Daily Update

Daily Update 11/11 – Issuing Stock

News Wrap:

  • Issuing Stock: Seeing its stock rise over 15% on Monday, American Airlines ($AAL) wasted no time getting on the phone with their bankers and was the first company to announce it would be issuing stock. The airline announced it would issue 38.5 mm shares, with an option to sell 5.775 mm more, at market price. This would raise $584 million in proceeds at Monday’s last close price. The company guided cash burn of $25 to $30 million/day in Q4 of this year. If completed and assuming the option is exercised, this offering would be ~8% dilutive.
  • Not to be outdone, Carnival ($CCL), after notching the biggest one-day gain since the cruise operator went public in July 1987, has announced another $1.5bn “at the market” equity raise, its fourth equity raise this year. This follows the $1bn ATM equity raise in September, the $0.9bn early conversion of the convertible bond in August, and the $0.6bn equity raise in April. CCL’s monthly cash burn was guided to be $530m in Q4 and it has $1bn debt maturing in Q4, signifying the need to raise more cash. If completed, this offering would be ~9.7% dilutive at the 11/10 closing price.
  • We can expect more stock issues from names like $RCL, $NCLH, $DAL, $UAL, $CNK, $AMC and others who have been burning cash due to forced curtailed business activity during the pandemic. This is the prudent thing to do for these beleaguered companies, but is not share holder friendly.

Grounded plans, closed movie theaters, docked cruise ships.

  • More Vaccine Details: A key consideration in administering the vaccine is the administration sites themselves. There is a view that many different sites would be used for administration, including pharmacies, doctor offices, and mass inoculation areas (pop-up tents in parking lots, for example). The nature of the vaccine’s handling requirements could dictate which sites are most appropriate, particularly given not all sites will have the equipment required for storage.
Australia Reports New Single-Day Coronavirus Death Toll | Voice of America  - English
Will we all be vaccinated in pop-up tents?
  • For all you urban millennial readers and listeners, you can expect to be able to receive your first dose earliest around April 1 and conservatively by July. Rural populations, however, will likely take longer to reach. The government has procured a significant amount of vaccine doses such that patients won’t be charged for either the COVID-19 vaccine or its distribution, though some providers could potentially charge an administration fee. Various plans are also under development with the objective of ensuring there will be no out-of-pocket expenses for the administration of the vaccine either.
  • Chinese regulator push-back on Tencent and Alibaba: In the latest development to curb the power of China’s internet giants, the anti-trust body issued an order seeking public comment to “ward off monopolies.” We see this as an ominous sign for $BABA and $TCEHY and more will surely come. Or perhaps the CCP is simply trying to remind Chinese tech billionaires who really runs the show, but will refrain from actual anti-trust actions. Time will tell. (link in Chinese)
  • Apple chip reveal: Apple unveiled its first Apple Silicon Macs at its event, marking the beginning of the end of Intel chips being inside Apple notebooks and desktops. The first in a family of Apple Silicon chips based on ARM is called the Apple M1 chip. Apple’s System on a Chip (SoC) will also be able to run iPhone and iPad apps on the Mac for the first time. More here: (link)
  • Herd immunity: The hypothesis of herd immunity being achieved in certain population centers like NYC as well as European hotspots like in Italy and Spain was debated fiercely. We think we can put the idea to rest and that no significant amount of herd immunity has been achieved anywhere. We also believe NYC and other past US hotspots are at risk of being hotspots once again when we look at what’s happening in regions in Europe.
The Northwest region (blue) which includes Lombardy, Piedmont, Liguria, and the Aosta Valley. This region was the most affected in the first wave and is leading the second wave as well. The Northeast (orange) and South (yellow) are also following similarly in the second wave as the first, signifying it’s the same regions being reinfected, not new ones.
In Germany we can see a similar result – North Rhine-Westphalia (brown), Bavaria (orange), and Baden-Wurttemberg (blue) are leading the second wave just like they led the first.

Tweets and graphs we like:

Millennials worried all those hours spent practicing that stupid dance was for nothing.
No solar panels to install on the ex-CEO, Trevor Milton’s house this quarter I suppose.
We like this distinction between *true* value (names with valuations at historical lows) and *anti-momentum* (Covid affected companies down >50% this year)
Say it with me – SOGU. Stocks Only Go Up.
Great to see some Gen X and Boomer participation in a millennial past time!

Things we are looking for:

  • Further developments on Chinese anti-trust regulatory actions. Expect further selling of large Chinese names like Alibaba and Tencent in the meantime. Remember, Asia trades on rumors, so any noise coming out is important for these stocks.
  • Will the rotation into *true* value continue over the next few days? We think it’s likely.

Thanks for reading and good luck!

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