LONDON/MELBOURNE/MILAN (Reuters Breakingviews) – Corona Capital is a column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.
Former French President Valery Giscard d’Estaing speaks during an interview with Reuters in his office in Paris, France, February 11, 2016.
– Valery Giscard dEstaing
– Flutter
– Working from home
A CREDIT TO FRANCE. Valery Giscard dEstaing, who died on Wednesday aged 94 due to complications arising from the coronavirus, was a former fighter in the French resistance against the Nazis and winner of the 1974 presidential election by a whisker against his Socialist rival Francois Mitterrand. He also augmented the lexicon of finance. Giscard coined the phrase exorbitant privilege to describe the benefit the United States gained from holding the international reserve currency.
Although domestically renowned as a conservative with liberal social instincts, he also became synonymous with launching bonds indexed to the gold price. These were immortalised in Tom Wolfes The Bonfire of the Vanities, where they help precipitate the fall of alpha male trader Sherman McCoy, who tries to corner the market in Giscards before facing huge losses. In fact, it was real-life investors who won out, as the price of gold shot up during an era of high inflation, making them much more expensive for the government to repay. (By Christopher Thompson)
WORTH A FLUTTER. Peter Jackson, chief executive of Irish gambling group Flutter Entertainment, is doubling down on the burgeoning American sports-betting market. The $32 billion Dublin-based group announced on Thursday that it would buy an additional 37.2% of FanDuel for almost $4.2 billion, taking its holding in the U.S. fantasy-sports group to 95%. The stakes current owner, Fastball, will get about $2.1 billion in cash and the rest in Flutter shares.
Its a good bet. The implied $11.2 billion enterprise value is roughly 13 times forward sales, compared with close peer Draftkings multiple of over 20, using Refintiv data. Jackson was able to squeeze minority shareholder Fastball on price because its controlling stake meant there were no other realistic buyers. Flutters shares rose 11% after the announcement. Its odds of U.S. success look good. (By Liam Proud)
OFFICE RECOVERY. The remote-working boom may be running out of steam. Although the most recent lockdown saw more people working from the comfort of their home than during the first round of confinements, Morgan Stanley analysts reckon demand for working from home has declined during the pandemic. In August, surveyed workers in the United Kingdom, France, Germany, Italy and Spain said they would like to work more than two days a week from home. That has now declined to two days in each country.
The results could be a boon to office stocks. Great Portland Estates has enjoyed a 36% share-price bump since September on the back of vaccine hopes. They could have even further to go. Paris and London stocks are trading at less than a 20% discount to the gross value of their assets, having recovered from discounts of near 30% last month. If workers stage a mass return to offices, the valuation gap will tighten. (By Aimee Donnellan)
TAKE WING. Qantas Airways is offering some hope to shareholders and fellow airlines. The $7.7 billion Australian carrier said on Thursday that reopened local borders would help it utilise 68% of its domestic capacity this month, up from 20% earlier in the year. Whats more, boss Alan Joyce expects his company to break even at the underlying EBITDA level in the first half through December.
Such developments will make it the envy of many peers, some of which are still raising capital to cope with the pandemic. Qantas has its hurdles, though. Revenue this financial year stands to shrink by $8 billion compared to pre-Covid times. And although it has retained its investment-grade credit rating, net debt has swollen by a quarter to $4.4 billion. Joyce also expects international travel to be grounded until at least June. All things considered, though, he is on a comparatively better trajectory. (By Jeffrey Goldfarb)
FLYING ON FUMES. Like the pilot of a doomed aircraft frantically tapping the fuel gauge, Norwegian Air Shuttle may finally have run out of financial gas. The once high-flying transatlantic budget carrier, now worth just $140 million, hopes to keep airborne by swapping another chunk of debt for equity and raising $450 million by selling new shares. More state aid might be needed beyond the $292 million injected in May.
Its hard to see creditors or the government signing up. Oslo has already said it wont be writing any more cheques. And Norwegians current shareholders are the creditors, mainly leasing firms, who agreed a $4.3 billion debt-equity swap six months ago. Asking them to wipe themselves out in return for almost worthless shares and another cash call doesnt sound like fun. An asset fire-sale will only give creditors a fraction of what they are owed. But its better than clambering aboard a flying money pit. (By Ed Cropley)
PANDEMIC SLOG. The China factor wont immediately save the luxury sector from its pandemic misery. Frantic domestic buying by Middle Kingdom shoppers has put a patch on sliding revenue at heavyweights such as LVMH and Kering, third-quarter results showed. Chinese travelling a source of retail spending has already recovered domestically. Yet a global recuperation will take time, McKinseys annual report on the state of fashion shows. International tourism could remain subdued until 2024 after a likely 80% contraction this year, the report says.
Chinese bling shopping will continue to boom in 2021 and could be up to 30% higher than in 2019. But global luxury sales will still be between $40 billion and $80 billion below pre-pandemic levels next year, says McKinsey. A complete global recovery could come as late as the fourth quarter of 2022, with Europe not returning to 2019 levels until 2023. The severity of the virus hit requires a commensurately long convalescence. (By Lisa Jucca)
HEDGE GROW. Bill Ackmans pandemic trades have helped propel him to the top of UK corporate society. The hedge fund managers prescient bets against corporate credit ahead of the lockdown crisis have helped lift his London-listed funds net asset value by 63% this year. That has propelled it into the benchmark FTSE 100 Index, brushing shoulders with stalwarts such as Barclays and Diageo.
It has been a long trip for the 4.8 billion pound Pershing Square Holdings. It originally listed on Euronext Amsterdam in 2014, and three years later joined the London Stock Exchange in a bid to boost liquidity. Now that it is in the big league, PSH should get an extra kick as index-tracking funds pile in. That may help close its roughly 20% discount to net asset value. Sometimes, index funds can be an active managers friend. (By Neil Unmack)
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Breakingviews – Corona Capital: Giscard bonds, Flutter, WFH – Reuters
