Financial Times Europe - 13.11.2019

10 ★ FINANCIAL TIMES Wednesday13 November 2019

The stock market rates shares in

telecoms infrastructure groups more

highly than telecoms operators. Could

that gap narrow?Xavier Niel ertainlyc

thinks so. The French entrepreneur is

planningto buy p to a fifth of mobileu

and broadband groupIliad.

It is a shrewd bet. Companies such as

Cellnex, a Spanish mobile phone tower

group, have soared in value.

Bullishness on infrastructure could

rub off on the shares of telecoms

operators too.

r Niel already owns 53 per cent ofM

Iliad. He has announced a €1.4bn plan

to buy an extra chunk of shares. This

will mean an Iliad equity offering of

11.7m shares, which he will fully

underwrite, to buy the same amount

back. The likely result is that Mr Niel

will wind up with most of the stake at

€120 per share, well up on the previous

day’s close of €95.

Mr Niel evidently hopes that the

shares will re-rate for longer than the

period of the offer. Others can

participate or watch and wait. No

dilution will ensue. Iliad’s share price

leapt 18 per cent on the day.

A blended price for the tranche of

shares covered by the offer and the

remaining free float is €105 per share.

A closing price of about €114 suggested

the market approved. Even better,

Iliad’s dividend will rise 2.5 times to

€2.6 per share, though that will mean

only a 2.5 per cent yield at the buyback

price.

Iliad can easily pay for the dividend

increase, worth €90m, with internal

cash flow. By the end of this year, it will

also get hefty net debt equivalent to 3.

times estimated ebitda down by a

third. It will book the €2bn of cash it

received for selling towers in France

and Italy to Cellnex.

Mr Niel’s bravado was necessary.

Iliad’s valuation fell to five-year lows

this spring, as did that of rivals such

as Vodafone.

The latter has plans to float all its

Iliad/telecoms:

match me if you can

phone towers. Expect investors to

warm to the infrastructure owners, the

telecoms operators, too.

Discounters are running rings around

traditional retailers. But yesterday it

was the turn of UK cut-price variety

retailerB&M o take a pounding. Itst

shares opened down 8 per cent, after

poor half-year results and a big

writedown on its German business.

That reaction looks overdone, even if

Jawoll, the German chain bought in

2014, looks a mess.

Operating costs soared, and sales

were hit by the late arrival of seasonal

B&M:

Grinch resistant

products. B&M will now conduct a

strategic review.

A retreat might come as a relief to

investors, especially as almost all the

German assets have now been written

down. The task of turning the business

round is great. Having traditionally

relied on domestic suppliers delivering

direct to stores, Jawoll’s distribution

centre struggled to handle containers

from Asia. French businessBabou,

which B&M bought in October 2018 for

€94m, has rosier prospects because its

distribution hubs are better configured.

&M’s German travails are a setbackB

to its Europe ambitions. These inspired

talk by B&M of replicating the success

of the US’sDollar General hen itw

floated in 2014. Back then, B&M was

more highly rated than the US group it

wanted to ape. Over the past year their

positions have reversed. B&M shares

are at 18 times forward earnings, a 15

per cent discount to their historic

average. Its latest stumble gives

investors a chance to buy in cheaply.

B&M is a strong, cash-generative

business and its home market’s growth

potential protects it from the worst

effects of foreign failures. B&M could

expand its estate of 645 UK stores by

half as many again. Other retailers’

woes reduces competition and offers

the chance to buy cut-price real estate.

The cheap and cheerful business is

less exposed to waning consumer

confidence than some rivals. Yes, the

UK’s “Grinch poll” could have an

impact; the general election will be in

the year’s third busiest week. But with

four-fifths of its goods costing less than

£20, B&M is well placed to cope.

Natural gas consumption will have

grown by more than 40 per cent by

2050, outpacing otherfossil fuels, says

the US Energy Information Agency.

That idea does not please worrywarts

at the European Investment Bank. The

multilateral lender could soon stop

funding natural gas infrastructure

projects; this week it willeye tightening

lending standards for such projects.

It would be a mistake to clamp down.

Natural gas has big drawbacks but it si

a stepping stone between dirtier

hydrocarbons and cleaner renewables.

The EIB could tighten its policy on CO

emissions. This wouldslash its 2015

limit from 550g of CO2 per kilowatt

hour generated to 250g. Greens dislike

that natural gas is largely composed of

methane. This generates half the CO

of coal when burnt. When leaked, it

contributes heavily to global warming.

Tougher standards would prevent

the EIB from lending to natural gas

pipelines and efficient gas-fired power

plants. The current higher limit has

already prevented some lending to

geothermal projects, the EIB admits.

The EIB lends less than €2bn per

yearfor natural gas infrastructure; that

can be covered from other sources.

Nevertheless, raising the threshold

would send a bad signal toEU states

that are EIB shareholders. Several are

trying to wean themselves off dirty

coal, Germany and Poland included.

Both rely more on coalthan they

should. Although coal is declining in

Germany, it still generates 35 per cent

of electricity. Renewables have grown

rapidly here, but CO2 emissions have

fallen less than 5 per cent in the past

decade. Coal fuels 80 per cent of

Poland’s power. Green energy cannot

solve its needs overnight.Gas will be

needed as buffer in both countries.

Oil companies claim spurious planet-

friendly credentials by cutting

operational emissions even as they tap

new pollutants. Deep greens despise

everything except wind and solar.

The centre ground is a lonely place.

But it is where policymakers must

pitch their camp.

EIB/natural gas:

scorched earth policy

Disney’s streaming service aunchesl
this week with all the hoopla of a Magic
Kingdom parade. Chief executiveBob
Iger laims Disney+ is not only a newc
era for the company but a statement
about the future of entertainment.
Hyperbolic maybe, but also accurate.
Just as cable once upended network
television, digital subscription services
have spoiled the market for pay-TV.
Operating income at Disney’s media
networks unit was falling year on year
when in 2017 it declared a plan to move
from selling content to distributors in
favour of selling to consumers. It has
been rewarded for turning over its
business model with a share price rise.
Disney’s vast back catalogue makes it
the most credible challenger toNetflix
in the great streaming wars of 2019. Its
family friendly content will be an easy
sell to buyers with children. Other
content taps into fan culture.The
Mandalorian, Disney’s flashy new
tentpole series, exists in theStar Wars
universe. Characters from the popular
Marvel superhero franchise will appear
in TV shows. At $6.99 per month the
service is also cheaper than Netflix and
will be given away for free to customers
of Verizon’s unlimited phone plans —
equal to about 17m households.
Still, taking on Netflix’s 158m
subscribers is going to be expensive.
Disney has already hacked away at
operating income as costs rise ahead of
the launch. It has spent $71bn buying
much of20th Century Fox or contentf
and $2.6bn buying majority control of
tech companyBAMTech o create at
slick digital service. Operating losses
from streaming services will squeeze
group profits, even if profits in units
like theme parks rise. Billions of dollars
are being poured into new content by
Apple, Netflix,Amazon nda AT&T.
Disney may have popular films and
shows but it is not averse to buying
original content. In the past quarter
group profits of $785m were down 66
per cent from a year ago.
Disney thinks that streaming will be
profitable in 2024 — by which time
Disney+ will have 90m subscribers.
Even in a bloated market that looks
possible, although it is also unclear how
much the company will need to
cannibalise its own users to feed the
new service. Still, Mr Iger’s golden run

Disney:

Bob hope

of bets inspire confidence.Pixar

reinvigorated Disney’s animation.

Marvel rovided it the highest-grossingp

film of all time. Disney+ should make

the company into one of the biggest

streaming services in the world.

CROSSWORD

No. 16,323 Set by AARDVARK

  

 



 





 



 

 



 

 

JOTTER PAD

ACROSS

1 Urban-dweller’s private during

relationship (6)

4 Exclusive group of people

governing stylish private hospital

(8)

9 Stir partly created by one

Kawasaki doing a U-turn (6)

10 Like a particular sausage link

chopped into four quarters (8)

12 Take action against unknown in

mid-50s, the centre of a crisis (4)

13 Group of people trace books on

criminal (10)

15 Elvis favourite? A tune played in

empty pub, say (6,6)

18 English actor moving centre stage,

finally, to make an impression (7,5)

21 Toss-up just before tea, then next

cricket event starts (4,6)

22 Ornamental stone jars dear with

fifty percent off (4)

24 Amount of energy left over,

playing football perhaps in

Scottish outfit (8)

25 Laugh loudly, gorging stuffed

prawns in essence repeatedly (6)

26 Type of sugar daughter passed on

to recycle store (8)

27 Olympic venue to be completed

within two years, son recalled (6)

DOWN

1 Some of church, having time,

organised Harvest Festival

season? (8)

2 Robust male tucking into pasty

needs salt (8)

3 Regularly nibbled by goat (4)

5 Barking at Cecil, akita wants large

amount of water (4,8)

6 Plain-spoken, unfinished sonnet

twice broadcast (2-8)

7 Maybe member of crocodile

viewable by all in unusual

environment (6)

8 Fake European art’s strangely

variable (6)

11 Errors serving large drink terribly

fast inhibiting university student

(6,6)

14 Bedding, light, and the rest, taken

through Channel port (5,5)

16 Air soldier with Forces getting in

fuel (8)

17 Swerve to maintain intense

turning – in this sport? (8)

19 Having seen cuckoo, Edward

behaved like a twitcher? (6)

20 Bent sports official on side of

Liverpool once (6)

23 Discussed crucial landing-place (4)

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Solution 16,

Lex on the web

For notes on today’s breaking

stories go towww.ft.com/lex

Twitter: FTLex@

Starlings gather in murmurs and

geese in gaggles. Corporate financiers

flocking to promote big share sales

need a collective noun. A “validation

of investment bankers” perhaps?

Clients find comfort in super-

syndicates.Saudi Aramco, for

example, has hired 25 banks (plus

three “special advisers”) to get the

world’s biggest-ever initial public

offering off the ground.

The banks could have $60bn of

equity to price, underwrite and

distribute, at upper estimates. Still,

most of them are well versed in

working together. Uber retained 29

banks for its float. Alibaba came to

market in 2014 with 35 little helpers.

Issuers expect a Goldilocks

valuation: hot but not so hot as to

jeopardise later performance. In

banking, it is tacitly assumed that big

syndicates foster overpricing. Look at

Uber, down 40 per cent since IPO, or

Chinese smartphone companyXiaomi,

now at half its IPO price.

Big syndicates mean less

independent research. Even after the

deal, researchers are often cannily in

lock step with salespeople. No analyst

has a sell onAlibaba. Just one out of 38

covered by Bloomberg is bearish on

cash-burning Uber.Morgan Stanley—

to take one example — stated at the

end of a research report that it had

underweight/sell ratings on just 12 per

cent of its investment banking clients.

Nor do banks reap big gains from big

syndicates. Sharing the glory also

means salami slicing the spoils. For

many, the pot is shrinking in any

case. The average Hong Kong and

European IPO paid out less this year

in fees compared with 2018,

according to Dealogic. All are below

the glory year of 2011.

Tech groupsSpotify nda Slack

avoided paying fat fees by listing

shares directly. US fintech company

Axial ffers a so-called “Tinder foro

deals”.Goldman Sachs’ Deal Link

interface now automates many of the

127 steps in an IPO.

Four centuries ago, the Dutch East

India Company became the first

company with a public listing. The

process now needs an overhaul. It

should not take 35 banks to help you

screw in a lightbulb, then

compliment your choice of wattage.

FT graphic Sources: FT research; Dealogic

IPO banker numbers and share price moves

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Spotify AlibabaSoftBank

mobile

Glencore WH

Group

Xiaomi Uber

Share price change 

IPO day

Number of

bookrunners

Advisory fees by region

Average fees per bn IPO (m)









    

US

Hong Kong

Europe

Direct listing

 months/latest

IPOs: monstrous regiments of underwriters

Issuers have a propensity to bring hordes of investment bankers on board to launch IPOs. Yet often the

added advice has an inverse correlation to share performance, as was demonstrated in the Uber listing.

In the meantime, advisory fees have gone nowhere for the past decade or so.

NOVEMBER 13 2019 Section:FrontBack Time: 11/201912/ - 18:18 User:nick.miller Page Name:1BACK, Part,Page,Edition:EUR, 10, 1