NUR December 2021 Edition

Page 1

Contents Page


Quick Take on Iberian Markets


4 Page

7 Page

11 Page


The Gold Standard

Deal Analysis: Bayer’s Takeover of Monsanto

Business Deep Dive: Talkspace

NIC-UD Fund: Monthly Performance


Quick Take on Iberian Markets Hugo Weber The Portuguese parliament has banned companies from contacting remote workers outside working hours, unless for emergencies. This measure was justified as a way to uphold the rights of these workers and protect their family lives after the pandemic triggered a shift to working from home. In addition, this rule obliges employers to contribute to their staff’s work-from-home expenses, such as electricity and internet. Employers who do not follow this rule will be guilty of a serious breach of labour law. However, firms with less than 10 members of staff are an exception to this law. This “right to disconnect” law is also active in other countries of the European Union, some of them France – where it first took place – and Spain. Spain’s Algerian gas imports via Morocco stop as deal expires. Algerian President Abdelmadjid Tebboune ordered a halt to gas flowing to Spain via Morocco amid a diplomatic spat between the two North African Nations. This represented the end of a 25-year transit deal, expiring without renewal. Aiming the heating season, Spain is taking measures to bolster gas supplies, including opening more delivery slots at its liquefied natural gas (LNG) terminals than it used last winter, representing, at the start of November, 65% more LNG at Spain’s import terminals than a year earlier. Inflation in Spain soars to a 29-year high. The cost of the most used consumer goods has increased in Spain this month, raising inflation to 5.6% compared to the same period last year, up from the 5.4% witnessed in October. It also represents the highest figure since 1992. Food and fuel costs have made the most dramatic jump this month, while energy prices reversed a month-long acceleration, falling slightly. Core inflation rose to 1.7%, its highest since July 2013. It is believed by the Central Bank that the eurozone inflation will have peaked in November and is set to gradually slow next year following the easing of supply chain bottlenecks and the energy crunch.

Portugal will hold snap elections on January 30 after budget rejection. After the parliament rejected the government´s draft budget for 2022 last month, the Portuguese Prime Minister Antonio Costa will face an early election, which date was announced by President Marcelo Rebelo de Sousa, who has also announced plans to dissolve parliament. Portugal has definitively stopped using coal in electricity production, anticipating the 2030th deadline. The most polluting fuel in Portugal in terms of greenhouse gas emissions causing climate change is no longer used, as the step of ceasing to use coal in electricity production is a crucial element of decarbonisation. Although licensed to operate until November 30, Pego coal thermal power plant exhausted its stock, being the last one in the country to shut down. Portugal joins Belgium, Austria and Sweden, as the fourth country to cease burning coal. Spanish residents are watching the cost of housing soar, and private equity landlords could face rent caps. Spain’s left-wing government is vigorously defending rent controls as property costs rise across Europe, to protect vulnerable tenants against investment funds and other big landlords – those who hold more than 10 properties. Mortgages in Spain now cost up to 40% more than before the pandemic, as the skyrocket of house prices lead the cost of home loans to also rise as a consequence. IBEX 35 and PSI 20 declined around 7.5% and 5.7%, respectively, in November amid the panic resulting from the surge of a new Covid-19 strain. The fear of a new impact in the global economy regarding the recent-identified and possibly vaccine-resistant Coronavirus variant, named Omicron, led investors to avoid risky assets. This month’s fall in the IBEX 35 heads for the biggest decline since March 2020, while just three companies from PSI 20 performed positively.

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The Gold Standard A fiasco monetary system? Rodrigo Mota

Introduction: What is the Gold Standard? The Gold Standard was a monetary system under which all countries fixed the value of their currencies in terms of a specific amount of gold. In essence, the country’s currency value becomes intrinsically linked to a commodity (in this case, gold). To better understand what happened to this monetary system, it is important to run through some key insights that led to the Gold’s Standard invention. Gold has existed on our planet since before the dawn of humanity. However, it was not initially used as a form of currency until around 700 B.C in Lydia (Turkey). Due to the gold’s scarcity as well as its ability to be melted into coin shapes, gold made a magnificent medium for trade. In the early 18th century, the Gold Standard commitment was established, which implied that participating countries would have to fix the prices of their domestic currencies in terms of a quantified amount of gold. From here, national money was converted into gold at an agreed fixed price, which originally was set at $20.87 per ounce.

How does the Gold Standard work? Fiat Money depends on trust – the ability of people to believe and to acknowledge that it will be accepted without a question in exchange for goods and services and to trust in the Government that issued it.

Contrarywise, the gold standard is a commoditybased monetary system that relies on the value of gold. Under this monetary system, Governments had the necessity of being able to convert money into gold, strictly restricting the amount of money in circulation. The international balance of payments (the difference between all the money flowing into the country and the outflow of money to the rest of the world, in a particular period of time) under the gold standard system were settled in gold. Countries that had a deficit in the balance of payments would undergo an outflow of gold, a reduction in money supply, a decrease in the domestic price level and, consequently, a correction in the deficit of the balance of payments. Countries in surplus would experience exactly the opposite. So, in theory, this settlement in gold meant that the international monetary system was self-correcting.

What went wrong? Although this adjustment process worked “automatically”, it was not problem-free. The process could be very arduous, especially for the countries that were in a balance of payments deficit. As the money supply “automatically” decreased, making aggregate demand fall and resulting not only in deflation but also in higher rates of unemployment. That is, a country with a deficit could be induced into a recession particularly because of this monetary system.

Historical Gold Prices

Source: Thomson Reuter

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Another big problem related to this system was the extremely high volatility and instability of prices. Every time a new mine was found with large amounts of gold, the prices would swing a lot.

Return to the “golden” era? Arguments for the return of the Gold Standard particularly in the U.S arise typically around times like the ones we are living in right now, with surging prices (inflation) and gigantic government deficits around the major economies. With these events becoming more and more prevalent, many people feel a return to this Monetary System would solve these problems by forcing the Government to be more financially and fiscally conservative. So, all this interest in returning to a gold standard is based on the assumption that if the creation of money was limited, inflation would stop for lack of the monetary fuel that powers it. The true story is that the Gold Standard was marked by recurring monetary crises that sometimes degenerated into financial panics, hence this support for a return to this monetary system is based on an idealized view of 100 years of the classical gold standard as an age of unparalleled monetary and economic progress.

whole story becomes increasingly ridiculous. There is simply not enough gold in existence to satisfy all the world going back to a Gold Standard system.

Let’s say that it exists enough gold to satisfy all the world’s needs. Would this still be a bad idea? Under a gold standard, the money supply can only expand in line with the gold supply. That means limited money, which indeed makes the money to retain better its value. However, without the ability for central banks to print money it is impossible to use monetary policy for an economy to expand. As much as this sounds silly, imagine going to a bank to ask for money to buy a car and being told “We don’t have any money to lend you since we didn’t discover any new gold mines this year, sorry”. It is absurd to think this could happen, nevertheless, it could, in fact, happen.

Would it be a good idea? As referred before, in theory, it could be something positive with some upsides and downsides, like everything in life. However, in practice It would be a really bad idea, an almost impossible one, I would say. Currently in the US there is about $2.2tn in currency in circulation. At the current valuation of gold, this is equivalent to 1.209bn ounces of gold. As of 2021, the US gold reserves total 286mn ounces. This means the US Government would have to go to the market and buy 923bn ounces of gold, or 26 200 metric tons, approximately. Since the beginning of Human activity, the world’s existing stock of gold (the total amount of gold mined) is estimated at 197 576 tons, this would mean around 13.3% of all the world’s gold and bear in mind that these numbers are just to cover banknotes! Furthermore, this number is simply for the US. If even for the US these quantities of gold are absurd to obtain, when we translate them for the world the

Should we consider other commodities besides gold? The appeal to put some kind of brake on the money supply has been rising, however, using a commodity different from gold might even be a bigger headache than the idea of using the known commodity. An alternative to the gold standard would be to use a commodity available in greater quantities such as oil or silver, yet, even though the problem of the supply was solved, the constant changes of prices would still be presented and people would never zzzzzxzzzzz

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know when it’s the “right time” to buy a house or a car since next week you could find your “dollars” much less valuable. Accordingly, the whole purpose of using something different from gold wouldn’t make much sense as the motivation to implement a commoditybased money (price stability) would not be accomplished.

Would a commodity-based monetary system implement price stability? In theory, it is a very simple and reasonable idea. If governments are restricted in the amounts of money they can print or spend, prices should be stable. Consider the chart below which plots the annual US CPI in periods with and without the gold standard. Evidence shows that inflation was much more volatile under the gold standard.

below shows what happened in the late 1800s to countries that were and weren’t on the gold standard. Countries that were on the gold standard experienced deflation, while countries that were not experienced inflation. Even though this would solve the current problem rapidly increasing price level , suffering from deflation afterwards wouldn´t be a good indicator, either. Even though the gold standard would come to solve existing economic problems, it would, instead, create another set of news ones, which everyone agrees are worse. Finally, the simple fact that it didn’t work back then, is probably a good indicator of how it wouldn’t work now.

Source: FRED and Romer(1986)

Hence, the commodity standard should guarantee price stability in the long run, but we all know what the long run implies – we’re all dead. In the short run, prices can change violently, as the balance of trade changes or the physical stock changes. People tend to forget that price stability is not only about preventing inflation; it is about avoiding deflation too. Historically, in the particular case of the gold standard, it wasn´t good at either, when compared to the fiat monetary system.

Conclusion In sum, while Central Banks should pursue a much more accountable and rule-based approach to monetary policy, a new gold standard would do much more harm than good. The graph presented 6 NIC Undergrad Review

Deal Analysis: How Bayer’s takeover of Monsanto annihilated market valuation and became synonymous with bad due diligence: Introduction In 1960 In September 2016, Monsanto shareholders agreed to be acquired by Bayer for $66bn, an attractive 44% premium above the set market price at the time. The goal was to create an agricultural powerhouse, with a strong presence in every major region and in anticipation of future need for gene-modified food to help feed a growing population. To appease antitrust authorities, Bayer sold their crops division to the rivalling BASF. Bayer’s management betted... and they lost. Since 2016, Bayer’s stock price imploded and is now traded for 48€, a drop of more than 52% since the announcement and a 64% drop since the all-time high in March 2015. But how did this happen? What lead to this failure and what are future consequences?

Sebastian Hanser

mergers in industries often lead to at least one blunder, as companies are gripped by the fear of missing out.

A bet on the future: Less than three weeks after his appointment, CEO Werner Baumann announced Bayer’s interest in Monsanto on the 16th of May 2016. The announcement led to an immediate 8% drop in stock price, as analysts and investors raised concerns about the financial burden of this merger. First estimates priced the deal between $47bn and $78bn, necessitating additional share issues to stem these costs. Shifting Bayer’s financial center of gravity to agriculture, which would rise from 28% to 55% of core earnings, this deal, would similarly make Bayer the global market leader in crop chemicals and seeds. It also faced immediate criticism by NGOs and activists, pointing out the terrible reputation of Monsanto, a valid concern as time will show. Undeterred, Baumann stated: “We alleviate hunger with Monsanto”, pointing out his company’s contribution towards feeding the rising global population. But there was also one other warning sign. Taking place while other chemicals and crop companies were merging, including Dow Chemical & Dupont, and Syngenta & ChemChina, parallel zzzzzzzz

Bayer is an international German pharmaceutical, life sciences and crop sciences company, listed in the DAX 30, Germany´s main stock index. Founded 1863, in Bremen (DE) the company is most known for inventing Aspirin. In 2021, the company had close to 100 000 employees across the globe, and is operating on all continents, with a focus on Europe (45%), but also other continents like Latin America, North America, and Asia. In 1904, the company also founded Bayer what would eventually become the German football team Bayer 04 Leverkusen and is currently sponsoring many other sports as well.

Trouble is on the horizon: On the 13th of December 2016, Monsanto’s shareholders approve of the merger with a price of $128 per stock. Antitrust authorities across the globe, and especially in the US and Europe, announced that they won´t allow the planned merger, citing worries about the competitive landscape. To get the deal approved, Bayer sells some of its business units, including its crop zzzzzzzzzzzz 7

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sciences division to BASF for €7.6bn. In May 2018, the deal gets approved by US authorities, with European authorities following closely. Two months after approval, hundreds of Gardeners, Farmers and other Consumers file a Multi-District-Litigation Lawsuit against Monsanto, now Bayer, bundled in California’s Northern District. By the end of the Q3 of 2018, more than 9300 individual lawsuits were filed. Relevant questions are centrally answered and in a so-called bellwether case (a template case), witnesses and evidence are collected.

Glyphosate The weedkiller glyphosate was developed Monsanto and marketed under the brand name Roundup. However, the herbicide is also produced by other companies, as the patent has been expired for years. Bayer is facing about 10000 plaintiffs in the USA because of the weed killer, as glyphosate is suspected of being carcinogenic. This is based on the assessment of the International Agency for Research on Cancer (IARC), which classified the active ingredient as "probably carcinogenic" in 2015. The Bayer Group always emphasises that glyphosate is safe when used properly, citing a large number of scientific studies, including studies by authorities in Sweden, France and the Netherlands, as well as a number of other countries.

On August 10th, the jury of a Californian court awarded Dewayne Johnson approximately $289 Mio. He used Glyphosate, a fertilizer marketed by Monsanto as Roundup and in 2014 he has been diagnosed with cancer. In the second instance, the fine is reduced from $289 to $79 Mio., but Bayer’s plead to revise the trial is rejected. On November 29th, Bayer announces the layoff of 12.000 employees to “optimise Portfolio efficiency”. This will reduce the number of employees to 106.200. In March 2019, Bayer loses the case against Edwin Hardeman in the first instance, which is of tremendous importance, due to its nature as a bellwether case, paving the way for similar

judgments and sending Bayer’s stock to its all-time low of 56€. In Europe, Bayer also faces mounting legal pressure, and a court in Lyon attributes responsibility for neurological disorders to Monsanto´s Lasso, a now-banned weed killer. In the USA, the number of lawsuits has reached 13.400 individual cases in the meantime. But not only Monsanto’s products are causing trouble. The French TV Channel France 2 and Le Monde newspaper report that Monsanto tasked PR Agencies with collecting information about journalists, politicians and scientists and their respective positions on Glyphosate and other fertilizers, sparking public outrage across Europe. Parisian prosecutors launch an investigation into these practises, investigating unlawful & fraudulent collection of personal data. This further damages Bayer´s reputation, as many argue that the data was collected to specifically target critics of Glyphosate, by questioning their scientific reputation. Four days later, in another bombshell ruling, Bayer is sentenced to pay over $2bn in reparation to a Californian couple for health issues after usage of RoundUp. Skipping to 2021, while the public outrage has largely calmed down, Bayer still faces an enormous number of lawsuits, a thorn in the side of the chemical giant, that will continue to plague the company for years to come. In mid-August, the company filed a motion for an appeal of a judgement in one of the three glyphosate lawsuits in the USA that have been concluded so far - all of which Bayer lost. A decision by the highest court in favour of the company would have a signal effect and would be tantamount to a liberating blow. But it would be a long way until then. So far it is unclear whether the Supreme Court will even accept the case. But how did these events impact Bayer´s financials and what is its position in 2021?

Income Statement: Bayer’s Revenue increased from $34,943 in 2016 to $41,400 in 2020. This comes in largely due to the Monsanto Merger and these were expected numbers, but also below analyst estimations. As mentioned previously, the transaction shifted Bayer’s focus on Crop Science, while its Pharmaceuticals Division became smaller by comparison:

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Rest 5,1% CropScience 28,4%

Consumer Health 31,3%

In 2020, the company was faced with a blow from 2 sides. First, legal settlements amounted to over $13.000bn. Second, the depreciation of the Brazilian Real and lower demand for its products led to a write-off of over $10.000bn, explaining the large disparity between EBITDA and Net Income. On the other hand, Bayer managed to increase its Operating Margin to 22% in 2020, significantly below DowDuPont’s 32% and BASF’s 25%.

Balance Sheet Pharmaceuticals 35,1%

Rest 0,2%

Consumer Health 19,6%

CropScience 45,5%

Pharmaceuticals 34,6%

Source: Bloomberg

When it comes to Bayer’s income, we can also see a trend. While the adjusted EBITDA and EBIT are continuously growing with an 8% annual growth rate, the real Net Income faltered substantially and is continuously reduced by the huge amount of lawsuits and legal battles Bayer has had to face:

In 2018, Bayer officially took over Monsanto and incorporated its assets into the company. This led to a significant expansion of Bayer´s Assets and Debt. The former rose from $75bn to $126bn, while the latter metric more than doubled from $38bn to $80bn. While Current Assets didn’t change substantially, Bayer’s Long Term Assets experienced significant change. First, Goodwill increased from $10bn to $38bn, showing the large perceived value of the acquisition. Intangible Assets, such as patents, also more than tripled to $36bn, due to Monsanto’s huge number of patents. On the right side, mostly long-term liabilities increased, jumping from $24bn to $57bn. The NetDebt/EBIT – ratio also increased from 0.25 to 10.5, a sign of unhealthy leverage, as competitors like BASF and DowDuPont mostly operate around 2-6.

Assets & Debts

million ($)

150 000


120 000 million ($)


EBITDA & Net Income 90 000

15 000


10 000 60 000

5 000 0


30 000

-5 000 -10 000


-15 000

40,0% 2016



Source: Bloomberg







2020 Assets

Net Income


Debt/Assets-Rati o

Source: Bloomberg

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Cash Flow Statement Bayer’s Free Cash Flow has been steadily decreasing, from $5.806mn in 2016 to $1.343mn in 2020. Projections for 2021 are even worse, expecting a negative amount exceeding $1.000mn. While the Merger first seemed to boost Bayer’s Operating Cash Flow, the Covid-19 Pandemic halved the metric, and 2021 projections are estimating further reduced cash inflow. As expected, the Financing and Investing Cash Flow are not meaningful, due to their highly distorted nature as a consequence of the large investment and financing activities followed or preceded by the merger. Forex markets are also not kind to Bayer, with the company losing over $1bn due to exchange rate fluctuations between 2016 and 2020.

Cash Flow from 2016 to 2020 million ($)






30000 20000

2020 these numbers further decreased, showing Bayer’s inability to turn the merger into a profitable business. Bayer’s consistency in paying bills and retrieving receivables also took a hit, but these numbers are also falling in the last years.

Bayer’s Stock As stated before, Bayer’s stock wasn’t a good yield-earner in the past, losing over 50% of its value in the years following the merger. Due to Bayer’s inability to settle the lawsuits and the continued disrespect for the US legal system, the stock is likely to remain at its current level of 45€. To please its investors, Bayer is paying yearly dividends, despite its struggles. Not factoring in stock losses, the dividend yield would have been 5% in 2020. With the stock losses included, the real stock yield in 2020 was -3%. However, analysts reckon that the bottom has been reached, and on average expect a stock price of 65€, representing a 40% increase.


10000 0 -10000 -20000 -30000 -40000 Operating Cash Flow



Source: Bloomberg

The acquisition also impacted liquidity measures, with the Quick ratio halving and the current ratio also experiencing a significant drop. From 2018 to

Bayer’s acquisition of Monsanto can be considered a failure, the stock price halved, Bayer is confronted with thousands of lawsuits and its operations are also only slowly gaining traction. The consequences of this debacle will haunt Bayer for years to come. A holistic, thorough analysis of the process, factoring in legal aspects, as well as correctly valuing in Debt related measures and their impact on the running business might have helped to mitigate these issues, but with Bayer’s CEO continuing to not take on any responsibility and admit his failures, this won’t be the case in the future too.

Price Performance

Source: Bloomberg

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Business Deep Dive: Talkspace

Tomás Forte Vaz

João Coelho

Talkspace is a New York-based behavioural healthcare platform that provides online mental health treatment services. Its network of licensed therapists allows the provision of therapy, medication assessment and healthy living support in a fully remote manner at a significant cost advantage for its customers, making therapy and psychiatry more affordable and available for those who need it the most.

Markets Talkspace is listed in the Nasdaq stock exchange since June 2020, under the ticker (TALK). It announced months prior to its stock market debut that it would go public via a merger with a special purpose acquisition company (SPAC), Hudson Executive Investment Corp, in a deal that valued the company at $1.4bn and provided $250mn in growth capital. The deal was a further testament to the significant rise in SPACs in the year 2020 as companies were eager to benefit from the historically high valuations present in the financial markets. Opening at a starting price of $8.90, Talkspace ended the day at $9.18 as its stock price would continue to grow steadily reaching a peak of $12.10 in mid-February of 2021 on the back of growing subscriptions and an overall rise in the

demand for its service. Nonetheless, with a current price of $2.16, representing a year-to-date fall of -80%, Talkspace has shown severe difficulties in sustaining its previous valuation as underwhelming Q2 financial results and a rapid rise in competition in the online therapy industry have threatened its profitability and longevity in this sector. Company Data Price (USD) 52-week range (USD) Market Cap (USD Million) P/E ratio EPS Beta

2.27 1.98 – 12.45 345.7 N.A -0.46 0.813

Source: Bloomberg

Price Performance

Source: Bloomberg

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Industry Overview Talkspace situates itself in the telehealth industry, targeted at bringing the digitalisation trends to the modern healthcare industry, improving efficiency, quality of service and reducing costs, to ultimately help those who need it the most. More specifically, it operates in the online therapy industry, which has grown significantly as global lockdowns and rising mental illness cases proved to be a sufficient catalyst to alter the initial inertia regarding online therapy. In the case of online shopping, where the physical impediment of going to stores and buying products required alternative digitalized solutions, driving technological advances, and benefiting those who were at the forefront of this change, a similar trend was witnessed in this online therapy industry where patients transition to having their sessions online. Patients that previously went to presential sessions, which required their physical displacement, often proving expensive in terms of time and financial cost, were forced to adapt to an online version of the same sessions in the comfort of their own home. The initial inertia that existed regarding online therapy, driven by the mental cognitive bias called “default bias”, where people tend to do what is presented to them as being the default solution rather than what is best for them, was soon eradicated. A study conducted by the American Psychological Association (APA) in 2020 found that prior to the pandemic, 64% of its members did not see any of their caseload via telehealth whilst on the onset of the pandemic, 85% of its members reported seeing over 75% of their caseload via telehealth, highlighting a clear change in the role of online therapy as a presential therapy alternative. The rise in mental health illnesses has also been a significant focal point, where currently 19,86% of adults in the U.S. have experienced a mental illness and roughly half do not receive treatment for it, outlining a clear need to provide viable and effective solutions to combat the undertreatment of mental illnesses in the United States. The scalability of the online therapy industry, time efficiency and more accessible pricing implies that it may act as a significant support mechanism to address outpacing of demand for these services. As the prospect of growth rises, so has the number of competitors in the space, all seeking a slice of the same pie, hoping to establish

themselves as the largest player. Besides Talkspace, BetterHelp,, Amwell and MDLive all provide similar services, thus there is a need to establish a competitive advantage our its competitors, whether that be in the quality of the service it provides or the price at which it charges. The relative infancy of the industry implies the threat of new industries is quite substantial. However, with the rise in the regulation of the industry, the potential of first movers to sustain their advantage is also plausible. The industry is currently valued at $2.36bn, but with an estimated CAGR of 31,8%, it is expected to reach $23,49bn by 2028, as the shift to digital platforms and telehealth, in general, becomes more pronounced. With this, will likely follow the growth in M&A activity from large multinational corporations, as seen more promptly seen in the telehealth industries more linked chronic illnesses, which further propel steeper valuations and rise in market share. Nonetheless, there are serious doubts regarding the future of this industry, will patients go back to presential sessions in the post-pandemic world? Will the competition of the industry be too large to sustain profits? And likely the most relevant for this analysis, is Talkspace well positioned to benefit from this growth?

Company Overview Strategy

The centre point of its business is its digital platform, the user face which interacts with consumers and allows them to access their services. This digital platform can be accessed via their online website or through their mobile application registered on the App Store and Google Play Store for iOS and Android devices respectively. It currently employs a subscription-based pricing model, with a monthly starting price of around $260, whereas the higher prices are attributed to different subscription packages such as the Unlimited Messaging Therapy Plus, Premium or Ultimate options, with the possibility of opting out at the end of each month with no additional costs. In comparison to traditional therapy sessions which normally charge by hour, Talkspace’s pricing model resembles that of streaming platforms such as Netflix or HBO, which have seen a substantial rise in popularity, where consumers have the option to

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leave at any time, although historically, in many cases, continue to pay without even using the service. Although this is a distinct context, the application of this pricing strategy is representative of the forward-looking perspective Talkspace has, altering traditional practices to best take advantage of current consumer trends. One of the main benefits of this platform is its adaptability to varying consumer needs and its userfriendly interface, patients are presented with a series of solutions depending on their needs. The process to enrol is straightforward. Initially, a brief assessment is conducted asking consumers about their preferences and needs, then they are given a list of recommended practicians depending on their specific profile and finally they begin their therapy sessions. The ability for these sessions to be adapted based on time availability and be done via messaging, phone call or video further reinforces the consumer-driven healthcare approach. This has positively translated to its ratings, with over 60,000 5-star reviews, Talkspace boasts being the online therapy platform with the highest approval ratings, as the quality of its treatment in combination with its user-friendly interface has propelled its brand image.

service at a competitive price with the end-user in mind. In terms of target audience, the company has 2 main revenue streams: individuals or groups of persons and businesses. The first refers to individuals, couples, or groups of persons who use the platform for their specific needs whilst the latter refers to the corporate partnerships between Talkspace and businesses for its workers to be able to access its platform. The rise in the need for psychological support in industries with high-stress levels and below-average sleeping hours, such as banking or finance, has been an important catalyst in the rising demand for online therapy. Given the overall scale of businesses compared to individual consumers, the ability of Talkspace to diversify its revenue streams via long-term corporate partnerships can allow a more sustainable business model. Its partnerships with Blackstone, Citi and Lionsgate are an indicator of how the company is strategically positioning itself to benefit from this trend. This trend is exemplified in the Revenue Breakdown, where revenues rose by 73,3% to $30,98 million in Q2 of 2021 and the Commercial segment now accounts for close to one-third of total revenue. Revenue Breakdown Talkspace 35000

30,98 30000 25000 20000


15000 10000 5000

Talkspace is also very firm on the stance that its services besides being more convenient and at a lower price, also have clinically proven greater efficacy when compared to traditional or face-toface therapy. A study conducted by the Journal of Telemedicine e-Health presented results stating that 44% of Talkspace clients experienced clinically significant changes within 8 weeks compared to only 25% for face-to-face. For a 3-month period, the results were quite similar, with Talkspace again gaining the edge over traditional therapy with 59% compared to 50% respectively. The ability to sustain the quality of support with lower pricing and greater convivence for consumers is at the heart of Talkspace’s business model, offering a high-quality

0 Q2 2020 Consumers

Q2 2021 Commercial

Source: Bloomberg

Still Searching for the Competitive Edge

Nonetheless, what was once a relatively new industry has now become more saturated with different solutions and companies offering similar services, thus the need to maintain the previous competitive advantage has been amplified, not simply to access new customers but also to prevent existing customers from moving to competitors. This increased competitive threat has posed significant issues to Talkspace and its overall market sentiment, its financial results whilst 13 zzzzzzzzzzzzzzzzzzzz

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outlining strong revenue growths, highlighted a severe Achilles heel in its underwhelming profitability numbers, and the weakened confidence in Talkspace strategic drivers has led to a substantial fall in market valuation, a YoY fall of 80%. Another growing fear is with the emergence of the removal of lockdowns and large-scale vaccinations, the rise in demand for online therapy’s due to the inexistence of other alternatives, will not be sustained at least in the short run. These more speculative views will depend greatly on the ability of online therapy companies to retain their customer base, which in the case of corporate partnerships is easier to maintain than individual clients. Whether Talkspace and its competitors are able to replace traditional therapy, act as a secondary support system or something in-between will greatly impact the future of Talkspace and its business. Talkspace also recently announced the stepping down of its co-founder and CEO, Roni Frank, along with 2 other key executive members as the company currently seeks to internally correct its overall management in light of its underwhelming financial results. On the back of the struggles after going public, the ex-CEO declared the company would benefit from new leadership “suited for the different set of needs and skills required for a publicly-traded company”. This change in leadership direction is a clear sign of the self-recognition of the need to change and thrive, however it leaves many unanswered questions on how Talkspace will seek to establish its competitive edge with such an uncertain future. Looking Forwards

Talkspace is a consumer-driven virtual healthcare company that has established and pioneered a digitalisation of the therapy industry. It was able to strategically benefit from a surge in demand due to the pandemic, and with it, outlining the series of benefits attributed to online therapy, applying mainly principles of software or streaming companies to offer a personalised and high-quality service. Despite this, as the economy opens up, many doubts about the role of Talkspace in the postpandemic timeline will emerge, together with the significant changes in high-level executives, the company is clearly preparing itself for the uncertain a

Mental Health Services received as % of US Adults with Mental Illnesses in 2019

Source: U.S National Institute of Mental Health

and bumpy road that lies ahead, as it seeks to transform its goal of ensuring the democratization of therapy into a profitable business. Ultimately time will answer these doubts, but if Talkspace is able to maintain its goal ultimate of helping people, its main competitive edge, it will likely find a way to sail the troubling water that awaits it.

Performance Overview Income Statement

TalkSpace’s historical financial data is unavailable, but when looking at data from 2019, 2020 and this year’s disclosed information of the three past quarters, we can understand that this company is still growing and making efforts to enhance its market share, benefitting from a fast-growing industry where they are placed. Talkspace has been increasing its revenues throughout the last three years, despite the underwhelming results disclosed this past quarter. Revenues almost doubled from 2019 to 2020, benefitting from good strategic partnerships with corporations, a pandemic scenario, a rise in mental illness awareness and an overall rise in demand for these services. Low costs of revenue are a good driver for high-profit margins, which have been around 60% these past three years, this shows that the American company can generate high levels of profitability. However, operating expenses are extremely high, leading to negative values of operating income and net loss at the end of each year. These high values of levels of investment in marketing in order to improve their aaa 14

NIC Undergrad Review

customer base and achieve long term financial sustainability.

Income Statement

million ($)











0 -20







0% Revenues


Gross Profit margin

Source: Bloomberg

Balance Sheet

The company decreased their cash position by 66.57% from 2019 to 2020, reflecting a strong investment in SG&A, but is also important to highlight the managerial decision of meeting their long-term liabilities reported as of December of 2019, therefore, Talkspace presented null values for Long-term liabilities at the end of 2020 and a significant decrease in cash. As current assets halved from 2019 to 2020, due to a decreased cash position but a significant increase in intangibles and goodwill that compensated the tremendous reduction in liquidity, it is important to mention that liabilities went down by 83%. This decrease in debt opened the way for the Debt to Assets ratio to decrease from 2.9 to 0.6.















0 -20

2019 Assets

2020 Liabilities

Cash Flows

The firm’s free cash flows have been negative for the past three years, mainly due to net losses reported and negative values of operating cash flows. These negative values translate the current business model that Talkspace is following, despite good profit margins, expenses have been extremely high. We can highlight the negative investing cash flows in 2020 due to the acquisition of Lasting, the leading relationship counseling app, expanding the telebehavioral health services available on the Talkspace platform. A company with negative free cash flow indicates an inability to generate enough cash to support the business as free cash flows track the cash a company has left over after meeting its operating expenses. Financing cash flows are the only ones which have been positive, offsetting poor results in operating cash flows and cash spent in investing activities. million ($)

Statement of Cash Flows

60 40

Balance Sheet

million ($)

retained earnings are a common occurrence for startups and unprofitable companies. If a company operates at a net loss, the net losses will result in a negative retained earnings account on the balance sheet. If the company manages to cut some operating expenses and generate economic profit this value will start to be closer to 0 and possible fears of bankruptcy will not arise.


Debt to Assets

Source: Bloomberg

Regarding equity, Talkspace presents negative values due to negative retained earnings. Negative

20 0 -20



-40 Operating



Source: Bloomberg

Valuation Most of TalkSpace’s direct competitors are not public yet or are affiliated with larger health corporations, making it harder to take conclusions out of a peer analysis. Choosing similar software aaaaaa

NIC Undergrad Review



Market Cap



Quick Ratio

Current Ratio







Tabula Rasa


















Source: Bloomberg

health companies, we can conclude that TalkSpace definitely possesses more resources to deal with obligations than its peers, not reporting any Longterm liabilities and few current ones that lead to a higher reported Current Ratio, this strategy of meeting Long-term liabilities is also reflected in the constant decrease in the last three years of the Debt to Assets Ratio that is, at this moment, equal to 0,0%, placing TalkSpace below its direct peers regarding this ratio. The price to Sales ratio is low, but this can be explained by the business model of selling high-quality services at competitive prices. Even though there was a significant decrease in the cash position in 2020, we can still observe that the American company is still reporting a higher quick ratio than its direct peers. After the peer analysis and a DCF Model, we can conclude that TalkSpace is overvalued at its current price, benefitting from speculation, good marketing and smart acquisition that give the company tremendous growth opportunities that are well seen by growth strategy investors. As it is a recent company that has little historical data available, an uncertain future and numerous external factors that can change its future, it is hard to predict TalkSpace’s potential, but one thing is certain, TalkSpace is a promising

company placed in a promising industry.

Outlook Through investment in marketing and customer gathering, a pandemic scenario that imposed lockdown of some face-to-face care, competitive prices and general mental illness awareness being more promoted during the last few years, TalkSpace managed to increase its revenues in the past three years and, benefitting from good profit margins, increase its gross profit. The downside lies on high operating costs that must urgently be reduced in order to start generating profit and achieve general financial sustainability. In a postpandemic scenario, we will need to wait and see if patients will still prefer distance over face-to-face treatment, that is why it is crucial for TalkSpace to gain customer loyalty and change customer’s preferences. After underwhelming quarter results, TalkSpace needs to perform well to keep investors and manage to make the necessary changes in order to be financially healthy and prosper in the future, establishing itself as market leaders and positioning above its direct competitors.

16 NIC Undergrad Review

NIC-UD Fund: Monthly Performance After a few strong months, the markets finally calm down in the face of continuing inflation concerns and a new covid variant.

Francisco Baptista

Global Markets After a month of October riddled with concerns about overinflation and the supply chain crisis, November started out strong with the S&P 500 reaching consecutive all-time highs early on in the month. However, towards the end of it, the majority of the equity market dropped as a new Covid-19 variant, the Omicron Variant, was found in South Africa and started a shift in investor’s decisions, away from risk assets. Because of this, The Dow Jones Industrial Average dropped 2.53% for its worst day of the year on the 26th, the day when the World Health Organization declared the new strain a “Variant of Concern”. In the European markets, The European Union’s statistics agency, Eurostat, said that inflation rates in the Eurozone hit 4.9% in November and the core inflation rate also rose to 2.6% up from 2% in the month prior. In such situations, it would be aaaaaaaaaaaaaaaa

expected that the ECB might consider raising its main interest rate from zero, however, the aforementioned Omicron Variant has brought some uncertainty into the economic landscape, meaning that central banks are holding back from announcing big changes in the near future. Furthermore, many economists have also predicted that the inflation spike of the last months will reverse in the next years organically, so it is still difficult to tell if the ECB will change interest rates. In the US, President Joe Biden announced that he is going to renominate Jerome H. Powell as the Federal Reserve chair, for another four-year term. Although there was some criticism from more progressive groups on the left, who had their hopes on Lael Brainard, the move was primarily received with praise from both parties, and Brainard has been appointed as the Fed’s vice-chair.

Current Positions This was a month with some changes to our portfolio. Having sold two positions, Gilead Sciences and PG&E Corporation, while acquiring three different ones, Berkshire Hathaway, Invesco Dynamic Biotechnology & Genome ETF and iShares STOXX Europe 600 Food & Beverage UCITS ETF. With these changes we sold some of our worst performers over the last months and replaced them with more secure positions. Our worst perform this month was Disney with a close to 15% drop and our best was the ESPO ETF with a 4.5% increase. Nº





US Equity








Holding Company

US Equity




Accounting Software

US Equity



Gaming ETF


Social Media/Internet

US Equity



Renewables US



US Equity



Electric Batteries ETF



US Equity



Gold Miner


EV Battery




Consumer Products EU


Consumer Products

EU Equity


€ 47,80

Pharma Retailer


Gold Miner

CND Equity



Chinese Govt Bonds


Pharma Retailer

US Equity



Aerospac e & Defense UK


Sovereign China Bonds

Bond ETF




Aero & Defense

UK Equity





UK Equity




Food & Beverages









Positions Weight on Total Equity Entertainment US Food & Beverages ETF 12,78%

Internet US

5,80% 5,84%

5,64% 12,98% 4,40% 4,28% 2,70%



Tobacc o UK 3,47%

6,04% 3,58%

5,85% 4,93% 3,16%

Oil & Gas US Ac counting Software Biotechnology ETF Cash

Current Price Open Price $141.70

17 NIC Undergrad Review

NIC-UD Share Price (Inception Cumulative Returns) 5% 4% 3% 2% 1% 0% 11/1/2021







Monthly Performance

Benchmark Analysis 10% 5% 0% -5% -10%

ET F St # 1 oc k # ET 1 F St # 2 oc k St #2 oc k St #3 oc k # ET 4 F St # 3 oc k St #5 oc k St #6 oc k # ET 7 F St # 4 oc k St #8 oc St k # oc 9 k St #1 oc 0 k # E T 11 F # 5


Portfolio return vs Benchmarks 1%


0% -1%



-2% -3%

-2,46% -3,09%




-4,41% -5,04% I2


+ PS


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iC om po

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50 x


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In the month of November, our fund dropped a little over 3%, the same way the majority of indexes did. After a wave of positive results during October, with companies presenting their quarterly earnings and a great percentage of them outperforming investors and analysts expectations, came a month with a lot more caution. On top of that, and probably the main factor which drove the markets down for the last 30 days, was the appearance of the new Omicron variant, and with so many uncertainties behind what this new strand brings to the global landscape, it is understandable that investors would be more into safe positions this month. The biggest movers in the index department were the MSCI World Index which dropped over 5% as well as the PSI 20, both performing worse than our fund, as did the Euro Stoxx 50 and the Nikkei 225. The only one that managed to rise in November was the Shanghai Composite which increased its value by about 0.4%.

Corporate News After a slight decrease in September after announcing a lower-than-expected number of new subscriptions to their streaming service, Disney dropped even more for a total of 14.86% in November. This further decline comes after the company’s announced revenues were lower than analysts’ expectations. In November 2020 Walgreens Boots Alliance (WBA) became 70% owner of a joint venture of the German companies GEHE Pharma Handel (GEHE) and Alliance Healthcare Deutschland (AHD), with McKesson Corporation (NYSE: MCK) owning the remaining 30%. Now, on November 30th, an agreement has been reached between WBA and MCK which sees the former become 100% owner of the joint venture. WBA has stated that “This new, exciting step enables Walgreens Boots Alliance to further strengthen its position as a leading pharmaceutical wholesaler in Germany”. Lastly, BAE Systems is looking to hit its financial targets for the year, as it had “good operational performance” in 2021. The defence contractor said that sales for the year are on track to hit 3% to 5% higher values than in 2020 with underlying earnings expected to rise to the 6% to 8% range. 18 NIC Undergrad Review

New Positions Berkshire Hathaway Share Price $300 $280

Berkshire Hathaway Ticker: NYSE:BRK Date: 24/11/2021 Open: 287.90$ Sector: Diversified Financial Services Industry: Holding Company

$260 $240 $220 $200 06/09/20







Investment Proposition After coming to a conservative valuation of each part of the company we found that Berkshire Hathaway is selling below intrinsic value. The company has a diversified set of businesses with competitive advantages that provide strong and predictable cash flows which are reinvested at attractive rates, making it a low-risk investment with adequate returns. Moreover, management has had a stellar record of doing what’s best for its shareholders and has said that they will keep the share buyback program if the stock remains undervalued and there are no better opportunities for acquisitions. Considering the current low interest rates and high asset prices, we believe that this stock is more attractive than the market and will provide attractive returns.

19 NIC Undergrad Undergrad Review NIC Review

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