(ZH) Noble Group’s "Collateral Margin Call"

Noble Group’s "Collateral Margin Call”  Link : http://bit.ly/1mwblqY


The downgrade of Noble Group by Moody’s depicts an aggressive financial risk and a vulnerable business risk profile

I) the first-order problem is Macro.

"The downgrade of Noble Group to junk status is worrisome, but the main story is about the evolution of the commodity price downtrend. 1st round effects were felt in macro indicators (lower CapEx & growth for producers and following FX/interest rate adjustments). 2nd round effects will be about commodity exporters' governments reactions."

Those effects will dominate in 2016 said Sacha Duparc, Head trader and structurer at Banque Cantonale Vaudoise.

II) Collateral margin call.

The trader has billions of dollars in commodity prepays with NOCs and producer, the value of inventories and receivables collateralized by traders into trade finance arrangements have cratered in the past year.

This collateral value of Noble Group is being depressed, those loans are been called even Noble Group (buoyed by liquidity in 2015) never missed a payment because the market say this property and assets are worth less they claim it is worth on their books.

Banks are requiring at least $1.6 Bn more in additional collateral that Noble Group doesn't have… Noble is being placed into either bankruptcy or they are being placed in a tremendous economic adversity that so far they've not seen in 2015.

"People have been hopeful that Noble might avoid a rating downgrade after the asset sale but it couldn’t,” said a Hong Kong-based credit trader at a Japanese investment bank.

Noble's move to raise US$750 million by selling its remaining stake in Noble Agri. I repeat what was said in a previous comment: Noble Agri Sale was strictly a Collateral margin call.

Noble Group must raise money but their collateral base is new book value of 4,528 million while their Net Positive fair values gains of commodity contracts and derivatives exceeds MTM is over 4,500 million…

By any model, this MTM represents between 90% and 105% of their book value.

Banks aren’t provided with the access of the exact breakout of the 4,500 million and PwC has not been able to review the exact assumptions and models behind these Net Positive fair values gains of commodity contracts and derivatives. Perhaps, Antoine Lavoisier, French nobleman of the 18th century and father of modern chemistry must have a great influence on the financial reporting of Asia’s Largest Commodity trader with "Nothing is lost, nothing is created, and everything is transformed".

Solvency Problem, not liquidity

I will make it clear that it is not Liquidity that banks are asking but for more Collateral from Noble starting this year because they also understand that this MTM gain on commodity contracts and derivatives of Noble will unlikely be realized at more than 10% and therefore is not valid collateral for the trader’s working capital borrowing base requirements.

A close friend hedgie in NY reminded me that at the height of 08', a IB sale desk lured them into "taking a position into undervalued trading books of the bank temporarily mispriced because of market illiquidity". At only 66 cents on the Dollar, the deal turned-out to be 0.6 cent sinky.

Enron-esque memes

To put Enron in the context of 1999-2001s, it was not only the world’s largest energy trader; it had also the same gleaming and appeal of the Trafiguras or Vitols of today.

A trading or a mgmt position at Enron meant that you could do a 6 digits salary and touch a 7 digits bonus. Most of it was a management incentive program with the Enron Corp share derivatives used as a currency.

Many people at other firms were lured into mgmt and trading positions by commodity headhunters hired by Enron Corp providing "an offer that nobody could refuse" just months before the collapse.

There are some parallels with Noble Group, one I guess is that Noble recently brought new faces people from other firms in Geneva like Kev Brassington into offers that they could not refuse in their career path.

Enronesques parallels with Trafigura.

Medias have recently bragged about “$775m bonuses” to 600 of Trafigura employees related to bumper profits from oil trading”. However I note in the disclaimer that's as an all stock 5 year LOCK buyback type program, again something tied to its future performance and the commodity curve.

When Enron collapsed, the story that I know is that an average trader and VP have registered 7 digits each (real losses), so it is fair to say that VPs, Management and traders were also conned. More than financial losses, can you think about the moral damages that they still endure because they spent between 12 and 6 months at Enron ?

FT : M&A: now for the hard work

M&A: now for the hard work

There will be more fretting than usual in 2016

The M&A bankers have gone away. The completion drinks parties are a fading memory, and deal mementoes are already gathering dust. What now? Now for the hard work. It is up to the middle managers to deliver what was promised in those slick PowerPoint slides — and up to the buyer’s shareholders (and sometimes the seller’s too) to fret about whether or not the deal is working.

There will be more fretting than usual in 2016. The year just passed has notched up a record for corporate M&A, according to Dealogic, with 38,000 deals amounting to $4.9tn. This has surpassed even the $4.6tn recorded in the heady days of 2007 (albeit not in inflation-adjusted dollars). Healthcare and technology have been the busiest sectors, closely followed by finance and real estate. The top five deals alone were worth $500bn.
All of this means plenty of synergies for middle managers to deliver. Deloitte says that 2015’s deals have promised an annualised $150-200bn of cost savings. Taxed at 25 per cent and capitalised, they should be worth $1.3tn — if they are all delivered.
But synergies tend to be poorly reported by the companies that promise them. Updates on progress towards cost savings may be provided for a year or two, but beyond that point the reports dry up. Revenue synergies — a dubious source of value, but one by which many acquirers set great store — receive even less attention. This matters. A 2011 study by KPMG found that only 31 per cent of deals completed between 2007 and 2009 added value (and in the previous two years it was just 27 per cent). Yes, the period covered the financial crisis, but it is nevertheless a worryingly low number.
One of the problems with evaluating deals is that the counterfactual — the outcome had the businesses not come together — is impossible to know. But this is no excuse for the scant attention paid by companies to acquisitions that are more than a couple of years old. Shareholders are still paying for deals many years after the event. Managers need to prove those deals are working over a similar timescale.

Barron's : Cognizant and Wynn Rumors, Plus analysts’ assessments of three other

Cognizant and Wynn Rumors, Plus analysts’ assessments of three other companies

Insider Transactions

These reports, excerpted and edited by Barron’s, were issued recently by investment and research firms. The reports are a sampling of analysts’ thinking; they should not be considered the views or recommendations of Barron’s. Some of the reports’ issuers have provided, or hope to provide, investment-banking or other services to the companies being analyzed. Many of the reports may be obtained through Thomson Reuters at 800-638-8241.

Cognizant Technology Solutions • CTSH-Nasdaq
Outperform • Price $60.73 on Dec. 24
by R.W. Baird
Cognizant, a big information-technology and business-processes consulting firm, was mentioned as one of several potential suitors for Perot Systems, the IT consultant that in 2009 was bought by privately held Dell. We think this acquisition would end up being a positive for CTSH shareholders. While it would likely dilute Cognizant’s revenue growth, it could potentially add 5% to 10% to EPS, and we doubt CTSH’s multiple would fall much lower than the current level as long as organic revenue growth of 10% and more can continue.

Our price target stands at $76.

Sysco • SYY-NYS
Neutral • Price $41.53 on Dec. 29
by Guggenheim
The distributor of food and food-service products for restaurants, schools, hospitals, and other away-from-home locations is promoting Tom Bene, currently an executive vice president and the president of food-service operations, to president and chief operating officer effective Jan. 1....We believe this promotion positions him to potentially succeed CEO Bill DeLaney eventually—a positive, especially given the belief that by exerting more pricing discipline SYY can consistently grow gross profit dollars at a faster rate.

For the past few months, we have gradually become more constructive on the food-service distribution sector. Our rationale is straightforward: With the three-largest operators comprising roughly one-third of the market, each highly motivated to act rationally and exert greater pricing discipline, the backdrop for gross and Ebitda margin expansion has improved. Despite that, we remain Neutral and offer no price target to reflect the back-end loaded nature of Sysco’s three-year plan and its rich P/E multiple of 21.7 on our 2016 estimated EPS.

Red Hat • RHT-NYSE
Buy • Price $83.29 midday Dec. 29
by Drexel Hamilton
The company, one of our top tech picks for 2016, is a play on the collaborative open-source software movement, in which a program’s underlying code is provided to users, who can then change and redistribute the code under the same collaborative terms. Red Hat is the No.1 player in the open-source Linux enterprise server market. The development of next-generation applications designed to run on Linuxbased operating systems is directly benefiting Red Hat Enterprise Linux, the largest contributor to the company’s financials.

Our target price: $98.

Bed Bath & Beyond • BBBY-Nasdaq
Strong Buy • Price $48.73 on Dec. 28
by Raymond James
After the close on Dec. 22, management pre-announced fiscal third-quarter 2015 sales and EPS results. It now pegs EPS at $1.07 to $1.10, below its earlier $1.14 to $1.21 guidance, our $1.21 estimate, and the $1.17 consensus. For sales, it put results at approximately $3 billion, at the low end of its previous $2.99 billion to $3.06 billion guidance, our earlier $3.02 billion estimate, and the then in-place $3.02 billion consensus. The company further noted that comparable store sales decreased approximately 0.4%, below its +1% to +3% expectation and our +2% estimate.

We are reaffirming our Strong Buy rating but lowering our target price to $75 from $85 following those results....Bed Bath & Beyond remains a “best in class” home furnishings retailer, and we remain steadfast in our view that it is an excellent fundamental investment.

Wynn Resorts • WYNN-NYSE
Buy • Price $70.12 on Dec. 29
by Gabelli & Co.
Las Vegas-based Wynn Resorts owns and operates the Wynn-Encore resort complex in Las Vegas and owns a 72.3% stake in Wynn Macau (1128.HK), which owns and operates the Wynn-Encore resort in Macau. Wynn Macau is in the process of building a second Macau-based resort, Wynn Palace, which is set to open on June 27, 2016. We expect Wynn Resorts to generate 2016 consolidated revenue, Ebitda, and earnings per share of $4.6 billion, $1.2 billion, and $2.90, respectively.

We would like to weigh in on speculation about potential merger scenarios involving Wynn Resorts and other multinational operators. In short, we view a near-term merger as unlikely. These considerations factor into our thinking: 1) Macau is unlikely to allow one company to have majority control in two of its six concessions. 2) A pending lawsuit between Wynn Resorts and former Wynn director Kazuo Okada could force a cash payment of $2 billion or reinstatement of 24.5 million shares. 3) We view Steve Wynn’s Dec. 8 purchase of one million WYNN shares as a positive, but also as evidence that a deal has not recently been considered.

We also contend that Wynn’s ex-Macau assets are undervalued, and expect management to increase value. We retain our Buy on WYNN shares, which trade at a 28% discount to our 2016 PMV [private market value] of $98 per share.

(ZeroHedge) On The Trail Of Dubai's Stolen Gold: A Robbed Client Breaks The

(ZeroHedge) On The Trail Of Dubai's Stolen Gold: A Robbed Client Breaks The Silence, And A Fascinating Detail Emerges

On The Trail Of Dubai's Stolen Gold: A Robbed Client Breaks The Silence, And A Fascinating Detail Emerges

On Christmas Day, 2015, we told our readers the fascinating tale about the Turkish-Iranian gold smuggling ring - perhaps the biggest and most brazen in history, one which lasted for years, which saw billions in gold transported out of Turkey and into Iran to allow Tehran to circumvent the western financial sanctions using gold as a medium for bater, and which was all made possible thanks to the tiny Emirate of Dubai. 

What made this particular instance of gold smuggling especially memorable is that it reached to the very political top in both Turkey, and Iran, and Dubai.

However, while the broad framework of Turkey's exporting of gold to Iran, initially directly and then via Dubai, had been already in the public domain, Zero Hedge first revealed the man, or rather people, who made it all possible: the Dubai gold "trading" company of Gold.A.E. - is a subsidiary of Gold Holdings Ltd, a company which is owned by SBK Business Holdings and Abu Dhabi's second in command, the son and avisor to the ruler of Abu Dhabi, Sheik Sultan bin khalifah Al Nahyan.

The reason why Gold.A.E. suddenly, and very dramatically, emerged on the global arena is because as we first reported a week ago, the company's "new" management team admitted that after many months of "inquiries", it had discovered that not only had the "old" management, led by the now former CEO of Gold A.E., Mohammad Abu Alhaj disappeared, but that all the money - and gold - held at Gold.A.E. which once again was primarily a "trading" front for the Turkish-Dubai-Iran gold smuggling triangle, had been stolen.

Here, for those who missed it the first time, is the letter that Gold.A.E.'s stunned clients received in late December:

Dear Client

 

A group of minority shareholders of GOLD HOLDING suspected that there were questionable financial transactions being undertaken in Gold AE DMCC ("the Company"). Acting on these suspicions they initiated internal investigations. During the course of the investigations the entire then management team abruptly resigned with no notice. Since the majority shareholders also seemed to be unavailable, the minority shareholders did not accept this resignation. However, these persons went to DMCC, submitted their resignations and managed to get their visas cancelled.

 

Following this, in august 2015, Mr. Andre Gauthier has been appointed as the manager of the Company so that investigations continued and once completed necessary action can be taken to secure the interests of the clients and shareholders of the company. His appointment took effect from August 9 ,2015 . When he took over, new management realized that he now had access to more information concerning the activities of the previous management and, he realized that there had been substantial withdrawals from the company's account to the personal accounts of some of the management and the majority shareholders.

 

Management has also uncovered information with respect to the existence of a bank account with Arab Bank (Switzerland) Ltd in Switzerland in the name of the Company. An attempt has been made to approach this bank but, since none of the current management or minority shareholders are signatories to the account and, due to the stringent Swiss banking laws and regulations regarding confidentiality, no additional information or access has been provided by the bank.

 

In order to try and secure/recover monies that had been taken out of the accounts of the company, Mr. Gauthier in his capacity as manager has filed various cases as against the recipients of the funds from the Company (Dubai Police ( Bur Dubai Police Station), Case No: 24378). The minority shareholders are doing everything within their powers to support him in his efforts to recover these monies that were withdrawn from Gold AE in questionable circumstances.

 

DMCC has alleged that some of these activities undertaken by the previous management are in breach of DMCC's rules and as such they have taken the decision to terminate the license of the Company. We are working closely with DMCC to find a solution and in the meanwhile, we request that you bear with us. In the meanwhile, as a statutory consequence of the license being terminated, the trading platform of the Company has to shut down as of the date of termination of the license which is 24th November 2015.

 

We trust the forgoing is of assistance.

 

Sincerely,

 

On behalf of GOLD AE MANAGEMENT

Or, as we said a week ago, one can summarize the letter above by loosely paraphrasing South Park's infamous episode: "aaaannd it's gone. The gold is all gone."

In a follow up article, "The Mystery Of Dubai's Vaporized Gold: The Plot Thickens", we presented readers with the version of events as laid out by the local press, in this case Arabian Business, which tried to assign responsibility for the theft, while in the process exonerating SBK Holdings and its billionaire owner - one of the most important people in the United Arab Amirates - and "washing" their hands of any accountability.

Recall, "the rush to make sure any link between the criminal Gold.AE and its parent, SBK Holdings-owned Gold Holding is immediately severed. A spokesperson for the DIFC said: "We wish to make it clear that although Gold AE is a subsidiary of M/s Gold Holding, which is a DIFC-based holding company, Gold AE and M/s Gold Holding Ltd are two separate entities."

"We wish also to clarify that M/s Gold Holding Ltd is, to our knowledge, not involved in any trading operations, client-facing business affecting clients of Gold AE or the provision of any financial services. Accordingly, it is not regulated by the Dubai Financial Services Authority."

But was Gold Holding involved in the smuggling of billions in gold out of Turkey and into Iran? And then, back to Mohamed Abu Alhaj, who just a year ago was the widely respected CEO of Gold AE.

When Arabian Business emailed the public inquiries email address for Gold Holding,info@goldholding.com, it received a reply from Mohammad Abdel Khaleq Abu Al Haj, who is a member of Gold AE’s previous management team facing allegations of fraud.

 

Al Haj insisted in his email that Gold AE’s existing management team were responsible for the alleged fraudulent activity. He also claimed that requests by him for meetings with shareholders to discuss management issues had been refused.

In short: one side saying the other is guilty, the other side responding identically, blaming the first side. Meanwhile the money - and gold - of the clients of this company, perhaps the most important gold holding company in the Persian Gulf, has been stolen.

* * *

So while we continue to dig into the mystery of Dubai's stolen gold, one which has received absolutely no mention in the western press - in fact the only reason anyone mentioned Dubai in recent months was the dramatic burning of The Address hotel on New Year's Eve (as covered here), we got the following curious email from a former client of the company; a client whose gold is now all gone.

I'm a client of Gold.ae and live in JLT, just a short distance from where the company had their office in Saba 1 Tower, Cluster E, so I was able to carry out reasonable due diligence (for this country) prior to making any investments in PM's. I understood that Gold.ae was under the patronage of the Dubai Royal Family and had received several awards in the UAE prior to my personal involvement. Of course there was absolutely nothing to suspect any wrongdoing at this time, in fact the contrary would be true.

 

I did not trade with the company in the traditional sense of short term buying and selling but invested in Gold and Silver over a period of time with the view of holding for the long term. I was comfortable with this because the PM's were stored in the vault in Almas Tower (Almas meaning diamond in Arabic) under the guidance of DMCC. This vault was said to be the most secure in the region. My personal investment / loss is in the region of $[redacted].

 

The first I heard about the recent failing of the company was on the 23rd of December, I did not receive the earlier email dated 16th December. The company made no attempt to contact me prior to that. I have however since been in regular contact with a senior manager, my 'source' who now works out of the Gold Holding office in DIFC. He has been very helpful in passing on information and has given me the contact number of Mr. Andre Gauthier, the new CEO. Interestingly, since you published your recent article he has stopped answering his mobile. Maybe you would like to try and speak with him on our behalf, his mobile number is: 00971 50 [redacted]. You may have more luck speaking with him than the clients suffering large losses!

And here is the punchline from our source's letter:

My source has told me that he now understands that the company knew something was terribly wrong in the March - May period of this year, but it took until December for the company to notify their clients. One has to ask why nothing was done during this timeframe? My source has informed me the main individuals responsible for this are; Mohammed Abu Al Haj, Chairman and founder, Mohammed Ebdah, COO, Mohammed Adnan Younis, Sales Director and Rania, Board member. I've been told all involved are Jordanian, however, one has a Canadian passport, one has a US passport. As you know the management team conveniently resigned their positions and DMCC accepted to cancel their visas. Two of them have since set up separate companies in the UAE.

Yes, the story in which the former management team is scapegoated has been previously reported, but the main question, as our source on the ground asks, is why the all important, Gold Holdings - a company embedded into the political oligarchy of Dubai, and thus of the Persian Gulf - waited seven months before alerting clients that all their funds had disappeared. Even MF Global had just a few days to inform its clients it had gone bankrupt and thousands of small commodity traders had been Corzined.

Because as hard as we try to believe that the person whose task was to break into the Turkish market (and then Russian as we will show shortly), all signs point to the holding company as being instrumental in the vaporization of Dubai's gold.

According to a recent Gold Holdings presentation we have exclusively obtained, Gold Holdings was quite eager to disclose its desire to become the leading and most important gold company in the Persian Gulf, "A new integrated Gold and silver investment vehicle", one which covered everything from mining, to processing, to refining, to trading, to distribution, to jewelry.

This is what the October 2014 presentation boasted about Gold Holding's ambitions - nothing short of global gold commerce dominance:

  • To be a premier precious metals investment vehicle, physical.
  • To provide shareholders with high quality, long-term exposure to precious metals.
  • To offer mine owners an attractive alternative to debt or equity.
  • To be a significant and Reliable trader of Gold and Silver

Here is a map showing the tentacles of Gold Holding: note the core presence in Turkey.

 

The company's Org Chart is extensive, and clearly discloses the infamous Gold A.E., which curiously is shown as registered for trading not only in Dubai, but in... Shanghai? As for the distribution network, it clearly reaches all key regional money centers, and yet Iran is oddly missing...

 

Here is another Gold Holding chart showing where according to the old management team the risk lay; not surprisingly the biggest risk - that of corporate fraud and embezzlement - was at the Trading level, where the risk was supposed to be the lowest. Oops.

 

The final slide we want to bring attention to is the one laying out the Board of Directs of Gold Holding: it lists not only the abovementioned Sheikh Sultan Bin Khalifa Bin Sultan Al Nehayan as the Chairman, but the alleged mastermind behind the theft, Mohammad Abu Alhaj, in his role as board member and CEO of... Gold Holding?

 

Wait, wasn't Abu Alhaj supposed to be the CEO of Gold.A.E., the subsidiary of Gold Holding? Now this is odd because recall that in the Arabian Business article excerpted above, a spokesperson for the DIFC, or the Dubai International Financial Center (a Federal Financial Free Zone administered by the Government of Dubai), there is no direct link between Gold Holding and Gold AE:

"We wish to make it clear that although Gold AE is a subsidiary of M/s Gold Holding, which is a DIFC-based holding company, Gold AE and M/s Gold Holding Ltd are two separate entities."

 

"We wish also to clarify that M/s Gold Holding Ltd is, to our knowledge, not involved in any trading operations, client-facing business affecting clients of Gold AE or the provision of any financial services. Accordingly, it is not regulated by the Dubai Financial Services Authority."

It appears "your" knowledge was wrong, because unfortunately it does not make any sense that the person in charge of Gold AE was also, according to the company's own investment roadshow, the CEO of Gold Holding Ltd, and as much as the media and current management wants to make it seem there was an more than arms-length distance between the two in order to blame the theft on the "old management team", the reality is that as recently as late October 2014, or just a few months before the new management team allegedly discovered the supposed "substantial withdrawals from the company's account to the personal accounts of some of the management and the majority shareholders."

In short, the official story in which just one man is scapegoated for the theft of millions in paper and gold currency, makes less and less sense the more we dig.

Which brings us to our conclusion from a week ago:

So, is the former CEO of Gold.AE the criminal mastermind, the person who was responsible for the Turkish gold presence in Dubai, and the one who defrauded Gold.AE... or is he merely the fall guy: after all the new management team, according to Arabian Business, had been at the company since March: how could it take it 9 months to uncover that the company was nothing but a hollow shell, whose assets had been pilfered by the previous management.

 

And if indeed this crazy story which has every possible James Bond element in it culminates with a case of scapegoating, does that immediately mean that Sheikh Sultan Bin Khalifa, a person at the top of the Gulf's political and financial oligarchy, is involved. Because if he is, so is the US, as nothing happens in the United Arab Emirates without the United States being aware of it. Finally, if that is the case, it means that not only did the US sanction what has been the world's biggest gold smuggling ring, but that it implicitly gave Iran its blessing to use barterable Turkish gold in order to bypass sanctions imposed by... the United States!

Less than a week later, and we are getting closer to showing that we may indeed be looking at a case of not only massive corporate fraud, but even more troubling, a case of blame the other guy, when in reality the person accountable is one of the most important - and richest - people in the country, if not the entire middle eastern region.

But before we focus on the dramatic geopolitical implications of this James Bondian story that gets more complex and fascinating the more we dig, we would first like to help the small investors get back their investment, and all the money (and gold) that was stolen from them.

As such we open it up to our readers as well: below we present the latest until now confidential roadshow by Gold Holding, with hopes that someone will be able to spot something "out of place", in hopes of escalating this case of corporate fraud to the highest possible criminal instance in the UAE... which however will never be high enough if, as we now suspect, it culminates with the second most powerful person in Dubai.

 

* * *

And finally, while not directly related to the topic of Gold AE's massive fraud, here is the remainder of the Gold Holding investment presentation: we find it remarkable because after having covered the Turkish market, the Dubai company had its eyes set on a vastly bigger market. Russia.

 

... and not only that, but it was here where we found what may be the most fascinating detail of today's article, namely Gold Holding's (aka Dubai's) hint that Russian gold no longer has to be denominated in US Dollars for transaction purposes. Instead, it can be denominated in Yuan.... as can Venezuela, Brazil, Argentina and Africa gold transactions, in the process bypassing the SWIFT payment system entirely, and all official traces and records that a gold transaction ever took place!

 

Now this is simply stunning because over the past several years one of the biggest questions has been how did China smuggle thousands of tons of gold from around the world without the world, at least officially, noticing.

Well, recall how this entire story first developed: it was all thanks to Dubai acting as a middleman in smuggling billions of dollars worth of gold from Turkey to Iran, without anyone noticing for years. Could it be that maybe this tiny yet ultra rich Emirate has also been instrumental in facilitating the transfer of tens of billions of dollars from the west (mostly the UK and Switzerland) but also every other gold producer, and into China?

Because if so, it would promptly answer virtually every unanswered question about the global shadow, and very much undocumented, physical gold wave: one which takes the gold vaulted in the west, and moves it all the way as far east as Beijing... and all with Dubai's blessings?

Barron's : Akzo Nobel Paints a Prettier Profit Picture

Akzo Nobel Paints a Prettier Profit Picture

A continuing restructuring makes the Dutch paint and coatings outfit more efficient and more tempting to investors. A 2.4% dividend adds to stock’s allure.

Paint and coatings maker Akzo Nobel could bring a bit of gloss to investors’ portfolios in 2016.

If the Dutch company’s results continue to impress–its earnings have met or exceeded expectations for the past six quarters–its shares (ticker: AKZA.Netherlands) can climb 20% in the next 12 months.

The stock closed in Amsterdam at 61.68 euros ($67.03) Thursday, up 7% in 2015, in line with the Stoxx Europe 600 index’s chemicals subsector. Akzo’s American depositary receipts, traded in New York under the symbol AKZOY, were fetching $22 and change late Thursday afternoon. Three ADRs equal one ordinary share.

Akzo Nobel, a leading provider of decorative paints, with brands including Dulux, Sikkens, International, Interpon, and Eka, trades for 14.7 times estimated 2016 earnings. That’s less than the chemicals subsector’s multiple of 15.9, and well below the P/Es of U.S. rivals such as Sherwin-Williams (SHW), which trades at a multiple of more than 20.

Historically, Akzo Nobel, which has a market value of more than €15 billion, has changed hands at a 35% discount to its U.S. peers. There’s no doubt that Sherwin-Williams’ stellar earnings growth merits a higher valuation, but Akzo Nobel is brushing up its performance. A far-reaching restructuring is helping it play catch-up, despite weak demand due to high exposure to emerging markets and stagnating industrial growth.

Decorative paints account for only 27% of Akzo Nobel’s revenue, based on 2014 figures. Performance coatings, used in construction and in products including consumer electronics, account for 39%, while specialty chemicals generate 34%. The company’s largest markets are the euro zone, which produces about 27% of sales, the U.S. (14%), and China (12%).

Under CEO Ton Büchner, Akzo Nobel has had something of a shake-up. Low-volume businesses, such as chemical paper, have been sold, and the workforce continues to shrink. It fell 23%, to 47,000, from 2008 to 2014.

Restructuring costs are generating savings estimated at €800 million annually and the company is capturing more organic growth. “We believe Akzo has done much of the hard work to close performance gaps with its peers despite more challenging headwinds,” notes Société Genérale analyst Peter Clark, who rates the stock Buy with a €75 price target.

Akzo Nobel might be considering narrowing the gap further by selling its specialty chemicals business, while looking for bolt-on acquisitions in decorative paints and performance coatings.

Akzo Nobel has benefited from the euro’s decline against the dollar — 10% in 2015 — and the lower price of oil, which accounts for about 40% of its raw-materials costs. As a result, margins, returns, and cash flow have increased, even though volume has shrunk. Akzo Nobel is aiming for a return on sales of 9% in 2015 and a return on investment of 14%, both of which appear to be within reach.

Management is sufficiently confident to boost those targets in the medium term. In the fall, executives reported that they will seek returns of 9%-11% on sales and 13%-16.5% on investment in the 2016-18 stretch.

Amsterdam-based Akzo Nobel is expected to report 2015 earnings of €4.01 a share on sales of €14.85 billion, according to the consensus analysts’ estimate. That compares with €2.76 on sales of €14.30 billion in 2014. In 2016, the company is projected to earn €4.23 on more than €15 billion in sales.

Several analysts reckon that Akzo Nobel could be worth €75 a share in 12 months’ time. They reach that figure with sum-of-the-parts calculations, and a multiple of normalized 2016 EPS. Atop that, Akzo Nobel offers a dividend yield of 2.4%, which could hit about 3% in 2016 or 2017.

Investors looking to spruce up their portfolios for the year ahead should consider Akzo Nobel.

THE STOXX EUROPE 600 ended the year up 6.8%, despite a 5.1% selloff in December.

The consumer-goods sector jumped 20%, making it the index’s best performer. Gaming stock Betfair Group (BET.U.K.) was the biggest gainer, more than doubling in value, to 3,900 British pence, on a proposed acquisition by rival Paddy Power (PLSA.Ireland).

The worst-performing sector, down 7.5%, was basic resources, unsurprisingly walloped by a 34% drop in materials, such as base metals. That weakness also meant that U.K. stocks were big losers. The resources-heavy FTSE 100 index fell 4.9%.

Germany’s manufacturing-rich DAX index gained 9.6%, helped by the euro’s weakness, which aided exports. It seems poised to perform well again in 2016.

WSJ : After a Tumultuous 2015, Investors Have Low Expectations for Markets

After a Tumultuous 2015, Investors Have Low Expectations for Markets

‘Not a lot of things to get enthusiastic about, and a long list of things to be worried about,’ says one investor

After a year of disappointment in everything from U.S. stocks to emerging markets and junk bonds, investors are approaching 2016 with low expectations.

Some see the past year as a bad omen. Two major stock indexes posted their first annual decline since the financial crisis, while energy prices fell even further. Emerging markets and junk bonds also struggled.

Others view the pullback as a sensible breather for some markets after years of strong gains.

While large gains were common as markets recovered in the years after the 2008 financial crisis, many investors say such returns are growing harder to come by, and expect slim gains at best this year.

“You have to be very muted in your expectations,” said Margie Patel, senior portfolio manager at Wells Fargo Funds who said she expects mid-single percentage-point gains in major U.S. stock indexes this year.

“It’s pretty hard to point to a sector or an industry where you could say, well, that’s going to grow very, very rapidly,” she said, adding that there are “not a lot of things to get enthusiastic about, and a long list of things to be worried about.”

As the year neared an end, a fierce selloff hit junk bonds in December, while U.S. government bond yields rose only modestly despite the Federal Reserve’s decision to raise its benchmark interest rate in December, showing investors weren’t ready to retreat from relatively safe government bonds.

For the U.S., 2015’s rough results stood in contrast to three stellar years. After rising 46% from 2012 through 2014, the Dow Jones Industrial Average fell 2.2% last year. The S&P 500 fell 0.7%.

While most Wall Street equity strategists still expect gains for U.S. stocks this year, they also once again expect higher levels of volatility than in years past. Of 16 investment banks that issued forecasts for this year, two-thirds expect the S&P 500 to finish 2016 at a level less than 10% above last year’s close, according to stock-market research firm Birinyi Associates.

Some investors say a pause for stocks is normal for a bull market of this length, which has been the longest since the 1990s. Including dividends, the S&P 500 has returned 249% since its crisis-era low of 2009.

In the past, flat or near-flat years for stocks often have preceded big gains. In each of the three years after 2011, essentially flat for the S&P 500, the index posted a double-digit percent rise.

Yet the slowdown in economic growth around the world remains a major hurdle for global markets. A deceleration in China and other emerging economies led the International Monetary Fund to repeatedly cut its growth outlook last year. It expects global growth of 3.6% in 2016.

For 2016, analysts expect S&P 500 profits to expand 7.6%, according to FactSet, but investors say a deeper growth slowdown, another slide in oil or further gains in the dollar could curb that figure.

Peter Stournaras who manages $16.2 billion in large-company stock funds at BlackRock Inc., said he expects U.S. stocks to rise in line with earnings growth, which he expects to come in between 5% and 10% this year. But he added that “there are things that are much more concerning this year than they were at the end of” 2014, including the turmoil in energy and high-yield bonds.

Emerging markets, a trouble spot for investors in 2015, continue to look shaky, as the dollar rallies and a commodity rout persists. Last year, emerging-market stocks fell 17%, according to MSCI Inc., and bonds in local currencies lost 15%, according to J.P. Morgan Chase & Co., amid concerns over the underlying economic health of many countries.

Capital flight could be a taxing issue for countries that rely on foreign investments to fund their deficits. The problem: Companies and countries that have borrowed heavily in dollars but whose income is denominated in local currencies have become pinched as the dollar has strengthened. Further, their borrowing costs will likely increase as the U.S. central bank tightens monetary policy, which could further boost the dollar.

Plunging commodity prices, fueled by waning demand amid slowing global growth, have hamstrung many emerging economies that rely on income from exporting raw materials.

“I am not necessarily in a hurry to load up on emerging markets,” said Jurrien Timmer, a strategist at Fidelity Investments. He notes that low commodity prices and slow growth could remain a hurdle, and advises sticking to developed-country markets for now.

One reason for optimism: Economic growth in emerging economies still outpaces the developed the world, and is expected to rise to an average of 4.5% in 2016, up from last year’s 4%, which would mark the first acceleration since 2010, according to the IMF. However, that outlook was cut several times in 2015.

The bond market tripped up investors in 2015, but some are optimistic that the more troublesome corners of the market have stabilized.

The junk-bond market has steadied somewhat since its December selloff, and most of the turmoil has remained confined to the energy and mining sectors, where investors feared persistently low commodity prices could lead some low-rated firms to default.

Some investors say the selloff lowered prices enough that bargains are now available, and that the relative strength of the U.S. economy bodes well for the junk-bond market overall.

“We could actually start off the year with a pretty nice rally” in corporate-debt markets, said Jim Sarni, managing principal at Payden & Rygel. Mr. Sarni says his firm is generally favoring bonds from companies in the retail and health care sectors, though it is avoiding energy names.

Mr. Sarni said he is holding less Treasury debt compared with a bond index. But he doesn’t expect the 10-year Treasury yield to rise significantly in a world of low growth and contained inflation

WSJ : Fifteen CEOs to Watch in 2016

Fifteen CEOs to Watch in 2016

From Brito to Whitman and VW’s Müller, these chiefs must contend with impatient investors, slumping sales, megamergers and more

CARLOS BRITO
The Brazilian-born head of the world’s largest brewer faces a host of challenges. To complete the roughly $108 billion takeover of SABMiller PLC in the second half of the year, as planned, he must secure regulatory approval in South Africa, Europe and the U.S. He also must integrate the companies and cut $1.4 billion in costs. And he must do so while navigating challenges in AB InBev’s biggest markets: Brazil, which is in recession, and the U.S., where beer-sales volumes are contracting.

MARCELO CLAURE
When Marcelo Claure took over as CEO of Sprint Corp. in 2014, the carrier had been losing customers and money for several years. Last year, Mr. Claure was able to clock a modest return to subscriber growth. But ahead of a big debt maturity in 2016, the pressure is on for Mr. Claure to cut costs while continuing to add new subscribers. If not, some analysts say Sprint could run out of money.

STEVE EASTERBROOK
In less than a year running McDonald’s Corp., Mr. Easterbrook has tried some bold moves to try to turn around the struggling burger chain. He introduced all-day breakfast, simplified the menu, and vowed to curb the use of antibiotics in chicken and switch to cage-free eggs. Initial signs are positive, but investors and customers are waiting to see what else he has in store to maintain the world’s biggest fast-food chain’s turnaround in 2016.


STEVE ELLS
After years of bemoaning the ills of fast food and creating an avid following for Chipotle Mexican Grill Inc., founder Mr. Ells is in the unusual spot of playing defense. The co-CEO of the burrito chain apologized in December for foodborne-disease outbreaks that sickened customers in several states and added to other business challenges for Chipotle. In 2016 he will have to win back consumer trust and convince people that Chipotle’s food is safe.

HUNTER HARRISON
Mr. Harrison faces his biggest challenge yet at the helm of Canadian Pacific Railway Ltd.—completing his $30 billion hostile bid for Norfolk Southern Corp. The railroad executive—as well as activist investor and CP shareholder William Ackman—are betting the deal will boost the combined companies’ profits and improve service for shippers. Norfolk Southern’s board opposes the offer as too low and argues that regulatory rejection of the tie-up is likely amid industry concerns that the deal would trigger further consolidation and reduce competition.


ANDREW LIVERIS
The chief executive of Dow Chemical Co. is on the cusp of pulling together a long-pursued combination with rival DuPont Co. The companies agreed to form an agricultural and chemical giant worth $120 billion, with Mr. Liveris as executive chairman of the board before the combined entity eventually splits into three smaller companies. Not everyone wants him to stick around. Activist shareholder Dan Loeb, who’s been sharply critical of Dow’s strategy, has called for Mr. Liveris, 61 years old, to be removed. And the combination is likely to face a detailed, lengthy review by antitrust regulators.

MARISSA MAYER
Forget turning around Yahoo Inc. Ms. Mayer likely will spend 2016 trying to keep her job and resolve the imminent crisis gripping the 20-year-old Internet company. Investor confidence in the CEO dropped in December, when she shelved a plan to spin off Yahoo’s valuable stake in Alibaba Group Holding Ltd. because of potential tax risks. With revenue declining and executives fleeing, some investors are calling for a sale of the Internet business.

SHERI MCCOY
In December, Ms. McCoy agreed to sell a stake in Avon Products Inc. to Cerberus Capital Management LP and carve out the beauty company’s money-losing North American business. The bold move is aimed at reviving Avon’s fortunes, but also puts the 57-year-old’s job at risk because the company is replacing half its board of directors. As Ms. McCoy nears her fourth anniversary as CEO, investors are becoming impatient for Avon to show sustained sales growth.

MATTHIAS MÜLLER
Mr. Müller, 62 years old, was catapulted into the driver’s seat at Volkswagen AG, Europe’s biggest car maker, in September in the wake of a damaging emissions-cheating scandal.

A company veteran, he is now steering Volkswagen’s fortunes through its worst crisis in its nearly 80-year history. Volkswagen could face billions in fines and compensation charges.

Mr. Müller’s challenge in 2016: minimize the regulatory fallout and financial outlay from the scandal, keep VW profit on track, and restore confidence in the brand.

OSCAR MUNOZ
Mr. Munoz faces a daunting comeback in 2016 when he returns to helm United Continental Holdings Inc. following an October heart attack that put him on medical leave just weeks after he became CEO. Mr. Munoz, who turns 57 on Monday and was an airline neophyte before his September appointment, is scheduled to return in the first quarter. He will have to resume his efforts to fix the deep labor and operations problems that have plagued United for years, along with rebuilding a depleted management bench.

DOUG OBERHELMAN
After becoming CEO of Caterpillar Inc. in 2010, Mr. Oberhelman raced to open plants and make acquisitions to meet demand for construction and mining equipment. Then a crash in commodity prices and an abrupt slowdown in China left Caterpillar with excess capacity. It faces a fourth consecutive year of falling sales, assuming forecasts for a dismal 2016 prove accurate, piling further pressure on the 62-year-old Mr. Oberhelman.


MICHAEL PEARSON
Mr. Pearson has taken medical leave from Valeant Pharmaceuticals International Inc., which disclosed that the 56-year-old CEO is battling severe pneumonia. The Canadian drug company has been struggling to overcome regulatory and strategic challenges. This wasn’t what Mr. Pearson had in mind when he left McKinsey Co. as a consultant in 2008, seeking to remake Valeant through acquisitions and R&D cutbacks. The company now faces probes about its drug pricing and other practices, and the length of Mr. Pearson’s absence remains an open question.

GINNI ROMETTY
After 14 straight quarters of declining revenue, International Business Machines Corp. is trying to reinvent itself for the second time in a quarter century. CEO Virginia “Ginni” Rometty has charted a course for the emerging realms of cloud computing, big data and artificial intelligence. Her challenge is to shift IBM’s business from projects tailored to large, individual customers to offerings that appeal to entire industries; for instance, services that use weather data to help retailers manage inventory. If she can’t show results in 2016, shareholders’ patience may run out.

DAVID TAYLOR
Procter & Gamble Co.’s third CEO since 2013, Mr. Taylor has been tasked with leading the maker of Pampers diapers, Pantene shampoo and Gillette razors out of a protracted sales slump. The 57-year-old P&G veteran is under pressure to show broad-based sales growth and turn around struggling brands like Olay. Mr. Taylor will have to complete an overhaul that has so far shed dozens of brands while sharing duties with his predecessor, who has stayed on as executive chairman.

MEG WHITMAN
The new year raises the curtain on Meg Whitman’s second act. In Act I, she divided in two Hewlett-Packard Co., the moribund Silicon Valley pioneer she took over in 2011. Now, as CEO of the new Hewlett Packard Enterprise Co.—the former company’s corporate-computing half—she must focus on growth. Cloud computing has brought a sea change in corporate buying habits. Look for Ms. Whitman’s HPE try to help its customers bridge the gap between their own data centers and cloud services sold by companies such as Amazon.com Inc. and Microsoft Corp.

FT : Apple car: a slice of the pie

Apple car: a slice of the pie

Plan is either the worst-kept secret since its watch or a cracker of an inside joke

Apple’s car is either the worst-kept secret since its watch or a cracker of an inside joke. “Project Titan” has generated massive hype for a product that is five to 10 years off. The iCar may be electric and drive itself or not. Few know. But if it does arrive, it will be stylish, tech savvy, integrate with the iPhone and be in demand. Who will build them? Not Apple: it does not build its phones or computers, and building cars is much more complicated — just ask Tesla.
An existing carmaker might build it. Plenty of carmakers taught Chinese joint venture partners how to make cars as the price of admission to the growing Chinese market, even at the risk of increasing low-cost competition. The iCar market would be large and lucrative. A big global carmaker might be tempted to help with the build, even if Apple monopolised the branding, customer relationship and profitability. The benefits of scale and the brand halo might encourage them to overlook the risk of cannibalised sales.
More likely that a Chinese carmaker would step in. The manufacturer would be cost efficient for Apple and gain needed scale for itself. And premium-priced Apple cars are unlikely to cannibalise sales of low-priced models for the Chinese market.
Another likely option is Magna Steyr, the world’s largest white-label carmaker. It builds cars in European and Chinese plants to meet overflow demand or specialised, low-volume models for BMW, Mercedes-Benz, Chrysler and Aston Martin. Building cars is a side business for parent company Magna International, but the group has $18bn in enterprise value, supplies all the big carmakers and has been serious about growth since its founder left in late 2012 (shares are up 166 per cent since). Like the phones, most of the iCar’s profit will be Apple’s, but there is a slice of pie there for the partner.

FT : Aston Martin seeks to outpace spectre of unprofitability

Aston Martin seeks to outpace spectre of unprofitability

An end-of-year communiqué from Aston Martin listed the British carmaker’s accomplishments in 2015.
February brought three new, limited-edition vehicles, including the Vulcan, which spits fire out of its exhausts. March involved a glimpse of an ambitious 4x4 at the Geneva motor show. October introduced the world to the DB10 — another special edition sports car featured in the latest James Bond film.

“All this is very interesting, and very sexy, and very shiny,” says Mark Wilson, chief financial officer and one of several newly installed managers. “But if we don’t secure the financial future of the business now, then it will all have been in vain.”
Aston, which has been in insolvency seven times in its 102-year history, is in turnround mode, striving for sustainable earnings. It last made a pre-tax profit, of £6.9m, in 2010.
If Aston’s first full year under Andy Palmer, chief executive, was about promises, 2016 is about starting to deliver on those pledges. In the coming months the Warwickshire-based manufacturer will unveil its first full production sports car in four years: the £140,000 DB11, successor to the DB9 grand tourer.
When that model goes on sale in the third quarter of 2016, it will mark the end of the first phase of Mr Palmer’s six-year business plan. In the second phase, Aston will renew its entire four-strong sports car range, having secured the necessary funding.
“It’s not a question of looking for external help any more,” he says. “It’s about management carrying out its duty diligently and delivering the cars on time, to cost.”
Standing in the way are two problems: Aston is inefficient and carries too much debt. “Clearly, we are geared up to the ears at the moment,” says Mr Wilson, formerly of McLaren and Lotus.

Aston’s debt load includes payment in kind notes totalling $165m, issued in March 2014 at an interest rate of 10.25 per cent. That was on top of £304m of senior secured notes issued in 2011, at 9.25 per cent. Last year it issued interesting-bearing preference shares and raised £200m.
A steep rise in financing costs contributed to a pre-tax loss of £72m for 2014, almost triple its 2013 deficit.
In October the company carried out a restructuring that cut 295 roles, most of them white collar. Today the company employs about 1,800 people.
Aston is also trying to streamline its engineering processes and eliminate what Mr Palmer calls “muda” — the Japanese term for waste.
That does not mean compromising the company’s famous craft production. Its Gaydon factory has only one robot — the “James Bonder”, which puts glue on the chassis. Doors, seats, even parcel shelves are built in-house to order.
Instead, the management team wants to inject a rigour that is common with larger manufacturers but has so far evaded little Aston.
Marek Reichman, chief designer, and Ian Minards, product development director, have been tasked with improving work processes. This could involve speeding up a car’s journey from design to manufacturing, or reducing the number of changes required in the development process.

Aston wants to work with suppliers to reduce costs and periodically review the bill of materials for each car. “It’s just good practice,” says Mr Wilson. “It’s not something Aston has ever done.”
At the same time as bringing about this new efficiency, the group is expanding. It has installed a second production line and a new body shop for the DB11. It is even eyeing a new factory for the planned DBX four-by-four.
This may sound ambitious, but Aston has hit its targets for adjusted earnings before interest, tax, depreciation and amortisation for three consecutive quarters, and hopes for 20 per cent increase in ebitda in 2016 — against a company goal of up to £70m for this year.
By 2018 it wants to be generating positive free cash flow and making pre-tax profits.
Then comes phase three of Mr Palmer’s turnround plan: brand extension in the mould of Porsche and Ferrari. This means turning Aston into a company that not only builds sports cars, but also manufactures 4x4s such as the flamboyant DBX.
And there is consistent talk of an initial public offering — particularly since Ferrari’s New York listing in October. “We like to think we’d get there,” says Mr Wilson. “It is exactly where we should be and where we deserve to be — if we get all of this right.”