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Capital Calls

21 July 2021 By Breakingviews columnists


– Volvo in China

– Moderna joins the S&P 500

– Mediobanca share-buying

Enter the dragon. Volvo Cars has taken a strategic pit stop ahead of a mooted initial public offering. On Wednesday the Swedish car marque announced it would buy the 50% of its Chinese joint venture that it doesn’t own from parent company Zhejiang Geely for an undisclosed sum. That will give Chief Executive Hakan Samuelsson full control over its China operations when the People’s Republic relaxes ownership rules next year.

The deal looks like a canny manoeuvre to rev up the automaker’s stock market value. China accounted for a quarter of Volvo’s total car sales last year. The company’s aggressive electric vehicle targets – Samuelsson aims to phase out gas guzzlers entirely by 2030 – are another reason to raise its China exposure: Jefferies reckons the country will account for nearly half of all zero-emission ride sales this year. Volvo’s IPO advisers have been given a well-timed boost. (By Christopher Thompson)

More money, more problems. Moderna has turned an experimental technology into a wildly successful vaccine. It has now entered the stock market’s big league by joining the S&P 500 Index on Wednesday. Frantic trading followed the announcement, with turnover topping $34 billion yesterday, and the stock leapt by nearly a fifth, to bring the gain for the past 12 months to 400%. Yet inclusion means both benefits and problems.

Joining the index forces passive tracker funds to buy. It also brings more attention and credit ratings half a notch higher, a study shows. But belonging to the establishment can also sap qualities that make a firm like Moderna successful. Having shareholders that are more disengaged might increase the potential for poor governance. Worse, the company will start comparing itself to other big firms. As a result, executive pay usually rises. And firms typically invest less and buy back more stock after inclusion. Moderna can’t rest on its laurels. It needs new drugs as the pandemic fades. Otherwise, it risks dropping back into the minor leagues. (By Robert Cyran)

Rocking the boat. Mediobanca is in tycoon crosshairs again. Construction magnate Francesco Gaetano Caltagirone holds a potential 5% stake in Italy’s best-known bank, regulatory filings revealed on Tuesday. Fellow entrepreneur Leonardo Del Vecchio has surprised markets by acquiring a near-20% position. Together the duo, who are also large investors in $31 billion insurer Assicurazioni Generali, could control about a quarter of the Milanese bank.

Mediobanca Chief Executive Alberto Nagel has delivered better returns than Italian bank rivals. Yet the tycoons’ investment also gives them power over Generali, in which Mediobanca has a 13% stake. The bank has traditionally picked the insurer’s board, which is up for renewal next year. Generali boss Philippe Donnet has delivered stable profits and built a strong balance sheet. But if Caltagirone and Del Vecchio think it’s time for a new direction, they may now have more scope to try to make that happen. (By Lisa Jucca)

Cheap lunch. Private equity managers aren’t known for leaving lots of money on the table, but UK firm Bridgepoint can’t be accused of stinginess with its own floatation. The group raised 789 million pounds from a sale of new and existing shares in a London listing on Wednesday. The stock immediately soared more than 30% to around 440 pence, valuing the company led by Executive Chairman William Jackson at around 3.6 billion pounds, before any exercise of the overallotment option.

The market is now valuing Bridgepoint’s shares at around 29 times next year’s earnings, according to a Breakingviews calculation that assumes income rises in line with Bridgepoint’s likely growth in assets to around 126 million pounds by the end of 2022. That’s a small discount to larger, more diversified peer Partners Group, which trades on a multiple of 33. The appeal is easy to see: there aren’t many listed private equity managers in Europe, and fundraising in the sector is on a tear. With a successful listing under his belt, Jackson’s focus will now be on growing assets, attracting new rainmakers, and looking for potential acquisitions. (By Neil Unmack)

Survivor spoils. Next is reaping the rewards of the collapse of its high street neighbours. The 11 billion pound retailer’s shares rose 10% on Wednesday after it raised its pre-tax profit forecast for 2021 by 30 million pounds to 750 million pounds. That was helped by a 19% rise in sales in the 11 weeks to July 17 versus the same period before the pandemic in 2019.

The shrinking high street is working out well for Next Chief Executive Simon Wolfson, whose business has proven more resilient than UK peers because over half its sales were online even before the pandemic. Department stores Debenhams and Topshop owner Arcadia collapsed and Gap is shuttering its British shops. Next is valued at 15 times 2022 earnings, according to Refinitiv. That’s a discount to European peers, where the retail sector has been less affected by online sales. H&M, for example, is currently valued on an 18 times multiple. The demise of his rivals will help Wolfson close the valuation gap. (By Aimee Donnellan)

Half-life. Video game maker Ubisoft Entertainment must be wondering how many lives it has left. Shares in the $7.9 billion Paris-listed developer of shoot-’em-ups such “Tom Clancy’s Rainbow Six” dropped 4% after it revealed a 17% year-on-year drop in quarterly revenue to 353 million euros on Tuesday. True, that was partly expected as gamers stepped away from their screens post-lockdown. And sales should recover given slated new releases linked to hot-selling franchises such as “Watch Dogs”.

Still, with year-to-date share losses now totalling one-third investors may have deeper doubts about Chief Executive Yves Guillemot’s ability to tilt the company away from blockbuster titles and towards recurring subscriptions and free-to-play games. Ubisoft’s rich back catalogue of titles such as “Just Dance” would be valuable to a potential acquirer. And it’s cheap too: including net debt Ubisoft trades at around 15 times forward operating profit, a steep discount to U.S. rivals Electronic Arts and Activision Blizzard on 34 and 22 times respectively, according to Refinitiv data. Like the protagonist in his “Assassin’s Creed” title, Guillemot must tread carefully. (By Christopher Thompson)

Rainmaker. In one of his first public initiatives, new Hong Kong bourse boss Nicolas Aguzin might be ready to take on the weather. When asked in an interview about potential changes, he noted a longstanding requirement to close during typhoons and severe rainstorms. Aguzin also pointed out that traders had successfully managed to work from home during the pandemic.

Rewriting those rules isn’t easy, however; the government would have to sign off. At least it signals a willingness to try and break with an often-arcane status quo. Aguzin also could, for example, consider offering some sort of market during Hong Kong’s whopping 17-odd public holidays.

Hong Kong Exchanges and Clearing modernised earlier this month by shortening the time between pricing and trading initial public offerings from five days to two, but it’s hard to be a credible source of international hedging with so many closures. Additional adjustments would help the HKEX be a more reliable port in the storm. (By Jennifer Hughes)


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