David Fuller and Eoin Treacy's Comment of the Day
Category - General

    How Normal Am I?

    This exercise created by the EU may be of interest. It purports to show you how attractive you are from an AI’s perspective but then concludes by sharing some insights about you. (I won’t spoil the surprise).

    Illumina Falls Most Since May on Outlook for Demand, Grail Costs

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    Illumina has been embroiled in a costly prolonged battle over its acquisition of Grail. In an unusual move, Illumina finalized the Grail purchase in August 2021 despite complaints from regulators in both the US and Europe. Illumina and Grail were warned last month that they risk “hefty fines.” In its earnings report, Illumina said it recognized $609 million in legal contingencies, including an accrual of $453 million during the second quarter for a potential fine.

    “The $8 billion Grail purchase has shifted the story, with multiple antitrust challenges that will play out in 2022,” Bloomberg Intelligence analyst Jonathan Palmer wrote. “These have raised the stakes and shaken confidence.”

    On a call with investors, Chief Executive Officer Francis deSouza gave no indication of backing down from the purchase. Meanwhile, the company expects reduced revenue growth from its core business in the second half of the year. 

    Piper Sandler analyst David Westenberg said the most concerning factor behind Illumina’s guidance cut was deferred lab investments by some users of the company’s DNA sequencing machines, and customers holding less inventory.

    “Some customers experienced supply chain pressures that delayed their lab expansions,” deSouza said on the call. Those who planned to launch new labs or expand existing ones were stymied by supply chain issues, while others are managing capital “more conservatively,” he said. 

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    Bond Traders Dismiss Stock-Market Rally as Misguided Euphoria

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    Strategists at Citigroup Inc., using a mix of spot and forward curves to help construct a predictive model, now say that there’s a greater than 50% chance of a recession over the next year. 

    “It’s a perfect storm now with both sides of the curve causing the inversion, and making it likely to continue,” said Jason Williams, a strategist at the New York-based bank. “Given the strength of the labor market and still high inflation, there’s no reason for the Fed to slow down it’s hiking.”

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    Email of the day on surging electricity prices

    I know you have consistently highlighted the challenges that UK households will experience in relation to their energy bills, and just today they are saying that "typical" households could be paying nearly £600 in January, money that most just can't find. Already consumers are a collective £1.3 billion in arrears on their bills, with an expected 86% hike in the energy cap expected on 1 October.

    But far less is said of the impact on businesses, and on this I can shed some very specific light. I own a small business, an indoor children's play centre. On 1 December last year I renewed my energy supply contract, and faced with an increase then from 15p/kwH to 20p/KwH I opted to take just a 1 year renewal, with gas prices fairly stagnant until then as you know.

    I have been informed today that when I come to renew once more on 1 December, I am going to staring at a tariff of anywhere between 50p/kwh to as much as 89p/kwh. I was also told in no uncertain terms by the 'sales' person at my current supplier, that they are trying to migrate away from small and medium business in this environment, and are deliberately pricing us away. the daily fixed standing charge will move from £83 per month, to potentially as much as £1,000.

    For context, my own energy bill is going to shift from £20k per year to closer to 60k-£70k. This is going to be catastrophic for U.K. businesses, as many will be left in dire straits, unable to keep the lights on, and customers cool (in summer) or sufficiently warm in the winter. So many businesses in the hospitality sector especially are saddled with the burden of Covid "bounce back loans", delayed VAT repayments, and of course huge inflation on input costs with a consumer at breaking point. Business closures = higher unemployment...it is looking particularly dire here in the U.K.

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    BHP talk offtakes with OZ Minerals, returns with $8.4b bid

    This article from the Australian Financial Review may be of interest. Here it is in full:

    The companies' top brass only spoke last Friday, when BHP shot across its non-binding and indicative bid to OZ's Adelaide offices, and asked for six-weeks' due diligence and a friendly board recommended deal.

    Instead of being flattered by the attention, OZ Minerals' board is playing it cool and defensive.

    OZ Minerals' board, advised by Macquarie Capital and Greenhill, is understood to be staunchly against giving BHP a look at its books at a $25 a share offer, reckoning it's both invasive and disruptive to the business. It has said as much to investors in recent days.

    Analysts who have spent the past few days canvassing the OZ Minerals register said the shareholders were on the same page as the board.

    But at what price OZ would be willing to grant BHP due diligence, is pretty much anyone's guess at this point. Citi and Barrenjoey are in BHP's corner.

    What's OZ Minerals worth

    The approach and the retreat were so swift that investors haven't had time to think what the company's worth to a bidder.

    But they are taking heart from three things: that OZ smacked the $25 a share bid really hard (so BHP must be way off mark) and that the two had been talking about offtakes (so BHP's interest isn't just tyrekicking).

    Investors reckon they still need a week or so to come up with a number they reckon would be fair, and OZ's half-year results are due about the same time. But early talk is any suitor wanting to unlock OZ's data room would have to present it with a low-thirties bid.

    The offtake revelations have also revived investors' early read of the approach: that BHP's after better performance for Olympic Dam and its copper operations, but is also thinking strategically about securing nickel concentrate for its WA smelters.

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