NUR November 2020 Edition

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Contents Page


Quick take on Iberian Markets


TAP: The Meltdown of the Aviation Industry

4 Page


Covid-19 Pandemic: An Outlook


The secretive and controversial company that is now public

10 Page


Business Deep Dive: CATL


NIC-UD Fund: Monthly Performance


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Quick Take on Iberian Markets Spain plans to use €750bn EU recovery fund to revitalize its stalled economy. In order to boost the economy, Spain plans to borrow €27bn from the fund to fight against the IMF’s expectations of an increase of 14.1% of GDP of the budget deficit and the economy shrinking 12.8% this current year. This plan still needs to be authorized by member states’ legislatures and the European Parliament. These funds would be spent on 30 areas already pre-defined by the government, which mainly account for education, health system, infrastructures and rural development. Portuguese government estimates deficit of 0,2% of GDP in 2026. The Recovery and Resilience Plan (PRR) is expected to expand the supply curve, provoking a structural impact on the Portuguese economy by boosting the growth of the potential GDP from 1.8% to 2.1%. This underlined the implementation of public policies to mitigate the shock caused by the pandemic and enhance economic growth, in order for the initial GDP estimations pre-pandemic to be achieved by 2030. Without this, economic growth would be 0.4pp lower in 2021, unemployment would rise, and public and private investment could not have been supported. Spanish unemployment rises to 16.3% during pandemic. National Statistics Institute reported that Spain’s unemployment rate had grown 10 pp, compared to the previous quarter. Despite hundreds of thousands of workers being financed by the Government whilst in lay-off, there are now 3.7 million jobless employees. In effort to mitigate this, policy shifts such as subsidies for the poorest, raising pensions and basic income scheme will be taking place. Spain expects to create more than 800.000 jobs over the next three years, financed by a share of the EU coronavirus recovery fund. Spain’s minimum salary guarantee causes numerous claims. There were more than one million applications for upkeep the minimum income guarantee, in which only half of them have been handled. Despite its complexity, it has gained new urgency in the light of the severity of the economic crisis. The government is accelerating the introduction of the minimum income guarantee as a

Carolina Freitas short-term poverty relief measure, designed to ensure 2.3 million of the poorest with a salary ranging from €461 to €1015. Portugal Blue wants to distribute €75 million in investments in the blue economy. This new partnership between the European Investment Fund (FEI) and the Development Financial Institution (IFD), desires to mobilize more than €75M of private and public capital. This aims to provide venture capital and expand more than 30 developing companies. The program intends to foster the ecosystem sustainability and climate action, acting in accordance with the Financial Principles of the Sustainable Blue Economy. PSI-20 on an upward route. The main Portuguese stock index has appreciated 2.31% to 3952.48 points in the last week. This contradicted the pessimistic scenario across Europe, as new restrictions on circulations were imposed, in an attempt to restrain the spread of coronavirus. Within 19 listed companies, this rise was highlighted by Galp, BCP, Altri and Navigator. El Corte Inglés launched an unlimited delivery scheme to compete with Amazon Prime in Spain. In order to compete with Amazon online retailers, El Corte Inglés announced that it will charge €19.90 a year per customer, providing a 24-hour unlimited delivery outline. This subscription allows customers to realize multiple orders per day by simply using their electronic devices. Additionally, product lines are now expanded from jewellery to electronics, including supermarket shopping. Novo Banco has a loan portfolio of 100 million for sale. Novo Banco’s CEO announced that they already have an on-going process, a portfolio of non-performing loans in the amount of €100M. It is called Project Carter and mainly composed by secured and unsecured credits. This is already in the market, being comprised by granular defaults, with and without collateral. 3

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TAP: The Meltdown of the Aviation Industry As it initiated a new business strategy, the Covid-19 pandemic launched huge challenges, seriously damaging the industry Rita Aires

The history behind the company TAP Air Portugal, member of the Star Alliance group, was created in March 1945 and it is a Portuguese airline, headquartered in Lisbon, at the Humberto Delgado Airport. In June 2015, the Government of Pedro Passos Coelho announced the privatization of the Portuguese airline which was included in the Troika memorandum, confirming that the proposal to purchase TAP Air Portugal made by the Atlantic Gateway consortium, composed by David Neeleman and Humberto Pedrosa, had been accepted and that they were then holders of 61% of TAP's capital. After the legislative elections, in October 2015, Passos Coelho lost the majority and it was António Costa who, after negotiating parliamentary incidence agreements with PCP and Bloco de Esquerda, became the next Prime Minister of Portugal. After the government was formed, they reacted immediately to TAP's privatization process and acted quickly to reverse this procedure, claiming that the state had to be the majority shareholder of such a strategic company like TAP. Following several weeks of intense talks and debates, the Portuguese State paid €1.9M for an additional 11% of the company, in order to be the holder of 50% of TAP's capital, with representatives on the board of directors, but not guaranteeing the majority of the executive committee of the company. Through this procedure, private shareholders, even without controlling the airline's capital, were able to be in charge of the strategic management decisions. This new private management benefited from the start of the touristic boom in Portugal and began a major process of transformation of the company. The firm hired more than three thousand new workers and the results generated by the business were being positive, however, the increase in indebtedness to improve and modernize the fleet,

the exchange rate fluctuations in fuel prices, and the growing congestion at the Humberto Delgado airport in Lisbon, led to the accumulation of big losses for the airline. The profit of €27M in 2017, the first in ten years, was followed by losses of €118M in 2018 and €106M in 2019.

Effects of the pandemic If, following the trend of the last semester of 2019, January and February anticipated a year with good prospects for the Portuguese airline, the crisis generated by the Covid-19 pandemic came to counter these trends, seriously damaging the sector. In the first two months of the year, the number of passengers carried by the airline had increased by more than 13% over the same period in the last year and the operating revenues had also grown by 19.4%, however, with the spread of the pandemic throughout the world, these growth trends stopped abruptly in March. Thus, as a result of the Covid-19 pandemic and as a consequence of the drastic drop in activity observed since March, TAP recorded a total loss of €582M in the first half of 2020, an amount well above the losses of €112M which had been registered in the first half of the previous year. In the last six months, TAP provided only 10,427 flights, a number lower than the 10,700 flights that it carried out only in the month of January of this year. According to the statistics, the worst month when it comes to the number of flights was April, with only 51 flights, while August presented itself as the month with the most flights, reaching a total of 3,984. With regards to the number of passengers, between March and September of this year, the Portuguese airline has already lost 9.5 million passengers when compared to 2019. In September, TAP carried a total of around 395 thousand passengers, representing a fall of 79.3% when compared to the same month in the previous

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year and meaning that, since the fall registered in August was only of 76.5%, there was a slight worsening of this indicator that can be explained by the second wave of the pandemic.

Measures implemented by the company To cope with the company's huge losses, aggravated by the current pandemic, the great challenge TAP faces is to resize the company to the new demand generated by the crisis which, according to the International Air Transport Association, will not return to the pre-pandemic level of values before 2024. According to the information revealed by the executive president of TAP, in September 2020, the Portuguese airline reduced its capacity by 72% when compared to the same month of the previous year and also decreased the number of flights by 68%. The executive president of TAP has also stated that at the moment, the company has a really low demand and it is the main reason for the planes to be on the ground, being that, even the routes that are in operation, are operating with a capacity below 50% and are unable to cover the company's variable costs. Despite the reduction in capacity, TAP's global average occupancy rate on flights made between May and July of this year is 60%, 20 percentage points below the global average rate of 2019, clearly showing there is scarcity of demand even with reduced supply. In addition, during the first months of the pandemic, the airline placed all of its workers on a layoff regime and guaranteed the full payment of its wages, fully supporting the difference for those who had salaries above the layoff payment ceiling of €1,905 (paid 65% by Social Security and 35% by the company). However, in a sector with mostly fixed costs, the effects of the pandemic are forcing a profound transformation of the entire airline sector, with inevitable cuts in personnel and salaries and reduced fleets. The Minister of Infrastructures, Pedro Nuno Santos, stated it is not possible to artificially maintain a dimension which is not in accordance with the market in which the company currently operates, implying that in the restructuring process the company must be resized. Pedro Nuno Santos also revealed that 1,200

workers have already left company and that 400 more people are expected to leave the group by the end of the year.

State control of the company In July of this year, the Portuguese Government announced that it had reached an agreement with TAP's private shareholders to be the holder of 72.5% of the airline's capital for a total value of €55M, the remaining capital of the company being held by Humberto Pedrosa (22.5%) and the workers (5%). The Council of Ministers also approved in July the granting of a loan of up to €1,200M to TAP, in accordance with the decision of the European Commission. As part of this loan, the company has to submit to Brussels a restructuring plan by the 10th of December. The Government remarked it was only planned to invest in TAP around €946M of the total €1,200M authorized by the European Commission, putting the rest aside as a reserve. Nevertheless, more recently, the executive mentioned in the State Budget proposal for 2021 that, in 2020, the Portuguese airline is expected to use the totality of the €1,200M State loan, so it is anticipated a value for guarantees in the State Budget of 2021 of a total of €500M to be eventually granted to the company, as a matter of caution. These loans allow the company to face more confidently the needs of the beginning of 2021, but the high uncertainty will remain not only due to the demand crisis the sector is facing due to the pandemic, but also as a result of the options that may be taken following the company's restructuring plan.

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Covid-19 Pandemic: An Outlook The second wave of the pandemic is happening, especially in Europe. What happened during the first round of infections and what can we learn to fight the wave this time around? Bruna Travassos Given the lockdowns, as people stop consuming, global Gross Domestic Product (GDP) started to sink and jobless claims hitted records in some countries. On the first months, believing that the pandemic could be surpassed soon, most policymakers were hoping for a V-shaped recovery, allowing economic activity to bounce back quickly. But in nowadays’ reality that did not happened, and the date where we will turn the pandemic page looks further way every day. Thanks to the ease of lockdowns in the last months, the global economy kinked up, but with no hope on a vaccine in the foreseeing times, the virus will continue to be a drag on economies as businesses shut their doors, workers lose their jobs and banks face rising levels of bad loans. Countries around the world are facing a new surge in infections, beating numbers from previous months, and governments (especially in Europe) are implementing new and localized lockdowns, so now many economists expect things to get worse before they get better.

Source: IMF World Economic Outlook 2020; JP Morgan Asset Management Q2 2020 report; Moody’s Analytics

Global GDP is estimated to have fallen by 15,6% in the first 6 months of the year, a drop four times greater than in 2008, according to the north american investment bank J.P. Morgan Chase. Some of the decline has already been recovered, as the IMF estimatated growth during the third quarter reached roughly 7%.

GDP Plunge Now that a V-shape recovery is far gone, recent forecasts by J.P. Morgan, Moody's and the International Monetary Fund predict that the GDP in the Eurozone and in the United States will plunge sharply in 2020 and only crawl back slowly in 2021.

The IMF foresees that the world economy will contract by 4,4% during the whole of 2020, the decline marks a slight improvement from the 4,9% slump forecasted by the IMF in June. GDP in the Eurozone is predicted to drop by 8,3% this year, while the U.S. economy shrinks by 4,3%. However, as seen in the graph below, these estimates from the IMF World Economic Outlook Source: IMF World Economic Outlook 2020; JP Morgan Asset Management Q2 2020 report; Moody’s Analytics

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published in June 2020 decreased a lot compared to the Outlook published in April 2020, meaning that in April, most economists were too optimist compared to June. Nevertheless, the Outlook published in October 2020 shows that economists were being too pessimistic in June. Overall, October predictions are between the April and June’s. In the case of Germany and the U.S, the predictions are better in October 2020 than in April 2020. Even though most industries are not recovering their losses, some stock markets, like in the U.S., are around pre-pandemic levels. In Europe, the EU market regulators warned that investors may be underestimating the risk of economic disappointment. Prices seem to have come untethered from economic reality, the European Securities and Markets Authority said. The agency noted that European stocks have soared more than 40% since their Covid-19 dive in March, even though some forecasts indicate that the continent's economy may not fully recover until 2023. The United States reveals a similar trend. Even though it is the country with the highest number of registered infections due to Covid-19, one of its main indexes, S&P500, closed at a record high on September 2nd, wiping out losses from the coronavirus induced sell-off and returning the market to pre-pandemic levels. However, after this record high, the Index has been more volatile, due to a new surge of cases, and the uncertainty of the U.S. Elections. While the stock market is theoretically positively correlated to GDP, and some would expect a worse performing stock market, there are reasons why this typical relationship does not hold, such as expectations on a vaccine.

Waves on unemployment

The Eurozone saw 4,5 million people falling out of employment between March and June, at the height of the pandemic, according to official figures. The United States saw unemployment peak at 4,7% in April, with the August rate standing at 8,4%. In the United Kingdom, large companies have announced more than 120 thousand job cuts since the beginning of the crisis, according to data compiled by Sky News, where the hardest-hit sectors were retail and aviation. All countries will suffer from a higher unemployment rate. While most countries show a relatively small increase, in Romania and in the United States unemployment is expected to more than double. In the Outlook of April, unemployment was expected to triple in Poland and quadruple in the Czech Republic - two of the countries with the lowest levels of unemployment in the EU, but in October’s Outlook it is present that they kept similar unemployment rates, highly due to the especially low number of cases these two countries had during the second and third quarter of 2020. Greece and Spain will experience smaller increases in 2020, even though they started from a worse position. In Greece, almost 1 in every 5 citizens looking for a job will be unable to find one, according to IMF forecasts published in October.

The Future of Banks Downturns in the economy tend to be felt in the financial system, and the Covid-19 crisis is unlikely to be an exception. Laid-off workers struggle to find similar work as the slump affects entire sectors, such as the aviation sector. Retraining takes time, and unemployment benefits are not enough to cover a mortgage or rent. As moratoriums expire, payments are missed and the banks reclassify loans as "nonperforming", which could oblige them to be more conservative with future lending. During the first months of the pandemic, banks played an essential role in keeping the economy from crashing by providing state-guaranteed loans and allowing borrowers to defer repayments. But with much of this emergency action wearing off, banks themselves might require state support. Regulators around the world are confident that there will be no repetition of 2008, when the largest banks were at risk of collapse because they had much smaller financial cushions. 7

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Nevertheless, this does not mean some smaller lenders will not need to be bailed out, or that they will not reduce the supply of credit in order to meet capital requirements. Vítor Constâncio, a Portuguese economist who served as the European Central Bank’s Vice President from 2010 to 2018, said: ‘I fear that indeed there will be a deceleration of credit supply, which by itself will contribute to a very sluggish recovery, it can even become worse’, warning that the EU might have to suspend its rules against bank bailouts with taxpayers' money. ‘A credit crunch would only materialize in the second half of next year and is still avoidable’, stated Constâncio.

Limits to action What course the economy takes will depend on the pace of medical science in tackling the pandemic — and what measures governments take to blunt its effects. Developing a vaccine will help, however, it will not be the economic miracle policymakers are hoping for. Although there are six vaccines approved for early or limited use, and with a lot of hopes on a final vaccine in January 2021, Neil Shearing, Chief Economist at Capital Economics in London, said none of them is likely to have a dramatic impact in 2021. Issues such as efficacy, speed of distribution, duration of effect and potential mutations in the virus are likely to make life with a jab not much different than without it, at least in the near term. Meanwhile, there is a limit to what governments can do. Countries across the world have announced $11T in aid measures to fight the pandemic, mostly financed with borrowing, according to the IMF — the equivalent of eight times Spain’s GDP in 2019. Central banks have provided billions in corporate financing on their own account, separately from their bond-buying programs. It is pivotal to keep in mind the fact that assistance programs can not be maintained forever - and as long as demand for goods and services stays low, there is not much that can be done.

Deflation on the road? Beyond the immediate losses in 2020, the worst aspects of the crisis could take years to make themselves be felt. The Great Depression was

sparked by the October 1929 market crash, but the economy did not bottom out until March 1933, with a collapse of the U.S. banking system. The most obvious threat this time around, according to Société Générale’s Edwards, is deflation, which pushes the economy into a downward trajectory. It also makes paying back loans more expensive, as firms and governments have a harder time raising the revenues to pay off their debt burdens. For countries like Italy, Greece, the U.S. or Japan - which are piling new coronavirus-related debts on a balance sheet already deep in the red the results could be catastrophic. ‘We have never had deflation on so much debt, it can strangle economic activity’, said Edwards. The Société Générale strategist predicted a period of deflation in the coming two years, especially in Europe and the U.S., to be followed by a spike in inflation to levels around 5 percent to 6 percent - ‘There is no painless way out of this’.

So what about now? As cases are surging again, we should try to understand the impact of lockdowns on GDP, so we are more prepared for a second wave. There is this common assumption that lockdowns are positively correlated to GDP. In other words, most of us believe that exists a trade-off between protecting people’s health and protecting the economy. But is this true? A way of answering this question is to look at how the health and economic impacts of the pandemic compare in different countries so far. Have countries with lower death rates seen larger downturns? Comparing the Covid-19 death rate with the latest GDP data, we in fact see the opposite: countries with lower death rates are also the countries with lower downturns. We see that countries that suffered the most severe economic downturns – like Peru, Spain and the UK – are generally among the countries with the highest Covid-19 death rate. And the reverse is also true: countries where the economic impact has been lower - like Taiwan, South Korea, and Lithuania - have also managed to keep the death rate low. But there are also countries with similar falls in GDP that have witnessed very different death rates. In example, comparing the US and Sweden with Denmark and Poland. 8

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All four countries saw economic contractions of around 8 to 9 percent, but the death rates are markedly different: the US and Sweden have recorded 5 to 10 times more deaths per million. Certainly, many factors have affected the COVID19 death rate and the shock to the economy beyond the policy decisions made by each government about how to control the spread of the virus. And the full impacts of the pandemic are yet to be seen. Among countries with available GDP data, we do not see any evidence of a trade-off between protecting people’s health and protecting the economy. Rather the relationship we see between

the health and economic impacts of the pandemic goes in the opposite direction. As well as saving lives, countries controlling the outbreak effectively may have adopted the best economic strategy too. That being said, as cases are surging again, implementing localized lockdowns might be the best way to control both the virus and the economy until a vaccine is completely available for distribution. But unfortunately, the cost of opportunity of lockdown might be too high. As reported by Bloomberg, the cases of depression and other mental health disturbances almost quadrupled in the United States and doubled in the United Kingdom.

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The secretive and controversial company that is now public Palantir Technologies is a private American software company which specializes in big data analytics Patrícia Coelho Since its creation in 2003, the firm has been involved with governmental entities, such as the CIA. Due to the nature of its services, all of the clients are forced to sign a non-disclosure agreement (NDA), hence the secrecy of the company after 17 years of activity. However, the firm announced its plans to go public recently and it was expected by many to be the biggest tech filing of the year. The co-funder of PayPal, Peter Thiel, is an avid supporter of the Trump administration and one of the founders of Palantir Technologies. The name Palantir is presumably more acknowledged as the mystical artifact from ‘The Lord of the Rings’ that enabled its users to see everything, including the past and the future. The company itself does not deviate from this philosophy as it compromises to analyse all the data that surrounds a certain organization and to present it in a way in which its customers can use it, allowing them to have their own seeing-stone. Palantir is divided into two main services (Gotham and Foundry) which contemplate and identify patterns that were not foreseen by its customers. In order to get those results, they collect data from every source they can use, covering phone records, license plates and social media, just to name a few.

Why is Palantir such a controversial business? The fact that Palantir was founded in 2003 is not a coincidence. Peter Thiel has given several interviews and has written an essay explaining the role that his company could have had if it was already in motion in the 9/11. There are also unconfirmed rumours of its involvement in the discovery of Bin Laden. The firm was venture backed by the CIA through In-Q-Tel and counts with the CIA, FBI, NSA and the Department of Homeland Security as clients. Palantir claims to be a valuable weapon against terrorism and its range of clients can confirm it. It has already been criticized for helping identify illegal

immigrants for deportation, which is one of its activities that was actually revealed to the public eye. The company claims that its cooperation with police departments can help them increase the efficiency of their investigations. In fact, after the implementation of its software in the Salt Lake Police Department, the time they spent performing complex investigations decreased by 95%. Besides, its software was also able to assist the military in their response to the Hurricane Florence in 2018, by mapping the areas where they needed the most intervention. Palantir is also present in the corporate world. Even though the major tech companies are increasingly investing in AI and have an immeasurable access to our personal information, they cannot compete with Palantir in the data mining field, given that one of its features allows them to know who has had any access to the data they are analysing and how they have used it in their favour. Thus, some companies employ their services to have a competitive edge or to improve their operational capabilities, such as JP Morgan Chase, Airbus and Ferrari. The business applications explained above may be deemed as efficient and helpful to society to a certain extent. Nevertheless, there is a divergence between Facebook’s usage of data to improve its recommendations and increase its profitability with advertisements and using phone records to potentially spy and arrest criminals. Palantir’s fight against terrorism and crime is only present on the public entities who employed it, which doesn’t allow us to take any conclusions on what its role might be when working with the private sector and how certain companies are using its services. Thus, there is a lot of controversy surrounding its operations. Now that the company has decided to go public, it will have a hard job in maintaining the desired level of confidentiality. 10

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Expectations vs Reality Palantir was expected by many to be the biggest listing of the year. On September 30th, it opted for a direct listing instead of an IPO as not issuing new shares is a procedure with less intermediaries, and, consequently, less costs. In opposition to what one might assume, the first days did not present the usual level of volatility for the sector. In fact, the stock closed at $9.5 on the first day, which is below its initial price of $10 and, after a month of being in the markets, it is currently trading at only $10.13. The number of tech IPOs has been growing significantly over the past few years. Snowflake, for instance, more than doubled its share price on the first day, two weeks prior to Palantir’s listing, becoming the biggest software IPO ever. After Palantir, Warner Music Group and Snowflake’s listings, Airbnb is the next in line. 2020 has been a good year for IPOs, particularly in the tech sector, which leads to the conclusion that Palantir’s failure to comply with the predictions was due to investors’ lack of confidence in the company’s future. It would be perfectly reasonable to assume that its shares would have an exponential surge right on the first day of trading if the only criteria were its $20B valuation. In fact, tech is the sector that is leading the market. The companies that currently have the highest market capitalisation are usually denominated FAANG and are constituted by Facebook, Apple, Amazon, Netflix and Alphabet, all tech companies that are currently not affected in the market by their usage of the data. However, a careful examination of the company’s financial statements might raise some red flags. Firstly, this firm has always been profitless throughout its 17 years of activity. Even if their services are only affordable to big corporations, the costs associated with the customization of its software to every client is unbearable. They lost $580M in 2019 and have already lost $175M in the first half of 2020, with only 125 customers. As it is depicted in the graph below, its contribution margin (Sales revenue – Variable costs) has increased, which indicates that the sales have surged, but are not sufficient to stop incurring losses. Secondly, Palantir is usually regarded as a tech company and that factor avails them upon an entrance in the stock market.

Nonetheless, they may also be considered a consulting firm. Their services are not only focused on data mining, but also on interpreting its outcomes and proposing connections that may improve the company, which is not incompatible with the market research and other activities that a consultant provides. Depending on the perception of investors regarding its sector, its fluctuations in the market may vary. The future of Palantir from the second it entered the market depends on its aptitude to convince investors that they can add value and have potential to achieve superior results despite their financial track record.

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Business Deep Dive: CATL

Contemporary Amperex Technology Co. Limited, also known as CATL, is a Chinese technology company and manufacturer founded in 2011, specializing in the manufacturing of lithium-ion batteries for electric vehicles and energy storage systems, as well as battery management systems.

Bruna Travassos

Raquel Tavares

Markets In June 2018, China’s biggest battery cells’ maker for electric autos, CATL, went public in the Shenzhen Stock Exchange. On its Shenzhen debut, CATL’s share price rose by 44%, from IPO price of 25,14 to 36,20 yuan. During 2018 and the first ten months of 2019, the share price remained quite constant, but when the news that Tesla reached a preliminary deal with CATL for battery supply, the share price jumped. In the start of February 2020, it was announced that CATL had won a two-year contract to supply batteries for Tesla, which also made the stock rise. In mid-February, the price dropped given the outbreak of Covid-19 in China, however, in April, it soared again. In September 10, CATL drew more than $13,5 bn of orders for its $1,5 bn dual-tranche five-year and ten-year bonds. The grade of Baa1 certainly gave international investors a rare opportunity to buy into a key supplier to market leader Tesla Inc. and

dominant automakers such as BMW AG and Volkswagen AG. Interest from EMEA buyers was well above the average for a Chinese deal. CATL’s share price has been displaying a positive growing trend, reaching its all-time high on the last day of October 2020, promising a continuous rally in the stock market, accompanied by the company’s huge deals in the electric vehicles’ sector from all around the globe.

Price Performance

Source: Bloomberg; Note: 300750 CH Equity - Contemporary Amperex Technology Co. Limited; BATT LN Equity – L&G Battery Value-Chain UCITS ETF; SHCOMP Index – Shanghai Stock Exchange Composite Index


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History and Development Contemporary Amperex Technology Co. Limited, the company which once helped Apple Inc. extend the life of its MacBook laptops, was founded in 2011 by the creators of Amperex Technology Limited (ATL) whch is the world’s leading company in the field of lithium-ion batteries for consumer electronics. CATL mainly offers solutions in 4 segments: passenger vehicles, commercial applications, energy storage and battery recycling. The passenger vehicles’ solutions are focused on intelligent management where systems make the battery safer, the system more efficient and allow for ultra-long driving ranges, whereas the commercial applications solutions rely on a tech combination of software and hardware to ensure that CATL’s batteries achieve more cycles, longer life, better long-term performance and higher economic benefits. When looking at energy storage solutions, CATL’s systems provide energy storage and output management in power generation. The lithium-ion battery technology and renewable energy power generation technology are used to form a joint system where it is enabled the power generation to restore a stable power grid, optimize the power output curve, as well as provide reduced solar and wind curtailment. The last solution provided by CATL, being battery recycling and utilization aims for the development of a circular economy as it is a crucial part of the end and the beginning of the new energy vehicles’ industry chain. Whilst analysing the end of life opportunities of around batteries, even though its performance is no longer enough for a car or truck, it is still perfectly adequate for less demanding applications, notably energy stationary applications.

In 2012, CALT started a strategic partnership with BMW and soon became its key supplier in the electric vehicle (EV) battery sector. In 2014, with the ambition of expanding to the international market, CATL established the first overseas subsidiary of Contemporary Amperex Technology GmbH in Germany. In the year after, CATL acquired Guangdong Brunp Recycling Technology Limited, and started the development in battery recycling and regenerating industrial chains. In 2015, CATL was ranked among the top 3 companies who sell the largest volume of EV battery products. In 2018, CATL got listed on the Shenzhen Stock Exchange and launched the first overseas production base in the same year, in Germany. From 2017 until today, CATL is ranked No.1 globally in the consumption volume of EV battery products.

News and Deals o In the last quarter of 2019, around €240m were assigned to be invested in the first phase of the construction of CATL’s first overseas factory situated in Erfurt - Germany. CATL considered this to be the first step in Europe as it aims to supply all the manufacturers in Europe in the future. o Moreover, in November 2019, the BMW group awarded two battery cell manufacturers orders worth several billions of dollars intending to cover their battery cell requirements until 2031, one being CATL. CATL’s order volume has increased since it was originally announced to €7.3bn. The cells from the two suppliers will be used in the fifth generation of eDrive drives, which BMW intends to install for the first time in the iX3 announced for 2020. Later, the i4 and the series version of the iNext will also feature this technology. The CATL cells for the models made in the German plants will then come from the CATL battery cell plant under construction in Germany.

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o In February of the present year, Tesla agreed to buy prismatic lithium-iron phosphate batteries the main alternative to cobalt and nickel products - from China’s CATL for its shorter-range Model 3 cars in China. These batteries are widely used in electric cars and buses in China because they are cheaper than nickel and cobalt-containing batteries, which will enable Tesla to further reduce the cost of the Model 3 in China. o In August of 2020, Mercedes-Benz and CATL enter a next stage of their strategic partnership and will create cuting-edge battery technology in support of the high-volume electrification of the Mercedes-Benz model portfolio. Mercedes-Benz is accelerating its “Electric First” strategy with advanced, CO2-neutrally produced battery cells, modules and systems supplied by CATL. The agreement covers the full range of battery technologies, from cells across modules from Mercedes-Benz cars to entire battery systems to Mercedes-Benz Vans in promising innovative technology configurations. o In September, the Chinese battery giant

announced a successful issuance of $1.5bn in senior dual-tranche fixed rate bonds in overseas market, which is regarded as part of efforts to improve its global development. The money to be raised in the 5-year and 10-year tranches are expected to amount to $1bn and $500m, respectively, with coupon rates of 1.875% and 2.635%. This bond issuance is CATL’s premiere in overseas capital market, which is expected to diversify the company’s financing channels and perfect its fundraising structure, to provide powerful support to CATL’s global strategic development. o This past month, RCS Global Group and CATL have announced the launch of a responsible sourcing partnership where the industry leading ESG auditor will identify CATL’s suppliers from battery to mine or recycler. Additionally, it will assess these suppliers for conformance with environmental and human rights requirements as well as work with CATL and its suppliers to enhance the development of a responsible supply chain.

Performance Analysis CATL has been suffering from a decreasing net profit margin, from 15,3% to 11,2%, in 2017 and 2019, respectively. The high increase of depreciation and amortization expenses, as well as operating expenses such as selling & marketing were the main reasons for the drop between 2017 and 2018. From 2018 to 2019, even though the revenues increased by around 15B yuan, the net profit margin did not fluctuate much. Between these two years, it is also interesting to note that CATL increased their operating expenses with research and development by 50%. The first half of 2020 translated into lower battery sales for CATL, however, the company remains profitable. According to the firm’s financial report, revenues decreased by 20% compared to the same period last year. The net profits declined by 7.86%. These numbers show that the EV battery maker is quite susceptible to the Covid-19 crisis the world is facing right now. This negative impact comes from the fact that CATL produces EV battery components for cars, amongst other devices, and the demand worldwide for cars decreased during this year, which transposes its effect into CATL’s activities, meaning that in case this second wave of indections hits the world economy hard and faces a shock as strong as the first or even stronger, consumers’ consumption and preferences will suffer. Such shock could promise some bad months ahead for CATL, even though after the effects of the pandemic eased in China, demand rose for customers incluiding Tesla. Source: Bloomberg

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During the third quarter of the present year, as the pandemic was quite controlled in China, CATL was able to have a positive growth of revenues of 0,8% year on year and a net profit grow of 4,24% year on year. Between 2017 and 2019, ROE decreased from 19,3% to 12,8%, and ROA decreased from 9,9% to 5,2%. In the same time period, CATL has increased its balance sheet size, exhibiting an upward trend of the debt to assets ratio, reaching 60% in 2019. Cash flows from operating activities display a steep increase. From 2017 to 2018, these cash flows more than quadrupled, from 2,4B to 11,1B yuan. This increase was highly due to the sales of working assets. Cash flows from investing activities managed to rebound from the very low negative value of -19,5B yuan in 2018, to 1,9B yuan in 2019. On the first half of 2020, cash flows from both operating and investing activities decreased. This was directly related to the pandemic effect, since net income and cash received from investing activities plunged. In the third quarter of 2020, CATL reported a cash flow from financing activities of 30,4B yuan, which goes against the decreasing trend of the last 3 years. This increase was highly due to repurchase of equity.

Source: Bloomberg

Source: Bloomberg

Industry Overview Nowadays, batteries are a recurring topic in online forums, newspapers, cross-industry discussions and casual conversations. Are batteries the new gold? They might well be considered so, due to their importance in the decarbonisation of large parts of the world economy, taking into account that many of these efforts are focused in Europe, market in which CATL is putting its best efforts to stand out in terms of deal volumes. Electrifying cars, vans, buses and trucks using rechargeable lithium-ion batteries offer an effective, scalable and, if combined with renewable power, zero emission solution for transport, one of the biggest goals for the next decade worldwide. CATL is part of the renewable energy equipment industry, alongside companies from around the world, which have the desire to make the use of energy in devices smarter and more efficient. From these many companies, the ones to be analysed as comparables to CATL are in the table on the right. All of the 5 companies are headquartered in China and, thus, are under similar standards in terms of financing regulations. However, even though the business focus may be identical, it is worthwhile to highlight the difference in the dimensions of CATL and its peers. CATL has a

market capitalisation approximately 6x higher than the peer with the highest market capitalisation, meaning that even though the business model and growth path may be similar, the absolute values of this evolution are quite separated.

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Price Performance Of Comparable Companies

Source: Bloomberg; Notes: 300750 CH Equity - Contemporary Amperex Technology Co. Limited; 300014 CH Equity – Eve Energy Co Ltd; 300450 CH Equity – Wuxi Lead Intelligent Equipment Co Ltd; 002850 CH Equity – Shenzhen Kedali Industry Co Ltd; 3000068 CH Equity – Zhenjiang Narada Power Source Co Ltd; 300438 CH Equity – Guangzhou Great Power Energy & Tech Co Ltd

Valuation On the last day of October, CATL was trading at 256,02 yuan. Through the comparable analysis of the Chinese peers mentioned in the ‘Industry Overview’ section, the EV/EBIT and the P/B suggest that the market price is the fair price. Regarding EV/EBIT, the company price is between the 25th to the median. However, when analysing the P/B ratio, the price is between the median to 75th and it is also important to note that the P/B has a high dispersion. Contrarily, P/E and EV/Sales strongly suggest that the company is overvalued, while according to the 52 Week Range, CATL is on par with its quoted price. It is important to recognise once again that these companies are of smaller dimensions when compared to CATL, suggesting that if compared to these metrics, CATL is considered to be trading at its fair quoted price on average, but when taking into account this separation in market capitalisation, CATL might be considered to be quite undervalued.

Source: Bloomberg

Outlook The industry of EV is growing and most can agree it is fundamental for the future global development. CATL’s batteries are playing a role in it. Not only through its expansion in Europe, but also in the location of its headquarters, China. China is one of the epicentres of EV sales, displaying the fact that half of CATL’s electric vehicles sales in 2019 were in China. It is also important to highlight the fact that the pandemic is still present, and the revenues from the first half of 2020 were strongly affected by it, since the sales of electrical vehicles decreased during this period. Even though CATL managed to have a 4,24% year on year in the third quarter, as China is mostly free of Covid-19, it is still soon to assume that it will continue to be so. As previously stated, CATL is expanding into overseas markets, and their revenues are slowly becoming more geographically diversified. The new deals with Mercedes-Benz and Tesla are fundamental to see at what extent will CATL establish itself on overseas markets. 16 NIC Undergrad Review

NIC-UD Fund The acceleration of COVID-19 cases was the main driver of the underperformance of equities this month, being aggravated by the US election’s uncertainty

André Fael

Bernardo Patrício

Global Markets As Covid-19 cases started to accelerate, investors started to account for the possibility of a new economic slump due to increasing lockdown restrictions. The Eurostoxx 50, the worst performer of the indexes, decreased 7,37% MoM due to a bigger 2nd wave of infections, while the S&P 500 only decreased 2,77%, reflecting also uncertainty around the US election. Faring better against the pandemic, Asian indexes, like the Shanghai Composite (+0,2%) and the Nikkei 225 (-0,9%), remained essentially unchanged. o International Markets were also driven by some optimism mixed with disappointment throughout the month regarding the recent developments of the COVID-19 vaccine, being Pfizer and Astrazeneca the front runners in this race for the cure. o The EU and the UK have not yet struck a trade deal, but negotiations are intensifying with hopes of an agreement by the year’s end. o Markets have been responding positively to the prospects of a Biden win in November. With the stimulus impasse still unresolved, Wall Street is hoping that a democratic win will unlock more funds to help the economy, but still weighing the prospects of the effect of higher corporate taxes on earnings.

Current Positions Regarding portfolio allocation, we have added 2 new securities to our Fund in the past month, NextEra Energy and L&G Battery Value Chain ETF. At the moment, geographical diversification is an important issue to ensure the reduction of idiosyncratic risk and, for that reason, we have been looking for opportunities outside of the US where a big portion of our portfolio is allocated. Most of the Fund’s positions either decreased in value or essentially remained unchanged. Our worst performer was Gilead Sciences (GILD) with a share price decrease of nearly 8% during October, while our best performing security was PG&E (PCG) with a performance of 1,81%.

Positions’ Weight on Total Equity

1 Energy 19.06%



Pharmaceutical Social Media/Internet







Streaming/Entertainment US Equity

Current Price

Open Price










US Equity





EU Equity




Social Media/Internet

US Equity





US Equity





US Equity




EV Battery




Gaming/eSports 10.85%


10.67% 16.31%

Renewables Electric Batteries ETF Cash

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NIC-UD Share Price (Inception Cumulative Returns) 0% 9/30/2020 -2%







-4% -6% -8% -10% -12%

Benchmark Analysis

Monthly Performance

Following a difficult month for equities, the Portfolio’s share price decreased 2,1% MoM, but with a Net Performance (adjusted against the MSCI World Index benchmark) of +1,34%, a positive sign since we were able to outperformed our benchmark, although only slightly. The fund only has underperformed against the Japanese (Nikkei 225) and Chinese (Shanghai Composite) indexes, regions who have been successful in controlling the virus. The “Footsie” lost 4,75% in value with delayed Brexit talks and new lockdown measures being imposed by Boris Johnson. Conversely, the FANG+ index, which tracks the biggest tech companies like Amazon, Microsoft, Alibaba and Tesla, greatly increased in value (+4,59%) relatively to the other indexes, mostly driven by a better-than-expected Q3 earnings season. All in all, October was a negative month for nearly every index, with the MSCI World Index reporting a -3,44% change as the economic environment worsened.

4% 2% 0% -2% -4% -6% -8% -10% ETF #1 Stock #1

Stock #2

Stock #3

Stock #4

Stock ETF #2 Stock #5 #6

Portfolio Returns vs Benchmarks 6%


4% 2% 0.20%

0% -2% -4%

-0.90% -2.10% -3.44%




-8% Portf oli o MS CI World S& P 500 (Share Index Price)

-7.37% FTSE 100 Eurostoxx Nikkei 225 Shanghai 50 Com posite


Corporate News Like mentioned above in the ‘Current Positions’ section, the FDA has approved Gilead’s experimental treatment for COVID-19 for individuals requiring hospitalization after a study concluded that “remdesivir” could reduce the median recovery time of an infected patient. Regarding Big Tech companies, where the fund is also invested, Google has been sued by the US Department of Justice over antitrust breaches alleging the company has ‘unlawfully maintained a monopoly in search by cutting off rivals from key distribution channel’. The DOJ has also been after other Big Tech companies like Facebook who currently has a considerable monopoly on the social media industry, proposing to break up the firm into 3 separate ones (Facebook, Instagram and WhatsApp). Still no official lawsuit has been announced. Regarding the Streaming industry, Netflix dropped almost 7% in the session after releasing its Q3 2020 results due to slowing subscription growth, being good news for other streaming companies like Apple (with Apple TV), Amazon (with Amazon Prime Video), Comcast and Disney, who has surpassed 60 million paid subscribers recently this year. 18 NIC Undergrad Review

New Positions Nextera Energy Share Price $80 $70

NextEra Energy Ticker: NYSE:NEE Date: 28/10/2020 Open: 75,49$ Sector: Energy Industry: Renewables

$60 $50 $40 $30 02-Jan-20






Investment Proposition NextEra Energy is currently the largest company in the renewables industry by market capitalization in the world and it is a leader in solar and wind power. We not only intend to take advantage of the secular trend in this industry regarding the transition to green energy in the world, but also that a favorable Biden win in November would benefit our bet due to the greener initiatives planned by the Democrats if they take office in the White House. Mentioning now the internal factors that led us to invest in NextEra, despite a higher valuation than its peers, operating ratios are relatively better than the industry mean, a sign of the company’s higher efficiency and know-how capabilities. Finally, it has plans to pursue horizontal M&A activity, making a friendly bid to Duke Energy in the past month of October, in order to cement its position as the leader in the industry.

L&G ETF Share Price $12 $10

L&G Battery Value Chain ETF

Ticker: AEX:BATT Date: 19/10/2020 Open: 9,91$ Sector: Automakers, Mining, Software Industry: Electric Batteries

$8 $6 $4 $2 $0 02-Jan-20






Investment Proposition L&G Battery Value Chain ETF is a security that tracks the overall performance of the EV Battery industry. Keeping in mind that the depressed state of the automobile industry due the global recession caused by the pandemic, we felt the timing was right to take a value and long-term bet on the whole industry, from the top of the value chain, the lithium mining companies like Pilbara Minerals, to EV automakers like Tesla and Daimler-Mercedes, creating more geographical and sectoral diversification for our portfolio. In addition, this ETF will capture the growth that will come from EV Batteries and other developments that occur in the battery industry and Energies such as the developments for 5G and improvements in transportation systems. 19

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