Footwear and clothing brands face big losses. Taiwanese and South Korean issuers as a guiding star for investors. All crushing power of Lockheed Martin has encountered an indestructible obstacle of antitrust regulators.
Disclaimer: when we talk about, that something has grown, we mean a comparison with the same quarter a year earlier. Since all issuers are from the USA, then all results in dollars. When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
These Boots Are Made for Profit: assess the future financial damage to clothing manufacturers
Logistics consulting company Kearney shared its forecast for North American clothing and footwear brands to lose from logistical problems.. According to Kearney experts, these companies may lose from 9 up to $17 billion of their combined EBITDA in 2022. That's a pretty impressive number., Considering, that one of the giants of the clothing industry - Nike (NYSE: NKE) — annual EBITDA is 8 billion.
The reasons for expecting this are as follows:
- A sharp rise in the cost of raw materials. For example, the price of cotton rose by 40%.
- A sharp increase in the cost of transportation. It's even worse here: the cost of trans-Pacific container shipping increased by as much as 300%, air freight cost 50%, and truck transportation has risen in price "only" by 20%.
- Lack of labor makes it difficult to work in warehouses and logistics hubs.
The most important point is, that all Kearney calculations were made before the spread of the omicron coronavirus strain and the difficulties associated with these. So things can get worse.
Kearney also interviewed business executives about, what are they planning to do, to minimize losses from these problems. The most interesting thing is, what 58% managers plan to greatly simplify the design of their products, to avoid further embarrassment, related to production and delivery.
This confirms our hypothesis, expressed in an idea by Crocs, that the world of an eternal pandemic will be distinguished by the poverty of product selection and the comparative primitiveness of the consumer sphere.
In general, Kearney's revelations do not bode well for clothing brands - so their shareholders should take note of this information..
On the other hand, I would expect an increase in the interest of business leaders in various software solutions, that would allow them to optimize their business, – and for the respective companies it would be a big plus.
Sphere of non-Chinese prosperity: what the success of issuers from South Korea and Taiwan tells us
East Asian markets have seen two unrelated events this week, which have common prerequisites.
Taiwan Semiconductor Silicon Wafer Manufacturer Taiwan Semiconductor Manufacturing (NYSE: TSM) reached the level of capitalization of 600 billion dollars, overtaking the Chinese giants from Alibaba and Tencent, becoming the most valuable company in Asia.
One could say, that this is a simple recognition of the huge achievements of TSM by investors, but, Considering, that, in fact, semiconductor sales are linked to economic cycles, looks weird.
The stock markets have been in a fever this week: investors are just waiting for the economy to slow down. Therefore, pumping TSM is contrary to the direction of investor thought: company, according to the logic of investors, must also suffer, because, in theory, the demand for its goods will fall.
Also this week, electric car battery maker LG Energy Solutions went public in South Korea. (LGES). The company controls approximately 22% your target market, and now it is the second in the world after the Chinese Contemporary Amperex Technology (CATL), which takes 29%.
LGES share offering was to be the largest in the history of Kim Ki-duk's homeland. She planned to raise on the stock exchange as much as 12 trillion won - 11 billion dollars. Interesting, that the expected capitalization of LGES, according to the original plans, was to be greater than the capitalization of the parent organization LG Chem (LGC), from which it was isolated: 70 vs 50 trillion won.
But the results were beyond all expectations.: after the placement of shares, LGES quotes flew into the stratosphere and rose by 68%. In this way, its capitalization reached the level of 118 trillion won - 98.08 billion dollars. There were a lot of people who wanted to participate in the LGES IPO: applications submitted for a total of 12 trillion dollars.
The growth of LGES quotes is connected with the growth of TSM quotes very simply: these are high-tech businesses, located in Asia, but outside China.
Over the past year, Americans have been increasingly putting pressure on Chinese companies.: initiate various investigations and bring them to delisting, blacklist Chinese issuers, impose restrictive measures on the export of high-tech products to China.
One of the goals of bullying Chinese companies is to limit the flow of capital and technology into the Chinese economy.. And one of the fronts of this war against the Chinese economy is the pumping of shares of issuers from the "good" countries of Asia - those, where governments are complementary to Washington. This is a very important point.: thus, the United States, at the head of "progressive mankind", as it were, gives a signal to Chinese companies - you will be friends with the United States, and you will be fine too.
Well, it has a lot of political implications too.: US-friendly countries receive an influx of capital and technology. In this situation, they are unlikely to use their competencies and powers to the detriment of the United States. Anyway, economic and military threat, coming from China, plays a more important role in decision-making by Washington and investors.
Seeing the profitability of TSM and LGES, investors will rush to invest in relevant companies in these countries instead of investing in their Chinese counterparts like CATL.
Non-Chinese companies then spend a significant part of their profits on American needs.: LGES will use the money raised on the exchange to build an electric car battery production in Michigan with General Motors, the total cost of the project is $2.6 billion, and TSM is building a $12 billion plant in Arizona.
If you remember, even GlobalFoundries, a business with feet of clay, ended up receiving generous financial injections and incentives from Western investors simply for, which marked the beginning of the withdrawal of the most important industries for the economy as far as possible from China and as close as possible to developed countries.
In this context, betting on high-tech companies from countries like South Korea, Taiwan, Japan and even India will be quite reasonable. So I would expect, that the exodus of capital from the Chinese markets, initiated at the suggestion of the Americans, will turn into an inflow of money to the exchange of the listed countries.
Didn't take off: regulators keep Aerojet Rocketdyne and Lockheed Martin from being together
Not so long ago, we came up with an investment idea for the shares of the manufacturer of military aerospace products Aerojet Rocketdyne (NYSE: AJRD). Recall the introductory: the company wants to buy another aerospace defense contractor Lockheed Martin (NYSE: LMT), but the deal must first be approved by regulators. And since the approval process was noticeably delayed, then AJRD shares fell well below the company's stated selling price, and we offered to pick them up now in anticipation, that the company will eventually be bought.
But things went a little wrong: United States Federal Trade Commission (FTC) now suing LMT, to prevent it from buying AJRD due to concerns about LMT's growing monopoly in aerospace defense technology. As a result, AJRD shares fell by 12%.
The question arises: what to do next? Really nothing.
If the deal doesn't go through, then you should remember, that AJRD is doing quite well as an independent company. And we had a fallback with a long-term investment, if the sale to LMT does not take place. In this case, the company may even be bought by another company - and this transaction may not cause such rejection from the FTC..
Think, if deal falls through, AJRD will soon announce an activist investor, which will force the management of the company to find a new buyer. Or, at worst, he will demand large dividends, to compensate shareholders for these losses, - and will surely succeed.
And LMT can sue the FTC and even win. So it could still end well. Or will not sue - if he decides, that the litigation is not worth it. But we have already figured out the future prospects of AJRD: they are very good.
