TheChek News Flow

Aston Martin stake hike talks denied by Investindustrial; no decision made about IPO

11 DEC 2017

Investindustrial has denied an Italian media report that it is negotiating an increased stake in the British car company Aston Martin, a newswire report said. A UK-based spokesperson for the Italian private equity firm said no such discussions are taking place, and it has not made any decision about a potential flotation of Aston Martin, Reuters reported.

The car company has been performing well of late, and as a result, none of its investors want to sell, according to the spokesperson. The company’s shareholders include its management, Germany-based Daimler [ETR:DAI] and a group of investors based in Kuwait, the report said.

Il Messaggero reported that advanced talks were taking place for Investindustrial to up its 37.5% stake to 50% before the year end, with an IPO planned for next summer.

Stocks in Asia advanced, though volumes were subdued, after U.S. labor market figures lifted optimism on global growth, propelling Wall Street to fresh record highs. The dollar declined. The Nikkei 225 Stock Average reclaimed a 26-year high as Tokyo shares closed firmer after fluctuating early in the session. Stocks also gained in Hong Kong and China. Volumes were at least 25 percent below their 30-day average on the Nikkei 225 Stock Average and the Kospi index. Data showed hiring increased by more than forecast in November and the unemployment rate held at a 17-year low, paving the way for another U.S. interest-rate increase this week. The S&P 500 Index and Dow Jones Industrial Average closed at all-time highs on Friday.

Nikkei +0.56% Hang Seng +0.87% CSI +1.42% Shanghai +0.75% Shenzen +1.27%

Eur$ 1.1778 CNH 6.6200 CNY 6.6163 JPY 113.52 GBP 1.3411 CHF 0.9919 RUB 59.2088 WTI$

S&P +0.08% EuroStoxx +0.22% FTSE +0.40% Dax +0.23% SMI +0.10%

- WDI GY : Wirecard, Credit Agricole Payment Services in Cooperation Talks

* Air Products Upgraded to Buy at Jefferies

* Air Liquide Upgraded to Buy at Jefferies

* Allianz Upgraded to Equal-weight at Barclays; PT 204 Euros

* Deutsche Post Upgraded to Add at AlphaValue

* First Quantum Minerals Upgraded to Buy at Goldman

* KAZ Minerals Upgraded to Buy at Goldman

* Modern Times Group Upgraded to Reduce at AlphaValue

* L'Oreal Upgraded to Buy at Goldman; PT 210 Euros

* Scor Upgraded to Equal-weight at Barclays; PT 35.60 Euros

* Siemens Upgraded to Overweight at Morgan Stanley; PT 134 Euros

* Swatch Upgraded to Outperform at Credit Suisse; PT 460 Francs

>>> Down

* Europcar Downgraded to Hold at HSBC; PT 11.20 Euros

* Getinge Downgraded to Reduce at AlphaValue

* Gjensidige Downgraded to Underweight at Barclays; PT 143 Kroner

* Hannover Re Cut to Underweight at Barclays; PT 107.70 Euros

* Imperial Brands Cut to Equal-weight at Morgan Stanley

* Inmarsat Downgraded to Neutral at Goldman

* Swisscom Downgraded to Neutral at Citi; PT 570 Francs

* Zurich Ins. Cut to Equal-weight at Barclays; PT 303 Francs

>>> Initiation

* Ferrari Rated New Hold at HSBC

*Volvo Resumed at SEB Equities With Buy

>>> Call

Sales by world’s 100 biggest weapons companies hit $374.8bn in 2016

Arms sales by the world’s 100 biggest weapons companies have increased for the first time in five years, hitting $374.8bn in 2016.

The Stockholm International Peace Research Institute (Sipri) on Monday publishes its annual assessment of global arms sales by the top 100 companies producing weapons and military services. Last year saw the end of five consecutive years of decline with a 1.9 per cent increase in total sales.

The report comes as global tensions rise in regions such as south-east and east Asia and the Middle East. The Oslo-based Peace Research Institute estimates that while the number of conflicts fell globally in 2016, it remains the fifth deadliest year since the end of the cold war.

Sipri’s assessment shows that the world’s biggest weapons makers are selling almost 40 per cent more arms than they were 15 years ago, when its study of the top 100 began. In a separate report earlier this year, Sipri found that the global transfer of big weapons systems has risen over five years to its highest volume since 1990, due to a sharp rise in imports by the Middle East.

“The growth in arms sales was expected and is driven by the implementation of new national major weapons programmes, ongoing military operations in several countries and persistent regional tensions that are leading to increased demand for weapons,” the report states.

Those weapons programmes include substantial investment in naval and air capacity, including submarines in the US and UK, as well as new generation combat aircraft such as the F-35, manufactured by Lockheed Martin. The US, with the world’s largest defence budget, has identified spend this year of $45bn on aircraft and related systems and $27bn on shipbuilding and maritime systems.

According to Sipri, the top 10 weapons producing companies accounted for 52 per cent of the total $374.8bn in sales last year, with combined revenues of $194.8bn. The same 12 companies have shared the top 10 rankings for the past 15 years.

The report does not include Chinese companies, due to a lack of data on weapons sales. However, it estimates that at least two — the aircraft producer, Avic, and land system producer, Norinco — could be ranked in the top 10.

The world’s biggest arms company, Lockheed Martin, significantly widened its lead over Boeing as number two, in part due to the acquisition of Sikorsky helicopters and also due to the ramp up in production of the fifth generation combat jet and the world’s most expensive military procurement programme, the F-35.

US and western companies dominate the list, accounting for 63 of the top 100 places, and together claim 82.4 per cent of total sales in 2016. Sales by the 38 US-based companies came to $217.2bn, up 4 per cent on 2015, driven by big costly programmes but also strong growth in military services.

Total sales by western European companies remained stable. Reflecting intensifying tensions over North Korea’s nuclear weapons programme, South Korean companies showed particularly strong sales increases, helping to drive a 12.3 per cent increase in sales by “emerging producers”.

Rob Stallard, defence analyst at Vertical Research, said that increased weapons sales would continue to support investor interest in defence companies.

“The risk environment globally may not be as severe as at some points in the past, but it does seem to be heightened,” he said in a report last week to clients. “The majority of countries do seem to be reacting to this with increased defence spending, which doesn’t appear to waning anytime soon. So while defence multiples, at least in the US, may be at peak levels, we think they are justified.”

LSE moves quickly in search for new chief executive

Exchange has begun interviewing candidates even as TCI calls for chairman’s ouster

The London Stock Exchange Group has begun interviewing candidates for chief executive, a sign of the board’s growing confidence it will fend off an activist investor’s attempt next week to oust the chairman.

The exchange is looking for a chief executive who will refine rather than overhaul the strategy set by Xavier Rolet, who stepped down last month amid a governance crisis, according to two people aware of the board’s thinking.

David Warren, the group’s interim chief, does not want to pursue the top role, according to two people who have spoken to him.

The board is trying to return stability to the exchange ahead of an extraordinary shareholder meeting on December 19, where investors will vote on whether to remove Mr Brydon.

The meeting has been called by the Children’s Investment Fund, a 5 per cent shareholder, which is upset with Mr Brydon’s handling of the departure of Mr Rolet, who has overseen a revival of the exchange since 2009.

Last week two influential shareholder advisory groups, ISS and Glass Lewis, urged shareholders to back Mr Brydon, saying that TCI had failed to present a compelling case for his removal. The duo advise about two-thirds of the LSE’s share base.

The board, in order to maintain stability, is unlikely to review Mr Brydon’s position even if a sizeable minority of shareholders vote against him, according to one person involved in the board’s thinking.

“You can’t compare this to a normal AGM vote. We’re not in a normal situation,” the person said.

Senior executives are largely happy with the strategy laid down by Mr Rolet during his eight-and-a-half years in charge. His focus on licensing market data and clearing has helped underpin its £13bn market capitalisation.

The candidate has “got to have capital markets skills . . . but in a way the LSE is becoming a ‘platform’ company’”, said one person involved in the recruitment process.

The board also wants the new head to address technical integration across a number of the LSE’s assets as well as develop a strategy for the growing Chinese capital markets.

The LSE board is also looking at its response to new advancements such as cloud computing, machine intelligence and emerging blockchain technology, the person said.

The search is global and is being run by headhunters Egon Zehnder. The LSE started an initial scoping exercise for a new chief executive in August but only began a formal process in October when it was first announced Mr Rolet would leave.

Last week TCI laid out its case, saying that “shareholders have lost faith” in Mr Brydon, who had “run a poor process” of Mr Rolet.

Mr Rolet stepped down a year earlier than planned to head off further division at the top of the exchange. It came as the LSE sought to head off the publication of further revelations that would lay bare the tensions between Mr Rolet and the board over the company’s succession plans.

Barrons weekend summary: Cautious feature on MBI 

* Cover story: Outlook 2018 feature includes forecasts from Wall Street investment strategists, who expect U.S. stocks to head higher next year, propelled by economic growth and earnings gains; they’re bullish on financials and technology, but cautious on consumer staples and utilities; the S&P 500 could hit 2840; Barron’s 10 favorite stocks for 2018 are GOOGL, DAL, Berkshire Hathaway, Volkswagen, PXD, AMAT, EPD, ALLY, ANTM, USFD. 

* Features: 1) Cautious on MBI: Company’s $250M buyback returned money to long-suffering investors, but the shares were bought by the firm’s regulated insurance subsidiary, which has taken a hit in Puerto Rico ; 2) Apps such as Acorns, Stash, and Robinhood offer fractional-share ownership of a short, curated list of ETFs and encourage saving via automated deposits, and their low barriers to entry have boosted user numbers; 3) Barron’s 2017 stock picks topped the market during the past 12 months, returning 29.8% against 22.8% for the S&P 500, with TOL, AAPL, and UL the best performers; 4) Positive on GOOGL, FB, MSFT, IBM, AMZN: Among tech giants making bets on artificial reality, which is expanding beyond gaming to find uses in a range of businesses—with the potential for far-reaching implications for corporations and consumers. 

* Tech Trader: Positive on DISH, SNY, GOOGL, Hulu: For cord cutters, multichannel video programming distributors, or MVPDs, bring back the ability to watch news, sports, and other events in real time, and there is growing demand for the services. 

* Trader: “There’s not much to scare the market now at year end”; Michael Darda of MKM Partners says growth momentum remains above recovery averages, but not so much as to create an inflation panic at the Fed; “There is tremendous uncertainty heading into the year, at a time when zero fear is being priced in,” says David Rosenberg of Gluskin Sheff; Consumers still want to spend, but their buying habits have changed too much for most of the legacy retailers to return to their former glory. 

* Interview: Omar Selim of Arabesque Asset Management talks about S-Ray, an intelligent database that monitors the sustainability of 7,000 companies around the world, combining about 200 ESG metrics from more than 50,000 sources. 

* Profile: Sreeni Prabhu manages the Angel Oak Multi-Strategy Income fund, of which more than 60% of assets are nonagency residential mortgage-backed securities, with commercial mortgage-backed securities coming in a distant second. 

* Follow-Up: Cautious on CVS, AET: Leerink Partners analyst Ana Gupte says it’s unlikely the combined entity will pocket cost savings the companies say will result from eliminating $750M in annual operating expenses. 

* European Trader: Positive on Deutsche Post, Cinci: Shipping company and toll-road and construction firm are among transportation stocks that could pay off for investors as Europe’s economy continues to recover. 

* Asian Trader: With the MSCI AC Asia ex Japan index up 41% and Japan’s Nikkei 225 up 18% so far this year, fund managers and sell-side analysts expect Asian markets to power ahead in 2018. 

* Commodities: “After an unimpressive year, the 2018 outlook for commodities looks more promising, particularly for crude oil and industrial metals.” 

* Streetwise: In a reversal of the usual process in which Wall Street spots a trend and mom-and-pop investors follow later, leading to a crash, banks are only now getting into Bitcoin almost a decade after it was invented; even with new exchanges, Wall Street won’t be able to control the market for the cryptocurrency.