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Corona Capital

7 December 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.


– Airbnb


Sweet home from home. Airbnb raised its initial public offering price to $56 to $60 per share, giving it a valuation of about $36 billion at the top of the range, excluding any additional shares sold, outstanding options and the like, according to a filing on Monday. That boosts the amount it could raise in its IPO later this week by around 20% to $3 billion.

The markup is supported by the post-Covid-19 landscape. Online hospitality industry stocks have held up despite the pandemic. Shares of the $87 billion Booking Holdings, owner of Priceline and Kayak, are up nearly 16% over the last six months. That’s despite a 52% drop in revenue in the first nine months of the year compared to about a 32% fall for Airbnb’s top line.

The expected wide availability of a vaccine next year will help. But parts of the pandemic economy will remain, like remote work. Airbnb is covered on that front, too. Its gross bookings for long-term stays were 50% higher in September than a year earlier, according to its draft prospectus. It’s another reason for the IPO’s strong curb appeal. (By Gina Chon)

Less recycling needed. IKEA is killing off its famous catalog after 70 years. The Swedish purveyor of globally ubiquitous flat-pack furniture printed 200 million of them at the peak in 2016, in 32 languages. Covid-19 arguably dealt the death blow to the publication, with the retail giant’s online sales growing 45% in the year to August and remaining strong even as stores reopened after lockdowns.

The group will no longer put an annual catalog online, either. Websites and other digital options are already replacing it. An accelerated shift to e-commerce is one of the big pandemic stories, helping not just Amazon.com but also Walmart and its ilk. IKEA, with nearly 40 billion euros of retail sales in its last fiscal year, is no exception. Ditching the paper catalog will help the group with its ambitions to be more environment-friendly, too. (By Richard Beales)

All dressed up, no place to go. Large U.S. metropolitan areas are threatening to pull the plug on rail services. Boston, Washington, Atlanta, and New York could all make steep cuts to their public transportation systems if they don’t receive some financial help. The Big Apple’s public transit system recently said that it may have to cut subway services by 40% and halve commuter rail services.

The Covid-19 pandemic has put unprecedented pressure on subway and bus operators’ revenue as commuters worked from home and people were scared to get out and about. But for cities – and their real estate owners – it’s a downward spiral. If services are cut, the work-from-home proposition becomes not only more attractive, but a necessity for some workers. A vaccine might be around the corner, but fixing the financial destruction wrought by Covid-19 will take a lot longer. (By Lauren Silva Laughlin)

Beauty bump. Online retailer The Hut Group is riding the Covid-19 wave. The newly listed company, which operates retail brands such as e-commerce site Lookfantastic and skincare maker ESPA, on Monday said it now expects 2020 revenue growth to be between 38% and 40%, compared with its previous forecast of 30% to 33%. It’s the second time THG, run by founder Matthew Moulding, has raised its revenue forecast in less than two months.

Aside from the boost in online shopping, the skincare and beauty products that the 6 billion pound company flogs could be in a sweet spot for the post-Covid-19 era. That’s because of the “lipstick effect”: the popularity of affordable treats when consumers’ incomes are squeezed. THG shares are up 34% since its initial public offering in September, handing Moulding a 900 million pound bonus. That bodes well for online beauty business Beauty Bay which, according to Sky, is looking to float next year. (By Dasha Afanasieva)

First toilet rolls, now Tannebaums. Hong Kong faces another pandemic-related shortage: Christmas trees. Travel curbs and fresh rules on dining out are forcing the city’s 7.5 million residents to hunker down at home for the festive season. That has led to a furious scramble for firs. By late November, many retailers already sold out. A picture of a six-foot-tall tree selling for HK$16,800 ($2,168), twenty times the typical price, has gone viral.

Wildfires in the United States meant supply was always going to be tight this year. Unpredictable shipments due to global lockdown restrictions are exacerbating the situation. Although air freight into Hong Kong has improved, declining just 5% year-on-year in October compared to April’s 13% drop, a surge in transport costs has made it harder for smaller vendors to keep stock. Hong Kongers will have to deck the halls with something else. (By Robyn Mak)

Gloomy goose. Remo Ruffini has finally taken an initial step on the way to creating Italy’s answer to Bernard Arnault’s LVMH. The boss of 11 billion euro puffer-jacket maker Moncler on Monday announced the takeover of Stone Island, an Italian casualwear brand. The deal values the target at 1.15 billion euros, or 16.6 times 2020 EBITDA, compared to Moncler’s 22.7 times on the same metric. Ruffini has been able to use his premium valuation to pay partly in shares, by issuing new equity to the family which owns Stone Island.

With ski resorts facing a slump due to the pandemic, Moncler’s puffer jacket cash cow may take a hit. And given Stone Island made an operating profit of 61 million euros in 2020, Ruffini also looks on Breakingviews calculations to be facing a sub-5% return on his investment. Still, diversifying via a streetwear brand might help. Stone Island has a strong digital presence with up to 25% of sales in 2019 via e-commerce, against 8% for the overall luxury market. Moncler is still way off LVMH’s 248 billion euro heft, but at least it’s making headway. (By Karen Kwok)

Office bet. Buyout group EQT is hedging the work-from-home risk. The Swedish group said on Sunday it had agreed to sell facilities management provider Apleona to French private equity rival PAI Partners for 1.6 billion euros. After earnings before interest, tax and amortisation growth of more than 10% a year, workplace facility management may be hampered by the pandemic-inspired trend to work from home. Roughly 30% of the business relates to office facility management.

EQT sold Apleona for just 200 million euros more than what it paid for it in 2016, but smaller divestments have topped up returns. Having sold Apleona’s low-margin construction arm in 2017 and a UK real estate business in 2018, the gross return works out at around 2.5 times invested capital. Avoiding a bet on what will happen to demand for offices is another upside. PAI will have to hope at least some value remains on the table.  (By Dasha Afanasieva)


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