April 2024
- Bocconi Students Women in Finance
- Mar 25
- 11 min read
Updated: Apr 11
 Newsletter April 2024
April 2024:April was an eventful month for WiF, with our long-awaited BSIC competition and interesting workshops. In this edition of our newsletter, we’re excited to share our experiences and this month’s insights!
April Recap
Don’t miss out on our social media where we post our weekly tips, market news and market quizzes as well as stories of men that keep inspiring us! News RecapTesla’s performance concerns the industry Tesla, the giant of the EV industry, is facing many troubles that have shocked the financial world and disappointed its shareholders. To put Tesla’s performance into perspective, Reuters reports show that at the start of April, the company’s stock has dropped by more than 4.5% (making it one of the worst performers on S&P 500 and Nasdaq), it has fallen behind every other company (Alphabet, Amazon, Apple, Meta, Microsoft, and Nvidia) in the Magnificent Seven stocks, reaching a performance of negative 32.9% in 2024, has lost above $250 billion in market value, narrowing the gap against Toyota, and has seen the first drop in deliveries since the COVID-19 pandemic.Such unpleasant statistics have mostly been attributed to the growing competition: aside from other major car companies, such as Hyundai and Kia, Tesla is experiencing a growing threat from the swiftly developing China’s EV market, with BYD being the best-selling brand. Other reasons for Tesla’s downfall include the slowing of demand, which has at least partially been caused by the growing unfavorable view towards Elon Musk.Tesla has been trying to respond to such changes by drastically minimizing costs: prices of Full Self-Driving software subscriptions have been cut from $199 to $99 per month in the US and Canada, and around 10% of Tesla’s global workforce is in the process of being laid off, and has decreased the prices of Models Y, X, and S by $2,000 each. Tesla’s rough path has raised significant concerns about EU's goals to become net zero by 2050, as it tries to avoid negatively impacting the stakeholders while still keeping the strict laws and requirements set in place.
US approves the $61 billion aid package to Ukraine The beginning of April has been marked by NATO’s discussions to organize a support package worth of approximately $100bn for Ukraine. This has come as a response to Joe Biden’s struggles to get approval for the $60bn aid package from the US. Protecting Ukraine from political changes has become a subject of increasing importance to NATO’s foreign ministers as Russia has significantly exceeded Ukraine’s number of men and guns.However, at the end of April, after six months of uncertainty and despite right-wing objections, the US finally approved a $95bn aid package to Ukraine, Israel, and Taiwan. The American support to Kyiv is a crucial breakthrough in the war, but the Ukrainian military is aware that this might well be the last aid package, amid the upcoming US presidential elections. Concerns from people in the US have also been loud: the conflicts around the allocation of US funds have been a big debate between citizens and political leaders keeping in mind the increasing struggles to hold off illegal immigration.
Dealflows & IPOs this Month
Johnson & Johnson to Acquire Shockwave Medical Healthcare giant Johnson & Johnson (J&J) is set to acquire medical device manufacturer Shockwave Medical in a definitive deal valued at $13.1 billion, including debt. This strategic move comes after J&J's recent separation from Kenvue, which helped boost its financial position with $13.2 billion in generated funds. Shockwave Medical, based in Santa Clara, specializes in developing catheter-based treatments that address calcified arterial lesions. The company's technology, known as intravascular lithotripsy, uses a catheter that emits electrical impulses to break up calcium deposits in arteries, enhancing patient outcomes. To this date, Shockwave’s technology has been used to treat approximately 400,000 patients globally. Shockwave Medical not only leads the market with its innovative treatments for arterial calcification but also has a previous financial interaction with J&J. In 2018, Abiomed, a company now owned by J&J, invested $15 million in Shockwave. Furthermore, last year, Shockwave expanded its market presence through a $147 million acquisition of Neovasc. The acquisition has been approved by the boards of both companies. J&J's Chief Executive Joaquin Duato views the acquisition as a "unique opportunity to accelerate our impact in cardiovascular intervention and drive greater value for patients, shareholders, and health systems." He highlighted that this move is part of J&J’s strategy to pursue acquisitions in areas of medical technology that promise substantial growth. The current deal, which sets the acquisition price at $335 per share in cash, reflects J&J’s aggressive investment strategy to enhance its portfolio in medical technologies, a sector in which its MedTech division recorded $30.4 billion in sales last year, representing 35% of the company’s total revenues.
U.S. Steel shareholders approve buyout by Nippon Steel Shareholders of U.S. Steel approved its proposed $14.9 billion acquisition by Japan's Nippon Steel on April 12th. The approval, with more than 98% of votes in favor, moves the merger one step closer to completion. Each U.S. Steel share will be purchased at $55, representing a significant premium over the December announcement price. Despite shareholder approval, the deal faces many political and regulatory challenges. Several U.S. lawmakers have expressed opposition due to national security concerns, with President Joe Biden emphasizing the importance of U.S. Steel remaining under American ownership. Market reactions reflect these uncertainties, with U.S. Steel’s share price closing at $41.33 on April 12th, significantly below the offer price. The acquisition has also drawn criticism from the United Steelworkers union, concerned about potential job losses. In response to these concerns, Nippon Steel has committed to no job cuts and maintaining all union agreements. Additionally, they plan to relocate their U.S. headquarters to Pittsburgh, enhancing their commitment to U.S. Steel’s operational base. Despite these challenges, Nippon Steel remains optimistic, pledging to protect and grow U.S. Steel and asserting that the deal will benefit its stakeholders and the broader American steel industry. The transaction is slated for completion in the second half of 2024, as both companies recently indicated an adjustment to their initial timeline.
Coventry Building Society to acquire Co-op Bank UK’s Coventry Building Society is set to acquire the Co-operative Bank in a definitive deal valued at £780 million. This strategic move follows discussions that began in December and will see the Co-operative Bank return to mutual ownership, aligning with Coventry’s status as a mutual lender. The acquisition, which is still subject to regulatory approval, would create a merged group with £89 billion in assets. The Co-operative Bank, based in the UK, has served 2.5 million customers and more than 90,000 businesses and is known for being backed by U.S.-based investors such as Bain Capital Credit and JC Flowers. This acquisition aims to enhance Coventry’s market share in current accounts, expand its branch network, and venture into business banking. The deal has been agreed upon, yet there is no certainty that it will be completed. Coventry’s CEO, Steve Hughes, views the acquisition as an “exciting” opportunity to integrate a financially stable and profitable organization that shares a mutual heritage with Coventry. The Co-operative Bank has faced challenges in the past, including a major crisis in 2009 which led to a bailout in 2017. It has also been involved in several failed transactions recently, including a failed merger attempt with TSB and a buyout approach from Cerberus. This acquisition is seen as a potential new phase for the bank, aiming to stabilize and expand its operations under mutual ownership.
Schneider Electric's potential acquisition of Bentley Systems Schneider Electric, the French specialist in automation and software with a market valuation of €120.5 billion, is engaged in preliminary discussions to acquire Bentley Systems, an American software company valued at about $15.6 billion. This move could result in Schneider's largest acquisition to date, signaling a significant strategic shift under the leadership of newly appointed CEO Peter Herweck. The discussions have surprised industry analysts, given Schneider's previously communicated strategy of gradual evolution rather than radical transformation. Despite the initial doubts, Schneider has a solid track record of successful acquisitions, including the strategic purchase of British technology company Aveva in 2022, valued at £10.6 billion. On the financial side, Schneider's shares experienced a slight decline of 2.25% to €210.5 following the announcement, though they have generally increased by over 18% throughout the year. In contrast, Bentley's shares saw a 5% rise after the talks were reported. The Wall Street Journal first revealed these discussions, noting that the deal would merge the two companies' software operations while maintaining their public listings. Reports also noted that Bentley was considering a sale and that other bidders were potentially in the mix, emphasizing the company's strategic value in the infrastructure software sector.Sources: The Financial Times, CNBC, Reuters
Analysis of the Markets
Investors raising bets on the Euro falling to parity with the Dollar Traders are increasingly betting on the euro falling to parity with the US for several reasons. The high inflation and robust growth, showcased in the above market situation, lead investors to believe the Fed will delay interest cuts compared to the ECB. Thus, options indicating euro-dollar exchange rate of $1 or less are being bought, with a 10% chance of this occurring in the next 6 months. The euro has depreciated 3.5% against the dollar since January and requires another drop of about 6.5% to achieve parity. Market sentiment shifted towards minimal cuts by the Fed in contrast to earlier expectations, while the ECB expected to ease policy sooner. Additionally, the fear of escalating conflict and the impact of higher oil prices on Europe contribute to the concern of the Euro strength. Analysts warn that excessive weakness could lead to inflationary pressures by raising the prices of imports. Others suggest could benefit export-driven economies in the Eurozone, thus providing a boost to growth.
Traders price in growing chance of Fed Interest rate rises
There has been a shift in market sentiment regarding the Federal Reserve’s monetary policy, where traders are increasingly betting on the possibility of the Fed raising interest rates again rather than cuts. This is due to stronger-than-expected US economic data and policymakers’ commentaries. The options market indicates a 1 in 5 chance of a US rate increase in the next 12 months. This expectations change has impacted the bond market, with the two-year treasury yields reaching a five-month high, and stock markets movement. Though central expectations remain for one or two rate cuts, some investors realistically believe the chance of rate hikes, particularly if inflation continues to surprise. Option pricing reflects around a 20% chance of such a rate rise this year, however, the uncertainty remains high as to whether cuts or hikes should be expected. Resultingly, there are many shifts in expectations and trading strategies among investors.
Hong Kong's Biggest IPO of 2024 fails After the debut of ChaPanda, the Chinese bubble tea chain, their shares dropped as much as 38% from their listing price on day one of trading. Despite raising HK$2.6 billion, the IPO saw weak demand with low investor interest. This development came at a challenging time for Hong Kong’s stock market, which has been struggling to revive amidst a more than 15% decline in the benchmark Hang Seng index over the past year, with IPO proceeds down 29% from last year, marking the lowest start to a year since 2009. Though ChaPanda has a significant presence in mainland China, there are concerns about both its ability to retain customer loyalty and competitors that have also been planning IPOs. Analysts suggest that the lukewarm reception to ChaPanda's IPO not only indicates the cautious outlook of investors but may also negatively impact overall market sentiment in Hong Kong's IPO market, indicating a perception of ineffectiveness. Despite Hong Kong's ranking as the 10th global IPO stock exchange in the first quarter, confidence in China-related assets remains weak, exacerbated by concerns about elevated US interest rates. Sources: Financial Times, CNBC
Technicals Explained:Valuation Multiples & Industry-Specific MultiplesPublic comps is a form of relative valuation, carried out by picking out comparable public companies (as the name suggests) and looking at how they’re being valued relative to a certain measure, usually profits or revenue. Common Multiples Enterprise value/EBIT (EV/EBIT) and enterprise value/EBITDA (EV/EBITDA) are the most common valuation multiples, for convenience and comparability. The former approximates how valuable a company is relative to its income from business operations, while the latter approximates value relative to operational cash flow. Since depreciation and amortization are taken into account in EV/EBIT, it is most useful for industries where capital expenditure is important. Price per share/Earnings per share (P/E) is a common ratio to show valuation in relation to after-tax profits, inclusive of interest income/expense and other non-core business activities. This ratio is most relevant for financial institutions, though it can be distorted by non-cash charges, capital structure, and tax rates.
So far, all of the multiples discussed have been profitability multiples but revenue multiples, measuring how valuable a firm is relative to its net sales, and book value multiples, measuring how valuable a firm is relative to its balance sheet can also be used. An example of a revenue multiple is enterprise value/revenue and price per share/book value per share (P/BV) is a book value multiple.
As a note, equity value is used in the numerator when the denominator is levered, i.e. interest income/expense has been taken into account. More commonly, in the case where interest hasn’t been included, enterprise value will be used. This is because equity value only accounts for equity investors, while, by adding net debt and minority interests, enterprise value includes all investors and ‘cares’ about all parts of the capital structure. Industry-Specific Multiples The aforementioned multiples are widely used cross-industry but as we get into the nitty-gritty of how each industry functions, we end up with some pretty interesting multiples – let’s take a look!
Web-based/internet companies, especially if they are pre-revenue, can have valuation multiples based on how much traffic they get, such as EV/unique visitors, EV/pageviews, or EV/subscribers. For social media firms, EV/monthly active users (EV/MAU) is a popular multiple.
The airline industry has a rather well-known industry-specific multiple: EV/EBITDAR (Earnings Before Interest, Tax, Depreciation, Amortisation, and Rent!). The rent is added to normalize for leases, since some airlines own their planes and some lease them. Leasing is considered a form of leverage so, by adding back lease expenses (rent), we are unleveraging and improving comparability. For example, American Airlines’ EV/EBITDAR was 5.13x back in 2019.
Oil and Gas has a range of industry-specific multiples, the most popular being EV/EBITDAX (Earnings Before Interest, Tax, Depreciation, Amortisation, and Exploration Expense). Exploration expense is added back for the sake of normalization and comparability, since some companies capitalize their exploration expenses while others expense them. Capitalizing refers to putting it on the balance sheet rather than showing it as an expense on the income statement. Other multiples include EV/production, EV/proved reserves, etc., and are relatively self-explanatory.
Woman of the Month:Ginni RomettyThis month’s woman of the month is Virginia, Ginni, Rometty.She used to be the chairman, president and CEO of IBM and was the first woman to hold such position at IBM. Ginni graduated from Northwestern University in 1979 where she received a degree in computer science and electrical engineering.After graduation, she joined General Motors and shortly after, in 1981, she joined IBM in a technical role. After a few year, she shifted to a sales role and took on more and more responsibility. She became particularly known for her successful management during the integration of PricewaterhouseCoopers IT consulting business to IBM. In 2012, Rometty made history by becoming the first female CEO of IBM, a role she held until 2020. During her tenure, she spearheaded IBM's transformation into a leading player in cloud computing, artificial intelligence, and data analytics. Her visionary leadership and strategic initiatives propelled IBM into new frontiers of innovation and positioned the company as a key player in the tech industry. Beyond her role at IBM, Rometty is a prominent voice in the global business community. She frequently shares her perspectives on the intersection of technology and finance through media appearances, keynote speeches, and interviews, offering invaluable insights into the future of industries and economies.
WiF Recommends |
"Thoughts on the Market" is Morgan Stanley’s daily financial podcast, featuring perspectives from leaders within Morgan Stanley and their takes on the forces shaping markets today. I.e: U.S. EQUITIES: NO LANDING IN SIGHT Preqin Ltd. is an investment data company that provides financial data and insight on the alternative assets market, as well as tools to support investment in alternatives. The platform covers are: private equity, venture capital, hedge funds, private debt, real estate, infrastructure, natural resources and secondaries. IRIS+ is the system for impact investors to measure, manage, and optimize their impact. Credible, comparable impact data are needed to inform impact investment decisions and drive greater impact results. |
What’s next?As the second semester continues, we look forward to networking events, weekly workshops, and, as always, honing our skills and knowledge in the financial area. Follow us on Instagram to catch all the action, including some really cool financial quizzes and the latest news on WiF. We're super excited about this season and can't wait to celebrate another Christmas with you all! |
Comments