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Capital Calls

18 March 2021 By Breakingviews columnists

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


– Sun Country Airlines IPO

– Divergent monetary policies

Runway ready. The last thing the U.S. travel market needs is another airline company, but investors could use one that isn’t burning cash. They got that on Wednesday when Apollo Global Management-backed Sun Country Airlines raised almost $220 million in an initial public offering. The company, which ships both people and cargo and signed an important contract with Amazon.com in 2019, inked positive cash flows from operations last year even though revenue fell 40%.

That could be one reason why its shares jumped more than 50% in their debut. Its IPO price put the company’s enterprise value at around 4 times 2020 sales, and that’s before accounting for the pop. The valuation is significantly higher than big peers like American Airlines and small ones like Alaska Air, which are both closer to 2 times. The airline now has to live up to such sunny optimism. (By Lauren Silva Laughlin)

Counting blessings. Pandemic life is tricky for central bankers everywhere. Turkey on Thursday showed how much trickier it can be for some. Its central bank raised a key policy rate by 2 percentage points, twice as much as expected, to 19%, the highest of any major developed or emerging economy. By contrast, the Bank of England left rates at a record low of 0.1% and made clear it wouldn’t be hiking them any time soon.

Turkey is paying for past errors that cost it credibility and let inflation accelerate to nearly 16%, over three times its target. In the UK, prices have been rising too slowly rather than too fast. And even if they overshot for a bit, public and market expectations of inflation remain firmly anchored. The contrast explains why using monetary policy to support economic recovery is a luxury not available to all. (By Swaha Pattanaik)

White noise. South Korea’s Samsung Electronics is doing just fine. The head of the world’s top smartphone brand yesterday raised eyebrows when he flagged a serious imbalance in the semiconductor industry. The warning comes amid factory outages and wild demand swings that have resulted in a huge shortfall of microprocessors, particularly for auto manufacturers. The fear is that the supply scarcity will ensnarl handset makers like $489 billion Samsung next.

A closer look suggests the opposite. Sales of Samsung’s flagship model, the recently launched Galaxy S21, seem promising. First-half operating profit at the mobile division is forecast to surge 46% from a year earlier to $6 billion, estimate Citi analysts.

Moreover, demand for memory chips – Samsung’s main profit driver – remains resilient. Prices for so-called DRAM semiconductors used in data centres, for example, are expected to rise by nearly a fifth quarter-on-quarter, according to research firm TrendForce. Cutting through all the noise, Samsung looks poised for a bumper year. (By Robyn Mak)

Key ingredients. The makers of raw materials for vaccines are the big winners of the pandemic. That’s the message from Sartorius, a 28 billion euro maker of sterile bags and 2,000-litre bioreactors used by the likes of Moderna, Pfizer and AstraZeneca. The German company also produces a membrane that is needed for coronavirus testing kits. Sartorius shares jumped 10% on Thursday morning after it said it expects sales to grow 35% this year, up from a previous range of 19% to 25%.

Sartorius was already surfing the vaccine wave. Its shares have doubled since January 2020 and were trading at 60 times expected earnings before the upgrade. Vaccine makers like Moderna, Pfizer and AstraZeneca are valued at around 12 times on average. That suggests it’s better to be a supplier than to make the jabs themselves. (By Aimee Donnellan)


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