary policy tools. South Korea’s central bank last week decided not to cut its benchmark interest rate but noted that a more effective response at this stage was targeted support for sectors and companies most affected by the virus.

An area of focus should be the credit markets and upcoming debt rollovers. Corporate debt has soared over the past decade. A first test could come as soon as the start of June when some $200bn worth of debt is due to mature in the sectors most exposed to a slowdown. Airlines and travel groups in particular are worried about losing business during the summer season.

The longer-term economic fallout remains the big unknown. The number of new cases in China appears to have dropped but in Europe and elsewhere they have kept rising. The worry is that the market rout will turn into a credit crunch. If that looks likely, policymakers need to show they are ready to take decisive action.

Barrons : Barron’s Weekend Summary

Barron’s Weekend Summary: Cash-rich companies with durable businesses such as AAPL, MSFT, and GOOGL may offer a haven during the coronavirus outbreak; “Stay at home” stocks like NFLX, ZM, PTON, and WORK are also good options

* Cover story: “The black swan event that Wall Street has long feared materialized with the coronavirus epidemic, rattling equity markets and badly shaking investor confidence after an 11-year bull market,” leaving investors to fear the worst about its impact on the economy and profits; Investors looking for a haven may want to consider companies with cash-rich balance sheets and durable businesses such as Berkshire Hathaway, AAPL, GOOGL, and MSFT.

* Tech Trader: Positive on NFLX, ZM, WORK, PTON: Several tech stocks have been doing well since investors started worrying about coronavirus—they’re included in a basket of “Stay at Home” stocks created by MKM Partners, and are outperforming the S&P 500 by eight percentage points since the virus emerged as a threat.

* Trader: The coronavirus could push the economy into a slowdown or recession, and a rebound, when it comes, might best be used to rebalance investors’ asset allocation and prepare for another downturn, rather than to stock up on supposed bargains.

* Interview: Ron Baron, founder of Baron Capital, says he has “never seen a president so fascinated with envisioning the stock market as the most important element for his re-election”; Baron notes that as a long-term investor, he doesn’t worry about the news, and predicts TSLA could be worth $1.5T by 2023.

* Profile: Katherine Renfrew and Anupam Damani, who manage the TIAA-CREF Emerging Markets Debt fund, like the corporate space, where they can get higher yields with less duration risk than quasi-sovereigns (top 10 countries: Brazil, Mexico, Indonesia, Ukraine, South Africa, Russian Federation, India, Turkey, Ecuador, Egypt).

* Features: 1) Tech companies, apparel makers, and industrial-equipment manufacturers are likely to be hurt most from the coronavirus outbreak, because of their dependence on inputs from China and Southeast Asia, and a prolonged delay in parts procurement would threaten corporate earnings and could imperil companies’ ability to make debt payments; 2) Positive on INTC: Chip giant, which pioneered the practice of investing in venture capital, invests side-by-side with traditional venture-capital firms, but its preferred position as a lead investor also puts the company in competition with Silicon Valley’s top venture firms when it comes to deal flow; 3) Positive on TM: The automaker’s interest in venture capital is part of a growing trend in which corporations place early bets on untested technology, hoping to capture much of the upside—and excitement—that was long reserved for traditional venture-capital firms; 4) As the coronavirus outbreak grows, the outlook for health-care companies has become murkier, and if a patchwork of local epidemics becomes a pandemic, health-care companies will be on the front line and a range of sectors—biotech, pharmaceuticals, health insurers, and hospitals—will face challenges; 5) “As the coronavirus outbreak upends global markets, companies worldwide are grappling with everything from supply-chain disruptions to quarantines that effectively amount to consumer lockdowns”; 6) China’s economy is getting hit much harder by the coronavirus outbreak than markets currently recognize—economic data privately collected by China Beige Book shows that the state of Chinese businesses is significantly worse than investors have assumed for weeks; 7) Landmark retirement legislation passed late last year requires 401(k) statements to show participants how much monthly income they could receive if they use their account balance to buy an annuity—the law gives the Department of Labor a December deadline for prescribing the assumptions to be used; 8) Positive on DIS: Bob Chapek is a logical choice to replace Bob Iger as chief executive, the seventh in the company’s 96-year history—as the head of Disney’s parks business since 2015, Chapek has overseen a doubling of profits, while delivering on high-profile projects.

* European Trader: Positive on Pernod Ricard: The beverage giant is taking a hit in the short-term from the outbreak of coronavirus, which has closed bars and clubs in its key Chinese market, but it is in the midst of structural change that could boost profit margins and the stock price for the long term.

* Emerging Markets: “Emerging market bonds have been a better investment than US government debt lately, as borrowers get their financial houses in order and yields remain three to four percentage points higher.”

* Commodities: OPEC faces a unique challenge from the coronavirus, as the major oil producers prepare for talks aimed at supporting prices and balancing global supply and demand.

* Streetwise: Eric Hagen, an analyst at Keefe, Bruyette & Woods who covers the mortgage industry, says that borrowers who can save at least one percentage point on a mortgage refinancing should consider it.

Barrons : Walt Disney’s Sequel to Bob Iger Looks Like a Hit

Walt Disney’s Sequel to Bob Iger Looks Like a Hit

Bob Chapek is a logical choice to replace Bob Iger as Walt Disney’s chief executive, the seventh in the company’s 96-year history.

As the head of the company’s parks business since 2015, Chapek has overseen a doubling of profits, while delivering on high-profile projects. These include the opening of Shanghai Disney land, the expansion of the California and Florida parks with their huge Star Wars lands, and the rollout of flexible pricing to smooth visitor attendance and increase revenue.

Investors will have two questions: Why is the parks guy the right person for the job, and not Kevin Mayer, who runs Disney’s streaming businesses? Television, after all, has long been Disney’s biggest earner, so with viewers slowly migrating online, the company must succeed with platforms like Disney+, Hulu, and ESPN+.

Also, why the sudden change this past week?

Everyone knew Iger was leaving at the end of next year, but companies usually announce a monthslong transition. Disney (ticker: DIS) announced that Chapek had already been made chief. Barron’s spoke with both Bobs shortly after the announcement.


Chapek prefers to call Disney’s streaming business by its official name, direct-to-consumer, or DTC. “Everything I’ve done in my career has been about the consumer,” he says. “Parks are about as direct-to-consumer as you can get.”

A 27-year veteran, Chapek is no newcomer to Hollywood. He spent the first 19 of those years running top posts in home entertainment, studio distribution, and consumer products.

Mayer was deeply involved in Iger’s transformative acquisitions of Pixar, Marvel Entertainment, and Lucasfilm, and more recently, the BAMTech streaming platform and film and television assets from Fox (FOXA). But keeping Mayer where he is may make Disney better off.

“It could be argued that elevating Mayer would be a mistake, adding significant risk to the DTC business at this crucial juncture by diluting his focus,” Todd Juenger at Bernstein wrote in a note to investors.

And while TV has the spotlight, there is more action at the parks. Wall Street expects Disney’s DTC unit to contribute meaningfully to operating profits by the fiscal year ending in September 2024, earning just under $3 billion. Traditional TV is expected to earn not much more then than now: $7 billion to $8 billion. Movies could make close to $4 billion. Parks, however, are seen earning close to $10 billion—versus less than $7 billion now, and only $3 billion five years ago. “That puts the spotlight on Bob Chapek,” Barron’swrote in December.

For now, Chapek continues to report to Iger, who will remain as executive chairman until his contract ends in December 2021. Iger says he wants to focus on creative work without the distraction of day-to-day operations. “It’s critical that we fuel the pipelines of our DTC business, including overseas,” Iger says. “We obviously start with great advantages, but in the post-Skywalker, post-Avengers era, there’s an awful lot of work to be done.”

Disney shattered box-office records last year, but also wrapped up two of the most lucrative film franchises in history: the Star Wars series featuring Luke Skywalker, and a string of Marvel megahits featuring the Avengers.

The sudden nature of Disney’s transition prompted Twitter speculation about Iger’s potential political ambitions, Disney’s financial prospects, and even the impact of the coronavirus outbreak. Iger is months too late to consider a run for president, and staying on at Disney would seem a bizarre campaign strategy.

As for Disney’s fortunes, its stock peaked at just over $150 in late November, and recently went for $115. Earnings per share are expected to decline this fiscal year through September for a second consecutive year. Coronavirus has played a role. During Disney’s first-quarter earnings call on Feb. 4, the company estimated the closing of its parks in Shanghai and Hong Kong would cost $135 million and $40 million in operating income, respectively, during the second quarter. Obviously, a prolonged pandemic could cost more.

The larger reason that earnings are slipping, however, is that Disney is spending on content and forgoing outside licensing fees to Netflix (NFLX) and others as it ramps up its own streaming services. Wall Street expects Disney to return to double-digit percentage EPS gains beginning in the next fiscal year. The stock sells for 20 times forward earnings.

Our guess about the quick CEO transition is less sensational than the Twitter gossip would have it. Before Iger took the top job in 2005, Disney went through decades of leadership battles. The company’s latest succession effort got messy, ending in 2016 with the departure of its No. 2 executive. Iger had planned to retire in 2018, but agreed to stay on through 2021 to close the deal with Fox.

By appointing Chapek right away, Disney prevented its succession from turning into another drama.

Chapek has a reputation for what some call matter-of-factness, and others, gruffness. Barron’s sat down with him last August. He does not, we can confirm, come across like an Oscar-party raconteur. But he spoke about storytelling being at the center of everything Disney does—something Iger has told us many times. The parks, Chapek said, are where families can go for real-world fun with the characters and places they have seen on their screens.

Iger still has a popularity problem—too much of it—leaving Chapek for now looking like a well-regarded supporting actor thrown into a leading role. Just remember that 15 years ago, when Hollywood kingpin Michael Eisner loomed large over Disney, doubters said similar things about a recently promoted television guy named Iger. Shares have returned over 500% since.

Barrons : Absolut Vodka’s Parent Could Lift Investors’ Spirits With Its Revamp

Absolut Vodka’s Parent Could Lift Investors’ Spirits With Its Revamp

Drinks giant Pernod Ricard is taking a hit in the short-term from the outbreak of coronavirus, which has closed bars and clubs in its key Chinese market.

But the world’s second largest spirits group is in the midst of structural change that could boost profit margins and the stock price for the long term.

The owner of Absolut Vodka, Beefeater Gin, and Jacob’s Creek wine has been a solid performer on the Paris bourse, with shares up 60.6% to €167 ($181) over the past five years. But that has been outdone by the 89.6% rise in the shares of rival Constellation Brands (STZ), the 106.9% increase from Brown-Forman (BF.A) and a 162.9% gain from LVMH Moet Hennessey (MC:France).

Pernod Ricard’s stock (ticker: RI:France) fetches 22.8 times this year’s expected earnings, a price/earnings ratio in line with its peers. But analysts believe it is “one of the few remaining change stories in beverages” with brokerage Berenberg estimating shares could jump 24.9% to its €208 target price. Shares are trading at about €156.

Berenberg analyst Javier Gonzalez Lastra wrote in a January note: “We believe we are in the early stages of an earnings upgrade cycle driven by management’s greater focus on operating leverage.”

Financial firm Jefferies also marked the stock a Buy, with a €190 target price. Jefferies said in a note that “we detect a ruthless commitment to shifting from a growth-only focus to a growth and margin strategy.”

The Paris-based company, which employs 19,300, has a €43.7 billion market value and in August posted €2.5 billion of profit from recurring operations for the year ended June 30, on sales of €9.1 billion.

But at its half-year update earlier this month, Pernod Ricard warned that the coronavirus outbreak would have a severe impact on its third quarter, and it slashed its full-year earnings guidance. China accounts for 10% of group sales, and the company is the biggest international spirits maker in the country.

Fiscal 2019 “was an excellent year, demonstrating clear business acceleration, while investing for long-term value creation,” Chief Executive Officer Alexandre Ricard told Barron’s. The half-year report shows “the resilience of our business model,” he adds.

Pernod Ricard was formed by a merger between two French spirits companies with competing aniseed-based aperitifs. Pernod was founded in 1805 and Ricard was created by entrepreneur Paul Ricard in 1932. The company diversified in the 1970s by snapping up Compagnie Dubonnet-Cinzano and wines. The acquisition drive continued for three decades, which saw Jacob’s Creek, Havana Club rum and Glenlivet whisky added to the portfolio.

It entered France’s CAC 40 index in 2003 and doubled in size in 2005 with the acquisition of Britain’s Allied Domecq in partnerships with Fortune Brands. The 2008 purchase of Absolut Vodka owner Vin & Sprit for €5.7 billion was seen as an expensive but transformational deal.

Last year Pernod Ricard said it would restructure by merging its Pernod and Ricard businesses in France into a single entity, which would lead to some job cuts.

It has also tapped into the trend for craft brands by making acquisitions in high-growth categories that analysts think could unleash new potential.

Initial signs are positive. In 2018 it expanded organic profit margins for the first time since 2013. Berenberg’s Gonzalez Lastra wrote that “we argue that this pace of margin expansion is not only sustainable in the coming three years, but can even be accelerated.”

A possible sale of the non-core wine business, reported by some media, would lift margins. Pernod Ricard hasn’t commented about a sale but uncorking wine would free management to concentrate on more valuable parts of the business.

Barrons : Why U.S. Markets Could Recover Quickly From Coronavirus Hit

Why U.S. Markets Could Recover Quickly From Coronavirus Hit

The stock market isn’t the economy, but it’s hard to ignore the dramatic drops across major equity indexes over the past week—including the fastest correction ever in the S&P 500 from a record high—as the coronavirus spreads beyond China. The latest developments have investors spooked, economists reassessing their forecasts, and markets expecting the Federal Reserve to make it all go away.
Barron’s looked at several economic gauges to try to assess how much of the panic is warranted and what the virus at this point means for the economy and investors. We considered daily traffic congestion and property sales across major Chinese cities, daily coal use by major Chinese power producers, and a daily survey of American consumer confidence. This data, most of it provided to us by China analysts at Gavekal Research, show the obvious: While lockdowns help contain virus outbreaks, they simultaneously halt economic activity. Much of the market’s fear, it seems, has to do with worries that U.S. officials might implement similar shutdowns if the virus spreads here.
“The general fear is the lockdown fear,” says Gregory Daco, chief U.S. economist at Oxford Economics. “It’s a paradox. Authorities are trying to prevent contagion, but to do so they’re resorting to lockdowns.”


If U.S. authorities encourage workers to stay home, close schools, and restrict travel, the economic impact of the virus could morph from what is a supply shock stemming from production interruptions abroad to a separate domestic demand problem, Daco says.

What we can also tell from the China data that Gavekal provided is that traffic congestion, property-sales, and coal-use metrics are bouncing back as China reopens. That should give some solace to investors that the world’s second-largest economy is coming back online. It’s worth noting that coal use and property sales are still above levels notched in early 2019 and 2018.
Some of the earliest indications of whether contagion fear and market declines are affecting U.S. consumers, responsible for about two-thirds of domestic economic output, are surveys of consumer confidence. Economists at Cornerstone Macroeconomics commission a daily measure, which they say remains elevated despite the stock market’s recent weakness. The five-day average as of Feb. 27 was 158, close to the gauge’s all-time high. That’s as the S&P 500 through Thursday’s close lost $3.37 trillion in market capitalization from the record high hit on Feb. 19.
While these four economic measures might suggest market panic is at this point overblown, it may not matter. The speed of the drop in stock prices, and the accompanying sharp deterioration in credit markets, is what matters, said Ian Shepherdson, chief economist at Pantheon Macroeconomics. The degree of tightening of overall financial conditions is now approaching the crunch seen in late 2018—but it has happened over just four days, rather than over three months, he adds.


Markets have fully priced in at least a quarter-point interest-rate cut by March in a hurry, with the implied probability now approaching 30% for bigger cut by then, according to Bloomberg data. That’s up from about a 10% chance in mid-December, before China alerted the World Health Organization of several cases of unusual pneumonia in Wuhan. Even if they’re still forecasting only modest dings to the U.S. economy, and even though Fed officials have been reluctant to signal that they’re worried enough to act, many economists have started to agree with markets.

“This is not the time to wrong-foot markets accustomed to the idea that the Fed won’t let financial conditions tighten aggressively without a response,” Shepherdson said. In other words, he believes the Fed will heed the market’s cries.
Still, the impact of interest-rate cuts shouldn’t be overestimated. Lower rates are a solution for weak demand, which at least for now remains solid. Demand doesn’t need support, but lower rates would encourage investment in rebuilding supply chains, says Carl Weinberg, chief economist at High Frequency Economics. For instance, he says, a company that needs to quickly build a new plant to replace one in China could probably use a cheap loan to make that happen, and a company that has to borrow in a cash crunch during a supply-chain interruption could surely use a low-interest loan, especially considering how leveraged American companies currently are.
To that point, economists at Cornerstone count more than 300 companies that have said coronavirus is having an impact on their business. Apple (ticker: AAPL) and Microsoft (MSFT) are among firms that have warned that current-quarter results will miss targets, making it likely the earnings recovery that had been on track will be delayed. But consider comments from Apple CEO Tim Cook, who said he’s “very optimistic” as Chinese plants reopen and ramp up production. “I think of this as the third phase in getting back to normal,” Cook said on Thursday in a Fox Business interview.

Depending on how you look at it, coronavirus may well wind up being a win for U.S. markets. Plenty of economists say the U.S. economy was doing just fine before the outbreak, and many of them still see a limited impact on the U.S. Goods-level demand is more delayed than lost, and extrapolating the daily China traffic, property-sales, and coal-use trends, even quarantines in the U.S. shouldn’t have long-term effects on activity. Taken together, a rate cut would be some (until recently) unexpected juice for an economy that wasn’t going to get one and that may well escape the virus relatively unscathed.

All of that, of course, can change quickly, as we’ve seen in countries including South Korea and Italy. “You don’t know what you don’t know about what will happen next,” Weinberg says, sentiment that makes it easier to understand why investors over the past week have run for safety.

BArrons : Coronavirus Is Disrupting Supply Chains. These Industries Are Most Vul

Coronavirus Is Disrupting Supply Chains. These Industries Are Most Vulnerable.

Tariffs gummed up global trade routes over the past two years. The coronavirus has now frozen them.

This has the potential to cause an economic shock unlike those that led to recessions in the recent past: the oil spike in 1991 that hit consumer wallets or the credit crunch in 2008 that seized up lending markets. The coronavirus has severely disrupted nearly every link in the global supply chain, from raw materials to components to finished goods, which could lead to curtailed production, product shortages, and financial stress across a range of industries. How manufacturing delays ripple through the economy isn’t so straightforward, however.

Tech companies, apparel makers, and industrial-equipment manufacturers are likely to be hurt most, given that they are most reliant on inputs from China and Southeast Asia. A prolonged delay in parts procurement not only would threaten corporate earnings, but could imperil companies’ ability to make debt payments.

Among individual companies, Apple (ticker: AAPL) and Microsoft (MSFT) warned investors in February that they would miss sales estimates because of supply-chain problems, but didn’t put numbers on the impact. Expect more such warnings in coming weeks.

Read more: Trump administration has dragged its feet on safety regulations that would protect health-care workers against coronavirus

“In the last two decades, China became the factory of the world,” says Girish Rishi, CEO of supply-chain software provider and consultant Blue Yonder. “Consumer packaged goods, automotive, apparel, high-tech. I can’t tell you which sector is not getting impacted.”

That is particularly true now that the virus has spread to other major manufacturing hubs such as South Korea, and Japan, and is starting to move through Europe. China, South Korea, and Japan together account for more than a quarter of U.S. imports—and more than half of American imports of computer and electronics products.

On Thursday, Goldman Sachs revised its U.S. corporate earnings growth estimates down to zero, largely because of supply-chain worries. February survey data show that shipment times from Japan and Europe are already “increasing substantially,” Goldman noted.

Analysts initially quantified the direct impact of the coronavirus on the economy, expecting it would almost exclusively affect China and not spread widely in other nations. The economic dent in that case was relatively simple to pinpoint. Estimates tended to range from $150 billion to $400 billion, or less than 0.5% of global gross domestic product.

Under that scenario, the industries most affected would include travel and tourism providers, and consumer companies selling into China. Shares of the two U.S. companies with the most direct exposure to China as a percentage of sales— Yum China Holdings (YUMC) and Wynn Resorts (WYNN)—have fallen more sharply than the broader market.

Oil companies are reeling, too, because China is the world’s largest petroleum importer. Crude has fallen more than 20% since the start of the year.

Consumers, who account for 70% of U.S. economic activity, might not see the impact of supply-chain disruptions immediately. Instead, inventory shortages would start to show up in company sales. “If your sales are slipping, you’re going to be more reluctant to bring on new workers,” Wells Fargo economist Sarah House says.

An earnings shortfall might also hit balance sheets. “We’ve seen the financial position of the corporate sector deteriorate over the past couple of years,” she says. “Interest coverage on debt has been eroding. A potential shock to earnings could influence their ability to cover that interest expense.”

More than a dozen companies in myriad industries—from technology to toothpaste, agriculture, and toys — have told investors that the coronavirus is disrupting their supply chains. Some have said they are expecting an impact on earnings, but few have quantified that. “Trying to size perfectly the coronavirus impact at this point is incredibly difficult,” CEO Corie Barry said on Best Buy’s (BBY) fourth-quarter earnings call Thursday.

The impact on earnings could vary widely by sector. “Where industries are more balanced in their global footprint for suppliers and manufacturing, they have options,” Rishi says.

The auto industry is relatively insulated from supply disruption, for instance, because several companies have built regional factories to serve local markets, he noted. “My concern right now is really for consumer packaged-goods companies and retailers who have a higher concentration of goods coming from China,” he says.

Apparel and footwear companies are in particular trouble, says analyst John Kernan, an analyst at Cowen. They source about 30% of their goods from China, and other countries in the chain often get raw materials from there. “The supply chain emanates out of Southeast Asia, and China in particular,” Kernan says. “It’s not just the factories. A lot of the materials that go to Bangladesh and Vietnam and other areas emanate from China. It’s a mess.”

So far, retailers’ shelves aren’t going empty, but that might not be far off, he warns. “Eventually, you’ll have a slowdown in goods coming into the country.”

Apparel companies were trading at high valuations coming into the year, adding to the risk in their stocks. “A lot of companies across my space will have to issue guidance reductions,” he says.

Consumer products manufacturers already are discussing delaying product introductions. Normally, they start ramping up new fall launches in January or February, says Suketu Gandhi, leader of the digital supply-chain group at the consulting firm Kearney: “The whole thing is pushed out at least four months.”

Manufacturing companies are also likely to be affected. Engine-maker Cummins ( CMI), Lincoln Electric Holdings (LECO), and industrial-equipment maker Terex (TEX) said at a recent conference that the virus could hurt first-quarter earnings and “spoke to something much more broad-based (i.e. supply chain, customer start-up issues) if it’s not contained in weeks, let alone months,” writes Barclays analyst Adam Seiden. “The virus has flipped a positive to a likely negative that’s not yet reflected in most estimates.”

Tech is threatened, too, and it’s not only big companies such as Apple and Microsoft. Tech equipment maker Jabil (JBL), an important cog in the supply chain for companies including Amazon.com (AMZN), withdrew its financial guidance Tuesday and said that impacted factories were running at just 65% to 70% of capacity.

Potential disruptions could be worse had companies not been paying more attention to their supply chains due to the U.S.-China trade spat. Multinationals have been working on diversifying them for the past three years as U.S. tariffs ramped up.

“At least compared to prior periods of supply-chain disruption, companies seem to be better prepared in terms of their inventory levels,” House says. “That suggests that there’s a little bit more time for this to get sorted out and for shipping and production to resume before we start to see it in the data.”