Give To Harvard?

Give to Harvard, Give to Harvard,

With your blood and your sweat.

She needs more, millions more.

Give to Harvard, Give to Harvard,

With your blood and your sweat.

She needs all she can get.

I will attend a family gathering with at least 6 Harvard alumni over the holiday weekend, so we may discuss whether or not to donate to our Alma Mater. Harvard's overpaying its endowment managers is a reason not to give, according to members of the class of 1969 who are preparing for their 45th reunion. Some members of the class of 1969 published an open letter to Pres. Drew Gilpin Faust after they found that compensation by Harvard Mgm in salary, bonuses, and benefits had more than doubled in 3 years to $132.8 mn to FY 2013 (the last for which Harvard has reported). Bloomberg and the Boston Globe got a copy of the letter.

Harvard's expensive investment managers didn't invest very well. Its endowment gained all of 11.3% last year, despite the heavy spending. Meanwhile Yale gained 12.5%. Another Ivy League college, the U of PA, gained 14.4%. Harvard's total endowment closed the FY at $32.7 bn. To quote the alumni, staff salary and benefits were “increasing at a much faster rate than the endowment.”

Harvard is still trying to get back to its glory days before the global financial crisis when it had so much money at hand (nearly $37 bn) that in mid-2008 it planned a Crimea-style takeover of Allston, a town across the Charles River, now backburnered by Pres. Faust, if only temporarily after the endowment fell by $11 bn in the following year. About $1.25 bn was to unwind debt derivatives hit by lower interest rates, and another large sum for getting out of under-water real estate.

It replaced Mohammed El-Erian, an American, who had headed the Endowment for 2 years between two periods as a Pimco senior manager. El-Erian resigned to live in a more congenial California climate. Early this year he was ousted by Pimco's Bill Gross while remaining as a non-resident on the executive and advisory committees of its German parent, Allianz Versicherung. He now also writes a very good widely-syndicated column in The Financial Times.

As forecast, the mere hint of a weaker euro led to boosts in the price of the yellow metal and gold mining shares yesterday. 

*Paddy Power plc fell 3% in Irish trading today after a mixed unaudited H1 interim result was published. Its profits fell 14% y/o/y to euros 60.1 mn because of adverse sports results (meaning the football bets worked against the house more often than normal in Jan.-Mar., as already reported here.) EPS fell even more sharply, to 110.6 eurocents from 137.1 cent, down 19%. That's the bad bogside.

The good is that PDYPF upped its dividend by 11% to 50 eurocents and plans share buybacks, both harbingers of better times ahead. Its board expects a mid-teen percentage EPS growth for the full FY. This projection takes into account new taxes (in Britain and Australian states) and the exchange rate risk according to CEO Patrick Kennedy. It has euros 244 mn of cash on hand. In Q2 the punters lost 10.1% of the time, vs 9.1% in Q1, back to normal.

Mr. Kennedy noted that during the World Cup, Paddy commissioned Dr. Stephen Hawkings to work out the odds on England's winning, which produced coverage in every UK or Irish newspaper and went viral on Twitter and Facebook. PDYPF offered to refund losses for fans who bet on Britain (which duly lost) but this didn't reduce Q2 bettor loss levels from the expected 10.1, according to Mr. Kennedy.

Its H1 revenues rose 17% overall vs a mere 13% rise in the prior H1. The online active customer base grew by a quarter vs prior year's 11% rise to 1.792 mn punters while the new online base grew 35% vs prior year's 7% rise, to a total of 1.446 mn on-line customers. More than half its on-line clients now bet via cellphone (mobile phones in Irish) and 73% of its active bettors use their mobiles.

Its newest market, Italy, is growing fast and after the quarter ended its online market share hit 13%, making it the market leader there (with a small share of a small market for now.)

Its newest market, where there are no comparables, Australia, saw online bets rise 23% YTD and active customers grow 44%. It had 51% more clients Down Under It signed up more new customers in the half than in all of FY 2013. These people bet more often and for more money. Moreover, gamblers who beat the house are more likely to bet again.

PDYPF is also building out its UK and Irish store-front betting shops, where it is a relative newcomer both of which saw the number of bets and revenues rise 5% in H1. Operating profit in UK retail rose 26% to euros 9.5 mn while that in its Irish homeland rose 13% to euros 8.6 mn. Paddy's internet notoriety may lure in traditional gamblers. Ireland pending legislation may allow retail betting shops to say open until 10 pm and imposing a new tax on on-line betting.

It also offers games to play with most of them developed in low-cost Bulgaria. Paddy offers casino bets like Jackpot, poker, bingo, and other games on mobiles, TV, and computers. PDYPF's “business-to-business” arm now also lets you bet in France via the PMU (parimutuel), in Canada vis BCLC, and in Slovakia.

*Supposed to report Monday was Delek Group, which was then to hold a conference call guaranteed to include no US or Canadian analysts. The date was the only realistic time for management to hold the call close to the results, according to DGRLY's IR with whom I spoke this morning. Now Delek has published its unaudited Q2 figures in advance (for which I take credit) to show it has nothing to hide by publishing on Labor Day.

The results were hit by writeoffs and restatements for impairments of goodwill and intangibles. It reported a net loss attributable to shareholders in Q2 of NIS 600 mn, bringing the H1 level to a loss of NIS 795 mn. Without these capital operations, DGRLY would have had profits of NIS 102 mn in Q2 and NIS1.088 bn in H1. H1 revenues rose marginally to NIS 10.267 bn from 10.182 in H1 2013, but Q2 revenues were down marginally both sequentially and against Q2 2013.

Operating profit after impairments and adjustments hit minus NIS 55 mn in Q2 and positive NIS 338 mn in H1, both sharply down from 2013. The main cause was that it was no longer consolidating many former associated companies in insurance. Delek also was hit with higher income tax and higher (ultimately negative) finance expenses.

We are seeing a new broom at work. Delek is now a core energy company, a producer of offshore gas and a growing and profitable fuel distributor in Israel (but no longer consolidates gasoline and convenience stores, carwashes, or refineries in the Benelux, France, or the USA). It is a potential supplier of gas to Turkey, Jordan, and Egypt (for re-export) under deals signed with Union Fenosaof Spain and BG of Britain.

Delek is exiting finance and insurance in the USA (Republic Cos.) and Israel (Phoenix Holdings whose pending sale to the Kushner-Donald Trump companies probably needs another buyer to satisfy the Israeli regulator.) It has taken a NIS 350 mn impairment charge for Phoenix and a NIS 60 mn one for Republic. It has water desalination and a power plant jv in Israel and its listed auto sales subs in Israel and its 100% owned biochemical sub will continue to be consolidated.

It has biochemical, water desalination, and auto sales subs in Israel which will continue. But it it is trying to consolidate its two offshore gas drilling subs currently listed on the TASE.

Delek seeks to list its main firm on the London Stock Exchange. There would probably then be a more visible ADR.

It marginally cut its Q2 quarterly dividend by 6% from Q1.

Delek has debts of NIS 7.589 bn to its HQ companies (which it will retain) incurred for developing Tamar and Leviathan gas fields offshore Israel. Excluding assets for sale but including its stake in Delek USA shares (for the first time since the ipo), it has total assets of NIS 2.842 bn generating a net financial liability of NIS 4.747 bn. This is Delek's preferred metric for liquidity as its operating company debt can be offset or repaid.

Its Monday conference call will be recorded and I may manage to add some color after it. We recently sold half.

*Teva had to recall its US distributed Parkinson's disease drug because “stability testing” showed that it was “superpotent” and can harm patients' health. The treatment combines carbidopa and levodopa.

*In addition to our Dane, another European co. is aiming to develop a vaccine against Ebola with US funding. It is GlaxoSmithKline, thanks to its Okairos vaccine platform acquired last year for $325 mn. It is now beginning phase I trials of the Ebola jab based on deactivated chimpanzee viruses to trigger a CD8 T response. The trial in healthy volunteers is being headed by Adrian Hill of Oxford U and financed by the US National Institute of Allergy and Infectious Diseases. Phase I would not prove the jab works; but it would prove that it doesn't hurt and then it can be shipped to Africa. GSK is also building up stocks to 10,000 doses. GSK.

*Bavarian Nordic reports before the market opens tomorrow. It is among the developers of hemorrhagic virus vaccines to treat the Ebola horror. It isexpected to report Q2 earnings of 60 US cents/sh as it moves toward profitability. I will cover it but write it up only on Tues. BVNKF.

*Tencent is overshadowed by Alibaba's coming ipo. TCTZF CEO Pony Ma is no longer the richest man in China, having been beaten by Jack Ma of Alibaba. However, Doug Young of China Business Report writes that Tencent's chalk and cheese deal annnounced last week with state-sector dinosaur Sinopec (SHI) may have legs. Young says that the tip-up will include services like mobile payments for gasolene, on-line payments to off-line vendors, navigation aids, and big data, all using SHI gas stations and convenience stores which blanket China. Moreover as I wrote earlier, the stores can be used as pickup points for TCTZF e-commerce deliveries.

*What Tencent has created is an alternative system to that of Global Logistic Properties's jv with state-owned dinosaur CMSTD, operator and developer of warehouses and logistics site, in which it is investing RMB 2 bn ($325 mn) for a 15.3% stake. GBTZF is a Singaporean firm operating in China, Japan, and Brazil.

*It also highlights the appeal of our stake in China Chaintek United Co, UK:CTEK, which closed in London trading today at 95 pence. I averaged down last week at 92 p. I know I keep saying you cannot be a trader with these AIM shares, but you should keep an eye on their valuations.

*Portugal Telecom rose another 5% in European trading and at the NYSE opened at $2.8 before fear of Putin and the ECB Pres. Mario Draghi weighed in against it.Readers are advised to use or their telephones to vote for the reorganized merger of Portugal Telecom into Oi. Votes have to be in by Aug. 28 for shareholders of record Aug. 15, so move quickly. The vote formally is slated forSept. 8. As I wrote to reader BM who is a strong supporter of this wild and woolly speculative buy, I don't think Portuguese shareholders are used to proxy voting. So it is up the the US ADR contingent to carry the can and help get a 2/3 majority for the new terms. And there are lovely assets hidden in various offshore entities of the Espirito Santo family, starting with Rioforte, the direct debtor of PT.  Vote today or it won't count.

*The Money Report (of Australia) interviewed Luke Smith, an Oz mining analyst, who called Orocobre (OROCF here but ORE Down Under) one of his favorite lithium producers because its 25% shareholder, a sub of Toyota, and because its Argentina mine will start production in Coc at an eventual 18 kilotonnes/yr, equal to 10% of the current world market. Smith argues that because it produces LI from a salar or salt lake, its production costs are low for evaporation ponds rather than mining with trucks and shoverls and crushing and grinding sites. It also installed a gas power station fed by a pipepline.

He also talked down Cristina Fernandez risks because its Olaroz site is 8.5% owned by the Province of Jujuy, a poor local region which can protect it from Buenos Aires. He has a target price of A$3.77 vs a current Sydney price of A$3.3, but he says it might rise as more borax is produced profitably as a by-product.Frida Ghitis told you first.

*Bombardier is going ahead with its jv plan to build a plant in Russia to make the Q400 turbojet which is not yet the object of Canadian sanctions. BDRAF's Pierre Beaudoin told Investor's Digest of Canada last week that negotiations continue with Rostec on the factory 600 miles southwest of Moscow despite events in Ukraine. BDRAF is also plotting another jv for the Q400, with China, Beaudoin said. In its Aug. 29 issue, Investor's Digest named Bombardier its strongest recommendation this month citing not only its plans in outlaw states, but also the good takeup of orders for its C Series planes and rail orders from its other division.

*A few adds to my note about Bank of Nova Scotia yesterday. In my list of one-off events removed from the profit and loss statement for its Q3, I of course included the largest, the sale of CI Financial. We own CIFIF. But I didn't include buys Scotiabank made with part of the proceeds: 51% of Chilean Cencosud SA which issues credit cards; 100% of ING Direct Canada; and 20% of Canadian Tire Corp and financing for C$2.3 bn of of its credit card receivables. Reportedly with the rest of the CIFAF cash pile, Scotiabank is looking for deals according to Barclaysanalysts targeting Mexico, Peru, Chile, and Colombia for wealth management and credit card businesses. M&A talk then caused a 2%+ drop in the BNS share price.

*The dam has been breached at Royal Bank of Scotland, which like other banks is guilty of manipulation of interbank interest and exchange rates, but unlike them is 82% owned by the UK govt after a bailout. A bankrupt student housing company,Opal Property Group, is suing RBS for damages for the benchmark fiddles which it blames for its inability to repay its loans from RBS. Opal said it should have been told that these rates we not set by the market objectively. Other lawsuits will follow.

The result will be more delays in re-privatizing RBS, however much the Tory coalition partners were to wish to do this. Our preferreds are even more secure as long as they are essentially govt-owed. We only own the prefs.

*A boost to the share price of Anton Oilservices came from Fitch reiterating its rating because it expects flat finance from operations at ATONY. This frustrated my plot to buy more at under $100/sh.

*Cosan's rise is not after all political, but the result of the expected US imposition of countervailing duties on Mexican sugar imports, at ~17%, to protect our domestic cane and corn producers. As a result, imports will be coming in from Brazil, where CZZ is a big producer.

*Veolia Environnement is up because analysts at Exane BNP raised their VE view to outperform from neutral. It helped that archrival GDF Suez, also a French ute, was slashed to neutral from buy by UBS.

*My stake in Cherkizovo Group has now ben priced in the UK in sterling thanks to an intervention by e-trade. It closed at £7.1416 today. The bad news is that I am being subject to UK withholding tax on these AIM shares, at least until I get e-trade to stop it.

*We sold Dr Reddy's too soon. RDY was sold in part because we lost our India stringer who joined The Economist.

*We sold Chile's SoQuiMich, SQM, at its peak. It reported rotten results yesterday and its corporate governance issues have not been addressed.


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Bankers Anonymous 9 years ago Contributor's comment
Picking nits here, but El-Erian is Egyptian, not American