FT Lex : Luxury carmakers: score draw ahead


Luxury carmakers: score draw ahead
VfB Stuttgart have not beaten Bayern Munich in the German football league for 10 years. But in the corporate arena, the Swabians have reason to crow over their Bavarian rivals. Daimler on Sunday said it sold 2.08m Mercedes-Benz cars in 2016. That should push its volumes above those of Munich-based rival BMW, and fulfil a pledge made in 2011 to retake the crown of world’s biggest luxury car manufacturer by 2020. Dieter Zetsche, Daimler’s chief executive, should enjoy the moment while it lasts.

His triumph has been to focus on what matters to customers rather than engineers, sometimes a hard trick to pull off at an engineering company. This has underpinned six years of double-digit percentage growth in Mercedes volumes. Like peers, Daimler benefited from robust demand in China and strong growth in leasing.

None of that is about to change. But last year’s sweet spot in terms of product range — with every major model recently renewed — will be harder to repeat. Daimler’s push into compact cars worked well; its earlier boxlike A-class was a poor effort, its curvy new one is a vast improvement. It has also caught up in high-margin SUVs, which now account for a third of sales, about the same as BMW.

All this success means comparatives will be tough in 2017. BMW, by contrast, is still to reap the benefits of its new 5-series (on sale this year) and 3-series (in 2018). It has also been selling pure electric vehicles, albeit in small volumes and at very little profit, for some time. Mercedes has been slower to market with electric cars, though will launch new ones in 2018.

Non-German rivals are upping their game, too. Jaguar Land Rover sold 580,000 vehicles in 2016, more than double its 2011 sales volume. Tesla remains a niche player, shifting 76,000 cars in 2016. But its orders are up 50 per cent on last year.

Bigger volumes are not necessarily a winning formula for better returns. Net of leasing-related debt, Daimler is valued slightly more highly (relative to earnings before interest, tax, depreciation and amortisation) than BMW, reflecting its better margins. But the latter’s shares have outperformed Daimler’s since Mr Zetsche made his pledge (and the Dax has beaten both).

In football terms, 2016 could be considered a 2-1 victory for Daimler over BMW. Expect something more akin to a 1-1draw this year.

>>> After Hours Summary: CUDA +8% following earnings/gudiance, GNVC


After Hours Summary: CUDA +8% following earnings/gudiance, GNVC +57% extending late surge higher... HGG -24%, WDFC -5.5%, HALO -5% among names trading lower following guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: CUDA +7.7%, MDRX +2% (ticking higher; reaffirms Q4 guidance and provides initial outlook for 2017), TACO +1.7% (light volume; preannounces Q4 sales with comps +5.5%, just above estimates)

Companies trading higher in after hours in reaction to news: GNVC +56.7% (continued strength), ILMN +16.9% (confirms the introduction the NovaSeq Series and Illumina and Bio-Rad Laboratories launch of the Illumina Bio-Rad Single-Cell Sequencing Solution), SSI +5.7% (modestly rebounding), PTCT +3.2% (light volume; EC ratifies positive CHMP opinion for renewal of translarna marketing authorization for the treatment of nonsense mutation Duchenne Muscular Dystrophy), CNDT +2% (higher in after hours after Carl Icahn affirmed 9.77% active stake in the Xerox spin-off), KITE +0.6% (Kite Pharma enters into a strategic partnership with Daiichi Sankyo Co for axicabtagene ciloleucel) BIO +0.6% (light volume on Illumina news)

CUDA peers higher in after hours: FEYE +1.3%, CYBR +1.1%, FTNT +0.7%, PANW +0.6%

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: HGG -23.7% (HHGregg sees fiscal Q3 sales of ~$453 mln vs. $564.3 mln Capital IQ Consensus Est; co expects to incur a non-cash charge for asset impairment of $7-12 mln of certain locations in the quarter ended December 31, 2016), FRSH -7.1% (issues downside Q4 revenue guidance), WDFC -5.5%, BOOT -5.3% (Boot Barn Holdings reports light prelim Q3 results ahead of ICR conf), HALO -5.2% (guides 2017 revenue below expectations), VOXX -4.7%, CRAY -3.7% (anticipates 2016 revenue to be in previously provided range; believes it will be difficult to grow over 2016 in 2017), SCVL -2.3% (sees FY17 $1.36-1.38 vs $1.49 Capital IQ Consensus Estimate; sees revs $1.000-1.003 bln vs $1.00 bln Capital IQ Consensus Estimate), ABMD -2.2% (offers prelim Q3 rev results, reaffirms FY17 outlook ahead of presentation at the Annual J.P. Morgan Healthcare Conference), SHOO -2.1%, ZLTQ -2.1% (discloses commercial leadership transition, provides prelim Q4 results, FY17 guidance), ICLR -0.5% (issues financial guidance for FY17 EPS in-line, FY17 revs below consensus, reaffirms FY16 guidance),

Companies trading lower in after hours in reaction to news: WMB -8.2% (announce financial repositioning for long-term, sustainable growth; Both cos announced an agreement to permanently waive payment obligations, commenced an underwritten public offering of 65 million shares of Williams common stock), WPZ -6.4% (announce financial repositioning for long-term, sustainable growth; Both cos announced an agreement to permanently waive payment obligations), ATW -5.5% (commenced an underwritten public offering of 13,500,000 shares of common stock), CIO -3.3% (commences 4 mln common stock offering), DM -1.5% (Dominion Midstream files for offering of 25,383,348 common units representing limited partner interests by selling unitholders)

WSJ : U.S. Pilots See Close Calls With Russian Jets Over Syria

U.S. Pilots See Close Calls With Russian Jets Over Syria
As planes share crowded airspace fighting parallel wars, militaries struggle to minimize threat of an accident

One night this past fall, a U.S. radar plane flying a routine pattern over Syria picked up a signal from an incoming Russian fighter jet.

The American crew radioed repeated warnings on a frequency universally used for distress signals. The Russian pilot didn’t respond.

Instead, as the U.S. plane began a wide sweep to the south, the Russian fighter, an advanced Su-35 Flanker, turned north and east across the American plane’s nose, churned up a wave of turbulent air in its path and briefly disrupted its sensitive electronics.

“We assessed that guy to be within one-eighth of a mile—a few hundred feet away—and unaware of it,” said U.S. Air Force Col. Paul Birch, commander of the 380th Expeditionary Operations Group, a unit based in the Persian Gulf.

The skies above Syria are an international incident waiting to happen, according to American pilots. It is an unprecedented situation in which for months U.S. and Russian jets have crowded the same airspace fighting parallel wars, with American pilots bombing Islamic State worried about colliding with Russian pilots bombing rebels trying to overthrow Syrian President Bashar Al-Assad. Russian warplanes, which also attack Islamic State targets, are still flying daily over Syria despite the recent cease-fire in Moscow’s campaign against the anti-Assad forces, according to the U.S. Air Force.

The U.S. and Russian militaries have a year-old air safety agreement, but American pilots still find themselves having close calls with Russian aviators either unaware of the rules of the road, or unable or unwilling to follow them consistently.

“Rarely, if ever, do they respond verbally,” said Brig. Gen. Charles Corcoran, commander of the 380th Air Expeditionary Wing, who flies combat missions in a stealth fighter. “Rarely, if ever, do they move. We get out of the way. We don’t know what they can see or not see, and we don’t want them running into one of us.”

Complicating the aerial traffic jam, the Russian planes don’t emit identifying signals, flouting international protocols.

One of the most serious mishaps so far was caused by the U.S. In September, an American airstrike intended to hit Islamic State militants in Deir Ezzour, Syria, killed dozens of Syrian government troops instead.

The incident highlighted vulnerabilities in the colonel-to-colonel hotline. The day of the strikes, Col. Manning was away from the Qatari base that houses the American air operations center. After the strikes began, a Russian officer called on the hotline and asked to speak to another U.S. colonel he knew. That American wasn’t available. The Russian hung up, and 27 minutes passed before the Russians called back to warn the Americans they were bombing the wrong target, according to U.S. defense officials.

At the time, the Russian military issued a statement saying: “If the airstrike was caused by erroneous coordinates of targets, it is a direct consequence of the stubborn unwillingness of the American side to coordinate with Russia [on] its actions against terrorist groups in Syria.”

Col. Manning said the current coordination efforts are making the war safer.

“We continue to assess that the Russian have no intent to harm coalition forces in the air or on the ground,” he said. “Because we believe there is no malign intent towards the coalition forces, we’re able to de-conflict.”

But things look different from the cockpit, and U.S. pilots say the Russians sometimes seem to be pushing the limits just to see if they can get away with it.

It’s a situation further complicated by the soup of aircraft conducting combat missions, including Americans, Russians, Syrians, Australians, Britons, Danes, Turks, Emiratis, Saudis and Jordanians. On any given day, there are usually 50 to 75 manned and unmanned coalition aircraft over Raqqa, the Islamic State stronghold in Syria, and another 150 or so over heavily contested Mosul, Iraq, according to one U.S. radar officer. The 64-member coalition—Russia is not a member—had conducted more than 51,500 sorties against Islamic State, two-thirds of them by U.S. aircraft, as of mid-December.

The 2015 agreement between the U.S. and Russia led to negotiation of what Americans call the “rule of threes.” Pilots should keep at least three nautical miles of separation horizontally, or 3,000 feet vertically. Should they get closer, they’ll remain for no more than three minutes.

“We’ve agreed to coexist peacefully,” said Gen. Corcoran.

But the Russians are prone to ignoring the conventions of air safety, according to the American pilots. Planes world-wide carry transponders that emit a four-digit code allowing air-traffic controllers to identify them, a practice called squawking. Russian planes over Syria don’t squawk, and they appear as an unidentified bleep to allied radar installations.

Nor do the Russians usually answer “guard calls,” urgent summons on a common emergency radio frequency. In one eight-hour shift on Dec. 11, for instance, the crew of a U.S. radar plane, called an AWACS, made 22 such calls to some 10 Russian planes and received not a single response. A few of the Russians approached within five miles of allied aircraft.

The controller aboard the AWACS scattered U.S. planes to keep them clear of the Russians. “We’ve had several co-altitude incidents,” the officer said, referring to planes flying too close together.

Russian pilots have sometimes broken their silence when contacted by a female air-traffic controller.

In early September, a female U.S. air-surveillance officer spotted an unidentified plane approaching allied aircraft over Syria. “You’re operating in the vicinity of coalition aircraft,” she warned the pilot.

A heavy Russian accent emerged through the static: “You have a nice voice, lady. Good evening.”

“Some of the closest calls I’m convinced they don’t know we’re there,” said Gen. Corcoran.

That’s not always the case. In September, an Su-35 shadowed an American F-15 fighter as it ended a bombing run over Syria and pulled up to a tanker plane to refuel. The U.S. pilot filmed the Russian running alongside the American planes, about a mile-and-a-half away, said Col. Birch.

At times, Russian planes plow through tightly controlled groupings of allied aircraft over Raqqa. Russian bombers, flying to Syria via Iran, have crossed Iraq and disrupted allied flight patterns over the battlefields of Mosul.

Lt. Col. August “Pfoto” Pfluger, a stealth-fighter pilot, witnessed such an incident over Iraq in August. He compared the Russians’ behavior to jumping out of the stands at a professional football game and bolting onto the field.

“You just don’t do that,” he said.

>>> US Close Dow -0.38% S&P -0.35% Nasdaq +0.19% Russell -0.72%

Closing Market Summary: Stock Market Opens the Week Modestly Lower

Equity indices closed Monday's session mixed. The Nasdaq (+0.2%) posted a modest gain, while the S&P 500 finished lower by 0.4%.

With news and economic data limited, the benchmark index remained within reach of its flat line throughout the session, only to dip a bit further in the final stretch.

There was a batch of earnings reports this morning, with Acuity Brands (AYI 202.51, -34.85), Commercial Metals (CMC 20.81, -1.79), and Global Payments (GPN 79.79, +5.34) all reporting before the opening bell. Acuity Brands and Commercial Metals lost 14.7% and 7.9%, respectively, after missing top and bottom line estimates while Global Payments added 7.2% after beating expectations and issuing positive guidance. The fourth-quarter earnings season will heat up this week with several banks set to report their results on Friday.

Eight out of eleven sectors finished the trading day in negative territory, with the energy sector (-1.5%) closing at the bottom of the leaderboard. The sector faced an uphill climb from the start as crude oil opened the day deep in negative territory amid growing concerns that the OPEC, non-OPEC supply cap has been implemented at slower-than-expected pace. In addition, reports indicated that the recent growth in U.S. production was also ruffling some investors' feathers. The commodity closed its trading day 3.8% lower at $51.94/bbl. Financials (-0.8%), industrials (-0.7%), and consumer discretionary (-0.1%) rounded out the cyclical underachievers.

On the countercyclical side, four out of five spaces finished in the red. Utilities (-1.3%) retreated the furthest, as telecom services (-1.1%), consumer staples (-0.7%), and real estate (-0.6%) performed slightly better. Heath care (+0.4%) was the lone non-cyclical representative in green territory, bucking the trend on the back of a solid showing from the biotechnology industry. The iShares Biotechnology ETF (IBB 284.07, +3.72) increased 1.4% on big gains from names like Amgen (AMGN 158.84, +2.06), Biogen (BIIB 299.02, +4.02), and Vertex Pharmaceuticals (VRTX 82.86, +3.47). The three names posted gains between 1.3% and 4.3%.

The top-weighted technology sector (+0.3%) also finished in positive territory after a solid showing from the sector's heaviest component, Apple (AAPL 118.99, +1.08), which closed higher by 0.9%. Chipmakers also aided the tech sector, evidenced by the 1.1% gain in the PHLX Semiconductor Index. The materials (unch) and consumer discretionary (-0.1%) sectors rounded out the day's outperformers. 

U.S. Treasuries ended the day near their session high that was achieved early in the morning. The 10-yr yield closed five basis points lower at 2.37%. Also of note, the U.S. Dollar Index (101.95, -0.22) fell 0.2% while gold increased by 0.8%. The precious metal finished at $1,183.00/ozt.

Reviewing today's economic data:

  • Consumer Credit report for November
    • Showed an increase of $24.5 billion while the consensus expected growth of $18.0 billion.
    • The prior month's credit growth was revised to $16.2 billion from $16.0 billion.
    • The key takeaway from the report is that consumer credit -- both revolving and non revolving -- continues to expand, providing fuel for a potential increase in economic activity.

Tomorrow's economic data will include November Job Openings (JOLTS) and November Wholesale Inventories (consensus 0.9%). Both reports will be released at 10:00 am E.T.

  • Russell 2000 UNCH YTD
  • Dow Jones Industrial Average +0.6% YTD
  • S&P 500 +1.3% YTD
  • Nasdaq Composite +2.8% YTD

FT : Eon urged to spin-off power distribution business

Eon urged to spin-off power distribution business
Activist investor Knight Vinke says standalone network would achieve higher valuation

An activist investor has renewed calls for German utility Eon to spin off its power distribution business, just months after the company floated its fossil fuel assets in one of Germany’s biggest corporate restructurings.

Eric Knight, chief executive of Knight Vinke, said Eon’s regional electricity and natural gas grids would be highly attractive if hived off into a standalone company.

“There is huge institutional [investor] demand for a pure network business, and the value of that would be substantially greater than that of [Eon] as a whole,” he added. “For investors looking for [dividend] yield, it’s exactly the kind of asset they’d want to own.”

Knight Vinke, which owns about 1 per cent of Eon’s shares, first demanded such a spin-off in a letter to its investors ahead of Eon’s annual shareholders’ meeting last June, but this is the first time Mr Knight has spoken publicly about his proposal.

He said he had first approached Eon’s management and supervisory board with the idea last year but it gained little traction. He is now “looking forward” to raising it with them again in the coming months.

Eon has already split it itself into two, pooling its coal and gas-fired power stations, energy trading and gas production into a separate company, called Uniper, which debuted on the Frankfurt stock exchange in September.

Eon itself retained the cleaner parts of the business: renewables, energy distribution — which comprises more than 1m km of networks in Europe — and retail.

The restructuring was a response to Germany’s green revolution, which has resulted in solar and wind power squeezing energy generated from coal and gas out of the market and depressing wholesale electricity prices, hurting the profitability of conventional power stations.

Eon has also been hit by a big bill for Germany’s nuclear clean-up. In October, the government ordered the country’s nuclear power plant operators to pay €23.6bn into a new state-run fund to cover the final storage of radioactive waste — about €6bn more than they had provisioned for.

Eon said it would have to raise capital to cover a €2bn shortfall. Its share price has fallen about 16 per cent since the start of 2016.

Eon, which sees the power grids as critical to its new, more streamlined business, has given Knight Vinke’s proposal a cool reception.

A spokesman said almost 97 per cent of votes cast at the annual meeting in June backed the company’s strategy to focus on all three of its business areas, and Eon was now implementing it. “A disposal of the networks would conflict with that,” he added.

However, he said Eon could sell some of its renewable assets “if value can be generated in that way”.

Mr Vinke said spinning off the regulated grid assets “would result in a standalone business with far stronger credit metrics and investment capacity”. He added the idea would benefit not only investors but “creditors, energy consumers and the employees of both Eon and its network subsidiaries”.

He pointed to Finnish utility Fortum’s sale of its Swedish electricity grid business in 2015 for €6.6bn to a group of Swedish pension funds and Canada’s Borealis.

“They sold their regulated assets in Scandinavia for 18 times ebitda [earnings before interest, tax, depreciation and amortisation],” he said. “Eon is valued at six to seven times ebitda. So their prime asset is worth more than the entire group.”

Knight Vinke’s activism has had mixed results over the years. It long demanded that Italian oil producer Eni sell its Snam natural gas distribution business — which the company eventually did. But the fund was publicly rebuked by UBS for urging it to sell its investment bank.

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance
:
  • BABY -7.7%, LULU -1.9%, CMC -1.5%
Select financial related names showing weakness:
  • RBS -3.3%, DB -2.1%, PUK -1.6%, BCS -1.5%
Select oil/gas related names showing early weakness:
  • WLL -1.7%, SDRL -1.5%, RDS.A -1.3%, CHK -1.3%, STO -1.3%
Other news:
  • ADHD -23.8% (receives official minutes from its meeting with the Division of Psychiatry Products of the FDA held in early December)
  • ETRM -2.1% (after filing amended S-1)
Analyst comments:
  • RIG -2% (downgraded to Underperform at BofA/Merrill)
  • KO -1.1% (downgraded to Sell from Neutral at Goldman)
  • VMW -0.6% (downgraded to Neutral from Buy at UBS )

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance
:
  • EXAS +15.9%, (sees Q4 revs above consensus) TTOO +7.5%, GPN +5.1%, PTCT +4.2%, VNDA +3.9%, FRAN +3.2%,SPNE +2%, PME +1.7%, NUVA +1.4%, VLRS +1.1%
M&A news:
  • MSTX +122.5% (signs merger agreement with privately held Savara Inc )
  • MACK +35.8% (concludes strategic review; Ipsen (IPSEY) to Acquire Oncology Assets from Merrimack for $575 mln cash; up to $450 mln in additional regulatory approval-based milestone payments
Select metals/mining stocks trading higher: KGC +5.4%, VALE +4%, AUY +3.2%, GFI +2.8%, MUX +2.3%, GG +2.3%,AG +2.3%, GDX +2.2%, SLW +2%, ABX +1.9%, NEM +1.8%, AKS +1.1%

Other news:
  • ADMS +7.2% (prepares for potential approval and launch of ADS-5102 for the treatment of levodopa-induced dyskinesia in patients with Parkinson's disease in 2017)
  • ARWR +7.1% (issues response to new minority shareholder announcement by Silence Therapeutics plc; no discussions about any potential transaction)
  • KERX +6.3% (provides business update; sees Q4 revs above consensus)
  • EBIO +5.2% (provides upcoming milestones in slide presentation)
  • CTIC +4.8% (provides 2017 key objectives)
  • MDCO +4.2% (presents compelling safety and efficacy data from Day 180 interim analysis for ORION-1 Phase 2 Study of Inclisiran )
  • EXEL +3.1% (announced today that Genentech (RHHBY) has withdrawn its counterclaim against Exelixis in the ongoing JAMS arbitration )
  • ARLZ +1.8% (enters into a rebate agreement with Express Scripts (ESRX))
Analyst comments:
  • JD +2.6% (upgraded to Overweight from Neutral at JP Morgan)
  • BIDU +0.7% (upgraded to Neutral from Underweight at JP Morgan)

>>> US Early premarket gappers

Early premarket gappers
Gapping up: MACK +36.1%, BIOC +13.7%, ARWR +11.7%, ZFGN +4.1%, DRYS +4%, LC +3.6%, KGC +3%, JD +2.6%, VALE +2.6%, MUX +2.6%, CTIC +2.5%, LVS+1.7%, SLW +1.7%, GDX +1.7%, AUY +1.6%, AKS +1.6%, GFI +1.5%, ABX +1.5%, AG +1.3%, F +1%, GG +1%, NEM +1%

Gapping down: ETRM -7.5%, AGRX -6.7%, OREX -4.7%, RBS -3.3%, HIMX -3.3%, WLL -2.4%, RIG -2.2%, SDRL -2%, SHPG -1.8%, DB -1.7%, PUK -1.5%, RDS.A-1.4%, KO -1.3%, CHK -1.3%, STO -1.3%, BCS -1.2%