While the focus of world attention is on the collapse of the most crowded trade on global stock markets, tech, other businesses continue with news, deals, financings, and matters to report.
Bank of America-Merrill Lynch on Tuesday, reported that at the close of March 15, fund managers it surveyed were 38% overweight in tech stocks, notably the FAANG and the BATs. The FAANG stocks are Facebook, Amazon, Apple, Netflix, and Alphabet, formerly known as Google. The BAT stocks are Baidu, Alibaba, and Tencent. While the former are still suffering as FB dropped another 2.8% earlier this week (in part because insiders sold the stock heavily, notably COO Sheryl Sandberg), the Chinese shares are all are in recovery mode. The fund managers following the herd had $579 bn in assets under management. By some measures, FB was growing revenue faster than profits and therefore its stock was “cheap”. Unlike Amazon whose p/e ratio was 300, Facebook’s was “only” 40x. But last Sept. CEO Mark Zuckerberg began an 18-mo program of selling up to 75 mn FB shares over the following 18 months, to raise as much as $13 bn. His target may be harder to reach now that FB has lost $55 bn in value over the last two days.
The whole sector, however, is priced for perfection. Analyst Richard Suttmeier says in a report he put out on Tuesday that the tech reversal is a major warning that technology leadership is fading. He is particularly worried about the Russell 2000 small cap ETF which had a p/e ratio of 121.56 earlier this month.
The worst hit tech share globally was Britain’s MicroFocus which we owned the ADRs of in the late 20th century. Then MICFY (its then ticker symbol) specialized in bringing legacy computer programs into a more modern mode to be accessed by newer computers, a simple and appealing business. Then NYSE-MFGP as it now trades went heavily into diversification and global acquisitions, and wound up buying US Hewlett Packard Enterprises along with the HPE tarbaby Autonomy, a UK software firm whose management was accused of misrepresenting its sales and profits as HPE wrote down its 2011 purchase. It paid $8l8 bn for HPE + Autonomy and then set out to create a new IT system.
Just because people speak English you cannot assume that they are honest. On Monday, its CEO resigned and its stock fell 45%. Its Executive Chairman, Kevin Loosemore (I did not make this name up) blamed the chaos on cultural differences with HPE and problems motivating sales staff. Mr. Loosemore had the idea that the HPE buy which quintupled the size of MicroFocus could cut costs and boost operating margins.
British brokers plus JP Morgan and Canaccord in America are scrambling to reclassify MicroFocus with the trend to call it hold or neutral while cutting their target price from ~£19-25 to £9-14. Remarkably they did not cut their targets earlier. So we are looking at some rating changes in our portfolio.
Pres. Trump faces another Bimbo Eruption by another recipient of hush money, this time from the owner of The National Enquirer who has had a long Bromance with The Donald, alongside Trump’s lawyer. She is called Karen McDougal and got $150,000 which is more than his lawyer paid to silence Stepanie Clifford, AKA Stormy Daniels. These payments made in 2016 may well count as illegal campaign contributions, according to Common Cause, a watchdog group.
Finance and Deals
*Allianz SE, a German insurance and fund management outfit (which controls PIMCO) and Tencent of Hong Kong will lead a financing round for a new online German bank, N26 which has already picked up the equivalent of $160 mn along with 850,00 customers in 17 European countries. It is part of the German Silicium Tal Fintech sector centered on Berlin but which is expanding to the US and the UK. AZSEY will get a board seat for its Allianz X digital investment unit.