FT : France and Germany move forward on next generation fighter


France and Germany have moved ahead with plans for a next generation fighter jet, announcing a €65m contract award to Airbus and Dassault Aviation.

Under the terms of the agreement, unveiled by the French and German defence ministers at a meeting in Paris on Wednesday, the two companies will undertake a joint concept study for a “Future Combat Air System” (FCAS).

The initial contract will run for two years and kicks off the Franco-German programme in earnest. French President Emmanuel Macron and German Chancellor Angela Merkel first announced plans for a next generation manned combat aircraft programme in July 2017, to include a fighter jet as well as a range of associated weapons, including drones. The aim is to replace France’s current jet, the Rafale, and the pan-European Eurofighter Typhoon, from 2040. France’s Safran and Germany’s MTU Aero Engines will jointly develop the new jet’s engine.

The programme is “one of the most ambitious European defence programmes for the century”, said Dirk Hoke, chief executive of Airbus Defence and Space.

Eric Trappier, chairman and chief executive of Dassault Aviation, said “this new step is the cornerstone to ensure tomorrow’s European strategic autonomy”.

The agreement will increase pressure on the UK to move ahead with its own programme for a next generation jet, dubbed Tempest.

FT : US private equity: carry on

US private equity: carry on
Rearranging lines in a ledger cannot undo a fundamental mismatch

The Masters of the Universe told us private equity was a simple cash-in, cash-out business. Alas, a decade or so on from the big US buyout groups — Blackstone, KKR, Apollo Global, Carlyle Group — starting to list their shares, anything but simple has been proven the case.

The P&L complexity is just one reason public market investors have failed to warm to the large alternative asset managers whose stock prices have not exactly soared since their listings. This has, regrettably, denied a few billions of dollars more of wealth from the likes of famed founders such as Leon Black, Henry Kravis and Stephen Schwarzman. What a pity.

But financial engineers cannot help but financially engineer. The latest manoeuvre — evident as the four companies announced earnings in the past week — to get public investors excited about private equity stocks is to dump a longstanding measure of earnings called economic net income. Who knows if it changes the valuation dynamic. But rearranging lines in a ledger cannot undo the fundamental mismatch. Stock market investing is a quarter to quarter exercise lined up against private market investing that has a horizon of several years.

The economic net income metric previously favoured included mark-to-market gains and losses. That meant investments that were not anywhere near being harvested were included in profits. Blackstone, for example, reported ENI of $3.4bn in 2017 versus $2.2bn in 2016. Now Blackstone and its rivals prefer a metric called “distributable earnings”. This, while also volatile, is a more cash-like measure comprising management fees and realised gains from investments.

The ugly reality for these groups is that public market investors have never appreciated the fat but erratic gains from buyouts called carried interest. Yet another accounting metric called fee-related earnings — the steady but far more modest management fees charged — is what investors have in reality zeroed in on.

Defining these sundry accounting artifices takes up pages and pages in investor decks. And while the addition and subtraction is not excessively complicated, it is mind-numbing nonetheless. But the situation need not be so complex. These firms should emphasise the simplest cash metric available: dividend yield. Apollo, Blackstone and Carlyle are each paying between 6 and 7 per cent.

WSJ : 2018 Was Fourth-Hottest Year in Modern Records, U.S. Government Scientists

2018 Was Fourth-Hottest Year in Modern Records, U.S. Government Scientists Say
National Aeronautics and Space Administration, National Oceanic and Atmospheric Administration release annual temperature data

WASHINGTON—The past five years have been the hottest in modern records, federal scientists said, the latest in a string of warnings over the impact of climate change on the planet.

In a new annual federal climate report released Wednesday, researchers from the National Aeronautics and Space Administration and the National Oceanic and Atmospheric Administration, which independently track annual climate trends for the federal government, said 2018 was the fourth-warmest year since 1880. The record was set in 2016, followed by 2017 and 2015, with historic changes largely from greenhouse-gas emissions from human activities, the agencies said.

The report comes during a year of extreme storms, floods and fires across the country. NASA scientists linked the extreme weather to rising temperatures, saying the warming extended fire seasons and fueled bigger storms.

Unchecked, climate change could cause U.S. economic losses totaling hundreds of billions of dollars a year by the end of the century through water shortages, floods and fires, the U.S. National Climate Assessment said in November.

Also, a United Nations report earlier in the year said humans must take unprecedented global efforts within a decade to avoid the worst effects.

“The impacts of long-term global warming are already being felt—in coastal flooding, heat waves, intense precipitation and ecosystem change,” Gavin Schmidt, director of NASA’s Goddard Institute for Space Studies in New York said in a news release.

Washington remains deeply divided over how to address climate change. The Trump administration, which withdrew the U.S. from the Paris Climate Accord, is advancing plans to overturn Obama-era environment rules on coal-burning plants, enraging environment groups who blame burning fossil fuels for raising temperatures. Democrats, now in control of the House of Representatives, have pledged to pursue policies to address climate change in any legislation to improve the nation’s infrastructure.

>>> Ampaire weighs options for capital raise at higher valuation as it attracts

Ampaire weighs options for capital raise at higher valuation as it attracts interest and soft commitments, CEO says
06 FEB 2019
Ampaire, the California, Los Angeles-based electric plane technology company, is considering delaying its Series A round in order to boost its valuation pending the results of its first flight test in 1H19, co-founder and CEO Kevin Noertker said.
The company is attracting investor interest and has already received soft commitments, Noertker said.
Ampaire said in 2018 it is planning to raise USD 10m to USD 30m in the Series A equity round.

“If there are good terms before we fly, we might take them [investors] or otherwise we may wait to see the valuation jump after the flight so that we can justify a higher valuation,” Noertker said. The startup plans to conduct its flight test in 1H, he added.
Comparables managed to raise up to USD 10m in a Series A round prior to their flight test, an amount rising to USD 20m - USD 30m or even up to USD 90m afterwards, Noertker said.
Germany-based Lilium Aviation, a comparable but not a competitor which develops electric vertical take-off and landing jets, raised USD 90m in September 2017 after its first flight, Noertker said.
Traditionally industry companies are selling stakes of 20% - 35% in the Series A rounds, he said.
Proceeds from the upcoming round will be used to scale its system to at least one larger plane and to prepare the technology for the regulatory approval process, Noertker said.

Ampaire raised USD 3.75m in a seed round in June 2016, Noertker said.
The company is keen to gain a balanced portfolio of strategic investors who could provide supply chain expertise or support Ampaire on the regulatory side, the CEO said.

Parties ranging from battery pack or battery cell manufacturers to aviation supply chain businesses or others that own or lease aircraft to airlines are potential investors, Noertker said, emphasising that hardware manufacturers were not the only potential investors.

It also welcomes interest from venture capital groups and would consider well-aligned PE firms, he added.

Inbound interest
Ampaire has already attracted the interest from parties that are considering investing before the test flight, the co-founder said. It has also secured soft commitments, he said, including some made regardless of the test outcome, he added.

Multiple future exit opportunities exist, either to engine or airplane manufacturers, Noertker said.
Ampaire has developed a technology to retrofit fuel-burning aircraft to electric. Its technology has the capacity to electrically power single- or dual-engine regional aircraft that typically carry between five and 19 passengers and travel less than 100 miles. It has 12 employees and the year-end target is to double in size in parallel with the round, according to the CEO.

The startup has a six-seated airplane in its original configuration, which it plans to use in the test. It has already done baseline flight-testing with the conversion retrofit of existing airplane, which is ready to have Ampaire’s electric propulsion system installed, according to Noertker. The system is still undergoing ground testing, he added.

The first plane will be six-seated and it has a nine-seat and a 19-seat on the pipeline, according to the CEO. Right now the regulatory barrier in the US is 19 seats, he said, adding that a 40-seat could be a quick step, which would be followed with 50 or 70 passenger aircraft.

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:

  • ARLO -29.5%, EA -16.6%, TCS -16.2%, MTSI -15.5%, USNA -8.9%, SFLY -7.1% (also undertaking strategic review as co has been approached about an acquisition; CEO to step down in August), SPOT -6.8%, SU -6.5%, HIW -5.4%, NANO -4.5%, TENB -4.2%, APC -4.2%, CG -3.9%, MYGN -3.7%, SAVE -3.1%, DATA -3%, MXL -2.4%, EQNR -2.3%, ICL -2.2%, LBRT -2.1%, VNOM -1.8%, GNW -1.7%, CMI -1.6%, LLY -1.2%, HCSG -1.1%, APU -1%, TM -1%

Other news:

  • VNDA -12.9% (files complaint against the FDA for 'requiring unnecessary studies that would result in the death of dozens of dogs without legal authority')
  • AGLE -12.8% (prices 3.75 mln shares of common stock at $8.00 per share)
  • ATVI -6.3% (following EA results)
  • APHA -6.2% (rejects hostile bid from Green Growth Brands)
  • PDD -4.7% (announces proposed follow-on public offerings of 37,038,000 American Depositary Shares and 14,815,000 ADSs by selling shareholders)
  • RCL -1% (indicated lower on block trade pricing)
  • TSLA -1% (lowers price of Model 3)

Analyst comments:

  • MTCH -3.7% (downgraded to Hold from Buy at Deutsche Bank)
  • PBI -2.9% (downgraded to Neutral from Buy at Northcoast)
  • MHO -1.8% (downgraded to Mkt Perform from Mkt Outperform at JMP Securities)
  • VSH -1.4% (downgraded to Neutral from Buy at BofA/Merrill)
  • GNRC -1.3% (downgraded to Mkt Perform from Outperform at William Blair)
  • PYPL -1.3% (downgraded to Neutral from Buy at Guggenheim), IT -1.1% (downgraded to Market Perform from Outperform at BMO Capital Markets)
  • EL -0.8% (downgraded to Hold from Buy at Berenberg)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance:

  • SNAP +23%, ZEN +11.2%, CPRI +10.7%, VIAV +9.9%, PLT +8.9%, SKY +8%, PAYC +7.8%, SWKS +7.3%, ING +5.3%, TRVG +5.2%, MCHP +4.7%, ATKR +3.9%, HCLP +3.8% (also establishes record date for proposed conversion from a Delaware limited partnership to a Delaware corporation), BE +3.4% (announces new distributorship agreement with SK D&D in Korea), REGN +3.3%, VRTX +3.2%, BRKS +2.7%, CETV +1.6%, PAA +1.4%, GSK +1.3%, HUM +1.2%, CTSH +1.1%

Other news:

  • MGNX +98% (positive results from SOPHIA, a Phase 3 clinical study of margetuximab in HER2-positive metastatic breast cancer patients)
  • CDXS +3.7% (announces multi-year, exclusive supply agreement with KYORIN Pharma for the supply of a proprietary enzyme to be used in the manufacture of vibegron) I +3.6% (after seeing late move higher)
  • AXSM +3.6% (reaches agreement with the FDA under a Special Protocol Assessment for MOMENTUM Phase 3 trial of AXS-07 in the acute treatment of migraine)
  • CLF +2.3% (ticking higher after Vale declared force majeure on a number of related iron ore and pellets sales contracts as a result of the temporary suspension of the Brucutu mine production), FOLD +2.3% (announces positive data in Pompe disease phase 1/2 study)
  • TWTR +2% (following SNAP results)
  • TAK +1.7% (reports results of Phase IIIb/IV Trial PROPEL)
  • QRVO +1.5% (following SWKS results)
  • AMRS +1.5% (after surging 70%+ higher today), CSL +1.2% (authorizes buy back up to an additional 5 mln shares of common stock)
  • SWN +0.9% (releases 2019 guidance - plans for capital investment of $1.08-1.18 bln and total production of 2,055 -- 2,151 MMcfe/d)
  • RIO +0.3% (ticking higher after Vale declared force majeure on a number of related iron ore and pellets sales contracts as a result of the temporary suspension of the Brucutu mine production)

Analyst comments:

  • MRNS +12% (initiated with a Outperform at Leerink Partners; tgt $10)
  • AX +2% (upgraded to Buy from Neutral at Compass Point)
  • MIK +2% (pgraded to Buy from Hold at Loop Capital)
  • NCLH +1.8% (upgraded to Overweight from Equal-Weight at Morgan Stanley)
  • CHD +1.2% (upgraded to Neutral from Sell at Goldman)