Bull In A China Bourse

Down Mexico Way

*It has become standard here in Britain to favor the FTSE 100 over broader UK indexes, because of its multinational company focus. Broader UK indexes depend on consumer spending which is down sharply. The same factors may hurt Mexico indexes, because while growth looks good so far, domestic demand is deteriorating. Consumer spending is supposedly heading for a slump.

Our Mexican stock list is heavy on MNCs like Cemex (CX) and Mexichem (MXCHF) although Bimbo, a good performer lately, is a possible victim of a real consumer crisis, if Mexicans are forced to stop eating bread and cake, unlikely. I use Maru Pichardo, the manager of our Mexican Equity and Income Fund (MXE), as a sounding board for our stock picks and I think she is as wary of depending on the consumer sector as the market overall.

Wage growth and production and mining for export in Mexico are down because among other things the peso is much stronger. While housing is slumping, the kind of office, hotel, factory, school, and mall buildings being done by our Fibra Uno (FBASF), is aimed at a more international clientele.

Moreover the consumer spending slump may not even exist. In Q1 this year consumption grew 2.8% according to Dimitra DeFotis in Barrons' Blog, although growth is decelerating. FBASF reports July 21 on its Q2.

She also notes a global sector performance advantage south of the border for Alsea which runs Mexican subs of Starbucks, Burger King, and the like. Its shares are up 44% OTC in the US, she says. So the picture in Mexico is not a mirror-image of the one in the UK which has much poorer consumer numbers, and also a housing market slump.

Another similarity between Britain and Mexico is that both countries saw large scale banking fraud, with the latest Mexican scandal at Casa de Bolsa Banorte, the country's 4th largest brokerage, amounting to ~1.6 bn pesos. While British fraud cost much more than the equivalent of $88 mn, Mexico is a poorer country. The two countries also fail to house the poor adequately and both suffer from fatal errors with bad building systems. Again, being poorer, the fatalities in Mexico are in low-rise shanty towns rather than skyscraper council flat.

Our shares are MXCHF, GBMBF, CX (on which more below), all multinational corporations out of Mexico, plus REIT FBCASF, and CEF MXE.


*Beleagured TEVA suffered a first-round loss in a Wilmington (DE) US court where a jury found that the Israeli generics firm had willfully violated a patent for Coreg,n a heart failure drug, from GlaxoSmithKline (GSK) before the patent expired in 2015. TEVA was ordered to pay $235 mn to GSK, after its lawyers failed to convince the panel that the patent was invalid. The sum includes lost profits and royalties the Israeli generics maker has to pay GSK of Britain. While the US FDA allowed the generic to be sold starting in 2007, it included a carve out for chronic heart failure which was to be a GSK exclusive. However starting in 2011 Teva added that use to its label.Teva will appeal.

*Eyel Dayesh, former TEVA CFO, has gone to run credit card company Isracard.

*GSK also was boosted by results from its Zoster A48  shingles vaccine phase III trials in people over 50 years old which were presented at a Center for Disease Congtrol conference yesterday. The revaccination with Shingrix showed similar immune response to earlier jabs with rival products and the side effects were lower.

The analysis group Evaluate predicts that the Shingrix jab on which US and European approvals are pending, will produce sales of as much as $1.17 bn for GSK by 2022. It is a clear winner against Merck's Zostavax, according to analysts because the protection lasts longer. Shingles is caused by remnants of chicken pox infection popping up years later among oldsters, and is painful and debilitating. The successful trial was significant because protection increased in people vaccinated earlier with Zostavax, a key finding.

Moreover it will join another blockbuster inoculation GSK bought from Novartis last year, Bexsero against meningitis B, for which another $1 bn in sales are forecast by Evaluate. It is selling like topsy thanks to GSK making a deal on price for British inoculation with the National Health Service, so much so that demand rose so high there was no Bexsero available for private clinics.

GSK is now building a new $175 mn plant in Germany where it will move production of 3 of the 4 active components of Bexsero which it is now buying from Sandoz, a NVS sub in which Roche owns a stake.

*The Roche cobas® 4800 cytomegalovirus (CMV) test for stem cell transplant patients is now available in countries recognizing the RHHBY rights. The molcular diagnostic array produces a quick result showing infection in transplant patient viral load. Roche also has viral load tests on the market for HIV-1, hepatitis C and B, and Hep C genotyping. The 4800 uses automated nucleic acid purification and polyerase chain reach amplification to detect these diseases and other less well known ones. In cases of transplant, donated organs and cells can transmit or reactivate CMV which can cause major damage to organs like lungs, liver, kidneys, intestinal tract, eyes, etc. About 40-100 of adultes are infected with CMV depending on regions and they have no symptoms—but their transplant recipients are very vulnerable. RHHBY is a major player in diagnostics.

*More on the new ADHD drug from Shire (SHPG), Mydayis. It uses Allderall tech but combines several variant components to achieve more lasting control of the problem, vitiating the need for interim dosage during a day. The FDA approval took 9 years and 16 clinical trials, so it really is a victory for the Irish drug-maker SHPG. The potential sales are put by Shire at $500 mn/yr but not all broker analysts agree, except for Jefferies' David Steinberg. He told Fiercepharma blog that Shire may surprise the market with high sales.

Separately, SHPG won European Medicine Agency approval for its Veyvondi treatment for bleeding episodes and peri-operative bleeding in adults, already on the market in the USA.

*Zacks upgraded Novo Nordisk (NVO) from hold to buy; the Chicago stock rater uses charts for forecasting. NVO is upwardly mobile.

*Société Générale downrated Reckitt-Benckiser (RBGLY) to hold from buy; we told you first. RBGLY is being penalized now not for its emerging market sales (which are now a source of optimism) but for its basic business of selling household products and nostrums to Britons who are spending much less than before the Brexit vote and the ensuing political uncertainty.

Capital Raising and Rising

*Naspers (NPSNYvia its Myriad International sub is exploring the issue of a US$ bond to raise money to repay existing debt and for general purposes. The South African media group is a large holder of Hong Kong's Tencent (TCTZF). Earlier this month Naspers forecast that its EPS in the FY to March 2018 will rise 33-39% (in rands.) How much it proposes to raise is not yet known.  

*Depositary Bank of New York-Mellon has registered with the SEC to issue up to a billion new ADRs for Banco Santander (SAN). SAN has long been more widely traded in the UK and the US than in Spain, but there may also be a capital increase in its homeland.

*While I shyed away from buying Barclays (BCSafter its brass was charged with fraud and self-dealing in Britain, the Investors Chronicle today chose to buy BCS common. Its Emma Powell took a positive stance on the bank. I fear that there will be much more trouble over the refinancing in 2008 along with a pile of charges over forex and front-running already on the dockets in the USA. We remain positive on the preferreds from the UK bank because they more trouble it faces the longer they will not be redeemed. Why is former CEO Bob Diamond not among those charged in the UK? I cannot believe he didn't know about what his underlings were done in the Gulf.

*The UK competition watchdog clear the merger of Standard Life (SLFPY) with Aberdeen Asset Management yesterday after the shareholder vote. Both stocks fell post-merger perhaps because of rumors that SLFPY plays to also take over Scottish Widows, another fund manager, now part owned by Lloyds of London.

*Delek Group (DGRLYin Israel is down because of a draft prospectus to spin off its Tamar Petroleum Ltd sub in Tel Aviv to raise money. The expert forecasts of oil and gas in the draft cover the Tamar and Dalit concessions and show much lower US$ revenues from electricity generators and industrial companies in Israel apart from Israel Electricity Corp. Apart from IEC, Israeli gas prices are fixed to that of Brent crude, and oil prices are now around $43, well below the previous assumptions.

DGRLY is having problems raising money by sale of its regulated Phoenix Insurance sub and is being forced to flog it crown jewels to continue investing.

*Yesterday in UK trading, our Virgin Money (VRGDF) rose dramatically higher for two reasons. First, UK sub-prime mortgage broker Provident Financial reported truly rotten results as Britons could not pay their mortgages. The stock fell nearly 18%. Another factor may have been an error. Virgin's cellphone line  will be marketed in the US by Apple, which will use it to sell plans aimed at cheapskates who do not want to be locked into a contract. They will pay upfront for their Virgin phone.

Apple stores now will sell Virgin Mobile licensed iPhones made by Sprint in return for which Virgin will drop its Android line and move to iPhones.

Sir Richard Branson, the chief honcho of the Virgin brands, made a presentation at which he said the two firms should work together well as they both advocate human rights and social causes. The philantophist mainly is getting fees for licensing the Virgin name.

A Virgin phone, once you have bought it, will cost $1 for the first year of phone, text, and data service at your friendly US Apple dealer.

Health Tech

*CAE of Canada released a study of how its Juno training simulators help nursing students move from the classroom to the real world before they work with real patients. They work with Juno (female) manikins, which are wireless and tetherless to learn 10 clinical experiences. Juno can also be converted easily to a male maikin which save money. The study on the advantage of simulation was down by the US National Council of State Boards of Nursing some years ago.

Juno is available for sale at the INACSL conference in the US and at the Human Patient Simulator Network in the UK, as well as through CAE sales and marketing, in time for fall semester nursing courses.

*Nokia Technologies (NOK) showed a film made with its own OZO+ camera and software at the Cannes Lion International Festival of Creativity yesterday. Healthier Together, as it is called, shows how it can sell consumer digital healthcare products on-line by direct sale. I think this counts as healthcare as well as tech, so I am republishing it.


*Nokia also managed to win with its jv partner Infracapital a broadband service contract for northern and central Poland. They will be responsible for managing, planning,designing and installing both broadband and eventually fiber-optic service to the Warsaw governmnet which owns the telco. The contract is valued at about euros 300 mn

*Barron's blog reports that analysts looking into sports and gaming favor Tencent and DeNA (DNACF) over Nintendo (NTDOY). Northern Trust ranks them as its faves in that order while Deutsche Bank just picks TCTZF because of its game and esports titles. The esports app uses multiple players and spectators in game playing.I tried to buy back DNACF last week but was put off by the $50 charge Fidelity imposed, and therefore will wait till I had negotiate a lower commish when I am back in the USA. It is covered by Credit Suisse's analyst Keiichi Yoneshima who expects its stock to rise to Y3600, a 44% upside. So it can wait until I am back stateside.

NTDOY has its fans too, notably Haruka Mori of JP Morgan who likes the Switch. She thinks Nintendo can rise all of 7%, nowhere near what CS expects from little-known DNACF which is at a mere 18x earnings now.

*Infosys (INFY) is being sued in Plano Texas for allegedly favoring Indian employees and discriminating against white ones including the plaintiff, who is a former employee. INFY is in the sights of opponents of quickie visas for Indian experts to the USA and this case will not help matters. While Infosys is barely up YTD in rupees its long-term profits depend on foreign investors, and on its board getting its act together. We are exiting because I don't see this happening.

*Autoliv (ALV) of Sweden won a neutral recommendation from Guggenheim Securities which resumed ALV coverage and set a $102 target price.

Non-DJ Industrials

*Orocobre (OROCFof Australia reported that it has has to suspend lithium production in Chile because snow closed the Paso de Jama through which it sends soda ash and lithium carbonate from its Argentina mine. Its contingency stockpile of soda ash and alternative Argentina suppliers were not enough to cover production in Olaroz  the period during which the pass was closed. As a result, the current Q2 FY 2017-8 production level for ltihium carbonate willl be 2,400-2,500 metric tonnes and the full year proeduction 11,700-11,800 tonnes, both off about 8%.

*COPA (CPA) of Panama seems to have cut back on its orders for Boeing 737 MAX aircraft at the Paris Air Show, amidst boasts of record sales by the US planemaker and Airbus. CPA converted its earlier order for fifteen 737s into single order for a 737 Max 10s.

*Eduardo Garcia reports that Cemex will become a major cement supplier for the new rail cross at Waterloo Station here in London where the Progress Rail sub of Caterpillar is contractor. The complex program will use lots of cement as there will we 10 lines crossing with 1,800 meters of new rail, to handle 99 mn journeys. The amount of the CX contract was not revealed. Eduardo edits sentidocomun.co.mx with which we trade news.

*Post-merger, fertilizer makers and marketers Agrium (AGUand Potash of Saskatchewan (POTwill rename their company Nutrien.

*Schlumberger Ltd (SLBof the Dutch Antilles is down 9% from its 50-day average at $65.47 but not repeat not below $60 as reported yesterday. Barclays downrated SLB to equal weight from overweight.

Disclosure: None.

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Chee Hin Teh 6 years ago Member's comment

thanks for sharing