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Corona Capital

11 September 2020 By Breakingviews columnists

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

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– Bike addicts

– Big Apple blight

Adrenaline spike. Peloton Interactive rolled over analyst expectations in its fiscal fourth-quarter earnings released on Thursday, posting over $607 million in revenue – a whopping 172% increase over the same period last year. High demand from locked-down fitness fans and lower marketing costs helped adjusted EBITDA come in almost twice as high as consensus estimates, according to Goldman Sachs. Now at least three brokerages have upped their price target for the stock to $125, according to Reuters – over 40% more than the Thursday close.

But athletes know the dangers of failing to pace oneself. The once-in-a-century environment created by Covid-19 shutdowns is already unwinding, with New York Governor Andrew Cuomo recently announcing that gyms and fitness centers could start reopening. Slapping down thousands of dollars for equipment and virtual classes may soon be far less appealing. Peloton and its investors may be on a tear – but they should worry about hitting the dreaded wall. (By Anna Szymanski)

Corporate America hearts New York. Nineteen years ago, the Sept. 11 attacks brought New York to its knees. The city bounced back, but Covid-19 may prove to have a much longer impact. That’s why more than 150 prominent business leaders including Goldman Sachs’ David Solomon and Warby Parker’s Neil Blumenthal are sounding the alarm in a letter to Mayor Bill de Blasio warning of “widespread anxiety over public safety, cleanliness and other quality of life issues.”

Before companies can call their employees back to the office – JPMorgan for instance is eager to do just that – they need to feel safe. And yet practical solutions may be a distant dream. The business leaders offered their services but were vague in how to tackle the issues. The answer though may be clear: a federal stimulus. Congress is fighting over another benefits package. Even if it manages to pass, New York could be at the back of the handout line. (By Jennifer Saba)

Knorr off a bit more. German billionaire Heinz Hermann Thiele is cashing in a few more chips. The 70% shareholder of 18 billion euro brakes maker Knorr-Bremse is selling another 6% of his stake, sending the company’s shares down 8% on Friday. Eyebrows will be raised, since previous stake sales helped finance a hike in his holding in Covid-hit domestic airline Deutsche Lufthansa, reflecting his reservations about a state bailout.

Even though Knorr-Bremse recently parted company with its chief executive after just 10 months, Thiele’s stake sale probably doesn’t reflect discomfort with its strategic direction. After all, when the group listed in 2018, he flagged the likelihood of future offloads. Either way, given Lufthansa eventually took Berlin’s money after the billionaire acquiesced to a bailout, and the fact that the airline’s shares fell 1.4% on Friday, he may not be spending the proceeds there. (By George Hay)

Furloughnomics. Britain may ditch plans to kill off its job lifeline. Boris Johnson’s government is under pressure to extend a scheme, which covers 80% of the salary costs of furloughed staff, and supported more than 9 million Britons at its peak. A group of cross-party politicians said on Friday that the prime minister should consider offering targeted support instead of culling the programme next month.

The furlough scheme is costly. The government has already spent 35.4 billion pounds and there are rational concerns that an extension is merely delaying inevitable job cuts while racking up tens of billions of pounds of government debt. The UK’s near 7% GDP bounce in July also suggests the economy is on the mend, which may boost the job market. But with the Bank of England estimating that 3.5 million people still rely on the furlough lifeline, an abrupt end may stop the recovery in its tracks.  (By Aimee Donnellan)

Checking in. Exploring new destinations can be fulfilling. That’s also the case for pandemic-hit Huazhu, a $12 billion Chinese hotelier listed in New York. The company, which boasts nearly 6,200 hotels mostly in the People’s Republic, is seeking a secondary listing in Hong Kong. Based on the closing price of its U.S. stock on Wednesday, it could raise roughly $910 million.

The proceeds will help alleviate Huazhu’s ballooning net debt pile, which hit $1.8 billion as of June. An unfortunately timed acquisition of Germany’s Deutsche Hospitality, completed in January, as well as Covid-19 shutdowns and lower occupancy rates, have prompted the company to warn that worsening financials could trigger a default. Fortunately, China’s domestic travel industry is bouncing back: most of Huazhu’s local hotels have resumed operations, while occupancy rates also reached 83% as of June. Huazhu may find a welcoming reception in Hong Kong. (By Sharon Lam)

 

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