12 ★ FINANCIAL TIMES Thursday19 September 2019
Try as they might, authoritarians
always struggle to kick the habit. Mao’s
ill-fated “Hundred Flowers” free
speech experiment springs to mind.
Citic Securities’ acquisition ofCLSA
is another example. The Chinese
investment bank recently pressured
the Hong Kong brokerage toquit
offices wned byo Swire, a property
group that China dislikes.
Independent thinking, one of the
attributes that attracted Citic to CLSA,
must be getting harder there.
CLSA was set up by expats whose
punchy research and lively events
made the broker popular with foreign
investors and journalists. But the brand
has been weakened by rows with Citic
and an exodus of vital staff. Revenues
have been hit by the EU’s Mifid II
regulations, which have reduced
spending on research.
Citic had once hoped to become the
Goldman Sachs f China, and boughto
CLSA as a springboard for overseas
expansion. But Citic has found that it
does not need to be a Goldman clone to
be profitable. As China’s dominant
investment bank, it is the main
beneficiary of the government’s capital
markets reforms. The mixed
ownership policy, which allows private
investment into state-owned
companies, has meant a flurry of
acquisitions. This has boosted Citic’s
investment banking revenues.
It recently underwrote more than a
tenth of all public offerings on Star
Market, China’s new tech exchange.
Listing fees pushed Citic’s profits up
16 per cent to Rmb6.45bn ($911m) in
the first half. Returns on investments
in tech shares and a broader equities
portfolio rose a quarter. Citic’s stock is
up 19 per cent this year.
As a Hong Kong brokerage, CLSA
risks becoming a political liability
rather than a strategic asset for Citic.
CLSA analysts must now be thinking
carefully before placing sell ratings on
Chinese companies. Their profession is
already fraught with conflicts of
They could do without an extra one.
Drones can cut last-mile delivery costs
from a few dollars to a few cents. They
can be used to inspect hard-to-reach
assets such as pipelines and to map
thousands of square miles of land.
Venture capitalists have invested
$2.6bn in drone groups in the past
seven years, says aerospace analysis
firm Teal Group.
In theory, the sky should be full of
unmanned aerial vehicles. Yet they are
still the preserve of hobbyists and the
military. Thesticking points are public
appetite and restrictive regulation.
Commercial drone registrations are
outpacing non-commercial and could
triple in the next four years, says the
Federal Aviation Administration. But
in the US, a remote pilot certificate is
required to fly drones. They cannot
operate over people or at a height
above 400ft. Such limits are proving
difficult for start-ups to work around.
Airfare aised more than $100mr
before shutting last year.3D Robotics
in California lost its fight against
cheaper hardware drone makers in
China and refocused on software.
No US company can match the huge
scale of China’s Shenzhen-based drone
makerDJI. It has three-quarters of the
world market, according to Skylogic
Research. US companies interested in
using drones largely opt to customise
DJI models. By 2024 the commercial
drone market should reach $17bn, a
report from Global Market Insights
says. But without FAA approval,
company drone use will be limited.
Amazon ade its first commercialm
drone delivery in 2016 but customers
await a national rollout.
Theansweristo focus on good causes.
Adults in areas with poor transport are
an appealing group for air elivery.d
Who would object to the delivery of
life-saving remedies or organs?UPS ash
tested medical sample delivery.
Zipline, the California robotics start-
up that transports blood and vaccines
in Rwanda and Ghana, has been valued
at more than $1bn. These drones,
offering clear benefits, are a good place
to start for mainstream acceptance.
Profits warnings come in four sizes:
small, medium, large andFedEx.
The US logistics giant hastaken an
axe t o its earnings forecast. It said that
full year adjusted profits could fall as
much as 25 per cent below its previous
target. The cut is the equivalent of a
$1.3bn reduction to last year’s adjusted
Investors are no strangers to bad
news from FedEx. America’s trade war
with China, weakening global growth, a
split with customer-turned-competitor
Amazon nd higher operating costsa
have all taken their toll on the business
in recent quarters.
Even so, the magnitude of Tuesday’s
cut, coming just three months after the
target was first issued, and with hreet
quarters left to the current year, was a
shock. The market responded by
knocking the stock 14 per cent lower
yesterday. It is FedEx’s biggest one-day
sell-off since December 2008.
FedEx was quick to blame
macroeconomic woes. But a much
milder 1.8 per cent decline in the
shares of rivalUPS uggests that FedExs
has itself to blame. FedEx bet big in
2016 with the €4.4bn acquisition of
Dutch shipping companyTNT Express.
Three years on, it is still trying to
combine the business into its
operations. A cyber attack on TNT in
2017 that drove away customers and
higher costs did not help. Integration
costs are now expected to total $1.7bn
through fiscal 2021, more than twice
that forecast just two years ago.
The financial drain has in turn left
FedEx in a weaker position to navigate
a global slowdown and cash in on
surging ecommerce volumes.
Tuesday’s sell-off puts FedEx shares
at 11 times forward earnings, below its
five-year average of 15 times and a
quarter below UPS. Perhaps a buying
opportunity, but Lex is not convinced.
Holiday peak shipping season is just
around the corner. Amazon’s push into
parcel delivery means competition will
get stiffer. Fuel costs are rising. FedEx
needs to deliver its promises as reliably
as its workers deliver parcels.
Patriotic heritage is the first resort of
the would-be bid blocker. Similarities
between the founder ofCobham nda
fictional pilot Biggles, jokily evoked by
Lex, are cited seriously elsewhere.
Critics say US private equity group
Advent should not buy the UK defence
group for £4bn. As predicted, the UK
government is taking a closer interest:
it has ordered areviewof the takeover
on national security grounds.
Alan Cobham as no wartime ace.w
His real legacy — world-beating
technology for refuelling warplanes in
flight — should matter more to the
government.Advent ould probablyc
sell this business to a US defence group
in a few years, as part of a break-up.
The UK should forestall an
unconditional sale. Little Englanders
believe British companies may buy
abroad but never be bought themselves.
Free market flat-earthers think
everything is for sale at a high enough
price. Neither argument should sway
ministers. Subtler issues are involved.
Cobham’s refuelling systems, funded
by the UK military, have been
developed over decades and contribute
to the UK’s independent defence
capability. The government should
have qualms about a first step towards
their purchase by a foreign rival.
But Cobham operates numerous
other businesses. More than 90 per
cent of votes cast by its owners backed
the Advent deal. The buyout group is
offering a hefty cash premium, even
judged against three-month, one-year
and three-year averages.
Ministers should permit the deal
with an important stipulation. The
refuelling arm, its intellectual property
and some other defence businesses
must stay in the UK. The model would
be the US defence unit ofBAE Systems.
This operates happily enough on an
arm’s length basis.
The mission systems division, of
which refuelling is a part, accounts for
just one-third of Cobham’s total value,
or £1.3bn. Advent is paying a fair price
for a poorly managed company.
Financial engineering is its speciality.
It can accommodate guarantees to
government, just asMelrose id ind
buyingGKN. The real farce is not
ministers scrambling in response to a
strafing by fans of Biggles in the
royal air farce
financial press. It is a regime where
serious assessment of threats to
competition and the UK defence
industry occurs only when there
happens to be a takeover. “Poor show,
chaps!” as Biggles would have put it.
No. 16,276 Set by NEO
1 Bizarre eponym worked for
lad on warship (6,6)
8 German rock singer teaching
the French one (7)
9 Girl is delayed coming to
king’s monument (7)
11 Regular college class (7)
12 Fail to draw positive
conclusion in Dante’s work?
13 Share hole where fool
accommodates fifty (5)
14 Spell-check? (4-5)
16 Transported via Gate 4? (9)
19 Take action to receive credit in
Bolivian city (5)
21 Complaint setter will put to
23 Aristotle so thought to
contain kingdom (7)
24 Yielded to pressure about
wildly excessive dance (7)
25 Mock one worried about
educational establishment (7)
26 All-male hike excluding
absolutely no-one? (5,3,4)
1 Not complete in showing bias
2 Reception FT compilers
attend, consuming litres (7)
3 Mysterious magnetic variation
around island (9)
4 Oil sprinkled on second radish
5 Necessary end with fuel
6 Saying sliced pie good with
7 Make one joyous sound about
another killing (12)
10 Campanologists should be up
to speed (4,3,5)
15 Meat cut from prize animal (9)
17 Mediterranean metropolis has
a live TV broadcast (3,4)
18 American with risk to run as
19 Endless fuss in the main
poetic structure (7)
20 Platform elevated with two-
way struts? (7)
22 Pressing need perhaps to
have small animals harnessed
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Lex on the web
For notes on today’s breaking
stories go towww.ft.com/lex
Under savvy bossRemo Ruffini,
Moncler as swollen as dramaticallyh
as its puffiest coats. Between 2003
and 2018, the jacket maker increased
sales at a remarkable 24 per cent
compound annual rate.
Yesterday, shares fell 6 per cent
after Mr Ruffini voiced caution about
the impact of Hong Kong unrest.
They have lagged behind the MSCI
world luxury index by 15 percentage
points over six months. Might the era
of hot sales from warm coats be
coming to an end?
Investors should not overreact.
Hong Kong represents 6 per cent of
Moncler’s sales, less than many peers.
Mr Ruffini said that he hoped the
market’s growth expectations would
be achievable. He is not the first
luxury boss to warn that Hong Kong
protests would take a toll.Tiffany idd
so last month. Swiss watch exports
have been weak. Shares inSwatch nda
Richemont ave been hit.h
The bigger question is whether
Moncler can sustain — and expand
beyond — its niche. At its 2013 IPO,
many investors were sceptical. But it
has successfully, if selectively,
expanded into complementary
Shoes and knitwear ranges have
outperformed. Meanwhile, its core
products continue to appeal. In
February, the Financial Times
described its “poetic” puffa jackets as
some of the most breathtaking
creations in Milan.
This year’s share price weakness
then provides an opportunity to
invest. At 23 times next year’s
earnings, it trades below the 10-year
average. Hardly cheap.
Then again the luxury sector
receives a sizeable premium.
This group trades at a valuation
68 per cent above that of the MSCI
Europe index, well up on the 42 per
cent historical average premium,
nly a few purveyors will deliverO
the growth to justify that. Moncler
has a good chance of being one of
those. Its 29 per cent operating profit
margin is among the highest in the
industry, allowing it to reinvest
amply in its business.
That should ensure that it does not
run out of puff.
Moncler is very profitable
Operating profit margin ()
Moncler’s HK exposure less than that of rivals
Hong Kong (as of sales)
Sources: UBS; S&P CIQ; Refinitiv
Moncler shares have performed
strongly until recently
Moncler share price relative to MSCI
World Apparel & Luxury Goods index (rebased)
Moncler: cover story
Italian luxury business Moncler is among the brands likely to be affected by the street protests in Hong
Kong. The company’s shares declined yesterday, extending their recent underperformance. However, the
group remains one of the most profitable in the sector.