ECB sources said to be uncertain about duration of QE extension and emphatic QE cannot go on indefinitely; Dec 8th should see QE extended, but much is uncertain - press
- some overshooting of inflation target is warranted
Altice Plans Fiber Upgrade That Could Leave Rivals in the Dust
Cable company to convert its systems into an ultrafast fiber-to-the-home network capable of 10 gigabits-per-second speeds
Altice USA, the fourth largest U.S. cable operator, said it plans to convert its entire network into an ultrafast fiber-to-the-home network capable of 10 gigabits-per-second speeds within the next five years, a bold plan that takes aim at the company’s fierce rival,Verizon Communications Inc.’s Fios.
With a 1 gbps connection, a customer can download a high-definition movie in about 30 to 40 seconds. A 10 gbps connection would download the movie in just a few seconds. With a 50 megabits-per-second Verizon Fios connection, it would take about 14 minutes.
Altice’s announcement marks the most ambitious fiber-to-the-home rollout yet from a major U.S. cable operator. The European telecom group earlier this year closed a deal to buy Cablevision Systems Corp., a longtime New York cable operator, and last year bought Suddenlink Communications, which serves customers in more rural markets. Altice USA has 4.6 million home and business customers in 20 states.
Altice is departing from the approach taken by its industry peers. Other cable operators, including Comcast Corp., have extended high-capacity fiber lines all the way to homes in only select “greenfield” markets and are largely banking on a new cable technology called “DOCSIS 3.1” to deploy gigabit speeds over their existing networks. Traditionally in cable networks, fiber only runs to a central point in local areas, with lower-capacity coaxial cables wired to each home.
Deploying DOCSIS 3.1 avoids the hassle and investment associated with wiring fiber all the way to homes, though operators still need to make substantial investments in back-end infrastructure and deploy new customer modems to reach gigabit speeds. Comcast has already started offering one gigabit-per-second speeds in markets like Atlanta, Nashville and Chicago with that technology. Comcast’s 2 gigabits-per-second option, which it offers in several cities, is only for customers who live near its existing fiber backbone, and it requires a special installation to bring fiber to the home.
Altice, however, believes that it doesn’t make sense to take intermediate steps. In an interview, Altice Chief Executive Dexter Goei said DOCSIS 3.1 will only get cable so far, but fiber will always be a superior technology and yield faster speeds.
“We know that there will be applications and demand for further bandwidth going forward, whether that is in two, three, four or five years,” Mr. Goei said.
He also believes that 5G, a coming wireless standard that AT&T and Verizon have said may rival cable broadband’s speeds, will never match the performance of fiber.
Altice plans to start rolling out its fiber deployment next year, with initial markets to be announced in the coming months. Mr. Goei said the rollout shouldn’t be disruptive to customers, except that a truck may show up in their neighborhoods to change out the coaxial lines to fiber.
Altice’s investment could spell headaches for Fios, which has taken market share from Cablevision since Verizon deployed it nearly a decade ago. Verizon stopped building out its fiber network to new areas in 2010 and of late has refocused its business around wireless and digital content initiatives.
Google recently decided to pull back from its own investments in fiber optic broadband. That doesn’t faze Mr. Goei, who noted that Google’s initial deployment was from scratch, while Altice will be making more manageable upgrades to an existing network.
He believes that the cost savings Altice is achieving from its austere corporate policies—including by shuttering projects under prior management, like Cablevision’s R&D center in California—will be enough to offset the fiber rollout. The company said it doesn’t expect a “material” change in its overall capital budget.
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.
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.
Gapping down
In reaction to disappointing earnings/guidance:
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)
Gapping up
In reaction to strong earnings/guidance:
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)
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%
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