WSJ : Why Italian Stability Is in the Hands of One Bank’s Bondholders

Why Italian Stability Is in the Hands of One Bank’s Bondholders
Banca Monte dei Paschi di Siena’s debt-for-equity swap to be completed by Friday

Italian insurer Generali has gone in to bat for Banca Monte dei Paschi di Siena, but the troubled lender and the rest of the Italian banking sector face a tense wait-to-see if other bondholders will support its capital raising.
The insurer has pledged to swap the MPS junior debt it owns into new shares. That gives the bank a healthy €420 million ($445.5 million) step toward its unofficial target of getting €1 billion to €1.5 billion from this crucial first leg of a three-part recapitalization.
Most of Italy’s banking sector is praying that MPS succeeds in a week beset with political risk. The country is struggling to sort out Europe’s biggest bad-loan pile and if MPS fails to raise the €5 billion it needs, it may be impossible for others to complete their own repairs.

Several smaller banks need funds, whileUniCredit, Italy’s largest lender, wants to raise about €13 billion.
Generali owns such a large chunk of MPS bonds because it bought all of a private placement not long after the start of the global financial crisis. No other single investor can back the debt-for-equity swap to this degree and bankers don’t expect to get commitments from other institutional investors until Friday’s deadline, leaving the market on tenterhooks.
But one thing is clear, the deadline won’t be extended despite Sunday’s referendum on Italian constitutional reform, which is spooking markets because it could see the reformist Prime MinisterMatteo Renzi quit if he loses.
MPS must complete its capital raising by the end of the year. There is no way it could raise the full €5 billion it needs by selling new shares alone so getting a decent sum in the debt swap is critical. Over the weekend, the bank hopes to complete up to €2 billion from a handful of anchor investors, who commit to buying shares before a public sale.
It wants to complete these two steps by the time the referendum result is known so that it can launch the public sale as soon as possible. That will raise whatever else is needed and will set the price for all the new shares in the process.
The bank has warned bondholders that if it isn’t recapitalized by Dec. 31, it can’t rule out forced conversion for all junior bonds, about half of which are held by retail investors, at worse terms.
The lion’s share of the bonds are trading around 65% of face value now, but are worth 100% of face value in the swap. Credit analysts atBNP Paribas reckon these prices should encourage institutional investors to swap up to €1.5 billion of bonds.

Without a good swap result, the losses for MPS bondholders look likely to be more painful—and hurting retail investors could stoke a wider systemic crisis in Italy and the wider eurozone.
Investors think political risk is elevated now, but a failure of this MPS deal may make it much worse.

WSJ : Philip Morris Could End Traditional Cigarette Production, CEO Says

Philip Morris Could End Traditional Cigarette Production, CEO Says
Comments by Andre Calantzopoulos come as the company launches its heat-not-burn product in the U.K.

LONDON— Philip Morris International Inc.’s chief executive on Wednesday said the tobacco giant could walk away from selling traditional cigarettes altogether someday, as the company launches its heat-not-burn product in the U.K.
“There will come a moment in time where I would say we have sufficient adoption of these alternative products…and sufficient awareness to start envisaging together with government a phaseout period for cigarettes, and I hope this time will come soon,” Andre Calantzopoulos said in an interview with the British Broadcasting Corp.’s Radio 4.
While tobacco remains a lucrative business around the world, it is beset by an array of challenges forcing cigarette makers to pivot their focus. Philip Morris and its rivals have been investing aggressively in e-cigarettes and tobacco-heating products to offset declining tobacco volumes in key markets, and as health bodies increasingly espouse the benefits of alternative products in helping smokers quit.

The industry also faces the rise of “plain packaging” regulations that ban distinctive branding on cigarette packs. An English court on Wednesday rejected tobacco companies’ challenge to the U.K.’s plain-packaging law.
Tobacco firms have struggled to get smokers to adopt e-cigarettes—which smokers complain don’t produce an intense-enough hit—but are optimistic about heat-not-burn products, which heat and vaporize tobacco.
Mr. Calantzopoulos’s comments come as Philip Morris launches in the U.K. its IQOS heat-not-burn tobacco product, which its internal studies have shown to be less harmful than cigarettes. Philip Morris is opening a store to sell the fountain-pen-size gadget in central London, mimicking a strategy it uses in Japan.
Rival British American Tobacco PLC next month plans to start testing a heat-not-burn product called Glo in Japan. Reynolds American Inc. sells a similar product called Revo in the U.S.
Philip Morris won’t be getting out of cigarettes soon, however, given the large and relatively sticky market for them. Mr. Calantzopoulos cited World Health Organization projections that there will be still be more than one billion smokers globally by 2025.
Still, he said the objective of the company is now to move away from selling traditional cigarettes.
“I think we’re transforming our company to achieve this,” he said. “We’re moving very massively our resources and the focus of the organization from our existing traditional business to the new one so, as far as we are concerned, we will do everything we can to accelerate the reaching of consumers to this product.
Lausanne, Switzerland-based Philip Morris has invested more than $3 billion in IQOS over the past decade. The company plans to have IQOS available in 20 markets by the end of this year and 30 markets by the end of 2017. IQOS currently is available in more than 10 countries, including Japan, Italy and Switzerland.

Wells Fargo analyst Bonnie Herzog has called IQOS Philip Morris’s “greatest growth opportunity,” noting that the product has made consistent volume and share gains despite capacity constraints that have led to supply shortages.
The IQOS device will sell for £45 ($56.26) in the U.K., while packs of 20 tobacco sticks used with it will sell for £8.

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:
  • AEO -8.8%, JRJC -5.9%, EEFT -5.4%, NTNX -3.6%, TOUR -3.6%, ANFI -2.9%, FSC -2.5%, (also approved a new common stock repurchase program)
  • ADSK -1.7%, MCHP -1%, (increases guidance for non-GAAP net sales & non-GAAP EPS for 3Q17), GWRE -0.8%
Other news:
  • ARWR -61.3% (will discontinue development of clinical stage drug candidates ARC-520, ARC-521, and ARC-AAT, which utilize the DPCiv, or EX1, delivery vehicle)
  • CERC -46% (announces top-line clinical results from its major depressive disorder Phase 2 clinical trial of adjunctive treatment of CERC-301; study misses primary endpoint)
  • CMRE -13.7% (upsizes offering by 1 mln shares prices 12 mln shares of common stock at $6.00)
  • FBP -8.9% (announces that Thomas H. Lee Partners and Oaktree commence secondary offering of 18 million shares)
  • FPI -6.7% (commences 3.1 mln common stock offering)
  • EVH -4.5% (Evolent Health to offer $110 mln of convertible senior notes due 2021)
  • OCUL -3.4% (enters into controlled equity offering sales agreement to offer and sell shares of its common stock having an aggregate offering price of up to $40 mln)
  • NLNK -2.3% (enters into Controlled Equity Offering Sales Agreement to offer and sell shares of common stock having an aggregate offering price of up to $40 mln)
  • FTD -2.3% (ticking lower; CFO Becky Sheehan is leaving on Dec 31, 2016 to pursue other opportunities)
  • RBS -2.2% (fails BOE stress test) .
Analyst comments:
  • ABAX -0.8% (downgraded to Buy at Northcoast)
  • FFIV -0.6% (downgraded to Mkt Perform from Outperform at Bernstein)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance:
  • CSBR +15.2%, (thinly traded; also details new strategic emphasis), SPLK +7.2%
  • OII +4.7%, (provides updated forecast ahead of tomorrow's presentation at the Jefferies 2016 Energy Conference ), DL+4.1%, OOMA +2.6%
Select oil/gas related names showing strength:
  • CRC +31.5%, DNR +14.1%, SGY +12.7%, SDRL +11.8%, WTI +11.1%, OAS +10.5%, SN +10.3%, ESV +10.2%, WLL+10%, TNP +9.6%, BTE +9%
  • NE +8.6%, MRO +8%, WFT +7.6%, PBR +7.5%, CHK +7.5%, DVN +7.4%, RIG +6.4%, APC +6.2%, APA +5.9%, GTE+5.8%, HAL +5%, COP +4.7%, SU +4.6%
Other news:
  • SCON +67.5% (awarded $4.5 mln DOE contract to improve HTS Wire for Next Generation Electric Machines program)
  • CLSN +30.7% (announces the Data Monitoring Committee of its Phase III clinical study of ThermoDox)
  • WING +4.6% (will replace Papa John's International in the S&P SmallCap 600)
  • KMI +4% ( Government of Canada has granted approval for the Trans Mountain Expansion Project)
  • GPRO +4% (announces 'solid' holiday quarter sell-thru in the U.S. for its new HERO5 cameras, unveils company restructuring, President Tony Bates to depart by year-end)
  • SKLN +2.8% ( indicated lower after filing 424B5 for offering by investors)
  • UL +2.7% (provides objectives/targets for 2017-2019 at its investor seminar; intends to raise cash conversion to 90% (up from 80% current)
  • BLDP +1.6% (Ballard Power signs supply agreement with Solaris; receives initial order for 10 fuel cell modules for trolley buses )
  • PPS +1% (higher on S&P index change news - Mid-America Apartment Communities is acquiring Post Properties in a deal expected to be completed on December 1 pending final conditions)
  • PZZA +0.7% (will replace Post Properties in the S&P MidCap 400)
Analysts comments:
  • XTNT +12.2% (initiated with a Buy at Aegis Capital; tgt $3.50)
  • HOME +3.3% (upgraded to Buy at Goldman)
  • TCK +1.3% (upgraded to Hold at Berenberg)

>>> US Early premarket gappers


Early premarket gappers

Gapping up: SCON +62.5%, CSBR +13.1%, BTE +11.2%, ESV +11%, DNR +10.6%, SN +10.3%, SDRL +9.8%, GTE +9.6%, TNP +9.6%, OAS +9.2%, WLL +9.1%, NE +9%, WTI +7.8%, MRO +6.7%, PBR +6.6%, SPLK +6.5%, CHK +6.3%, RIG +5.8%, WFT +5.6%, DVN +5.3%, APC +5.2%, APA +4.9%, WING +4.7%, SU +4.6%, COP +4.6%, HAL +4.6%, DL +4.1%, KMI +3.9%, OOMA +2.6%, SKLN +2.1%, BLDP +1.6%, PPS +1%

Gapping down: ARWR -63.1%, CERC -46.8%, CMRE -13.1%, FBP -7.4%, EVH -7.2%, FPI -6%, JRJC -5.9%, NTNX -4.1%, ANFI -2.9%, NLNK -2.3%, FTD -2.3%, ADSK -2%, FSC -1%, GWRE -0.8%

(JPM) 2017 US Outlook

S&P 500 Forecasts

Price Target (2017 YE): 2,400

EPS (2017): $128

EPS (2016): $120

VIX (Average): 16-18

 

Key Drivers

US business cycle entered new intra-cycle expansion

Improving growth, sentiment, liquidity, inflation data

Resilient economic growth with rising inflation

Real GDP growth 2.0% y/y; Core CPI 2.3% y/y

From disinflation to reflation

Inflation expectations moving higher

Improving fundamentals

Expect 7-8% EPS upside on stronger top line in 2017

New US administration mostly pro-growth

Could add up to ~$20 to S&P EPS over multiple years

Equities possess attractive cross-asset valuation

4.3% Equity (Div + Buyback) yld vs 2.3% Bond yld

 

Key Risks

Higher volatility likely and elevated equity tail risks

Resulting in periods of volatile selloffs (e.g., Jan ’16)

Stronger USD, pressuring profits and margins

2% Δ in USD TWI = ~ -1% Δ in S&P500 EPS

Rising bond yields, higher borrowing costs

100bp rise in yields = ~$1.30 hit to ’17 S&P500 EPS

High equity multiple at ~17x P/E

Earnings growth support needed

Geopolitical risks

Brexit, FR/GR elections, IT ref, Middle East

New US administration political uncertainty

Trade protectionism disrupting global economy

NYT : Snapchat’s Path to a Big Payday

Snapchat’s Path to a Big Payday
By
Katie Benner
Snap, the company that runs the social media service Snapchat, is headed for a blockbuster initial public offering of stock in 2017. Here is how Snap got to this point:
Snapchat’s Origins
Created in 2011 by two Stanford University fraternity brothers, Evan Spiegel, 26, and Bobby Murphy, 28, the Snapchat app lets people send messages that disappear. The ephemeral messaging quickly caught on with college and high school students, some of whom used the app to send racy messages and other juvenilia.
Now Snapchat, which is used by more than 150 million people every day, has pioneered new ways to interact with photos, videos and other users, as well as new formats for advertisers to reach customers. The company, which rebuffed a $3 billion acquisition offer from Facebook in 2013, is on track to generate $1 billion in revenue next year, according to the investment bank Jefferies.
This fall, Snapchat changed its name to Snap, indicating that it planned to expand as a company beyond the messaging app. Snap, based in Venice, Calif., also released Spectacles, which are sunglasses with an embedded camera.

A Glossary of Snapchat’s Parts
Snapchat is full of entertaining and addictive features. 
They include:
Chat: Snapchat lets users send messages to one another that disappear within seconds. You have to know your friend’s user name to send a message, which makes Snapchat a place where people tend to connect with those they actually know.
Lenses: The Lenses feature lets people augment their selfies with things like cartoon dog ears, floral hair wreaths and animated butterflies.
Filters: The Filters tool overlays people’s photos with images or stickers. Many Snapchat filters are available based on one’s location; they are known as geofilters. If you are in San Francisco, for example, you may see special stickers with the Victorian homes, known as Painted Ladies, for which the city is famous.
Stories: Snapchat lets users string together photos and short videos to keep a running account of their days. The images disappear over time, so people tend to check in on their friends’ Stories often. People watch Stories for a personal perspective on life.
Live Stories: Snapchat’s editors select images and videos that are taken by the app’s community of users to tell stories about places and events. Users give Snapchat permission to do so via the terms of service. People watch Live Stories for a community perspective on life.
Discover: News and entertainment companies present their stories on Snapchat Discover. Some brands, such as “Saturday Night Live” and the cable network E!, have created Discover-only content, making the Snapchat app feel like a media company in and of itself. People watch and read Discover for an editorial perspective on life.
Memories: This is the Snapchat feature people use to save a personal collection of images and videos. Otherwise, the content on Snapchat — including Discover and Chat messages — will disappear.
Snapchat Ads
The company’s revenue has been growing briskly as advertisers flock to the ad products that are unique to Snapchat. These ad tools look and feel the same as the products consumers use. Advertisers can create their own lenses, as Taco Bell did in May for Cinco de Mayo. The result was a giant taco head that people could integrate with their selfies.

Advertisers can also buy a geofilter. The luxury jeweler Tiffany created a geofilter that worked only when someone was in a Tiffany store. Advertisers can create their own Stories, or create more traditional 10-second video ads that run during Live Stories.
Spectacles
Mr. Spiegel recently introduced Snap’s first hardware product, a pair of sunglasses with embedded cameras, called Spectacles. Wearers can take short videos that automatically upload to the Memories part of Snapchat’s app. While the company has described Spectacles as an experimental toy, the device could provide the app’s editors and advertisers with more content to tell stories and advertise against.
Snapchat’s Users
Snapchat started out as a company for young people. But much like Facebook, which began as a service for high school and college students, Snapchat has started attracting older adults. More than 40 percent of the United States population from ages 18 to 34 use the Snapchat app, and more than half of all new users in the country are older than 25, according to the company.