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Capital Calls

12 February 2021 By Breakingviews columnists

Concise insights on global finance in the Covid-19 era.


– Disney+ Hotstar

– Blank-check chemistry

Plus or minus. Walt Disney said on Thursday that subscriptions to its direct-to-consumer flagship streaming service hit some 95 million for the quarter ending Jan. 2. The $346 billion entertainment giant launched Disney+ in November 2019 and it has seen hyper growth thanks partly to its ownership of India’s Hotstar, the service that airs Indian Premier League cricket and was formerly part of Fox.

Disney+ Hotstar, launched last April, now accounts for 30% of its global subscribers. But this growth comes at a cost. Average revenue per user in the quarter fell 28% year-on-year to $4.03. Strip out Disney+ Hotstar, and ARPU was $5.56. By comparison Netflix, with over 200 million customers, pulls in above $7 per subscriber. Investors, though, may be willing to tolerate Disney’s Indian equation. After all, the company’s market value has increased more than 60% since April 2019 when it laid out detailed plans for its streaming strategy, handily beating the S&P 500 Index. (By Jennifer Saba)

Everyone loves SPACs. What do you give a financier for Valentine’s Day? A special-purpose acquisition company, of course. After a bumper 2020 for U.S. floats of blank-check vehicles, trashing all previous records with $83 billion of proceeds from 248 deals, according to SPAC Research, this year is already more than half way to topping both totals in just six weeks.

Only time will tell if long-term investors will learn to love SPACs that have found acquisition targets. What’s clear, though, is that the individuals who sponsor the vehicles, taking early risk in return for up to 20% of the shares, make out very handsomely indeed.

Those with recent SPAC dates include Alan Mnuchin, investment-banker brother of former U.S. Treasury Secretary Steven Mnuchin, and – more worryingly for those who fear the market has become dizzy – sporting celebrities Shaquille O’Neal, Alex Rodriguez and Colin Kaepernick. With more than $100 billion of SPAC money now jostling for companies to buy, some hookups will be questionable. By next Valentine’s Day, regret could kick in. (By Richard Beales)

Beauty contest. L’Oréal’s impressive revenue growth makes its discount valuation more conspicuous. Fourth-quarter sales at the 173 billion euro beauty giant grew 4.8% year-on-year, helped by e-commerce. U.S. peer Estée Lauder’s top line increased by a more sluggish 3%. It’s arguably surprising then that the French maker of Elnett hairspray trades at 39 times 2021 earnings, Refinitiv data shows, 20% cheaper than Estée Lauder.

Governance is admittedly a problem at L’Oréal: the Bettencourt family owns a third of the company and acts in concert with Nestlé, which has 23%. But the same applies to Estée. With almost 90% of the voting rights, the Lauder family arguably has an even tighter grip on their eponymous group. The job for incoming L’Oréal Chief Executive Nicolas Hieronimus is therefore to keep outgrowing his rivals. At some point, the company’s relative financial beauty should shine through. (By Dasha Afanasieva)

Chipping in. The semiconductor shortage could not have come at a more opportune time for Toshiba. The $16 billion Japanese conglomerate has been facing pressure over strategy and governance concerns from activist shareholders including its largest owner, Effissimo, and U.S. hedge fund Farallon.

On Friday, Toshiba finally set a date for an emergency general meeting Effissimo has demanded to investigate last year’s annual meeting. Reuters and others reported in December that Harvard University’s endowment fund had been put under pressure not to vote.

Toshiba’s decision to relent coincides with Chief Executive Nobuaki Kurumatani unveiling a $200 million operating profit last quarter, double the same period in 2019, in part thanks to chip demand. It comes on the back of a 24% increase in the stock price this year – though its enterprise value of 6.4 times next year’s EBITDA still trails rivals like Fujitsu. A solid performance won’t quell the investor standoff, but at least Kurumatani can argue the business is picking up. (By Antony Currie)

Credit where it’s due. ING Chief Executive Steven van Rijswijk is getting belated recognition for the bank’s prodigious dividend-paying potential. Shares in the 32 billion euro Dutch lender rose 5% on Friday after fourth-quarter results showed that it had 2.8 billion euros reserved for future payouts. That’s an enticing 9% of its market capitalisation.

Investors still aren’t giving van Rijswijk his full due, however. Even after Friday’s surge, ING is valued at 58% of 2021 tangible book value and trades on a 6.4% 2022 dividend yield, using Refinitiv median estimates. By comparison, the averages for euro zone banks are 61% and 5.4% respectively. Falling bad debt and beefy solvency ratios suggest ING is a less risky proposition than most of its peers. Its share-price discount looks increasingly out of date. (By Liam Proud)


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