Report by Pennock Idea Hub

Debt has been Ed Pennock’s main concern throughout 2023, with the structural risks posed by indebtedness threatened by the end of zero interest rate policies (ZIRP). There is a whole generation of investors who have not known a period where interest rates were driven by market forces rather than central banks. It has resulted in a burgeoning of zombie companies who will struggle to cover their interest bills yet have managed to survive in the world of ZIRP. We will see markets return to the days of old, where return of capital becomes a key concern again. Joseph Schumpeter’s concept of creative destruction rises again, heralding the end of zombie companies who continue eking out an existence. WeWork and Sigma are just the start.

Communications

Report by Galliano's Financials Research

Victor Galliano continues to be cautious on SoftBank due to its 1) WeWork exposure (estimated at USD 1.8bn and looks increasingly to be at risk of being written off), 2) the risk of over-valuation of private companies in the Vision Funds (private companies accounted for 64% of SVF1’s fair value with SVF2’s private companies accounting for 84% of the fund’s total equity value) and 3) Masa’s debts to SoftBank (USD 5.1bn). In the near term, the upside potential to equity value rests largely with the Arm IPO, but Victor is concerned that its AI credentials may well be being overstated by SoftBank's management.