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HOPE FLOATS?

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By Tandeep Minhas, partner at international law firm Taylor Wessing

The seemingly endless enthusiasm for tech company IPOs has, we are told, come to an abrupt halt. Over the last month or so we have seen shares in the newly floated Boohoo drop below its flotation price of 50p, while Just Eat and AO World have also suffered similar problems. Even well-established tech giants such as Facebook, Twitter and LinkedIn are taking a hit. The momentum of investment in the tech industry may be stalling,but the comparison drawn with the dotcom bubble is a lazy one.

The infamous bursting of the dotcom bubble in the early noughties occurred due to the realisation that many of those companies consisted of not much more than a flimsy idea with hope tacked on. This cannot be said for the majority of companies operating in the tech industry today:many ‘tech companies’ are simply traditional businesses operating through a digital medium,whereas companies involved in technological innovation are the product of years of careful R&D. Whilst the hype about ‘tech’ may be dwindling, price readjustments need not prophesise doom for the entire sector.

The label ‘Tech Company’ can be misleading; it is seemingly applied to any company which has some technological element, however small. The term can give a mystifying veneer to companies, masking their bread-and-butter business credentials. For example, the tech label has been stretched to cover e-commerce businesses such as Asos. WhilstAsos operates online and has various technological interfaces it is, in essence, a retailer andby the time of its IPO it had a credible trading history, an existing customer base and was already a household name. Such companies are no more than the upgraded versions of traditional businesses. The price fluctuation in the market is more like a corrective process, valuing these companies in isolation from the tech hype -such correction does not render them valueless.

What is more, many’tech companies’ in the traditional sense (eg. a company whose business is the creation of unique systems or technological processes) should not be dismissed in the same breath as the dotcoms of yore. For example, the digital consumer engagement company Eagle Eye, which this month announced its intention to float on AIM, has 38 patents, a blue chip customer base and 10 years of research and development to its name. The potential profitability of these companies is not just a figment of the imagination. They are credible investments even in the absence of hype; this could not be said for many of the companies floating at the time of the dotcom bubble.

This does not mean that there hasn’t been some overvaluation. There has. And it is right to hesitate when companies have a market capitalisation far beyond their trading profits(at IPO Just Eat was valued at £1.5bn when its profits for 2013 were just over £10m). But this is the nature of hype – it distorts value.It is also the nature of hype that it comes in fits and bursts.

As the tech hype subsides, the market will readjust prices to reflect true value and in some areas this will mean losses. However, this process of correction should be a good thing, as optimism will then be replaced with critical analysis. Investors will look beyond the glitz and assess the commercial strength of these businesses in their own right. Unlike hoards of dotcoms, many tech companies have solid businesses that will withstand the evaporation of hype. Clearly not all tech companies will be successful, but that is the nature of the market.

Tandeep Minhas is a partner in the corporate finance practice at international law firm Taylor Wessing. In 2012 she was part of the team that advised on the AIM IPO of blur (Group) plc, operator of the Global Services Exchange, and she is currently advising Eagle Eye Solutions Group, the digital consumer engagement company, on its flotation on AIM on 16th April 2014.

Tandeep MinhasTandeep Minhas, partner at Taylor Wessing

Tandeep advises on all aspects of corporate finance M&A work, including public takeovers, fund raisings and IPOs, company and business acquisitions and disposals, joint ventures and reorganisations.

She has specialist knowledge of the public markets in the UK and has advised on numerous flotations and secondary fund raisings on both the Official List and AIM, acting for companies and corporate finance/broking houses, nomads and sponsors. She has particular expertise in advising international companies and investment entities on their London listings.

On the M&A side, she has advised a wide range of real estate clients from blue chip corporates to high profile entrepreneurs on real estate-related corporate transactions and joint ventures.

Tandeep sits on the Technical Committee of the Corporate Finance Faculty of the ICAEW and is a regular speaker at training and business development events organized by the London Stock Exchange.  She has also spoken at conferences in India on raising capital on the London markets and carrying out M&A transactions in Europe.

She is a Trustee and Vice Chair of Rich Mix, an arts and cultural centre with charitable status in Shoreditch.

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Nvidia forecasts sales above estimates as gaming chip sales surge

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Nvidia forecasts sales above estimates as gaming chip sales surge 1

By Chavi Mehta and Stephen Nellis

(Reuters) – Nvidia Corp forecast better-than-expected fiscal first-quarter revenue on Wednesday, expecting strong demand for its graphics chips used in gaming PCs and artificial intelligence chips for data centers.

As people wait for COVID-19 vaccine rollouts around the world, stay-at-home orders have helped sustain the demand for chips used in personal computers, gaming devices and data center infrastructure that enables remote working.

The Santa Clara, California-based company’s gaming chips have also regained popularity for mining cryptocurrency, a trend Nvidia is trying to counter by throttling its gaming chips ability to mine for currencies and instead offering specialty chips for mining.

While Nvidia was long known for its gaming graphic chips, its aggressive push into artificial intelligence chips that handle tasks such as speech and image recognition in data centers has helped it become the most valuable semiconductor maker by market capitalization.

It has eclipsed rivals Intel Corp and Advanced Micro Devices.

Shares were up 3% at $597.50 in extended trading after the results.

On a conference call with investors, Chief Financial Officer Colette Kress said that a global chip crunch made it hard to keep the company’s flagship gaming chips introduced last fall in stock and that the chips would likely remain in tight supply through the fiscal first quarter.

The company also said it will make a change to its gaming chips starting with the RTX-3060s to make them less efficient for mining cryptocurrency. The company said it will instead introduce mining-specific chips.

“We would like GeForce GPUs (graphics processing units) to end up with gamers,” Kress said.

Kress said analysts have estimated that cryptocurrency mining contributed between $100 million and $300 million to Nvidia’s sales in the fiscal fourth quarter. The company expects the new mining chips to generate about $50 million revenue in its fiscal first quarter, Kress added.

The company expects first-quarter revenue of $5.30 billion, plus or minus 2%, above analysts’ average estimate of $4.51 billion.

Revenue in the quarter ended on Jan. 31 rose to $5 billion from $3.11 billion a year earlier. Analysts on average were expecting $4.82 billion, according to IBES data from Refinitiv.

Revenue in the company’s gaming segment was $2.5 billion, above analyst estimates of $2.36 billion, according to data from FactSet. Data center revenue was $1.9 billion, above estimates of $1.84 billion according to FactSet data.

(Reporting by Chavi Mehta in Bengaluru and Stephen Nellis in San Francisco; Editing by Maju Samuel and Will Dunham)

 

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Running boom to help Puma recover after slow start

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Running boom to help Puma recover after slow start 2

By Emma Thomasson

BERLIN (Reuters) – German sportswear company Puma expects the financial impact from coronavirus lockdowns to last well into the second quarter, but believes global growth in running should help to support a strong improvement after that.

“We clearly see a running boom in the whole world,” Chief Executive Bjorn Gulden told journalists, noting that yoga and other outdoor activities are also doing well. He expects the healthy living trend to continue even after the pandemic.

Gulden said his optimism is underlined by the fact that orders for 2021 are up almost 30% compared to a year ago, with bookings for running products particularly high.

However, there is still uncertainty about when lockdowns in Europe will end, with about half of the stores selling its products currently closed in its home region.

For the full year, Puma expects at least a moderate increase in sales in constant currency, with an upside potential, and a significant improvement for both its operating and net profit compared with 2020.

Shares in Puma were down 2.9% at 1100 GMT.

“The wording on outlook looks softer than we had anticipated, even by Puma’s cautious standards,” said Jefferies analyst James Grzinic.

Gulden noted that a shortage of shipping containers bringing products made in Asia would impact margins, with freight rates likely to double in the next 12 months.

Puma will put a stronger focus on the women’s market in future, Gulden said, creating shoes better modelled to female feet for running and soccer and capitalising on partnerships with celebrities like singer Dua Lipa and model Cara Delevingne.

Gulden admitted Puma had been slow in creating its own app, but it plans to launch one towards the end of the year, further supporting online sales, which grew by 63% in 2020.

Rival Nike in December raised its full-year sales forecast after demand for outdoor sportswear drove an 84% surge in online sales.

Gulden said he is hopeful that the Olympics will go ahead in Japan and the European soccer championship will also take place after both were postponed from 2020.

($1 = 0.8226 euros)

(Reporting by Emma Thomasson; Editing by Mark Potter and Keith Weir)

 

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ExxonMobil to sell some UK, North Sea assets to HitecVision for over $1 billion

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ExxonMobil to sell some UK, North Sea assets to HitecVision for over $1 billion 3

(Reuters) – Exxon Mobil Corp said on Wednesday it would sell its non-operating interest in its UK and North Sea exploration and production assets to private-equity fund HitecVision for more than $1 billion.

Exxon has been looking to sell its oil and gas assets since late 2019, seeking to free up cash to focus on a handful of mega-projects.

The deal includes ownership interests in 14 producing fields operated primarily by Shell as well as interests in the associated infrastructure. Exxon could also receive about $300 million in contingent payments based on a potential for increase in commodity prices.

Exxon’s share of production from these fields was about 38,000 barrels of oil equivalent per day in 2019, the company said.

Exxon said it would retain its non-operated share in upstream assets in the southern part of the North Sea as well as its interest in the Shell Esso gas and liquids (SEGAL) infrastructure, which supplies ethane to the company’s Fife ethylene plant.

HitecVision, in partnership with Eni, had bought Exxon’s Norwegian North Sea assets for $4.5 billion in 2019.

Initially, Exxon hoped to raise more than $2 billion from the sale, which was planned for late 2019. In June 2020 sources told Reuters that the portfolio was more likely to fetch $1 to $1.5 billion given the oil price weakness last year.

(Reporting by Arathy S Nair in Bengaluru; Editing by Anil D’Silva)

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