Allianz SE of Germany today reported good results thanks to data from Pimco in California, which was published separately from its parent's results. AZSEY reported yesterday that it plans a euros 3 bn buyback and raised its dividend 4.1% to euros 7.3/sh. The buyback alone will boost eps by 4.4%. The US bond specialist fund reported its second quarter in a row in inflows in Q4 as well as the highest operating profits since Q3 2014, when rainmaker Bill Gross walked away from the AZSEY-controlled fund manager, and when we bought on the assumption that Allianz would recover.
Allianz also reported that its Q4 profits hit euros 1.7 bn, about $1.8 bn, up 23% over Q4 2015 and beating analyst forecasts by 11%. Its full year profits came in at 6.9 bn euros also beating forecasts by 3%. It expects the current year to produce operating profits of around euros 6.9 bn, same as last year, plus or minus 500 mn euros for currency changes.
It has taken longer than expected but Allianz's 23% increase in Q4 and its planned share buyback are coming because of Pimco reversing its woes. In Q3 last year Pimco's new money inflows came to $5 bn (euros 4.7 bn as reported by Allianz); in Q4, inflows came to euros 5.9 bn, Allianz said, about $6.4 bn. And year to date another euros 4.2 bn has already moved into Pimco as clients exit equities—either because they think stocks are too high, or because they are using index trackers rather than stock pickers for their portfolios.
For its parent, the impact of that new money was to lower the cost to income ratio in Q4 to 56.8% from 60.2% a year earlier, meeting its target of under 60%.
It also will change its dividend policy while keeping its return to shareholders of half the group net attributable income. However this will no longer be linked in its external budget in a 3-year cycle, so it can rise faster.
Alliance shares are up 2.5% in Germany today and gained nearly a quarter in the last half year. However the ADR is down fractionally less than a half percent.
Banco Latinoamericano de Comercio (BLX) of Panama reported consolidated Q4 profits of $13.3 mn and full year ones of $87 mn under IFRS standards. Q4 profits last year were $23.2 mn and full year ones $104 mn, so this is a bad report. EPS for the year was $2.34 vs $2.54 and for the quarter, per share 34 cents vs 72 cents. The Q4 profits were down 52% sequentially and 43% y/y as it took charges.
Return on equity fell to 8.8% from 11%. While its operating expenses were slashed its loan book also fell as the multilateral bank lost or turned away business. CEO Rubens Amaral said BLX “encountered more than expected headwinds in the non-performing loan portfolio”. This tends to be low (because trade finance is short term.)
However, last year the regional downturn in Latin America caused these to rise, which not only cost the bank repayments, but also generated costs for “complex” “restructuring efforts” however confined to a few countries. These included Brazil, Argentina, and Ecuador, according to CEO Amaral. One result was that BLX increased its reserves and cut its leverage. It also lowered its exposure to oil and gas businesses. A non-recurrent factor was BLX discontinuing its holdings in investment funds it liquidated last April. Its Tier 1 Basel 3 capitalization ratio rose to 17.9% of its loans from 15.9% in Q3, despite non-performing loans hitting 1.09% in Q4 and 1.31% in Q3. In normal times these levels are unheard of for trade financing.
Amaral said “we enter 2017 cautiously optimistic” based in improved Latin America conditions “with positive growth prospects” across the region. But Amaral also warned about the risks from “a more protectionist environment from Brexit in Europe to the new government of the US.” Overall he expects more lending this year than last as conditions in covered countries improve, up about 10%. BLX declared a dividend of 3.85 cents/sh for Q4 (flat) paid Feb. 16 and probably will not raise it this year. The share dropped 5.8% and this morning in NYSE trading to $26.75 and remains down 4.9% at $27 and change. It counts as an anti-Trump play having fallen since the election from a $30 2016 high. Ex-Im of the US is one of its government owners alongside comparable bodies from the rest of the world. Being a contrarian I like the stock for its 5.4% yield and its mandate, but be aware that the consensus view of BLX is “hold” More Latin banking news below.
Israeli Mazor Robotics (MZOR) reported a Q4 loss of $4.266 mn or 9 cents/sh, adjusted to only a loss of 7 cents, on sales up 59% to $14 mn of which $12.6 mn was in the US. Full year revenues rose 32%. It is in the process of launching a new back surgery line, Mazor X, in partnership with US Medtronics. CEO Ori Hadomi called Q4 a record because of the rise, and said 2016 was “a strategic turning point” among other things for the 21 systems in the backlog, of which 18 are Mazor X. The prices and gross margin levels are lower with Medtronic than they were when Mazor sold solo and costs for sales and marketing reps rose boosting operating expenses to $14.2 mn from prior year $9.8 mn. The back orders are expected to push down losses in the current year, but not necessarily into the black. Mazor shares fell 2.2-2.9% to ~$22.53-$22.70 on Wall St today while the Israeli market was closed.
Fibra Uno reported on Q4 and 2016 today. It earned NMP 13.253 bn last year vs 10.725 mn in 2015, up 23% in constant pesos Q4 revenues came to 3.352 bn, up 5% sequentially. The REIT grew funds from operations by over 11% in the fully year, to NMP6.411 bn, and 6% in Q4 despite the loss of the BBVA Bancomer lease income. Its eps came to 0.5191 pesos in Q4, down from .5323 the year before but it paid out 0.5116 pesos to shareholders, up from .5097. Moreover the number of shares rose because of deals done for stock.
The main drag was the 90 basis points higher interest rates imposed in Q4 and the drop in the peso itself plus a refinancing of one block.
The key item I worry about is new exits but this is not occurring. The retail rental occupancy rate was still at a healthy 94.4% at the end of 2016, with a 0.2% decline in retail and industrial lets. The big drop was a 2.4% one in office occupancy but this was because of a new entity, Berol, sharing in the office rental business. Without it, the office occupancy rate would have risen 1.3% sequentially.
Full year revenues rose 22.5% y/o/y to NMP 2.191 bn and occupancy averaged 94.4%, as in Q4, down from 2015 with the same sectors down 0.3% (retail and industry), and office occupancy down 4.7%. Operating income for the whole year rose 23.4% to NMP 2.0215 bn. In the year 2016 the peso fell from 17.3398 to the US dollar to 20.664 (it took more pesos per dollar.)
FBASF borrows both in pesos and in Greenbacks and added to its interest payments last year by $340 mn plus another $300 mn paid for hedges. It added $500 mn to its notes coming due in 2026 and 2044. It is impossible from the report to work out the currency balance of its debt.
Since Fibra Uno is a moving target and deal-maker the numbers tend to not cover the same sites. However there were a few real negatives for the future, first higher Mexican property taxes which are not going away, and more costly insurance (denominated in US$s).
Fibra Uno is down 2.6% today in Mexico where it trades as FUNO11. This fund is a contrarian play on Trump for us, FBASF in the US.
Brazil's Cosan issued non-audited consolidated 2016 results and 2017 guidance in Portuguese based on third party macroeconomic forecasts and assuming continuing operations rather than new ones. Its sales last year hit reais 47 bn on which its pro forma cash-flow (earnings before interest, taxes, depreciation, and amortization) came to 4.5 bn and its adjusted normalized cash flow to 4.413 bn. It forecast sales in the current calendar year will be lower, at Rs45 bn but that cashflow will be higher at Rs4.75 bn, mainly because of higher anticipated volumes of sales of sugar and ethanol, and higher prices for its gas station and Raizen Energia businesses. These are preliminary figures with no profits translated by me from the Portuguese. CZZ retracting its strong rise this week but remains at a high of $9 for 2017.
For years I have resisted the charms of Shire plc of Ireland whose primary listing is in London because I think its key drug, for attention deficit hyperactivity disorder (ADHD) in children, is a racket to protect schoolteachers who cannot control their classes. However, my son, a CFA married to an education PhD, has long put SHPG ADRs in accounts his firm manages (including my managed pension plan).
Shire yesterday reported good results both from internal growth and its $32 bn takeover of Baxalta last Jan. The former was the ADHD franchise and the latter new businesses. And the growth of sales in 2016 of 78% to $11.39 bn came mostly from Baxalta lines helped Shire beat analyst forecasts. New treatment lines, including Baxalta ones, accounted for $8.6 bn of the growth last year. New drugs in non-oncology rare diseases and internal medicines, up 14% and 17% respectively last year and include hematology, immunology, opththamic, lysosomal disorders, and neuroscience. (The latter includes ADHD.) Shire is now a key rare disease drug-maker.
Last year it used the money earned partly to cut the debt from the Baxalta deal by $1 bn. CEO Flemming Ornskow said paying down the $22 bn it still owes is a key challenge for the current year with his aim to get it down to 2 to 3 x cash flow. This hit $4.7 bn last year.
The new drugs include Cinryze and Firzyr to treat hereditary angio-edema plus other genetic diseases, which now account of $2.7 bn of sales. Another winner was Xiildra to treat dry eyes which accounted for a quarter of US sales. Meanwhile Vyvanse, the ADHD drug sold $2 bn, below forecasts. CEO Ornskov forecast that revenue will rise in double-digits this year with launches as the key for the current one. Many new meds were launched last year but are only beginning to gain market share. He said sales should reach $14.5-14.8 bn this year. Moreover there are still more synergies between the two drug lines in the plan, cutting costs.
The very positive 2017 outlook led brokers Beaufort Securities in London figure that the real Shire current p/e ratio is around 14x, although the formal level is 18.4x. Beaufort also worked out that Shire is trading at only 11.6x 2017 enterprise value/cash flow (EBITDA, as above) a low among drug companies because it expects cash flow to grow 35% nest year. It put a buy today on Shire in Britain at £47.57 with a target price of £62, and expectation also that the yield, now 0.5%, will also pick up.
The Beaufort report is by Ben Martland, CFA in London. For a niche drug company with a small number of products, he says the risks are higher than with a drug major. Because of its strong US sales the currency risk is moderate, in my view, but there are risks from any reform of drug pricing and reimbursement from the changes in Obamacare cited by Ian Smith of Investor's Chronicle. Smith thinks the hemophilia drug is being under-valued by the analysts, and thinks non-US orders, which are bigger but less frequent that those in the US will boost 2017 results.
Shire is rated a buy by Citigroup, Deutsche Bank, and Liberum Capital, the latter with a lower target price than Martlands, of £55. I bought the ADR rather than the SHPGY pink sheet shares which are a third of an ADR at $180.85 and if I don't get them I will re-input Monday which is a working day in England and Ireland.
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