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Capital Calls

8 March 2021 By Breakingviews columnists

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


– American Airlines’ loans

– Cooling crypto

Downgrade. American Airlines badly wants to shake its Covid-19 legacy. The Texas-based airline is selling $5 billion in notes and raising $2.5 billion more by hocking its rewards program to pay the funds it received from the U.S. Treasury Department. Cheap, government-backed cash required the company to issue warrants and carried restrictions on share buybacks and executive compensation.

Shortly after taking on the bailout, American’s stock looked close to worthless, according to Breakingviews calculations. Since then, the stock has more than tripled, valuing the carrier at $13 billion. The shares are now just 30% lower than when the pandemic hit.

The current deal would remove the restrictions placed by the Treasury, serving as a short-term booster shot for the shares, which gained 6%. Problem is the pandemic isn’t in American’s rearview. The company continued to burn $30 million a day in the fourth quarter. A blip or two with vaccines and taxpayer money at bargain prices could look attractive again. (By Lauren Silva Laughlin)

From puff to huff. PayPal’s big plans for digital currencies are losing their fizzle. The $270 billion payments company took another step, this time by announcing the purchase of Israeli crypto security firm Curv for an undisclosed amount. The buyer’s stock fell 3%.

PayPal’s value has more than doubled over the past year. Over 30% growth in total payment volume in 2020 was the primary attraction, but the promise of big new markets has added spice. Chief Executive Dan Schulman proclaimed that the transition to digital forms of currency was “inevitable” in October when the company said customers could buy and sell bitcoin and other cryptocurrencies from their PayPal accounts.

Flagging enthusiasm for bitcoin, which rose more than 300% in 2020, doesn’t help. The digital currency fell Monday and is 11% off its February high. Such volatility may be exciting, but it renders the digital currency not very useful for payments. (By Robert Cyran)

Need for speed. Volkswagen is betting that petrol-heads will soon become eco-warriors. On Monday, VW-owned Porsche announced that it had bought an additional 9% stake in Rimac Automobili for 70 million euros, valuing the Croatia-based electric-supercar maker at 778 million euros. That’s a big jump up from the roughly 28 million euros it paid for a combined 15% stake in 2018 and 2019. Rimac is something of a luxury bauble: the latter’s C Two model – which can reach speeds of over 250 miles per hour – retails at $2.6 million.

Still, given VW’s stable of luxury brands, such as Lamborghini, Bugatti and crotch-rocket maker Ducati, Rimac’s battery technology could help steal a march over gas-guzzling rivals. Ferrari, for example, doesn’t expect an electric version of its racers to come out until after 2025. The latter trades at 39 times estimated 2021 earnings, compared to VW’s 9 times, according to Refinitiv data. If the group were to spin off Porsche, or even Lambo, having an electric edge would give a listing extra juice. (By Christopher Thompson)

Eni takers? Italian oil major Eni may be cashing in some of its new green credentials. The 36 billion euro firm is looking to spin off its retail and renewable energy division and list a minority stake next year, according to Reuters. The move looks like a savvy way of taking advantage of lofty green energy valuations.

The unit is targeting 4 gigawatts of installed renewable power by 2024. At the moment, such projects are fetching as much as $3 billion per GW, making the green division alone worth 10 billion euros, according to Breakingviews calculations. That’s before taking into account the retail business, which should make 750 million euros of EBITDA in 2024. Selling a minority stake would let Eni take a chunk out of its 17 billion euro debt pile or raise cash for future green investment. Given volatile markets, Chief Executive Claudio Descalzi shouldn’t hang around. (By Ed Cropley)

Achilles’ heel. Four-inch stilettos have had a quiet year as the pandemic kept fashionistas away from offices and parties. Yet Italy’s Agnelli family still believes in dressing smart: Exor, the clan’s $20 billion holding company, on Monday announced it’s buying 24% of Christian Louboutin from its founders for 541 million euros. The French shoemaker famous for its red soles could be changing in step with consumer tastes: half of its designs are now low-heeled, including clunky trainers evocative of orthopaedic shoes.

Though the brand is cagey about financial disclosure, it sells roughly a million pairs of shoes a year. A classic black pair costs around 580 euros online. Assume Louboutin pockets all of this as revenue, and has no debt, and the Exor investment implies a valuation of less than 4 times sales. Luxury rival Hermès International trades at 14 times, according to Refinitiv data. The Agnelli family’s luxury pivot could still come with a prudent price tag. (By Dasha Afanasieva)

Extra sauce. Deliveroo’s stock market offering is half-cooked. The British food delivery company on Monday formally announced its plans for a London listing, with figures showing that new customers and higher order frequency during the lockdown lifted revenue by 54% to 1.2 billion pounds last year. This helped operating losses shrink to 223 million pounds. On its own adjusted measure of EBITDA, Deliveroo was profitable for two quarters of 2020.

The biggest question is whether sales subside as customers flock back to restaurants, especially in the United Kingdom and Ireland, which brought in half of Deliveroo’s revenue last year. Founder Will Shu’s supervoting shares, intense competition and the European crackdown on gig workers’ employment model may also affect investor appetite. Deliveroo’s last private funding round in January valued it at over $7 billion. On a multiple of 6 times last year’s revenue, slightly above rival Just Eat Takeaway.com, the company could be worth $10 billion including debt. However, it may need to add extra sauce to win over new shareholders. (By Karen Kwok)

Skin deep. Chinese beauty app Meitu is trying to apply gloss to its business. The Hong Kong-listed company, best known for its photo-editing app popular among selfie-takers, has purchased $40 million worth of ether and bitcoin and is assessing whether it can integrate blockchain into its overseas businesses. It looks more desperate than opportunistic though, spending a sum equal to nearly 3% of its market capitalisation compared to the roughly 0.2% Tesla splurged last month when the electric-car maker put $1.5 billion into cryptocurrency.

Meitu stock slumped on Monday, and its shares are down almost 70% since they started publicly trading in 2016. Investors are right to be cynical. It’s eking more money out from premium subscription services but online advertising revenue is its mainstay and that declined 12% in the six months ended June compared to a year earlier. Meanwhile, the company has ricocheted between businesses, attempting everything from making smartphones to selling skincare products offline. Meitu’s latest facelift looks all wrong. (By Sharon Lam)


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