Gapping down
In reaction to disappointing earnings/guidance:
- N/A.
Select metal producers trading lower:
- MT -4.5%, FCX -2.7%, BBL -1.7%, RIO -1.7%, X -1.5%, BHP -1.3%
Other news:
- FLXN -3.7% (PDUFA for ZILRETTA sNDA extended -- review expected to be completed in the coming weeks)
- BBBY -1.3% (cautious view in Barrons)
- EIDX -1.3% (BridgeBio Pharma (BBIO) terminates merger process with Eidos Therapeutics after being unable to come to an agreement with its Special Committee)
Analyst comments:
- CRWD -5.8% (initiated with a Sell at Citigroup)
- IPGP -3.4% (downgraded to Hold from Buy at Needham)
- AMTD -2.1% (downgraded to Sell from Neutral at Citigroup )
- FAST -2% (downgraded to Mkt Perform from Strong Buy at Raymond James)
- MHK -1.9% (downgraded to Underperform from Market Perform at Wells Fargo)
- PODD -1.6% (downgraded to Neutral from Buy at BTIG Research)
- BX -1.3% (downgraded to Neutral from Buy at BofA/Merrill)
- EQR -0.8% (downgraded to Underperform from Neutral at Robert W. Baird)
- DAL -0.6% (downgraded to Equal-Weight from Overweight at Stephens)
Gapping up
In reaction to strong earnings/guidance:
- N/A.
Select metals/mining stocks trading higher:
- AU +2.2%, HMY +2.1%, GOLD +2%, GFI +1.3%, FSM +1.3%, PAAS +1.1%, GDX +0.8%, GLD +0.5%, .
Other news:
- CERC +15.4% (to sell pediatric portfolio to AYTU BioScience (AYTU) for more than $32 mln)
- CNCE +5.4% (presents results from recently completed Phase 2 dose-ranging trial of CTP-543 in patients with moderate-to-severe alopecia areata)
- RGNX +4.5% (reports positive interim Phase I/IIa Trial update for RGX-314 )
- ACM +2.3% (divests its Management Services business for $2.405 bln; provides FY19 and FY20 oultook)
- AMC +1.2% (hires new CFO)
- LLY +0.6% (announces that Taltz met co-primary endpoints)
Analyst comments:
- PLNT +2% (upgraded to Outperform at Imperial Capital)
- XLNX +1.9% (upgraded to Buy from Neutral at Nomura)
- WDC +1.7% (upgraded to Buy from Hold at Loop Capital)
- NKE +0.7% (upgraded to Neutral from Underperform at BofA/Merrill)
Early premarket gappers
- Gapping up:
- SES +54.3%, YNDX +2.7%, AU +2.5%, HMY +2.4%, NVO +1.9%, GOLD +1.5%, GFI +1.5%, WDC +1.5%, ACRS +1.4%, PLNT +1.4%, FSM +1.3%, PAAS +1.1%, GDX +1%, AZN +0.7%, NEM +0.7%, GLD +0.7%
- Gapping down:
- MT -4.7%, LYG -3.1%, RBS -2.7%, FCX -2.6%, PODD -2.2%, FAST -2%, FMS -2%, BCS -1.6%, BBL -1.6%, RIO -1.5%, BX -1.4%, BBBY -1.3%, BHP -1.3%, NVS -1%, DAL -1%, BUD -1%
Private equity must show more transparency
Politicians are right to shine the light on the industry’s practices
Private equity has often suffered from a poor image. A decade ago the industry’s players were vilified in Germany as “locusts”, accused of over-zealous cost-cutting and brutal job losses. They were charged with generating huge returns by loading the companies they bought with too much debt — and making their money by financial engineering rather than management expertise. The intervening years have seen hostilities tail off, along with a rising demand from companies for new types of finance. German companies have been at the centre of some of the industry’s largest deals this year.
In the US, however, buyout funds are back in the political crosshairs. Democratic presidential hopeful Elizabeth Warren has described private equity groups as “vampires” and proposed making firms liable for the debt of the portfolio companies they buy. It would be easy for buyout groups to dismiss such attacks. They would be wrong to do so.
Politicians’ interest in the more dubious tactics employed by private equity increases in line with its expanded role in the economy. The industry owns assets in every sector, from critical infrastructure to retailers. Persistent low interest rates have helped funds raise large sums of money; recent figures show they have up to $2.5tn to spend. At the same time, the number of public companies is shrinking.
With this greater power should come greater accountability. As Ms Warren has made clear, politicians cannot be happy when private equity funds are in essence making a one-way bet: risking a thin sliver of their own money as equity and providing the rest of the finance their companies need with debt, then walking away from investments that go wrong. In some cases critics claim private equity companies have deliberately exploited the limited liability company regime to pay themselves big dividends from increased debt before an investment collapses.
One way forward is for the underlying investors in private-equity funds to demand to know more. Pension funds and others often pay high fees in exchange for what they are told is better management. But that is difficult to measure.
A recent report by researchers from institutions including Harvard University found there are significant differences in performance based on the type of buyout, so there is no one-size-fits-all prescription. The same report found that private equity ownership typically results in significant job and wage losses for incumbent workers on the one hand but gains in productivity on the other.
Another report, by the Milken Institute, studied the performance of a small group of companies after private equity sold them via an initial public offering. It found that, on average, PE-backed companies created more returns than their non-PE owned peers after their initial listing. In the industry’s defence, many companies have flourished under private equity ownership. Listed companies often have to deal with fickle investors that may not have the longer-term view that a private equity fund can bring.
Clearer evidence is needed to show it is indeed better management by private equity that delivers superior results, not financial engineering. In some cases, such as the water industry in the UK, regulators have made moves to limit leverage and curtail dividend payouts. Ms Warren’s call for change has resonated at a time of wider debate about the purpose of business. It is time for private-equity barons and their investors to show greater accountability, or face drastic change.
China new energy vehicle sales drop 34%
Purchases fell for third consecutive month following government cuts to subsidies
New energy vehicle sales in China, the world’s largest car market, fell for the third month in a row as a slowdown in the overall market expands to electric vehicles following cuts in government subsidies.
Sales of NEVs — which include hybrids and fully electric cars — sank 34.2 per cent in September from a year earlier, according to the China Association of Automobile Manufacturers.
Beijing has made expanding China’s NEV market a strategic goal and has provided strong policy and subsidy support to both buyers and manufacturers, sparking a spike in the production of cheap, low-quality electrified cars.
But changes to the subsidy regime, announced in March, that limited support to only a handful of top-performing marques, have raised doubts about the longevity of a number of Chinese electric carmakers.
The Chinese government handed out Rmb22bn ($3.1bn) in subsidies to electric carmakers in 2017, according to statistics from the Ministry of Industry and Information Technology released on Friday. China’s largest bus company, Yutong, and the top global electric car maker by sales, BYD, were the biggest beneficiaries, receiving Rmb4.6bn and Rmb3.6bn respectively.
Nio, once considered a rising star in China’s crowded electric car market, was forced to raise $200m last month from its chief executive and one of its leading shareholders, technology group Tencent, following a disastrous quarter. The company slumped to a Rmb3.3bn net loss in the three months to June, which it blamed on poor demand for its vehicles and services in the slowing market.
The industry slump has deepened in part due to poor consumer sentiment spurred by slowing overall economic growth and Beijing’s trade row with Washington. It has been exacerbated by the absence of expected policy support ranging from the loosening of restrictions on cars in major cities to renewed subsidies for new buyers.
The tough conditions are expected to begin forcing consolidation in the market, analysts say, with the possibility of a number of smaller electric carmakers suffering losses or facing bankruptcy.
Passenger vehicles sales in China have now fallen for 15 consecutive months. According to CAAM, sales of traditional engine cars fell by 5.2 per cent in September — typically an upbeat month for car sales in the country after the end of summer. Monthly sales of NEVs in China fell in July for the first time in more than two years.
Sales growth in China went into reverse in mid-2018 for the first time since the 1990s due to the end of tax breaks for small engine vehicles.
To issue a convertible bond at least CHF20M with possibility to increase the total amount up to CHF25M
- Net proceeds will be used for refinancing of convertible bond issued in 2015, financing of possible acquisitions and for general funding purposes
- Final terms are expected to be fixed and communicated on 30th Oct
- Convertible bond will issued be for the 5-years term
US private equity group to buy Sophos for £3.1bn
Latest in a wave of investments by software-focused buyout group Thoma Bravo
US private equity group Thoma Bravo has agreed to buy Sophos in a deal which values the British cyber security group at £3.1bn including net debt.
The deal is the latest in a wave of investments by the software-focused American buyout group, which has made a series of aggressive bets in recent years, and its first outside of the US.
Sophos shareholders will receive $7.40 in cash for each share, a premium of 37 per cent to the company’s closing price on Friday, the companies said in a statement on Monday morning.
The deal would cap a brief stay on the public markets for Sophos, which was floated by private equity group Apax Partners in 2015 for £1bn in one of the UK tech sector’s most high-profile IPOs.
The Oxfordshire-based business, which sells security software to small and medium-sized businesses, has faced a bumpy 18 months: shares tumbled in last November and again in January after it warned on slowing growth, but have since staged a limited recovery.
“Thoma Bravo has deep sector expertise in cyber security software as well as a long and successful record of partnering with and investing in its portfolio companies to support long-term growth and success,” said the group’s chairman Peter Gyenes.
For San Francisco-based Thoma Bravo, the deal offers greater exposure to the growing cyber security market. It currently manages private equity funds representing more than $35bn of capital, and has completed more than 200 acquisitions representing over $50bn in enterprise value, including a $3.7bn deal in February to buy US financial group Ellie Mae.
“The global cyber security market is evolving rapidly, driven by significant technological innovation, as cyber threats to business increase in scope and complexity,” said Seth Boro, a managing partner at Thoma Bravo.
The Big Problems with Fast Fashion
This week, everyone will be talking about online retailer Asos' latest results and fashion weeks in Shanghai, Seoul and Tokyo. Get your BoF Professional Cheat Sheet.
- Asos reports fourth quarter and full-year results on October 16
- The company has issued two profit warnings since December, tied to logistical problems outside its UK home market
- Asos shares are down about 50 percent in the last year
Forever 21’s bankruptcy sparked a lot of talk about how online fast fashion retailers are swallowing the low-end apparel market whole, but some of the biggest e-commerce players are struggling as well. Asos issued a profit warning in July and shook up its board earlier this month. It blames problems at a new warehouse meant to support an ambitious US expansion; instead, out-of-stock items and shipping delays hurt sales. One of the new board members is the CEO of Ocado Solutions, an e-commerce logistics platform, indicating Asos still sees work to do on the backend. The company can't afford any more missteps, with rival Boohoo surging and incumbents Zara and H&M investing heavily in e-commerce.
The Bottom Line: Online fast fashion is primed for disruption, too, from rapidly growing peer-to-peer secondhand marketplaces. Why buy fast fashion when slightly better, if slightly used items are available on Depop?
>>> Up
* Bollore Raised to Buy at HSBC; PT 4.50 euros
* Hochschild Mining Raised to Hold at Berenberg
* MTG Raised to Buy at Handelsbanken; PT 90 kronor
* Saipem Raised to Outperform at Mediobanca SpA
* Senior Raised to Buy at Peel Hunt
* SGS Raised to Buy at Bank Vontobel; PT 2,800 Swiss francs
>>> Down
* Akasol Cut to Hold at Bankhaus Lampe
* Asos Cut to Sell at Shore Capital
* Ocado Cut to Underweight at JPMorgan; PT 1,050 pence
* Proximus Cut to Sell at Citi
* Repsol Cut to Neutral at Mediobanca SpA
* Tenaris Cut to Neutral at Mediobanca SpA
>>> Initiation
* Orsted Rated New Outperform at Wells Fargo; PT 750 kroner
>>> Call
* Virbac Guidance Lift Welcome, Supports Long-Term View: Jefferies