Private Equity Buys into American Royalty (NFL), Big Tech Goes Nuclear, Ozempic changing waist lines at a national level and the Diamond of all Diamonds

Greetings, folks, and a warm welcome to the 13th Edition of Friday Finance Weekly. I am sure everyone has heard about Tesla’s robo-taxi prototype. It felt very Robocop-like, to be honest. For the life of me, I don’t know why they didn’t just focus on the software and incorporate it into an existing model. But what do I know.

Let’s start with a panic: have you heard of the Can Nun Outbreak? France, Middle Ages – one day, out of the blue, a French nun began meowing like a cat. Soon, all her sisters followed, providing the neighborhood with a “daily cat concert.” This continued until the surrounding village posted soldiers outside the convent to threaten the nuns. Sounds like they were possessed.

Let’s get to it, looks like there is no industry that private equity can’t touch. Owning an NFL franchise has long been the equivalent of American royalty and an exclusive club. Well, money talks, and private equity is about to enter the party. Per Bloomberg Sports, Miami Dolphins owner Stephen Ross is preparing to sell 13% of his sports portfolio. The deal includes a portion of the Miami Dolphins, Hard Rock Stadium, the Formula 1 Miami Grand Prix, and a piece of Ross’ 50% ownership stake in the annual Miami Open tennis tournament. In total, these assets are being valued at $8.1B.

The buy-side is led by Ares Management and Brooklyn Nets owner Joe Tsai, who have notionally agreed to purchase 10% and 3% stakes, respectively. This is a big deal as it would be the first time a private equity firm has bought into the NFL since the owners voted in favor of allowing private equity interests to acquire passive stakes in their teams earlier this year. Next, the Saudis are going to acquire the Dallas Stars, but will they keep the cheerleaders? (Source: Bloomberg, Huddle Up)

US nuclear generation sky-rocketed over the decades following its introduction in the late 1950s. Since then, high-profile accidents like Three Mile Island and the Fukushima meltdown have curbed public support for the energy source altogether, causing both total capacity and generation to essentially flatline.

Big Tech is now breathing new life into America’s aging fleet of nuclear reactors and pouring investment into emerging nuclear technologies that have yet to prove themselves. The massive increase in energy demanded by AI tools has caused greenhouse gas emissions from tech giants like Microsoft, Google, and Amazon to rise in recent years, and nuclear is an obvious solution to countering those externalities.

• In March, Amazon Web Services purchased a data center campus powered by the adjacent Susquehanna Nuclear Plant in Pennsylvania for $650M, securing electricity from the US’s sixth-largest nuclear facility.

• Google CEO Sundar Pichai said the company was evaluating additional clean energy investments, whether it be solar or small modular nuclear reactors. Small modular nuclear is the next generation of reactors and is not expected to be connected to the grid until the 2030s at the earliest. These designs are roughly one-tenth to one-quarter the size of their predecessors, making them easier and cheaper to build.

• Meanwhile, Microsoft founder Bill Gates has been a vocal proponent of nuclear for years. His company, TerraPower (covered in an earlier edition), is at the forefront of developing small modular reactors.

This week, the Department of Energy projected that US nuclear capacity could triple by 2050, thanks to increased demand from EVs, AI data centers, crypto mining, and manufacturing facilities. Utilities are adapting to this new landscape by extending the expected lifetimes of existing reactors, up to 80 years in some cases, and putting plans in motion to restart shuttered facilities. While these plans are still subject to an arduous regulatory approval process, it’s a monumental shift in the industry’s prospects from just 5 or 10 years ago. Despite what most people think, nuclear power is a great option, and the fact that big tech is backing it, gives it legs. I tried to find a good radiation joke, but all the good ones Argon. Not my best joke, sorry. (Source: The Verge, EIA)

According to new data from the National Health and Nutrition Survey, the US adult obesity rate dropped by roughly two percentage points between 2020 and 2023. While there is no direct evidence linking this trend to the proliferation of weight loss drugs like Ozempic, the Financial Times deems it “highly likely” that they played a major role.

• The usage of these medications took off in 2021, right in the period when the drop was reported, according to the Independent.

• North America accounted for 44% of the weight loss drugs market share in 2023.

• One in eight American adults has used these drugs, which can result in a loss in total body weight of 3% - 12% more than what lifestyle changes alone can bring, per the Mayo Clinic.

Preventative healthcare and weight management have become major focuses for the healthcare industry, resulting from the understanding that being overweight leads to a litany of health risks, including type 2 diabetes, cardiovascular diseases, and certain cancers that impose huge costs on healthcare systems. The World Health Organization projects that medical costs for obesity-related diseases will reach $1.2T globally per year by 2025.

To offset these costs, healthcare providers and policymakers are focusing more on prevention through medication-based treatments, and the pharmaceutical industry has reaped the rewards. Danish company Novo Nordisk said that Ozempic accounted for 27% of its net sales in 2023, while Zepbound-maker Eli Lilly (market cap: US$880B) is now worth more than companies like Walmart, JPMorgan, and ExxonMobil. Per SNS Insider Research, the weight loss drug market size was valued at US$1.92B in 2023 and is anticipated to surpass US$45.35B by 2032 – a CAGR of 43.7%.

I must admit that I am not an expert, but as I understand it, as soon as you stop using Ozempic, the weight comes back. So they have you hooked forever, creating residual cash flow. Well, Tracy Morgan, however, didn’t reap the benefits of Ozempic. In fact, he gained 40 pounds on it and claimed he was the first person to ‘out-eat’ Ozempic. New life goal. (Source: The Financial Times, Yahoo Finance, The Morning Brew)

Karowe, Botswana – The morning of August 19th started off like any other day at Lucara Diamond Corp’s 270-meter-deep open pit mine. The mine operates 24 hours a day, 365 days a year (obviously free of child labor), but on that day, a 2,492-carat diamond was discovered – the second largest ever to be held by a human (the news made it clear to mention ‘human’; begs the question, have bigger diamonds been held by non-humans?). It’s believed that the stone traveled hundreds of kilometers from inside the earth’s mantle in a journey that may have lasted billions of years.

When asked what he thought it would be worth, Lucara’s CEO William Lamb disregarded the question and focused on its value in a broader sense. “There’s nobody alive who has ever seen something like this… this diamond is so significant, and people are trying to dumb it down to what it’s worth.” The response was likely a strategic one, as the sector has grappled with collapsing diamond prices in recent years. In Lamb’s view, diamond prices will remain in a “fairly depressed state” for at least six to nine months.

Lucara has been struggling to find buyers amidst their product’s price collapse. According to one BMO analyst, “There’s basically no interest from an investor point of view,” and there are numerous potential factors causing the price decline:

• North American consumer savings have dried up since COVID, and discretionary spending has favored precious metals over luxury goods.

• High inflation and high interest rates have put negative pressure on US consumer spending, while economic woes in China have had similar erosive effects on demand.

• A severe oversupply of cut-and-polished diamonds from India emerged last year.

There’s also a lingering “existential” question that looms over the industry as more buyers opt for lab-grown diamonds – a trend that is often connected to concerns around the environmental and societal impacts of mining. According to King’s Research – an intelligence firm in Dubai – the synthetic diamond market reached US$19.5B in 2023 and is projected to surpass US$28.6B by 2031 (5.01% CAGR).

Notwithstanding these issues, diamond mining is still a profitable business. Lucara reported US$41M in second quarter revenue and an operating margin of 67%. The company is also in the midst of building an underground mine with an expected cost of US$683M. Lucara’s stock currently trades at 49 cents a share, up 19 cents (16.7%) from a month ago, and the company believes the value of its inventory alone could be worth more than its $200M market capitalization. Having a $200M market cap in the context of the $683M CAPEX indicates a massive amount of debt. Diamonds are forever, just like debt. Not sure if this company is viable long term, but all the diamond companies will be owned by Debeers eventually. (Source: FT)

Have fantastic long weekend and please don’t hesitate to forward this to friends and family.

Many thanks, 

Sam