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In this briefing:
- Gold: Dovish Central Banks May Sustain Rally; Closing Our GLD Short
- Spotify: Playbook for Online Platforms to Turn Profitable – Implications for Meituan Dianping
- New Century Hotel Mgmt IPO Preview: Two-Speed Businesses
- Naspers: Softbank Buyback a Guide for Naspers?
- Global Equity Strategy: Constructive Outlook Intact, Bottoming Process Continues
1. Gold: Dovish Central Banks May Sustain Rally; Closing Our GLD Short
Central banks around the world have signaled their willingness to return back to the Easy Money Playbook in their quest to re-stimulate economic growth and inflation. This significant shift in market expectations has been the key factor driving the recent rally in Gold (GOLD COMDTY) prices, and it appears to have legs. As such, we are closing our Spdr Gold Shares (GLD US) short.
2. Spotify: Playbook for Online Platforms to Turn Profitable – Implications for Meituan Dianping
- Our analysis of how Spotify Technology Sa (SPOT US) turned profitable in 4Q18 reveals three key ingredients: critical mass in sales, GM progression, and core business diversification.
- With sales reaching critical mass, this would allow fixed costs to be spread out in such a way that opex/unit is lower than GP/unit.
- Progression in GM and core business diversification strategy are worth monitoring.
- Implication: Meituan Dianping’s (3690 HK) core business is ahead of iQIYI Inc (IQ US) in terms of profitability inflection point timeline.
3. New Century Hotel Mgmt IPO Preview: Two-Speed Businesses
Zhejiang New Century Hotel Management Group (ZHEKAIH HK) is a leading hotel group in China engaged in the operation and management of mid-scale and upscale hotel chains. New Century has started pre-marketing for a Hong Kong IPO to raise up to $200 million, according to press reports.
New Century has two business units – hotel operation and hotel management. Overall, we believe that the IPO is unattractive due to the mixed prospects of the two businesses.
4. Naspers: Softbank Buyback a Guide for Naspers?
Recently, Softbank’s (9984 JP) shares jumped +18% after announcing a $5.5bn share buyback. Using Smartkarma’s holdco monitor, the discount to NAV had widened to around 55% prior to the announcement but is now sitting around 40-45%. There were a few key reasons for the buyback: (1) the Softbank Corp (9434 JP) (KK) IPO netted $20bn, giving the company the flexibility to do the buyback, and (2) Softbank is taking a more disciplined approach to further platform investments.
Both these arguments are also available to Naspers (NPN SJ) management and a move to buy back 5% of market cap is feasible and we believe would narrow the discount. The question is whether management are listening. They have been dismissive of buybacks in the past but this could change.
5. Global Equity Strategy: Constructive Outlook Intact, Bottoming Process Continues
We remain constructive overall and continue to believe that global equities (MSCI ACWI) are going through a bottoming process. Opportunities exist but Sector leadership is mixed. In our February International Strategy document, we explore various themes which lead to our overall constructive outlook, as well as a technical appraisal of each Sector and the investable opportunities therein.
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