March 2024
- Bocconi Students Women in Finance
- Mar 25
- 11 min read
Updated: Apr 11
 Newsletter March 2024
March 2024:March, which is also known as Women’s History Month, is a period to reflect on the accomplishments, strength, and courage of the women around us. To celebrate, WiF organized various meetings and events, ranging from educational workshops to fun bonding activities. In this edition of our newsletter, we’re excited to share our experiences and this month’s insights!
March Recap
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News Recap
Interest rates, the path toward rates cuts The ECB has started increasing its interest rates in July 2022. The interest rate stayed unchanged since last fall and investors are pricing in cuts before the second half of the year. By increasing interest rates the ECB wanted to counter the inflation mostly caused by the Russian invasion of Ukraine. Current data and forecasts show that this path was the correct one to take as inflation is slowly coming down with HICP reaching 3% in February 2024. Forecasts currently predict that inflation will reach the target of 2% in 2026. However, keeping interest rates high takes its toll on growth. Overall growth in the eurozone is currently stagnant but if the ECB keeps its interest rate too high, the risk would be to have a negative growth and go into recession. Therefore investors think the ECB is going to cut the interest rate from June 2024. Additionally, most recently French CPI eased below 3% for the first time in two and half years and Italian CPI printed below expectation at 1.3% instead of the 1.5% expectation. These numbers are encouraging signs that the ECB will lower its interest rates sooner rather than later.In the US and the UK, their respective central banks decided to follow a similar strategy and see positive results regarding their respective inflation, the market also expects that they will cut their rates within the next few meetings. AI in the global stock market The global stock market just had its best quarterly performance in five years and has largely outpaced bonds. AI-related firms are among the top performers, with the semiconductor company NVIDIA alone gaining $1 billion in market value. This year the MSCI index increased by 7.7%.This equity rally driven by tech is not only concentrated in Wall Street anymore but visible all around the world. Countries are catching up on AI technology and are confident in taking more risks to invest in Tech.
Dealflows & IPOs this MonthGlobal M&A has bounced back in Q1 after a downbeat 2023. Total M&A volumes globally climbed 30% to about $755.1bn, according to the most recent data from Dealogic with the number of transactions worth more than $10bn jumping to 14, compared with five during the same period last year.
Liberty Media to acquire Dorna Sports Formula One owner Liberty Media is in exclusive talks to buy the company that owns MotoGP for more than €4bn, in a deal that would unite the elite car and motorcycle racing series, according to people familiar with the matter. Liberty, which is chaired by telecoms and entertainment billionaire John Malone, is poised to agree the takeover of Dorna Sports after seeing off a rival bid from TKO, the sports and entertainment group run by Hollywood powerbroker Ari Emanuel. Madrid-based Dorna represents a rare opportunity to buy into a global sport with lucrative commercial rights. Dorna promotes several competitions, including the Superbike World Championship and an electric biking series called MotoE. It organizes 251 races a year in 20 countries. Private equity firm CVC Capital Partners once owned both F1 and MotoGP but was forced to sell the motorcycle series in 2006 as a condition of buying F1 after EU competition regulators raised concerns. CVC sold F1 to Liberty in 2017 in a deal worth $8bn. Liberty’s offer values Dorna at more than €4bn, including debt. An agreement is close but an announcement could be pushed into the beginning of April. F1’s operating profit increased by 64 percent to $392mn in 2023 from a year earlier, as revenues surged to $3.2bn from $2.5bn. Dorna’s revenues totaled €483mn in 2023. Bridgepoint, which has been a Dorna shareholder for 18 years, owns about 40 percent of the business that it bought at an enterprise value of €550mn in 2006. The CPPIB bought its 39 percent stake in Dorna from Bridgepoint in 2012. Buying MotoGP would give Liberty Media, led by chief executive Greg Maffei, the chance to prove that its success in growing the popularity of F1 was not a one-off.
Digital World Acquisition: Trump Media & Technology Group Corp.'s SPAC Shareholders of Digital World Acquisition Corp., a publicly traded shell company, approved a merger deal with Trump's media business in a vote on Friday. This approval means that Trump Media & Technology Group, whose flagship product is the social networking site Truth Social, has started trading on the Nasdaq stock market. Trump is poised to own the majority of the merged company - nearly 79 million shares. The approval comes at a time when the presumptive Republican presidential nominee is engaged in his most expensive legal battle to date: a $454 million judgment in a fraud lawsuit. On its first day of trading as a public company, Trump’s social media startup saw a 16% increase in stock value, following the most high-profile blank-check deal in years, which added billions to his fortune. Shares of Trump Media & Technology Group Corp. surged by as much as 59% before reducing gains, closing at $57.99 each on Tuesday. The trading following the merger's completion with Digital World Acquisition Corp. values the unprofitable company at $7.9 billion. This marks a stunning stock surge and offers a potential financial boon for Trump amid increasing legal and financial challenges.
Persian Gulf's IPOs: Parkin Co. Parkin Co. PJSC’s shares surged 31% in its Dubai stock market debut, following a $429 million IPO that attracted an unprecedented level of interest. The company has committed to distributing dividends equivalent to 100% of either its profit or free cash flow to equity, whichever is greater. On its first trading day, the shares of Dubai’s public parking operator opened at 2.73 dirhams, a notable increase from the IPO price of 2.10 dirhams. The offering was oversubscribed by 165 times, drawing $71 billion in bids - a record for Dubai - and highlighting the strong ongoing demand for new share offerings in the Persian Gulf region. In this IPO, the Dubai Investment Fund offloaded 749.7 million shares, translating to a 25% ownership stake. The region is known for its robust post-IPO performance, with companies typically offering investors an average return of 40%, thereby attracting international interest in Gulf-based IPOs. This investor enthusiasm is supported by significant government reforms, especially in the UAE and Saudi Arabia, which are currently undergoing a wave of privatization. The Gulf region is anticipating nearly 30 IPOs this year. Among them, Lulu Group is reportedly considering a $1 billion dual listing in Abu Dhabi and Riyadh. Additionally, Spinneys Dubai, which operates the supermarket chain in the UAE and Oman, is expected to launch its IPO in 2024.Sources: TheGlobalTreasurer, CNBC, Reuters, Bloomberg
Analysis of the Markets
The return to US corporate bonds Investors are rushing to get in on US corporate bonds, following an indication by the Federal Reserve that a series of rate cuts this year can be expected. So far in 2024, inflows into the US corporate bond markets have reached $22.8 bn, pushing up prices and compressing spreads to a two-year low. These inflows mark the first positive start to the year since 2019, which can be largely attributed to the Fed’s signal in December that it will begin lowering rates, encouraging investors to switch from the less risky products held in the volatile market of the past two years back to credit funds.
Reddit shares skyrocket following IPO On Thursday the 21st of March, Reddit [RDDT] began trading on the NYSE, having priced its IPO at $34 per share. Within 16 minutes, the stock rose almost 60% to $54 per share and by the end of the first day of trading, the stock was up 48%. Less than a week later, the share price has broken the $60 mark, hovering at around $65 a share at the time of writing (26/03/2024 14:37). This could be the success the IPO market needs to revive after a two-year drought, further strengthened by the US stock market rally, with the S&P 500 reaching a record high. Signs are already pointing in this direction, with the value of shares sold this year so far being more than triple what it was in the past two years.
Yen depreciates further Following a period of rising wages and sustained inflation, a possible testament to the success of Japan’s subzero rates, the Bank of Japan has raised rates to 0-0.1%, the first increase in 17 years. This change should have strengthened the yen, but the Japanese currency has actually fallen further. In 2024, the currency has seen rapid depreciation, from 146 against the dollar at the end of January to nearly 150 a month later. When news of the rate hike hit, the yen was sitting in the 149 range, but it has since traded at 151.86 per dollar, its weakest this year – the yen fell more than 1% on the day of the announcement. Factors behind this include the fact that the rate change was well anticipated and priced in, the rates situation abroad means investors can still earn better returns elsewhere, and uncertainty around future rates and policy interventions. Sources: Financial Times, CNBC, Reuters
Technicals Explained:Discount Cash Flow
Discount cash flow (DCF) is one of the main methods of valuation in finance, revealing whether a company’s future cash flows are sufficient to uphold the company and its projects. It is driven by the idea of the time value of money: money today has more worth than that same money tomorrow - cash flows are discounted more as they are received later over time. The main formula for a DCF is the following:
Cash flows are earnings and, or dividends, but there are many items to watch out for when calculating them. If operating income is the starting point of a cash flow, it is important to remember that depreciation is not a cash flow, as well as working capital; however, changes in working capital can be considered as a cash flow, that has to be subtracted. Furthermore, despite depreciation not being a cash flow, it affects the taxes paid, which is also a cash flow. Cost of capital Under simple versions of DCF, r is represented by current interest rates, whether nominal or real. The discount rate may be represented by the weighted average cost of capital (WACC), which takes the cost of debt and equity. The cost of debt and equity can be calculated throughout the CAPM model.
Company valuation When valuing a company one must calculate the present value of cash flows and terminal value, making up the enterprise value from which net debt is subtracted, giving rise to equity value. Equity beta is usually accounted for by the share price of the company or other comparable companies' share prices if it is private. With debt beta there are more complications, given there is no public indication of its market value; sometimes risk-free rate is used if a company has a low default probability.
Project valuation When valuing a project, a DCF can be used to find the net present value (NPV), which is the sum of all present cash flows minus the initial investment. A positive NPV implies that the project should be pursued, though often managers do not only rely on NPV to judge a project’s viability. Alongside NPV, the internal rate of return (IRR) can be calculated, which is calculated by equating NPV to 0 and obtaining the rate at which the cash flows permit this condition. If IRR is greater than the discount rate, it is assumed a project should be pursued, but there are many shortcomings to relying just on IRR in reality (ex. multiple IRRs). Furthermore, the project's discount rate for a project must be carefully accounted for, evaluating whether the company's beta can be reliably used in this case (is the project within the same industry), or other company betas are more reliable.
A DCF is useful in providing a base understanding of the investment’s profitability or company's value. It is extremely versatile and can be used for a variety of investments. Nevertheless, a DCF heavily relies on estimates of future cash flows, which can be difficult to obtain especially in unstable environments or new/growth companies. Especially for new companies that predict more cash flows further in the future, the present value will significantly vary based on the calculated WACC, therefore, the sensitivity greatly affects the results. Hence often investors do not rely only on DCF valuations but also include other types of metrics, for company valuations, that may include comparable company analysis or precedent transactions.
Woman of the Month:Cathie WoodCathie Wood is an American financial executive, currently holding the position of founder, CEO, and CIO at Ark Invest. After assuming her role, she became the first female CEO of a major US investment firm. Cathie Wood earned her Bachelor of Science, summa cum laude, in Finance and Economics from the University of Southern California in 1981. Her career began afterwards as an Assistant Economist at The Capital Group in Los Angeles, California.After leaving The Capital Group, Wood spent 18 years at Jennison Associates LLC, where she held various roles, including Chief Economist, Equity Research Analyst, Portfolio Manager, and Director. Afterwards, she co-founded Tupelo Capital Management, a hedge fund that, by 2000, managed approximately $800 million in global thematic strategies. Wood continued her path in the finance world by joining AllianceBernstein, where she held the position for twelve years as CIO of Global Thematic Strategies. However, in 2014, after her proposal for actively managed ETFs was rejected as too risky by AllianceBernstein, Wood went on to found ARK Invest. Despite facing criticism for its performance during challenging times, Wood's ARK Innovation ETF, known as ARKK, emerged as the top-performing global equity fund in 2020 and again led as the best-performing actively traded U.S. diversified ETF in 2023. Throughout her career, Wood has been recognized for her innovative investment strategies and leadership. This widespread recognition includes receiving the “Women in Finance – Outstanding Contribution Award” from Market Media in 2016.
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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! |
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