After Hours Summary: AMKR +16% and RNG +3% up nicely on earnings but ELY -7%, MIME -6% and MELI -5% head lower; WORK -8% gives back some of the big gains it made during regular session
After Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: AMKR +16%, FLDM +15.9%, OMF +2.9%, RNG +2.7%, XPO +2.6%, STE +2%, BHF +0.9%, DVA +0.3%, PSEC +0.3%, VOYA +0.2%LMNX +0.1%,
Companies trading higher in after hours in reaction to news: RPAY +2.5% (acquires Ventanex for up to $50 mln)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: ELY -6.5%, MIME -6.4%, APPS -6.3% (also to acquire Mobile Posse), MELI -4.7%, RPD -4.3%, CHGG -4.1% (also authorizes $500 mln stock repurchase program), MOH -2.6%, VRNS -2.4%, KMPR -2.1%, IIVI -1.7%, BRX -0.9% (also names new CFO), CMP -0.7%, MESA -0.7%, FRT -0.4%, WTS -0.3%, EEFT -0.2%
Companies trading lower in after hours in reaction to news: WORK -7.9% (says IBM has been its largest customer for several years; no update to guidance), XERS -7.5% (commences 6 mln share stock offering), MRNA -6.1% (announces $500 mln stock offering, also announces first patient enrolled in Phase 1/2 study; also announces progress on vaccine modality), ADVM -3.7% (announces $100 mln stock offering), TBPH -3.6% (announces $150 mln stock offering), SLCA -2.4% (reduces quarterly dividend), NYMT -1.8% (files for 40 mln share common stock offering), KALV -1.3% (issues update on diabetic macular edema programs, option with MRK expires)
Closing Stock Market SummaryThe stock market finished strong on Monday, with shares of mega-cap technology companies propelling the S&P 500 (+0.7%) and Nasdaq Composite (+1.1%) to new closing records. The Dow Jones Industrial Average (+0.6%) and Russell 2000 (+0.7%) performed in-line with the S&P 500.
Three names largely behind today's advance were Amazon (AMZN 2133.91, +54.63, +2.6%), Microsoft (MSFT 188.70, +4.81, +2.6%), and Alphabet (GOOG 1508.68, +29.45, +2.0%), which each rose at least 2.0%. Investors presumably remained assured that these tech giants offered a good mix of growth and safety, especially amid the coronavirus outbreak.
In turn, the consumer discretionary (+1.3%) and information technology (+1.4%) sectors were among the sector leaders, as well as the defensive-oriented real estate sector (+1.2%). The energy sector (-0.8%) continued to underperform, as WTI crude ($49.57/bbl, -0.78, -1.6%) fell back below $50/bbl amid lingering concerns about end-demand due to the coronavirus.
Advanced Micro Devices (AMD 52.26, +2.53, +5.1%) outperformed following a speculative report that Apple (AAPL 321.55, +1.52, +0.5%) could use its chips instead of Intel's (INTC 66.39, +0.37, +0.6%) in future Macs. IBM (IBM 154.43, +1.02, +0.7%) will reportedly deploy Slack's (WORK 26.57, +3.58, +15.6%) platform for all its employees.
In M&A activity, Taubman Centers (TCO 53.12, +18.45, +53.2%) agreed to be acquired by Simon Property (SPG 143.06, +2.04, +1.5%) for $52.50/share in cash. Xerox (XRX 37.69, +0.52, +1.4%) increased its offer to acquire HP Inc. (HPQ 21.90, +0.17, +0.8%) by $2.00 to $24.00/share in cash and stock.
U.S. Treasuries posted modest gains, pushing yields lower across the curve. The 2-yr yield declined one basis point to 1.38%, and the 10-yr yield declined three basis points to 1.55%. The U.S. Dollar Index increased 0.2% to 98.85.
Investors did not receive any notable economic data on Monday. Looking ahead, the NFIB Small Business Optimism Index for January and the JOLTS - Job Openings report for December will be released on Tuesday.
- Nasdaq Composite +7.3% YTD
- S&P 500 +3.8% YTD
- Dow Jones Industrial Average +2.6% YTD
- Russell 2000 -0.1% YTD
White House formally releases 2021 budget proposal: proposes $4.8T in spending and reducing deficit to $966B
- Budget assumes 3.1% GDP growth in 2020 and 3% in 2021
- Includes establishment of national uranium reserve
- Proposes new HHS agency focused on tobacco
- Requests $30M of funds for 737MAX-related safety
World economy/stocks: Piketty is right
As share prices soar, the inequality in owning listed companies will worsen
Ownership of the world’s publicly listed companies is in the hands of the few, says the OECD. As stock prices soar, the inequality will worsen. Since 2016, the global economy has grown 14 per cent and world market capitalisation by 34 per cent.
Lex is not making the rookie mistake of comparing stock with flow. Even correlation between growth rates is a stretch. Stocks in Japan, for example, were more driven by the post-crisis financial markets in the early years of last decade than its own economic output. The German index is, appropriately, more attuned to the global car market than the domestic economy.
But the yawning discrepancy in growth rates, allied to the increased concentration of direct ownership in the stock market, still sends a strong message about the real economy and the way money is allocated.
Capital is funnelled to fewer companies, the number of minnow IPOs is dropping, and accrues to fewer pockets. In an already unequal world, as per French economist Thomas Piketty, this bestows more wealth in the hands of those who have inherited it or otherwise already have it.
How responsible are those tasked with marshalling this flow of funds? Ownership is highly concentrated. Institutions own 41 per cent of global stock market capitalisation. In half of the world’s listed companies the three largest shareholders hold more than half the capital. Institutional ownership is especially high in industries like pharmaceuticals and online services.
Big pension and other fund managers corral the savings of hundreds of millions of retail investors. In theory, that grants a voice to those who could never hope to have a say in issues like executive appointments, strategy and approach to environmental issues. In practice, a sprawling portfolio — institutions owned $30tn in aggregate at the end of 2017 — curbs the desire to press for change at any individual holding.
The growth of cheap index funds further reduces scrutiny of individual companies. As one observer puts it: “How much corporate governance do you get for two basis points?” Owners are getting bigger, wealthier and far less accountable.
KKR to sell ultrafast German internet business in €2.8bn deal
EQT and Canadian pension fund Omers to buy fibre network specialist Deutsche Glasfaser
KKR has agreed to sell its ultrafast German fibre internet business Deutsche Glasfaser to private equity firm EQT and Canadian pension fund Omers in a deal that values the company at about €2.8bn, according to people familiar with the matter.
EQT plans to merge Deutsche Glasfaser with Inexio, the German fibre optic network operator the Swedish group bought last year.
There is growing interest in high-speed internet businesses from private equity, with many firms tempted by the prospect of long-term returns from fibre networks as well as the high barriers to entry for rivals.
KKR put Deutsche Glasfaser up for sale last year and originally sought €3bn-€4bn, a person with direct knowledge of the process said at the time. The US buyout group valued the business at €200m when it bought a 70 per cent stake in 2015, another person familiar with the matter said.
Dutch investment company Reggeborgh, which founded the company in 2011, will also sell its 30 per cent stake to EQT and Omers as part of the deal.
The tie-up will create a significant presence in rural Germany’s high-speed internet market as the country’s government seeks to improve its patchy digital infrastructure.
“This is really on the agenda of the government for the next few years . . . we have an opportunity to contribute,” said Matthias Fackler, a partner at EQT, who added that Germany was “lagging far behind” other European countries in the rollout of high-speed fibre internet connections.
EQT will own 51 per cent of the combined group and Omers, which manages assets of C$97bn ($72.8bn) will own the rest. The two said they would invest more than €7bn in the rollout of high-speed internet infrastructure.
Once that investment had been made “we will benefit from very good visibility in terms of cash flow, and relatively high barriers to entry”, said Marco Pugliese, a managing director at Omers Infrastructure. The group would sell direct to consumers and other broadband providers.
Private equity groups are increasingly keen on fibre internet deals according to David Martin, a private equity infrastructure specialist at Linklaters.
“Such opportunities are underpinned as an infrastructure-type investment with more stable long-term cash flows,” he said. “We expect to see increased investment in fibre, the wider asset class and related technologies.”
Last year Omers bought Covage, a French fibre wholesale operator that aims to supply fibre connections to 8m households in France.
Covéa/PartnerRe: cover position
This should be a fuss-free deal, but regulatory approval could complicate matters
No fuss, no blabla. So goes a slogan used by French insurance mutual Covéa. It should be able to take the same straightforward approach to acquisitions. It has plenty of cash and no shareholders to answer to. That should help Exor, holding company of Italy’s billionaire Agnelli family, to strike a good deal. News that it is in talks to sell PartnerRe, the Bermuda insurer for $9bn in cash, sent shares up 6 per cent on Monday.
This is not a transaction that Exor has to do. It is already expecting a big dividend from its holding in FCA, which will soon merge with rival carmaker PSA. Exor will end up with an acquisitions war chest of $12bn-13bn, which boss John Elkann will probably use to diversify away from its industrial business. With asset prices high, finding targets may take time.
But the mooted price for PartnerRe looks more than reasonable: at about 1.3 times last June’s book value, it is roughly a fifth higher than the multiple of rivals Swiss Re or Scor. Exor would chalk up a 30 per cent gain on the $6.9bn paid in 2016, on top of $660m of dividends paid last year.
Regulatory approval could complicate matters. Covéa’s failed attempt to buy Paris-based reinsurer Scor in 2018 led to multiple lawsuits. Even so, Covéa has reason to push for a deal: it would reduce its reliance on the French market. Given the failure of its Scor bid, there are few other targets for its surplus cash.
A bigger question is whether reinsurance looks attractive at this stage in the cycle. Shares of reinsurers have rallied since midway through last year. The hope is that reinsurance rates are hardening. There is less capital chasing this business, as a result of the losses endured in the natural disasters of 2017 and 2018. That optimism may be premature. There is no end in sight to ultra-low interest rates, which enhance the appeal of reinsurance returns. A stampede of capital back into the market would make a disposal by Exor look well timed.