Today - Tuesday, March 3, 2015
- The reinsurance sector is nearly universally lit up red in today's session, but Montpelier Re Holdings (MRH +0.6%) is carving out a gain amid a report in The Insurance Insider suggesting Endurance Specialty (ENH -1.3%) and Chinese conglomerate Fosun are among the final bidders in the MRH's sale process.
- Another possible suitor is Aspen Insurance (AHL), but its involvement hasn't been confirmed.
- With the Nasdaq down 0.6%, the number of tech companies posting outsized declines easily surpasses the number posting significant gains.
- Chinese firms are well-represented on the ranks of notable decliners. In addition to Alibaba, the list includes CDN owner ChinaCache (CCIH -4.6%), mobile app developer Cheetah Mobile (CMCM -9.8%), solar module vendor Yingli (YGE -4%), polysilicon provider Daqo (DQ -5.1%), real estate sites SouFun (SFUN -4.5%) and Leju (LEJU -4.3%), and data center owner 21Vianet (VNET -2.9%).
- Other decliners include chip equipment giant Applied Materials (AMAT -4.2%), seismic tech provider Geospace (GEOS -4.9%), VoIP infrastructure hardware/software firm Sonus (SONS -4.7%), IT services firm WidePoint (WYY -3.7%), auto site TrueCar (TRUE -7.4%), and online grocery coupon provider Coupons.com (COUP -5.2%).
- SouFun fell hard yesterday following news 58.com is buying real estate site Anjuke. Many Chinese tech firms sold off last Friday as the yuan made 3-year lows against the dollar.
- Previously covered: Seagate/Western Digital, Micron, Overstock
- Notable gainers: Veeva, Gogo, Vringo, Finjan
- Nice job in getting rid of your most profitable business, Citigroup (C +0.4%), writes Anthony Currie of the sale of OneMain Financial to Springleaf for $4.25B. The unit's ROA of 6.7% is about seven times better than the Citi as a whole, and while earnings of nearly $600M this year are only a fraction of the many billions the entire bank might earn, Citi could use all it can get.
- Citi boss Michael Corbat, however, has plenty with which he can offset that hit, says Currie, noting a pretax gain of about $1B on the sale along with the opportunity to tap into the bank's roughly $50B DTA. There's also the freeing up of capital from the removal of OneMain's nearly $10B in assets. Assuming Citi holds 10% of that, Corbat can either reinvest $1B or ask the Fed to allow it to be returned to shareholders.
- Previously: Springleaf sees big things with OneMain purchase (March 3)
- Previously: Springleaf (finally) lands Citi's OneMain Financial (March 3)
- Kinder Morgan (KMI +0.5%) says it will conduct more public information sessions discussing its proposed a 70-mile natural gas pipeline through southern New Hampshire.
- The state’s congressional delegation last week asked the company to do more public outreach beyond five meetings conducted recently in communities affected by the proposal.
- Supporters say the controversial pipeline is needed to increase capacity in a region that pays some of the highest energy costs in the U.S., while opponents fear harm to the environment and property values.
- Investigators have asked Barclays (NYSE:BCS) for information on its electronic-trading platform which contains a program allowing traders a "last look" at an order before placement, reports Bloomberg.
- Last-look is a vestige of the old computer era when the lag between an order being placed and confirmed was long enough to expose the market-maker to an unfavorable price movement. The lag has moved to pretty close to zero, but banks still retain the right to halt trades on a last-look basis.
- “Last look is a hangover from a technology problem that no longer exists, yet still allows traders to reject trades and re-quote orders to the disadvantage of clients,” says David Mercer, CEO of LMAX Exchange, a forex platform competing with major banks.
- For its part, Barclays is reserving another £750M for forex probes, bringing the total expected cost to about £1.25B.
- Deutsche Bank analyst Mike Urban is negative on the offshore drilling sector and particularly on Hercules Offshore, but he likes Seadrill (SDRL +1.6%) well enough to offer some praise while maintaining his Hold rating.
- SDRL’s strong contract coverage and high-quality fleet leave the company relatively well positioned amid a likely long downturn, Urban says, and he views the announced deferral of jackup newbuild deliveries as a positive given his expectation that the shallow water market is on the cusp of a sharp decline.
- SDRL has a best in class fleet and is making the right moves for the long term, Urban says but warns that nothing is guaranteed in this market, fully expecting rigs to go idle.
- After trading near breakeven much of the day ahead of this afternoon's FQ4 report, Veeva (VEEV +6.5%) has risen sharply over the last 30 minutes. Volume (1.62M shares) is well above a 3-month daily average of 898K.
- The cloud life sciences/pharma software provider is at its highest levels since November.
- Overstock (NASDAQ:OSTK) states its 8-year-old case against Merrill Lynch over alleged "illegal market manipulation" will proceed to trial after California's Supreme Court declined to review a November appellate court ruling, and that relevant discovery materials related to its claims against both Merrill and Goldman Sachs will be released to the public.
- Overstock has alleged several brokers engaged in naked short selling in "a deliberate effort to manipulate Overstock.com's share prices." Back in 2010, it settled claims against certain defendants for $4.44M. While Overstock's California case against Merrill is able to proceed, it isn't able to pursue its claims against Goldman on jurisdictional grounds.
- Shares have sold off amid a broader decline in equities. Volume is fairly light - 104K shares vs. a 3-month daily average of 201K.
2:22 PM| Comment!
- BP (BP +1.2%) CEO Bob Dudley saw his total 2014 compensation rise more than 20% Y/Y to $12.7M from $10.17M in 2013, during a year when the company took a quarterly loss, according to the company's latest directors remuneration report.
- Dudley's salary and annual bonus fell to $2.95M from $4.21M in 2013 but deferred bonuses and performance shares' awards rose to $9.79M from $5.96M a year earlier.
- Total compensation - including benefits, shares and pension - totaled $15.3M, up ~$700K from 2013's $14.6M.
- BP annual report
- Kate Spade (KATE -2.4%) trades lower following a soft read on margins for 2015 amid F/X pressure in Japan, although the drop is roughly in-line with other luxury stocks which are having a rough day.
- The company's 2015 revenue guidance of $1.2B-$1.275B fell short of the $1.28B that analysts expected.
- During the earnings call, execs reiterated that a measured approach to promotional activity will be the plan this year. Flash sales and either margin-crunching initiatives are likely to be reduced.
- Kids clothing and fragrances are two categories where the company sees sales growth and potential distribution deals.
- Earnings call transcript
- Previously: Kate Spade misses by $0.04, beats on revenue
- Previously: More on Kate Spade's Q4
- Thinly-traded small cap addiction center operator AAC Holdings (AAC -9.5%) slumps on a 5x surge in volume in apparent response to a bearish article published today on Seeking Alpha by Bleecker Street Research. The author accuses the company of goosing its financials by too-frequent and excessively charged drug testing. It allegedly tests clients 2 - 3x per week instead of the customary 1 - 2x per month and bills payers as much as $1,200 per test, over 10x the cost of a typical screening test.
- The majority of the company's operations is located in Florida, currently Ground Zero for fraudulent billing of abused drug testing services.
- Bleecker sees a 50% downside to AAC's valuation as authorities investigate the firm and due to the end of the IPO lock-up period at the end of the month.
- Alibaba (BABA -3.3%) has slumped to new post-IPO lows on a down day for equities, and at one point was just $0.03 above $80. Shares remain 19% above their $68 IPO price.
- Yahoo (YHOO -3.8%), which has seen the value of its 384M-share Alibaba stake (set to be spun off) fall to $31.1B, is following Alibaba lower. Yahoo's market cap stands at $41B.
- Possibly hurting Alibaba: The WSJ has taken a look at the use of fake orders (i.e. "brushing) by Alibaba merchants to pad their sales and thereby boost their standing on the company's marketplaces.
- Merchants pay "brushers" to place orders, and then ship them boxes that are empty or full of worthless items. A November column from China's state-owned Xinhua News Agency estimated 17% of sellers (1.2M) on Alibaba's Taobao site (focused on smaller merchants) had faked RMB10B ($1.6B) worth of transactions in 2013.
- Alibaba says it punishes sellers found to be faking transactions, and analyzes IP and mailing address data to spot anomalies. Chinese regulator SAIC recently issued a report criticizing Alibaba for fake goods listings and other illegal business done on its sites, but backtracked after Alibaba blasted the report.
- The Chinese e-commerce giant now trades for 28x estimated FY16 (ends March '16) EPS. The FY16 revenue growth consensus is at 36%.
- Update: Bloomberg suggests JD.com's strong Q4 numbers could be fueling concerns Alibaba is losing share. JD's GMV rose 119% Y/Y in calendar Q4 to $13.8B; Alibaba's rose 49% to $125.9B.
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