HSBC is struggling to make the big, global banking model work. Earlier this week it cut its return on equity targets. Does TSB, a niche UK retail bank, have a better business model? Or is it impossible for banks of any size to make decent returns? Join us at midday UK time for a Lex live discussion
Amazon’s free cash flow looks great – from a distance. On close inspection, the ecommerce company’s use of capital lease obligations obscures the vast scale of its capital expenditure, This in turn makes free cash flow look much rosier than it would if the true costs of running the business (such as principal repayments on capital lease obligations) were to be included.
For starters: Amazon’s use of capital lease obligations has been increasing a lot:
At Lex, we always have a soft spot for those readers who agree with our views. Thursday’s Lex regarding Dan Loeb’s Third Point and Japan’s Fanuc attracted these comments from Jean Medecin, member of the Investment Committee at Carmignac Gestion, an investor in Fanuc. Carmignac have €50bln AuM.
As long term investors of Fanuc we have always focused on assessing the company fundamentals rather than chasing the shadows of corporate actions. So far we can only rejoice at Fanuc’s performance.
Tuesday night’s result on television broadcast rights for the English Premier League caught everyone off-side. Both sides appear to have overpaid at £5.1bn (£3bn prior), which strongly suggests that the value of sports content, or at least for European football, has not yet peaked.
Sky will pay £4.2bn for the rights to televise 126 games per season from 2016/17, 83 per cent above what it paid previously. Sky not only protected its valued Sunday slots but also took care to gain as many first picks on Saturday as well. BT paid up, lifting their own payments by 30 per cent, though arguably for less. It receives less Bank Holiday slots, which Bernstein notes historically receive higher viewing numbers. Moreover, it will have fewer ‘first picks’ on which games to televise than before (12 vs 18). Their chances of showing the most popular games falls, and they have paid more. Hmmm, no flag?
Sky announced half year results today. Going on the offense in Germany and Italy increased its revenues and adjusted operating profits (17 and 16 per cent respectively). But it is a new game going forward. It is all about new content and how Sky defends its English Premiership League rights in the weeks ahead. Join Lex live at midday (UK time) to discuss.
Apple recorded $18bn in net profit on $75bn of sales in the three months to 31 December 2014.
Where does the company go after posting the most profitable quarter in corporate history?
Join Lex live at midday (UK time) today to discuss
Where do miners sit after the commodity crash?
BHP is a miner with a very serious hobby in oil and gas, but it makes its living from iron ore and copper. That hobby has started to look too much of a luxury since the oil price collapsed last year. On Wednesday it announced cuts to its US shale oil effort, only a few years after entering the space. It wants to reduce exposure to the the areas it cannot control.
But what of iron ore, BHP’s key product accounting for easily half of operating profits? The company doesn’t want to harm its most profitable product. But there are signs that the iron ore market could suffer more this year. Bad news for BHP and its rivals.
Join Lex live at midday UK time to discuss.
No one rings a bell on the day that a given market hits the bottom. That is the reason for owning assets that everyone hates: because you want to be hanging around on the day that everyone stops hating them quite so much, and it is impossible to predict when that day is going to be.
This sums up the argument Lex made last week about copper miners. Everything, from the strengthening dollar to the weakening global economy to short sellers, is lined up against them. So maybe a contrarian bet is in order; if so, pick a low-cost producer so you don’t have to worry about solvency at the same time as you worry about the stock price. In that note, we characterized KAZ Minerals of Kazakhstan as a high cost producer. The company begs to differ, and they sent us the following counter-argument:
UK house prices rose 7 per cent last year, according to Nationwide. Shares in housebuilders Persimmon and Barratt are up by over 10 per cent. Nice profits all round, then. Time to get out while the going is good, or double down in the hope that not even higher interest rates will damage the long term growth story? Join us at midday UK time for a live discussion.
Lex is anonymous, but the cover over our identities is threadbare. We’re right there on our biographies page, on this blog, and elsewhere. Why maintain the pretence? After all, it has a cost. It makes recruiting writers harder when “build your personal brand” is the dispiriting advice offered to journalists worried about the instability of news organizations.
But a little anonymity helps Lex maintain an identity (something not to be confused with anything so vulgar as a brand). The identity is partly stylistic: the column aims for analytic heft, brevity, and wit, with occasional success. It also involves perspective. Lex is on the side of the patient investor first, as opposed to, say, traders, managers, employees, the common good, or capitalism at large.
Deflation has arrived – eurozone consumer prices fell 0.2% in December. Many expect Mario Draghi to expand QE in spite of German protests. A Grexit is not out of the question. Are we headed for another eurozone crisis? Join Lex live at noon (UK time) to discuss.
On Monday, we brought you the story of Linn Energy, the oil and gas producer that slashed its capital budget along with its dividend partially in response to the tumble in oil prices. As we said, Linn is one of the rare “upstream” companies structured as an MLP.
Just how rare?
Chinese local brands are having a tough time. Bad timing for Daimler joint venture partner BAIC (which also has a joint venture with Hyundai Motor of Korea as well as its own in house developed brands) which will list on Friday. Just two days after Chinese automaker Geely announced a profit warning, sending its stock tumbling nearly one fifth, electric car maker BYD is the latest to take a dive. BYD, in which highly regarded investor Warren Buffett has a 10 per cent stake, fell by nearly one half in afternoon trading in Hong Kong. Volumes by the 4pm close were nearly 40 times the prior day’s fifteen day moving average. There has been no news or announcement explaining the fall.
BYD has had a troubled few years, delivering losses in seven out of the past ten quarters. Estimates for 2015 are for the company to deliver earnings per share of Rmb0.76 – just shy of the Rmb0.81 eps made in 2007, and well below the Rmb1.77 achieved in the 2009 peak. Up until today’s fall, it was trading at around 40 times next year’s earnings estimates based on the hoped-for recovery.
Europe and Japan are fighting deflation, emerging markets look wobbly and political risk is everywhere. Bond yields are minuscule. The default solution – buy big cap US stocks. How could this trade go wrong? Join the discussion at midday (London time).
Lending Club may be the most intriguing company to reach the public markets in years. Is it a financial institution? Is it tech company that is going to challenge the banking sector? Is it just a nifty website that is going to be copycatted by everyone who sees the opportunity in “peer-to-peer”, excuse me, “marketplace” lending? Or will Uber just buy Lending Club and deliver the cash in the back of its sedans? We’ll discuss here starting at 9am NY time, 2pm GMT.
Profit warnings come in threes? Not at Tesco. The UK based retailer has issued a fourth warning, sending the shares down another tenth. At some point they will bottom out, and anyone brave enough to have bought the shares at the right time will make enough money to start shopping at Waitrose. But is now that time? Join in the discussion, starting at midday UK time.
British and Irish budget airlines continue to dominate their European rivals on price and cost efficiency. Ryanair and easyJet in particular have set their sights on the major flag carriers. Will the drop in jet fuel prices, coupled with a shift towards business passengers, make these budget airlines even stronger in the next year?
Join Lex live at 12 (UK time) to discuss.
In a Lex note today, we told the story of Schlumberger, the $120bn market cap oilfield services monster. Tuesday it said it would impair some of its ships used for offshore oil exploration, a tangible move in response to falling oil prices.
But in our note, we suggest that perhaps oilfield services companies may remain a relative bright spot in the energy sector. These two charts from Credit Suisse explain why.
Lex has long argued that Amazon, despite being a stunningly successful and wildly interesting company, is overpriced. Our astute friend Chris Rossbach, CIO at the long-term value house J. Stern and Co., thinks we’ve got it all wrong, and wrote us the brief manifesto below explaining his view. It’s well worth a read, and makes an interesting contrast to our own view (on which more later):
Keeping Calm and Clicking On
Lex live from the FT Banking summit.
Bank returns have been hit by increased regulation, continued low interest rates and slow economic growth. Have lower returns on equity and competition from non-banking competitors rendered many banking business models obsolete? Can universal banks, in the long term, produce better ROEs than more specialist banks?
Join us at midday UK time for a live discussion.