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Capital Calls

4 Nov 2021 By Breakingviews columnists


– BT and Drahi

– Ford vs. Toyota

– Société Générale

Digging for victory. BT’s defence against agitation from new shareholder Patrick Drahi may hinge on its engineers’ ability to rip up Britain’s roads. The 15 billion pound telecoms operator has managed to shave 50 pounds off the cost of laying broadband cable past the average UK home, a 15% reduction. Given Chief Executive Philip Jansen’s plans to hook up another 19 million properties over the next five years, it should lop a whopping 1 billion pounds off his Openreach network’s cumulative capex bill. That makes it harder for billionaire tycoon Drahi, who recently snapped up a 12% stake, to argue for a shakeup.

Combined with higher-than-expected fibre subscriber numbers, Jansen had the confidence to reinstate BT’s dividend, suspended last year. It has also let him shelve plans to bring in outside investors to fund the final 5 million homes of Openreach’s rollout. That could have been the template for a wider spinoff. If Drahi has his eye on such an outcome, he’s going to have to build a stronger case. (By Ed Cropley)

Whacky races. Toyota Motor is in danger of being overtaken by Ford Motor on a key stock market metric. Shares in the $295 billion Japan-based carmaker dropped a tad after it cut its full-year sales guidance as the chip shortage and commodity prices bit. Stock in its rival run by Jim Farley, meanwhile, has surged 20% since last week’s surprisingly good second-quarter earnings.

That leaves the pair trading just shy of 10 times estimated earnings for calendar year 2022, per Refinitiv, comfortably ahead of General Motors and Volkswagen. Yet for the three months to the end of September, Toyota’s pre-tax margin was, at almost 12%, more than double what Ford managed. Analysts expect Farley’s crew to only slightly narrow that gap over the next couple of years. Tesla, of course, is way ahead, trading on a multiple of 195 times. But given that huge gap, jostling for a distant second place is where the real action is at. (By Antony Currie)

Nice Oudéa. Société Générale’s next overhaul will be tougher. The French bank nearly doubled net profit to 1.6 billion euros in the third quarter, beating expectations. Buoyant markets and a vibrant economy helped boss Frédéric Oudéa hit key targets ahead of time. Return on normative equity, a measure of adjusted profitability, stood at 12% at the Global Banking and Investor Solutions division. That’s comfortably above the 10% target Oudéa set for 2023 when he announced an overhaul of the volatile division in May. Overall, SocGen’s adjusted return on tangible equity stood at a healthy 11%.

Such a vigorous performance is yet to reflect in SocGen’s valuation. The 25 billion euro bank’s shares trade at around 0.4 times their tangible book value, less than half where they should in theory be, based on current returns. Some scepticism is warranted. Markets have probably peaked. Annual revenue growth will be just 0.5% in the next two years, according to Refinitiv estimates. Lending risks will also increase. The next phase of Oudéa’s makeover will be harder. (By Lisa Jucca)


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