FT : Former Tesla bull warns shares could plummet to $10 (MS note attached)

Former Tesla bull warns shares could plummet to $10
Morgan Stanley caution comes amid growing scepticism on Wall Street

One of Tesla’s longtime fans on Wall Street slashed his worst-case scenario for the stock price to a mere $10, in the latest sign that analysts have begun to lose faith in Elon Musk’s electric-car maker.

Morgan Stanley analyst Adam Jonas said on Tuesday that his new “bear case” for the shares, down from a previous estimate of $97, could materialise if Tesla were to miss by about half his forecast for sales in China. Mr Jonas also raised concerns about a “highly volatile trade situation in the region” and Tesla’s mounting debt load.

“This year’s sharp deceleration in demand has led to a substantial curtailment of the company’s ability to self-fund through free cash flow generation, at the margin potentially impacting the firm’s access to capital,” Mr Jonas wrote in a note to clients.

He added: “We believe as Tesla’s share price declines, the likelihood of the company potentially seeking alternatives from strategic/industrial/financial partners rises.”

Shares in Tesla have dropped almost 40 per cent so far this year. The stock slipped as low as $196.04 in morning trading on Tuesday, down 4.7 per cent on the day, before rebounding.

The cautious view from Morgan Stanley — one of the underwriters of Tesla’s initial public offering in 2010 — comes amid growing scepticism on Wall Street that Tesla can increase profits and meet ambitious sales targets while fighting back competition from traditional automakers.

Wedbush’s Daniel Ives, another former bull on Tesla, warned this week that the company faced a “Kilimanjaro-like uphill climb” to rein in spending, describing the current situation as a “code red”. Mr Ives, who lowered his price target to $230 from $275, knocked Tesla for pursuing “sci-fi projects” such as robotaxis, rather than focusing on shoring up demand for the key product, the Model 3.

Baird’s Ben Kallo said he continued to believe Tesla was positioned to outperform over the long haul. But he too lowered his price target on Tuesday, to $340 from $400, citing “constant noise” around the stock and “a lack of meaningful data points”.

The shift in sentiment has made Tesla the worst-rated stock among the Nasdaq 100, according to Bloomberg data. Analysts have an average rating of 2.75 on a scale of 1 to 5, with 1 being a strong sell. Nearly 42 per cent of the analysts tracked by Bloomberg have a sell rating, compared with less than one-third a year ago. Wall Street’s average price target is $290.94, down from about $320.

Mr Jonas maintained his price target for Tesla shares at $230, with a “bull case” of $391, and an equal-weight recommendation.

Tesla did not immediately respond to a request for comment.

The fall in Tesla’s shares has accelerated this month after the company announced it would raise about $2.3bn by selling common stock and convertible debt. The cash infusion came after sales in the first quarter fell 31 per cent compared with the previous three months, coinciding with moves to lower prices on some models.

The California-based company has also come under renewed scrutiny over Autopilot, its driver-assist software. A US transportation regulator found last week that Autopilot was engaged at the time of a fatal crash in Florida.

FT : Sephora ramps up store openings as it taps ‘beauty revolution’ French cosme

Sephora ramps up store openings as it taps ‘beauty revolution’
French cosmetics chain says customer in-store experience is crucial to success

France’s Sephora is opening up to 150 stores a year as the LVMH-owned beauty and make-up retailer seeks to accelerate its global expansion and keep up with a “beauty revolution”, according to its chief executive.

“Our retail stores are thriving; they’re alive, they’re kicking,” said Sephora chief Chris de Lapuente on Tuesday in an interview at the Financial Times Business of Luxury Summit in Madrid. “We’re opening between 125 and 150 stores every year, and we’re constantly renovating our biggest and best stores.”

Sephora’s investment in physical stores underscores the key role it sees for bricks-and-mortar outlets to engage with customers, as part of an “omnichannel” approach that includes ecommerce and building an online community through social media. The regions that will have the most new stores are North America and Asia; and growth in China is forecast to double in the next few years.

“What matters to us is to build wonderful relationships with our customers and the store is the place where these relationships are created and nurtured,” said Mr de Lapuente. “Experiential retail is very much part of Sephora’s DNA and we will continue investing in it.”

Sephora has enjoyed strong growth in the past few years on the back of soaring demand for cosmetics beauty products that has also benefited big brands such as L’Oréal and Estée Lauder.

LVMH does not break out Sephora’s performance in its results, but last year organic sales in the “selective retailing” division that Sephora is part of rose 12 per cent to €13.65bn (excluding the closure of Hong Kong airport concessions in 2017).

“It’s an extraordinarily dynamic market,” said Mr de Lapuente, a former longtime Procter & Gamble executive who became Sephora’s chief in 2011. “We’re living in a beauty revolution.”

On Friday a Sephora store will open on Times Square in New York, its largest in the country. Last week Sephora reopened its second-largest store in France, in the Paris business district of La Défense, after a major renovation. It is due to reopen its largest store in the world, at the Dubai Mall, on Thursday following an extensive overhaul.

Sephora stocks about 300 brands, including its own private label, in 34 countries. It has 2,500 stores worldwide and employs 40,000 people.

Mr de Lapuente said that, for Sephora, “experiential” retail meant that “when customers come into the stores they have a wonderful experience”.

He added: “I don’t mind if the customer doesn’t buy today, what I care deeply about is that they love their experience in Sephora [ . . .] if they walk out of the store with a smile on their face feeling like they’ve been listened to, they’ve discovered something, they’ve had a wonderful experience, they’ll come back and they’ll buy something next time.”

Ecommerce represents an average of 20 per cent sales in each country, although this can be as high as 30 per cent in some countries and as low as 5 per cent in others, said Mr de Lapuente. Customers who buy both online and offline tend to purchase three times more than those who buy in just one channel, he added.

WSJ : France Goes on Deal Spree, Thanks to ECB Easy Money

France Goes on Deal Spree, Thanks to ECB Easy Money
Regulators are eyeing French companies’ rapidly increasing debt levels


The European Central Bank’s efforts to revive growth have spurred a flurry of investment and deal making. One problem is, a bunch of it is happening outside of Europe.
French companies in particular have been aggressive in using the ECB’s easy-money policies to snap up foreign competitors and to expand overseas, fleeing anemic growth and high taxes at home. French corporate indebtedness has risen so quickly it has drawn the eye of wary regulators.
French corporations spent around $100 billion on foreign acquisitions in each of the past two years, the highest amount since 2008, according to data provider Dealogic. The U.S. was the No. 1 destination for French outbound deals in four of the past five years. Eighteen U.S. deals have been announced or completed by French companies so far this year.
In April, French advertising giant Publicis Groupe SA said it was buying Texas-basedAlliance Data Systems Corp.’s marketing-services business for $4.4 billion, partly funded with cheap debt. Finance chief Jean-Michel Etienne told investors the deal will generate profits from the get-go because of low funding costs.
French drugmaker Sanofi SA SNY -0.62% made two large purchases last year, including of U.S.-based hemophilia drugmaker Bioverativ Inc. for $11.6 billion. Sanofi had increased its indebtedness to around €25 billion ($27.9 billion) by December from €14 billion in 2013. It last tapped the bond market in March, selling €2 billion in notes at interest rates ranging from 0% to 1.25%.

“Obviously, cost of funding is one of the key elements to take into account for debt-funded acquisitions,” a company spokesman said.
Sanofi added that while it has been taking advantage of the low rates, it is able to create enough cash flow, particularly post-acquisition, to repay what it owes.
The ECB’s aggressive stimulus policies, in place since 2014, include negative interest rates and a €180 billion corporate bond-buying program, which stopped expanding last year but continues to reinvest proceeds from maturing bonds.
French food group Danone SA bought U.S. organic-foods producer WhiteWave Foods for $10.4 billion in 2017. It replaced some U.S. debt outstanding at WhiteWave that was carrying a 5.375% interest for a 1.75%-coupon euro bond, “taking advantage of the current exceptionally attractive hybrid market conditions,” it said at the time.
The ECB has purchased the debt of Publicis, Sanofi and Danone, receiving zero or close to zero interest rates on those bonds.
A factor that has held back even greater use of euro debt for overseas purchases is the cost companies pay to convert euros into dollars and hedge interest rate exposure. A derivative used by companies known as a cross-currency basis swap has made it expensive at times to borrow in euros to fund dollar deals.


Sanofi, for instance, also has borrowed in dollars, paying higher rates, but kept the borrowing aligned with revenue it makes in dollars.
France has the biggest number of large, listed corporations in the eurozone, accounting for more than a third of the Euro Stoxx 50 index of leading eurozone stocks. Companies from Germany, Europe’s largest economy, tend to be smaller, reliant on bank borrowing—and more suspicious of debt.

Regulators in France and the ECB are worried that the sharp increase in corporate debt could threaten the region’s financial system. The French central bank has twice ordered the country’s lenders over the past year to set aside more capital against corporate loans.
French corporate debt has surged—to more than 143% of gross domestic product, a 27 percentage-point increase since the 2008 financial crisis, according to data from the Bank for International Settlements. That is even as European companies have generally been paying down debt.
In Germany, corporate debt is 55% of gross domestic product and has been falling. U.S. corporate debt stands at 74% of GDP.

“ECB monetary policy is too loose for France and Germany,” said Joerg Kraemer, chief economist at Commerzbank in Frankfurt. The one-size-fits-all stimulus has shored up growth in southern Europe but fueled excessive lending in some northern countries, he said.
French firms are also using debt markets to lend more to subsidiaries abroad. Intragroup loans more than doubled to 16.9% of GDP in 2017 from 6.7% in 1999, according to ratings firm Standard & Poor’s.

French industrial gas supplier Air Liquide SAhad lent €15.4 billion to group entities at the end of last year, more than double from 2013. Sizable acquisitions in recent years have made the U.S. its biggest revenue contributor.
The flurry of deals represents a late globalization strategy by French corporations mimicking overseas expansion drives by U.S. and German multinationals in the 1980s and 1990s, respectively, said Sylvain Broyer, an economist for S&P Global Ratings.
“It resembles a venture capital strategy,” since French investments abroad deliver much higher yields than foreign investment in France, Mr. Broyer said.

>>> Fed’s Rosengren (moderate, voter): sees no clarion call to alter current pol

Fed’s Rosengren (moderate, voter): sees no clarion call to alter current policy in the near term; Fed can afford to wait and see if economic forecasts materialize - comments in NYC
- Tight labor markets are one reason to expect inflation to rise to the Fed's 2% target; tariffs could lift inflation to 2% more rapidly
- Current policy is slightly accommodative and consistent with inflation returning to 2% target
- Inflation could return to Fed target more quickly if tariffs are imposed- Assumes that unhelpful trade uncertainty will be transitory and have modest effect on US economy
- If US tariffs are widespread and prolonged, the effect on markets and growth would be larger
- Global growth worries have subsided since early 2019

FT : China’s Anbang receives $5.8bn bid for its US luxury hotels Mirae, Blacksto

China’s Anbang receives $5.8bn bid for its US luxury hotels
Mirae, Blackstone and Brookfield among bidders for portfolio of Ritz-Carlton and Four Seasons properties

Chinese authorities unwinding Anbang Insurance have received offers of up to $5.8bn for the conglomerate’s US luxury hotels business from potential bidders including Blackstone and Brookfield, according to people familiar with the sales process.

Seventeen potential buyers, which also include South Korea’s Mirae Asset Management, SoftBank-owned Fortress, and GIC, Singapore’s sovereign wealth fund, have made it to a final round, these people said.

The sale of Chicago-based Strategic Hotels, one of Anbang’s most valuable assets in the US, comes after the insurer was placed under the control of Chinese regulators last year when its founder Wu Xiaohui was jailed for 18 years on fraud and embezzlement charges.

If Blackstone prevailed, it would cap a remarkable series of deals involving the US private equity firm, which bought Strategic Hotels in December 2015 for $6bn before selling it three months later to Anbang, initially for $6.5bn.

The 15 luxury hotels in the portfolio include the Fairmont Scottsdale, several Ritz-Carlton properties including those in Half Moon Bay near Silicon Valley, several Four Seasons hotels, the JW Marriott Essex House on Central Park South in NYC, the Intercontinental in Chicago and the Westin in San Francisco.

The offer range, with a gap of more than $1bn between the highest and lowest bids, suggests a wide range of opinion about the value of the properties and the complexity of the transaction. Some typical buyers of trophy assets, such as Middle Eastern sovereign wealth funds, did not participate. Bank of America is advising Anbang on the sale, which is now scheduled for this summer.

Uncertainty over the US economy is depressing the bids, as is the fact that assets that require heavy capital expenditure are out of favour, according to investors who decided not to bid. People familiar with the bidding said the earnings multiples were higher than that of comparable hotel groups.

Since last year, after Anbang was taken over by what is now the Chinese Banking and Insurance Regulatory Commission, management of Strategic has been in disarray.

In March of last year, David Hogin, the chief operating officer of Strategic, wrote to Anbang requesting approval for the 2018 budget, according to a letter seen by the Financial Times. “Given all the recent turmoil within our parent company, it is critically important that we communicate with [employees] that their salaries and benefits are proceeding in accordance with prior practice,” he wrote.

The price Anbang originally paid to Blackstone was reduced by just over $1bn to about $5.5bn after US regulators barred the Chinese group from purchasing Hotel del Coronado in San Diego as part of the original purchase, citing national security grounds owing to the fact that the hotel was close to a US naval base.

Meanwhile, Anbang-owned Waldorf Astoria Hotel in New York, which is not part of Strategic, remains shuttered while part of it is converted to apartments, even as that part of the real estate market in the city has softened dramatically.

Bankers that lent to another Anbang property, high-end condominiums at 100 East 53rd Street, just a few blocks from the Waldorf, recently classified the loan as non-performing.

Before Mr Wu’s arrest, Anbang controlled 58 companies directly or indirectly with Rmb2tn ($290bn) in assets, according to estimates from UBS.

>>> ANBANG RECEIVES USD 5.8 BN BID FOR ITS US LUXURY HOTELS

Chinese authorities unwinding Anbang Insurance have received offers of up to $5.8bn for the conglomerate’s US luxury hotels business from potential bidders including Blackstone and Brookfield, according to people familiar with the sales process.

Seventeen potential buyers, which also include South Korea’s Mirae Asset Management, SoftBank-owned Fortress, and GIC, Singapore’s sovereign wealth fund, have made it to a final round, these people said.

The sale of Chicago-based Strategic Hotels, one of Anbang’s most valuable assets in the US, comes after the insurer was placed under the control of Chinese regulators last year when its founder Wu Xiaohui was jailed for 18 years on fraud and embezzlement charges.

If Blackstone prevailed, it would cap a remarkable series of deals involving the US private equity firm, which bought Strategic Hotels in December 2015 for $6bn before selling it three months later to Anbang, initially for $6.5bn.

The 15 luxury hotels in the portfolio include the Fairmont Scottsdale, several Ritz-Carlton properties including those in Half Moon Bay near Silicon Valley, several Four Seasons hotels, the JW Marriott Essex House on Central Park South in NYC, the Intercontinental in Chicago and the Westin in San Francisco.


Wu Xiaohui, Anbang's founder, was jailed last year © Bloomberg
The offer range, with a gap of more than $1bn between the highest and lowest bids, suggests a wide range of opinion about the value of the properties and the complexity of the transaction. Some typical buyers of trophy assets, such as Middle Eastern sovereign wealth funds, did not participate. Bank of America is advising Anbang on the sale, which is now scheduled for this summer.

Uncertainty over the US economy is depressing the bids, as is the fact that assets that require heavy capital expenditure are out of favour, according to investors who decided not to bid. People familiar with the bidding said the earnings multiples were higher than that of comparable hotel groups.

Since last year, after Anbang was taken over by what is now the Chinese Banking and Insurance Regulatory Commission, management of Strategic has been in disarray.

In March of last year, David Hogin, the chief operating officer of Strategic, wrote to Anbang requesting approval for the 2018 budget, according to a letter seen by the Financial Times. “Given all the recent turmoil within our parent company, it is critically important that we communicate with [employees] that their salaries and benefits are proceeding in accordance with prior practice,” he wrote.

The price Anbang originally paid to Blackstone was reduced by just over $1bn to about $5.5bn after US regulators barred the Chinese group from purchasing Hotel del Coronado in San Diego as part of the original purchase, citing national security grounds owing to the fact that the hotel was close to a US naval base.

Meanwhile, Anbang-owned Waldorf Astoria Hotel in New York, which is not part of Strategic, remains shuttered while part of it is converted to apartments, even as that part of the real estate market in the city has softened dramatically.

Bankers that lent to another Anbang property, high-end condominiums at 100 East 53rd Street, just a few blocks from the Waldorf, recently classified the loan as non-performing.

Before Mr Wu’s arrest, Anbang controlled 58 companies directly or indirectly with Rmb2tn ($290bn) in assets, according to estimates from UBS.

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Disclaimer
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Crude defences : oil-market-constrains-trumps Iran Talk


Oil traders should once again be reaching for their tin hats. Donald Trump’s contradictory policies – railing against high prices while imposing sanctions that have shrunk the exports of major producer Iran – caused the price of a barrel of Brent crude to whipsaw from $86 to $50 last year. Recent renewed sabre-rattling has lifted the price back above $70. The risk is that the U.S. president mishandles a standoff with the Islamic republic on a misplaced assumption that he can offset a conflict-related squeeze.

Increasingly tough talk by both Washington and Tehran, and the deployment of U.S. troops to the Gulf, has coincided with several flashpoints in the past week. The identity of perpetrators of a May 12 attack on tankers off Fujairah in the United Arab Emirates remains a mystery. Meanwhile, Saudi Arabia has blamed Iran-backed Houthi rebels in Yemen for separate assaults on its oil infrastructure. Yet despite a 2% jump since May 10, a barrel of the black stuff is still cheaper than in late April.

One explanation for the relatively sanguine reaction is that traders don’t believe the United States would risk a serious confrontation. It’s normally cheaper to buy a barrel of Brent crude next month than seven months from now. Right now, however, the opposite is true. Indeed, the premium on short-term oil recently hit its highest level since 2014. That’s a reliable sign of short-term supply shortages. So is the 700 million barrel net long position that money managers have taken in the commodity, according to data from the U.S. Commodity Futures Trading Commission and Intercontinental Exchange.

Fundamental factors support this position. Pipeline contamination that has taken Russian oil off the market has restricted supply in 2019, as have unintentional disruptions in Venezuela and intentional ones in Iran. New sanctions imposed by Trump have cut Tehran’s exports from 2.5 million barrels per day to near 1 million. The U.S. wants to reduce them to zero.

Yet a conflict could affect traffic through the Strait of Hormuz. Oil equal to a fifth of global consumption passes through the narrow passage between Iran and Oman. Any disruption would lead to a spike in prices.

The U.S. president may feel he has scope to act tough. One reason for tight supply is that Saudi Arabia is currently pumping over 2 million barrels of oil per day less than its capacity of 12 million barrels per day, the result of cuts implemented by the Organization of the Petroleum Exporting Countries and allies like Russia to get rid of last year’s supply glut.

Trump has even more leverage over Riyadh than usual to press for the taps to be opened if necessary. After all, the president publicly exonerated Saudi Crown Prince Mohammed bin Salman from blame for the murder of journalist Jamal Khashoggi by Saudi agents last year. Most Gulf states have minimal trade links with Iran, according to Capital Economics. Trade war tensions that weigh on global economic activity will also help keep a lid on oil prices, as will America’s own rapidly growing crude output.

Yet Trump’s hedge against an Iran-related price spike is far from perfect. Saudi might hesitate to annoy fellow OPEC members by opening its pumps. Practical constraints also mean Riyadh can only ramp up production by 1 million barrels per day in the near term – enough to offset a total halt to Iranian exports, but not to stop prices shooting up if war breaks out. And while the International Energy Agency reckons U.S. shale oil could provide three-quarters of the growth in global supply to 2024, this is so-called light crude. Many U.S. refiners are set up to process heavier grades that largely come from the Gulf and Venezuela. A war could therefore still push up the price of diesel which powers trucks and heavy industrial machinery.

Trump may conclude that forcing regime change in Iran is more important. But if the president is still focused on keeping oil prices down, he has little scope for more than sabre-rattling.