The January Effect
Does January’s performance tell us something about the rest of the year? Finding out is easy, you could run some quick backtests to find out the seasonality factors and that would give us a good idea of how good of an indicator it is! This comparative analysis shows that a) we’re less likely to have an all-out crash, but b) we’re more likely to have a 10% move…in either direction! (Source: Toggle)
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For this week's community highlights, we look at Sony's rationale behind acquiring Bungie, the effect of the Russian-Ukrainian conflict on commodity prices and Spotify controversy. We cover the merger between Spirit and Frontier Airlines in our M&A Deal of the Week and in our latest podcast, we speak to Ankush Jain, the CIO of Aaro Capital.
ESG, do companies really care or is it all greenwashing? Vote below in our poll!
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🎮 Sony x Bungie: Why?
When Sony announced the acquisition of Bungie, the studio stated that they "will continue to drive one, unified Bungie community". Therefore, inferring that their popular gaming IPs will remain for XBOX and PC players. Therefore, putting into question why Sony would buy the developer if not for exclusivity. Firstly, Sony has a movie studio unlike rival Microsoft, where a beloved IP from Bungie’s catalogue like Destiny could move into other entertainment mediums. Like Naughty Dog’s Unchartered.
🛢️ Russian-Ukrainian conflict: The effect on commodities
This Sunday, White House national security adviser Jake Sullivan warned that war between Russia and Ukraine could occur “any day now”. With the conflict at its apex, it’s time to recognise the shockwaves this event will have on wheat and natural gas. Russia and Ukraine account for 29% of the global wheat export market. If disruptions occur due to military action or sanctions, it will worsen current food inflation caused by the COVID-19 pandemic
🎵 But Sir, Spotify’s Not a Social Media Platform
You know things are bad when a company wants critics to think it’s like Facebook. In Spotify Technology SA’s response to outrage over its hosting of Covid-19 misinformation, its chief executive officer borrowed many of the same lines that the social media giant uses when it’s caught in a similar mess.
For more bite-size market updates, visit our community!
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Spirit Airlines and Frontier merge for $2.9bn
Spirit Airlines (NYSE: SAVE)
- Spirit Airlines, Inc., is an American ultra-low-cost carrier headquartered in Miramar, Florida, in the Miami metropolitan area. Spirit operates scheduled flights throughout the United States and in the Caribbean and Latin America.
Frontier Group Holdings (NASDAQ: ULCC)
- Frontier Airlines, is an ultra-low-cost carrier company. The Company offers flights throughout the United States and to select near international destinations in the Americas.
Rationale
- The merger would make them the 5th largest U.S. airline with more low-cost flights to destinations throughout the U.S., Latin America and the Caribbean. This will give them the chance to really compete with the 4 largest airlines in the US.
- The company reports that they estimate the merger will generate $1 billion dollars in savings for consumers through synergies and cost-saving measures, both operating with an Airbus only fleet. The company also reports it will add up to 10,000 jobs without any staffing cuts.
- “We’re a perfect fit — our businesses share similar values, including our longstanding commitment to affordable travel,” says Spirit’s board chair, Mac Gardner
Transaction Details
- The deal has a transaction value of $6.6bn including for the assumption of net debt and operating lease liabilities, the companies said in a statement.
- Upon completion, Frontier will own a 51.5 percent stake in the combined entity, while the remaining 48.5 percent will be held by Spirit’s shareholders.
- Spirit investors will receive 1.9126 shares of Frontier plus $2.13 in cash for each share they own, giving Spirit shareholders an implied value of $25.83 per share - a 19 percent premium over the value of Spirit shares at the end of last week, the companies said.
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This week we are joined by Ankush Jain, the CIO at Aaro Capital.
This episode covers:
- The journey from an Analyst to Chief Investment Officer
- Traditional fund of funds versus crypto fund of funds
- Insight into blockchain technologies
- How Aaro Capital evaluates crypto funds
- Is postgraduate education for you?
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$CRBN - Corbion
Corbion NV is a biochemical ingredients company based in the Netherlands. Products include lactic acid derivatives, emulsifiers, functional enzyme blends, minerals, vitamins, and algae ingredients. Divided into three segments: Sustainable Food Solutions (SFS), Lactic Acid & Specialties, and Incubator, making up 63%, 33%, and 4% of core business net sales, respectively.
Corbion’s Core Portfolio Likely to be Complemented by Secular Sustainability Themes - According to a WRAP survey, food waste fell by 7% between 2015 and 2018, underscoring an emerging focus on waste reduction from consumers - Corbion’s clean-label food preservation offering will help companies differentiate their products toward this. Biobased materials are likely to become more popular as consumers switch out of fossil fuels - TotalEnergies Corbion JV is a great example of Corbion’s ability to capitalise on this through strategic initiatives
Historic Margin Pain has Peaked - input cost pressures have been difficult for Corbion to contend with - management are now expecting raw material inflation over €55m in their core portfolio across 2021-2022, and investors have punished the subsequent margin degradation. However, Corbion faces a structural time lag between rising input costs and then being able to push these through to customers, due to the fact that 2/3 of Corbion’s business is contracted on a yearly basis.
Catalysts - Incubator developments - being Corbion’s ‘innovation hub’, Incubator is a pioneer in regard to industry-leading advancements; an announcement of such would typically drive share price appreciation. This has become increasingly likely after the commitment of 4% of net sales to R&D until 2025 as part of Corbion’s ‘Advance 2025’ strategy.
Risks - Further Margin Degradation - management has communicated that restoring core business margins are a top priority, and have a strong conviction in their ability to do so. In the event of unfavourable contract renegotiations, and subsequent margin declines, investors may lose faith in managements’ accountability and capability.
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- Salman @ Finance Focused