--- the subscriber area has no ads and those above are not selected or endorsed by this site ---


CUI divests and Aramco macro +3

09:41 11-Nov-19


Ahead of tomorrow's earnings report, CUI Global has divested another part of its electrical business for $32M and assumption liabilities.  The company retains its 20% equity stake in Virtual Power Systems, but otherwise it is not clear what else is left of the electrical side of the business as there are no SEC filings so far.  The balance sheet help is a big deal, though, and CUI is up 35% to 95 cents, a nickel from where they need to be to maintain exchange listing without further action.  By my reckoning, this and the prior sale should give CUI Global operating capital through at least next year. 

We'll see what we hear tomorrow night, but events outside the company will be equally important.  Aramco has released its prospectus, which includes multiple scenarios for peak oil demand.  The baseline (on page 77) has demand for crude and downstream products growing at 0.8% annually over the next decade, but even in Saudi Arabia, demand for natural gas is projected at 3.6% annual growth.  The IPO should officially begin on the 17th, with figures due on December 6th.

All of this will matter to companies like Schlumberger, Shell, and Golar, as well.  CUI Global is clearly moving to become less dependent on Europe, where Spain joins Italy in lacking a clear path to governance.  The U.K. is actually looking a bit clearer, albeit under Johnson.  However, bad as Europe's problems are, I'd argue that the no plan status we're seeing from its various states is still better than America's current plan, and the prospectus backs me up in that regard by pointing out that, as a low-cost producer, Aramco could actually see its market share increase even as crude demand declines.  That's bad for Energy Recovery, as well CUI Global.  The wild card is Russia, which has meddled in elections and could easily do the same in Aramco's IPO and global hydrocarbon markets, but Aramco isn't going away no matter what.  My guess is that Russia has more incentive to make Aramco a limited success at the expense of frackers.

Markets are currently being rattled by escalating trouble in Hong Kong, which matters because Asia is crucial to the demand outlook for hydrocarbons, in addition to being the main driver of global economic growth.  Though low volume surrounding Thanksgiving creates anomalies aplenty, my guess is that the overall market will be in a bit of a holding pattern while Aramco sorts itself out.  That's set to end, possibly dramatically, with another FOMC statement joining Aramco trading on December 11th, followed by U.K. elections the following day.  Invest carefully!