Wealth of global billionnaires climbs to $7.7tn
The global super-rich became even wealthier over the past 12 months, with figures from the latest Forbes billionaires list revealing that the total net wealth of the 2,043-strong members of the elite club rose to $7.7tn in 2017.
In 2016, there were 1,810 billionaires worth a total of $6.5tn, with an average wealth of $3.6bn. The 2017 list are richer, Forbes revealed, with the average billionaire now worth $3.8bn.
Bill Gates tops the list for the fourth consecutive year with an estimated $86bn fortune – an increase of $11bn since last year.
Jeff Bezos, founder and chief executive of Amazon, the online retailer, is the fastest gainer. His wealth increased by $27.6bn over the year to a total net wealth of $72.8bn.
Two hundred and twenty-seven women make the 2017 list, up from 202 a year earlier. Zhou Qunfei, founder of Lens Technology, the touchscreen manufacturer, is the wealthiest self-made woman, and Alexandra Andresen, 20, and her sister Katharina Andresen, 21, from Norway, are the youngest on the list, both worth $1.2bn.
The US has the most billionaires, with its 565 topping Europe’s 530. China individually now has 319, and the Asia-Pacific region can now claim to be home to the most super-rich, with 720 billionaires in total.
Man dies while charging iPhone in bath
A British man plugged his iPhone into an outlet via an extension cord and appears to have rested the charger on his chest in the bath.
Richard Bull was found dead in the bathtub.
His wife found him with severe burns to his body at their home in London.
As the Daily Mail reports, when police arrived at the scene they found an extension cord leading into the bathroom from the hallway.
"We found an iPhone plugged into the extension cable and then the charger element in the bath," PC Craig Pattinson told an inquiry into Bull's death.
He added: "The extension cable was on the floor and it appeared as though he had his phone charger on his chest and the part between the phone charger and the cable had made contact with the water."
The inquest concluded that 32-year-old Bull's death was caused accidental electrocution. However, the coroner, a public official who investigates suspicious, sudden or violent deaths, said he was extremely concerned that people didn't realize that phones were as dangerous near water as, say, hairdryers.
The coroner, Dr. Sean Cummings, told the inquiry: "They should attach warnings. I intend to write a report later to the makers of the phone."
Apple didn't immediately respond to a request for comment.
The Mail quoted Bull's brother Andrew as saying: "I live in the US and they say it can't happen, and that there is not enough electricity. But in the UK it is enough. You don't think there is enough electricity but there is."
Boaz Weinstein raises stakes with closed-end fund ETF
Hedge fund manager opens bet on CEFs to investors, but risks are rising
The man who harpooned the London whale is spearfishing in another obscure area of the financial markets these days — and now he is inviting ordinary investors to join him in the sport.
Boaz Weinstein, the New York hedge fund manager, is planning to launch an exchange-traded fund that will invest in closed-end funds, publicly traded US investment vehicles whose shares have looked mispriced for most of the past three years. Is he launching too late?
You may remember that Mr Weinstein made a big splash in 2012 when he took the other side of outsized derivatives trades placed by JPMorgan prop trader Bruno Iksil. Those trades were so ill-advisedly large that they earned Mr Iksil the nickname “London whale” and ended up costing his bank $6bn in losses, as well as netting Mr Weinstein a tidy return.
CEFs are small fish by comparison, rarely more than $500m in market capitalisation, but there is a reason they caught Mr Weinstein’s attention. Their shares are so illiquid, they can often trade at very large discounts to the value of the underlying assets, which in many cases are just the sort of high-yield bonds, loans and other securities that Mr Weinstein knows well.
Through his hedge fund Saba Capital, he has spent the past couple of years buying CEF shares and urging their managers to do something to narrow the discount. So prolific has he become, he might reasonably claim to be partly responsible for the narrowing of the average discount in the sector.
Take the Franklin Limited Duration Income Trust, for example. When Saba took a 14.5 per cent stake in the fund last March, it was trading at an 11 per cent discount to its credit portfolio, leading Mr Weinstein to suggest it would be better winding itself up and returning the money to shareholders. In January, the fund’s managers agreed to buy back 15 per cent of the shares at close to net asset value in a tender offer that helped narrow the discount to 6 per cent.
Action may also be brewing at the Clough Global Opportunities Fund, which invests in both stocks and bonds: since Saba revealed a stake in January, a long-time portfolio manager has left, and the fund’s discount to net asset value has shrunk from 18 per cent to 10 per cent.
Mr Weinstein was early to the CEF market, suffering as discounts continued to widen in 2015, but last year was a much stronger year, and the launch of an actively managed ETF is an attempt to capitalise on his recent record. As its name suggests, the Saba Interest Rate Hedged CEF ETF also aims to neutralise one of the main objections to investing in CEFs, namely that rising interest rates will be bad for the sector.
Many CEFs employ leverage to juice returns, so higher rates raise their borrowing costs, at the same time as the bonds in their portfolio may be falling in value. The generous monthly dividends that CEFs pay also look relatively less attractive in a higher rate environment, so shareholders may drift away from the sector, depressing share prices.
So, rising rates are bad, and that is why the average discount on fixed-income CEFs actually narrowed sharply last week when the Federal Reserve’s well-trailed quarter-point rise was accompanied by commentary that was more dovish than anticipated.
The question is what happens from here. When this column last looked at fixed-income CEF shares in September 2015, they looked a no-brainer. The discount to net assets was an average 11 per cent, worse than at any point in the past decade, outside the credit crisis.
At less than 4 per cent, the discounts are not now wildly out of whack with historical averages.
The reason discounts have narrowed substantially in the past 18 months is partly because the Fed has made it clear interest rate rises will be gradual, and partly because the activism of Saba and others has rekindled interest in the sector and put managers on notice that they must work to improve share prices.
That is not to say there will not be opportunities for profit, since funds with weak managers or those with particularly unloved investment strategies can still trade at double-digit discounts, and many contain provisions deep in their prospectuses that could be used to trigger liquidation or put other pressure on them to take shareholder-friendly action.
That will require the skill of a patient fisherman. Making money in CEFs is no longer like shooting fish in a barrel.
Bottom Line : Grubhub shares could fall to $25 in the next year or so from a recent $34.51. with growth slowin, the company deserves a P/E of 20 to 25, not today's 44
At the same time, Chicago-based Grubhub is facing rising delivery expenses as it seeks to expand beyond the country’s most densely populated urban markets. The combination of increased competitive and cost pressures could damp financial results, and send the stock (ticker: GRUB) down over 25% in the next year or so. Grubhub went public in April 2014 at $26 a share. Some analysts see the shares sliding to $25, or lower, from a recent $34.51.
Grubhub’s Web and mobile platform matches diners with neighborhood restaurants for prepared-food delivery. The company has signed up more than 50,000 eateries in 1,100 U.S. cities, and boasts 8.2 million active users. Grubhub charges restaurants 15% to 30% of an order tab for a listing, and roughly 15% more for delivery. Consumers also pay a $2 to $3 delivery fee.
Grubhub recently reported 2016 revenue of $493 million, up 36% year over year. Earnings rose 30%, to $49.6 million, or 58 cents a share, based on generally accepted accounting principles, or GAAP, although they missed estimates in the fourth quarter by two cents a share on an adjusted basis. Revenue is expected to rise 26% to 34% this year, to $620 million to $660 million, while earnings could come in at 78 cents on a GAAP basis.
GAAP figures include stock-based compensation, which Barron’s has long argued should be recognized as a business expense. On a non-GAAP, or adjusted basis, analysts expect Grubhub to earn $1.08 a share this year, up from last year’s 89 cents.
Grubhub trades for 44 times this year’s GAAP estimates, a lofty multiple that leaves little room for error. But the company’s rapid growth rate and continued success are by no means assured.
To the contrary, certain business metrics, while still robust, have been steadily deteriorating. Active diners—consumers who used the service at least once in the past 12 months—rose 21% in the fourth quarter, down from 34% growth in the year-earlier quarter, and 47% growth in the final quarter of 2014. Similarly, average daily order growth fell to 21% last year from 75% in 2013. As Grubhub expands and competition encroaches, growth rates are likely to slow further.
UBER TECHNOLOGIES’ UberEATS and Amazon.com ’s (AMZN) Amazon Restaurants have joined the online-ordering fray, and could be Grubhub’s most formidable competitors. Both charge rates similar to Grubhub’s but have better delivery capability. UberEATS already has an army of drivers and Uber customers across the U.S.; Amazon Restaurants doesn’t charge Amazon Prime members for delivery currently. Both could steal market share by offering discounts to restaurants and consumers. Indeed, restaurants list on multiple platforms, and consumers can easily toggle among ordering apps.
Howard Penney, an analyst at Hedgeye, an independent research firm, expects Uber, Amazon, and smaller order-and-delivery outfits, including PostMates and Yelp Eat24, to cut into Grubhub’s market share, estimated at a market-leading 10% to 15% of the current delivery market.
Some 70% to 75% of Grubhub’s orders comes from New York and Chicago, cities where restaurants typically handle their own deliveries. As the company looks to grow elsewhere, a delivery infrastructure will become more important—and potentially costly. In the past two years, Grubhub spent $155 million to buy four delivery companies, including LAbite.com, to service second- and third-tier markets such as Los Angeles, Boston, and Philadelphia. That is a tacit acknowledgment that delivery—a low-margin business that management intentionally had avoided—is going to be an important future capability.
Grubhub said in its fourth-quarter earnings call that delivery investments will “approach a de minimis level” by the end of 2017. That’s a “strategic mistake,” says Penney, as it underestimates the cost of building delivery capacity outside of major cities.
Moreover, order frequency is likely to be lower outside New York and Chicago, where having prepared food delivered is common, says James Cakmak, an analyst at Monness Crespi Hardt. Yet the company will have to maintain a basic delivery presence, regardless of order frequency.
Grubhub also is planning to increase its national TV advertising this year. The company recently issued guidance of $165 million to $190 million for 2017 adjusted earnings before interest, taxes, depreciation, and amortization, up from $145 million last year, noting that the wide guidance range builds in flexibility on promotional activity. In other words, it might have to spend more on marketing than in the past.
Longer-term, Cakmak sees Grubhub’s revenue growing in line with e-commerce generally, at a rate of about 15% a year. Given such growth estimates, a P/E multiple of 20 to 25 seems more appropriate than the current valuation. Even if applied to adjusted earnings estimates for 2017, that would suggest a stock price of $22 to $27. The Wall Street consensus probably hasn’t incorporated Grubhub’s rising promotional and delivery spending into its estimates.
Grubhub declined to make CEO Matt Maloney available for comment. The company says that order frequency trends are stable to up, and that its delivery capability will allow it to service restaurant chains.
Sam McBride, an analyst at New Constructs, an independent stock-research concern, thinks Grubhub investors’ main hope is that the company will be acquired, although the current valuation could discourage buyers. A potential acquisition doesn’t seem like a reason to buy the stock, however. With growth trends slowing and costs expected to rise, Grubhub is more likely to give investors indigestion than a meal-ticket to fatter gains.