NUR April 2021 Edition

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Quick take on Iberian Markets





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Why is China so interested in Africa? Business Deep Dive: Lululemon Athletica



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Quick Take on Iberian Markets Spain presents an €11bn plan to aid companies at risk of insolvency. The package should provide a total of €7bn in direct non-reimbursable aid to companies and self-employed people, a further €3bn to help restructure state loans to businesses, and €1bn for capitalization. In relative terms, Spain has spent the most in financial aid, among its EU peers, at 7.3% of gross domestic product. Spain’s Tourism businesses fear the impact of another lost summer. Last year’s summer lack of demand caused a heavy toll on the industry. In southern Europe, where one in every six jobs depends on tourism, the sector represents 11% of output. The biggest contraction in GDP, 11%, was registered in Spain. According to the Bank of Spain, under favourable conditions, foreign receipts will only reach 56% of 2019 levels, while in a pessimistic scenario it may only reach 14% of 2019 levels. It all comes down to vaccination and how soon European countries reach the vaccination targets. However, the EU will have to threefold its vaccination rate if it wants to reach its target by the end of June. The end of mortgage moratoriums will affect 86k families across Portugal. The measure was first implemented in April 2020 and reached its maximum in September at €48.1m. The average value is €65k for public moratoriums and €38k for private moratoriums. Families will start paying interest and instalments in April, creating doubts about the risk of defaulting, given the national scenario. Banco de Portugal states that approximately 20% of credits have a moderated risk, and 6% are nonperforming loans (NPL). PSI 20 reached 4970,10 points, a monthly return of 5.35% since February. Main movers include EDP Renewables (EDPR) at 1.43% and Altri (ALTR) at 8.51%. Jerónimo Martins (JMT) registered the highest monthly return at 11.71%. The company is the largest food retailer in Poland, where sales rose by 5.1% in the fourth quarter of 2020, offsetting the 0.8% drop in its domestic supermarket chain Pingo Doce. Furthermore, it plans to increase investment from €470m, last year, to €700m in 2021.

Diogo Luís Extremadura will host the first battery cell factory in southern Europe. The project is a private initiative of Phi4Tech, Lithium Iberia, and individual partners. The factory will be implemented in Badajoz at Southwest European Logistics for an expected investment of €400m. The project will start with a capacity of 2 GW in 2023 and will gradually increase to reach 10 GW by 2025. The battery factory is part of a wider project that includes the construction of a cathode factory and the extraction of lithium and nickel throughout Spain. EDP announced plans to invest €24bn over the next five years. To do it, EDP Renewables is considering a capital increase to raise between €1.5bn and €2bn from institutional investors. EDP wants to abandon coal power generation by 2025 and go completely green by 2030, reaching carbon neutrality 20 years earlier than its previous goal. That means adding 50 GW in clean energy by 2030, going from the current share of renewable sources in the overall output of 74% to 100% at the end of the decade. Bankia officially merged with Caixa Bank for €4.3bn. The new bank will operate under Caixa Bank’s brand and will have 20m extra customers and 50k more employees. The deal will create a monopoly in 21 of 86 Spanish regions and should generate €770m in annual cost savings. The resulting institution is now the largest financial group in Spain with more than €660bn in assets, establishing an important position at the European level with a market capitalization of over €16bn. MasMovil offered €2.1bn to take over Spanish telecoms rival Euskaltel. This bid represents a premium of 26.8% on the average share price over the past six months. The deal would merge Spain’s fourth and fifth-largest telecoms companies, closing the gap with the big three: Telefónica, Vodafone, and Orange. Euskaltel, launched nationally last year under the Virgin name, has a strong position in the north of Spain. It is expected to add about 150k new customers per year under the brand. Euskaltel’s share price increased by 16% to €11.12 after the offer. 3

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LonDone How Brexit will put into question London’s right to the throne as the European financial hub Ricardo Freitas

Brexit means Brexit Almost 5 years ago, on the 23rd of June 2016, news emerged that the UK-wide referendum had come to a conclusion: 52% majority voted in favour of leaving the European Union and in doing so, it became the first member state to trigger the Article 50 of the Treat of the European Union allowing “any member state to withdraw from the Union in accordance with its own constitutional requirements”. But even now, 5 years later, the full extent of the details and consequences of this decision are anything but clear, but out of all the questions that have surfaced over time, one remains critical for the future of the European financial markets: what will happen to London as the financial hub of Europe and who is going to take its place? As of February 2021, Amsterdam surpassed London as Europe’s largest share trading centre as the effect on the financial markets of the Brexit decision becomes to take effect. According to the CBOE Europe, last February an average of €9.2bn worth of shares were traded daily in the Euronext Amsterdam stock exchange, leaping ahead of London who recorded a decline to €8.6bn worth of daily shares traded, paving way for a new fight in the financial markets, the fight for who becomes the new European financial hub.

Tomás Forte Vaz

A Historical Outlook of London as the Financial Hub of Europe To better understand what is at stake, we must first understand London’s role as a financial hub, and how both being part of the European Union but outside of the Eurozone, enabled its prominence within the European markets. Banks in the UK have enjoyed far greater levels of cross-border exposure than the majority of its European counterparts, dating back to the early 1980s, incentivizing foreign investors and cementing the basis required to outperform its competitors. During this time, London exploded as the global trading hub of both currencies and interest rate derivatives, accounting for about half of the $13.1tn-a-day market, much due to its time zone, enabling investors to coincide the end of the Asian markets with the opening of Wall Street. Regarding asset management, since 2009, UK assets under management have close to tripled in value and occupying about 40% of the total AUM in Europe, at the cost of other giants such as France and Germany. Having its own currency and thus Central Bank, coupled with the beneficial time zone and being member of the European Union, benefited the UK greatly, inspired confidence within investors and made London an ideal bridge into the European markets for major banks and institutional investors, driving the concentration of financial institutions who aimed at further augmenting their financial activity. Such measures and special position within the EU, crowned the City of London as the financial capital of Europe. However, after the Brexit referendum, London’s right to the throne was put into question, as an exit of the EU would severely damage its position as a bridge into the European markets.

The Negotiations that No One wants to lose The never-ending talks between the EU and the UK never gave the required attention such topic vvvv 4

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needed, hence leading to the rather chaotic outcome where an “equivalence pass” is not expected to be granted. This pass is what allows market access to foreign financial institutions provided that their home country regulations are as robust as the EU. On this matter, Brussels is still waiting on Britain’s next move: is it going to align with the European regulations, or will it diverge from it? Were the latter to happen and an equivalence pass granted, there would be a significant competitive advantage given to the British banks. Furthermore, because of the UK’s departure, the EU loses its oversight capabilities over euro denominated assets. At the bottom line, the equivalence pass relies on trust, a frail sentiment shared between the two parties since the beginning of the Brexit talks and reinforced by the late September threat of breaking international law.

Pretender to the Throne Whilst these talks have prolonged for years, the transition of the concentration of the European financial activity away from London is yet to take full effect, partially due to the continuous Brexit negotiations but also due to the Covid-19 pandemic which significantly aided this halt in relocation of major banks. According to Andrew Bailey, Governor of the Bank of England, only 7,000 city jobs were lost as a result of the Brexit deal, far less than the expected 40,000. However, he warns that with the aid of large-scale vaccination programs there will be a reduction in the barriers to exit for the major banks. During this period, France, Italy, the Netherlands and Spain all introduced special tax breaks targeted at high income individuals working in the financial sector, as they eagerly wait for this transition. Currently, Paris and Frankfurt seem to be the best placed to take the throne, but many experts believe that the exit will not be concentrated but rather dispersed, whereas large banks will likely move to city with large infrastructure and financial history such as Paris and Frankfurt, FinTech will target Dublin due to its low corporate tax and Amsterdam will be left with trading, being the title holder of the world’s oldest stock exchange. Rather than one heir being left with the entire kingdom, as a result of a greater level of globalisation and mobility along with different interests, it seems the kingdom will be spilt among those closest to the throne, and the so

called European financial hub will begin to mean less than it did before.

Singapore-on-Thames The unlikelihood of such equivalence being granted is looked upon with fear in Britain as it would harm financial services, an industry which contributed with £76bn as tax income to the UK, accounting for 10.1% of total taxes. But could this be an opportunity for a prosperous new chapter? Jonathan Guthrie, head of LEX, argues that London becoming the next Singapore is the most likely outcome considering that the equivalent pass is not conceded. This would make the City an offshore financial centre for EMEA (Europe, Middle East and Asia) countries and the platform for USAsia transactions. Still, this prospect brings new challenges as it requires a restructure of the UK’s economic system, hence leading to a more deregulation environment and consequent tax decrease. Furthermore, authoritarianism can be a stimulus to the Singaporean success model, a deal breaker for its implementation, as such type of government would not be allowed by western countries and British citizens.

Concluding Remarks The Brexit decision acted as a catalyst for what is expected to be the dispersion of the financial activity in Europe, there will be winners and losers, those who reap the benefits and those who are left asking for more, but we should not forget, they built an empire once from nothing, and it would certainty not be naïve to assume they will do it again.

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Why is China so interested in Africa? As the pandemic and social unrest shift Western governments' focus inwards, China is one step ahead by strategically increasing its influence on Africa. Will this be the beginning of a new iron curtain? Introduction The Covid-19 pandemic has posed a great challenge for all nations and an ethical dilemma of whether saving lives or the economy. But for one country in particular, opportunities have risen from the ashes to further its goal of global economic and political dominance. China, under the firm leadership of Xi Jinping, has been able to sustain itself against this once-a-century kind of virus, growing 2.3% in 2020 and being the only country in the world who saw a growth in its GDP. Rising tensions and social unrest in the US and in Europe due to lockdown measures, social activism and the rise of far-right movements while dealing with a catastrophic pandemic has made the leaders of these countries to look inwards rather than outwards to solve issues, making emerging countries vulnerable. This vulnerability of African countries, together with a lack of support from the US and EU, creates an opportunity for China to strengthen political ties and increase its political, economic, and technological dominance around the world.

Belt and Road Initiative So that every reader is able to grasp the full situation, I will make a fast rundown of all things that have been happening in the world that led up to the launch of the digital yuan and how this will affect African nations. The first thing to consider is the China’s Belt and Road Initiative (BRI) which aims to revive the former silk road to connect as much as 71 nations in Europe, Africa and Asia that account for half of the world’s population through sea and land routes. It is reported that the project can ramp up to a $1tn investment in the form of low-cost loans on infrastructure like ports and pipelines. There are concerns on “debt-trap diplomacy”, where poor undeveloped countries take massive loans and are essentially subject to the Chinese government demands after they have trouble to

Bernardo Patrício

repay that debt. What is important to take from this project is that China is investing a lot in countries like Pakistan, Laos, Kyrgyzstan, Malaysia, Russia, Italy, Portugal, but also Sudan, Namibia, Nigeria, Mozambique, and many more African countries.

China’s Challenges There are 2 main challenges that China is facing today: internally, the increasing power by big tech companies such as Alibaba and Tencent and, externally, the surge in political pressure made by other leaders, recently led by the previous POTUS. Regarding the first, it has been obvious that China’s governmental authority is now trying to keep the private sector in check with the CCP’s objectives and any refusal or disagreements will be met with severe punishments, as we saw with the Ant Group IPO last year and the sudden disappearance (and reappearance) of Jack Ma, Alibaba’s founder, and former CEO. Trying to repress private entrepreneurship to the communist standards while advocating for innovation and freedom of opportunity to dethrone America’s capitalist and free markets advantage may be too many balls for the CCP to juggle at the same time. Secondly, international pressure for global powerhouses such as the UK, Germany, Canada, Australia, France and the US as the main issues have been the capture of national citizens, political prisoners, Xinjiang’s concentration camps and Hong Kong’s “One Country, Two Systems” infringement. The US, with the support of other nations, could sanction China from using SWIFT, the inter-banking system used for international payments, and hinder much of their regional and inter-regional trade. This is why China is creating diplomacy relations with other emerging countries and protecting itself against a Western united front.

Chinese tech dominance in Africa Since 2012, there have been accusations against


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Huawei about building “backdoors” in their device’s operating systems that could facilitate Chinese espionage. Countries such as the US, UK, Australia, Japan and Taiwan have banned Huawei’s products from their territory. While this was a major blow for what would have been the biggest smartphone manufacturer of the world, Huawei and other Chinese manufacturers (such as ZTE and China Telecom) are growing and establishing themselves in the African continent. In fact, “Made in China” technology now serves as the backbone of network infrastructure in several African countries. According to Gyude Moore: “50 percent of 3G systems used by African telcos were built by Huawei and another 20% to 30% were built by ZTE, while Huawei has built up 70% of 4G networks and is likely to build all 5G networks”. Not only that, but most smartphones devices are also built by Chinese firms and that is because, in these markets, price is extremely important due to the low wages of the majority of the population. Because they are backed by the Chinese government, Transsion’s phones are currently sold for as little as 20$, prices which other manufacturers like Samsung and Apple cannot really compete with. In short, both the network and devices in Africa are mostly made by Chinese government-back firms. By doing this, the Chinese Communist Party will be able to create a “foreign” surveillance state with big data centers and smart cities feeding information back to them, while they also can nudge people to increasingly use Chinese applications instead of Western technology by offering them as native to their devices (like the Harmony operating system built by Huawei after the US ban), as also collude with national governments to keep the public opinion in check. Africa smartphone market share by brand (units), Q3 2020 Light-blue colour indicates China-owned smartphone makers 44%

20% 16% 9%

Transsion Samsung






Cryptocurrencies and money Technology is indispensable these days. To stop using 21st century gadgets and inventions would be impossible as we grow dependent of the personal computer to work, mobile phones to order an Uber and the internet for every kind of entertainment. Despite all these constant innovations in so many areas of our life, what we believe to be the form of a currency has remained relatively stable for the last few hundreds of years (typically in the form of a note bill and coins), yet the definition has had slight but significant change from a gold standard to fiat currency (fiduciary currency). In 1944, the Bretton Woods System was signed by 44 countries to ensure the stabilization of currency exchanges and to foment global trade. The agreement enforced the convertibility of U.S. dollars to gold, ensuring that every dollar circulating was backed by a certain ounce of gold stored in the bank, in other words, the American dollar was pegged (constant exchange rate) to gold and other currencies such as the pound and the yen were pegged to USD. The problem occurred when people noticed that there might have been more dollars circulating than gold reserves in the bank, creating a run-on gold reserves when President Nixon devaluated the dollar against gold. By 1973, the Bretton Woods System had collapsed leading way to fiat currency. Fiat currency means that the money we use has no intrinsic value, we validate its value by trusting that our government and financial institutions will act responsibly and in society’s wellbeing in mind. Lately, that trust has been fading away with large amounts of new currency being put into circulation and the preservation of the political elite status quo, undermining public confidence in the democratic system all around the world, but specially in the U.S.A. It was only after the 2008 financial crisis that a completely decentralized and independent currency was formed, named Bitcoin. It has seen spectacular rise through the years, but, more importantly, Bitcoin (or any other cryptocurrencies who follows the same principle) may revolutionize both the definition of money to a decentralized digitally scarce resource and the form to highly complexed mathematic algorithms in the blockchain.


Source: IDC, 2020

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In summary:

o China is pursuing the Belt and Road Initiative (BRI) with high investments in Asian and African countries. o The rise of big tech with Alibaba and Tencent in the “Sleeping Giant” and the increase of foreign political pressure are the main issues for Xi to deal with. o Although being banned in some countries, Huawei and other Chinese tech are spreading like a virus through Africa. o A new era of distrust in central institutions may be coming, leading way for decentralized cryptocurrencies rather than the fiat currency we use today.

speech. But the digital yuan adds another layer of control to the Chinese people. Using its social scoring system, the government is able to restrict what any wrongdoer citizen can buy or sell. It can restrict the purchase of leisure items, but it can also go much further and restrict the purchase of first necessity goods.

What is happening? For some time, China has been researching how to empower cryptocurrency technology to the advantage of the Communist party. Currently, their technology is much farther ahead of any other countries or group of countries such as the U.S., EU and Japan. The main evidence of that technological superiority is that China is already making trials of the digital yuan in 4 major Chinese cities, while European and American leaders are still debating whether to pursue it or not. In other words, while the West keeps going back and forth with the crypto space, China has already plans to fully develop its own cryptocurrency and issue it to the public by 2022’s Winter Olympics. Like Bitcoin, the Digital Currency Electronic Payment (DCEP), more commonly known as the digital yuan or e-RMB, operates with a blockchain ledger where every transaction is traceable to the origin. A differentiation point is that unlike Bitcoin, and other major cryptocurrencies, it is centralized by the control of the Chinese government. An important feature of the e-RMB is the “controllable anonymity” where the government is able to recognize every individual present (the seller and the buyer) in the transaction “written” in the digital ledger. Some are saying that this technology is the last piece of the puzzle for complete surveillance of its people. As of now, throughout China there is facial recognition installed in surveillance cameras all over major cities and social media apps like WeChat are being constantly watched for any “disruptive”

But the DCEP is also a way to tackle against the two big challenges that China faces: 1. By taking control of the financial transactions inside the country, China is keeping in check big tech companies that have expanded to the fintech industry. Tension between these two groups has risen in the last months with the Ant Group IPO being cancelled due to regulatory concerns and the disappearance of Jack Ma. A considerable portion of Tencent and Alibaba’s revenues are now made through direct lending to consumers and instant payments in their platforms, something that the central government was not too happy about since they did not have regulatory approval to enter in financial transactions (they were not a financial institution approved by the CCP). 2. This allows China to create a new channel to process international payments, escaping the SWIFT system controlled by the West and where the US can ban or restrict China’s use due to sanctions, arms embargos and money laundering regulations. But now, the digital yuan changes the game and allows to bypass through it, as long as the other party accepts it. But for the other party to accept it, it needs to quantify the possible retribution from Western countries and, thus, the inherent implicit and explicit 8

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costs of transacting with China. That is why China is building a network of diplomacy through Africa. In the book “Shaping the Future of Power”, Lina Benabdallah explains the Chinese way of building diplomacy which differs from the Western way. Recall the Marshall Plan, the American program with the objective to rebuild Europe through infrastructures. This move had the ultimate goal of stopping the communist ideals to spread around Europe and build diplomacy and relations. This framework of building infrastructure was used in many other occasions by Western countries, but the Chinese took the approach building person-to-person connections between their people and other countries by subsidizing student exchange programs, training bootcamps, military exercises and official visits of high-level military leaders, but, while this also happen with United States, this strategy is the backbone of their diplomacy relations. Building fruitful alliances in emerging nations, like African countries, is the new strategy to counter the increasing foreign political pressure.

Africa: In great need of a helping hand The Covid-19 pandemic has worsened the problems that were already present in the African country. Many countries now are close to a sovereign debt default and poverty. Debt-to-GDP has risen considerably, and the epidemic has already taken its first victim: Zambia officially defaulted on November 13th, failing to pay interests on its $12bn direct external debt, of which $3.4bn are from China. The disproportional amount of debt owed to China is not uncommon within the SubSaharan nations and some are calling this kind of “debt-trap diplomacy” (built before the “personal relations” diplomacy strategy explained before) a new age of economic and financial colonialism in

the region. The BRI project allowed a lot of countries to accept large sums of loans by the Chinese government to build the infrastructure necessary to foment trade.

Source: Trading Economics

China is working with African nations to lower the burden of their debt, but, if you have already guessed by now, nothing the CCP does is purely altruistic. As Covid-19 spreads through the country without any control, vaccines shots from the big three pharmaceuticals (Moderna, Pfizer and Astrazeneca) have been dangerously few to African nations as the West focus on protecting its own population. But, while the US and the EU are dealing with their own internal problems, China has promised to supply Africa with its own vaccines and this “generosity” may be the game changer moment in Sino-African relations. The pandemic raised a perfect opportunity for China to establish their influence in Africa and pull the rug out of the American and European’s feet.

Future Implications Given everything that was said, how does the digital yuan relate with the Belt and Road Initiative and the Chinese tech dominance in Africa? The primary objective of all this is, is the political and economic dominance over the world. The digital yuan serves the purpose of further controlling its population, but also to control its international financial transactions, stopping the use of Western controlled institutions such as SWIFT. The goal is also to overthrow the dominance of the US-dollar as the global reserve currency, since they would imply lower interest rates in the Chinese 9

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economy, sprouting even more investment and growth. The way this can happen is through the Belt and Road Initiative where countries increase their trade volume with the Asian country and by issuing yuannominated debt instead of dollar-nominated, eliminating the dollar as the intermediary currency in the region. The benefits of having the first digital government-backed currency will play in China’s favor. One of the advantages of the DCEP is that it does not need to be connected to the internet to work (although it is still unclear how it will work) which may a deciding feature to get the African region, where currency and monetary standards vary from mile to mile, to adopt the e-RMB as a common currency to foment trade and regional growth, much like the Euro in the EU. In a region plagued by chronic inflation and poverty, which leader would deny a helping hand that would greatly benefit its people lives?

The digital wallet for DCEP has already been implemented into the new Huawei P40 and this is only the beginning. In a few years, a great portion of common African citizens may be using the digital yuan since it will eventually become a native application on every Chinese built phone. In fact, China is racing to establish the technological standards in Africa by building 5G infrastructures and having a dominant position in the smartphone market. This could give rise to technological “iron curtain”, the Microsoft-Amazon system against the Huawei-Alibaba one. The point is: China is playing a global strategic game and making big moves around the world while we are focused on dealing with the Covid-19 pandemic. The media and the public are not paying attention to what is happening around the globe and are distracted by the new daily coronavirus cases. This global virus may be the catalyst China needed to assert its position as the global leader and to accomplish its final goal.

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Business Deep Dive: Lululemon Athletica

Raquel Tavares

Rita Aires

Headquartered in Vancouver, Lululemon Athletica is a healthy lifestyle inspired athletic apparel company for yoga, running, training, amongst others, creating transformational products and experiences. Setting the bar in technical fabrics and functional designs, Lululemon works with yogis and athletes in local communities for continuous research and product feedback.

Markets Lululemon Athletica Inc went public for the very first time in July 2007, trading on the Nasdaq Global Select Market under the ticker LULUV and on the Toronto Stock Exchange under the symbol LLL. A strong demand for the shares pushed Lululemon's IPO price above the revised range of $15 to $17 per share, set by the underwriters Goldman Sachs Group Inc. and Merrill Lynch & Co, which had already been increased earlier in the week from $10 to $12 per share. The initial public offering of the athletic apparel retailer consisted of 18.2m shares of common stock priced at $18 each and was able to raise up to $327.6m, surpassing all expectations. After its first day of trading as a public company, Lululemon’s shares rose 55.6%, going from $18 to $28 per share. Since then, the Canadian retailer’s stock price showed a steady growth trend during its first 10

years of trade, going from its original share price of $18 in 2007, to almost $80 per share in the end of 2017. From that year onwards, the company’s stock price rose exponentially, reaching its all-time high of $398.29 per share in September 2020. Such increase can be explained by the significant cultural shift towards a more mindful lifestyle in what comes to health and fitness that, aligned with the intensive brand marketing and positioning, resulted in a significant popularity increase of the company’s name.

Price Performance

Source: Source: Bloomberg; Note: LULU US Equity – Lululemon Athletica Inc, COMP Index – Nasdaq Composite Index; BFIT US Equity - Global X Health & Wellness Thematic ETF


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In March 2020, the company’s share price took a big, but temporary, hit, going from $263.68 per share in the end of February, to $138.98 per share mid-March, which is a consequence of the tremendous effects the Covid-19 pandemic had in almost all businesses during that time period, but also the investor sentiment present in the past year as uncertainty takes up a big weight in investment decisions. After that and due to the strong digital business, the company has developed in order to adapt to the way its customers were shopping amid the world pandemic, the stock quicky recovered and currently, as of the 31st of March 2021, Lululemon’s share price stands at $306.71 per share. In January 2019, Lululemon’s board of directors approved a stock repurchase program of up to $500m of the company’s common shares. The repurchases were expected to be complete by January 2021, however, in the period of December 2019 to February 2020, the company seems to have suspended this program.

History and Development Over the past decade, a trend has emerged as individuals begun investing more and more into their workout apparel. Even though it was once common to wear your worse clothing while exercising, today many people wear what is called athleisure apparel - a term meaning stylish clothing that can be worn both inside and outside the gym - and one huge company responsible for this trend was Lululemon itself. Lululemon is a high-end athletic apparel retailer that was founded in 1988 by Chip Wilson, who began his company out of his home in Vancouver, Canada. After selling his company Westbeach, his passion for clothing remained. Chip Wilson had a rule which he calls ‘the rule of three’, meaning that if he had seen something three time, he identified it as a trend and acted on it as soon as possible. In 1987, this trend was yoga. After seeing an article on a paper about yoga, overhearing a conversation on a coffee shop about yoga and seeing a poster on a telephone about yoga, he knew he needed to act fast, and as a first action, he started by joining yoga classes and was the only male. Class after class, he began to notice the number of people attending was growing and so, in 1988, he officially started Lululemon.

What set his company apart was that he designed the clothing primarily for functionality and only after that for fashion. After years of testing prototypes on women, in 2000, the first store opened in Vancouver. In 2003, the first store opened in the US, in Santa Monica, California. The company then quickly began to spread overseas, going to Melbourne, Australia, and other places. One of the many aspects that has attributed Lululemon its growth and success is that the company was making triple the profit by eliminating the retailer. In 2007, the company went public and began to take off. The Products and Marketing

Lululemon offers a comprehensive line of apparel and accessories for women and men. Its apparel assortment includes items such as pants, shorts, tops, and jackets deigned for a healthy lifestyle including athletic activities such as yoga, running, training, and most other sweaty pursuits. Moreover, they also offer fitness-related accessories. In 2019, Lululemon entered the personal-care market. The design and development team continuously works to provide technically advanced fabrics, with new feel and fit, and craft innovative functional features for the products. Through its vertical retail strategy and direct connection with the customers, the company is able to collect feedback and incorporate unique performance and fashion needs into the design process. Although Lululemon benefits from the growing number of people that participate in yoga, the percentage of products sold for other activities is believed to continue to increase as they broaden their product range. The Canadian company resources to a community-based approach to build brand awareness and customer loyalty. They pursue a multi-faceted strategy which leverages the local teams and ambassadors, digital marketing and social media, in-store community boards, and a variety of grassroots initiatives. The Markets and Segments

Although the company’s primary and largest customer group is made up of women, Lululemon also designs a comprehensive men’s line and has a targeted strategy in place to serve male customers. 12

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The business is growing as more men discover the technical rigor and premium quality of Lululemon’s products and are attracted by its distinctive brand. Regarding the company’s geographical exposure, North America is its largest market, offering a mature health and wellness industry and sophisticated consumer. Additionally, the Canadian enterprise is expanding internationally across Europe, the People’s Republic of China and the rest of Asia Pacific.

Key Topics 1. Fabric Innovations Help Drive Results

Lululemon’s keen focus on finding function in fabrics is helping to drive sales growth in North America. An initial line of products from its 7mesh collaboration in mid-2018 added technical, cyclingdesign elements in a high-performing material. This helps reach cycling enthusiasts and attract new customers. In women’s, Lululemon is already selling more tennis-style skirts, paddle-board and surf swimsuits, as well as styles designed for studiobased workouts. 2. Lifestyle Key to Success of Men’s Line

In terms of the channels: company-operated stores and direct to consumer. However, this is not exclusive as Lululemon also generates net revenue from outlets, sales from temporary locations, sales to wholesale accounts, through license and supply arrangements, and warehouse sales. The company’s direct to consumer segment includes the net revenue which is generated from the e-commerce website, other country and region-specific websites and mobile apps, including mobile apps on in-store devices that allow demand to be fulfilled via its distribution centers or retail locations. Lululemon operates in both the physical and digital space to better cater the shopping desires of the customers. At the end of 2020, the company had 521 stores: 393 in its comparable store base, including 284 in the US, 42 in Asia, 37 in Australia and New Zealand, 25 in Canada, and 5 in Europe. Between February 3rd 2019 and February 2nd 2020, 51 new stores had been opened around the world.

Momentum in men’s activewear has helped Lululemon gain market share, and the ability to double that business will require the company to keep branding itself as a lifestyle name, offering better quality and fit. In 2019, the company launched waterproof wool in its outerwear line and expanded its fashion-free franchise to men’s, using its metal-vent methodology to increase offerings in the training category. The brand still faces competition from incumbents in men’s sportswear, including Nike, Adidas and Under Armour, but management aims to deliver 20% sales growth in the category in each of the next five years. 3. E-Commerce Outpaces Store Sales

Lululemon’s online sales growth has soared on the back of the company’s digital-site investments over the past three years. Accelerated opportunistic digital investments in late 2018, geared toward improved customer-analytics capabilities, ship-fromstore and inventory-search-by-store, fuelled top-line momentum in 2019. Both traffic and conversion contributed to a standout 157% comparable digital gain in the second quarter. As the ability to buy online and pick up in stores is added across all locations, this will enhance the profitability of internet sales, which are already accretive. 4. Yoga Rise in Asia and New Stores in China Yoga’s rising popularity in certain growing Asian economies offers sizeable opportunity for Lululemon. While the company has not been able to

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capture its full potential abroad, progress is underway and international sales may become 20% to 25% of the total in coming years. China will likely fuel overseas gains via an equal contribution from stores and digital. In the second quarter of 2019, international sales rose 37%, with Chinese same-store sales up over 30% and digital jumping 130%. Lululemon continues to launch stores in China, doubling its store base in the region in 2019 and has significant opportunity in tier-two cities. 5. Currency Turns Unfavourable

Year-over-year foreign-exchange comparisons have become unfavourable for Lululemon’s results. In the second quarter of 2020, currency dented sales by $7m and same-store sales by 1%, given that the company does not hedge for inventory purchased in local currency. An expanding international presence adds foreign-exchange exposure, making reported sales and profit vulnerable to disadvantageous currency movements. 6. Building Better Customer Connections

Lululemon’s visible efforts to be an experimental retailer help build the brand’s image and serve as a catalyst for higher traffic and sales. From runs to yoga and meditation spaces, the retailer provides functions for its products and builds engagement. In 2019, Lululemon opened its first two fullexpression experiential stores in Lincoln Park, Chicago and in Minnesota’s Mall of America. Each consists of 20,000 square feet of yoga studios, meditation spaces and cafes. According to a PwC Retail Trends 2019 report, 69% of consumers believe attending experiences helps them connect better with the brand and communities. 7. Large Events Connections



annual SeaWheeze half-marathon into a virtual experience with over 23,000 runners. These events drive participation that often leads to deeper connections with existing customers and brand exploration for new ones, further fuelling sales. 8. Self-Care Line

Lululemon’s entry into the personal-care market could eventually extend its four core products in 50 stores and online, serving as a catalyst to better sales and margin. Entry into the $500bn global beauty and personal-care market positions Lululemon for superior growth for years to come. The products are made from clean ingredients and free of gluten, parabens and sulphates, allowing the company to capitalize on the rapidly growing “clean” beauty trend. Natural personal-care products complement the retailer’s line-up, moving it further into a lifestyle brand by providing products made for transitioning from the gym to daily life. Lululemon’s profit margins are already above most specialty-apparel retailers, and the addition of natural personal care has the potential to take them even higher as the business scales. Beauty and personal-care companies generate 70% gross margin, on average. Because most personal-care products have a high purchase frequency of about every month or two, they generate more trips and a recurring revenue stream, benefiting both the top line and profitability.


Lululemon’s entrenchment in communities allows it to build deeper connections, while also providing access to a new audience. The company has hosted over 4,000 global events, including flagship experiences, such as Sweatlife festivals in Europe, 10k runs in North America and Unroll China yoga classes. Even amid Covid-19, Lululemon is finding ways to connect with shoppers by converting its

Source: Bloomberg Intelligence

9. Footwear Opportunity

Like Under Armour before it, Lululemon aims to gg 14

NIC Undergrad Review

take a slice of the shoe pie from Nike and Adidas when it enters global footwear this year. The company’s skill at marrying fashion with performance has created outsized gains in athletic apparel and can be done in footwear, a market that, according to Statista may grow to $78bn by 2021. In 10 years, Under Armour has grown its shoe business to $1bn, a 29% CAGR, Lululemon could replicate that, as it develops products that meet the needs of its customers, challenging Nike, Under Armour and Adidas. Athletic-footwear margins are lower than apparel and could lower Lululemon’s margin profile once scaled. Still, the retailer would have profitability well-above specialty apparel rivals. Lululemon’s partnership with APL in 2017 showed that there is white space in the athletic-show industry that can be filled with an assortment that is their own. APL is a fashion-forward sneaker company, becoming the first athletic brand to be accepted to the Council of Fashion Designers of America. While Lululemon’s margins are already above most specialty apparel retailers, footwear is a lowermargin business that could slightly reduce overall profitability. Athletic-footwear retailers have an average gross margin of 48.1% and operating margin of 9%. That compares with Lululemon’s gross margin of 55.9% and operating margin of 22.3% in 2019.

disclosed, it provided a solid base for Lululemon to expand its operations in Australia. In June 2019, Lululemon filed suit against discount retail chain Ross Stores, accusing it of trademark infringement for allegedly selling cheap counterfeit copies of its high-end athletic wear across the US, doing irreparable damage to Lululemon’s brand. In the last quarter of 2019, it came to public knowledge that the Canadian yoga pants specialist was investigating a factory in Bangladesh over the treatment of female workers making its clothes. At the time, factory workers said they were verbally abused and forced to work overtime and paid about $110 a month, according to an investigation by The Guardian. The national minimum wage in the South Asian country was increased to $95 a month in 2018, when workers’ unions had demanded $189. Lululemon had announced immediately after the announcement that it would work with an independent non-profit third party to fully investigate the matter, to ensure that workers are protected from any form of abuse and are fairly treated. The company announced in June last year that it would buy home fitness company Mirror for $500m, as it looks to cash in on booming demand for home workout classes spurred by coronavirus lockdowns. This comes after the closure of gyms and fitness clubs due to Covid-19 led lockdowns, which have led many shut-in Americans to splurge on home-workout equipment and subscriptions, boosting sales of companies such as Mirror and Peloton Interactive Inc. Mirror is a leading in-home fitness company that created an interactive workout platform that features live and on-demand classes. With its best-in class content and versatile platform, Mirror positions Lululemon to accelerate its vision and build upon an ecosystem that will fuel the Company’s Power of Three growth plan, which includes driving the business through omni guest experiences.

Performance Analysis Source: Bloomberg Intelligence

News and Deals In 2010, the Canadian company announced its acquisition of a majority interest in its Australian joint venture capital, New Harbour Yoga Pty Ltd. Even though the value of the transaction was not

Lululemon’s Income Statement has been registering a great improvement in the past few years, showing an impressive increase in revenues from $2344.4m in 2017, to $3979.3m in 2020. Such increase can be explained by the significant surge of people’s desire to follow a more mindful and healthier lifestyle. This is aligned with the new gg

NIC Undergrad Review


CEO’s five-year growth plan for the company that aims to realize the full potential of the brand and generate revenue growth by focusing especially on the expansion of its men’s collection, the overseas growth of the company, the development of a stronger e-commerce platform and on building a base of loyal customers. In this same period of time, the company recorded a massive increase in Net Income, more than doubling from $303.4m in 2017, to $645.6m in 2020, and resulting in an increase of its Net Profit Margin from 9.8% in 2018, to 16.2% in 2020. Lululemon’s assets show a positive and steady growth trend, going from $1657.5m in 2017, to $3281.4 in 2020, clearly illustrating the growth in its production and sales capacity.

However, for the past 4 years, Lululemon kept a negative Net Debt, sitting at -$278.4m in the end of 2020. Such value indicates that the company possesses more cash and cash equivalents than financial obligations, meaning that it could pay all of its debts if they were due immediately and still would have spare cash in its balance sheet.

Source: Bloomberg

Source: Bloomberg

The increase in the company’s assets was accompanied by an increase in its liabilities, resulting in a significant increase of Lululemon’s Debt to Assets Ratio from 18% in 2017, to 41% in 2020, which indicates a progressively higher reliance on debt as the Canadian retailer scales its operations.

The Canadian retailer has also been experiencing a general increase of its cash flows from operating activities, going from $386.5m in 2017, to $669.3m in 2020, explained by the expansion of the company’s normal business operations in that period, as well as its efforts to develop new and innovative products and the launch of its self-care line. Besides, both the company’s financing and investing cash flows became progressively more negative, going from -$26.6m and -$149.5m in 2017, to -$177.2m and -$278.4m in 2020, respectively. These values indicate that Lululemon has been investing more and more capital overtime with the goal to promote its future growth and longterm health of the company and also that the company might be retiring debt, making more dividend payments or stock repurchases.

Industry Overview

Source: Bloomberg

Lululemon Athletica Inc is inserted in the Specialty Apparel Retailer Industry as it designs and retails athletic clothing products. Effectively, in recent years, this industry and more specifically this subsector of active and athleisure wear enjoyed a steep growth. Even though Lululemon has exposure to several geographical markets, the US fffffffffff 16 NIC Undergrad Review

is still its biggest market and, therefore, it is important to highlight a few critical themes regarding the speciality of apparel stores in North America. It is a fact that due to the second round of stimulus checks issued by the US Government, retail spending may see a boost of about $20bn in early 2021, possibly spent in January and February, even though there is still no data to corroborate these estimations. This spending bump could drive retailers’ January sales and 4Q results, aided by redemptions from a pandemic-induced surge in holiday gift-card buying and fresh product assortments. Moreover, spending on stimulus checks and gift-card redemptions is expected to take place mostly online, as many shoppers continue to avoid stores amid heightened concerns about Covid-19. Also, those retailers that keep stores stocked with new products could spur sales in January from gift-card redemptions and stimulus checks. Examples of these stores which created sales momentum and kept inventory lean in 2020 were athleisure brands like Nike, Lululemon, Adidas and teenage retailer American Eagle. Secondly, the pace of digital transformation could see a rapid acceleration in 2021 that goes beyond communications and e-commerce, as the economy recovers, and enterprises spend more on cloud technology and on-premise products. The advance of e-commerce sales in the US may double to 22% in 2024 from 2019, according to Bloomberg analysts, as coronavirus-related store closings that pushed consumers online amid more integrated shopping via mobile apps and social networks take root. It is expected that grocery, athleisure and home outperform this year, providing firm rooting for a doubling of overall digital sales by 2024.

This trend has been accompanied by the push into video and image-based commerce on social media by the likes of Adidas, Burberry and Nike, which could revolutionize retail. These early videocommerce efforts may accelerate digital sales while connecting with younger shoppers. The US socialcommerce market is $22bn and may reach $84.2bn by 2024. While shoppable images and video technology were available years ago, its acceleration is being led by larger screen sizes and better mobile apps. Social platforms such as Facebook, Instagram, Pinterest, Tik Tok and Youtube are increasingly testing visual and video commerce to tap into increased online-video consumption, as shoppers are more engaged with these platforms and drive better Returns on Investment (ROI) for brands. A third trend which should be highlighted is the rising resale demand amid Covid-19 that may disrupt the apparel industry. The apparel resale market is expected to continue its double-digit growth, outpacing the broader market’s low-single digit gains, driven by growing consumer preference for value and wardrobe variety and increasing concern about sustainability.

Source: Bloomberg

The resale segment could grow to $36bn by 2024 from $7bn in 2019, as the stigma usually associated with buying clothes is being replaced with pride from making a more sustainable and conscious purchase. This segment is growing rapidly via retailers such as The RealReal, Thredup and Poshmark. This can act as a threat to retailers as their products may face a demand decrease. Source: Bloomberg

17 NIC Undergrad Review

Price Performance of Lululemon Athletica and its Peers

Source: Bloomberg; Note: LULU US Equity - Lululemon Athletica Inc; UAA US Equity - Under Armour, Inc. Class A; PUM GR Equity - Puma SE; ADS GR Equity adidas AG; NKE GR Equity - NIKE Inc

From the many companies in the industry, the ones to be considered as peers of Lululemon are in the table below. The selected comparable companies are not all headquartered in North America, however, considering that all of them have a strong position in E-Commerce, it seemed appropriate to compare them as the products are similar and are direct competitors in all the markets where they are inserted. Nevertheless, it is important to notice that the market capitalization of each company is highly different, with Puma and Adidas being the closest to Lululemon’s. Additionally, there are other companies which operate in the same market but should not be considered comparable companies as these business segments can be part of a bigger enterprise with very different motivations and a wider range of products for different purposes and clients. Some of these companies which are worthwhile mentioning are Victoria Secret’s Sport Collection and The Gap Inc’s Athleta brand. Apart from these, there has been the emergence of companies like P’tula and TALA which put a great effort into sustainability in their production process as well as the use of recycled materials which may see, in the near future, an exponential growth in their demand as customers are increasingly aware of these factors and how they affect the supply chain and their impact in damaging the environment.

Valuation Overview In the last trading day of March 2021, Lululemon’s stock was being traded at $306.7. Through the comparable analysis of the company’s peers mentioned in the ‘Industry Overview’ section of this article and by taking a closer look at the football field chart, the valuation of Lululemon seems fair when taking the 52 Week Range into account, since the company’s price lies within the Median and the 75th percentile. However, when analyzing the Enterprise Value to

EBITDA multiple (EV/EBITDA) or especially the Price to Earnings ratio (P/E), it is quite noticeable that the actual price of the company is way below the values of its peers regarding these metrics, indicating that Lululemon might be undervalued. In fact, such high values for the P/E ratio signal that the prices of Lululemon’s peers might be way too high when compared to the earnings that they are in fact being able to generate for their shareholders. Also, when looking at their market vvvvv

18 NIC Undergrad Review

caps, it is visible that the peer with the highest price is also the one that presents the higher market capitalization, making the P/E ratio a strong metric that suggests that Lululemon might indeed be undervalued. On the contrary, the Price to Book ratio (P/B) and especially the Enterprise Value to Sales multiple (EV/Sales) suggest that the Canadian apparel retailer might currently be overvalued, since both these metrics present values bellow the company’s quoted price. Overall, through the analysis of the metrics presented in the football field, we are led to believe that Lululemon’s stock might actually be undervalued when compared to its peers. Although some metrics may suggest a slight overvaluation, the P/E ratio presents itself as a very strong metric that signals undervaluation and suggests that the Canadian retailer might have space for valuation gains and for good looking returns for its shareholders.

Source: Bloomberg

Risks Even though Lululemon presents and is constantly working to innovate and expand its business both in geography and products’ range, its business, financial condition, or result of operation could be materially adversely affected by some existing risks. Firstly, the company’s success depends on the value and reputation of the Lululemon brand. This can be translated to the maintenance, promotion and position of the brand, which depends largely on the success of the marketing and merchandising efforts and the company’s ability to provide a consistent, high quality product, and customer experience. In the case that Lululemon fails to achieve its objectives, public image could be damaged by negative publicity, which could be amplified by social media. Moreover, if the company’s considerable efforts and resources in protecting its intellectual property are not successful and the value of the brand is harmed, it may have a material adverse effect on Lululemon’s financial condition. A second point to bear in mind is the Covid-19 outbreak and related government, private sector and individual consumer responsive actions which may adversely affect Lululemon’s business operations, store traffic, employee availability, ggggg

financial condition, liquidity and cash flow in the quarters to come. Through the course of 2020, the company experienced closures at its retail locations for differing periods of time. While most of the locations remained open during the fourth quarter, it has temporarily closed certain stores and has continued to operate with tighter capacity restrictions in most markets. A characteristic of the apparel retail industry which is always important to remember is that this is a highly competitive market, where the resources of some of Lululemon’s competitors may allow them to compete more effectively, resulting in a loss of the company in question’s market share and a decrease in its net revenue and profitability. Lululemon competes directly against wholesalers and direct retailers of athletic apparel, including large, diversified apparel companies with substantial market share and established companies expanding their production and marketing of technical athletic apparel, as well as against retailers specifically focused on women’s athletic apparel. The company also faces competition from wholesalers and direct retailers of traditional commodity athletic apparel, such as cotton t-shirts and sweatshirts. Many of its competitors are large apparel and sporting goods’ companies with strong worldwide brand recognition.

NIC Undergrad Review


Nevertheless, due to the fragmented nature of the industry, Lululemon also competed with other apparel sellers, including those specializing in yoga and apparel and other activewear. Most of these referred competitors have significant competitive advantages, including longer operating histories, larger and broader customer bases, more established relationships with a broader set of suppliers, greater brand recognition and greater financial, research and development, distribution, and other resources than Lululemon does.

Outlook Lululemon’s expectations for a double-digit earnings growth by the end of 2023, fuelled by margin expansion and low-teens sales gains, are still on the horizon as digital offsets weaker store performance amid the pandemic. A 94% surge in currency-neutral digital sales in the last quarter of 2020 was the main driver behind the 21% increase in comparable sales. Innovation is fuelling gains, as is a push on the so-called power of three: men’s, digital and international. In addition, healthy store traffic, conversion that supports double-digit sales gains and adjacent product expansions are all catalysts to consider when looking at Lululemon. Moreover, supply-chains' efficiencies and product mix have supported the growth of the gross margin. The brand’s prominence and innovative fabrics are also strengths. The well-established Canadian athletic apparel retailer is gaining market share and an important company to keep an eye on as sales are turning more to online transactions and customers are becoming more aware of clothing sustainability and production impact. However, Lululemon has been able to keep up with its competitors, continuously launching new products to improve its clients’ performance and other products in areas it sees potential for development and expansion, as well as, dictating trends in the industry and establishing its quality and fashionable standards. Lululemon has made a statement in the industry with its influence as a reliable brand that ranges several ages, now investing more resources in the development of its men items. Also, there are crucial catalysts that will shape the future growth of the company, for instance, the investment in its self-care line and launching its shoe product segment.

In sum, all businesses have been hit by the pandemic, either in one way or another, with enterprises dependent on consumers’ sensitive demands subject to constant change having faced an even bigger risk. However, Lululemon has been able to adapt with a huge net revenue from its ECommerce sales segment. One can only seat back and watch Lululemon display the high-quality products it has always offered, contemplate the company’s constant effort to develop on demand goods with high potential - just like it was observed with the acquisition of Mirror - and how that financial performance will transpose into market developments.

20 NIC Undergrad Review

NIC-UD Fund: Monthly Performance Rising bond yields, bullish cryptos, supply-chain disruptions, and many other events affected our Fund

Benedita Velozo

Global Markets March was a good month for equities, similarly to February. Stock prices rose globally. This rise was mainly originated from increasing expectations regarding coming earnings from companies and optimism toward Joe Biden’s $1.9tn stimulus package. The S&P 500 reached its highest 12 months since 1986, as it marks one year since the pandemic-era low on March 23, 2020. The index rose 4.24% this month. Additionally, when breaking down the markets, several events stood out. Massive ship blockage in Suez canal disrupted around 12% of the global supply-chain for several days, leading to a short spike in Crude oil from speculation that it would be stuck for weeks. This gg

blockage might incentivize companies to change inventory systems from just-in-time to just-in-case. Crude oil prices ended 4% lower than last month yet they are still at pre-covid levels. Despite a stabilizing bonds market in the first week of March, rising expectations for inflation led to steep increases in bond yields in the following weeks, bringing a lot of uncertainty to investors. Tech-related stocks were the most hit by this rise. Investments in crypto-assets are still in a frenzy through the rise of NFTs (non-fungible tokens), Bitcoin reaching $59k (up 30%), and other coins such as Ethereum and Litecoin rising cumulatively as high as 600%.

Current Positions

Regarding portfolio allocation, several additions have been made to our Fund. The portfolio has three new equities, Walgreen Boots Alliance, BAE Systems and British American Tobacco, and one ETF, iShares China CNY. Two equities and the ETF are aligned with our goal to diversify geographies in our portfolio. Additionally, the ETF furthers financial instrument diversification, giving us more stability. Finally, all securities have allowed us to diversify industries, giving us more access to industries such as Aerospace & Defense, Tobacco, and Pharma Retailing. Our fund is continuously becoming more diversified, allowing us to explore how different markets perform over-time, capturing growth along the way, yet minimizing risk in our returns. Nº

Positions Weight on Total Equity





12,35% 4,60% 5,78%



5,71% 3,17%







Pharma US



US Equity



Internet US



EU Equity



Utilities US


Social Media/Internet

US Equity





US Equity





US Equity



Renewables US Electric Batteries ETF


Streaming/Entertainment US Equity

Current Price Open Price


Gaming ETF 4,09%



Entertainment US



Gold Miner


EV Battery




Consumer Products EU


Consumer Products

EU Equity



Pharma Retailer


Gold Miner

CND Equity



Pharma Retailer

US Equity



Sovereign China Bonds Bond ETF



Chinese Govt Bonds Aerospace & Defense UK Tobacco UK Cash

11 12 13

Aero & Defense

UK Equity





UK Equity



21 NIC Undergrad Review

NIC-UD Share Price (Inception Cumulative Returns) 6% 5% 4% 3% 2% 1% 0% 2/28/2021





Benchmark Analysis


Monthly Performance

Despite performing below our benchmark (MSCI World Index), our portfolio’s share price increased 0.48% MoM. The NIC-UD fund underperformed European indexes such as the Eurostoxx 50 and FTSE 100, and US indexes as the S&P500. The good performance from US indexes can be tied to the successful vaccine roll-outs, increasing optimism for positive earnings, and expectations for an effective fiscal policy in the US. Despite lags in vaccination roll-outs in Europe, the Eurostoxx 50 was the biggest winner, rising an estimated 7.78%. Moreover, the fund overperformed the Shanghai Composite (-1.91%), yet underperformed the Nikkei 225 (0.73%). FANG+ is the biggest loser this month, dropping around 5.52%. This can be justified as it is composed of tech giants such as Facebook, Apple, NVIDIA which were largely affected by the rise in bond yields.

15% 13% 11% 9% 7% 5% 3% 1% -1% -3% -5%

ETF Stock Stock Stock Stock Stock ETF Stock Stock Stock ETF Stock #1 #1 #2 #3 #4 #5 #2 #6 #7 #8 #3 #9

Portfolio Returns vs Benchmarks 10%


8% 6%


4% 2%


3,24% 0,73%


0% -2%


-4% -6% -8%

-5,52% Portf oli o (Share Price)

MSCI World Index

S& P 500

FTSE 100 Euros toxx Nikkei 225 Shanghai 50 Com pos ite


Corporate News Early March, Danone announced that it will convert its indirect stake into a direct holding in the Chinese dairy company “Mengniu”, with a 9.8% stake, with the intention of selling afterwards. The total amount could represent roughly €1.8bn. Disney is currently restructuring some of its divisions and announced the launch of “20th Television Animation”, a division focused on adult animation. Additionally, 2 theme parks in California owned by Disney are set to reopen on April 30th, indicating a potential boost in revenues in the coming quarter. On March 30th, NextEra Energy Transmission, LLC, a subsidiary of NextEra Energy, Inc., completed the acquisition of GridLiance Holdco, LP and GridLiance GP, LLC from Blackstone affiliates for approximately $660m. Gridliance is a leader in high-voltage lines of transmission in the US, and is a regulated company. This will help contribute to NextEra’s creation of value, making it a great addition to its portfolio of assets. Moreover, Facebook’s 2.4% stake in Gopay, the online payments arm of Indonesian company “Gojek” has not been a priority. There have been little efforts to integrate the two in the past few months, slowing Facebook’s entry into Indonesian ecommerce. Finally, Chinese government bonds were approved to be included in the FTSE World Government Bond Index, a process that can take up to 3 years. This representation might benefit our most recent investment in Chinese bonds in the coming months. 22 NIC Undergrad Review

New Positions

Walgreen BootsEnergy Alliance Share Price Nextera Share Price $80 $60

Walgreen Boots Alliance Ticker: NYSE:WBA Date: 03/03/2021 Open: 47,14$ Sector: Healthcare Industry: Pharmaceutical Retailers

$55 $70 $50 $60 $45 $40 $50 $35 $30 $40 $25 $30 $20 02/jan/20 01/mai/20

02/mar/20 01/jul/20

02/mai/20 01/set/20

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02/nov/20 01/mar/21

Investment Proposition The company is a global leader in retail and wholesale pharmacy. As a ”needs”-based business, our investment thesis highlights that individuals’ demand in this industry is less volatile to business cycles. The company presents solid cashflows and is currently investing in several strategic partnerships which we consider to not be priced into the stock price yet. These include a partnership with Village MD, with an intent to open 500 to 700 clinics in the next 5 years. Additionally, their large cash position will allow for the company to out-invest other companies. Amerisource Bergens’ (AB) future acquisition of Alliance Healthcare business can bring value to Walgreens as it owns a 28% stake of AB. Moreover, WBA will soon start vaccinating for Covid-19 which, coupled with their Village MD partnership, could both increase foottraffic in their stores. iShares China CNY Bond ETF Price $5,5 $5,4 $5,3

iShares China CNY ETF Ticker: CNYB.AS Date: 29/3/2021 Open: 5,34$ Sector: Sovereign Bonds

$5,2 $5,1 $5,0 $4,9 $4,8 $4,7 01/mai/20






Investment Proposition The Chinese economy and bond market are both expected to grow significantly in the coming years. Given their already large size and high expected growth rate, we believe it is appropriate to increase our exposure to it. After a thorough analysis, we found that CNYB.AS is currently the most ideal ETF to invest in Chinese bonds as it tracks the yields in RMB as opposed to USD. RMB-denominated bonds tend to offer higher yields than USD-denominated. This is because the Chinese yuan has been experiencing an appreciating trend against the USD. This position will contribute to reducing portfolio-risk as 10-year Chinese bonds offer high yields, yet hold low volatility associated to them (given their low standard deviation), and have low correlations with global equities. 23 NIC Undergrad Review

BAE Nextera Energy Share Walgreen BootsSystems Alliance SharePrice Price $80 £6,0 $60 $55 $70 £5,5

BAE Systems Ticker: LON:BATS Date: 22/3/2021 Open: 4.93£ Sector: Industrials Industry: Aerospace & Defense

$50 $60 £5,0 $45 $40 $50 £4,5 $35 $40 $30 £4,0 $25 $30 $20 £3,5 02/jan/20 01/mai/20 01/mai/20

02/mar/20 01/jul/20 01/jul/20

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Investment Proposition The UK-based company provides high-tech solutions to the aerospace and defense industries all over the world. Its main clients are government entities with long-term projects bringing stability to the company’s earnings. BAE Systems has a diverse geographic footprint: US (45%), UK (19%), Saudi Arabia (13%), Australia (3%) and others (20%), giving us exposure to new countries, away from the US. Big costumers like the US and Saudi Arabia offer a low volatility in demand, yet additional exposure to countries such as Qatar, could bring growth to the company. In the UK, Australia and European Union, the company expects an increase in spending and is well positioned to secure future contracts and opportunities. Finally, BAE systems proves a solid investment given their many strategic plans and their active role at innovating in its industry. British American Share Price iShares China CNYTobacco Bond ETF Price £34 $5,5 £32 $5,4

British American Tobacco Ticker: LON:BATS Date: 29/03/2021 Open: 27.98£ Sector: Consumer Defensive Industry: Tobacco

£30 $5,3 £28 $5,2 £26 $5,1 £24 $5,0 £22 $4,9 $4,8 £20 $4,7 £18 01/mai/20 01/mai/20

01/jul/20 01/jul/20

01/set/20 01/set/20

01/nov/20 01/nov/20

01/jan/21 01/jan/21

01/mar/21 01/mar/21

Investment Proposition The tobacco company offers great exposure worldwide, particularly the UK, which is experiencing positive economic trends given the current Brexit landscape. The company’s swift response to declining sales in cigarettes by increasing exponentially sales of other next-gen products make BAT a company that shows agility and can survive changing conditions quite effectively. BAT presents several investments in tobaccoheated products or vaporizers, and cannabis business, reflecting its adherence to the most recent market trends. We believe the stock is currently undervalued. It presents a debt position more appealing than its peers, offers a high dividend yield that is expected to grow further, and has good operating margins. Given the solid financials, agility to adapt to markets, and exposure to the UK, the company has value that is yet to be captured in its stock price. 24 NIC Undergrad Review

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