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Capital Calls

3 June 2021 By Breakingviews columnists

Concise insights on global finance.

Latest

– Russia and dollars

– Fashion retail

– Food prices

Foam hammer. Moscow has blown an economic raspberry at Washington. Russia’s $186 billion National Wealth Fund is exiting greenback-denominated investments amounting to 35% of its total assets, according to Finance Minister Anton Siluanov. It’s a bolshy political signal to Washington, which is banning its banks from buying rouble-denominated Russian state debt from June 14. It’s also consistent with the Kremlin’s ambition of undermining the greenback’s status as the world’s reserve currency.

Yet it won’t hurt Washington. Some $7 trillion of world central bank reserves are held in dollars, more than half of the total, according to the International Monetary Fund. While that ratio has been ebbing, dollars remain popular as reserves because they’re a safer long-term bet than most other currencies. By shunning them, Siluanov is depriving the NWF of a useful hedge while inflicting minimal damage on Russia’s old Cold War adversary. (By Dasha Afanasieva)

Fashion forward. Is it better to follow the trend or set it? When it comes to fashion company stocks, the latter seems to be the recent truism. Rent the Runway, an online clothing rental company, is interviewing banks for an initial public offering, according to Bloomberg. That’s as consumers and investors are embracing eco-conscious shopping companies given the recent success of Stitch Fix, a subscription-based styling service, and ThredUp an online resale shop.

Shares of Stitch Fix have more than doubled in the past year while Lululemon Athletica, best known for making yoga pants, is down slightly. ThredUp has increased almost a fifth since it listed shares in early March, strongly outperforming Lululemon. That’s despite that Lululemon is expected to report on Thursday a more than 70% increase in first-quarter sales year-over-year, according to Refinitiv.

The athleisure wear company’s work-from-home benefits may be subsiding. But it also shows why fashion stock fads, like clothing ones, are fleeting. (By Jennifer Saba)

Diets and riots. Emerging markets struggling to get hold of Covid-19 vaccines may be in for another kick in the guts: food inflation. The United Nations’ Food and Agriculture Organization (FAO) said on Thursday that its global food price index hit its highest level since September 2011. With groceries making up a greater share of their inflation baskets, developing nations will feel the biggest pinch.

In the UK, for instance, food and non-alcoholic drinks make up 9% of the average family’s outgoings. In Kenya, it’s a third. Combined with the steep upwards slope of the FAO’s graph – May’s increase was the biggest month-on-month jump since 2010 – it could mean social unrest. In 2008, the rapid tripling of rice prices from leading exporter Thailand sparked riots in West Africa. The cereals bit of the FAO’s index is just below 2008 levels. But after the hardships of the global pandemic, emerging market consumers will have lower tolerance levels. (By Ed Cropley)

See change. Advocates of Europe’s technology scene have something to crow about these days. Consumer-facing fintechs like $50 billion Klarna and Britain’s Wise are mulling bumper market debuts, and the region’s startups raised a record sum last year. Two recent deals show that the sector is also plugging a once-gaping hole for upstarts that sell software to companies rather than people. Germany’s Celonis, whose technology helps businesses make use of their data, raised $1 billion at an $11 billion valuation. And France’s Cegid, which offers cloud-based software for retailers, has attracted KKR with a near $7 billion price tag.

That should assuage fears that Europe’s patchwork of fragmented markets would impair the growth of native business-to-business firms. The old argument was that American rivals would prevail by rolling out their products at scale at home before conquering Europe. Celonis’s customers, as well as European giants Vodafone and Siemens, include stateside titans like Dell Technologies. The tables may be turning. (By Liam Proud)

From ear to ear. Dental-braces maker Angelalign Technology is flashing its pearly whites ahead of a market debut. The Chinese maker of clear teeth straighteners plans to raise up to $375 million in a Hong Kong initial public offering. A $3.7 billion top-of-the-range equity value implies a punchy 54 times forecast next year’s earnings, IFR reports. Align Technology, the $46 billion owner of rival Invisalign, trades at 45 times.

Each claims roughly 40% of the Chinese market, according to research cited in Angelalign’s prospectus. The U.S. company, though, is struggling to grow there, blaming the pandemic, trade wars and “increased competitive activity”. The local challenger, meanwhile, delivered a 75% rise in 2020 adjusted net profit. One big edge is a vast Asian orthodontic database that allows it to tailor products for Chinese facial types.

Smaller upstarts are also nipping at Angelalign thanks to advances in 3D printing technology. For now, though, the company is all smiles. (By Robyn Mak)

Pot of gold. For Russian tycoon Alexey Mordashov, toppy gold prices are too good to pass up. The steel magnate ally of Russian President Vladimir Putin will take Nord Gold, the gold miner he owns with his sons, public in London after it was delisted in 2017. Last year, despite keeping production flat, Nord Gold reported a 52% increase in adjusted EBITDA to just over $1 billion thanks to rising prices of the yellow metal. If valued in line with peer Polyus, which trades at 9 times trailing EBITDA, according to Refinitiv, Nord Gold could be worth almost $10 billion.

Mordashov knows the good times may not roll forever. Inflation expectations have driven worries over when the Federal Reserve will raise interest rates, which would make holding gold relatively less profitable. The other concern is the risk of Mordashov one day getting sanctioned. But that’s a constant worry that oligarchs close to the Kremlin must manage. Pulling the trigger makes sense now. (By Dasha Afanasieva)

Rags to riches. Etsy’s acquisition of secondhand clothes marketplace Depop hardly qualifies as bargain shopping. The crafty company is paying some $1.6 billion, a hefty 23 times revenue for its Generation Z-focused target. Youth appealed to investors, who sent Etsy’s shares up more than 7%, or nearly as much in market value as the deal’s price tag.

Fast-growing Depop’s $70 million top line represents only about 10% of its gross merchandise value. Etsy rakes in about 17%, while peers have a so-called take rate of at least 20%, according to BTIG analysts. That suggests plenty of available upside. Etsy boss Josh Silverman reckons there may be opportunities from selling advertising, too, as Depop doesn’t carry any now.

While Depop’s social-media aspects give it an edge, there are few barriers to entering the market for recycled fashion. And teenagers are a notoriously capricious bunch. At the first sign of a Depop slowdown, Etsy may find that investors are too. (By Jeffrey Goldfarb)

 

 

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