May Or May Not Happen

Another day, another drop. We also have an important result notice for a firm in which we own both common stock and a bond. Before hitting the results I want to share with you a Canadian company's plans for Covid-19 treatment based on cannabis for highly vulnerable populations with heart disease or diabetes, obesity, abnormal serum levels, or merely being older than 64. This trial, now in phase II, for CariolRx is being run by mini-cap Cardiol Therapeutics, now traded only in Toronto as CRDL. It is now in a phase 2/3 trial enrolling 422 US hospitalized Covid-19 patients in the current quarter.

If it works, which may or may not happen, this could lead an application with our FDA. And it could also lead to a major capital increase by listing on Nasdaq. By focusing on high-risk patients, CRDL is finding a niche.

While it all sounds slightly unlikely, my source is the extremely reliable Investor's Digest of Canada, with the write-up by its staff reporter Robin Poon. The share is now at C$4.10 which may be worth a be


Photo by Annie Spratt on Unsplash



*Vodafone, the UK listed global telco, reported today on the 2020-21 fiscal year and the news was not very good, so the share is down over 8%. There was also heavy options trading. VOD has gained 21% in the past 12 months so there is a certain amount of profit-taking goine on. But I think the main reason for the share drop (which was even bigger in Britain) is that VOD attempted to bamboozle its shareholders with claims that its results were good—when they weren't. It reports in Euros but is British.

We also own the Vodafone 6.25% bond of 2032, 92857WAB6, neither callable nor redeemable, and offers us a nifty return. It borrowed in dollars despite being British, how we got into this.

The massaging of numbers started with revenues, at euros 37.141 bn, down from prior FY levels of

37,871 bn. EBITDA (earnings before interest, taxes, depreciation, and amortization), which VOD brass focused on in the conference call, was euros 14.386 bn down from 14.881 in the prior FY. The EBITDA margin at 32.8% was lower than the 33.1 level of last year. Capital spending at euros 7.854 bn was up from the 7.411 level of the prior FY. Free cash flow came in at euros 5.019 bn down from prior FY 5.700, not including the Spectrum trades of US holdings against UK ones. Post-spectrum the cash flow shortfall was worse, at euros 3,11 bn from 4.949 bn. Return on capital pre-tax was 5.5% down from 6.3% the year before. The quarterly dividend was flat at 9 euro cents/sh.

The gloss on results is mainly thanks to the spin-off of its Vantage telephone towers in a euros 2.2 bn IPO. It also has seen its stock rise 21% in the last year.

The good news is that net debt was only euros 40.543 bn down from prior year's 42.047 bn. That is not much to hang your hat on. Of course, Covid-19 was the cause of much of the aggro, but VOD was supposed to gain from people being confined to their homes and using tech to stay in touch with companies, schools, and family. It didn't show up. VOD shut in about 400 retail stores in Europe because of Covid-19 and this may have cost it business.

VOD also trotted out predictions for 2021-2 which you can ponder, a euros 100 mn rise in free cash flow or a rise in adjusted cash flow of euros 400-800 mn. VOD did well in Germany and claims it is keeping its customer happy but this is a pricey market. It did less well in Spain and Italy where there is less competition, to my surprise. It plans more spinoffs of other European and African subs in the current year with EBITDA and free cash flow (EBITDA margin) both up in mid-single digits.

My bond from VOD which had been at my bank is no longer trackable there, but I still own it in my brokerage account.

* Cosan’s corporate reorganization was concluded by the end of this March and it reported Q1 results which are consolidated including Rumo and its Logistic and CDD Ltd figures. Brazil was hard hit at the beginning of 2021 with record-high contaminations, But CSAN managed to deliver strong growth in the quarter. Mixed production hit 52% for sugar, in line with Raízen sales strategy that prioritized improved profitability of the commodity. Raízen met the forecast goal of BRL (reiais) 800 mn in sugar crops by improved productivity, up from BRL 270 mn gained in the prior year. Moreover, the cash cost for the crop was 3% lower because CSAN cut fixed costs from leases by optimizing its own land being used. Adjusted EBITDA for the Brazilian operation was BRL 696 million for the quarter, higher quarterly and yearly. CapEx was maintained at the level of previous quarters. Investments in renewal and expansion of our own client network have been maintained at a strong pace in line with the plan for of bringing the best partners to our network

Renewable ethanol production operations saw lower production in Brazil but higher prices so revenues rose in the year. g operations was lower in the period, largely due to the reduced ethanol production mix in Brazil. Despite the lower volumes sold, the improved sales prices resulted in increased revenues in this quarter and for the year. Bioenergy power sales this quarter were offset by the drop in prices. In the crop year, both the lower volumes produced and prices impacted net revenues Only part of this was offset by gas, so adjusted EBITDA for renewables was below the previous crop.

Sugar operations include both Cosan and outside production. Volumes sold in this year were up but there were lower concentration of CSAN sales between harvest. during the inter harvest. On the other hand, the exponential increase of resale and trading operations more than offset this reduction in our own volumes. Meanwhile, in RBRL terms, sugar prices are at record highs both in the quarter and during the year, which resulted in a strong increase of revenues. The adjusted EBITDA was also substantially higher, reflecting a more favorable scenario for this commodity. Cosan is also hedging sugar crops in Brazilian real terms. The uncertainty is related to the size of the Brazilian crop, and the signs of improving after prices had a positive impact on the sugar prices, which hit historical highs with the potential for growing returns over the next coming years as well. Raizen for the next crop year to March 2022 already hedged 80% of the sugar for export. And for the next crop, the 2022/’23, it has hedged a bit over 70%.

Gas stations are being hurt by the pandemic which had a direct impact on demand for autos. down 3% reduction from last year. However, demand for diesel continues to be strong with a 14% increase in the period, coupled by our efficient sales strategy and demand from the agricultural sector. The aviation fuel sector has been recovering but is still well below historic volumes, because of reduced air traffic. Raízen has cut output to match lower demand and will resume higher volumes when flights resume.

Now an update on operations, Grupo Nós, its JV with FEMSA. Since the opening of the first stores last quarter, there are now 65 stores opened in the quarter, combining OXXO and Shell Select ones.

Operations in Argentina saw demand and profits up. for retail and B2B volumes. Adjusted EBITDA in Argentina reached $63 mn, explained by growth of gasoline and diesel demand as well as the improved operational efficiency and recovery of sales prices contributing to a better return overall. Investments amounted to $27 mn, in line with the plan for the year. Combined marketing and services EBITDA in Argentina hit BRL 1 billion during the first quarter of 2021.Adjusted EBITDA for Compass grew during the period with a contribution from Comgás based on management of expenses, margin adjustments applied in May 2020, and the increase in demand for natural gas, especially from industrial sectors such as ceramics, steel, chemical and petrochemical. However because of high average temperature this quarter volumes were down in residential. Commerce suffered because of pandemic-related restrictions. Compass Energy EBITDA was close to 0 due to price fluctuations during this quarter and market-to-market effects. Compass investments during the quarter reflected mostly Comgás investments and CSAN added142,000 new clients this quarter and the 12 months as Compass follows its long-term strategy. 

The Gaspetro acquisition process is now in a binding stage. The São Paulo Regas terminal's commercial, operational, and construction agreements are in advanced stage of negotiation. Moove had a record quarterly EBITDA thanks to heavier volumes sold, especially in Brazil and it benefits from the successful sales and supply strategy pursued. Rumo has already had its own conference call last week, but to summarize: Coans now owns 100% of Rumo. Adjusted EBITDA was BRL 832 million, an increase from the prior previous year. This was thanks to the 13% increase in transported volumes, of which 16% achieved by Northern operation despite the delayed start of the soybean crop; and also the commercialization strategy resulting in a 6% increase in tariffs. Investments were in line with Rumo’s long-term plan. Around 40% of total CapEx was directed to the central network whose operation started in March, 5 months ahead of schedule despite many challenges in executing projects due to the pandemic of COVID-19.

Consolidated figures for Cosan pro forma saw EBITDA at BRL 2.6 billion on a recurring basis. This expansion reflects the program CSAN adopted for its portfolio, supported by execution capacity. Net profits continue to grow, both on a quarter-by-quarter basis and year-over-year due to the improving operating performance of its businesses, combined with reduced financial expenses plustax credits at Comgás.

Cosan’s consolidated growth indebtedness was down 9%, with contribution from all businesses. Rumo pre-paid the 2024 series of senior notes. On cash flow, despite the increase of generation of operating cash, greater levels of investment during the quarter, and payments to reduce the debt principal resulted in a cash loss in free cash flow to equity, in line with business strategy. Leverage went slightly down in the period as a result of improved EBITDA. Cosan expects leverage to fall to levels closer to 2.5x net debt to EBITDA in the next quarters, improving EBITDA as the pandemic slows. 

At the end of April, CSAN published its 2020 sustainability report, with a portal dedicated to the topic. Cosan treats ESG as a fourth pillar of sustainability. It is committed to concrete goals: to fight climate change, to offer cleaner energy as well as reliable and efficient logistics, and to promote diversity in its workforce. CSAN recently issued BRL 1.5 billion in sustainability-linked debentures. Now 30% of its debt is considered green.

Cosan did a 1:4 share split to improve liquidity in its shares. and it is back in the IBRX 50 list again. 

Guidance for 2021 apart from Rumo which presented earlier, is unchanged except for those for renewables and sugar which will change when the transaction with Biosev has been completed, probably within the new two months lines, and we reaffirm our expectation of good set of results across the board for 2021. One important point, the numbers for renewables and sugar do not include the operational financial information from Biosev since the conclusion of the transaction has yet to be completed or reached, which will likely happen within 2 months.

*Nokia gained 4.17% in European trading and is up 2.52% in the USA. Finnish NOK took the money Ericsson paid in fines for patent violations. But ERIC also rose by 2%

*Veolia today announced that it has closed on the acquisition of Suez, another French ute, today. Nuance Communications, holding shares that will be offered to Suez holders, will hold a vote on this distribution on June 15. VEOEY.


*Western Assets Emerging Markets Debt Fund, EMD, will pay a flat 8¢ monthly dividend per share in June to next June, it announced today. The share rose 66¢ on the good news.

*Taiwan Fund, TWN, rose 3.77% today despite the outbreak of a new round of Covid-19 on the island country.

*Goldman Sachs Active Beta Japan Fund, GSJY, rose 1.72% today reversing drops in April.

*Japan Small Cap Fund, JOF, rose 1.58%.

*Korea Fund took on another 1.6% in its price. KF.

*Atlantica Sustainable Infrastructure PLC, AY, which we own directly thanks to Harry Geisel and also via our Algonquin ute, AQN, rose 1.1%. AQN's earnings were raised by 1¢ according to TD Ameritrade but I cannot tell if those are US or Canadian cents.

*Alliance Bernstein Global High Income Fund, AWF, gained 0.35%.

*However Lazard Global Total Return & Income Fund, LGI, fell 0.5%.

*Swedish Investor A/B gained 1.9%. IVSBF.


*BAE Systems landed another huge US deal for $325.5 mn from the Defence Logistics Agency for a global positioning system with anti-spoofing capacity. BAESY fell all the same by over 0.41%.

*Antofogasta fell another 8.95%. I bought some more shares of ANFGF at $23.8. While Chile is turning leftward, it is unlikely to do anything to block its copper exports as the price rises. Latin lefties are mostly smarter than Mexico's Pres Andres Manuel Lopez Obrador. Chilean copper is mixed with molybdenum and gold.

*Tower Semiconductor of Israel/America and Taiwan Semiconductor, TSEM, and TSM, at up 1.65% and 1.56% resp.

*Nio of China rose on rumors that Kathie Woods is buying its shares. NIO is at $34.5, up 2%+.


*Glaxo-Smith-Kline is playing catch-up with its failure to develop a covid-19 jab, working with both BioNTech and Moderna to manufacture a jab based on messenger RNA. It plans phase III trials by year-end for those and also is already hard at work with CureVac and Medicago on a phase III trial earlier. GSK barely budged on the news.

*Roche recuperated every penny lost YTD after Sarepta, whose trial of a Duchenne Muscular Dystrophy drug RHHBY fund, reported that its gene transfer program SRP9001 produced micro-dystrophin in muscle fiber of all patients treated. However, two patients of the 11 treated showed adverse events, nausea in one and transaminase elevation in the other. RHHBY is at $42.8.

*Zymeworks of British Columbia is up another 2.3%. ZYME.

*TEVA fell 0.42% because it is Israeli.

*Bioline RX rose 7.12% today. BLRX.

*Compugen added 4.7% to its price today. CGEN was averaged down this week.

*Novacure of the Channel Islands gained 3.54% perhaps because NVCR isn't Israeli anymore.

*Beaten down Enlivex, ENLV, is up another 8% today.

*Aurinia gained 7.2%. AUPH.

*Catalan Grifols jumped 1.3% today. GRFS.

*Hikma Pharma rose the most, 8.82%. We sold the Arab generic firm too soon.

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