The Lex Newsletter: Finding the edge

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Dear reader,

We like to think Lex is at the bleeding edge of financial journalism, despite the column having appeared in the paper since 1945 and being, perhaps, a touch old school in its styling — right down to its Latin name. But we try to stay ahead of the pack and keep tabs on the companies that are doing the same. Here is a selection of pieces from the past few days.

1. The Chinese electric vehicle market is the biggest, and most important, in the world — with foreign automakers accepting that they will need the technology and partnership of domestic Chinese companies to be able to compete. Getting a toehold in China itself, a market dominated by BYD, other local manufacturers and Tesla, is ever tougher as a price war over battery-powered vehicles escalates. Toyota is one automaker that thinks it may have found an edge, partnering with gaming and social media company Tencent to offer technology-enhanced cars. In the fast-moving Chinese market, technological features — such as seamless connection with smartphones — are becoming important to buyers and could be a way for automakers to set themselves apart from cut-price competition. Read more here. 

2. China is also showing who really has an edge in the luxury world and who doesn’t. The gloomy mood music around the latest set of figures from Europe’s luxury names belies the fact, says Lex, that investors are spoilt for choice in terms of brands that are proving resilient to the slowdown. Despite the fact that the luxury world is normalising from annual sales growth rates of well over 20 per cent in the post-pandemic boom, the sector appears on track to return to its long-term average of perhaps 6 to 8 per cent a year. That is pretty remarkable in and of itself. Find out who is faring well here. 

3. Italy’s Agnelli family know a thing or two about luxury goods. They also, it turns out, know something about taking a high conviction bet on a situation that looks fraught with risk, if not uninvestable for many market investors. Last year, the Agnellis took a high-risk, 15 per cent stake in medical equipment manufacturer Philips. This happened despite the Dutch company’s legal troubles in the US, where it has faced product recalls and lawsuits over degrading foam in its sleep apnoea machines. That type of legal risk is enough to keep most investors on the sidelines. But Philips this week announced a $1.1bn settlement, which arrived much faster than the market expected. It was also less than analyst estimates of a €2bn to €5bn payout, with a worst case of €10bn often mentioned. Philips shares jumped almost 30 per cent — and, Lex thinks, they could have further to go. Find out why.

4. One company looking for an advantage in private ownership is Darktrace. The cyber security company, which listed in London in 2021, last week said it had agreed a £4.3bn take-private offer from US investors Thoma Bravo. The latter is one of the largest software-focused investors in the world. But, financially, the offer doesn’t look like a knockout. The cyber company has struggled on the public markets, dealing with accounting concerns, vocal short sellers and the long shadow of its co-founder Autonomy’s Mike Lynch, who is facing a fraud trial in the US. Despite all that, Darktrace is one of the better performers of the (generally dismal) initial public offering class of 2021. Its departure, as a rare tech name, is a blow to London but owes more to Darktrace than the travails of the City. It is, perhaps, little wonder that Darktrace did not hold out for top dollar. Read more here. 

5. Miner BHP, which a couple of years ago excavated itself from the FTSE 100 by shifting its primary listing to Australia, is trying to find a way to chisel some copper from the equity market. No wonder. Building mines from scratch, always risky, gets ever harder: the time from exploration to cash flows from production has averaged 16 years of late. Then there is the cost, estimated at $3.5bn for a 100,000-tonne-per-year mine, according to Global Mining Research. BHP’s prey, Anglo American, offers a much cheaper per-tonne alternative at the moment, thinks Lex, at perhaps $21,700 per tonne of copper equivalent. BHP’s deal looks overly complicated and politically fraught. But the copper maths suggests it can and will bump its offer. Read more here.

Best read

Catch up on the best-read Lex pieces of the past week:

1. The diamond market is showing serious cracks from man-made stones

2. Cheap solar energy is giving desalination its moment in the sun

3. The Bordeaux fine wine market could use a stiffener

4. Meta proves that artificial intelligence has its limits

Have a great week,

Helen Thomas
Head of Lex