--> Temenos Indicated 137
Asian equities pared earlier gains, with a rise in shares in Australia and South Korea offset by declines in Hong Kong and China. The dollar steadied as Treasury yields climbed to the highest since May 2014.
The MSCI Asia Pacific Index was little changed with energy and materials stocks outperforming and consumer staples lagging. The yen fell as the Bank of Japan downplayed Governor Haruhiko Kuroda’s comments on improving inflation. Sterling slipped as Prime Minister Theresa May remained under pressure from pro-Brexit lawmakers in her Conservative Party. The euro steadied and German government bonds retreated.
Nikkei -0.01% Hang Seng -0.59% CSI -1.81% Shanghai -0.99% Shenzen -1.56%
Eur$ 1.2408 CNH 6.3288 CNY 6.354 GBP 1.4115 JPY 108.99 CHF 0.9368 RUB 56.2781 WTI 66.14
S&P -0.01% EuroStoxx +0.28% FTSE +0.16% CAC +0.17% SMI +0.21%
Macro :
- Saudi Prince Alwaleed Is Said to Return Home After Detention
- Stifel Raises 2018 S&P 500 Target But Sees 5% Correction in 1Q
- Stocks Tied to Prince Alwaleed May Advance After His Release ( Citi, Twitter, Apple, JD.com, Accor)
- U.S. Is Said to Consider Building 5G Network Amid China Concerns
Keep an eye on :
- ACS SM : ACS, Hochtief JV Preferred Bidders For $1.95B LA Rail Project
- AZA IM : Alitalia 1Q Sales to Rise 4-5%, Gubitosi Tells Il Messaggero
- AMS SW : AMS Fourth Quarter Revenue EU470.3 Mln
- AMUN FP : Amundi CEO Plans 500 Job Cuts, 200 New Hires in Italy: Corriere
- MT NA : ArcelorMittal, Nippon to Jointly Bid for Essar Steel, ET Says
- AVP US : Activists Are Said to Press Avon Products to Explore Sale: WSJ
- BKIA SM : Bankia Full Year Net Income EU505 Mln
- BA US : Boeing Could Still Appeal Bombardier Case, Canada Official Says
- CRG IM : Carige Postpones Board to Feb. 2, Il Sole 24 Ore Reports
- CASS IM : Italian Insurer Held by Buffett to Simplify Board: Sole 24 Ore
- DEKAIMM GY : Deka Set to Buy Inditex Stores Portfolio, Confidencial Says
- DBK GY : Deutsche Bank Plans IPO of Asset Management Arm by March: FAS
- DBK GY : Deutsche Bank’s 2017 Bonus Pool to Exceed EU1 Bln: FAS
- EATITALY IPO : Eataly Plans IPO in 1Q of 2019, Guerra Tells La Repubblica
- GETIB SS : Getinge Fourth Quarter Net Sales Beat Highest Estimate (1)
- GKN LN : U.K. Government Considers Intervening in GKN Bid: S. Telegraph
- ISP IM : Intesa: Will Take Legal Action if Needed in Veneto Banca Case
- ITX SM : Deka Set to Buy Inditex Stores Portfolio, Confidencial Says
- MB IM : Mediobanca Aims to Raise Its Revenue From Fees, Sole 24 Ore Says
- NOVN VX : Novartis’s Jimenez Sees U.S. Drug Prices Nearing Europe: NZZamS
- PF US : Third Point Said to Have Taken Stake in Pinnacle Foods: Reuters
- REP SM : Repsol, Kia Plan JV for Car-Sharing Business: Economista
- ROG SW : U.S. Tax Reform to Help Roche Financially, Chairman Tells SamW
- ROG VX : Roche’s Balovaptan Gets FDA Breakthrough Therapy Designation
- SEM PL : Sodim Says It Exercised Right to Suspend Making Bid for Sonagi
- TEF SM : Telefonica, Netflix Ready Accord on Content, Confidencial Says
- TKA GY : Suedwestmetall Says Talks With IG Metall Union End With No Deal
- TLG GY : TLG Immobilien investor Dayan secures 22.54% valued at approximately EUR 530m
- TUI LN : TUI Seeks 20 More Aircraft, CEO Tells Frankfurter Allgemeine
- WDI GY : Wirecard Fourth Quarter Revenue Beats Highest Estimate
Euskaltel circled by PE firms; may seek merger with Masmovil
Euskaltel [BME: EKT] , the Spanish telecom operator, is being circled by several PE firms interested in acquiring a significant stake in its capital, Expansion reported, without citing sources. The investors believe several shareholders are ready to sell, the Spanish-language report said.
The funds are seeking a stake of less than 30% to avoid a compulsory takeover bid, according to the report. A possible aim of the transaction could be to encourage a merger of Euskaltel and its rival Masmovil Ibercom [BME:MAS], the report said.
Euskaltel closed on Friday at EUR 7.38 per share, which gives the company a market capitalisation of EUR 1.319bn.
Euskaltel’s largest shareholder is the Spanish savings bank Kutxabank, which owns a 21.3% stake.
>>> Up
* Allergan Upgraded to Overweight at Barclays; PT $230
* Conzzeta Raised to Outperform at Credit Suisse; PT 1,300 Francs
* Kambi Group Upgraded to Buy at SEB Equities; PT 115 Kronor
* RSA Upgraded to Add at AlphaValue
* Staffline Group Raised to Neutral at Credit Suisse; PT 10 Pounds
* Unilever GDRs Upgraded to Buy at Investec
>>> Down
* Aryzta Downgraded to Sell at Goldman
* Aryzta Downgraded to Reduce at AlphaValue
* Diageo Downgraded to Sector Perform at RBC
* EasyJet Downgraded to Market Perform at Bernstein
* Evolution Gaming Group Cut to Hold at DNB Markets; PT 670 Kronor
* Freenet Downgraded to Sell at Bankhaus Lampe
* GEA Group Downgraded to Hold at Bankhaus Lampe
* Nordea Downgraded to Sector Perform at RBC; PT 110 Kronor
* Polymetal Downgraded to Underweight at JPMorgan; PT 8.40 Pounds
* Scatec Solar Cut to Hold at Kepler Cheuvreux; PT 53 Kroner
* Wacker Chemie Cut to Reduce at Kepler Cheuvreux; PT 145 Euros
>>> Initiation
* Evry Rated New Buy at SpareBank; PT 40 Kroner
* FLSmidth Rated New Buy at DNB Markets; PT 410 Kroner
* Metso Rated New Buy at DNB Markets; PT 33 Euros
* Outotec Rated New Hold at DNB Markets; PT 7.40 Euros
>>> Call
Asia Market Update: USD rises slightly after weakening on comments from Davos; Equities shore up ahead of earnings and economic events later in the week
***Headlines/Economic Data***
General Trend:
- Asia markets open generally higher, tracking Friday’s rally in US equities
- Energy shares outperform
- Markets in Hong Kong and Shanghai underperform
- US dollar (USD) trades generally firmer
- Busy week in terms of corporate earnings and macro events (including Australia Q4 CPI, China PMIs, Fed meeting, Germany prelim CPI, US monthly nonfarm payrolls)
- Apple due to report quarterly results after the close on Thursday, Feb 1st
- Japan Telecoms to report earnings this week (KDDI, Sharp, NTT Docomo)
- PBoC skipped open market operation (OMO) for third straight session
- PBoC sets yuan at multi-year high for 7th straight session
Japan
-Nikkei 225 opened +0.8%; closed flat
- Shin-Etsu Chemical: Trades higher by over 4% (Q3 results above ests)
- Fanuc [6954.JP]: Gains over 2% (Reported Q3 Net profit ¥50.5B v ¥41.8Be, Op profit ¥61.8B v ¥52.4Be, Rev ¥188.4B v ¥133.2B y/y; Raises FY18 guidance)
- Fuji Electric [6504.JP]: Gains over 2% ahead of expected earnings report
- Sharp [6753.JP]: +1.5% (Expected to report earnings on Jan 31st)
- Auto components firm Koito Mfg: Declines over 5% (FY op profit guidance below consensus)
- (JP) Japan's cryptocurrency exchange Coincheck has confirmed that ~¥58B ($534M) in customers' virtual currency holdings were taken from its wallets Friday (appears to be the biggest virtual currency heist to date) – Nikkei
- (JP) Japan Cabinet Office white paper: consumer prices show signs of picking up – Nikkei
- (JP) Japan MOF, BoJ and FSA officials expected to discuss markets during Monday afternoon - financial press
- (JP) Bank of Japan: Gov Kuroda did not revise the inflation outlook in his Davos comments (from Friday, Jan 26th):[ ** NOTE: Earlier on Friday: (JP) BoJ Gov Kuroda: Reiterated that medium to long term inflation expectations are projected to rise; Seeing relatively weak prices in Japan; see some indication of rising wages and prices in Japan; we are finally close to our 2% inflation target]
(JP) Bank of Japan: Gov Kuroda did not revise the inflation outlook in his Davos comments (from Friday, Jan 26th):[ ** NOTE: Earlier on Friday: (JP) BoJ Gov Kuroda: Reiterated that medium to long term inflation expectations are projected to rise; Seeing relatively weak prices in Japan; see some indication of rising wages and prices in Japan; we are finally close to our 2% inflation target]
Looking Ahead: Japan Dec Household Spending, Unemployment Rate, Retail Sales due for release on Tuesday
Korea
-Kospi opened +0.5%
- Banks trade broadly higher: Shinhan Financial +2.3%, Woori +1%
- Chip makers gain: Samsung Electronics and Hynix trade higher by over 1%
- Samsung Biologics [207940.KR] +5.5% (may report earnings on Jan 31st)
- Lotte Chemical: Gains over 3% (may report earnings on Feb 1st)
- E-Mart: Has gained over 2% (gained over 15% on Friday amid investment in online unit)
- (KR) South Korea to layoff 200 public employees (inlc executives), they will be referred to prosecutors over job favor cases - Korean press
- (KR) Bank of Korea (BOK) economic focus report: The United States is expected to ramp up protectionist trade policies going forward, which could pose challenges for South Korea - Korean press
- (KR) South Korea not excluding possibility of foreigner tax delay - Korean press
- (KR) Bank of Korea (BoK) sells KRW800B in 1-year monetary stabilization bonds (MSB): yield 1.88%
- (KR) South Korea sells KRW700B 20-year bonds: avg yield 2.65% v 2.405% prior
China/Hong Kong
-Hang Seng opened +0.6%, Shanghai Composite +0.2%; Indices later pare gains
- Hang Seng Property Index -1%, Information Tech -1%, Consumer Goods -0.9%, Financials -0.5%; Energy +1.5%
- Chongqing Iron & Steel [1053.HK]: Higher by over 9% (expects to turn profit in FY17)
- Great Wall Motor [2333.HK] Gains over 2% (receives some positive broker commentary despite FY profit warning)
- Wynn Macau [1128.HK] Shares declines over 4%, bonds also decline (Shares of Wynn Resorts closed down by over 10% on Friday amid reports of sexual misconduct allegations related to CEO Steve Wynn)
- Leshi Internet, 300104.CN Trades down by 10% daily limit for the 4th consecutive day
- (KR) South Korea think tank HRI: South Korean companies need to shift their strategies in China as Beijing strives to boost domestic spending by attracting foreign investment and offering higher wages – Korean press
- (CN) China NDRC sees 2018 GDP at 6.5-6.8%
- (CN) PBoC: Skips OMO (3rd straight session) v skipped prior; Net drain CNY140B v CNY270B drain prior
- USD/CNY (CN) PBOC SETS YUAN REFERENCE RATE AT 6.3267 v 6.3436 PRIOR (strongest level since Nov 2nd, 2015)
- (CN) China and South Korea economic chiefs to meet in China this week to discuss issues including increasing economic cooperation - Korean press
-(HK) CNY 1-month HIBOR 4.70983% (highest level since Sept); 1-week HIBOR 4.17154% (highest level since Nov)
Australia/New Zealand
-ASX 200 opened -0.1%; closed +0.4%
ASX 200 Energy Index +1.1%, Utilities +1%, Telecom +0.5%, Consumer Discretionary +0.5%, Financials +0.4%; REIT -0.7%
- Energy firm AWE [AWE.AU]: Gains over 16% (Receives bid from Japan's Mitsui for A$0.95/shr cash or A$602M)
- CBA.AU Names retail banking chief Matt Comyn as CEO, effective, April 9th
- Iluka Resources [ILU.AU] Gains over 5%: Reports Q4 Mineral Sands Production 298.3Kt 217.5Kt y/y; Total Mineral Sands Rev A$245.4M v A$253.7M y/y
- AUD/USD St George Bank raises year-end target for A$ to $0.84 (prior $0.82)
-(AU) Australia PM Turnbull: To spend $3.1B to increase stake in global arms exports
-SML.NZ Affirms 2017/18 milk price forecast of NZ$6.50 kgMS
-AAC.AU Australia farmland values are expected to rise for a 5th consecutive year in 2018 fueled by low interest rates, rising commodity prices, favourable growing conditions and more profitable farmers looking to expand - Australian Agricultural
Looking Ahead: New Zealand Dec Trade Balance and Australia Dec NAB Business Confidence due for release on Tuesday
North America
- Avon [AVP] Activists investors expected to call for the company to examine options - US financial press
- Wynn Resorts [WYNN]: Steve Wynn resigns from post as Republican National Committee (RNC) finance chair amid sexual misconduct allegations – press
- Wynn Resorts [WYNN]: Following allegations related to CEO Wynn board said to create special committee – US financial press
- Ford [F]: China chief Jason Luo has resigned, effective immediately, new chief to be named in future announcement
- (US) Trump team considers nationalizing 5G network in order to counter China – Axios
- (US) President Trump will use his State of the Union address to build momentum for legislation on infrastructure and immigration - financial press
Looking Ahead: Corporate earnings are expected from companies including Lockheed Martin, Seagate Technology
Europe
- (EU) ECB's Knot (Netherlands): central bank has to end its QE program as soon as possible, arguing that there’s not a single reason anymore to continue with it - Buitenhof
- (ES) Spain’s Constitutional Court on Saturday blocked Catalonia’s Puigdemont from returning to power in the region (as expected); The Catalonia regional parliament is expected to vote for a new leader on Tuesday in Barcelona – financial press
- (UK) PM May facing Conservative party demands to fire Chancellor Hammond over over his push last week for a “very modest” Brexit – FT [**Note: On Friday, Jan 26th a UK government spokesperson said PM May has full confidence in Chancellor Hammond (Fin Min)]
- (UK) Govt officials from both China and UK have declared the “golden era” in bilateral ties between China and the UK is in jeopardy ahead of British Prime Minister May’s visit to Beijing next week amid disagreements over China’s overseas investment drive
- (IE) Ireland Jan Bank of Ireland Economic Pulse: 92.8 v 88.9 prior
- (AT) Fitch affirms Austria sovereign debt at AA+; outlook Stable (from Jan 26th)
- (FR) Fitch affirms France sovereign rating at AA; outlook Stable (from Jan 26th)
- Temenos [TEMN.CH]: Responds to recent press speculation and says it has not been approached to be acquired nor is it in discussion to do so
***Levels as of 01:00ET***
- Nikkei225 flat, Hang Seng -0.2%; Shanghai Composite -0.3%; ASX200 +0.4%, Kospi +0.9%
- Equity Futures: S&P500 -0.1%; Nasdaq100 -0.0%, Dax -0.1%; FTSE100 -0.2%
- EUR 1.2434-1.2385; JPY 108.99-108.51; AUD 0.8118-0.8079;NZD 0.7364-0.7318
- Feb Gold -0.4% at $1,346/oz; Mar Crude Oil +0.3% at $66.31/brl; Mar Copper +0.8% at $3.23/lb
Weekly Performance
Dow +2.09% S&P +2.23% Nasdaq +2.31% Russell Candad -0.70% Mexico +2.76% Brazil +5.64% Nikkei -0.74% Hang Seng +2.79% CSI +2.24% Shanghai +2.24% Shenzen +1.49%EuroStoxx -0.05% FTSE -0.84% CAC +0.05% Dax -0.70% Ibex +1.11% MIB +0.45% SMI +0.06%
Macro :
- Stocks Tied to Prince Alwaleed May Advance After His Release ( Citi, Twitter, Apple, JD.com, Accor)
-
Keep an eye on :
- AZA IM : Alitalia 1Q Sales to Rise 4-5%, Gubitosi Tells Il Messaggero
- BA US : Boeing Could Still Appeal Bombardier Case, Canada Official Says
- CRG IM : Carige Postpones Board to Feb. 2, Il Sole 24 Ore Reports
- CASS IM : Italian Insurer Held by Buffett to Simplify Board: Sole 24 Ore
- DBK GY : Deutsche Bank’s 2017 Bonus Pool to Exceed EU1 Bln: FAS
- EATITALY IPO : Eataly Plans IPO in 1Q of 2019, Guerra Tells La Repubblica
- GKN LN : U.K. Government Considers Intervening in GKN Bid: S. Telegraph
- ISP IM : Intesa: Will Take Legal Action if Needed in Veneto Banca Case
- MB IM : Mediobanca Aims to Raise Its Revenue From Fees, Sole 24 Ore Says
- NOVN VX : Novartis’s Jimenez Sees U.S. Drug Prices Nearing Europe: NZZamS
- PF US : Third Point Said to Have Taken Stake in Pinnacle Foods: Reuters
- REP SM : Repsol, Kia Plan JV for Car-Sharing Business: Economista
- ROG SW : U.S. Tax Reform to Help Roche Financially, Chairman Tells SamW
- SEM PL : Sodim Says It Exercised Right to Suspend Making Bid for Sonagi
- TKA GY : Suedwestmetall Says Talks With IG Metall Union End With No Deal
- TLG GY : TLG Immobilien investor Dayan secures 22.54% valued at approximately EUR 530m
Elon Musk’s new Tesla pay plan encourages him to shoot for the stars — but what if he misses?
Elon Musk, a charismatic entrepreneur, is nothing if not audacious. Over the past decade, he’s worked to serially reinvent the online payments, aerospace and solar power industries, and has been compared to Marvel’s Iron Man genius/zillionaire Tony Stark. As CEO of Tesla Industries, he’s now deeply involved in creating an electric car manufacturing model that bypasses the industry’s old iron-and-gasoline roots.
You’d expect the board of Tesla Industries to shape a CEO compensation plan that suits its outsized leader, and boy, did they ever. But a look at Tesla’s newly announced pay plan reveals many elements that should cause shareholders to raise their eyebrows and pause.
At first glance, the Tesla plan rewards the CEO the way most early-stage tech founders are rewarded. Compared to automotive CEOs, such plans are based on three to five major metrics. Musk’s comp plan is based on, and heavily weighted toward, achieving a high stock price/market cap, tied to operational metrics of revenue and profit.
Unlike some CEO pay plans, it would be tough to manipulate the numbers to boost short-term payouts. The chair of the Tesla board’s compensation committee, Ira Ehrenpreis, notes the terms are a good bet for shareholders — “heads you win, tails you don’t lose.”
What’s not to love? First, the growth levels required under Musk’s pay plan are even more otherworldly that his SpaceX goals. Market value growth for Tesla is targeted in $50 billion increments over the next decade, reaching $650 billion — more than 10 times its current value.
Musk’s payout for this insane growth would be an insane level of equity in the company. He already holds 22 percent equity ownership in Tesla, and would have an opportunity to earn an additional 12 percent over the coming decade (even if he is not the CEO). Twenty-two percent plus 12 percent is an extraordinary amount of equity ownership for a founder. Worse, 12 percent additional equity is an enormous level of dilution, and hardly shareholder-friendly. If Musk hits the goals he will receive $55 billion of equity value!
There is great shareholder risk in a comp plan heavily dependent on share price/market cap (and a company so far based more on buzz than meeting production targets). Because the stock is currently trading at a remarkably high multiple, it could easily catch a cold. If bad news like a safety, regulatory or production issue hits, Tesla stock values could plunge like bitcoins. This could incentivize company management to minimize any negative disclosures.
Outrageous goals fueled by outrageous pay potential have historically driven outrageously high risks.
This “risk” matter, stoked by equity-driven incentives, is the second big problem. A bug in a software program can lead to unhappy customers, and maybe lost money. A bug in a high-tech automobile can get someone killed.
Ultimately, Tesla is an automotive company that has to produce a reliable, safe product that gets you from one point to another. What happens when its comp plan incentivizes and rewards what might be very risky behavior over time? Musk’s pay package heavily weights stock price/market cap, and an enormous quantity of equity could have that very effect.
Contrast this with the old-line automotive companies like GM, Ford and Fiat. They may not be as flashy as Tesla, but their CEO comp plans are more nuanced, and weigh additional metrics, such as market share/production, safety and quality.
As an experienced public company compensation chair, my recommendation would be for the Tesla board to add such automotive peer company metrics. Tesla has already experienced significant production issues and is unable to fulfill orders. What happens when it tries to boost production (and incentivizes it through pay) tenfold? Wouldn’t it make sense to include “meeting commitments” as one of the metrics to measure?
Keeping an inspirational CEO and leader is important, but there must be balance with the shareholders’ (and public’s) interests. Outrageous goals fueled by outrageous pay potential have historically driven outrageously high risks. I suggest that a company losing money with a share price built on future aspirations needs a balanced reward system. Take into consideration not only how early-stage tech companies reward founders, but how other public companies, including automotive, reward their leaders for the long-term interest of their shareholders. A software crash is a far different thing from one with an auto.