Reflections on Investing Strategy During a Persistent Pandemic. Why you need to consider your company's ESG metrics: it affects her ability to get loans. What's Good About the Genuine Parts Extension.
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.
This will never end: investment plan for an endless pandemic
American infectious disease specialist and leading White House medical adviser Anthony Fauci said, that the American authorities are planning to ease the quarantine regime for vaccinated people, who have been diagnosed with coronavirus after being vaccinated. Let me remind you, that the existing rules in the United States provide for a quarantine of a length of 10 days for people who test positive for coronavirus.
Fauci thinks, that quarantine rules can be relaxed for vaccinated people, who are sick with coronavirus and who do not have symptoms. Interestingly, Fauci pointed to the lack of medical personnel as the main reason for easing the lockdown.: in his opinion, infected medical workers without symptoms are needed at work in hospitals, where the next influx of sick people is quite possible.
In New York for "critical" workers - those, who work in the transportation industry, medicine and supermarkets, — the isolation period has already been reduced to 5 days after positive test. All this is happening against the backdrop of an increase in the incidence of new strains of coronavirus..
The position of officials and major municipalities in the United States suggests that, that the coronavirus will now go on forever. Fauci actually reports, what if not, but really want to, then it is possible "with an undefeated pandemic to release some categories of the population and lock others. There are quite a lot of “asymptomatic infected” in all professions, and no one is in a hurry to release them. At the same time, the authorities even bother to come up with an explanation in the spirit of “critical categories of workers do not spread the virus, because they are protected by the spirit of goodness" is how to say, that “epidemic outbreaks followed by fading and new outbreaks are no longer extreme, and the norm". Let's figure it out, what conclusions can investors draw from this.
About flights. Airlines, probably, will never be restored to the old level. The recent cancellation of more than 2,000 flights to the United States is clear evidence of, that no one is going to make “special exceptions” for them, despite the fact that they carried out almost universal vaccination of personnel.
About hospitality. For the same reason, one should not expect news about a return to the "pre-war" values of the hospitality industry indicators.: restaurants, hotels and other affected. With such an unpredictable epidemiological situation, travelers and visitors will clearly not be eager to be as active., as before.
About science. Biotech companies have received a more or less stable source of demand. New strains, affecting even vaccinated people, raise questions about, exactly how many vaccinations do one person need.
This uncertainty favors biotech, because it creates a demand for the continuous development of new vaccines. It also improves the business of suppliers of goods and services in the field of R&D of pharmaceutical companies.: laboratory activities will pay for themselves very quickly - after all, vaccines are approved urgently, in a short time.
About delivery. High transportation costs and logistical disruptions, probably, stay with us for a long time. Logically, low vaccination rates are just 25% from all seafarers in the world - in itself should lead to constant outbreaks of the epidemic on board. And if you remember that, that on land miracle vaccines do not save from the spread of new strains, it's very likely, that container ships with a completely vaccinated crew can be quarantined in the port for a long time. So in this regard, you should be prepared for that, that logistical problems will affect the reporting of most issuers for a very long time to come.
Ratings must flow: how ESG affects lending
Specialists from the analytical company Credit Benchmark of the rating agency Moody's analyzed over a hundred companies in the industrial and oil and gas sectors and found, that an enterprise's ESG rating significantly affects its credit rating.
This is especially true for oil and gas companies.: the higher the ESG rating of the company, the more likely it is, that her credit rating will be in the relatively high "a" and "bbb" categories. And vice versa, the worse the ESG rating, the higher the probability, that the company's credit rating will be low.
Industrial companies have about the same picture.: generally, the higher the ESG rating, the higher the credit rating. But the difference between those, who lives by ESG, and topics, who doesn't care about it, in the industrial segment is not so striking. Most likely, The thing is, that in the ESG discourse, fuel and energy topics are the most politicized so far, and the ESG lobby has not yet come to grips with the industry. However, the difference is still there - and it is noticeable.
A company's credit rating greatly affects its ability to borrow money.: the higher the rating, the larger the amount and at the lowest percentage the company can borrow. The lower the rating, the more difficult it will be to borrow a large amount and the more ruinous the loan rate will be..
The results of this study confirmed our old assumptions about, how ESG ratings can affect the ability of companies to receive funding, - for example, in our investment idea by Olin. So,, this factor will have to be considered when making investment decisions.
Authentic pieces: Genuine Parts expands business
Center for the sale of auto parts and components for the industry Genuine Parts (NYSE: GPC) announced the decision to buy Kaman Distribution Group (KDG), supplier of solutions and spare parts in the field of industry. The purchase of KDG will cost Genuine Parts $ 1.3 billion - and the entire purchase will be paid for in cash, not shares, how it became fashionable now.
Critics of this decision may point to, that Genuine Parts doesn't have much money: 919 million on accounts plus 1.888 billion debts of counterparties. The company is heavily indebted: 10,778 billion, of which 6.537 billion must be repaid within a year, - and large dividend payments, which amount to 436 million per year - almost half of the company's profit over the past 12 Months.
So the purchase of KDG will increase the company's already large debt burden and negatively affect the ability of Genuine Parts to pay dividends.. But I'll still hazard a guess., that it's not so bad. And even quite well!
This acquisition will significantly increase the industry's share of Genuine Parts' total revenue structure.: following the latest 9 months, it provides a third of the company's revenue. Genuine Parts' industrial segment has relatively high operating margins: 9,36% of segment revenue vs. 8,63% in the auto parts segment. They buy KDG for a little more than one of its annual revenues - in 2022, KDG's revenue should be about 1.1 billion. So I believe, what does this deal mean for Genuine Parts and its shareholders.
But as far as long-term prospects for Genuine Parts, there is a good chance, that in the foreseeable future Genuine Parts will be split into two companies: automotive and industrial.
Such a decision would be in the spirit of the recent trend - the division of large conglomerates into different companies: even General Electric is going to split into three companies. Think, that shareholders of Genuine Parts should not be afraid of this. Quite the opposite: individually, the stocks of these companies can grow faster, than together. However, together divisions of Genuine Parts are not bad from a business point of view: they balance each other's risks well.
