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Monday, August 10, 2015

US: Wall St rallies with energy, materials; Google jumps after the bell

AUG 11, 20156:39 AM

[NEW YORK] US stocks climbed on Monday, giving the S&P 500 its biggest increase since May as indexes rebounded sharply from last week's losses, buoyed by gains in commodity-related shares and optimism over Warren Buffett's latest deal.

Copper rebounded from six-year lows and oil prices also rallied, helping push the S&P 500 energy index up 3.1 per cent, its biggest daily percentage jump since January, and the materials index up 2.5 per cent.

Disappointing economic data in China boosted hopes for additional stimulus from Beijing, lifting Chinese stocks. Adding to investor optimism, Greece and international creditors could wrap up a multibillion-euro bailout accord by Tuesday.

Buffett's Berkshire Hathaway said it would buy Precision Castparts in a deal valuing the company at US$32.3 billion. Precision Castparts' shares jumped 19.1 per cent to US$230.92, while Berkshire's Class B shares dipped 0.1 per cent to US$143.42.

The Dow Jones industrial average rose 241.79 points, or 1.39 per cent, to 17,615.17, the S&P 500 gained 26.61 points, or 1.28 per cent, to 2,104.18 and the Nasdaq Composite added 58.25 points, or 1.16 per cent, to 5,101.80.

The benchmark S&P 500 index registered its biggest daily percentage gain since May 8.

After the bell, shares of Google climbed 4.8 per cent after it announced it is changing its operating structure by setting up a new company called Alphabet Inc, which will include the search business and a number of other units. Stock futures rose further following the news.

During the regular session, Twitter shares jumped 9.1 per cent to US$29.50 after CEO Jack Dorsey joined other insiders in buying more shares, while the company also clinched a multiyear partnership with the National Football League.

On Friday, the Dow closed lower for the seventh straight session after solid US jobs data for July pried the door open a little wider for a Federal Reserve rate hike in September.

With US interest rates near zero for almost a decade, debt has been cheap. But with the Fed widely expected to hike rates later this year, merger and acquisition activity has accelerated.

July was the seventh strongest month for global deal activity since 1980. Through July, cross-border M&A activity totaled US$913.5 billion, up 23 per cent from a year earlier, according to Thomson Reuters data. "We've had a whole lot of M&A throughout the year, and that's positive because it means businesses are upbeat on the prospects for the economy," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

In other deal news, ammonia maker CVR Partners' deal to buy Rentech Nitrogen Partners for about US$533 million sent Rentech soaring 28.6 per cent to close at US$13.25 while CVR shares were down 2.9 per cent at US$10.38.

On the NYSE, advancing issues outnumbered declining ones by 2,329 to 734 for a 3.17-to-1 ratio on the upside. On the Nasdaq, 1,937 issues rose and 856 fell for a 2.26-to-1 ratio favoring advancers.

The S&P 500 index posted 35 new 52-week highs and three new lows, while the Nasdaq Composite recorded 58 new highs and 85 new lows.

About 6.5 billion shares changed hands on US exchanges, compared with the daily average of 7.0 billion for the month to date, according to data from BATS Global Markets.

REUTERS

Buffett's path to US$37.2b deal shows Combs' growing role

AUG 11, 20157:20 AM

[SEATTLE] Todd Combs was a little-known money manager when he was hired by Berkshire Hathaway in 2010 to help Warren Buffett pick stocks. He just helped his boss line up one of his biggest deals ever.

Mr Combs began amassing a stake in Precision Castparts Corp about three years ago, putting the company on Mr Buffett's radar. On Monday, Berkshire agreed to buy the manufacturer of aircraft parts for about US$37.2 billion, including debt.

"I've got to give credit to Todd Combs for this deal," Mr Buffett said on CNBC. "I had really never heard about the company before that, and Todd told me a lot about it." Hiring former hedge-fund managers Mr Combs, 44, and Ted Weschler, 54, was a cornerstone of Buffett's succession plan. The billionaire turns 85 years old this month and has said that the pair will oversee all of Berkshire's investments one day. The deputies have increasingly helped their boss with acquisitions and each has been named chairman of a subsidiary.

"Todd and Ted, as an expansion of management, have been very successful," said Cliff Gallant, an analyst at Nomura Holdings. "Initially, we saw them running the public equity portfolio. Todd and Ted spend a lot of time doing more than that." It's a role Mr Combs has embraced. Prior to joining Omaha, Nebraska-based Berkshire, he worked as an analyst at the Florida banking regulator and for auto-insurer Progressive Corp. He got an MBA at Columbia Business School and eventually started a hedge fund called Castle Point Capital Management in Connecticut.

Mr Combs has credited an early tip fromMr Buffett with helping him approach investing with the rigour required to succeed over the long term. When he was a student at Columbia, the Berkshire chief executive officer came to speak and advised students to read hundreds of pages a week to learn about industries and business, according to a 2013 interview with the Omaha World-Herald. Mr Combs took up the habit and still reads diligently.

Joining Buffett's company has freed Mr Combs from the day-to- day responsibilities of running a fund and allowed him to focus more on investing. It also increased his access to management and capital. He oversees about US$9 billion for Berkshire, allowing him to become one of the biggest shareholders of companies in which he takes a stake.

Mr Buffett said that Precision Castparts CEO Mark Donegan met with Mr Combs about five weeks ago as part of a trip to stay in touch with shareholders.

"I dropped in on the visit in the last 15 minutes or so, and I was very impressed by Mark, and of course I've been impressed by the company," Mr Buffett told CNBC. "Shortly thereafter, I asked Todd to give them a call to see if they would be offended if we made a bid. And they didn't indicate they were particularly receptive, but they also indicated that they would listen." Mr Combs didn't immediately return a message seeking comment.

Working with Mr Buffett has clearly allowed Mr Combs to build his talents as an investor, according to Mr Gallant, the Nomura analyst.

"He could call up almost any CEO in the world and get time," Mr Gallant said. "He has an amazing perch."

BLOOMBERG

With oil below US$50, Norway's PM pledges stimulus to limit shock

AUG 11, 20156:35 AM

[OSLO] Norway is ready to tap its oil wealth to stop the economy hemorrhaging jobs amid the deepest slump in crude prices since the financial crisis.

Prime Minister Erna Solberg is working on a budget proposal for next year backed by the country's US$875 billion sovereign wealth fund to help secure jobs and soften the downturn in western Europe's largest oil and gas producer.

"Next year's budget will be, even more than this year's budget, focused on the transformation of the Norwegian economy, the competitiveness issues and on fighting unemployment," Ms Solberg said on Monday in an interview after speaking in Oslo.

While reiterating the government's view that Norway is "not in a crisis," Ms Solberg faces a slowdown that threatens to destroy more jobs than were lost during the 2008 financial meltdown. The country is now bracing itself for the biggest slowdown in oil and gas investments since 2000 and petroleum companies have cut more than 20,000 jobs. Though still lower than elsewhere in Europe, Norwegian unemployment has grown to the highest in at least 11 years.

Ms Solberg's Conservative-led government, now in its second year in office, already in May stepped up its record use of oil revenue. Back then, it predicted Norway's mainland economy, which excludes oil and gas output, will grow 1.3 per cent this year and 2 per cent next year. But Brent crude has dropped almost 30 per cent since those forecasts were made.

Part of Solberg's budget proposal will be based on a planned "tax reform" to make Norway more "investment- friendly," Ms Solberg said.

The economy has also had some help from the weakening krone, which has slid 9 per cent against the euro in the past 12 months, helping the tourism and mainland exports.

But Norway will need more than just a weak currency to wean itself off its oil reliance, according to Solberg.

"For the long-term transformation of the Norwegian economy into having a broader base than primarily oil and gas, we will need different measures - which we have already started," she said.

BLOOMBERG

Google forms new parent, Alphabet, in restructuring

AUG 11, 20156:44 AM

[SAN FRANCISCO] Google unveiled a new corporate structure Monday, creating a parent company dubbed Alphabet led by chief executive Larry Page, with the Internet search unit as one of several entities.

In a surprise announcement, Mr Page said Alphabet will be the umbrella company for the tech giant's research arm X Lab, investment unit Google Ventures and health and science operations, as well as the search unit Google, whose CEO will be current vice president Sundar Pichai.

"Our company is operating well today, but we think we can make it cleaner and more accountable," said a statement from Page, a co-founder of the tech giant with Sergey Brin.

"So we are creating a new company, called Alphabet. I am really excited to be running Alphabet as CEO with help from my capable partner, Mr Sergey, as president." Mr Page said Alphabet is "mostly a collection of companies," the largest of which is Google.

Under the new structure, "this newer Google is a bit slimmed down, with the companies that are pretty far afield of our main Internet products contained in Alphabet instead." Alphabet will be comprised of the current efforts in life sciences such as glucose-sensing contact lens and the health research firm Calico, Mr Page said.

Mr Page's parent company will also include the drone delivery project Wing and investment arms of the California technology giant.

"Fundamentally, we believe this allows us more management scale, as we can run things independently that aren't very related," he said.

"Alphabet is about businesses prospering through strong leaders and independence. In general, our model is to have a strong CEO who runs each business, with Mr Sergey and me in service to them as needed." Alphabet Inc will replace Google Inc as the publicly traded entity, and all shares of Google will automatically convert to shares of Alphabet, with all of the same rights, Mr Page said.

Google will become a wholly-owned subsidiary of Alphabet.

The reorganisation comes amid concerns that Google's dominance of the tech sector may have peaked as the landscape evolves.

Google has for years been the leader in Internet search and has turned advertising linked to those searches into a highly lucrative business.

But its shares have struggled since hitting an all-time high in early 2014 and it has little to show for ventures in other areas: self-driving cars, Google Glass, Internet balloons, health care, Google TV mobile payments, home automation and its Google+ social network, among others.

AFP

HTC trading near cash leaves a smartphone brand with no value

AUG 10, 20159:12 AM

[TAIPEI] A 56 per cent plunge in HTC Corp's stock this year has brought its market value near to cash on hand. That means investors are effectively saying the smartphone maker's brand, factories and buildings are almost worthless.

At NT$52.2 billion (S$2.3 billion), HTC's market price is barely above the NT$47.2 billion cash it had at the end of June. A further 9.5 per cent drop in its stock from the NT$63 close on Friday would bring the two figures into alignment, signaling investors put no value on the rest of the company.

"HTC's cash is the only asset of value to shareholders," said Calvin Huang, who has a NT$46.50 price target on the stock at Sinopac Financial Holdings in Taipei.

"Most of the other assets shouldn't be considered in their valuation because there's more write-offs to come and the brand has no value."

HTC's fall from a market capitalization of more than NT$900 billion in 2011 charts the perils of a product and marketing strategy that's failed in the face of stiffer competition from Samsung Electronics and Huawei Technologies. Once the best-selling brand in the US, the failure of its One, Butterfly and Desire smartphones to drive sales has pushed HTC outside a global top-10 now dominated by Chinese brands.

Its forecast for third-quarter sales of as much as 48 per cent below analyst estimates follows a 35 per cent cut to projected revenue in the preceding period and indicates that the Taoyuan, Taiwan-based company has little chance of regaining market share in the short-term.

HTC didn't respond to an e-mailed request for comment. There will be no one-time non-operating items this period, chief financial officer Chang Chialin said Aug 6.

The forecast loss-per-share for this period, which was five times wider than estimated, sparked analysts to slash their share price valuations of the stock by 17 per cent to NT$55.54.

With HTC having 828 million shares on issue, that means analysts expect the stock to fall below the NT$57 of cash-per- share the company had at June 30.

Analysts also now see profit eluding HTC through the end of 2017 and none of the 22 tracked by Bloomberg that updated their view in the past three months recommend investors buy the stock.

While HTC has no long-term debt, 34 per cent of its asset value comes from inventory and accounts receivable, according to Bloomberg calculations. Its inventory, measured in turnover days, jumped 60 per cent in the 12 months through June 30.

To reverse sales that have fallen by more than 75 per cent since the September quarter of 2011, HTC plans to cut costs and focus on the high-end market where profits are higher. Reductions will start in the current period and start to show results by the first quarter, Mr Chang said.

"We are happy to see HTC readjust its strategy, and see these changes as long-term positives if HTC can successfully transform itself into a boutique brand," Kylie Huang, an analyst at Daiwa Securities Group, wrote in an Aug 6 note. "We believe these changes would take time and do not expect HTC to turn profitable in the near future."

BLOOMBERG

Monday, August 10, 2015

US: Wall St rallies with energy, materials; Google jumps after the bell

US: Wall St rallies with energy, materials; Google jumps after the bell

Buffett's path to US$37.2b deal shows Combs' growing role

Buffett's path to US$37.2b deal shows Combs' growing role

With oil below US$50, Norway's PM pledges stimulus to limit shock

With oil below US$50, Norway's PM pledges stimulus to limit shock

Google forms new parent, Alphabet, in restructuring

Google forms new parent, Alphabet, in restructuring

HTC trading near cash leaves a smartphone brand with no value

HTC trading near cash leaves a smartphone brand with no value

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