Brookfield and Singapore’s Temasek Make Joint Bid for Thyssenkrupp Elevator Unit - $16.5B

Brookfield (BAM) and Singapore’s Temasek Make Joint Bid for Thyssenkrupp Elevator Unit - $16.5B. Otis of United Technologies (UTX) is #1 in the market and it is an Oligopoly with 67% market share from top players including Otis (US based) Kone Oyj (Finland based) Schindler (Switzerland based) and Thyssenkrupp (Germany based) and Hitachi (Japan based). Market share by revenue is 12% Otis, 11% Schindler, 10% Kone Oyj, 9% Thyssenkrupp AG, 7% Hitachi. 

Thyssenkrupp is a conglomerate and its elevator business is neglected and has lower profit margins of 10% compared to 15% by Otis. With German 10 year bond rates available at 1% Brookfield can make a bid and leveraged returns can be good if they can improve the business. 

Elevator companies have long term service contracts and they make 50% of the money through services. Asia which has 50%+ of world population is the fastest growing market with India and China having major growth opportunities. 

We should know the outcome of the sale process within a month or so. 

Brookfield Temasek Team Up for Thssenkrupp Elevator Unit

WSJ Going Up? Elevator Service Business

Elevator Market Analysis

Elevator Market 2019-2024 Trends

Boeing vs Airbus - Order Backlog 2019 End

Boeing (BA) vs Airbus (EADSY, AIR.PA) orders for 2019 indicate a clear win for Airbus as Boeing struggles with 737 MAX Issues and the Reputational Damage. 

BA has orders this year of 243 aircraft for $6.6B while Airbus had 940 orders this year worth $18.6B. 

On October 31, 2019, Airbus’ backlog was 7,471 jets. Of these, 6,543 (88%) were A220 and A320ceo/neo Family narrowbodies. The company set its all-time backlog record high of 7,577 jets in December 2018.

On October 31, 2019, Boeing’s backlog (total unfilled orders before ASC 606 adjustment) was 5,675 aircraft. Of these, 4,573 (81%) were 737 NG/MAX narrowbody jets. Boeing set its all-time backlog high of 5,964 aircraft in August 2018.

The number of Airbus aircraft to be built and delivered represents nine point three years of shipments at the 2018 production level. In comparison, Boeing’s backlog would last “only” seven years.

Secular Tailwind In Aviation - Growth Runway for Boeing & Airbus

There is a major Secular Tailwind In Aviation and  Growth Runway exists for Boeing & Airbus. BRICS accounts for 40% of world population and 20% of GDP and number of people entering middle class in India and China will soar in the next 2 decades. Also spending on travel is excoriates time grow significantly over next 2 decades.

There may be recessions and downturns in the interim but over next decades if Boeing and Airbus maintain safety standards and can retain the duopoly there is a tremendous amount of money to be made. 

Toronto House Prices Up 12% and Sales Up 17% Dec 2018 YOY

The Greater Toronto housing market ended 2019 with another double-digit sales increase.

The Toronto Real Estate Board says home sales rose 17.4 per cent in December compared to last year, with 4,399 properties changing hands. Single-family and semi-detached homes led the way. It also caps off a year where the market recovered from its decade-low sales levels in 2018. 

The average selling price of a home also rose 11.9 per cent in December to $837,788.

Toronto House Prices Up 12% and Sales Up 17% Dec 2018 YOY

Pier 1 Imports Inc - Case Study on Risks of Investing In No-Moat Business

Pier 1 Imports Inc - Case Study on Risks of Investing In No-Moat Business

Home decor and furniture retailer Pier 1 Imports Inc (PIR) said on Monday it plans to close up to almost half of its 900 stores, cut jobs and warned about its ability to continue as a going concern in a tough retail environment. The retailer's shares, which were trading around $500 in 2013, plunged to about $5 late last year. They were down nearly 5% in extended trading.

This is a case study that shows how investing in a No-Moat business can be a risky proposition. Retail industry is generally a low margin business but shifting trends and increased competition due to eCommerce (AMZN) have made it very difficult to turn a profit.

BA - Presents Risk and Opportunity

BA Presents Risk and Opportunity today.

Company is trading for $185B  with net debt putting enterprise value above $200B. 

There are reports of additional issues with 737 MAX including wiring problems, issue with engine lightning protection later removal and FAA Mandating Training among a few. This will definitely lengthen the period for which MAX will remain grounded. BA is indicating they may raise more debt and cut spending including R&D. This is a yellow flag and BA tech seems to be lagging behind Airbus as they repurposed 70 year old plane again to create MAX and did not design a new plane to competing with Airbus. 

BA 4Q 2019 results would definitely be ugly with charges and may present an opportunity around $300 a 10% correction from $330 today. Question is what will happen to MAX and the 7 year backlog of orders that still remain. The US defense business and duopoly keep BA afloat for now with opportunity for turnaround. The new management needs to make the right moves for the company to recover. Any further accidents of BA aircraft will severely dent the company. 

I believe it is best to wait ams watch and sell $300 puts on further correction to lock in a more advantageous risk reward with effective price of $220 or below per share by selling Jan 2022 puts.

AAPL - Case Study on Herd Mentality & Power of Sentiment

AAPL was undervalued in Jan 2019 at 12 times earnings for a dominant world leading company with Billion Plus loyal customers and reasonable growth prospects. But today at $300 per share at 25 times past earnings and 22+ times forward earnings returns for today’s investors are certain to be moderate or mediocre. 

Sentiment and Heard Mentality is such that who knows what stock price does in 2020. One thing is for sure that when a Global Champion leadings company runs into short term issues and sentiment terms very negative it’s a great opportunity to buy and hold for long term. 

FB in 2018, GOOGL in 2018/2019, possibly BA in 2020 could turn out to be the same.