Bad IR Opportunities

This blog is late because of too many conference calls, but at least most of the news was good. My round-the-world summary in Monday was mostly gloomy. The problems of at least two of our shares turn out to be related to poor handling of news by their executives. While US company brass get early experience in massaging news, this is not instinctive among foreign companies with American Depositary Receipts listed in this country. 

Bad IR Opportunities

*Paddy Power Indeed! PDYPF upped its full-year foecast and the stock hit a new 2014 high in Dublin trading, at euros 62, with huge volumes changing hands.

Full-year profit now is expect to rise by a mid-to-high teens percentage, vs its August forecast of a mid-teens percentage. Sales are up, and the house losing bets are down, CEO Patrick Kennedy explained. He also said that total revenues were up 38% of which on-line sales had risen 42% in H2, both over H2 2013 to Nov. 16. At bookie shops in Britain and Ireland, the older business, sales rose a surprising14%, mainly because customers are addicted to placing bets.

Paddy no longer has any debt and euros 206 mn of its own cash despite its buyback program which began last summer under which it bought 450,000 shares for euros 23.3 mn. Paddy trades at a p/e ratio of 12.4X its latest estimate for the current year and, taking an average, its growth is 17.5%.

In its newest market, Australia, it boosted its customer numbers by 23% and its active ones by 37%.

Its mobile phone revenues at eGaming and B2B rose 19% again thanks to active customers growth, here up a third.

In Italy, another new market, from a low base revenues grew 72%.

Along with other British bookies, Paddy is promoting responsible gambling in an effort to head off too much regulation, with ads on how to bet wisely and restrictions on the wildest ads on TV sports channels. The ADR price has not moved as there were no trades here since one at $72 a month ago, but the bid is now $76.70 and the ask $80.

Daniel Stewart's bookies analyst, Sophie Blandford, set a euros 69 target price for the share. The broker expects Paddy's sales will hit euros 842 mn this year and earnings euros 2.96/sh. It yields 2.7%. Its p/e ratio is just under 20. Blandford says to buy.

The news was presented in a low-key Euroland way despite the Irish bookie's excellent publicity machine aimed at gamblers. More on this reticence follows.

*The two companies which blew their IR efforts are Allianz over the departure of Bill Gross from its Pimco sub. The stock drop gave us a chance to buy AZSEY on the cheap. We are up about 2.8% thanks to the failure of the German insurance company to react to his exit after hours on a Friday. Weekends are too important to European IR. Down withWochenendsvergnuegung!

*The other more flagrant failure was by Abengoa, a Spanish “green” energy construction firm, also on a Friday. Its failure to explain its non-recourse bonds to the market led to a monster selloff which we profited from by loading up with stock. It rose by another third (33.83% yesterday) to over $15. This share yields over 5% at present price levels, but at our buy price last Friday of barely $9 we will be richly rewarded. I got some more fan mail from subscribers; I only wish these Euro-stumbles occurred more frequently.

Scandals in Portugal

*A revised bid for Portugal Telecom SGPS was made by Terra Peregrin, controlled by the richest woman in Africa, daughter of Pres. Dos Santos of Angola. Her initial bid included conditions not acceptable to Brazil's Oi, the largest PT shareholder. She now has revised her bid but nobody in São Paulo was prepared to comment to WSJ writer Rogerio Jelmayer. PT cannot be sold if it vetoes what Oi accepts. PT is up another 4 cents in western hemisphere trading yesterday.

The Portuguese govt now faces two scandals simultaneously, investigating the failure ofBanco Espirito Santo which owes about $1 bn to PT; and corruption in the issuance of visas to Chinese who invest euros 500,000 in Portugal, over which a minister resigned yesterday. I wrote a special report on the impact of visa programs in Spain and Portugal on their real estate markets two years ago which are still for sale on our website.

*Mexichem won all the needed authorizations to buy Germany's Vestolit for euros 219 mn ($294 mn), including acquisition of debt. The Marl, Germany takeover target is the no. 6 producer of PVC resins in Europe and adds to MXCHF's 35-country global reach. The deal will close Dec. 1. (from Eduardo Garcia's with which we trade information. More on Mexico below.

*The suspension of truce talks with guerillas in Colombia after they kidnapped a general has boosted the shares of one of the perennial victims of FARC pipeline attacks,Ecopetrol. EC.

*Cameco is trending up despite a poor Q3 report showing a big drop in profits. says the trendline of CCJ's 50-day moving average has broken upward at $17.64 and the share had made a relative strength index level of 59.23. Besides numbers, helping CCJ is the restart of nuclear reactors Japan plans for Jan, plus many new-build plans in India, China, and eastern Europe.

Meanwhile Areva (ARVCF, sold) suspended all its projections for 2015-6 profits as yet another new board takes over the French state-controlled nuclear firm, which is a political football.

*Nokia is a recidivist, launching a new consumer tablet running Android on a 7.9” screen, now that its $6.9 bn sale to Microsoft of its cellphone side allows this. The tablet, as yet unnamed, is being made with a Chinese partner, also unnamed; what we do know is that it will cost $249, and the first buyers are to be Chinese in time for New Year (Feb. 19, 2015). But Nokia is a key player in the West and this gizmo is coming to Europe and perhaps America next year. The stock rose 2.7% in Euroland trading this morning.

*Agrium hit another new high as it rose 3.8% yesterday in Toronto. AGU also hit a NYSE high later at $103.93. The firm benefits from a retailing arm, a strong position in Oz, and a diversified range of plant foods, rather than the usual Canadian focus on potash.

Pharma Firms

*Galapagos is presenting at a Boston conference data on intereactions with other drugs of its rheumatoic arthritis GLPG0634 (filgotinib) found by its Darwin program, GLPG0634 aims to revese RA gene expression. GLPYY or GLPGF is Belgian and employs our former Europe-based biotech maven,

*Novartis is building its potential business with its heart failure drug, still called LCZ696, which not only appears to cut the risk of dying, but also to save money. In phase III trials, those given the NVS drug had 30% fewer emergency room admissions or need for IV drugs for their heart pump, 16% hospitalization readmissions, and lower need for home therapy. The drug will cost $7/day which is why NVS is stressing the savings.

*NVS is developing, with a partner, to invest in a new company, Intellia Therapeutics,exploring using CRISPR Cas9. It is investing thru its Cambridge (MA) Novartis Biomedical Research Center. The CRISPR system aims to use the fact that host bacteria cells gobble up short bits of DNA sequences from invaders, which changes the host's DNA. That means that genetic coding can be corrected using the process.

*Our Australian Benitec uses RNA for correcting genes inpart because of higher risks with DNA correction, BTEBY.

*Teva won a lesser court victory, recognition of its rights to making generic Actonel despite a patent protection suit by Warner Chilcott and Roche. This is irrelevant to TEVA's own case for protecting its patent for multiple sclerosis jab Copaxone.

Separately TEVA launched a ready-made liquid version of its Treanda (bendamustine Hcl) injection used to treat chronic lymphocytic leukemia and indolent B-cell non-Hodgkins lymphoma. The drug has serious allergic and other side effects and is only used under certain conditions.

*Israel's Ituran Location & Control upped its dividend to 0.82 shekalim, about 22 US cents, from the equivalent of 19 cents last quarter. It makes software to track rented cars, fleet trucks, and now also stolen cellphones. Its expertise was also tapped when Israel developed the Iron Dome to bring down rockets fired from across its borders, before Hamas switched to using hatchets.

*Delek Group and its partners told the Tel Aviv stock exchange that they have raised their estimates for how much natural gas is to be found in the offshore Cyprus Aphrodite field by another 14 bn cu meters. However, according to Globes Israel, this is still not enough to justify building a gas liquefaction plant to cover Aphrodite and the nearby Israeli Ishai prospective drilling site. DGRLY.

*Across the border in Jordan, Hikma Pharma rose 3.5% in UK trading to the equivalent of $59. Its GDR is listed both in the UK and in Dubai. HKMPY trades only rarely.

Neiges d'antan

*Canadian Solar is back in the buy range according to analysts at Standpoint Research. They have a $36 target price for CSIQ, vs a current price of $26 and change. We sold at $24 when our reporter on the stock (Max Deml of in Vienna) dropped coverage.

*Simon Thompson of Investor's Chronicle yesterday noted that Camkids (sold) has fallen 20% on mixed news and now trades at the lowest level since it listed on the London AIM in Dec. 2012. His hyperactive coverage of dozens of AIM shares daily means superficiality wins over substance.

Funds in Focus

*What Eduardo Garcia calls “del Mexican moment al Mexican mess” has led to a price drop in REIT Fibra Uno although FBASF is in no ways linked to Mme. Peña Neto's mansion or the murder of student teachers. FBASF is at $3.4858 now and is worth buying back. We sold half last summer. Eduardo edits

*Also down is Mexican Equity & Income Fund, probably for the same reason. Institutional Investor has just run a paper by Morgan Harting and Nelson Yu (of Alliance Bernstein) which argues that finding the fastest growing emerging markets economies “is fairly useless for guiding country selection in equities.” They note that since 1992, China's GDP compounded annual growth rate was 15%. But “Chinese stocks fell by an annualized 2%.” And meanwhile Mexico achieved only low single-digit GDP growth of 2.4%/yr in the same two decades, but “Mexican stocks delivered annualized gains of more than 18% since 1992, placing them among the best performers.”

Why do macro-economic statistics have such low impact? They think the main reason is company-specific: “competitive positioning, strategic focus, industry dynamics, and quality of management.” That is why Mexican companies were able to generate high resturns despite the lackluster economy.”

MXE is helped in its competitive positioning by the presence on its board of closed-end fund hunter-turned-gamekeeper Philip Goldstein. MXE is actually up marginally, perhaps because of the letter boosting Mexico with which Phil accompanied its quarterly update to shareholders.

*Mark Mobius delivered a talk about the opportunities in emerging markets for the eMoney Show but I couldn't log in without giving them too much information. I hope he mentioned Mexico.

*Western Asset Emerging Markets Debt fund declared a monthy 11.5 cent dividend for Dec.-Feb (2015). ESD. It is 100% income from capital gains and interest, with no return of capital, as estimated by the mgrs, Legg Mason.

*Its stablemate, Western Asset Emerging Markets Income Fund declared a quarterly 23 cents dividend to be paid next month. EMD. It is 100% income from capital gains and interest, with no return of capital, also as estimated by the mgrs.

Disclosure: None

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