The last time Rolls-Royce had an US activist fund on its tail, the aero-engine manufacturer took the unusual step of inviting one of its representatives onto the board. ValueAct Capital was judged to have constructive ideas and useful industry expertise. The four-year relationship, which ran until 2019, turned out harmoniously.
Causeway Capital Management, the latest US fund with a 9% stake, looks a different beast, at least to judge by its comments to the FT at the weekend. The striking feature was the wooly nature of its main grumble: a demand for a board “refresh” in the interests of “fresh thinking”. What does that mean?
It wasn’t a request for a boardroom seat, but nor was Jonathan Eng, portfolio manager at Causeway, clear about what qualities he thinks Rolls’ current board lacks. More engineers required? Well, yes, Rolls’ current crew of non-executives looks a little heavy on bankers and FTSE 100 finance directors. On the other hand, in the days when Rolls’ board was stuffed with engineers, the general complaint was that the company lost sight of the grubby business of keeping costs under control and making money.
Since Causeway was so vague, this skirmish looks more like a hangover from the fund’s reputed unhappiness over the size of Rolls’ £2bn pandemic rights issue last year. Sir Ian Davis, Rolls’ chairman, got his way on that one (but left things late, many would argue) but he’s off at the end of September, to be replaced by Anita Frew.
Read Causeway’s weekend comments, then, as a reminder to Frew that it is still around. A quarrel with its largest shareholder is probably not what Rolls needs after a horrible year, but it is a possibility. The plot looks developing.
Michael O’Leary revised downwards his estimate for passenger numbers seven times during the course of Ryanair’s last financial year, so you might assume he’d now retire from the forecasting game.
He hasn’t, of course. He’s spotted a “dramatic recovery in traffic and volumes” and now predicts Ryanair’s capacity should return to pre-pandemic levels from November. For October, he’s talking about running almost 90% of planes, even if there’ll be more empty seats than normal.
The extreme bullishness is in contrast to easyJet, which a few weeks ago was still talking about running only “up to 60%” of 2019 capacity in its July-August-September quarter.
EasyJet’s greater skew towards UK routes, with tougher Covid testing requirements, probably explains part of the difference. O’Leary’s appetite for using the crisis to grab share from the “legacy carriers”, as he labels the likes of Alitalia, is another factor. EasyJet has emphasised the need to fly “profitably” during the comeback.
Investors, in other words, have a choice if they wish to punt on the speed of the recovery in the short-haul market. That recovery is clearly happening, and is obviously outstripping the US-dependent long-haul market. It’s just that O’Leary’s optimism comes with the rider that “no adverse Covid development” emerges. That is not a small get-out clause.
It’s probably time to stop bashing GlaxoSmithKline for being so slow with its response to the pandemic. The company can now claim to be in the forefront of the second round of vaccine development.
Tuesday’s announcement of a late-stage clinical trial with SK Bioscience, a South Korean specialist, marks the third such study of a protein-based candidate. The most advanced is with Sanofi of France, where results could come as soon as October, and the other is with Medicago of Canada. On top, GSK has a programme with German group CureVac to develop a next-generation mRNA vaccine.
None of which alters the fact that AstraZeneca deserves its plaudits for flying the flag for UK pharma in partnership with Oxford University. But there is some truth to GSK’s boast about taking “one of the broadest” approaches in the industry to fighting Covid. The group’s skill in vaccines is in adjuvants that deliver more bang in smaller volumes, thereby allowing more doses to be produced. Deploying the technology with several partners was a legitimate strategy.
One of the clinical trials has to succeed before one can say GSK is properly in the game. But the aim for the SK product is for global supply “at scale” in the first half of next year via the Covax programme for lower- and middle-income countries. If it happens, it would still be an important advance.