An IPO Set To Fly Or Crash

Finnish mobile game maker Rovio has set the price for the company's IPO. The maker of Angry Birds will have a value of about $1 billion based on the IPO price. The company will sell about 55 percent of its shares, with current owner Trema International retaining about 37 percent ownership. The IPO price of 10.25 to 11.50 euros values the company about the same as peers, but does include an expectation for profit growth.

Hurricane Irma And Cat Bonds

Our thoughts and prayers go out to those affected by Hurricane Irma. Fortunately, Irma weakened as it approached the U.S. and property damage estimates dropped from $200 billion to $49 billion, although the final tally won't be known for months. As you can imagine, large natural disasters such as this affect financial markets. Last week, the stock market fell and the dollar weakened based on the dire projections, although both have rebounded today, in part because of the storm's weakening. However, no financial instrument was hit as hard as cat bonds based on hurricane damage in Florida. In fact, one cat bond that was recently issued by Heritage Insurance Holdings fell to 50 cents on the dollar. The cat bond market has reached $90 billion, and almost one-half is tied to Florida hurricane damage.

A Boardless Company

It seems that Hampton Creek, know for its eggless mayonnaise, is boardless as well. A recent report indicates that five board members have recently resigned, leaving co-founder and CEO Josh Tetrick as the only remaining board member. The company has had a string of setbacks, including allegations of food safety after it bought back products from supermarkets. The company issued a statement indicating that the lack of a board gave more power to the staff, it appears that the direction of the company is now entirely in the hands of Tetrick.

Cash Flow Rises

According to a recent study, free cash flow for 20 industries increased to 4.97 percent last year, meaning that for every dollar of sales, companies generated 4.97 cents in cash flow. An increase in operating efficiency generated .89 percent, a decrease in working capital contributed .69 percent, and lower capex contributed .17 percent. The lower capex spending may be worrisome as it is an indication of lower investment in fixed assets.

From 1.68 million to 1

In June, Greek shipping company DryShips executed a 1-for-5 reverse stock split. While this itself is not unusual, it was the 7th reverse stock split by the company in the last 13 months! In fact, if you had owned 1.68 million shares of the company stock on March 12, 2016, you would currently own only one share. And the company stock has dropped over 99.9 percent. The stock would have to increase by 17.79 billion percent to reach its all-time high. One investor, who had invested $220,000, the bulk of his nest egg, currently has less than $1 invested in the company. Hopefully, this will drive home the importance of diversification. The story of DryShips is long and may involve "pseudo-underwriting", and one investor, Kalani Securities, Ltd., appears to have made millions on the stock.

CEO Pay

High CEO pay is often in the news, with many pundits arguing that CEOs are paid too much. However, if a good CEO can increase the value of the company by an amount greater than the pay, then the CEO is a positive NPV investment. A recent study finds that companies with a CEO-worker pay ratio in the 85th percentile had an ROA 13 percent greater than the industry median and a Tobin's q that was 2.1 percent greater than the median. In other words, firm's with a high CEO-worker pay ratio tend to outperform other companies when evaluated with these metrics.

Toyota's Manufacturing Option

Toyota recently spent $1.3 billion to overhaul its plant in Georgetown, Kentucky. The plant was originally designed to build the Camry and Avalon, which are both assembled on the same platform. However, a shift in consumer purchasing patterns has increased the sales of SUVs. The Georgetown plant could not manufacture these more profitable vehicles, an opportunity cost to the company. The plant remodel means that Toyota can produce 11 different models at the plant, allowing the company to switch production more quickly and cheaply in the future to meet consumer demand more efficiently. Toyota also plans to mix and match more components between its models, another increase in manufacturing optionality.