Daily Consumer: Takeda: Move Over Newton! Now It’s Spooky Action At a Distance and more

In this briefing:

1. Takeda: Move Over Newton! Now It’s Spooky Action At a Distance
2. Discovery Management Will Likely Soon Be Helping Narrow the Share Class Spread
3. Satellite Companies Securing Agreements to Sell C-Band Spectrum
4. Nio Surged 31% in November; Will Momentum Continue Through 2019?

1. Takeda: Move Over Newton! Now It’s Spooky Action At a Distance

Over the weekend I published Softbank Corp, Takeda, and Newton’s Three Laws of Motion. Newton’s Three Laws helpfully guide one to understanding the nature of interaction of forces and bodies and the motion which results. Later, Euler’s laws of motion applied a framework for rigid and continuum bodies, and since then “action at a distance” has been replaced be Einstein’s Theory of General Relativity.

After I wrote the bit about one part of the index impact, FTSE unhelpfully changed their mind on timing based on an unhelpful change by the LSE. On Monday, the TSE exercised its discretion – clearly stated in the TOPIX Index Guidebook on p4 (2nd sentence of the opening paragraph) as something it may do – to go its own course in how it will adapt index changes to the first couple of increases in share count due to mergers with foreign corporations.

If an event not specified in this document occurs, or if TSE determines that it is difficult to use the methods described in this document, TSE may use an alternative method of index calculation as it deems appropriate.

So with the changes at FTSE and now TOPIX and JPX Nikkei 400, we no longer have quite the same clarity of forces on the bodies, and therefore less clarity on the resulting motion. The LSE’s announced market change appears to have led the MSCI to change its deletion date for Shire as well, now also (along with FTSE) deleting Shire at the close of the 21st (announcement early this AM Asia time).

Investors have prepared based on the idea that there was a reasonably tight relationship – helped because it was a lot of force applied in a short period (selling and buying all done in a short period in January) between the particles. Now that relationship is being stretched. A lot. 

The problem resembles that which Einstein famously pooh-poohed as “Spooky Action At a Distance”. Schrödinger called this entanglement – and it turns out to be one of the weirder branches of quantum mechanics – a field broken wide open by Bell’s Theorem a decade after Einstein shuffled off this mortal coil* – and about which John Wheeler famously said, “If you are not completely confused by quantum mechanics, you do not understand it.”

I cheerfully say quantum mechanics completely baffles me. 

I less cheerfully say this whole episode with Takeda and index providers has baffled me too.

But it is important to note that the timing and implications are vastly different than expected just two trading days ago. And the difference is worth thinking about. When the FTSE/MSCI net sell of risk was just 3 days apart, there was a clear connection across that three day distance. Now, the 6-10 week spread of time between the FTSE/MSCI events, the weird two weeks of SETSqx illiquid purgatory just as everyone is full up of risk, then the walk through the Valley of the Shadow of Flowback before we get the first really good net index inclusion to cover the Shire risk people have been dumping for months means that the certainty of understanding the movement of the particle on the other side is substantially lower.

If it all works out well, it might just be Spooky Action At a Distance.

2. Discovery Management Will Likely Soon Be Helping Narrow the Share Class Spread

As share class trades go, Discovery has presented several opportunities over the years to take advantage of index changes, corporate events, and a management that has aggressively repurchased nonvoting DISCK shares versus voting DISCA shares.

3. Satellite Companies Securing Agreements to Sell C-Band Spectrum

Satellite companies attempting to convince the Federal Communications Commission to allow them to sell C-band spectrum they license from the U.S. have begun talks to secure customers, sources told CTFN.

4. Nio Surged 31% in November; Will Momentum Continue Through 2019?

• NIO Inc (NIO US) surged 30.7% in November after reporting steady growth in production and following certain notable investors such as Baillie Gifford & Co (largest investor in Tesla Motors (TSLA US) after Elon Musk) acquiring a stake in the company creating a bullish view on the company.
• The EV start-up delivered 3,089 vehicles in November, registering a more than 96% increase from October, indicating a smooth flow in its production line of ES8. The latter was something its rival, Tesla, took long to establish. The company has reached a total production of more than 10,000 units thus far.
• On the 15^th of December which is the company’s ‘Nio Day’, Nio hopes to launch its ES6, a 5-seater, two-row, high-performance premium electric SUV that will have a longer range and at a lower price than its three-row seven-passenger ES8. Production and delivery of ES6 are expected to begin in 2019.
• Q3 FY2018 results although slightly below the company’s expectations was an improvement compared to the previous quarter and acted as a tailwind in increasing investor confidence in the company. Sales increased to USD214m in Q3 from USD 46 in Q2. Though the company has not yet generated any profits, operating losses as a % of revenues have declined to -191.2% in Q3 cf.-4,077% in Q2.
• For Q4 FY2019E the company expects to deliver 6,700 to 7,000 vehicles more than double the total deliveries during Q3, forecasting revenue between USD 418.5-436 m, at 95-100% increase from Q3. The company has not guided on OP.
• Although the company is still fighting for profits, which seems to be normal for a start-up, it should be noted that the company has a quite steady cash reserve to fund its operation and ramp up production of its to-be-released ES6 model. In our opinion, if the launch of ES6 is as successful as ES8 and the company avoids production delays like Tesla, then it may break even or even make profits within a shorter time period than which Tesla took (almost 8 years). That said, Nio’s stock is likely to witness further surges through 2019 following its recovery since November.