LONDON/HONG KONG (Reuters Breakingviews) – Corona Capital is a column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.
Fiber lines from a newly installed 5G antenna system for AT&T’s 5G wireless network are shown on the roof of a building in downtown San Diego, California, U.S., April 23, 2019.
– Private equity
– Ericsson
– Australian rare-earths producer
OLD NORMAL. Swedish private equity giant EQT is spending again. The 16 billion euro group run by Christian Sinding invested 6 billion euros in the third quarter of 2020, compared with 3.4 billion euros in the same period a year earlier. That compares with a one-fifth slump for the European private equity market as a whole, according to PitchBook.
One possibility is that Sindings EQT is a leading indicator. Buyout groups have raised a lot of money in recent years, but wont earn big fees unless they spend. The alternative is that it is imprudently splashing cash before its clear what the post-virus world will look like. EQT is investing in buzzy trends: 80% of investment over the past 12 months has gone into healthcare, media, telecommunications and technology, which often carry high valuation multiples. Mid-crisis investing has worked for private equity groups in the past but only when the assets are going cheap. (By Liam Proud)
BEWARE THE DRAGON. Ericssons impressive earnings uplift may be short-lived. The Swedish telecoms providers share price rose 7% on Wednesday after strong sales in China saw the group report a meaty 8.6 billion Swedish crown ($985 million) operating profit for the third quarter, compared with a loss in the same period in 2019. Despite the pandemic, Chief Executive Borje Ekholm was upbeat about the outlook for 5G contracts in mainland China, a crucial source of earnings growth, given that the country accounts for roughly the entire projected global expansion in 5G network equipment this year.
Such optimism could prove ephemeral. Barely 24 hours earlier, Sweden joined other European countries in banning Chinas Huawei Technologies and ZTE from developing its domestic 5G network due to security concerns. Given that Huawei is Ericssons biggest rival, the Swedish company may face a stiff reaction from Chinese regulators, who have already called for stricter supervision of foreign telecoms operators. Ericsson shareholders have been forewarned. (By Christopher Thompson)
RARE OPPORTUNITIES. Australian rare-earth producer Lynas enjoyed a recovery in the first quarter of fiscal 2021, despite and because of the virus. Easing Covid-19 restrictions Down Under and in Malaysia finally allowed production to rev up: the company pointed to a 73% quarter-on-quarter increase in its output of neodymium and praseodymium, vital ingredients for magnets, iPhones and electric cars. Chief Executive Amanda Lacaze also argued in her results review that the pandemics squeeze on supplies might push buyers to diversify their sources of rare earths beyond China.
Thats talking her own book, but it holds an element of truth. Washington is keen to lessen its dependence on the Peoples Republic, the worlds largest producer of rare earths. Investors seem to buy the thesis, pushing Lynas shares up 4% in Sydney on Wednesday. But the coronavirus is still a wild card. Another outbreak could crimp operations and demand. (By Katrina Hamlin)
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Breakingviews – Corona Capital: EQT, Telecoms, Rare earths – Reuters
