Blog

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

If there’s one company that has truly mastered the art of turning equity into cryptocurrency, it’s Strategy — formerly known as MicroStrategy. 

Yesterday, the company unveiled its latest gambit: a brand-new $21bn shelf registration to sell common stock via an at-the-market (ATM) offering, having only just burned through the previous $21bn shelf filed in late October 2024. At this rate, the Strategy juggernaut is picking up both momentum and mass and will likely keep doing so for as long as investors are willing to pay a premium to underwrite its crypto crusade. 

And what a crusade it is. Strategy now holds 553,555 bitcoins or 2.64 per cent of total supply, acquired at an average price of $68,459 apiece and currently worth over $53bn. That makes it the undisputed heavyweight champion of corporate bitcoin holders, a title it clearly has no intention of surrendering. 

Why stop now? As long as the market is willing to value Strategy’s shares at more than double the net asset value of its bitcoin stash, executive chair Michael Saylor will keep issuing stock to buy more. It’s a gloriously self-reinforcing loop: every share sold above NAV is, by definition, accretive. The arithmetic is brutally straightforward, and as long as the music plays, Strategy will keep dancing. 

It’s not just common stock, either. Strategy has been merrily tapping the capital markets with convertible bonds and not one but two flavours of preferred stock (dubbed “Strike” and “Strife”) to raise cash to binge on bitcoin. And there’s no reason to think the punchbowl is going away any time soon.

The sheer nerve of Strategy’s pivot — from a dusty enterprise software vendor to a bitcoin-gobbling machine — is frankly astonishing. Since August 2020, when Strategy first decided to bet the farm on crypto, its shares have surged more than 26-fold (that’s not a typo), even though its actual cumulative gain from its bitcoin investments is only 41 per cent. 

The world-beating stock price performance is not just a rerating; it’s a metamorphosis of almost cartoonish proportions. Some may scoff and say Strategy is little more than a leveraged bitcoin ETF wrapped in a corporate disguise, with a capital structure that subordinates the interests of its common stockholders, but try telling that to investors who’ve been surfing this wave since the beginning.

Of course, all of this financial engineering hinges on two rather large conditions: that bitcoin’s price stays elevated, and that the market continues to bless Strategy’s shares with a generous premium. The two are linked, of course — but should either falter, the virtuous loop could unravel with uncomfortable speed.

Whether this all amounts to genius or lunacy rather depends on your opinion of bitcoin itself. But whatever your take, the sheer chutzpah is undeniable. In the grand history of financial reinvention, Strategy’s transformation ranks among the most audacious — and, so far at least, one of the most lucrative. 

Just don’t ask what happens if bitcoin tanks, the premium evaporates, and Strategy has to rustle up cash to redeem that $1bn convertible bond due in 2028 (with an investor put option in September 2027). The company reported only $60.3mn of cash on its balance sheet at the end of the first quarter of 2025.

For now, though, with bitcoin flirting with $97,000 and investor appetite for Strategy’s stock showing no signs of waning, Strategy’s strategy is working. Investors keep betting on bitcoin as a hedge against dollar debasement and keep paying a hefty premium to access the Saylor spectacular.

Further reading:
— If bitcoin is the future, what explains MicroStrategy’s need for speed? (FTAV)
— MicroStrategy’s secret sauce is volatility, not bitcoin (FTAV)
— Examining MicroStrategy’s record-shattering $21bn ATM (FTAV)
— Buy higher, pump harder (FTAV)
— The trouble with strife (FTAV)

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Apologies for writing twice in two days about a small-cap* but an interesting analyst note on THG, the protein-powder-to-mascara retailer, just dropped into our inbox.

The theme is one-offs, such as THG’s failed sponsorship deal with Williams Racing and the mothballed Manchester hotel it has written off. As we noted yesterday, THG last year booked a £14.9mn impairment charge for the hotel and spent £7mn to back out of the Williams deal, which it bundled together with the cost of an HR software rollout that didn’t work.

These kind of adjustments, along with disposals agreed shortly before the year-end, cause quite a gap between THG’s 2024 profit by its preferred measure, adjusted Ebitda (£123mm), the “management adjusted” operating profit metric (£92mn), its statutory operating loss (-£148mn) and the loss figure to be found at the bottom of its income statement (-£326mn).

There’s nothing shady about adjusting earnings to give investors a clearer view of the underlying business. The cause of concern is the regularity with which THG has adjusted earnings, as well as the items it has chosen, says Panmure Liberum analyst Wayne Brown.

In addition to the Williams sponsorship misfire, THG last year adjusted earnings to cover cost inflation it tied to the Israeli–Palestinian conflict. For both 2022 and 2023 it made adjustments for Covid-related supply chain disruption.

“These are arguably part of normal business operations, and their repeated exclusion calls into question the reliability and quality of the company’s reported earnings,” says Brown. “Should such sales associated with these exceptional costs be considered underlying?”

He adds:

Over the past four years, THG has classified £631m of costs as adjusting items—equivalent to 153% of the group’s cumulative adjusted EBITDA (£412m) over the same period. If we break the adjusting items between impairments (which are often linked to disposals and involve accounting judgements) and others, the other adjusting items over the last four years have also added to a material £227m, which still represents a significant 55% of cumulative adjusted EBITDA.

None of this would be of great concern if THG delivered cash. Ebitda is meant to be an approximate measure of cash. But THG’s cash outflow last year was £88mn.

The idea behind its disposal in December of Ingenuity, the loss-making online marketing and logistics division, was to reset the business around its slower-growing but profitable nutrition and cosmetics operations while bringing debt down to manageable levels. However, excluding Ingenuity, 2024 group free cash flow was only just neutral at £400,000.

THG asks investors to also exclude one-offs, which is how it arrives at an underlying-underlying hypothetical remainco cash flow for 2024 of £21.6mn. Problem is, underlying-underlying hypothetical cash flow doesn’t pay the bills, which remain high even by management’s preferred measures: gross debt of £400mn at the 2024 year-end was equivalent to 3.8 times adjusted remainco Ebitda.

Cash flow improvement this year relies largely on whey prices easing. It’s a bit of a gamble.

The performance of nutrition at THG seems to get buffeted by whey costs much more than at Glanbia, a London-listed peer, says Panmure-Liberum’s Brown. Some of that may reflect disruption from a recent rebrand of THG’s Myprotein and some loss of competitiveness in Japan due to sterling’s strength against the yen — though, again, investors may think twice about treating these factors as one-off.

Glanbia’s protein shake division shrugged off record-high input prices in 2024 to deliver a 16.9 per cent margin. THG Nutrition’s margin more than halved to just 6 per cent. That’s in spite of THG products tending to be made with Whey Protein Concentrate, which is less volatile (and cheaper) than Whey Protein Isolate, which Glanbia favours.

Some of the earnings unpredictability is because, unlike Glanbia, THG prefers short-term supply agreements, Brown tells clients:

The situation raises broader questions regarding the strength of the Myprotein brand, the robustness of the company’s revenue management strategies, and the effectiveness of its brand and supply chain management. [ . . . ] Notably, despite two major whey price shocks in the past three years, there is little evidence that THG has adjusted its procurement strategy — such as securing longer-term contracts — to better manage input volatility.

He concludes:

The shares trade at 0.6x 12m forward EV/Sales and 9.5x 12m forward EV/EBITDA. On our forecasts, the 2025 FCF yield is still very low at 2.4% but improves to 13% on our 2026E forecasts. While there are a number of positives building, we continue to see risks around the recovery of the Nutrition margins which depend on the timing of new whey capacity landing, and also the group’s exposure to the US where the consumer reaction to inflationary tariffs could derail growth. Given the company’s tract [sic] record of missing expectations, we retain caution and stay at HOLD, but lower our TP to 26p (from 36p) to reflect the increased risks.

A target of 26p is already above the current level, though for anyone thinking that suggests value, the longer-term trend might be worth noting:

* THG joined the FTSE 250 index in March but it’s currently the third-smallest constituent by market cap, and appears to be below the threshold for automatic relegation. We’ll need to see updated share counts but if that remains the case on the next review date, May 28, it’ll drop into the Small Cap index.

Further Reading:
— The magic of adjustments: ebitla-dee-da (FTAV)

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

It’s just two weeks until the FT Alphaville Pub Quiz returns to London, and we’re hard at work* writing a new set of diabolic sadistic stimulating questions.

As ever, the quiz’s contents will be kept under wraps until the big day, but we can reveal one important change: the infamous Plotted round — a stalwart of FTAV quizzes since we relaunched in 2022, and the only round to get Louis repeatedly booed — will not be appearing.

If you haven’t encountered Plotted before, it’s our version of a movie (/books, once) round. As we tell our victims quizzers:

Every story is a business story. In this round, we want you to match the financial plot to the fictional movie. Please note these are not always the entirety, or even an important part, of the plot in question.

To celebrates its disappearance (for now), we’ve compiled all 70 previous Plotteds together in one mega interactive quiz, which you can find below.

Due to technical limitations, we can’t do any fancy “enter the answer” stuff, so instead this will operate with a honesty system: when you think you have an answer — or you’ve given up — just hit the button then “submit”, and we’ll show the correct response. At which point you are free to yell “Yes!”, “No!” or “I was about to say that!” as you see fit.

Usual rules apply:

— The quizmaster is always right
— Even if you submit an answer that could be right but isn’t, the right answer is the right answer

Enjoy!

Well done, you’ve reached the bottom of the article. If you’re now thirsting for more financial trivia, recent quizzes can be found here and here and here and here and here and here and here.

*if that can be called work.

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

THG, the UK-listed retailer of whey protein and lipstick, made a big noise in October 2023 when it signed “a ground-breaking multi-year partnership” with Formula 1 team Williams Racing:

The multi-dimensional agreement sees THG come onboard with Williams Racing as an Official Partner across Nutrition, Technology & Ecommerce and Sustainability.
 
The partnership embodies the shared DNA of two dynamic British organisations, each boasting a legacy of building leading global brands in their respective domains and delivering elite performance through data-driven technology and innovation.

THG and Williams Racing aim to go big on increasing performance on and off the track for drivers, team members and fans alike, leveraging the vast and growing global audience of the sport. Throughout the remainder of the 2023 season and in years to come, THG will support Williams Racing through three of its global brands, bringing world-leading sports nutrition, ecommerce solutions and sustainability expertise.

How’s that working out? Today we get a rather quieter update in the notes section on page 156 of THG’s annual report:

The Group entered into a sponsorship agreement in 2023 with Williams racing which has not delivered the expected commercial returns, as such, this has been identified as an onerous contract. Under the terms of the sponsorship agreement, the Group is contractually obligated to incur annual fees and termination costs. Notice of termination has been provided, and the contract will be exited at the earliest available opportunity; 31 December 2025. The total cost recognised within adjusting items includes the costs incurred from 1 January 2024 plus any unavoidable committed costs to 31 December 2025

The Williams sponsorship kill costs are bundled in with “unavoidable costs committed to an aborted implementation of a Human Resources enterprise reporting platform”. Those items add up to a £7mn write-off.

That’s a bit awkward, but it’s nothing compared with the bath THG takes on hotels, as explained on the same page:

The decision to pause refurbishment work on an asset within THG Experience has led to an impairment charge in the year of £14.9m, this also includes the expected cost of returning the property at the end of the term,

THG investors might have thought hotels were no longer their problem. They would have been mistaken.

Somewhat oddly for a company that primarily deals in powders and serums, pre-float THG acquired several hotels: the King Street Townhouse and Great John Street Hotel in central Manchester, as well as the Hale Country Club and Spa near Manchester airport. Hotels income post the group’s flotation in 2020 was included in the group’s Beauty segment because it was “in support of the Group’s influencer marketing”.

THG hived off its lossmaking Ingenuity logistics arm in December 2024 as part of a fundraising anchored by CEO Matt Moulding. Bundled into the deal were “certain leased assets and operational activities of THG Experience”, though the statement gave no detail.

Today’s annual report reveals that while Hale Country Club Limited and King Street Investments Limited are classed as discontinued operations, Great John Street Hotel Limited is a continuing operation.

That squares with Companies House filings, which show Moulding taking ultimate control of the country club and the townhouse while THG shareholders remain on the hook for Great John Street. (Its recently rejigged holding company ownership chain goes Thg Beauty Limited < Thg Operations Holdings Limited < Thg Intermediate Opco Limited < Thg Intermediate Holdings Limited < Thg Plc.)

Great John Street closed for refurbishment in 2022 post an extended pandemic shutdown and appears not to have reopened. The phone number listed on its website has been disconnected and its social media accounts have been dormant for four years.

Great John Street therefore seems likely to be what’s behind THG’s annual report note on page 162:

For those assets included within the disposal group the Directors have concluded that there are no indicators of impairment in respect of 2024 and therefore a further impairment assessment has not been undertaken. For the remaining assets within continuing operations, it was identified that for one asset a decision had been taken in the year to pause refurbishment work, as such, an impairment assessment was undertaken which led to an impairment charge in the year of £14.5m in respect of right of use assets and fixtures and fittings along with the expected cost of returning the property at the end of the term. The impairment charge has been recognised in adjusted items within the consolidated statement of comprehensive income.

For a subsidiary company whose 2023 financial statement shows a property value of £5.8mn and right-of-use assets worth £9mn, a £14.5mn writedown is a lot. And given Moulding got Hale, which posted a profit for 2023, THG shareholders might wonder why it’s their loss to wear.

THG didn’t respond immediately to a comment request.

THG’s full-year results this week were, according to its corporate brokers, a turning point in the story. “With the Ingenuity demerger completed, external headwinds having largely passed, and Nutrition having returned to growth, the attractions of the THG equity story are becoming increasingly apparent”, said Jefferies. But it seems the ghosts of misadventures past won’t be so easy to exorcise.

Stay informed with free updates

Simply sign up to the Capital markets myFT Digest — delivered directly to your inbox.

Market pukes have a fun habit of revealing weird things in the financial diet. We saw a great example of this earlier this month, when the upheaval caused by the Trump administration caused some serious indigestion with bets on “swap spreads”.

Alphaville and MainFT have written a decent amount about the subject already, but here’s a quick (ish) recap of the trade that seemed to play an outsized role in the Treasury market’s April mayhem.

Tougher regulations made it harder for banks to hold lots of assets, even US Treasuries. That led to a weird phenomenon: the fixed rate leg of an interest rate swap started trading at a lower yield than comparable Treasuries. In other words, swap spreads were negative.

Earlier this year, investors became excited about the prospect of bank deregulation from the Trump administration — specifically the potential scrapping of the “supplementary leverage ratio”. The theory was that this would free up banks and end the negative swap spread. But when Treasuries were rattled in early April, swap spreads instead widened, causing carnage among investors who had bet on them narrowing.

Barclays analysts were among those who held a “constructive stance” on swap spreads, and were subsequently wrongfooted when ~cough~ “macro developments posed significant headwinds to swap spread performance”, as they put it.

But they now think the time has come to reload those swap spread bets. From a note published this morning:

We revisit our spread widener bias and recommend buying 3y swap spreads. Market volatility has subsided and the administration appears to be softening their stance on tariffs. Potential SLR reform, an attractive carry-adjusted profile, and recent bank buying of USTs should support spreads.

As you can see, the rationale is much the same as before. The tweaking or scrapping of the supplementary leverage ratio is still expected, and should free up a lot of bank balance sheet capacity and cause swap spreads to narrow again.

And now that the bond market has calmed down a little, this is the time to get back into the action, Barclays’ analysts reckon. Here are their main points:

. . . Supplementary leverage ratio (SLR): The recent moves in swap spreads could potentially prompt regulators to pull forward action on SLR reform, if only an earlier announcement, with actual implementation at a later date. An interim solution to address potential Treasury market turmoil by temporarily exempting USTs and bank reserves from SLR would be viewed as a positive for spreads. We continue to believe that SLR relief is likely to benefit the belly of the spread curve, where banks prefer to own Treasuries. We think banks remain averse to long-end spreads give their performance under historical stress scenarios, such as was the case during COVID, 2022 UK LDI crisis, and the recent post-Liberation day tightening.

. . . Calmer markets and lower volatility: The bond market rout has eased and risk sentiment has improved in recent weeks. The Trump administration appears to have softened their stance on tariffs and is looking to deescalate tensions with China. President Trump’s actions reveal a preference for keeping long-term yields in check. With the worst potentially behind us, this should provide some support for risk assets and stability for swap spreads, though trade negotiations could take time and the outcome is still uncertain.

. . . Liquidity conditions and funding: Treasury liquidity conditions have been orderly and there have been no signs of pronounced stress or dislocations in the market aside from the moves in swap spreads. Relative value metrics such as errors to the Treasury spline increased modestly, but remain benign. There were some concerns that foreign investors were behind the aggressive selling in USTs. We do not see evidence of this in the data that have been reported in recent weeks.

That all seems reasonable enough, and there are legitimate reasons for why the SLR should at least be modified — such as exempting Treasuries from its calculation, as they were at the peak of the March 2020 mayhem. But a de facto bet on calmer, more measured policymaking from the Trump administration still seems a bit dicey.

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

After Louis and Bryce’s fancy-Dan, Flourish-powered charts that no one could guess, the baton passes to me. Will it be three weeks in a row with no winner?

Below are three no-frills line charts. If you can identify all of them, email your guesses to alphaville@ft.com, with BACK ON OUR PERCH as the subject line.

From the pool of correct guesses we will around midday Monday select one at random. That consestant will walk away with one (1) Alphaville tee. Sorry, no Powerball-style rolling pots here.

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Over on MainFT, Dan Thomas and Eri Sugiura have an interesting deep-dive on prospects for the Department of Justice antitrust action against Live Nation, the US events company.

They write:

The company is involved in the management of bands and promotion of events, driving revenues from advertising, sponsorship and upselling to VIP seats at its venues, parking, food and beverage and merchandise sales. The DoJ describes it as a “live entertainment ecosystem” that works as “a feedback loop that inflates its fees and revenue, all at the expense of fans”.

The article includes a reference to Live Nation’s “flywheel”…

Live Nation boss Michael Rapino has himself described the company strategy to investors as a “flywheel”, with the concerts at the core, aiming “to get into . . . high margin businesses and be competitive”.

The term has been taken up by the DoJ in its allegations over a self-reinforcing model while rivals complain of a flywheel that spins ever faster to throw out money. 

…a diagram of which is also included:

The source is given as the DoJ, but actually the FT’s graphics team have done the US enforcers a solid here.

Here’s how the original (from the DoJ’s 2024 complaint) looks:

As soon as we saw that image, our brains started itching.

Let’s leave aside any technical discussions about motor design, and just look at the basic physics.

If you don’t want to waste time drawing on your screen, take our word for it: one of those diagrams looks like it would work, the other… not so much:

The diagram is, according to the complaint, “based upon Live Nation’s public filings” — specifically its 10-K for 2023 — but as far as we can tell this is an artistic interpretation rather than a direct recreation.

Tl;dr it us:

More importantly, what does this tell us about the DoJ’s prospects of reining in Live Nation?

It tells us nothing. Sorry for wasting your time.

Further reading:
— The truth about maximising efficiency
— Basel III: Endgame t-shirt

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

“Contango” evokes images of dusky dancers from La Boca in Buenos Aires. If only things were that romantic. Instead, it refers to the situation that occurs while using financial futures contracts in which assets are cheaper today than a later point in time.

In commodity markets, a futures curve in contango will encourage traders to buy, say, crude oil at today’s price, place that in storage and lock in a higher price by selling futures contracts at some point in the future. That assumes there is sufficient storage space and financing to do all this.

The Trump administration’s cack-handed trade tariff policy announcements, particularly those involving China, have made everyone a bit jumpy about oil demand. The Opec+ decision in early April to lift oil production by 411,000 barrels per day from May, nearly triple the expected amount, only added fear of oversupplied oil markets.

All this has meant near-term oil prices keep falling, which sounds bearish. But the reality is that the oil curve’s shape suggests a more positive outlook for oil than one might think.

Traders care little about the direction of the spot (or flat) price of commodities such as oil. What grabs their attention is the behaviour of the futures curve and whether the price slopes upward (contango) or downward (backwardation). Usually, a curve in contango encourages inventories to build up and appears during bearish periods. Backwardation implies the opposite: positive near-term demand for crude, and with that low stocks of oil.

For most of the last seven years, the oil curve has been in backwardation. Past cuts to production by Opec+ have helped to maintain this situation. As a proxy for the curve, look at the historical spread between the near-term futures price and that for one year away. A negative difference (backwardation) has persisted for years, apart from during the pandemic year of 2020.

That suggests concern about a lack of supply of the stinky black stuff. Yet the US-China trade stand off has negative demand implications for both economies, the world’s two largest oil consumers. More supply is coming from the Opec+ producers. Shouldn’t the curve be in contango as oil inventories build up?

Certainly there are plenty of bears out there. Here’s what Citi’s oil team wrote earlier this month:

Physical oil markets will likely bear the brunt of the trade tariff related real activity shock in the coming weeks and months, with flat prices and structure [the oil curve] likely to move lower. We recently brought forward our bearish [second half 2025] Brent price $60/bbl forecast to the 0-3-month view, in a timely response to reciprocal tariffs.

And even by weird standards, things are weird. As Morgan Stanley analysts wrote in a note on Tuesday:

The Brent forward curve has an unusual shape at the moment: downward sloping across the first nine contracts and upward sloping thereafter… This is so unusual that, in fact, there is little historical precedent for this.

There are historical examples where the curve is downward sloping right at the very front, say between the 1st and 2nd contract, and then turns upward-sloping thereafter. However, in ~30 years of historical data, there has not been another period when the forward curve showed a ‘smile’ the way it currently does, with the low point around the 9th month contract.

Oil shocks in the past have had an immediate effect on demand and supply. Remember the negative prices of oil in early 2020, when supply appeared to overwhelm storage capacity? Things are different today.

Firstly, global inventory is pretty low. As an example, the 25mn barrels in storage at Cushing, Oklahoma — an important hub for the US oil benchmark traded at Nymex — represents a 19-year low for this time of year. Secondly, the profitability of oil refiners is healthy enough to keep their demand for crude oil inputs steady.

Valerie Panopio at Rystad Energy points out that refiners are doing pretty well as their profitability is above the ten year average. A spread of the Brent crude price against the prices of refined products — petrol and diesel — made from a barrel of oil gives an indication of the profitability.

“People worry about future oil demand,” says Kitt Haines, in charge of oil research at Energy Aspects:

But the low level of [oil inventory] and [stable] refining margins make this a strange situation. Unlike the global financial crisis or Covid periods, we can see this bad period [for oil] coming but we can’t time it.

Joel Hanley at S&P Global Commodity Insights agrees:

There’s definitely a sense that weaker demand growth expectations and potential for more supply will weigh heavily on the oil market, and potentially lead to a contango.”

The problem is that everyone has waited for Opec + to increase production for a year or more. Worse, different traders and investors, with sometimes opposing views, are creating a weird situation.

“You have different players on different parts of the curve. There are a lot of [commodity trading advisers] pushing down the flat price. They’re trading the most liquid two front months,” says Ryan Fitzmaurice, an oil trader at Marex. “Then others are net long given the oil curve’s backwardation. Then, later in the curve, some traders are playing the contango.”

To confuse matters more, between December 2025 and 2026 the curve slopes upward in contango.

Opec+ will not want the full oil curve to shift into contango as it would encourage big inventory builds. “With the backwardation, Opec+ controls oil inventories,” points out Panopio at Rystad. “But if contango comes through then the traders will control oil stocks.”

Bad news for Opec.