A strong first quarter at the box office and promising film slates for the second quarter have moved a prominent analyst to bump up his forecast for US movie receipts to a record $11.8 billion.
Drexel Hamilton analyst Tony Wible told The Post on Wednesday that he now expects a 4 percent gain in ticket sales this year — up from an earlier estimate of 2.5 percent.
The upgrade was prompted by a first-quarter box office that defied the 4.4 percent decrease Wible forecast — by nabbing a 4.4 percent increase.
“Beauty and the Beast,” “Get Out” and “Split” were [respectively] $124 million, $123 million and $92 million ahead of our estimates for box office receipts during the quarter,” Wible said.
Those results more than offset first-quarter bombs, including “Life” ($88 million below estimates), “Ghost in the Shell” ($75 million below) and “The Boss Baby” ($30 million below).
On net, the quarter’s box office totaled $2.9 billion — 9.2 percent greater than Wible’s original forecast of $2.7 billion.
More strength is expected for the second quarter, as 10 big-budget movies, or “tentpoles,” debut compared with six such films in the year-earlier quarter.
Wible expects this quarter’s 10 tentpoles, which include “Guardians of the Galaxy 2,” “The Fate of the Furious” and “Despicable Me 3,” to generate $2 billion, while last year’s six took in $1.5 billion.
Even smaller movies released in the first quarter did better than forecast, producing what Wible called “a non-tentpole surprise” of $59 million in unexpected receipts.
“This is encouraging given that we have historically seen non-tentpole film weakness in quarters when big franchise films thrived,” he said.
Hedge funds are investing in bank stocks at record pace
Come on, hedgies — you call bank stocks an alternative investment?
Hedge funds’ exposure to bank stocks hit record levels at the start of 2017, but many may have piled into the trade too late.
Hedge funds had 5.1 percent — or $33 billion — of their portfolios invested in financial institutions at the start of the year, according to a Bank of America Merrill Lynch report released Wednesday.
Both figures were record highs since Bank of America started tracking such data in 2005.
Among the hedge funds buying into the enthusiasm was Dan Loeb’s Third Point, which holds Bank of America and JPMorgan.
“On November 8th, our financials portfolio was 4.4 percent of the fund. One day later, it was 6 percent, one week later, 10.5 percent; one month later, 11.8 percent,” Loeb wrote in a February letter to investors.
Other banks favored by hedge funds are Citigroup and Wells Fargo.
Most bank stocks rallied immediately following the November election on expectations of a more Wall Street-friendly, regulation-light administration. The early buyers were quickly rewarded, but laggards may have lost.
While the KBW bank index is up 15 percent since the election, it is down 1.3 percent this year.
Even worse, hedge funds may have missed what is looking like the better play for 2017.
As funds money poured into financials, it was pulled out of technology, with financial weights growing by 2 percent and technology falling by 4.1 percent, the Bank of America report said.
The broader financial industry is up only 1.7 percent this year, while technology has gained a massive 10.2 percent, with other hedgie favorites like Apple and Facebook up more than 20 percent.
Mergers Could Be the New Trend in Luxury
HSBC said the current luxury fashion and retail environment has the sector “ripe” for more merger and acquisition activity.
Luxury fashion brands work hard to cultivate an image of exclusivity and value, but recent shopping and economic trends have left some struggling more than others.
In a new report on the ups and downs in the luxury sector, HSBC Bank said it has “concerns” about companies such as Tiffany, Burberry, Jimmy Choo and even Richemont, which holds Chloé, Azzedine Alaïa and Cartier, among many other high-end brands.
The bank pointed to management shake-ups and other “much-needed cultural changes” as positive for the future of these brands, but said they remain a “work in progress” with full turnarounds yet to be seen.
Nevertheless, HSBC said “management rejuvenation has become a necessity” and it expects further leadership changes at Salvatore Ferragamo, Burberry and likely elsewhere.
Other brands have benefited from a boost to consumer confidence since mid-2016, as well as some already executed changes in leadership. Kering’s changes at Gucci, shifts in management at Coach as well as Louis Vuitton were all highlighted by HSBC as success stories that led to a rebound in sales.
In addition, an industry divided between success and struggle, with growing investor activism and continued management issues for many, has HSBC looking toward possible mergers and acquisitions.
“The interesting thing about the current phase of the industry’s cycle is that cash is piling up, valuations look high and management issues have multiplied,” HSBC said. “In other words, we believe the sector is ripe for M&A.”
In looking at corporate history, current balance sheets and recent changes in strategy, HSBC said LVMH Moët Hennessy Louis Vuitton, Coach and Kering “in that order” are the most likely to be active “consolidators” during 2017.
As for LVMH’s position, HSBC said the group has long been “the default brand aggregator in the sector, and we expect it to continue to acquire in the future.”
The bank mentioned skin care as a possible acquisition interest for LVMH as well as hard luxury, like Tiffany.
HSBC even floated the “highly theoretical” possibility of a LVMH-Richemont tie-up, given the “succession issues” possible should their respective controlling shareholders, Bernard Arnault, 68 , and Johann Rupert, 66, retire.
Kering, too, is a star in HSBC’s eyes, in large part due to the success of Gucci and Saint Laurent, which both hold “a lot more growth potential,” according to the bank, but a possible spin off of Puma could mean more cash to take on other brands.
“While timing is uncertain, we think the group could exit its stake in Puma soon rather than later, freeing up M&A potential that is currently constrained by the group’s debt.”
The specifics of any moves and any deals may be speculative, for now, but as HSBC noted, “the constant in luxury is change.”
More Retailers Could Default on Debt Over Next Year
Fitch Ratings expects its retail default rate to hit 9 percent within a year.
The wave of bankruptcies sweeping through retail, and most recently washing out Payless Shoesource, is expected to keep rolling over the next year.
While the default rate of Fitch Ratings’ U.S. retail portfolio had dropped to zero last month, the Chapter 11 bankruptcy filing of Payless, under a debt load of about $665 million, bumped that number up to 1 percent. And the ratings agency said the default rate is likely to hit 9 percent over the next 12 months.
Fitch’s concerns stem from increasing market penetration by discount retailers, including those in the off-price and fast-fashion realms, along with more general “shifts in consumer spending toward services and experiences.”
“All of these factors have created a highly competitive retail environment and accelerated mall traffic declines,” Fitch said. “Retailers have also suffered from the ebb and flow of brand popularity. Negative comparable-store sales and fixed-cost deleverage have led to negative cash flow, tight liquidity and unsustainable capital structures.”
The debt watchdog previously had Payless on its “concern list,” given its highly leveraged debt situation coupled with declining sales. Fitch also pointed to a number of other retailers it sees at “significant risk of default” within a year that collectively hold about $6 billion in debt.
Included on the risk list are Sears Holdings Corp. with roughly $2.5 billion in debt, along with Charming Charlie LLC, Nine West Holdings Inc., Rue21 Inc. and True Religion Apparel Inc., all of which are private companies that do not publicly disclose their debt.
Fitch isn’t the only rating agency with a dim view of retail’s financial future. At the end of February, Moody’s Investors Service said the number of retail debt issuers with a distressed rating was nearing 14 percent of its portfolio, the highest rate since the Great Recession.
Of those retailers Moody’s considers distressed, the agency said companies with weak liquidity are the “most vulnerable” to a debt default.
Retailers Moody’s put in the category of distressed with weak liquidity included Rue21, True Religion and Charming Charlie.
Moody’s also highlighted accessories retailer Claire’s as a distressed retailer at risk of default, and with $26 million in senior subordinated notes coming due on June 1, it could be the next to make a restructuring move. In January, the company pulled plans for an initial public offering.
As for Rue21, its next debt maturity comes in October 2018, but Moody’s cited the “discretionary nature” of Rue21’s product and the economic pressures facing its “lower-income target customer,” namely teenagers, along with its lack of differentiation among a “highly competitive and fragmented ‘fast-fashion’ industry,” as cause for default concern.
Should any of these retailer’s move to restructure their debt in court or decide to close stores, they’ll find themselves with a lot of company.
Companies such as Bebe, Macy’s, Abercrombie & Fitch and even Ralph Lauren Corp. collectively plan to shutter hundreds of stores, while The Limited, The Wet Seal and BCBG Max Azria have opted for bankruptcy.
Louis Vuitton Leather Workers Stage Rare Strike
Some of the label's employees demonstrated Wednesday morning in France for wage increases.
PARIS — Leather workers from some of Louis Vuitton’s ateliers in France staged a strike — the first in 15 years — on Wednesday morning to demand wage increases.
The employees gathered in front of their production facilities between 7:30 and 8:30 a.m. local time to make a statement, one day before the brand’s annual salary negotiations were set to end.
According to a spokesman at parent company LVMH Moët Hennessy Louis Vuitton, less than 10 percent of the leather workers from fewer than one-third of the Vuitton ateliers countrywide took part in the demonstration.
Meanwhile, French labor unions said the turnout stood at 30 percent of employees in Issoudun and Condé, and more than 50 percent in Asnières, according to press reports.
Workers were pushing back against Vuitton management’s offer of a gross raise of 30 euros, or $31.95 at current exchange, for every employee and individual increases of between 10 euros and 20 euros, or $10.65 and $21.30, for 80 percent of the workers, according to Agence France-Presse wire service, citing unions.
“In addition to their 13 months of payment every year, employees had in March 2017, for the last business year, the equivalent in profit sharing of between four and five months in compensation,” the LVMH spokesman said.
The leather workers’ strike came on the heels of strong results last year.
As reported, sales in the company’s key fashion and leather goods division — which does not break out results of Louis Vuitton — advanced 8.2 percent in the fourth quarter of 2016 to 3.78 billion euros, or $4.01 billion at average exchange for the period. The label also registered 9 percent organic growth, beating analysts’ estimates of 5 percent.
* BAML EUROPEAN OIL & GAS CONFERENCE - Day 3, c35 corporates will be attending.
* X-FAB - IPO day 1. Deal Value ~$550m, priced at EUR 8, ticker XFAB FP........
* TULLOW - Ex rights today. 25 for 49 @ 130p. TLWN LN is the rights ticker.....
* CONVATEC - Reweight on the close for the FTSE100. 32.2m shrs to buy, c5x adv.
ELECTROCOMPONENTS - Now sees FY results to be ahead of prior views (491)..+2-3%
GRIFOLS - We reinstate coverage with a BUY rating and PO of EUR 26.5 (23).+0.5%
EASYJET - Passengers +10.6% YoY in March,load factors up +140bps YoY (1017).u/c
LVMH - 10% of leather workers stage rare strike. Not material news (204.8)..u/c
VICTREX - Acquired UK based Zyex for £10m cash. Inline with strategy (1921).u/c
WIRECARD - FY17 EBITDA guide €382-400m v €396m. FY16 nos are inline (51.9)..u/c
FERREXPO - 1Q pellet prodn from own ore inline at 23.6% of BAML FY est (174)u/c
LINDE - Prosecutors checking insider trading activities of Reitzle (156.7)-0.5%
MINERS - Copper unch, Iron Ore fut -0.5% with BHP OZ -0.6% & RIO OZ -1.7%...-1%
UNILEVER - Travel & arrive. Starts E5b shr buyback & raises divi 12%.(46.1).-1%
DIALOG - Apple supply chain weaker in Asia on spec iPhone 8 delays (47.3)...-1%
CAIRN ENERGY - Small negative. Fails to find commercial hydrocarbons (201)..-1%
BANKS - Lower with the market and on Paul Ryan tax reform comments o/n....-1-2%
NN GROUP - New ultimate forward rate methodology proposed last night (28.8).-2%
CS
Aegon +1-2% EIOPA methodology on UFR calculation broadly unchanged
Asos -1% CS DOWNGRADE to UNDERPERFORM (Valuation)
Banks -1% US10yr yields drifted back to 2.32%, Fed minutes weighed
BTG +2-3% Revs expected to be above the upper end of guidance
CNH UNCH March Class 8 US truck orders +42% YoY
Christian Han -2% Q2 org growth inline, FY guidance org growth inline
Daimler -0.5% March Class 8 US truck orders +42% YoY
Delta Lloyd +1-2% EIOPA methodology on UFR calculation broadly unchanged
Dong +0.5% DEA said to make bid for Dong's O&G assets
Easyjet M/P Traffic stats - load factor 92.7% vs 91.5
Electrocomp +2-3% Q4 revenue growth better, FY growth ahead
Gerresheimer -3-4% Revenues down 5.4% in first quarter, EBITDA margin inline
Gulf Key +1% 2016 production came in at upper end of guidance
Hikma +1-2% Jazz Pharmaceuticals Reaches Settlement with Hikma
Miners -1-2% Copper +0.25%, Brent -0.50%, Iron Ore -1.30%, China UNCH
Norsk Hydro -1-2% CS DOWNGRADE to NEUTRAL (cautious outlook)
NN Group +1-2% EIOPA methodology on UFR calculation broadly unchanged
Unilever UNCH 5bln buyback & a 12% raise in dividend
Volvo UNCH March Class 8 US truck orders +42% YoY
Wirecard +1% Cash flow good, Confirms forecasts for 2017
RBC INDICATIONS
*BTG: +2% FY'17 revenues at or above upper end of consensus.
*CAIRN: +1% VR-1 well offshore Senegal operations completed.
*DONG ENERGY: +2% BORSEN: DEA made a bid for DENERG's oil & gas business.
*DUFRY: 0% signs new pact with PULLMANTUR & Mexico City airport contract.
*EASYJET: +1% March passengers +10.6%, H1 passengers +9.1%.
*ECM: +2% sees FY results ahead, Q4 underlying sales +8%.
*GXI: -2% Q1 adj EBITDA miss, uncertain environment, FY confirmed.
*HOMESERVE: +2% FY results expected at upper end of consensus, strong momentum.
*IMAGINATION TECH: -1% negative read from LARGAN (-4.56%) after hours on weak earnings.
*UNILEVER: +2% launching €5B share buyback, raising dividend by 12%.
*WIRECARD: +1% confirms FY'17 EBITDA, dividend better.
*VIVENDI: 0% FIGARO: to seek majority on TELCO ITALI
Investec
* CHR HANSEN-Q2 org rev +9%(in line with our ests), keeps FY outlook........-1%
* DEUTSCHE BANK-rights issue take up said more than 95%.....................-1%
* DONG ENERGY-DEA Deutsche Erdoel makes bid for Dong oil&gas unit(Borsen)..+0.5%
* DUFRY-new on board shop pact with Pullmantur, gets Mexico City contract...U/C
* GERRESHEIMER-Q1 rev and ebitda small miss, confirms FY f/casts............-2%
* TELIA-in final stages of talks on fines says CEO..........................-1%
* TIT-Vivendi(U/C) wants to name 2/3 of TIT board members(Figaro)...........-2%
* UBISOFT-may need to decide on full bid by Q4 after voting rights ruling...+1%
* UNILEVER-strategic review-div raised,btr margins,€5bn bback,sell spreads...+2%
* WIRECARD-confirms prelim results & o/look but div only 16c vs ests 20c....-2%
Other news
* SKF-Capital Mkts Day
* STEEL-EU imposes new 5yr tariffs on Chinese steel.
* BTG-Update.Revenue expected to be at or above upper end of guidance.......+2%
* CAIRN-VR-1 appraisal well(offshore Senegal) successful..................+1-2%
* CAPE-Multidisciplinary contract in Kuwait from HEISCO...................+1-2%
* DAILY MAIL-Appoints Tim Coller(Thomson Reuters) as new group CFO..........+1%
* EASYJET-Stats.March +10.6%, Load Factor +1.4ppt. Broadly in line........-1/2%
* ELECTROCOMPS-Update.Strong Final qtr.FY to be ahead of prior views......+2-3%
* FINDEL-Update.FY PTP to be below bottom of range. Appoints new CEO.......-10%
* HIKMA-Settlement agreement with Jazz to resolve patent litigation(Ex18p)..-1%
* HOMESERVE-Update. Sees FY results at upper end of expectations..........+1-2%
* MOTHERCARE-Update.Solid Final qtr.Overall the FY to be in line with guid.unch
* PETRA DIAMONDS-Increase loan notes to $650m($600m)Rate 7.25%(vs 8.25%)..+1-2%
* ROYAL DUTCH-QGC JV wins 2 Aus Domestic gas deals(Bloomberg)..............-1/2%
* SOUTH 32-Lowew output at Cannington mine due to fire.....................-1/2%
* UNILEVER-Review.Raises profit mar
Shore
CAIRN - +tive well test,deeper targets encountered with indic of hydocarbons.+1%
UNILEVER - exiting spreads biz,€5b share buyback,12% div increase,+ve FLS....+3%
HIKMA - Enters into settlement agreement with Jazz..........................UNCH
ELECTROCOMPONENTS - Sees fy results ahead of prior views....................+5%
FINDEL - Sees fy ptp slightly below bottom range of views...................-5%
EASYJET - 12 month load factor 91.7% v 91.5%.Passengers 75.9m v 70.8m.......UNCH
MOTHERCARE - Q4 Grp sales -12.2%,UK LfL +4.5%,margins within g'dance.........+1%
BTG - FY revs to be at or above upper end of g'dance.......................+2.5%
HOMESERVE - very good year,results at upper end of market expec.............+3%
EPWIN - revs +14.5% £293m,PBT +23.7%,input costs rising,trading in line.....UNCH
MOTORPOINT - sales +12.5% £820m,PBT at the upper end of expec,well placed....+3%
CHESNARA - completes acquisition of L&G's dutch unit........................UNCH
High cost of doing business – downgrade to Underperform
■ Reasons for caution. With distribution and warehouse costs +90bp higher in the period 1H results have shown again how hard it is to achieve leverage in fulfilment costs at ASOS given the global distribution model and the need to keep investing in additional warehouse capacity and delivery proposition. Many of the drivers behind the momentum in the business over the past 12 months (US duty savings, free-returns, next-day delivery in EU and select international markets, A-List, FX etc.) also are now annualizing and growth rates will start to ease even as fulfilment and sourcing costs, capex and depreciation remain elevated.
■ Valuation premium to European peers is at all-time highs. Particularly the c40% premium to Zalando looks stretched in our view given the widening margin profiles of the businesses over the next two years (consensus expects ASOS to see c50bp EBIT margin improvement to 4.7% vs. c100bp for Zalando to 7%) and the strong drop-through of EBITDA to cash at Zalando.
■ We are increasing sales but cutting margin forecasts. For FY17 we raise our revenue forecast by 2.4% and cut operating margin by 10bp to 4.1% reflecting the strong topline growth in 1H and revised guidance (c30-35% sales growth) as well as higher costs in fulfillment and sourcing, and one-off transition costs leaving FY PBT forecast largely unchanged at £79.6m. For FY18 and FY19, we increase top-line forecasts by 6.7% and 10.1% respectively but assume a slower path to margin improvement than before.
■ Target price revised up from 5100p to 5300p. Our new 12m target price is based on peer multiples (1.7x EV/Sales, 22x EV/EBITDA) and DCF (8% WACC and 7.5% terminal margin). With c10% downside to the current share price, which we think more than discounts the current momentum in the business and benefits from sterling weakness, and limited visibility around LT margins, we downgrade our rating to Underperform.
Unilever restructures after failed Kraft bid; offloading spreads business
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Unilever has unveiled a broad strategic revamp in bid to shore up investor support in the wake of a failed takeover approach for the multinational from Kraft Heinz.
In a statement on Thursday, the consumer group said it would buy back €5bn of its shares, bump up dividends by 12 per cent, combine its foods and refreshments businesses, and dispose of its underperforming spreads business, which encompasses Flora and I Can’t Believe It’s Not Butter.
The company has been under pressure to increase profits since private equity firm 3G and US rival Kraft Heinz abandoned efforts to buy it, judging that a protracted public battle over Unilever would have done more harm than good.
Unilever said combining its food and refreshment division, would “unlock future growth and faster margin progression”.
The company also announced an acceleration of its “zero based budgeting” and other efficiency programmes with the goal of adding 80 basis points (0.8 percentage points) to its operating profit margin. Zero based budgeting is where managers have to justify every expense every year from zero and puts them under permanent pressure to cut costs.
Paul Polman, chief executive, said:
Our recent review concluded once more that our strategy for long-term value creation through growth and compounding returns on investment is the right one for Unilever and for our shareholders. It also highlighted the opportunity to go faster and further.
We will support our business with a higher level of leverage, while retaining the benefits of a strong credit rating. This will enable us to enhance value for shareholders through increased capital returns, while maintaining operational and strategic flexibility.
Akzo Nobel’s top shareholders urge group to engage with PPG
Chief of US group says nearly all Dutch company’s top investors support talks
Almost all the leading shareholders in Akzo Nobel want the Dutch paint company to engage in the €22.4bn takeover negotiations with rival PPG Industries, says the chief of the US group.
PPG’s Michael McGarry told the Financial Times that his company had been in contact with nearly all of Akzo Nobel’s top-20 equity investors, who were “virtually unanimous” in their support for the “parties getting together”.
“[They were] absolutely dismayed that shareholders are being prioritised last in this conversation,” Mr McGarry said.
Akzo Nobel, which owns the Dulux paint brand, has attempted to buck the trend of consolidation sweeping the wider chemicals sector by vehemently rejecting two takeover offers from PPG over the past month.
A combination would create a dominant player in the $130bn paints and coatings industry, but the intransigence of each company’s position has led to an acrimonious impasse amid a war of words.
PPG on Wednesday once again urged Akzo Nobel to discuss the possible tie-up and said that it would submit to the Dutch regulator AFM a draft proposal of a public offer by June 1.
Akzo Nobel said: “We are actively talking to our shareholders and having open conversations about what’s best for the company and how we’re best placed to grow.”
More details will be revealed when a new strategy is unveiled on April 19, it added.
Mr McGarry’s claims will nevertheless pile further pressure on his counterpart at Akzo Nobel, Ton Büchner, who is facing a chorus of shareholder dissent. The hedge fund Elliott has led calls from a number of large investors, representing roughly 17 per cent of all shares, for Akzo to “engage” with its suitor.
The mercurial chief executive of the Pittsburgh-based PPG stressed that all options were on the table, including a hostile takeover if his counterpart at Akzo Nobel refused to engage with PPG.
Akzo Nobel says that PPG’s proposals undervalue the company and its prospects, would result in significant job cuts and necessitate substantial sell-offs on competition grounds, as the two companies are leaders in many segments of the $130bn paints and coatings market.
In addition, Akzo argues that PPG’s plan would create a combined entity with too much debt and has evoked the notion of unbridgeable “cultural differences”. Several seeming mis-steps have punctuated PPG’s courtship, such as the launch of its initial offer in the middle of a fraught Dutch election campaign.
Mr Büchner on Wednesday insisted that he had a plan to “create significant value” at Akzo Nobel “with a proven management team and significantly less risk than [the PPG bid]”.
The Amsterdam-based group intends to separate its speciality chemicals business, which makes everything from road salt to substances used in food, cosmetics and electronics.
Mr Büchner, who has spent five years making Akzo a leaner and more profitable proposition, said that investors had developed a “certain trust” about his management team.
Responding to the antitrust concerns, Mr McGarry said that the “predominant overlap” between the two companies was in western Europe and that there was a “clear and credible path forward”.
A number of prospective buyers had reached out to PPG expressing their interest in acquiring the European assets that the US company would have to dispose of to satisfy EU antitrust regulators, he added.
To assuage worries around potential closures and lay-offs, PPG has made a number of commitments around employment, research and development and maintaining the headquarters of certain business units in Europe.
“I’ve heard people concerned about plants moving to the US — that’s not going to happen,” Mr McGarry said.