Jim Chanos, Kyle Bass Rip Oil And Pharma At SALT 2015
It's midway through Day 3 of SALT 2015, presented by SkyBridge Capital, and a handful of publicly-traded names have been discussed by the biggest hedge fund managers on the planet.
Jim Chanos Short Royal Dutch Shell, Chevron
Chanos began his presentation with a slideshow covering his short thesis on oil and gas giant Royal Dutch Shell plc (ADR) (NYSE: RDS-A). In particular, he noted how the company's free cash flow has "begun to dramatically drop off," before adding that Shell hasn't build any reserve replacements.
BG Group plc (ADR) (OTC: BRGYY), which was part of a pending $70 billion acquisition by Shell last month, has its own problems as well, according to Chanos. Simply put, the company's "financials just don't look very good," he said.
Chanos then mentioned the key in the Shell-BG deal: Shell is betting on LNG and Brazilian oil, because those are two of BG's strongest businesses.
BG announced a joint venture with Petroleo Br Sp ADR (NYSE: PBR), or Petrobras, in 2009.
The issue, as Chanos sees it, is two-fold. He says the Petrobras corruption scandal is "deeper" than most thought, and warns that Shell is using "very aggressive" energy price forecasts.
His conclusion? The current reality is "not very pretty."
Chanos also mentioned he's currently short Chevron Corporation (NYSE: CVX), but didn't offer up any further details.
Kyle Bass Rips Pharma
Kyle Bass, of Hayman Capital, took the stage next and discussed the biopharmaceutical space. Talking Teva Pharmaceutical Industries Ltd (ADR) (NYSE: TEVA), he noted that the company's differentiated dosage schedule for its Multiple sclerosis drug was all that protects 55 percent of its earnings before interest and taxes.
One potential acquirer might be Abbott Laboratories (NYSE: ABT), he added.
Near the end of his presentation, Bass wasn't afraid to call out the entire industry. Seven years ago, he said, pharmaceutical companies spent 18 percent of their revenue on research and development. In 2015, that figure is 13 percent, but the industry's market size hasn't diminished.
Why? Drug prices are increasing at a rate that's "literally out of control."
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