>>> Europe : Brokers Upgrades & Downgrades - 22nd of October 201

>>> Up
* Poste Italiane Raised to Buy at Goldman; PT 13 euros
* SSE Raised to Buy at HSBC; PT 1,480 pence
* Tomra Raised to Hold at SEB Equities; PT 220 kroner
* Umicore Raised to Overweight at JPMorgan; PT 42 euros

>>> Down
* Atlas Copco Cut to Sell at Pareto Securities; PT 320 kronor
* Lanxess Cut to Neutral at JPMorgan; PT 60 euros
* Lloyds Cut to Neutral at Citi
* Mediobanca Cut to Equal-Weight at Morgan Stanley
* Sabre Insurance Cut to Add at Peel Hunt
* TUI Cut to Equal-Weight at Morgan Stanley; PT 1,050 pence

>>> Initiation
* Amundi Reinstated Underweight at Barclays; PT 57 euros
* Aveva Rated New Buy at Panmure Gordon; PT 4,423 pence
* Capital & Regional Reinstated Hold at Peel Hunt; PT 28 pence
* CYBG Rated New Buy at HSBC; PT 160 pence
* DWS Reinstated Overweight at Barclays; PT 34 euros
* Inficon Rated New Buy at Jefferies; PT 759 Swiss francs
* Metro Bank Rated New Hold at HSBC; PT 180 pence
* M&G Rated New Buy at BofAML; PT 260 pence
* Pfeiffer Vacuum Rated New Hold at Jefferies; PT 140 euros
* SIT SpA Rated New Outperform at Mediobanca SpA; PT 9 euros

>>> Call
* Software Analysts See More Selling on ‘Unsustainable’ Valuations
* TUI Cut on 737 MAX Issues, Demand Uncertainty: Morgan Stanley
* Maersk’s Raised Forecast at Least Partly Expected: Jefferies

>>> US After Hours Summary: TACO -10.5%, CDNS +5.5%, AMTD +4.2% am

After Hours Summary: TACO -10.5%, CDNS +5.5%, AMTD +4.2% among notable earnings/guidance movers

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: CDNS +5.5%, AMTD +4.2%, WSFS +2.2%, ZION +1.8%

Companies trading higher in after hours in reaction to news: STMP +20.8% (Stamps.com and UPS to collaborate on shipping solutions to E-commerce sellers), FBP +10.1% (First Bancorp acquires Banco Santander Puerto Rico in transaction with $425 mln base purchase price), KDMN +2.9% (announces FDA approval of CLOVIQUE, a room-temperature stable trientine hydrochloride product), VRTX +2.8% (FDA has approved TRIKAFTA in people ages 12 years and older who have at least one F508del mutation in the cystic fibrosis transmembrane conductance regulator gene), SNAP +1.9% (continued strength ahead of earnings tomorrow), UPS +1.3% (announces multiple tech-enabled services, new customers and partners), CNC +1.2% (authorized the repurchase of up to $500 mln of shares of common stock), TBPH +0.6% (Theravance Biopharma and Mylan to present new data on YUPELRI when administered with formoterol in patients with COPD)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: TACO -10.5%, HXL -1.8%, SITC -2.4% (also commences public offering of 10.5 mln common shares), CE -1.1%

Companies trading lower in after hours in reaction to news: HHC -18.2% (announces transformation plan following strategic review process and names Paul Layne as CEO, effective immediately), TNP -3.1% (files for ~11.67 mln share common stock offering by selling shareholders)

FT : Saks Fifth Avenue owner Hudson’s Bay agrees buyout deal

Saks Fifth Avenue owner Hudson’s Bay agrees buyout deal
Chairman paves way to take store operator out of public spotlight for turnround


Hudson’s Bay Company, the Canadian department store business that also owns Saks Fifth Avenue, agreed to a buyout by a consortium of investors led by its chairman on Monday, in a deal that would allow it to navigate an increasingly challenging retail and real estate market out of the public spotlight.

The consortium offered to buy the 43 per cent of HBC it does not already own for C$10.30 per share, a 62 per cent premium to the group’s share price before the consortium led by executive chairman Richard Baker made its interest in acquiring the entirety of the company known in June.

The deal values the retailer’s equity at C$1.9bn (US$1.45bn). HBC carried about C$6.6bn of net debt as of August, according to Bloomberg data.

The buyout price falls near the low-end of an acceptable range that a special committee of HBC board members had prepared by its advisers, underlining the continued struggles facing retailers, and department store companies in particular.

HBC, which claims the title as the oldest company in North America, must now convince minority investors to approve the offer. Some influential shareholders, including Catalyst Capital Group, a Canadian private equity investment firm, which owns 16 per cent, had come out against an earlier offer from Mr Baker that valued HBC shares at C$9.45 apiece. Catalyst, which complained the initial bid undervalued the retailer’s property interests, said on Monday it was evaluating the latest proposal.

Activist investor Land & Buildings, which also lambasted the earlier buyout proposal as “woefully inadequate”, was also evaluating the new bid. A person briefed on the firm’s thinking said the C$10.30 offer “at first blush seems to undervalue the company”.

HBC has worked to cut its debt burden and breathe new life into some of its brands, including luxury department store Saks, but acknowledged on Monday it would still need to invest “substantial capital” to compete with rivals. The group noted in an investor presentation on Monday that there was little equity value in the company apart from its real estate, including its flagship Saks Fifth Avenue location.

HBC added its work to restructure its business would constrain its ability to return capital to shareholders over the next three years. “The special committee is confident that this transaction represents the best path forward for HBC and the minority shareholders,” said David Leith, who chairs the committee.

Department store operators have watched as the makers of luxury goods do more of their business either in their own stores or through new ecommerce operators such as Yoox Net-a-Porter.

Saks rival Barneys New York, once vital for young and emerging fashion designers wanting to establish themselves, filed for bankruptcy protection this August. Its chief rival, Neiman Marcus, earlier this year restructured its debts to avert a similar fate.

Shares in Toronto-listed HBC had rallied 6.5 per cent on Monday afternoon to just over $10 but remained shy of the agreed price.

FT : Micro Focus/Open Text: small peer

Micro Focus/Open Text: small peer
London-listed software group was built by acquisitions. But more purchases will be difficult


They say good things come in small packages. If so, Micro Focus is getting better by the day. This London-listed software group has halved in value since July, after a profits warning. Canada’s Open Text has scotched talk of a bid. Other potential bidders, like beleaguered shareholders, may puzzle over the value of the company.

At an enterprise value of roughly 3.5 times forecast recurring revenues, excluding upfront licence fees, Micro Focus looks cheap compared with other mature software groups. Open Text, which trades at over 5 times, cannot have liked what it found if it got as far as running the numbers on a takeover. Under UK Takeover Panel rules, the group’s public stance means it cannot easily mount a bid within six months.

Micro Focus shares fell 7 per cent to five-year lows of around £10 on Monday. What might another bidder pay? Open Text offers over 3 per cent growth per annum for its recurring revenues, according to Citi. It deserves its higher valuation. Perhaps if Micro Focus could find top-line growth its valuation would move towards that of its Canadian rival, lifting Micro Focus to £14. That will not happen soon. Micro Focus specialises in buying legacy systems and slashing overheads. Sales growth matters less. Yet cost-cutting will only take it so far in businesses as competitive as cyber security or big data.

Micro Focus has some well-regarded products such as Fortify in security and Vertica and IDOL in data. The last is a remnant of Mike Lynch’s old Autonomy business. These could raise a billion or so dollars. If so, that should bolster the balance sheet, not line the pockets of shareholders including chairman Kevin Loosemore. Last year Micro Focus sold SUSE, its largest division, for $2.5bn. The cash went to investors, when net debt was over two times ebitda, above peers.

Micro Focus was built by acquisitions. But in its current state more purchases, with cash or shares, will be difficult. As such, the Micro Focus package is at best right-sized.

FT : Capital & Counties/Brexit: Candy crush

Capital & Counties/Brexit: Candy crush
Upside for City office properties is clear if London banking exodus fails to happen

London’s Covent Garden is just 1,500m from the rowdy politics of the House of Commons. Traders there will scarcely be bothered by Brexit. Whatever happens, foreign tourists will still pack the former fruit and vegetable market, buying overpriced teas, fashion clothes and the latest Apple gadgetry.

Brexit gloom nevertheless engulfed its owner, Capital & Counties. CapCo’s share price in August was half its level before the 2016 EU referendum. It jumped 8 per cent on Monday, however. That followed news of a possible takeover bid from Nicholas Candy, the colourful London property developer best known for the ultra-prime One Hyde Park development. Unlike shoppers at Covent Garden, he could pick up a bargain.

The central London tourist destination should be Brexit-proof. But Capco has been dogged by its other big project, redeveloping Earl’s Court in west London. The market value of its stake there has fallen 40 per cent in less than two years thanks to local political squabbling and a collapsing residential market. It is eyeing a sale or spin-off.


Mr Candy has spotted an opportunity. Capco reported a net asset value of 315p a share in July. Of that Covent Garden accounts for about 285p, reckon analysts. Applying a 10 per cent premium just to CapCo’s trophy business would justify an offer of roughly 315p a share, even if nothing was paid for Earl’s Court. That would still represent a juicy-looking 50 per cent more than the average share price over the three months until last Friday.

UK property stocks are twitching ahead of a possible resolution of the Brexit impasse. Shares in British Land and Land Securities leapt as much as a 10th last week after Boris Johnson, prime minister, appeared to have found a way out. If the exodus of London bankers fails to materialise, the upside for prime City office properties is clear. Smart retail and residential space might still be weighted by sectoral woes other than Brexit. But Covent Garden, like the UK parliament, will remain a scrum.

FT : Fidelity pulls $500m from Ken Fisher’s investment group

Fidelity pulls $500m from Ken Fisher’s investment group
Clients have pulled $1.8bn in total after controversial comments by Mr Fisher

Fidelity Investments has pulled $500m from Fisher Investments, bringing the total pulled from the investment group to $1.8bn after Ken Fisher made what were considered disparaging remarks about women earlier this month.

Fidelity has terminated the asset manager from managing a portion of its $7.9bn Strategic Advisers Small Mid-Cap Fund, according to a spokesman for the $2.5tn Boston-based fund group. “Assets previously managed by Fisher Investments have been reallocated within the fund,” the spokesman said.

Fidelity is the latest and largest group to dump Fisher Investments after Mr Fisher’s comments. The City of Boston pension pulled $248m, while pension funds representing Michigan, Iowa and Philadelphia have also reportedly pulled assets.*

The sums pulled from Fisher Investments so far represent just a fraction of the $112bn the company managed at the end of June.

Last week, Mr Fisher said through a spokesperson: “Some of the words and phrases I used during a recent conference to make certain points were clearly wrong and I shouldn’t have made them. I realize this kind of language has no place in our company or industry. I sincerely apologize.”

Mr Fisher launched his eponymous investment company in 1979, building it to become a midsized player in the asset management world and sending his personal net worth to $3.9bn, according to Forbes magazine calculations from October 19.

FT : Coty plans sale of professional beauty division

Coty plans sale of professional beauty division
Shares rise as maker of Wella and Clairol aims to cut debt and focus on turnround

Cosmetics maker Coty is exploring the sale of its professional hair and nail products business, including Wella and Clairol, as it seeks to cut debt and simplify its structure after a series of setbacks at the company.

Shares in the US-listed group rose nearly 15 per cent on news that Coty, which is majority owned by investment company JAB Holdings, had hired Credit Suisse to run a sale process for the units. The division caters to professional salons and is expected to generate $2.7bn in revenue this year.

Other brands in the portfolio that Coty is putting up for sale include Good Hair Day (ghd) and OPI nail care products. It is also seeking to sell its Brazilian operation and aims to complete the sales by mid-2020.

Coty hoped to fetch at least $8bn-$9bn from the transactions, one person added, and thought that rival companies in the sector and private equity bidders would be interested in all or parts of the businesses.

The mooted sale is the latest effort by Coty’s backer JAB to fix the business, which has been among the weakest in a portfolio that also includes Keurig Dr Pepper and Pret A Manger.

Coty botched the integration of its 2015 acquisition of Procter & Gamble’s beauty brands for $12.5bn and was forced to write down a quarter of the value of the deal. It also suffered supply chain problems last year, prompting its share price to slide and JAB to replace management.

Coty chief executive Pierre Laubies said the asset sales would “reposition Coty as a more focused and agile company, deleverage our balance sheet, and improve our ability to invest in areas with the greatest growth potential”.

If the professional business is sold Coty will be left with its consumer beauty division, which has been struggling with declining sales as mass-market brands such as CoverGirl lose favour with young buyers, and its luxury business that makes fragrances under licence.

The disposal would unload some of the P&G brands as well as undo a series of acquisitions going back to 2010. The professional division brought in about a fifth of Coty’s annual sales of $8.65bn in the year to the end of June.

Shares in Coty, which has net debt of $7.4bn, struggled over the past year and had fallen below the level of their 2013 initial public offering. Monday’s gains pushed its market value to $8.7bn.

The company’s lower profit margins and weaker growth have left it trading at a significant discount to larger rivals L’Oréal and Estée Lauder, which have seen their shares rise 26 per cent and 47 per cent respectively in the past year.

The company said that proceeds from the sale are expected to be used to reduce its net debt to earnings before interest, tax, depreciation and amortisation from more than 5 times to around 3 times. Additional proceeds would be returned to shareholders, including JAB.

JAB, which manages the wealth of Germany’s billionaire Reimann family, increased its shareholding in Coty to 60 per cent from 40 per cent in April as it attempted to draw a line under a difficult period. The problems at Coty also played a role in the departure of Bart Becht, a managing partner at JAB who left the group in January and who had previously served as Coty’s chairman. 

FT : Saks Fifth Avenue-owner Hudson’s Bay agrees to buyout deal

Saks Fifth Avenue-owner Hudson’s Bay agrees to buyout deal
Executive chairman paves way for store operator to turn round out of public light

Saks Fifth Avenue-owner Hudson’s Bay agreed to a buyout by a consortium of investors led by its executive chairman on Monday, in a deal that will allow the department store chain to navigate an increasingly challenging retail and real estate market out of the public light.

The investor group has offered to buy the shares of HBC it does not already own for $10.30 apiece, a 62 per cent premium to the group’s shares before the Richard Baker-led consortium made its interest in acquiring the entirety of the company known.

The buyout price falls near the low-end of a valuation a special committee at HBC had prepared by its advisers, underlining the continued struggles facing retail and department store companies.