Lately, utilities proved more resilient than industrials, financials



In 2000, Berkshire Hathaway (BRK) entered into a new industry when it invested $1.7 billion to acquire MidAmerican Energy (MEC), an electric utility based in Iowa with operations in the United States and the United Kingdom. “Though there are many regulatory constraints in the utility industry, it’s possible that we will make additional commitments in the field. If we do, the amounts involved could be large,” said at the time BRK’s CEO and Omaha-based legendary investor Warren Buffett.

Mostly considered a low risk investment though capital-intensive, the utility sector encompasses stocks from electric, water, gas and power providers. Despite some continuous uncertainty over the cost of infrastructure and raw materials, utility stocks are widely seen as reliable as bonds but more rewarding since they pay a dividend yield of 3.5 percent, clearly above the yield of the S&P 500 at 2.11 percent and the U.S. 10-year Treasury note at 2.7 percent as of December 28, 2018.

Since the market’s recent entry into bear territory, consulting firm Cyceon noticed that the utility sector has shown more resilience so far than most other sectors including health care, financials and industrials.

Indeed, utility companies like Connecticut Water Service (CTWS), Atmos Energy (ATO), Northwest Natural Gas (NWN) are respectively down 4.05 percent, 7.46 percent and 12.86 percent from their historical highs*. In the meantime, industrial company ABM Industries Inc. (ABM), financial company Eaton Vance Corp. (EV) and health care distributor Cardinal Health (CAH) are respectively down 30.92 percent, 40.38 percent and 50.65 percent from their historical highs.

Multi-utilities companies however might be a bit more scattered than their specialized counterparts, for instance MDU Resources (MDU) is 34.20 percent away from its top, contrasting with Vectren Corp. (VVC) which is just 0.18% away. All the companies cited above belong either to the dividend aristocrats category or to the dividend champions category meaning that they are all longstanding companies with stable dividend distribution and growth policy.

* Most of historical highs here have been considered since 2007.

Saudi Aramco wants to lead in energy’s digital transformation



Saudi Arabia wants to diversify its economy beyond its giant oil industry and therefore seeks to exert more financial clout with a view to taking an active – and lucrative – part in what Riyadh sees as the Fourth Industrial Revolution.

Earlier this month, Abdulkareem Al-Ghamdi, Saudi Aramco Vice President for Power Systems, underlined the “clear connection” between robotics, artificial intelligence (AI), nanotechnology apps, computing and the internet of things (IoT). Citing the construction of the smart digital control center (iPower) in Dhahran, Al-Ghamdi emphasized the company’s commitment to Vision 2030 by “leading digital transformation in the energy industry.”

Along with several “strategic partnerships” with institutions and colleges focused on digital developments and innovations, Saudi Aramco deepened its business ties with US-based Raytheon Company (RTN) by establishing a joint venture company with its Saudi Arabia-based subsidiary.

“Demand for cybersecurity services is expected to grow as companies move further into the digital space and embrace technologies such as IoT and big data. The partnership with Raytheon will help strengthen cybersecurity and enhance its infrastructure in Saudi Arabia and the broader region,” said Saudi Aramco Senior Vice President of Finance, Strategy & Development Khalid H. Al-Dabbagh on December 14, 2018.

Saudi Aramco, the largest IPO in history reportedly cancelled



According to sources from inside Saudi Arabia and others quoted by Reuters news agency, Saudi Aramco, the world’s biggest oil company and the kingdom’s largest company, has cancelled its very awaited IPO.

The Saudi authority suddenly halted the listing plan and disbanded advisors, said various sources and one stressed an economist named Barjas al-Barjas, a former adviser, has been arrested in the meantime. “Investors were always skeptical of Saudi Aramco’s USD 2 trillion price tag,” wrote Bloomberg which was still talking quite positively just a few days ago about the planned listing, like its main competitor CNBC.

However, in July 2018, Bloomberg reporters Javier Blas and Will Kennedy did point out that “likely investors doubt the value of the proposed public offering” and asked “how will Saudi Crown Prince Mohammed bin Salman (MBS) save face?” While many analysts emphasized the potential economic reasons behind this cancellation, Cyceon thinks political reasons shouldn’t be ruled out as well.

Indeed, Saudi Arabia is undergoing significant changes mostly decided by MBS and which seem to fuel some frictions inside the Saudi power circles. Although it’s too early for these reasons to be clearly identified and assessed, the sudden move after so much publicity may prove a negative development for Saudi Arabia’s Vision 2030 and standing across the financial world.