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Corona Capital

19 January 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.


– Bank of America earnings

– Halliburton earnings

– NBA valuation rankings

Four legs good. If bad debts were an animal, what would they be? Perhaps a dragon that may rear its head, or a dog that might bark. Bank of America boss Brian Moynihan picked a different analogy as he delivered the U.S. bank’s fourth-quarter earnings on Tuesday: non-performing loans during Covid-19 have, he said, been like a mouse passing through a snake. In other words, they swelled, but only a little, then eased.

The question for 2021 is whether that can hold. The answer will depend on government handouts, and the availability of vaccines – and whether the former tides consumers over until they get the latter.

But in the meantime, the big lenders are prepared. Bank of America, Wells Fargo and JPMorgan collectively put aside $30 billion in provisions during 2020, their yearly financial statements show, which they’ve barely had to use. At Moynihan’s lender, overdue credit card debts are actually smaller than they were at the end of 2019. And the big banks are already taking evasive action by cutting back on lending. So if the dog does bark, it’s unlikely to bite. (By John Foley)

Digging holes. Pity the pick-and-shovel purveyors of the oil industry: Investors aren’t cutting them slack. Oil-servicing giant Halliburton’s stock fell on Tuesday even as it reported its first quarter-to-quarter revenue rise since the second period of 2019. Sales in North America increased 26% thanks to a recovery in drilling with U.S. land rigs.

Meantime stock prices of oil and gas giants Exxon Mobil and Chevron rose, following crude prices upward. It’s a reflection of the vicious cycle that tends to plague the servicing business. While big oil drillers can start and stop production based on how demand is trending, Halliburton and its peers are at their whims.

Financial performance is closely tied to the amount of activity, not just the profitability of the crude that is sold. That leaves them even more exposed to a reset of the oil market following the troubles caused by Covid-19. Chief Executive Jeff Miller sees that happening in 2022. He has every reason to be optimistic. (By Lauren Silva Laughlin)

Shooting from midtown. The New York Knicks basketball team is ranked first, but only in terms of valuation. The $5.4 billion franchise, which has only posted three winning seasons since 2002, tops the National Basketball Association list complied by Sportico – over double the average team’s value. While revenue of $428 million last season, second to the Golden State Warriors, was down over 9% from the previous year, the drop was in line with the 10% slam Covid-19 inflicted on the league’s 30 teams overall.

The team’s struggles could extend beyond their record if work-from-home trends push high-income industries and workers out of NYC. A chunk of the franchise’s value comes from access to the flush corporate community. Parent company Madison Square Garden Sports has seen its stock price drop almost 20% over the past 12 months. When it comes to NBA valuations, top marks don’t always equal success. (By Anna Szymanski)

Synergies to the Max. ODP, the owner of Office Depot and Office Max, thinks it has a better idea than selling itself whole to Staples, as the latter proposed last week. Both are struggling in the tough U.S. retail market. ODP on Tuesday suggested Staples owner Sycamore Partners should focus on that area, and either form a joint venture in which both companies’ shareholders can benefit from cost-cutting, or buy only ODP’s consumer-facing business.

Staples has offered to divest its target’s business-to-business operations should they raise antitrust hackles – as that side of the office-supplies game has done in the past, preventing two prior merger efforts. Yet as ODP points out, Staples doesn’t have a buyer or a value to talk about. And ODP boss Gerry Smith sees the commercial business as the best hope for growth after a hit in 2020 from Covid-19. If it’s a throwaway for Staples and an antitrust risk, why buy it at all? (By Richard Beales)

Exceedingly good quarter. The pandemic is breathing new life into some old food brands. Britain’s Premier Foods, the maker of Mr Kipling cakes and Bisto gravy, said on Tuesday that its sales rose 9% year-on-year in the 13 weeks to Dec. 26, with foods such as Sharwood’s cooking sauces driving growth. Indulgence in the time of lockdowns provided a further boost: sales of cakes such as French Fancies and Viennese Whirls grew 7%. The challenge for Chief Executive Alex Whitehouse is to translate these into market-share gains in the long term. Post-pandemic belt-tightening may help.

The renewed popularity of brands deemed as unfashionable or unhealthy before the pandemic has implications for companies like Unilever. In response to calls to overhaul its sluggish refreshments division, Chief Executive Alan Jope launched a review of the tea business. The future of heritage brands like Marmite or Knorr stock cubes looks safer, thanks to Covid-19. (By Dasha Afanasieva)

Raw deal. It can only go up from here. Outbound Chinese acquisitions tumbled 45% last year to $29 billion, their lowest level since 2008, according to a Tuesday report from law firm Baker McKenzie and research outfit Rhodium. Dealmaking in the United Kingdom from the People’s Republic collapsed 90% while foreign direct investment into Europe tumbled 44%.

The pandemic, along with Brexit, Chinese restrictions and tougher scrutiny worldwide, conspired to slow activity down. Latin America proved resilient, however, and North America overcame geopolitical tensions for Chinese M&A to increase by $2 billion from 2019 to $7.7 billion, including Tencent’s stake in Universal Music. Divestitures such as HNA’s sale of Ingram Micro outpaced purchases in the region, though. A President Joe Biden might help thaw icy relations, as could a new EU-China pact. A blistering rally in the value of the yuan also has Beijing encouraging increased outbound investment. (By Pete Sweeney)

Risks on mute. Logitech International Chief Executive Bracken Darrell has had an enviable year at the helm of the Swiss computer-equipment group. On Tuesday he revealed that soaring demand for webcams and other home office kit pushed revenue in the first nine months of the company’s fiscal year to $3.7 billion. That’s 64% higher than a year earlier. Logitech’s share price rose by 3%, giving it an $18.3 billion market value.

Its shares are now up 155% since the start of March 2020 – almost triple Amazon.com’s rise. That looks excessive. Logitech is at heart a hardware business that lacks the economies of scale touted by software groups and online marketplaces. The risk is that customers will buy less now that their home offices are kitted out to the max. The company trades at 31 times forward earnings, compared with a five-year average of 21. Tuesday’s results may represent something of a peak. (By Liam Proud)

Chocs ahoy. Nothing says “I love you but didn’t have time to buy you a proper gift” like a box of fancy chocolates from the airport duty free shop. Unsurprisingly then, with planes mothballed and business travel ground to a standstill, Swiss chocolatier Lindt & Spruengli reported a 6.1% slide in organic sales last year. While many consumers bought Lindor chocolate balls and Lindt Excellence bars to eat at home, Reuters reports that the Swiss company’s store network and travel business were severely hit, and gift-giving also suffered.

The news sent the 20 billion Swiss franc group’s shares down some 4% on Tuesday morning. But have no fear, says the company which also oversees the Ghirardelli, Russell Stover and Caffarel brands: it expects growth to rebound this year, with organic sales up 5% to 7%. At least that’s one vote that harried business travellers will once again be rushing through airports soon. (By Rob Cox)


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