Author: Snippet.Finance

Stocks

GSK

  • GlaxoSmithKline has been the subject of an activist attack by Elliott, who built up a significant stake in the company in April.
  • GSK then hosted their long awaited investor day in June – laying out a plan for a future after spinning off their consumer health division.
  • Elliott then released a letter which was quickly rebutted by the board of GSK who called for the usual “stability”.
  • This was a good write up of the whole interaction.
  • One interesting element that has not entered the discussion is the balance sheet.
  • NewGSK will have 2x ND/EBITDA, even after gearing up consumer health to 4x and paying a dividend back. It also has a pension (£2bn deficit) and minority payments to ViiV partner Shionogi. All of this constrains the firm.
Misc

US Venture Returns

  • VC managers have seen falling MOIC (multiple of invested capital) returns while IRRs, just like those in private equity buyout, have been rising.
  • This can be explained by use of subscription lines and faster distributions.
  • Notice the difference between median and average – VC tends to have some very high return/size funds.
  • Source.
Misc

US Buyout Returns

  • Private Equity buyout returns measured by multiples on invested capital (MOIC) – a simple cash-in vs. cash-out metric, have been falling since 2009.
  • Interestingly internal rate of return (IRR), a time-weighted measure of return, has been rising.
  • The reason is the increased use of subscription lines – managers financing investment with bank loans delaying capital calls to LPs until later.
  • Mercer data suggests their use has grown 6x since 2010.
  • Note also average and median returns don’t differ much.
  • The note compares returns to public markets showing 1-5% pa excess returns, which have also fallen.
  • Source.
Macroeconomics

EM vs. DM PMIs diverging

  • “It is not just Asia which is seeing renewed weakness of manufacturing performance, however, with output in Russia coming close to stagnation again in June as rising virus numbers disrupted the economy, and a further steep fall in output was recorded in Mexico.
  • As a result, while developed world production continued to grow at a rate close to decade-highs in June, emerging market output growth came close to stalling, its lowest since June 2020.“
  • Source.
Misc

Geography and History – the US

  • This is a brilliant article on how geography influences history.
  • The United States stands out has having some of the best luck when it comes to advantageous geographic features.
  • “First, the US is fortunate to have mountains and oceans everywhere for defence.”
  • Second it has this – “The US’ Mississippi basin:
    • Has mountain ranges on both sides, which concentrate water inwards.
    • Has over one million square miles (2.5M km) of extremely well-irrigated land – the world’s largest contiguous piece of farmland.
    • Is nearly flat, which is also great for agriculture, but also for building anything for cheap, really.“
  • Third it has “more internal navigable waterways than the rest of the world combined!“, which adds a huge cost advantage.
  • More interesting analysis in the article including applying these ideas to the rest of the world.
Misc

Post and Pre IPO Value Creation

  • Who reaps the majority of the rewards from venture backed companies – VC or public markets?
  • “Over the last decade when measured in terms of total dollars of value creation accruing to pre- and post-IPO investors: post-IPO investor gains have often been substantial.“
  • Of the 165 IPOs analysed – the vast majority had a large share of value accrue to public markets (blue region).
  • There are some exceptions (red region), and some shared (yellow region).
  • Source.
Stocks

Stripe

  • A lot has been written about this remarkable company and its even more remarkable founders.
  • This was a really great, long piece covering everything from history to strategy.
  • “In 2006, using an SAT score from a test he’d taken at the age of 13 (an infuriating anecdote), Patrick matriculated to Lisp’s birthplace: the Massachusetts Institute of Technology. He’d sped through the final two years of his high school curriculum in just twenty days.”
Macroeconomics

Africa

  • Starting with cliches is a good way to start this fantastic piece on Africa.
  • It covers everything from demographics to key venture players to opportunities.
  • Well worth a read for those interested in this continent.
  • Let this map just sink in.
  • There are 1.2bn people in Africa, a number that will double in 30 years to 2.4bn.
  • Roughly 50% will be under 25 years old. The staggering stats go on.
Stocks

Banks – a Contrast

  • These are two very contrasting views on the future of banking.
  • The first is a very neat newsletter from Hosking Partners that presents banking in as simple light as possible.
  • Banks are trusted to hold deposits, to transform their maturity and take diversified credit risk. As a result they have high earning power. The latter is tough to beat and large banks will beat challengers on customer facing technology reaping the cost savings.
  • Contrasting this are two pieces from Net Interest, chronicling his journey through the evolving world of decentralised finance (DeFi – for those interested this is a good background on the topic).
  • First he tries to start his own decentralised bank and then writes about Maker DAO, an existing one.
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