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(Bloomberg) -- Mitsubishi Corp. agreed to partner with Israel’s Aleph Farms Ltd. to lay the groundwork for bringing lab-grown beef to Japan, where demand for meat is growing.The two companies will work on tailoring Aleph’s beef -- grown in vats from muscle cells of living animals -- to the tastes and nuances of Japanese consumers and regulatory bodies, Aleph’s Chief Executive Officer, Didier Toubia, said in an interview from his office in Rehovot, Israel. They would then use Mitsubishi’s manufacturing capabilities to scale up production and distribution, he said.Aleph, whose investors include American food giant Cargill Inc., plans to sell its initial batch of lab-grown meat to consumers in Asia next year, with Japan being “high on the list” of target countries, Toubia said.Toubia declined to provide further details about the companies’ arrangement or plans to obtain regulatory approval. Mitsubishi wants to examine the potential of the biomeat market by becoming an insider in the industry, a company spokesman said on Tuesday.The partnership reflects the recent strides made by the so-called cultivated meat industry, which arose mainly in response to animal rights and environmental concerns. Aleph is among some 60 startups jockeying to sell meat or poultry that bypass the abattoir and modern, industrial-scale farming, and countries are starting to open pathways to consumers.Tokyo-based Mitsubishi, which had $15.6 billion in food sales in the 12 months through March, is tapping an industry that’s expected to grow. The cell-based meat market is projected to reach $140 billion in the next decade, according to forecasts compiled by Blue Horizon Corp., which invests in alternative proteins.That’s still nowhere near the size of the meat industry, which was $1.3 trillion last year, according to Global Data. High production costs and consumer skepticism over taste and health implications are among the biggest barriers to accelerated growth.Governments must also be convinced. Last month, Singapore became the first nation to approve the sale of cultured meat. Israeli Prime Minister Benjamin Netanyahu is supportive of the sector -- he visited an Aleph factory last month and tried its cultivated steak as part of his initiative to promote the country’s startups in the sector.Still, Aleph isn’t rushing its product to market, and is particularly mindful of the specific preferences of the Japanese market, famed for its Wagyu beef.“We might be the third or fourth company to release a product, but that’s because we’re focused on consumer acceptance,” Toubia said. “They have high expectations for their meat, and we want to get it right.”(Updates with Mitsubishi comment in fourth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg Opinion) -- Is Warren Buffett running a day-trader style stock-screening operation?It’s worth asking, because an investor cycling through a few Buffett-style metrics might have predicted his purchase of major stakes in five of Japan’s sogo shosha trading houses long before they were announced early Monday, sending shares in the companies soaring.Let’s assume you’re looking for what Berkshire Hathaway Inc. has always sought out — cheap cash. Go through all the world’s listed companies and exclude those that are trading at a premium to book value, those that have free cash flow yields of less than 10%, and those that aren’t generating at least $2 billion in free cash a year.Let’s also exclude energy companies and automakers — both going through major and unpredictable upheavals at the moment — as well as telecommunications, a sector for which Buffett has historically shown little enthusiasm. Leave out financial services, too, which already make up a pretty hefty chunk of Berkshire’s portfolio. What’s left?Believe it or not, three of the ten businesses worldwide that meet those criteria are Japanese trading houses Mitsubishi Corp., Marubeni Corp. and Sumitomo Corp. — all companies where Berkshire has built up a roughly 5% stake over the last 12 months. Of the remaining two investments, Mitsui & Co. comes in a little weak on free cash yield and Itochu Corp. a little rich on book value, but both look close enough to match the general investment theme.Berkshire Hathaway announced that its “intention is to hold its Japanese investments for the long term,” and the attraction of the sogo shosha isn’t hard to discern. Since their origins in the postwar keiretsu system of loosely connected business empires, they’ve made money as the glue holding Japan’s economy together, taking a cut from a Berkshire-style array of investments in raw materials, finance, transport, machinery and consumer products.One likely reason these companies haven’t previously attracted interest from Omaha is that they’ve also traditionally been low-margin, cash-poor, debt-heavy, and more concerned with the interests of their corporate siblings than their shareholders.As my colleague Anjani Trivedi has written, that has started to change over the past decade as leverage plummeted and the management plans guiding their activities moved from hazy strategic promises toward harder financial benchmarks, such as free cash flow and return on equity.Several of the trading houses even have pledges on the share of profits to be paid out as dividends which, while low by international standards, are far higher than sogo shosha investors have come to expect. Those payouts translate into decent yields, too, given the low valuations the market has put on the underlying businesses:That poses an interesting parallel to how corporate Japan has evolved, especially under the leadership of outgoing Prime Minister Shinzo Abe. As my colleagues Daniel Moss and Noah Smith have written, the premier’s tenure has seen a remarkable turnaround for an economy that many had written off as entering its dotage. Since Abe resumed office in 2012 after a five-year hiatus, Tokyo’s Topix index has outperformed every broad global stock benchmark except the S&P 500 and, in recent months, China’s CSI 300.Once upon a time, Japan’s trading houses were like Berkshire Hathaway without the focus on shareholder returns. Now that they appear to have finally gotten the value investing religion, why wouldn’t Warren Buffett invest in them?This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Executives’ pronouncements about the future have a nasty habit of coming back to bite their successors a few years down the line.At annual results in 2009, BHP Group's then-Chief Executive Officer Marius Kloppers sang the praises of the company’s South African thermal coal business, an asset it was “really pleased to have” which would benefit from rising energy demand from India. Five years later, getting rid of the division through the spinoff of South32 Ltd. was one of his successor Andrew Mackenzie’s first duties in the job. (South32 is in turn selling the now money-losing unit).Asked when the company released its 2014 annual results why he didn’t get rid of BHP’s thermal coal mines in Colombia and Australia at the same time, Mackenzie was equally bullish on their future: The world is “likely to invest more in energy relative to the past than we have in steelmaking,” he said, so the company would retain “some of the very best energy coal mines in the world.”Six years on, another chief executive is struggling to dispose of those pits after they racked up $214 million of combined losses in annual results reported Tuesday. BHP has already been looking at selling the mines for about a year with no real takers, so new boss Mike Henry is hoping to offer a more tempting product as an incentive — BHP’s 80% stake in two Queensland mines producing higher-value varieties of coking coal used in steelmaking. The company will look to “maximize the value” of the thermal and coking coal mines by selling to another company or via a South32-style de-merger.That would leave BHP with its larger coking coal 50-50 joint venture with Mitsubishi Corp., BMA. This is a dominant asset producing nearly a third of the best-quality coking coal in the seaborne market. Henry — a former manager of BHP’s coal unit who knows the business well — is confident it will prosper. “We believe that a wholesale shift away from blast furnace steelmaking, which depends on metallurgical coal, is still decades in the future,” the company said.It’s tough to make predictions, especially about the future — but Henry’s successor may one day come to rue that forecast, too. To see why, consider BHP’s defense of the business. Much rests on the relative young age of blast furnaces in China (10-12 years) and India (18 years).This is indeed likely to be a decisive factor in how fast the world shifts from conventional primary steel production, which generates about as much carbon emissions per metric ton of steel as you get from burning a ton of coal. Steel made in electric arc furnaces can eliminate as much as 95% of carbon pollution. It also offers more operational flexibility than blast furnaces, which must operate at constant levels for decades at a time, one reason why the U.S. has almost given up on traditional primary steelmaking in recent decades.The youth of the blast furnace fleet in emerging Asia isn’t nearly as decisive a factor as you might think, though. For one thing, those newer steel mills in China aren’t the ones supporting the seaborne coking coal trade. While about 80% of Australia’s iron ore goes to China, the total for coking coal is barely more than 20%. India, Japan, South Korea and Taiwan together account for about three times that amount, and they’re in quite a different boat. With the exception of India, all have steel mills that are well into middle age.Japan has been halting blast furnaces at a rapid clip since the coronavirus started to cut into downstream demand from the auto sector and Korean steelmakers are also cutting production. India itself saw a brutal 65% output drop in April from a year earlier. That’s driven hard coking coal prices to a four-year low of $133.26 a ton. At those prices BHP’s coking coal unit is still making margins of around 50%, but factor in the $500 million or so a year that goes to capital expenditure plus interest and tax and that starts to narrow markedly.Even if blast furnaces can keep going for half a century or more, they require hundreds of millions to be spent on refurbishment every 15 years or so. That provides a regular opportunity to switch to electricity, which mills will take if the economics look right.With the supply of the scrap used in electric furnaces forecast to increase by about a third between 2017 and 2030, and ongoing pressure to reduce the carbon-intensity of steel (including the possibility of border adjustment taxes on emissions in Europe and the U.S.), don’t be surprised if we see a far faster switch away from blast furnaces than BHP is predicting. Should that happen, Henry’s promise of a bold future for coking coal could prove as mistaken as his predecessors’ backing of its cheaper thermal cousin. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.