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Corona Capital

4 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.

Latest

– Carl Icahn

– European Central Bank

– Natixis

New year, new Icahn. Carl Icahn is starting out 2021 by hitting the reset button. The activist investor has sold half his stake in Herbalife Nutrition back to the company for $600 million, Herbalife said in a statement. The dietary supplement direct-marketing firm became a pushy-investor plaything starting in 2013 when Icahn and outspoken rival Bill Ackman took stakes on opposite sides of the investment thesis.

Icahn was the believer, while Ackman was a vocal skeptic and short-seller. The latter sold his stake in 2018, disclosing the retrenchment with Herbalife’s share price some $50 higher than when he started his campaign.

The following year, the company agreed to pay $20 million to the Securities and Exchange Commission to settle charges that it misled investors, on top of a $200 million Federal Trade Commission settlement back in 2016. Yet Icahn may have made a fairly healthy return – the shares are worth three times as much as at the start of 2013. (By Lauren Silva Laughlin)

Silver lining. There’s hope ahead, according to leading euro zone companies surveyed by the European Central Bank. True, the results, released on Monday, showed respondents were concerned about reduced demand and changes to the structure of demand because of lasting changes in living and working habits. But more than three-quarters of the 72 big non-financial firms who replied to the poll expected their business to be more efficient and resilient after the pandemic. And 60% said productivity in their business or sector would increase in the long term.

Two caveats apply. First, more than half of respondents expected a negative long-term impact on employment. Coping with restrictions on what their employees could do during the health crisis may have helped managers identify efficiency gains. Second, the size of the companies surveyed means the sample group is perhaps better able to rise to Covid-19 challenges than smaller fry. There may be no silver lining for the less fortunate. (By Swaha Pattanaik)

Bonne année. A new year, a welcome new look for French lender Natixis. Shares in the 9 billion euro Paris-listed investment bank were up 2% on Monday afternoon amid reports that newish Chief Executive Nicolas Namias is about to make good on a resolution to dump his troubled London-based asset management arm H2O.

While a price has not been disclosed, a possible sale of Natixis’s majority stake to H2O management would be welcomed after a torrid 2020 in which the division – managing 20 billion euros in assets – was hit by client withdrawals, ordered by French regulators to temporarily suspend some funds and contributed to the exit of Namias’s predecessor.

After a 29% decline over the past year – underperforming peer Credit Agricole – Natixis shares trade at just 70% of tangible book value, well below their pre-Covid valuation. Namias is due to unveil a further strategic revamp in June. Getting rid of H2O tout de suite would be an auspicious start. (By Christopher Thompson)

Fixer-upper. Nelson Peltz has scored an early Brexit victory. London-listed plumber Ferguson said on Monday it had agreed to sell its UK business for 308 million pounds. The veteran activist’s Trian Fund Management, which owns a 5% stake, has been pushing for a sale.

The company, which derives most of its sales from the United States, has been an unlikely pandemic winner: robust demand for Ferguson’s plumbing and heating products has lifted its shares by 58% since Trian disclosed its stake in June 2019. The FTSE 100 index is down 11% over the same period.

A re-rating may have further to run if the company now moves its primary listing to New York. Including net debt, American peers Home Depot and Lowe’s trade at an average of 14 times estimated EBITDA for 2021, according to analyst forecasts compiled by Refinitiv. Ferguson trades on a comparatively lowly 12.6 times. That’s a strong incentive to leave Britain for good. (By Christopher Thompson)

Confidence booster. Patchy disclosures from vaccine makers in the emerging world are inviting scrutiny. Covid-19 jabs from India and China have secured regulatory approvals at home and elsewhere, even though their makers are yet to publicly release a full set of clinical trial data. Bharat Biotech has not published efficiency data. Chinese state-backed Sinopharm recently said its shots have an efficacy rate of 79.34% – lower than the 86% rate announced earlier from trials in the United Arab Emirates – without elaborating.

Health experts warn more information is needed. In contrast, Pfizer and partner BioNTech, as well as Moderna, published detailed efficacy analysis typically required for regulatory approvals. AstraZeneca and Oxford University face questions over the dosing regime of their jointly developed vaccine, which will lead India’s immunisation programme, but the duo have released late-stage trial data to UK regulators. In the race to return to normal, the lack of transparency risks an adverse reaction. (By Robyn Mak)

Turkish troubles. Turkey is suffering from a bad policy hangover in 2021. Inflation rose more than expected to 14.6% year-on-year in December, according to data released on Monday, despite new central bank Governor Naci Agbal’s efforts to detox Ankara from its addiction to cheap debt. In November he scrapped a complicated multi-rate system in favour of one benchmark which he increased to 17% the following month, finally lifting the official cost of borrowing above inflation.

The timing of this much-needed readjustment is especially uncomfortable. Turkey’s economy is reeling from a collapse in the tourism sector and the country is imposing weekend lockdowns and weekday curfews to get a fresh wave of the coronavirus under control. Central banks in Europe and elsewhere have cut rates in response. Bringing in long called-for structural reforms may eventually boost growth. Before then, Turkey’s policy straitjacket will limit any recovery. (By Dasha Afanasieva)

 

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