Back In Red Ink

Today is a terrible Thursday with many reporting companies. It is also back in red ink over SARS-2 and its likely impact on global economies. Moreover Washington is back in deadlock over whether or not President Trump will survive the impeachment farce and whether or not a lefty gets to run against him for the Democrats..

A medical student in Wuhan, China, was diagnosed with SARS-2 (Coronavirus) in Kerala, India today. The US now has a patient-to-patient transmission case.The World Heatlh Organization declared a global emergency.

So as they say (but so far don't do) in France, au boulot, to work.


*Swiss drugmaker Roche reported its 2019 results which were good enough to make RHHBY one of the few stocks rising today. In Swiss francs its revenues rose 8.1% to 61.466 bn ($63.2 bn). Its pharma sales rose 10.3% to francs 48.516 bn.

Net income was francs 13.497 bn, and EPS was francs 15.62. [I am using the term francs without all the Swiss ID because Switzerland is the only European country using the currency. You are perfectly aware that we are not writing about CFA francs! And the dollar conversion rate is very easy right now!]

Non-GAAP EPS was higher at francs 17,416 bn or 20.16/sh. Cash flow from operations was up 12% to Fr 22.385 bn. By drugs the results were very mixed depending on whether or not there is generic competition to RHHBY's main cancer drugs. Herceptin sales were down 12% but still over Fr 6 bn, and it is being challenged along with MabTher/rituxin down 4% but still getting sales of fr6,477 bn; old drug Avastin up 4% at fr7.07 bn; and Xolair up 1% to fr 1.969 bn. Th

Meanwhile Perjetasold fr3.22 mn, up 29%; Ocrevus against multiple sclerosis fr3.71 bn up 57%; Actemra fr2.311 bn, up 8%; Lucentis fr1.826 bn up 8% also; Tecentriq fr1.875 bn up 143% and Kadcyla fr1.393 bn up 45%. Hemlibra for hemophilia also grew but not to over fr 1 bn. And its new gene therapy arm acquired last year by buying Spark is also garnering sales but they were not broken out.

Roche expects sales this year to grow in low to mid single digits—in francs—despite further generic and biosimilar competition. It also said it has developed a test for Corona virus which may boost flat sales for its diagnostics arm, whose sales barely budged last year. It is having problems getting the test into China where it is needed. It also hopes for research into Alzheimer's disease today on which results are due to be announced in March, alongside those for a rival drug from Eli Lilly at Washington U in St Louis, MO.

Roche proposed to up its dividend to 9 francs but we will get our payout at $1.07/sh in March or early April after the 35% Swiss withholding tax. ADR owners who can get the tax back under Swiss rules then get a second payout covering the tax. Our current dividend (before tax) is $1.07. The new tax has to be passed by the board. RHHBY stock gained ~1.6% today.

*Teva fell back 2.5% in premarket trading today to $10.13. Thursdays are bad for TEVA because Tel Aviv is shut Fridays for the Muslim Sabbath but open Sundays. So intermediaries exit.

"The EU Competition Authority is backing Britain's Competition and Market Authority in calling for fines against drug companies that “pay for delay” , as practiced by GlaxoSmithKline. There still has to be a final judgment if GSK appeals.JP Morgan now rates GSK neutral.

*Eisai of Japan fell 1.35% for fear of Roche moving into Alzheimer's medicines. ESALY partmers with Biogen Idec is this search.

*Dr Reddy's made a new 52-wk high. Bravo to Abhimanyu. He confirmed that Erez Israeli, the RDY CEO since August, is Israel,having been CFO earlier, and used to work for Teva.

*The latest earnings consensus for Novo Nordisk is 54 cents/sh meaning a p/e ratio of 25.4x.

Oilpattch and industrials

*Orocobre in Australia reported cutting operating costs in its Argentina lithium mines by 16% while gross operating margins were hit by challenging market conditions. It managed to make a profit of 2 Oz cents. The share price rose 0.61% to A$3.31. The report was televised and not very complete.

OROCF had cash of US$171.9 mn at close 2019, of which US$11.1 mn is guarantee for the Naraha facility in Japan, and the sum was cut US$51.5 mn in the quarter to lend to the SDJ JV for stage 2 expansion and for $17 mn for local currently control regulations in Argentina and other matters but offset by $2.6mn interest income and borax sales. Costs were cut not only by lower output but also by higher concentration of the lithium brine, reduced use of reagents, and the benefit of the devaluation of the Argentine peso on costs. Tonnage produced hit 3586 metric tonnes, up 16% sequentially and sales came to 3287 T, up 3%. However the achieved price plummeted by 24% or $1310/T sequentially or 49% to $10,587 from prior Q3. (I cannot understand Australian accents well.)

Revenues in the quarter came to US$17.1 mn nipped by Argentine export taxes. OROCF is seeking to get long-term sales contracts with key customers and signed two of the in the quarter for battery grade lithium for 10,880 metric tonnes.

It guided that fully year FY 20 production will be 5% over last year although the Argentine dollar lost 4% in the last quarter which cost about 12%, the same as the amount of inflation in Argentina. For the 3 quarters inflation was 54% but devaluation was 59% so there may be a lower impact of currency uncertainty.. The firm thinks the two will balance out over time.

However the price of lithium has dropped substantially and OROCF is cutting back, and is having to pay Buenos Aires an export tax. This is not being forecast going forward so maybe there is a deal.

*BP plc is on the sell list for the Church of England pension plan which raised £600 mn to shift to invest in anti-climate change stocks, among which is Royal Dutch Shell. US fossil fuel stock were almost al sold too.

*Shell, whose B shares we own, again cut its oil and gas reserve tallies for 2019 to below 8 years, the 6th drop in a row. It last increased its reserves in 2013 to 12 years. Its net profit for 2019 fell 23% on lower oil and gas prices to $16.482 bn. from 2018. This missed consensus which was for $17,77 bn and the company's midyear forecast was also missed notably the cash generation which went negative by $2 bn.

The stock lost 4% in European trading because its warned that it might have to reduce buy backs from the current $25 bn target or slash dividends to repay debt if reserves fall again. Brent crude fell 1.3% to a penny under $59 today which the other benchmark, W. Texas intermediate, fell 1.4% to $52.57. RDS reported earlier than expected. But only on Q4, where earnings fell 50% from prior year.. It cut its planned divestitures to “more than $10 bn:” and cut its cash capes to the lower end of the prior $24-29 bn range. Last year capex was $223.9 bn. It also plans to boost its transition themes and add to consumer facing businesses.

Shell still owes net debt of $79.1 bn and its common is leveraged by over 29% again after falling in earlier years. It sold some US and Canadian assets in the US, Canada, and Norway but did not reveal the proceeds.

It is rated buy by UBS, Berenberg, and Goldman Sachs with target prices of of GBX2700 ($35.52), 2800, and 3100. Howeer Barclays in Britain rates GSK neutral with a TP of 2850 ($37.49). Shell fell 4.4% today in London.

*Renishaw, sold despite Martin Ferera's enthusiasm, today crashed because metrology (measurement) sales fell in three regions, according to the Financial Times and The Investor's Chronicle. He wants us to buy RNSHF back. Nay. It has performed wonderfully over the past decade, up 62%. Martin was in the share but we were not. It was chopped to reduce by Peel Hunt analysts.

*NIO was tipped by Aiden Securities because its customers love it so much they take their friends to the showroom, for which they get a fee. He forgot about SARS-2 and moreover published in seeking alpha under the headline “Global Investing” which violates our copyright.

*Cosan Ltd (CZZ) fell 2.44% in Europea and 1.8% here today perhaps because it was counted as an oil company because of its jv with Shell. It makes ethylene which is theoretically more carbon-neutral than petroleum, being made from sugar-cane waste. It also does logistics and freight consolidation, which cut fuel demand.

*Jaguar Landrover, the UK car sub of Tata Motors, TTM, sold, just lost its chief who is resigning.

*One possible explanation for Johnson Matthey stock showing little oomph despite the growing shortage of palladium, is that this precious metal is normally found together with platinum which is not in as much demand. So JMPLY cannot rebuild its stocks.

*Japan's Fanuc Corp rises because robots can replace workers. FANUY is at Y20,400 in Tokyo where it is 6954.

Tech & Tel

*UBS reaffirmed its buy on Vodafone (VOD) with a TP of GBX200 equal to £20/ADR. VOD.VOD sold its 55% stake in Egypt to Saudi Telcome for £1.85 bn, equal to $2.43 bn.

*Mercado Libre, MELI, was rated overweight by Morgan Stanley.The consensus forecast called the stock a buy, up from hold earlier. Last quarter its EPS hit negative 43 cents/sh earnings vs a consensus of -71.7 cents. But sales rose 90.3%..The current consensus is now buy., up from hold thanks to MS. The share is all over the map today., right now down 0.84%.

*Today's Financial Times warns that Nintendo (NTDOY) has no new console this year, and suggests that investors Switch, a pun because the Switch was its best-selleer last year. We await confirmation, if any, from Abhimanyu Sisodia who covers Japanese gaming firms from India for us.

*Nokia lost 3.44% on fear that Britain will buy from Huawei. NOK is Finnish and dropped to euros 3.5 in London. NOK is the 2nd largest seller of equipment to telecom operators. It reports Friday.

*In half-open Hong Kong, Tencent fell over 2.5%. TCEHY.

*Naspers in London today gained 10.77% according to FT Market Alert because the JustEast-Takeway .com combo will face review by the EU competition authorities.


*Banco Santander (SAN) of Spain reorted early today mostly good results. Its Q4 posted customer numbers grew 9% and its revenues from them by 4% to euros 47.1 bn. However its underlying EPS dropped to 11.6 eurocents from 12.1 eurocents in the prior quarter. Interest income rose 0.4% sequentially to euros 8.84 bn (~$9.72 bn) and underlying net operating income fell 1.8% to euros 6.62 bn

Its return on total equity came to 11.8%, down 29 basis points and its RoRWA came to 1.61%, up 5 basis points. Most impressively, its FL Common Equity Tier 1 (capital) gained 13 bp to 11.65% from 11.3% in Q3 and is expected to cross over 12% this year. This is a key metrice for bancos. SAN's non-performing loans were 3.3% of the total down 41 basis points. The outlook is not bad but revenues did miss although its profits did beat. The stock rose 4.6% in European trading.

*The Hang Seng Index in semi shut mode fell 2.62% today. This is the price of the exchange not the bank.which fell 2.14% in lockstep, to the equivalent of $20.15.

*Virgin Money fell 2.1 % today in the wake of the Financial Times report on its AGM yesterday plus the decision of its CFO Ian Smith to leave the bank to go to work for Nordea Bank in Finland, a siub of Sampo Oij which reports Feb. 6 at midday Finnish time.


*Fibra Uno (FBASF) fell 2.5% today despite its presentation yesterday to 14 analysts. It then was at a 15.6% discount from net asset value, while earnings grew by 58% in pesos, and is even cheaper today. It expects revenues to grow this year by 6.44% in Mexican pesos but says earnings will drop by over 12% on average over the next 3 years. It also warned that the 7.1% dividend is not well covered, and that several one-offs nay well hit results. Its share fell to MXN30.77 today.

*Gold is back up to a multi-year high of $1583/oz as US Treasury yields and oil are down, and European interest rates again in negative territory.

*The EPS forecast for Nasdaq stock was cut $1 by Deutsche Bank to $124. We own NDAQ through Investor A/B  at a discount from net asset value I don't have enough Swedish to discern. It is either 14.8% or 17.75% below its net asset value according to excel2041, a Swede, but I cannot tell which as I don't grasp the inputs. I approach Swedish with German because in practice all Swedes I talk to speak English very well.

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