A steep decline in retail sales in Italy – a nation normally renown for its love of shopping and fashion – has pushed the eurozone’s retail sector back into contraction territory, according to a survey of activity.
Markit’s purchasing managers’ index for Italy’s retail sector slumped to a 31-month low for June, dragging an index covering the euro area as a whole to a two-month low and back into negative territory.
The eurozone retail PMI came in at 48.5 for June, down from 50.6 in May. Any reading below 50 points to contraction.
Markit said sales in Italy – which is fighting to stave off a crisis in its banking sector – have now fallen for six straight months.
Italy’s prime minister Matteo Renzi has said he is willing to defy EU rules and pump billions of euros into the country’s banking system if it comes under severe distress. Italian banking stocks have come under renewed pressure after Britain’s vote to leave the EU, which has added to existing concerns over capital and bad loans in the sector.
Phil Smith, economist at Markit said:
The biggest talking point will be Italy’s sharp drop in sales, which contrasted with upturns across both France and Germany. Clearly consumer spending is on the wane in the eurozone’s third-largest economy after recent tentative signs of recovery. But it was a brighter picture for retailers in France, where back-to-back increases in sales were recorded for the first time in two years and employment edged higher. Germany remained the best performer overall, although sales growth there eased from the solid pace seen in May.
The weird thing with fairness opinions is that the target company and their bankers have the incentive to make the company’s previous pre-deal market value look as full and juicy as possible. This way, when the buyout comes along, that premium price offered looks foolish to pass up.
In November, we brought you the story of tech company Aruba Networks that was sold to H-P by star banker Frank Quattrone. His firm, Qatalyst Partners, was accused by aggrieved shareholders of using an excessive “dilution factor” in its DCF valuation to dial back the theoretical value of Aruba in order to make the H-P buyout price look more favourable.
Qatalyst has some more valuation innovation to share with the world, this time coming from its work for LinkedIn who accepted a $26bn offer from Microsoft a few weeks ago.
While the details of the bidding war got the most attention from the preliminary merger proxy statement filed on Friday, the financial analysis detail raised our eyebrows.
Qatalyst is still using its seemingly unprecedented “dilution factor”, but now the earnings projections used in the valuation have been “adjusted” in novel way. Or, rather, “modified”. If Adjusted EBITDA isn’t offensive enough to you, LinkedIn wants to test your patience with Modified EBITDA.
Adjusted EBITDA adds back stock compensation expense. (Qatalyst would argue it already accounts for the economic cost of shares issued to employees through its dilution factor.) Modified EBITDA takes another leap by adding back charges for “capitalised software and website costs”.
From the proxy statement:
The outlays themselves are real. This from the Linked 10-k:
The Company capitalizes certain costs to develop its website, mobile applications, and internal-use software when planning stage efforts are successfully completed, management has committed project resourcing, and it is probable that the project will be completed and the software will be used as intended. Such costs are amortized on a straight-line basis over the estimated useful life of the related asset, which is generally two years. The Company capitalized website and internal-use software development costs of $97.4 million, $55.7 million and $39.3 million for the years ended December 31, 2015, 2014 and 2013, respectively.
If that spending is a genuine capital expenditure — and the company is indeed amortizing the cost over two years and running that expense through the income statement — it is strange the company would want to lower EBITDA on the P&L rather than, more conventionally, just have the charge only appear in the cash flow statement. On the other hand, lowering LinkedIn’s reported EBITDA could imply lower theoretical values for LinkedIn.
(The actual deal price was $196 per share in cash. The discounted cash flow range derived by Qatalyst was $156 to $238.)
The terminal value in the DCF relies on an EBITDA exit multiple, which you can get by comparing LinkedIn to comparable companies currently traded in the market. Similarly, you can compare the multiples of EBITDA paid on previous acquisitions against the multiple Microsoft was willing to pay to buy LinkedIn.
When Qatalyst compared LinkedIn to similar companies, earnings were, presumably, modified to account for capitalised software costs. However, interestingly, for precedent transaction multiples Modified EBITDA was not used. Instead, Qatalyst used Adjusted EBITDA multiples because capitalised software costs were likely unavailable.
LinkedIn and Qatalyst could argue the lower earnings in Modified EBITDA should be offset by higher multiples. But if the net impact was negligible, why go to the trouble of moving from Adjusted EBITDA to Modified EBITDA in the first place?
These projections were provided to Microsoft in their due diligence but “other than in connection with the preparation of this proxy statement, LinkedIn did not provide Microsoft with this reconciliation [pasted above].”
The proxy statement is subject to comments to the SEC before being declared effective, so we can see if future editions provide more explanation how and why these projections were prepared they way they were.
The document does reveal that Qatalyst will make $55m in total if the deal closes. Qatalyst declined to comment about its analysis when asked.
It’s a Bad Time to Buy an iPhone
Whether or not Apple’s next overhaul of the iPhone meets your needs, you should still wait until September to commit to a new phone
There are three things to remember when iPhone shopping:
1) The next iPhone will always be better than the current one.
2) No matter the season, Apple will always try to sell you an iPhone.
3) The next iPhones usually come out in September, at which point prices on at least some current iPhones will drop.
Add it all up and you get my patented iPhone No-Buy Rule™: Do not buy an iPhone once June rolls around. Wait for the new one.
This year, there are plenty of reasons to wait. The iPhone 6s, while a very good phone, failed to address some of the biggest complaints we have about our smartphones—most notably battery life. In the meantime, Samsung released the Galaxy S7, the best phone hardware you can buy right now. It’s got the camera to beat and can survive a dunk in the pool.
The next iPhone, however, could return Apple to the best-smartphone throne. According to my WSJ colleagues, it will look a lot like the current iPhone and (brace yourselves) completely lose the headphone port. But it’s likely to be thinner and more water resistant, with substantial camera improvements.
There’s another big reason to hold out: You’ll likely keep your next phone for a while. As the introduction of must-have features slows and carriers move away from two-year upgrades, people are hanging onto their devices longer. Now 12% of iPhone owners have them for more than three years, up from 5% two years ago, according to Consumer Intelligence Research Partners.
So choose your timing carefully, hold out for features that matter most to you—and do what you can to keep your old phone running.
What You’re Waiting for
Other than Apple’s top brass, no one knows for sure what the next iPhone will look like. Based on my colleagues’ reporting and some of my own, however, we can put together a lot of the puzzle, with a few key pieces still missing. An Apple spokesman declined to comment on any of the following.
The iPhone upgrade cycle has become as predictable as a Starbucks latte. One year, there’s a fresh design. The next year, the “S” year, it’s the same design with key upgrades like a fingerprint sensor or 3D Touch screen. This year, Apple is expected to break with that tick-tock tradition: The design won’t be a radical departure from theiPhone 6 and iPhone 6s.
ENLARGE
Why now? I presume it’s because Apple knows we are upgrading less. Neil Cybart, an Apple analyst, agrees. “As we move away from frequent upgrades, each new model now is going to have two to three main selling points,” he says. (Apple did introduce an upgrade program last year, but it isn’t economically feasible for everyone.)
In the case of this year’s model, two of those points seem to be improved water resistance and a thinner design. For that, we’ll have to give up a port we’ve lived with since we popped tapes into Walkmans—the 3.5mm headphone jack. Instead, you’ll use a wireless headset or Apple earbuds that plug into the Lightning charging port.
My initial reaction, like others’, was complete outrage at Apple for making my beloved headphones as obsolete as my VHS tapes. But then I tried a little experiment: For the past five days, I have been living with a piece of tape over my iPhone’s headphone port, and I have yet to reach for the Xanax.
I work out with a pair of Bluetooth headphones and, at the suggestion of my colleague Geoff Fowler, I recently purchased Bose’s new noise-canceling QC35 headset for work and travel. Yes, it’s annoying to have to charge them and deal with periodic pairing issues, but it’s also annoying to get tangled up like a marionette.
Whether this spells minor disturbance or major disaster is going to depend on your needs: Even if the next iPhone comes with a pair of Lightning headphones, you’ll still have to carry an old pair or an adapter to plug into airplane entertainment systems and gym TVs. For all the people who have nice old headphones they want to plug into their new iPhone, Apple would probably sell a dongle of some sort. Bad news for you; great news for the dongle business.
There’s evidence that the next iPhone will be substantially improved in areas where the iPhone 6s wasn’t. The larger Plus-model 5.5-inch iPhone is expected to have twin camera lenses to improve overall photo quality and add depth-of-field effects. While the Journal hasn’t confirmed it, this would make sense, given acquisitions Apple has made over the past few years. Two Israeli firms in particular,PrimeSense and LinX, specialize in three-dimensional imaging using multiple sensors. The regular 4.7-inch iPhone is expected to get a single camera with a better sensor. The software that will ship on the next iPhone, iOS 10, includes enhanced photo organization.
The new iPhones are expected to have more storage for those photos. Instead of 16GB as a starting point for the entry-level iPhone, the new starting point will be 32GB, according to a person familiar with Apple’s iPhone plans. Hallelujah! I’ve long said that keeping the 16GB iPhone was just a ploy for Apple to get people to buy the 64GB model—for $100 extra.
The biggest remaining question? Battery life. I don’t care if the next iPhone is thin enough to pick a lock if I have to wrap it in a bulky battery case, even Apple’s own. Apple’s recent iPhone SE—which is safe to buy right now if you are looking for a smaller phone—lasts at least two hours longer than the iPhone 6s.
How to Withstand the Wait
If you’re itching to buy a new phone, it’s probably because your current phone is on its last legs. According to Gallup, 47% of Americans upgrade only when their phone stops working or becomes obsolete.
As Tom Petty said, the waiting is the hardest part. If only he had these tips for extending the life of an iPhone:
Fix that cracked screen. Shop around for the lowest screen-replacement price. Apple said it would fix my wife’s cracked iPhone 6 screen for $130. On iCracked it was $140. And if you trade in or sell the phone later, you’ll get some of that money back. On Gazelle, an iPhone reseller, the iPhone 6 with a broken screen fetched about $100 less. I suggest you follow my tips on that this fall.
Buy a back-up battery. Fast battery drain is a sign of an aging iPhone. You can try tricks like lowering screen brightness and enabling Low Power Mode to eke out more time, or pay Apple $80 to replace the battery. If you don’t want to spend that much, go for a cheap battery case like the $40 Anker Ultra Slim Battery; for an iPhone 5 or 5s, get this $34 Lenmar case.
Clear some space. Backing up old photos and videos to the cloud will help keep your overstuffed phone from running like your grandpa’s old Pontiac. Google Photos lets you upload files for free. Also, go into Settings, select Storage and then Manage Storage to spot the most bloated apps. If web-browsing is slow, clear the cache by selecting Settings, Safari and then Clear History and Website Data.
ENLARGE
APPLE (4)
In the end, you may decide you don’t even want the iPhone 7—or whatever Apple calls it. (I nominate “iPhone Air Pro.”) Maybe you’ve resuscitated your old phone and it’s now back in your good graces. Maybe you love headphone jacks more than progress and would prefer saving $100 on an iPhone 6s. Or maybe Apple actually can’t outdo Samsung, and you opt for the Galaxy S7.
You may even decide to wait until 2017, when the 10th-anniversary iPhone is slated for a major design overhaul. Apple design chief Jony Ive is said to be aiming for it to look like a single piece of glass, no home button at all. Just remember my first iron-clad law of iPhone shopping: The next iPhone will always be better than the current one.
UK construction group Carillion has struck a cautious tone over the potential impact of the referendum result on businesses in the country.
The company, which is involved in construction as well as support services, said:
The referendum vote in favour of the UK leaving the European Union has obviously created uncertainty for the UK economy as a whole and therefore for businesses generally, including Carillion, and it is clearly too early to predict the extent to which businesses will be impacted by this result. However, Carillion has no significant operations in Mainland Europe and prior to the referendum we undertook extensive work to assess the possible impact on our business of a vote to leave and we have put in place robust plans to manage this outcome.
This came as the company unveiled a £240m contract in Oman, which has helped to maintain the size of its order book at a constant £17.4bn
Regarding its support services business, Carillion said:
With our support services order book and pipeline remaining strong, we are on track to achieve both revenue and margin growth for the full year, in line with previous guidance and with our strategy of growing this segment of our business, which we expect to contribute nearly two thirds of the Group’s total operating profit. Overall, we continue to believe that the outlook for our support services activities remains positive, driven by the demand for infrastructure services and the continued outsourcing of facilities management in the UK, supported by a good pipeline of opportunities in Canada and the Middle East.
We cut TF1 to Neutral given the earning risk and un-inspiring fundamental prospects.Diversification track record is mixed and the ability to cut costs less significant than elsewhere in Europe, leaving TF1 with still very low margins in a market which remains intensely competitive.