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Oracle spikes up 21% following TikTok ‘win’: Where next?

Shares of Oracle Corporation (NYSE: ORCL) spiked up 21% on Monday 14 September 2020, following reports that it has won the bid for TikTok’s US operations. The Oracle stock hit a high of US$64.60 a share in pre-market trading on the IG platform.

  • Oracle shares rallied as much as 21% on Monday
  • The Wall Street Journal reported it will be named TikTok US’ ‘trusted tech partner’
  • This news follows last week’s better-than-expected Q1 2020 earnings
  • Analysts say Oracle still ‘underperforms peers’ in growth figures

Oracle stock rallies 21% in pre-market trading

Shares of Oracle Corporation (NYSE: ORCL) spiked up 21% on Monday 14 September 2020, following reports that it has won the bid for TikTok’s US operations.

The Oracle stock hit a high of US$64.60 a share in pre-market trading on the IG platform.

According to The Wall Street Journal, Oracle will be announced by the Chinese social media app as its ‘trusted tech partner’ in the US, with the deal likely not to be structured as an outright sale.

Microsoft said earlier on Sunday 13 September 2020 that its bid has been rejected by TikTok’s parent company ByteDance.

Following the reports, Bloomberg Intelligence analysts Anurag Rana and Gili Naftalovich wrote in a note that Oracle’s potential TikTok win ‘could provide a minor boost to its cloud infrastructure services’.

However, they noted that Oracle ‘has a long way to go before it becomes even a top-five player in the (cloud infrastructure) space, given its late entry’ into a market currently dominated by Amazon and Microsoft.

As previously reported, Red Pulse analysts had remarked that ‘Oracle has several qualities that may allow it to succeed in the TikTok’s acquisition, outbidding Microsoft and Twitter’.

Oracle had a better-than-expected Q1

Last week, the Oracle stock rallied as much as 8% after its financial results for the August 2020-ending quarter came in better than expected.

The company reported a 2% year-on-year growth in revenues to US$9.4 billion, and 16% annual jump in GAAP (unadjusted) earnings per share (EPS) of US$0.72.

These results beat Wall Street’s sales and EPS estimates of US$9.19 billion US$0.64 per share by 1.9% and 12.4% respectively.

Oracle’s board of directors also declared a quarterly cash dividend of US$0.24 per share of outstanding common stock, to be paid to shareholders on 22 October 2020.

Oracle CEO Safra Catz said: ‘Our cloud applications businesses continued their rapid revenue growth with Fusion ERP up 33% and NetSuite ERP up 23%. We now have 7,300 Fusion ERP customers and 23,000 NetSuite ERP customers in the Oracle Cloud’.

Catz also noted that the company’s infrastructure business is ‘growing rapidly’, as revenue from Zoom more than doubled from Q4 last year to Q1 this year. Oracle is the video communications platform’s main cloud infrastructure provider.

‘I have a high level of confidence that our revenue will accelerate as we move on past Covid-19,’ she added.

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What is the latest Oracle stock target price?

Across the board, Oracle currently has a majority rating of ‘hold’ from 19 out of 30 Wall Street brokers polled by Bloomberg.

The stock has also received an average 12-month share price target of US$61.03 per share.

This represents an upside of 7.1% from the last official traded price, indicating that the stock is still not at its peak market value.

In terms of specific price estimates, Societe Generale and Bernstein analysts are the most optimistic of the lot, giving Oracle a target price of US$70 in the long run.

Why FDA analysts say Oracle is ‘not a preferred investment’

Meanwhile, FDA analysts wrote that Oracle shares are not among their ‘preferred investment choices’, following the B2B firm’s Q1 earnings release. They priced it at a target of US$66.

The analysts wrote: ‘Oracle’s first-quarter earnings report and guidance for the next quarter reflect a continued pattern of moderate growth that underperforms key peers. Improvement may not show in the coming years.’

They noted that while the company still has strong assets, ‘Oracle’s competitive position has become more vulnerable, due to the structural shift towards cloud computing, rising usage of open source software and intensified competition’.

Additionally, the company has in recent years created substantial value for shareholders by spending large amounts of cash on share buybacks. This approach, the analysts added, has ‘reduced the financial room for initiatives that help to lift growth and bring down longer-term risks’.

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  1. Create a live or demo IG Trading Account, or log in to your existing account
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Daily Financial News

Don’t Count On JPY Correction; Staying Long GBP/JPY

The path of the potential pace of the JPY decline may still be underestimated by markets, which continue trading the JPY long.

While the 10% USDJPY advance from September lows looks impressive from a momentum point of view, it may no thave been driven by Japan’s institutional investors reducing their hedging ratios or Japan’s household sector reestablishing carry trades.

Instead, investors seemed to have been caught on the wrong foot, concerned about a sudden decline of risk appetite or the incoming US administration being focused on trade issues and not on spending. Spending requires funding and indeed the President-elect Trump’s team appears to be focused on funding. Here are a few examples: Reducing corporate taxation may pave the way for US corporates repatriating some of their USD2.6trn accumulated foreign profits. Cutting bank regulation could increase the risk-absorbing capacity within bank balance sheets. Hence, funding conditions – including for the sovereign – might generally ease. De-regulating the oil sector would help the trade balance, slowing the anticipated increase in the US current account deficit. The US current account deficit presently runs at 2.6% of GDP, which is below worrisome levels. Should the incoming government push for early trade restrictions, reaction (including Asian sovereigns reducing their holdings) could increase US funding costs, which runs against the interest of the Trump team.

Instead of counting on risk aversion to stop the JPY depreciation, we expect nominal yield differentials and the Fed moderately hiking rates to unleash capital outflows from Japan.The yield differential argumenthas become more compelling with the BoJ turning into yield curve managers. Via this policy move, rising inflation rates push JPY real rates and yields lower, which will weaken the JPY. Exhibit 12 shows how much Japan’s labor market conditions have tightened. A minor surge in corporate profitability may now be sufficient, pushing Japan wages up and implicity real yields lower.

JPY dynamics are diametrical to last year . Last year, the JGB’s “exhausted”yield curve left the BoJ without a tool to push real yields low enough to adequately address the weakened nominal GDP outlook. JPY remained artificially high at a time when the US opted for sharply lower real yields. USDJPY had to decline, triggering JPY bullish secondround effects via JPY-based financial institutions increasing their FX hedge ratios and Japan’s retail sector cutting its carry trade exposures. Now the opposite seems to be happening. The managed JGB curve suggests rising inflation expectations are driving Japan’s real yield lower. The Fed reluctantly hiking rates may keep risk appetite supported but increase USD hedging costs.Financial institutions reducinghedge ratios and Japan’s household sector piling back into the carry trade could provide secondround JPY weakening effects

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Daily Financial News

Mexico raises interest rates, cites Trump as risk

The head of Mexico’s central bank says U.S. Republican candidate Donald Trump represents a “hurricane” sized threat to Mexico.

Banco de Mexico Gov. Agustin Carstens told the Radio Formula network Friday that a Trump presidency “would be a hurricane and a particularly intense one if he fulfills what he has been saying in his campaign.”

Trump has proposed building a wall along the border and re-negotiating the North American Free Trade Agreement.

Mexico’s central bank raised its prime lending rate by half a percent to 4.75 percent Thursday, citing “nervousness surrounding the possible consequences of the U.S. elections, whose implications for Mexico could be particularly significant.”

Mexico’s peso had lost about 6 percent in value against the dollar since mid-August. It recovered slightly after the rate hike

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Financial News

Africa’s first Fairtrade certified gold co-operative offers hope to gold miners living in poverty

Syanyonja Artisan Miners’ Alliance (SAMA) has become the first artisanal small scale mining co-operative in Africa to become Fairtrade certified, bringing much needed hope to impoverished communities who risk their lives to mine the rich gold seam that runs around Lake Victoria.

SAMA is one of nine previously informal groups from Uganda, Kenya and Tanzania which has benefitted from a pilot project launched by Fairtrade in 2013. This innovative program aims to extend the benefits of Fairtrade gold to artisanal miners across East Africa.

In that short time, SAMA has undergone training in business and entrepreneurship, as well as safe use of mercury, internal control systems, labour rights and better working conditions, health and safety and more. Previously, daily contact with toxic chemicals used to process gold meant members risked disease, premature births and even death.  Fairtrade gold was first launched in 2011, and SAMA now joins Fairtrade certified gold mines MACDESA, AURELSA and SOTRAMI in Peru.

The co-operative produces just 5 kg gold per year, but nevertheless has the potential to significantly benefit many people in the local community through better conditions through certification. It is expected that Fairtrade and organizations like Cred Jewellery will support the miners, ensuring their gold can be refined and made available to jewellers in the UK and other markets.

Gonzaga Mungai, Gold Manager at Fairtrade Africa said: “This is a truly momentous and historical achievement and the realisation of a dream that is many years in the making. Gold production is an important source of income for people in rural economies. Congratulations to SAMA, it sets a precedent which shows that if groups like this can achieve certification, then it can work for others right across the African continent.”

The Fairtrade Gold Standard encourages better practice and changes to come in line with international regulation around the production and trade of so-called ‘conflict minerals’. Under the Standard, miners are required to:

  • Uphold a human rights policy preventing war crimes, bribery, money laundering and child labour
  • Clearly represent where the minerals were mined
  • Minimise the risks of conflict minerals through robust risk assessments and collaboration across supply chains
  • Report to buyers and trading partners regarding the risks of conflict minerals

Now in its second phase, the programme will focus on supporting other mining groups in the region to access affordable loans and explore a phased approach to accessing the Fairtrade market, allowing more mining co-operatives across Africa to participate in the programme.

Gonzaga added: “Sourcing African metals from smallscale miners in the Great Lakes Region is the responsible thing to do. For a long time companies have avoided buying gold from this region, with devastating consequences for impoverished communities who were already struggling. It has driven trade deeper underground, as unscrupulous buyers pay lower prices and launder illegal gold into legitimate supply chains. That’s why we have chosen to work with these groups to help them earn more from their gold within a robust compliance system that offers social, environmental, and economic protections.”

The Fairtrade gold programme offers a small but scalable solution to sustainable sourcing of gold from the region in line with Section 1502 of the Dodd-Frank Act in the US, OECD Due Diligence Guidance and recent EU Supply-Chain Due Diligence proposals which could come into effect in 2016. This means that up to 880,000 EU firms that use tin, tungsten, tantalum and gold in manufacturing consumer products could be obliged to provide information on steps they have taken to identify and address risks in their supply chains for so-called ‘conflict minerals’.

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