Bundle of investment news: cunning brokers, Warner Bros. Discovery и BASF

Пачка инвестновостей: хитрые брокеры, Warner Bros. Discovery и BASF

Another argument for buying Robinhood by a larger broker like Charles Schwab is the growth of the order flow business.. BASF did not share the oil and gas business with Friedman - what should shareholders be afraid of. AT&T releases the "Game of Thrones" - what to hope for investors.

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.

"Flesh for the Stream": how much the largest US brokers make on the flow of orders

Last week, Bloomberg Intelligence shared "with the hail and the world" data on, how much the largest US brokerage companies earned last year selling their clients' order data feed.

Selling order flow data is when Brokers sell data on clients' transactions with financial instruments to large financial companies, who trade on the stock exchange. Receiving data on the movement of requests for shares, these companies earn, predicting price movement. The seller of the data - the broker - receives a percentage of the difference between the ask price and the offer price. The biggest buyers of US order flow data are big companies like Citadel Securities, engaged in electronic trading.

The sale of order flow data has brought US brokerages into 2021 3,8 billion dollars is 33% more, than in 2020. The giants from Charles Schwab earned the most (NYSE: BLACK) - $1.7 billion. Behind them is the online broker Robinhood Markets (NASDAQ: HOOD) - $974 million. Truth, It should be noted, that for Charles Schwab order flow is not the main source of revenue, about 9,44% in total. But for Robinhood, this is the basis of business, giving more 70% proceeds.

Пачка инвестновостей: хитрые брокеры, Warner Bros. Discovery и BASF

The best growth was shown by the payment for the order flow in the field of options: compared to 2020, the growth was 47%. But with stocks, growth was much more modest - 13%. This is related to, that retail investors are actively exploring option strategies, allowing them to have greater influence on the market and earn more.

Option orders made up the bulk of the payment structure: from 3,8 about 2.5 billion were payments for options data.

The practice of paying for the flow of orders for stocks is under the gun of US regulators: its abolition is being seriously discussed due to the alleged damage to the interests of consumers. After all, the earning model itself motivates the broker to offer users unfavorable prices for them.. Broker earns the most, when the difference between prices turns out to be the most disadvantageous for the client.

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In light of new information about the growing pay-per-flow business, Charles Schwab is seen as a suitable buyer for the Robinhood business.. The business has a good potential for profit: Robinhood's gross margin is higher 90% from proceeds. Yes, and in the revenue structure of Charles Schwab, the flow of orders already gives quite noticeable money..

Talk of a possible ban on order flow fees may not scare Charles Schwab: So far, this has only been about a potential ban on order flow fees in stocks - and that's just 16,23% Robinhood revenue.

Robinhood receives the main money from the sale of a data stream on options and cryptocurrencies - so far no one is talking about any bans. A moment about cryptocurrencies, given the excitement in this area, can also positively influence the assessment of the possibility of a takeover of Robinhood among Charles Schwab managers.

The only question is, will Charles Schwab wait for a further collapse in Robinhood shares or will he make an offer now.

Development discussions: BASF and Friedman disagreements

The German chemical industry giant BASF (ETR: LOW) Proceedings are planned with the Mikhail Fridman Foundation LetterOne.

Germans want to spin off Wintershall Dea's oil and gas business, in which they own about 73%, to a separate issuer, which will be traded on the stock exchange. LetterOne же, who owns the rest 27%, opposes this.

According to LetterOne, now is not the best time to list the company on the stock exchange because of the negative attitude towards Russia, where the company has part of the business and where the owner of LetterOne comes from. This could negatively affect Wintershall Dea's post-IPO quotes. At the same time, LetterOne is not against an IPO a priori - the fund just wants to wait for a better moment..

LetterOne also considers, what if you let the company go free-floating too early, then it may miss out on opportunities to expand and grow the business. Therefore, LetterOne plans to block Wintershall Dea's IPO until the end of 2023.

All in all, we figured out LetterOne's motivation. But BASF is driven only by ideology.

BASF wants to reduce its carbon footprint by 25% to 2030 - and finally destroy it by 2050. The company does not have a very high ESG rating: it is ranked 68th out of 461 by Sustainalytics in its Chemical Companies subgroup and 6378th out of 14 524 in the world, and its ESG risks are rated as "medium". Owning Wintershall Dea does not improve the rating.

The potential capitalization of Wintershall Dea is tentatively estimated at around $20 billion, and it is the largest independent oil and gas company in Europe both in terms of raw material reserves, as well as in terms of production. The company produces 1,000 barrels of oil equivalent per day..

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Wintershall Dea's IPO and subsequent sale of all or most of its shares could net BASF around €4bn - not much more than €3bn, which BASF spends every year on dividends. It's not really a lot - and LetterOne is right from a business standpoint., offering to wait with the IPO.

Pressing BASF from the ESG lobby may be too strong - and this may negatively affect BASF's quotes and even its credit rating. Especially in light of that, that Wintershall Dea's IPO will be blocked by "Russian" LetterOne. In the current geopolitical context, BASF shares may be subject to widespread harassment for, that the company is “led by the hand of the Kremlin”.

So that, may be, Large-scale litigation awaits BASF and LetterOne - this could have a bad effect on BASF quotes. Maybe, even the Germans will try to sell their stake in Wintershall Dea to a private company, to keep their "environmental" promises. And maybe, even do so at a tangible discount to the fair value of their stake in Wintershall Dea.

However, Considering that, that ESG pressure in finance is getting bigger, from the point of view of the ability to borrow money, it will be quite justified. Will hope, this will also be reflected in the quotes in the best possible way - although from a business point of view, the sale of Wintershall Dea too early will, certainly, wrong decision.

"I lived sinfully and died funny": what next for AT shareholders&T from the spin-off of the company's media business

Last week, telecommunications conglomerate AT&T (NYSE: T) announced a cut in its annual dividend almost 2 Times: with 2,08 to 1,11 $. Basically, news is not new: about these AT plans&T was known back in May 2021. Then the company decided to spin off its WarnerMedia media division into a separate company., to merge with media company Discovery (NASDAQ: DISK). Now AT&T will be able to focus on its core telecom business and 5G development, albeit at the cost of a lower dividend.

Although if we evaluate in retrospect, then the company, certainly, suffered a strategic defeat: having spent a lot of money and effort on WarnerMedia, having received practically nothing - and releasing her "to freedom" in fact at the same price, which I bought. AT Litigation Campaign alone&T v antitrust authorities, blocking the acquisition of WarnerMedia, took from AT&T a lot of time. There is a logical question: what other strategic project AT&T the management of the company in a couple of years will declare "unsuccessful"?

But instead of fair criticism of AT&T let's talk better about the new venture, resulting from the spin-off or merger of WarnerMedia with Discovery.

Пачка инвестновостей: хитрые брокеры, Warner Bros. Discovery и BASF

Basic moments, What AT Shareholders Should Know&T about the new company. The new company will be called Warner Bros.. Discovery (NASDAQ: WBD) and will appear on the exchange somewhere in the summer of 2022. All AT shareholders&T get on 0,24% WBD shares per AT share&T at your disposal.

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The "dowry" of WarnerMedia in WBD is such brands, like HBO, CNN, Warner Bros., DC Comics and others. The "dowry" of Discovery is, for the most part, popular science TV: Discovery Channel, Animal Planet, HGTV, Food Network, TLC, Investigation Discovery, Travel Channel, Turbo/Velocity и Science Channel.

The jewel in the crown of WBD will be the streaming service HBO Max, which WarnerMedia is intensively developing. But, given the rise in the cost of content production and the difficulty in retaining the attention of users, I wouldn't expect, that even records of subscriber acquisition by the service will lead to a tangible improvement in WBD's profit margins. Rather the opposite: the development of the streaming segment will require huge investments, because the segment is still unprofitable.

However, plus is, that HBO already has a huge cool content library: Game of Thrones and other HBO series, Warner Brothers films.

WarnerMedia alone is not the most unprofitable asset: the division's operating margin in 2020 was 26,91% from its proceeds. I think 2020 is more than representative of this division.: The corona crisis has led to huge production costs, decrease in the profitability of film content, decrease in advertising revenue. It seems to me, WarnerMedia performed very well under difficult circumstances.

Discovery as a standalone is a reasonably stable and profitable venture with operating margins 16,75% and final margin 10,42% from proceeds. About 54% the company's revenue comes from advertising, rest 46% is revenue from licensing and distribution of the company's content by third-party players.

Expected, that WBD will have $52 billion in revenue and $14 billion in adjusted EBITDA in 2023. If we count all the assets of both companies now, then WBD is present in 220 countries and has over 200 thousand hours of content. Actually, this fact was not the last argument in favor of the merger of companies: together they can save $3 billion a year. The new company will also be weighed down by a large debt - $ 58 billion.

Пачка инвестновостей: хитрые брокеры, Warner Bros. Discovery и BASF

Пачка инвестновостей: хитрые брокеры, Warner Bros. Discovery и BASF

It seems to me, WBD is a rather interesting company with good prospects. I wouldn't count on tangible dividends there.: the management of the future WBD plans to focus on reducing the large debt burden, which in itself is a big problem in an era of raising rates and rising prices for loans. Well, the WBD management wants to reinvest the money earned in business development.

But it's quite possible, that WBD will be taken over by a larger business, aimed at the development of streaming. Or maybe, independent WBD targeted by activist investor, which will force the company or find a buyer, or introduce tangible dividends.

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