WSJ : Square Is the Next FANG, and Other Signs of Market Euphoria

Square Is the Next FANG, and Other Signs of Market Euphoria
Shares of payments company Square have nearly tripled this year and are starting to look untethered from reality

Square is a solid success story, but should it be valued on par with, or even at a premium to, some of the most successful companies of our time? The market and at least one analyst appear to think so.

Shares of the payments company founded and run by Twitter Chief Executive Jack Dorsey are up 173% this year. Earlier this week Nomura Instinet analyst Dan Dolev poured gasoline on the fire with a note saying Square should join the ranks of the famous FANG stocks— Facebook , FB 1.24% Amazon, Netflix and Google—which have dominated market gains in recent years.

The note’s flashy headline was picked up widely by media outlets including CNBC, sending Square shares up 11% in one day.

The entire episode is reminiscent of the late 1990s, when analysts would slap arbitrarily high price targets on rising stocks, hatching up novel valuation arguments and relying on relative comparisons to other overvalued companies.


“Trust me, if we were back in the late ‘90s, I’d be in good shape,” said Mr. Dolev in an interview. “This is no Pets.com. There’s real growth and profits here.”

Mr. Dolev points to the company’s displacement of traditional merchant acquirers, or companies that help merchants accept card payments. He sees Square growing revenue by an average 45% over the next three years as it signs up more large merchants, not just the small businesses that have been its mainstay.

The note cites a novel metric of “price-to-sales-to-growth,” or market value divided by sales divided by forecast sales growth, to argue Square is actually cheap. This rarely seen measure, at 0.18 before Square’s run up this week, is less than that of Facebook at 0.23, Google at 0.27 and Netflix at 0.28, Mr. Dolev says.

Mr. Dolev concludes by raising his price target on Square to $125 from $86, based on a lofty 14 times estimated sales in 2021. Square stock currently trades around $95. Competitor and fellow investor darling Worldpay trades at eight times this year’s sales.

It is easy to poke holes. The growth forecast is of course uncertain. Established merchant acquirers like Worldpay and JPMorgan Chase , plus innovative players like PayPal , will compete fiercely for every merchant dollar. Other FANG stocks are arguably overvalued themselves.

Even the relative valuation argument falls apart when profits rather than sales are considered. Square’s price-to-earnings-to-growth—the more commonly cited PEG ratio—stands at 2.86, according to FactSet, based on forecast earnings for the next 12 months. That compares to 1.48 for Netflix and 1.51 for the whole FANG group.

When a stock is priced at a 93% premium to Netflix, even on a measure that takes into account expected growth, it is a sign the stock, and in this case the overall market, is frothy. Investors should brace for a return to reality.

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:

  • BBBY -16.5%, CMTL -9.6% (promotes Michael Porcelain to Chief Operating Officer and Michael Bondi to Chief Financial Officer), CAG -6.4%, FUL -5.2%, PM -0.6%, ACN -0.5%

Other news:

  • GERN -62.4% (announces discontinuation of Imetelstat collaboration by Janssen)
  • CCXI -10.5% (ticking lower; announces proposed offering of $75 million in common stock)
  • KRP -9.8% (thinly traded; commenced 3 mln common unit underwritten public offering )
  • ROYT -6% (light volume after declaring lower monthly distribution)
  • ALDX -1.9% (to offer 5.25 mln shares of common stock in underwritten public offering)
  • BJ -1.8% (prices offering of 28 mln shares of common stock at $26.00 per share)
  • PETQ -1.3% (prices offering of 5 mln shares of common stock at $39.00 per share)

Analyst comments:

  • AAOI -9.1% (downgraded to Sell from Hold at Loop Capital)
  • HCLP -1.8% (downgraded to Mkt Perform at Raymond James)
  • AMD -1.3% (downgraded to Market Perform from Outperform at Northland Capital)

WSJ : Aluminum Makers’ Profits Suffer as Prices Rise for Key Ingredient

Aluminum Makers’ Profits Suffer as Prices Rise for Key Ingredient
The price of alumina, made from refined bauxite, has soared 60% in the last year

The Trump administration’s aluminum tariffs are aimed at boosting U.S. producers’ profits. But another move by the administration—sanctions against Russian aluminum giant United Co. Rusal and its founder Oleg Deripaska—is having the opposite effect.

The sanctions have pushed up prices for aluminum’s key ingredient, alumina, eating into the profits of U.S. producers, analysts and aluminum makers say. It takes about two tons of alumina to make one ton of aluminum and companies that had previously purchased the white powdery material from Rusal, which makes 6% of the world’s alumina, have been scrambling to get supplies from other producers, squeezing limited supplies.

Production curbs at the world’s largest alumina refinery in Brazil and a strike by workers at aluminum giant Alcoa Corp. AA -1.84% have also put pressure on alumina prices. Through mid-September, alumina prices had surged about 60% from a year ago to $625 a metric ton, according to London commodities researcher CRU Research.


Alumina supplies “are really stretched globally, smelters are scraping the bottom of the silos for stocks,” said Ami Shivkar, analyst at consultancy Wood Mackenzie.

While high alumina prices haven’t translated into higher aluminum prices yet, they are likely to do so by next year, analysts say, pushing up the price of everything from beer cans to cars. BMO Capital Markets forecasts London Metal Exchange aluminum prices will average $2,182 a ton in the fourth quarter of 2018, before rising to $2,314 a ton in 2019.

Century Aluminum Co. CENX -5.80% , the biggest aluminum producer in the U.S. ahead of Alcoa, said on an August earnings call that while the administration’s tariffs have boosted earnings, it expects higher alumina prices to reduce adjusted third-quarter earnings by $35 million to $45 million.

The trouble for aluminum producers such as Century is that while alumina prices have soared, the price for aluminum has remained relatively stable. Through mid-September, aluminum traded on the London Metal Exchange fell about 3% from a year ago to $2,050 a ton, according to CRU.

The price of alumina as a percentage of aluminum prices this month hit an all-time high of 31%, compared with 16% a year ago, according to CRU.

New York brokerage Berenberg Capital Markets last week initiated coverage of Century with a “sell” rating, citing high alumina prices. “The drag from alumina is higher than the benefit from tariffs at this point,” said Berenberg analyst Paretosh Misra.

Century declined to comment.

Alumina prices dipped below $600 a ton after the Trump administration eased some of its sanctions against Rusal last week by allowing companies to enter new supply contracts with the Russian producer, but remain historically high.

Alumina has become the biggest cost for aluminum producers, eclipsing the cost of electricity used in production, analysts say.

“Alumina is the tightest market right now of the commodities we cover,” said BMO analyst Kash Kamal.

Global output of alumina to make aluminum—excluding China, which typically consumes nearly all of its alumina—is expected to dip below 50 million tons this year, the lowest annual production in a decade, according to BMO. A boost in supply next year is expected to come from Emirates Global Aluminium’s two-million-ton alumina refinery, but for now supplies are tight, analysts say. In 2018, China began exporting more alumina than is normally does, taking advantage of higher prices, according to CRU.

Aluminum plants are dependent on frequent deliveries of alumina, only carrying a couple of weeks of supply at any one time. Disruptions in the supply chain can quickly lead to higher prices. Alumina is a product of refining bauxite mined by companies including Rio Tinto PLC and Alcoa.

Aluminum producers that also sell alumina, such as Alcoa, aren’t as vulnerable to the spike in prices of the metal. Alcoa said in July that the administration’s tariffs are hurting its profits because it relies on imports from Canada, a target of the tariffs.

Problems in the market began with the world’s largest alumina refinery, Alunorte in Brazil. The refinery, which is owned by Norway’s Norsk Hydro AS NHYDY -0.40% A, has been operating at half its capacity since March 1, when heavy rain triggered government concerns of water contamination.

Then in April, the Trump administration sanctioned Rusal, one of the world’s biggest alumina producers. Rusal has until November to implement governance changes required by the Treasury Department, opening a path for its removal from the sanctions list. But analysts say it is uncertain when the company’s supply would be coming back to market.

Rusal has said it is working to address problems created by the sanctions and to protect the interests of shareholders.

A Norsk Hydro spokesman said the timing for resuming full production at Alunorte remained up to the Brazilian environmental authorities and a federal court, but noted the plant was “ready to restart anytime.”

Separately, Alcoa’s three refineries in Western Australia—which account for about 7% of global alumina supplies—have been hit by a strike that began on Aug. 8. An Alcoa spokesman said the Australian Workers Union was meeting on Friday to discuss whether to continue their strike.

FT : Brussels launches antitrust review of Tata-ThyssenKrupp steel deal

Brussels launches antitrust review of Tata-ThyssenKrupp steel deal

Brussels has started the clock on a review of the European steel operations merger of Tata Steel and ThyssenKrupp, a landmark deal that would create Europe’s second largest steel producer.

Europe’s competition commission opened its initial investigation into the tie-up on Tuesday and will need to decide by 10 October to either approve it or launch an in-depth probe.

The investigation will examine how the deal could cut competition and may require the sale of assets in areas where the two companies have significant overlap.

After more than two years of courtship and negotiations with activist investors and labour unions, the producers agreed in June what would be the biggest shake-up of Europe’s steel industry for more than a decade.

Tata Steel and ThyssenKrupp will join their steelmaking operations on the continent to create a 50-50 joint venture with €17bn in revenues and 48,000 employees.

TK-Tata would control roughly 27 per cent of the European market for flat steel, behind ArcelorMittal with 38 per cent, according to analysts and bankers.

Problems are most likely to come in the speciality and niche product areas where the combined group would be strongly dominant, such as tin-plate for food packaging and electrical steels.

The deal is an important step in the sector’s consolidation that executives have long argued is vital in the face of overcapacity, cheap imports, and, now, US tariffs on foreign metal.

The group expects to make €400m-€500m in annual cost savings across its 34 sites, all while keeping the peace with highly unionised workforces. Some 4,000 jobs are expected to go, split equally between the two sides.

>>> US Gapping up


Gapping up
In reaction to strong earnings/guidance:

  • CMD +1.8%, RAD +1.6%

Other news:

  • CBMG +20.6% (enters licensing and collaboration agreement with Novartis (NVS) to manufacture and supply the CAR-T cell therapy Kymriah in China NVS will acquire $40 mln in stock at $27.43/share)
  • CCJ +16% (Tax Court of Canada rules in favour of Cameco)
  • PTGX +10.4% (FDA has granted Fast Track designation to therapeutic candidate PTG-300 for the treatment of chronic anemia due to ineffective erythropoiesis in patients with beta-thalassemia)
  • EQC +3.1% (declares special cash distribution of $2.50/share)
  • TLRY +2.6% (ongoing volatility)
  • ALNY +1.9% (announces 'positive' topline results from the interim analysis of the ENVISION Phase 3 Study of givosiran for the treatment of acute hepatic porphyria)
  • WCG +1.8% (to acquire Aetna's (AET) entire standalone Medicare Part D prescription drug plan business)
  • AZO +1.5% (authorized the repurchase of an additional $1.250 bln of common stock)
  • ATTO +1.3% (Atento signs strategic agreement with Deutsche Telekom [DTEGY] unit T-Systems on the provision of data center services in Brazil)
  • AMZN +0.8% (Amazon is opening an 'Amazon 4-star' store in Manhattan's SoHo neighborhood tomorrow, featuring items rated four stars or higher, top sellers, or new and trending on Amazon.com)

Analyst comments:

  • HAIR +13.6% (initiated with Outperform at William Blair)
  • CYBR +4.8% (upgraded to Overweight from Equal-Weight at Morgan Stanley)
  • TSG +4.4% (initiated with a Buy at Goldman)
  • AYR +2.3% (upgraded to Outperform from Market Perform at Cowen)
  • STNG +2.1% (initiated with Buy ratings at BTIG Research)
  • KMX +1.8% (upgraded to Outperform from Neutral at Robert Baird)
  • AAPL +1.5% (initiated with a Overweight at JP Morgan)
  • PYPL +1% (initiated with Outperform at BMO Capital Mkts)
  • MA +0.9% (initiated with Outperform at BMO Capital Mkts)

FT : Reckitt food unit deal boosts McCormick

McCormick & Company reported sharply higher sales and profits during the third quarter, with growth driven by last year’s acquisition of Reckitt Benckiser’s food business, which include French’s Mustard and Frank’s RedHot sauce.

The US maker of spices, herbs and flavourings saw sales rise 13.5 per cent to $1.3bn in the three months to end of August, helped by strong demand in the US and China.

Net income jumped 60 per cent to $173.5m for the period as the company also benefited from its costs cutting efforts and a lower US corporate tax rate. Adjusted earnings came in at $1.28 per share, ahead of the $1.27 a share the market had forecast.

“Growth in both [consumer and flavor solutions] segments was led by incremental sales from the Frank’s and French’s portfolio,” said Lawrence E. Kurzius, chairman, president and chief executive. “Consumer segment sales growth was also driven by both Americas and Asia/Pacific’s base business and new products, with particular strength in the US and China.”

McCormick raised its guidance on full year adjusted earnings to between $4.95 and $5.00 per share, up from the $4.85 to $4.95 range it had previously given.

Shares in the company, which hit a record high of $132 earlier this month, rose 0.9 per cent in pre-market trading.

>>> SFR dopé par le démarrage de la Ligue des Champions - Reuters News

SFR dopé par le démarrage de la Ligue des Champions - Reuters News

27-Sep-2018 13:43:47

PARIS, 27 septembre (Reuters) - L'opérateur télécoms français SFR, contrôlé par Altice Europe ATCAS.AS, a recruté au troisième trimestre un nombre de nouveaux clients sans précédent depuis plusieurs années, dopé par le démarrage de la Ligue des champions dont il détient les droits de diffusion, a déclaré jeudi son dirigeant Alain Weill.

SFR a été "débordé par le succès" de sa chaîne RMC Sport qui a séduit 200.000 abonnés sur la seule journée du démarrage de la prestigieuse compétition européenne, avec à la clef des problèmes techniques pour un certain nombre de clients, a expliqué le PDG d'Altice France lors d'un colloque sur les télécoms organisé par Les Echos.

"On a atteint l'objectif de nombre d'abonnés qu'on s'était donné pour l'année 2018", a déclaré le dirigeant, sans dévoiler le chiffre exact du nombre d'abonnés à la chaîne qui sera publié à l'occasion de la publication des résultats d'Altice courant novembre.

Le succès de la chaîne a profité au recrutement d'abonnés fixes de l'opérateur télécoms, a ajouté Alain Weill.

"On dira au mois de novembre que nos recrutements d'abonnés fixes ont atteint des niveaux que SFR n'avait pas connus depuis très très longtemps ; je pense des niveaux qui n'avaient jamais été connus", a-t-il dit.

TheHill : UN report: World ‘nowhere near on track' to meet key climate change go

UN report: World ‘nowhere near on track' to meet key climate change goal



Governments across the globe are “nowhere near on track” to meet their goal of preventing global warming of more than 1.5 degrees Celsius higher than the pre-industrial period, according to a co-author of a United Nations report.

“It’s extraordinarily challenging to get to the 1.5C target and we are nowhere near on track to doing that,” Drew Shindell co-author of the Intergovernmental Panel on Climate Change report, which is set to be unveiled in South Korea in October, told the Guardian in a report published on Thursday.

“While it’s technically possible, it’s extremely improbable, absent a real sea change in the way we evaluate risk,” he continued. “We are nowhere near that.”

To prevent the global temperature from rising above 1.5 degrees Celsius, the world's leading nations would need to undergo a massive transformation in the way their populations use transportation and grow food.

In the 2015 Paris climate pact, international leaders agreed to curb the global temperature rise to 2 degrees Celsius above the era prior to mass industrialization, with an aspiration to limit this to 1.5 degrees.

Trump formally withdrew the U.S. from the pact last year, an act that separated the U.S. from most of the world on climate change. Trump said then that the climate change agreement “unfair at the highest level to the United States.”

“It’s a lot more difficult without the U.S. as a leader in climate change negotiations,” Norway’s environment minister, Ola Elvestuen, told the Guardian. “We have to find solutions even though the U.S. isn’t there.”

“We are moving way too slowly,” Elvestuen said. “We have to do more of everything, faster. We need to deliver on policies at every level. Governments normally move slowly but we don’t have the time.”

“The 1.5C target is difficult, but it’s possible. The next four to 12 years are crucial ones, where we will set the path to how the world will develop in the decades ahead. The responsibility in doing this is impossible to overestimate,” he added. “To reach the goals of the Paris agreement we need large structural changes.”

The report comes weeks after António Guterres, the United Nations secretary general, said in an address to global leaders the world has less than two years to avoid “runaway climate change."

During his address, Guterres commended the Paris Climate Accord but also called for more efforts to reduce emissions that many scientists have found to be warming the planet over the past century.