>>> Barron's Weekend summary: positive on CAA, HPE, LH Cover story: For the firs

Barron's Weekend summary: positive on CAA, HPE, LH 

Cover story: For the first time, the number of families with more than $5M in assets has surpassed one million, part of a trend in which every level of the wealth pyramid is expanding; Last year, there were 492 billionaires in the U.S., one hundred of which were created in the past five years alone. 

Feature: 1) Positive on HPE: With chief Meg Whitman focusing on computer-infrastructure products such as servers for corporate clients, company should see increased cash flow, much of which will go to investors; 2) Positive on LH: Company, whose tests are generally cheaper than those performed at hospitals, should benefit from a growing senior population and broader health insurance coverage through the ACA; 3) Positive on CAA: Homebuilder is expanding in some of the country's fastest-growing regions, and shares, which have a lower P/E ratio than peers, could have 25% upside.

Tech Trader: The camera on AAPL's new iPhone 7 model is said to be able to match or beat professional gear costing thousands of dollars, but that's just one element in the rapidly changing photography sector; Investors can play the trend with CEVA and Foveon, a subsidiary of Japanese lens and camera maker Sigma. 

Trader: "A Fed hike Wednesday could be followed by a knee-jerk selloff below 2100 on the S&P 500," says Peter Kenny of Kenny & Co., but a relief rally is likely if there's no hike; Positive on CTSH: Company is a leading global player in infotech, consulting, and outsourcing, and with a potential 15% gain in shares as companies spend on digital infrastructure, investors should take a look; Positive on PII: Company continues to face issues, including recalls, but is installing the infrastructure to improve and monitor its products, and the stock could be a long-term winner. 

Profile: John Loffredo and Robert DiMella, co-managers, MainStay High Yield Municipal Bond fund, don't use leverage and take a cautious approach to non-rated securities (sector weightings: education, health, transportation, general obligation, industrial, tobacco, cash equivalents and other, water & sewer, advance refunded, housing, utilities, miscellaneous revenue). 

Interview: Jeff Rottinghaus, manager, T. Rowe Price U.S. Large-Cap Core fund, says he does a deep dive into companies he owns-and those he avoids-and thinks the market is fairly valued to overvalued. Barron's Penta: Barron's annual list of the top 40 wealth management firms is topped by Bank of America Global Wealth & Investment Management, Morgan Stanley Wealth Management, and J.P. Morgan Private Bank; Other Penta stories report on Biedermeier furniture, Cap Ferrat, suitmaker Hickey Freeman, in-demand aircraft, the new Maserati off-road vehicle, watchmaker Laurent Ferrier, undervalued housing markets, UBS head of U.S. wealth management Tom Narati, trends in philanthropy, how to cut accounting fees, how to build an education trust, trends in wine, and the boom in homemade brewing. 

Small Caps: Positive on PICO: Shares of the company, which holds a sizable amount of water rights in Nevada and Arizona, look deeply undervalued, and the company could be a takeover target. 

Follow-Up: Positive on NWL: Shares are up 35% to about $50 since Barron's recommended them in January, and they could rise to $60 as the company seeks fresh savings and pares its holdings; Cautious on MFIN: Company has cut dividends among ongoing trouble in the taxi industry, but at this point investors should hold on to shares, because yellow cabs are a long way from disappearing. 

European Trader: Positive on Total: Shares of French integrated energy company, which is keenly focused on profitability, could gain 20% in the next 12 months. 

Asian Trader: Positive on HSBC, China Construction Bank, Axis Bank: Three Asian-listed banks offer strong yields, growth prospects, or both, and despite a recent stock surge, they may have more room to grow. 

Emerging Markets: Positive on Cielo, Sberbank: James Donald, who runs Lazard's Emerging Markets Equity Portfolio, likes the Brazilian credit-card processor and Russia's largest bank. 

Commodities: Despite an active hurricane season in Florida, frozen concentrated orange juice futures are up and aren't likely to drop for some time. 

Streetwise: Though investors are calling on GILD to make a major deal, management has chosen to focus on smaller acquisitions, which is exactly what it should be doing, according to Hilarey Bhatt of Bhatt Innovation Capital.

>>> Meilleurtaux draws interest from CVC, 3i, TA Associates, KKR, Charterhouse a



Meilleurtaux draws interest from CVC, 3i, TA Associates, KKR, Charterhouse and Ardian 

The auction for French online mortgage broker Meilleurtaux, put up for sale by private equity sponsor Equistone Partners, has attracted a lot of interest from financial buyers, Challenges reported.

The French-language weekly cited no source for the information.

The publication said investment funds CVC, 3i, TA Associates, KKR, Charterhouse and Ardian are interested in acquiring the company, which could be valued at EUR 275m.

Rothschild is advising on the sale, the weekly added.

The original article appeared in print, page 7.

>>> Orange, Bouygues and Altice deny consolidation rumours in French telecoms ma



Orange, Bouygues and Altice deny consolidation rumours in French telecoms market


French telcos Orange, Bouygues Telecom, and Altice, via its SFR Numericable unit, have all denied rumours of a potential consolidation in the French telecoms industry, French daily Le Figaro reported.

The report noted that shares in Bouygues, the parent company of Bouygues Telecom, Orange, and Iliad/Free shot up by 2.81%, 2.02%, and 1.71% respectively, as the rumours of renewed discussions between the different players were resurfacing.

>>> National Grid gas network attracts Chinese bid group including Fosun and Chi



National Grid gas network attracts Chinese bid group including Fosun and China Gas - report

China Gas and Fosun are among giant Chinese companies said to be bidding for UK-based National Grid’s GBP 11bn (USD 14.3bn) gas operations, The Sunday Times reported. The Chinese groups are believed recently to have formed a consortium to bid against a group thought to include Macquarie, Allianz, Amber Infrastructure, Dalmore Capital and China Investment Corporation (CIC); and another including Canada Pension Plan Investment Board, Abu Dhabi and Kuwaiti sovereign wealth funds, Hermes and the Universities Superannuation Scheme.

The consortia compositions may still change, the unsourced report said, adding that CIC might opt to team up with Fosun.

Bid are scheduled to be received later in the month, the report noted. Barclays, Robey Warshaw and Morgan Stanley are managing the auction.

National Grid is creating a new standalone operation for its four gas-distribution pipelines and will offer a minimum 51% stake in the new entity to bidders, with the new owners assuming day-to-day control, the report said.

NYT : Big Deals Like Bayer’s Often Fail to Deliver High Performance



Big Deals Like Bayer’s Often Fail to Deliver High Performance


Plenty of people have reason to celebrate the $56 billion bid by Bayer AG, the German pharmaceuticals giant, for Monsanto, the United States agribusiness company.

If the deal goes through, Monsanto’s executives and shareholders will receive a 44 percent premium to their company’s stock price on Wednesday, before Bayer sweetened its offer. The companies’ bankers and deal advisers will also reap rich rewards in the deal, which will create a global pharmaceuticals, health care and pesticides behemoth.

History suggests, however, that one group should be wary of the transaction: Bayer’s stockholders. Their company, which is paying cash for Monsanto but also taking on $10 billion in debt, could very well underperform its peers in the coming years.

That’s the message in a new and comprehensive analysis by the S&P Global Market Intelligence team. “Mergers & Acquisitions: The Good, the Bad, and the Ugly (and How to Tell Them Apart),” by Richard Tortoriello and a group of analysts, found that among Russell 3000 companies making significant acquisitions, postdeal returns generally underperformed those of their peers.

“Despite the often-heard claim of M&A synergies,” the report said, “acquirers lag industry peers on a variety of fundamental metrics for an extended period following an acquisition. Profit margins, earnings growth and return on capital all decline relative to peers, while interest expense rises, as debt soars, and other ‘special charges’ increase.”


This view was not among the talking points from the Bayer executives who contended — as their counterparts in previous deals also did — that their shareholders would benefit mightily from the transaction. In announcing the Monsanto deal, they said it was expected to increase the combined companies’ earnings in the first year after closing. The executives also said they foresaw double-digit profit growth at the combined company in the third full year, driven in part by purported synergies of $1.5 billion over that period.

Time will tell, of course, whether these expectations become a reality. But the S&P Global analysis of deals going back 15 years indicates otherwise.

In their study, the analysts included United States companies in the Russell 3000 stock index that had done at least one deal from 2001 to 2013. To eliminate inconsequential acquisitions, the researchers included only those transactions that were at least 5 percent of the acquiring company’s market capitalization or enterprise value.

A total of 9,000 transactions made the cut. Returns on the acquirers’ stocks were calculated through April 2016 and were compared with the performance of the Russell 3000 index over the period. The researchers also studied the performance of acquirers before and after they had made a purchase.

“In general M&A deals underperform either their index or their peers over an extended period,” Mr. Tortoriello, a quantitative analyst at S&P Global, said in an interview. “That doesn’t mean there aren’t some deals that do very, very well, but over all they underperform.”

How much? From 2001 to last April, the study found, a $1,000 investment in the Russell 3000 index would have grown to $2,956. The same investment in an index of Russell 3000 companies that made acquisitions of the type examined by the researchers would have turned into a paltry $1,671.


Farmers harvesting corn at Walnut Grove Farms in Adairville, Ky. Bayer’s buyout of agribusiness giant Monsanto has some farmers feeling anxious. Investors in Bayer may be wise to be wary as well.
JOE BUGLEWICZ FOR THE NEW YORK TIMES
Although the study reported on a three-year period following an acquisition, Mr. Tortoriello said over five years the outcomes were the same.

Timing, he speculated, is one reason for the poor performance. “Mergers and acquisitions really heat up at the top of the market when business prospects going forward aren’t as good,” he said. “Then it cools down when the market falls, just when you’d want to be buying stocks and companies.”

Indeed, as the broad market indexes have pushed higher in recent years, mergers have increased. Last year was a record for buyouts, with $2.2 trillion worth occurring in the United States. This year is doing nearly as well: As of July 31, over $800 billion in deals had been struck, and that was before the Bayer-Monsanto acquisition.

Fueling many of these deals are rock-bottom interest rates and softening corporate earnings. Many acquirers pick up companies to help keep their profits aloft.

But precious few executives seeking to juice their earnings via acquisitions will get what they wished for. The average acquisition, the S&P Global study concluded, “tends to be dilutive to earnings growth over an extended period.”

Other performance metrics — returns on both equity and invested capital — also declined as acquirers compared with their industry peers. This is partly a result of increased interest expense and other charges. And when looking at return on invested capital, many postmerger companies struggled under the weight of their increased debt loads.


Fully aware that some acquisitions generate better returns than others, the S&P Global analysts set out to determine the characteristics of truly awful deals.

“It’s easier to handicap bad acquisitions because there are so many of them,” Mr. Tortoriello said. “We found firms that have the highest levels of growth in assets and share issuance prior to an acquisition tend to underperform afterward. That indicates these companies are growing too fast; the acquisition strategy is part of their overextended growth pathway.”

Another aspect of failing deals: Those using stock as buyout currency underperform those deploying cash, as Bayer is doing with Monsanto. And the larger the stock acquisition, the more likely it is to underperform significantly, the study found. Acquirers using the highest percentage of stock underperform industry peers by 3.3 percent one year after the deal is done and by 8.1 percent after three years.

“Companies tend to make stock acquisitions when their shares are high and when business conditions are doing very well,” Mr. Tortoriello said. “So that’s probably closer to an inflection point in the market and economy and isn’t good for the prosperity of the acquisition.”

Finally, the study found that acquirers with the highest one-year spending on buyouts underperformed their peers by 2 percent in the first year after closing and by 9.3 percent after three years. This reinforced the analysts’ conclusion that companies with heavy deal making in their blood should either be avoided by investors or seen as candidates for short sales or negative bets.

Assuming that Bayer’s purchase of Monsanto goes through, it won’t be clear for a while whether its management promises will come to pass. A Bayer spokesman, Christopher Loder, declined to comment further on the merger or on the study’s findings. But Bayer’s use of cash over stock suggests a better chance of success; so does the fact that the company has not been a serial big-ticket deal maker in recent years.

Still, when it comes to buyouts, the track record of most companies is poor. Shareholders of acquisitive companies — including Bayer’s — should be aware of all the risks executives don’t like to talk about.

Barron's : 3 Banks With Room to Grow



From: LAURENT CHEKROUN (MAKOR SECURITIES LO) At: 09/17/16 20:03:18
Subject: WSJ : 3 Banks With Room to Grow
3 Banks With Room to Grow

Three Asian-listed banks—Hong Kong’s China Construction Bank and HSBC Holdings, and India’s Axis Bank—offer strong yields, strong growth prospects, or both.

Asian banks took a breather last week, as investors worried the shares had surged too high after Brexit. But three of them—China Construction Bank, HSBC Holdings, and India’s Axis Bank—may well have more room to grow.

HSBC (ticker: 5.Hong Kong) and China Construction Bank (939.Hong Kong) are mainland Chinese investors’ favorite Hong Kong–listed stocks. Since the launch of the Shanghai–Hong Kong Stock Connect in November 2014, those investors have bought a net US$4.6 billion in shares of HSBC and US$4.2 billion in China Construction.

The investors came, at least in part, for yield. Even after this year’s 9.4% rally, China Construction Bank still offers a 5.6% dividend yield, while HSBC pays out 7.4%. Among the big Chinese banks, China Construction is seen as the safest. It has deliberately given up market share in recent years, meaning it probably has fewer bad loans on its book. Between 2008 and 2015, the bank expanded its assets at an annualized 13.6%, well below the system average of 18%. Its shares trade at a 17% discount to book value. Morgan Stanley reckons shares can rise another 30%, to 7.60 Hong Kong dollars.

Apart from its yield, HSBC offers a good U.S. dollar play for mainland Chinese worried about further yuan weakness. The bank has about a fifth of its capital, or US$33 billion, in North America. Citi Research estimates that every 0.25% rate hike by the Federal Reserve would add US$700 million net profit for HSBC—or a 6% boost to its bottom line.

Granted, HSBC’s Hong Kong shares are no longer cheap. They are roughly flat this year, even though analysts have cut their earnings forecast by about 30%, and trade at 0.8 times book on only 7% return on equity. Yet one can’t argue against the flow. Deutsche Bank estimates that buy orders from mainland China have frequently averaged 20% to 30% of HSBC’s daily trading volume lately. Historically, HSBC’s London-listed shares typically had two times the trading volume of its Hong Kong–listed shares. In recent days, the trading volume in Hong Kong became bigger.

Axis Bank (532215.India) is another outperformer this year, having already rallied by 33%. This stock can reach 900 rupees by March 2018, offering another 50% upside, estimates Morgan Stanley.

Currently, Axis Bank is valued at 15.7 times forward earnings, a steep discount to retail-bank lenders such as HDFC Bank (500180.India), which trades at close to 20 times earnings. Yet Axis Bank also has a strong retail franchise and has been grabbing market share in that lucrative segment. It has a 6.1% share in retail loans, versus only 3.6% four years ago, and a 14% market share in mobile banking.

Axis Bank has not yet closed its valuation gap because investors are still worried about its asset quality. Between 2009 and 2012, the bank lent aggressively, doubling its loan book to the troubled power industry. Since 2012, Axis has scaled back its lending significantly, and Morgan Stanley believes the bank has recognized almost all of the bad loans on its book.

As India starts to come out of this bad credit cycle, investors will see Axis as a profitable retail bank with loan-book growth of more than 20% and a 16% return on equity.

WSJ : 3 Banks With Room to Grow

3 Banks With Room to Grow

Three Asian-listed banks—Hong Kong’s China Construction Bank and HSBC Holdings, and India’s Axis Bank—offer strong yields, strong growth prospects, or both.

Asian banks took a breather last week, as investors worried the shares had surged too high after Brexit. But three of them—China Construction Bank, HSBC Holdings, and India’s Axis Bank—may well have more room to grow.

HSBC (ticker: 5.Hong Kong) and China Construction Bank (939.Hong Kong) are mainland Chinese investors’ favorite Hong Kong–listed stocks. Since the launch of the Shanghai–Hong Kong Stock Connect in November 2014, those investors have bought a net US$4.6 billion in shares of HSBC and US$4.2 billion in China Construction.

The investors came, at least in part, for yield. Even after this year’s 9.4% rally, China Construction Bank still offers a 5.6% dividend yield, while HSBC pays out 7.4%. Among the big Chinese banks, China Construction is seen as the safest. It has deliberately given up market share in recent years, meaning it probably has fewer bad loans on its book. Between 2008 and 2015, the bank expanded its assets at an annualized 13.6%, well below the system average of 18%. Its shares trade at a 17% discount to book value. Morgan Stanley reckons shares can rise another 30%, to 7.60 Hong Kong dollars.

Apart from its yield, HSBC offers a good U.S. dollar play for mainland Chinese worried about further yuan weakness. The bank has about a fifth of its capital, or US$33 billion, in North America. Citi Research estimates that every 0.25% rate hike by the Federal Reserve would add US$700 million net profit for HSBC—or a 6% boost to its bottom line.

Granted, HSBC’s Hong Kong shares are no longer cheap. They are roughly flat this year, even though analysts have cut their earnings forecast by about 30%, and trade at 0.8 times book on only 7% return on equity. Yet one can’t argue against the flow. Deutsche Bank estimates that buy orders from mainland China have frequently averaged 20% to 30% of HSBC’s daily trading volume lately. Historically, HSBC’s London-listed shares typically had two times the trading volume of its Hong Kong–listed shares. In recent days, the trading volume in Hong Kong became bigger.

Axis Bank (532215.India) is another outperformer this year, having already rallied by 33%. This stock can reach 900 rupees by March 2018, offering another 50% upside, estimates Morgan Stanley.

Currently, Axis Bank is valued at 15.7 times forward earnings, a steep discount to retail-bank lenders such as HDFC Bank (500180.India), which trades at close to 20 times earnings. Yet Axis Bank also has a strong retail franchise and has been grabbing market share in that lucrative segment. It has a 6.1% share in retail loans, versus only 3.6% four years ago, and a 14% market share in mobile banking.

Axis Bank has not yet closed its valuation gap because investors are still worried about its asset quality. Between 2009 and 2012, the bank lent aggressively, doubling its loan book to the troubled power industry. Since 2012, Axis has scaled back its lending significantly, and Morgan Stanley believes the bank has recognized almost all of the bad loans on its book.

As India starts to come out of this bad credit cycle, investors will see Axis as a profitable retail bank with loan-book growth of more than 20% and a 16% return on equity.

Barron's : Oil Giant Total’s Stock Could Rise 20%Oil Giant Total’s Stock Could R

Oil Giant Total’s Stock Could Rise 20%

The French integrated oil and gas producer has been cutting costs and pumping up production. The 6% dividend doesn’t hurt, either.

Returns could flow nicely from French oil and gas giant Total, despite the industry’s challenges.

Total, an integrated energy company whose activities span production, refining, petrochemicals, and marketing, is keenly focused on profitability, which is great for investors. It has a superior growth profile, and the capital intensity of its operations is falling. “They are doing the right things for shareholders,” says one portfolio manager who owns the stock.

Total shares (ticker: FP.France), which closed in Paris at 40.60 euros ($45.30) Friday, could add more than 20% in the next 12 months. They have been essentially flat since the start of the year, and are down 16% over the past two years, outperforming the price of oil, which has sunk by more than half in that span, despite a recent rally. Total’s stock-market value exceeds €100 billion.

At the current price, Total’s shares trade for 10.5 times estimated 2017 earnings. That’s relatively cheap, compared with the four other super majors. Exxon Mobil (XOM) and Chevron (CVX) fetch about 20 times next year’s earnings, while BP (BP) and Royal Dutch Shell (RDS.A) trade at 13.7 and 12.3 multiples, respectively. “Relative to its global majors peer group, on a [price/earnings basis] you would describe it as inexpensive,” says Brendan Warn, senior oil and gas analyst at BMO Capital Markets. Total would be worth €50 a share, if it commanded 13 times next year’s estimated profits, still a substantial discount to the European majors’ average 16.6 times.

Total, formed in the early 2000s from mergers with Petrofina and Elf Acquitaine, has American depositary receipts (TOT) that trade in New York. They were down nearly 3%, at $45.45, Friday afternoon, caught in a broad drop in energy shares. Each ADR is equivalent to one ordinary share.

The past couple of years have been difficult for energy companies, pummeled by dramatically lower oil prices. It has been tougher for Total than most: Charismatic CEO Christophe de Margerie was killed in an aircraft accident in Moscow in 2014, forcing new leadership on the company at a difficult time. But Patrick Pouyanné, who succeeded de Margerie, has guided the company through an awkward period with a minimum of fuss.

Under Pouyanné, Total has continued a strategy of stressing value over volume. It has concentrated on disciplined spending; capital expenditures will fall below $19 billion this year, from a peak of $28 billion in 2013. Operating outlays are sliding, too. The company targets $3 billion in annual savings by 2017.

Production is increasing. Output is projected to rise, on average, 6% to 7% between 2014 and 2017, driven by increased efficiency and more project start-ups.

Liquefied natural gas and deepwater drilling are expected to account for more than half of new production by 2019. Major new projects coming on stream in 2016 and 2017 include Ichthys LNG in Australia, the giant Kashagan oilfield in Kazakhstan, and the deepwater Angola deposit, Kaombo.

The new production can deliver higher-margin barrels than Total’s existing base. That could boost cash flows by a compound annual rate of up to 7% through 2019.

In the near term, the price of oil will be key. Total has maintained a generous dividend – the shares currently yield about 6% – even though organic free cash flow has been negative in recent years. It has protected the payout through leverage, asset sales, and by offering shareholders a scrip alternative to cash, which has had a strong takeup.

If oil fetches $55 to $60 a barrel next year, however, Total could fund its cash dividend payment entirely from organic free cash flow. Of course, much depends on the future direction of petro prices. But it looks as if the lows in the current cycle are in the past. Nonetheless, even if energy prices don’t improve, Total’s dividend looks secure, and could act as a plump cushion against any more weakness in the share price.

Last year, Total earned $5.09 billion, or $4.56 a share, in net income. Net is forecast to rise next year to $10.53 billion, or $4.34, from $7.98 billion, or $3.34, in 2016.

Total isn’t pinning its future solely on fossil fuels. Compared with most of its peers, it has made bigger strides in renewables, and it aims to generate 20% of profits from low-carbon businesses by 2035. It has a high-quality platform with its SunPower affiliate, one of the world’s leading solar energy operators. Earlier this year, Total bought Saft Groupe, which makes batteries for industrial use.

All in all, Total looks well-positioned for the future.