Telus refinancing, Himax auto win, and more ?3

03:31 01-Apr-21

I've spent some time going over Biden's suggested $2.3 trillion infrastructure plan, and will wrap this note up with a broad array of stock-specific thoughts and minor news:

• LUMN: it will be interesting to see if Lumen returns to rural broadband build out, if the President gets his $100b for making it available to everyone.  It was certainly wise to step away from any such commitments before this, unless the funds can be applied retroactively.  More importantly, I think now would be a smarter time than ever to divest the consumer segment if America could actually overcome the lobbyist barriers to community owned and operated broadband networks.  That's a stretch, though.
• MTSI, INTC, OLED & RESN: there's $50b specifically for domestic semiconductor manufacturing.  I continue to think this should benefit small players like MACom and maybe Resonant competitor Akoustis more than laggards like Intel.  However, it remains to be seen who gets what, and how well Intel's x86 franchise holds up against rising competition.  UDC is probably the biggest beneficiary if domestic manufacturing finally extends to AMOLED screens.  Regardless, domestic semiconductor manufacturing still leads to higher prices.  RESN is the only stock in this group that is anywhere close to a worthwhile price for me and the path that's being laid out makes me even more concerned about delays.
  
• PPL, AMSC, WPRT, CVA, ERII, XEBEF, CWEN & OEG: though the intentions are clearly positive, it seems like details on renewable energy build out will probably have to wait for the jobs-focused part two of the plan.  Thus I'm still waiting on better pricing for AMSC even though it has gotten closer to reasonable pricing.  It's also not clear that Westport, Covanta or Energy Recovery get any part of this, even if they should, but Xebec should eventually benefit either from policy help or higher gas prices.  XEBEF has the added benefit of a 10%+ rebate rate in the wake of recent declines.  In the meantime, I have to remind would-be CWEN(A) and OEG investors that I'm worried we haven't seen the last of the fallout from the Texas power crunch.  An unrelated wind farm has just sued Citi to contest a $113M bill for failing to provide power under the terms of its PPA, and avert possible default, and liquidation or takeover.  It remains to be seen whether or not Clearway will have any such difficulties, but it does have 952 MW, or 36% of wind operations in Texas.  There's also Buckthorn Solar at 154 MW, bringing Texas renewables to 16.5% of its total operations.  So much for diversifying away from California; PPL looks like a clearly superior investment prospect here, below minimum fair value and with medium-term potential into the mid-forties.
  
• GOOG: I'll reiterate that taxes remain the most reliable and important impact factor that we saw today, which should matter most to the index-dominating digital media mega-caps.  Until Google can prove that it can fill a 7% income gap with new business from companies that will also be more highly taxed, I'm inclined to disregard projections for improved advertising revenue as economies reopen.
  

Again, all of this is just weight on the scales and should be taken with healthy portion of salt until we see what, if anything, actually gets through Congress.

Before anyone asks, I don't know of any fundamental news driving the 10% jump in BGCP over the past few hours, and am certainly not of the opinion that this morning's business update merits such a move.  The most sustainable explanation would be an acceleration of the buyback program in preparation for a corporate structure change, and in response to the projected tax changes referenced below.  However, that seems unlikely for two reasons:

1. I find it unlikely that management would take such decisive action before tax policy is certain.
2. Buybacks would typically be executed via a VWAP order through a company like Virtu, which would avoid moving the price in such a way.
   

I will note that the resolution of the Suez blockage is likely to help BGC's reinsurance brokerage business over the long term, but I very much doubt the market is even considering that.  The most reasonable thing to say here is that jumps like this aren't so unusual in the extremely undervalued stocks that I favor.  Rather, they are a reason why I try to de-emphasize market timing. 

Putting a P/E of 15 on the annualized guidance just affirmed results in a valuation that is still more than double the current price.  The most likely explanation is that someone just realized this, which means the move could easily be temporary, unless that someone convinces MANY others out there.  I've already referenced the potential for BGCP to be a swarm trading target in conjunction with the introduction of cryptocurrency trading support.  33K April calls traded so far today against a prior Open Interest of 5.6K supports that theory.

On 3/31/21 9:28 AM, Esekla wrote:

Telus is issuing CAD500M of bonds at 4.131%.  The rate is toward the lower end of the company's debt, but still reflects spectrum costs and Canadian pandemic recovery, in my opinion.  It will be used to to refinance debt maturing in June which bore 10.65% interest.

Himax has also announced a product win for a leading Chinese EV which combines Himax driver chips with AMOLED screens from BOE Varitronix.  No numbers are given, but HIMX is up a little more to top $13 in the pre-market.

Finally, BGC Partners has affirmed its prior financial outlook for 1Q21.  More importantly, we're finally getting some initial indications on corporate taxes along with Biden's infrastructure plan.  The projected rise in corporate taxes from 21% to 28%, with a minimum 21% on global earnings, looks negative for BGC and many other companies, but we'll see what gets through Congress.