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Corona Capital

5 February 2021 By Breakingviews columnists

Corona Capital is a column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.


– Peloton Interactive

– A-Rod SPAC

– Intesa Sanpaolo earnings

Huffing and puffing. Peloton Interactive’s shareholders are riding into the sunset. The $42 billion exercise equipment and virtual workout service said its subscriber base shot up more than 130% in the quarter ended Dec. 31 compared to the same quarter in 2019. Its market capitalization per subscriber has increased about as much, too. Each Peloton customer is worth more than $26,000.

That’s roughly 24-fold the value Netflix shareholders ascribe to their subscribers. It may be in part attributed to Peloton’s astronomical growth, and its recent purchase of Precor to help manufacture its bikes.

But the company is now running up a game of numbers. Even if the value of Peloton’s users stays the same, growing subscribers at twice the clip again would imply an equity value of more than $80 billion. That’s four Nautilus, plus three Beyond Meat, plus a Lululemon Athletica. (By Lauren Silva Laughlin)

Up to bat. Alex Rodriguez, the former baseball star, is taking a swing at a pitch thrown right down the middle of the plate – or in non-sporting speak, an easy target. A-Rod, as he’s known, and hedge fund Antara Capital are looking to raise $500 million with a special purpose acquisition company called, fittingly, Slam.

This bid isn’t coming out of left field. He founded A-Rod Corp in 2003, and it has invested in ventures from Vita Coco coconut water to Wheels Up – a private aircraft company that it going public through a SPAC. So while almost every bold-faced name seems to be jumping into this game, A-Rod may have the chops to pick a winner.

The surprise might be that the one-time slugger isn’t looking to acquire a professional sports team, though he may still seek a target with sports-related features. After losing a battle to buy the New York Mets to hedge fund billionaire Steven Cohen last year, perhaps A-Rod has decided to stick to games he can win. (By Anna Szymanski)

M&A boost. Fortune favours the bold. Intesa Sanpaolo’s swoop on smaller rival UBI Banca, launched early in the pandemic, will deliver bigger rewards than originally anticipated. Reporting adjusted net profit of 3.5 billion euros in 2020 on Friday, boss Carlo Messina hiked expected annual cost savings from the deal to 700 million euros. That’s roughly 40% more than the Italian bank’s initial target.

Intesa’s higher savings, along with upcoming big tax credits, should instill confidence in those looking to engage in Italy’s bank M&A game, like Credito Valtellinese bidder Credit Agricole and possibly UniCredit under incoming boss Andrea Orcel. Yet, bulking up in Italy brings also risks. Last year’s 8.8% GDP contraction and an economy chiefly running on small companies point to a rise in bad debt. To absorb potential hits from Covid-19, Intesa doubled provisions against loan losses to 1.04% of total loans. The bank’s strength allows it to play safe. Others may have to be more careful. (By Lisa Jucca)

French cheek. Jean-Laurent Bonnafé has confounded investor pessimism in the euro zone’s biggest bank by assets. He can do so again. On Friday the boss of $64 billion BNP Paribas revealed surging trading income offset a revenue fall in retail lending to keep its 2020 top line broadly flat. At 66 basis points, BNP’s bad debt charges as a proportion of lending were roughly half that of regional rival Banco Santander. All of this ensured Bonnafé made good on a pledge that annual earnings would drop by no more than a fifth: excluding one-offs, net profit fell by 19% to 6.8 billion euros.

The trading boost probably won’t last. But if Bonnafé grows the top line by 3% as Europe recovers, then the lender can make a handy 8% return on tangible equity even if costs and bad debt charges stay broadly similar, according to Breakingviews calculations. The bank’s shares are currently trading at just 60% of tangible book – implying a much smaller 6% return. Bonnafé may soon have more to boast about. (By Christopher Thompson)

Margin ceiling. Carlsberg is narrowing its valuation gap against rivals. The Danish brewer was the first to report 2020 results on Friday, pleasing investors with a commitment for a 3% to 10% increase in operating profit. Harder hit by Covid-19, the maker of Tuborg and Somersby cider trades at 21 times 2021 earnings compared to more than double that at Heineken, Refinitiv data show.

To achieve that, boss Cees ‘t Hart plans to stick with some pandemic cost-cutting, which helped grow last year’s operating margin 70 basis points to 16.6%; the company’s travel budget will be 30% lower than last year.

There are limits to what he can do. Brewers have struggled with the closure of bars which allow them to sell drinks at a higher margin. The company hopes things return to normal in June. Failing this, ‘t Hart may be stuck in nomad’s land: higher costs in marketing without the top line boost. (By Dasha Afanasieva)

Formation flying. Global Infrastructure Partners and Blackstone have agreed a sensible ceasefire in their dogfight over Signature Aviation, which runs small airports for the mega-rich, mainly in the United States. Having bid up the UK-listed firm’s market value to 3.4 billion pounds, more than 50% above its original worth, the buyout groups are now joining forces. Rival Carlyle has also been circling. But with heavyweight Signature investor Bill Gates ensconced in the cockpit alongside them, GIP and Blackstone are going to take some outmanoeuvring.

Ending hostilities is probably wise. Although Signature may be a coronavirus winner, with high-fliers eschewing commercial flights, its valuation was looking lofty. Breakingviews reckoned in January that GIP might be looking at a measly 13% internal rate of return. And private aviation has its risks, not least from the climate change movement. Gates should know: He’s about to publish a book on the subject. (By Ed Cropley)  

Paint job. The tussle over Tikkurila is turning into a full-on art-auction frenzy. Pittsburgh-based PPG Industries on Thursday raised its all-share offer for the Finnish paint maker to 1.5 billion euros, trumping a 1.4 billion euro bid from arch-rival Akzo Nobel. That earlier bid already looked like an overpriced impressionist splurge. At well over double Tikkurila’s share price in early December, and nearly 18 times its forecast EBITDA for this year, PPG’s response has a tinge of the surreal.

PPG and Akzo have history. In 2017, the 17 billion euro chemicals heavyweight enlisted the Dutch government and unions to fend off a takeover attempt by its $33 billion rival. That explains the animosity, but not the loss of perspective. PPG trades on 13 times this year’s EBITDA. After tax, its shareholders can expect a measly 3% return on their investment, well below their Finnish target’s cost of capital of 5%. Salvador Dali would be amused. (By Ed Cropley)  

Debt of gratitude. Covid-19 has paved the way for sustainable bonds to flourish. The novel notes are being deployed to fund everything from hospitals to unemployment relief as borrowers become more comfortable using debt that pledges proceeds to environmental and social projects. Global issuance is forecast to rise by a third this year to top $650 billion, Moody’s estimates.

Investors are keen. Alibaba’s $5 billion U.S. bond deal, which priced on Friday, included a 20-year sustainable tranche – the company’s first. The overall offering attracted orders of some $30 billion. Analysts at BNP Paribas reckon sustainable bonds offer buyers higher yields, some 4 basis points more, than conventional new issues.

The risk is that debt markets will prioritise the health crisis and delay environmental projects. But climate-conscious stimulus packages and policies from governments in Europe and elsewhere will offer a boost. The backlog coupled with demands for fresh funds should see the green variety enjoy a bonanza year. (By Katrina Hamlin)


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