June 8, 2020

Breakingviews – Corona Capital: Electric cars, Ferragamo, Suntory

Breakingviews - Corona Capital: Electric cars, Ferragamo, Suntory


LONDON/MILAN/HONG KONG (Reuters Breakingviews) – Corona Capital is a daily column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.

New cars drive during a ceremony marking start of the production of a new electric Volkswagen model ID.3 in Zwickau, Germany, November 4, 2019.

LATEST

– UK electric vehicles

– Salvatore Ferragamo

– Suntory

ELECTRIC FEEL. Boris Johnson may be following Angela Merkel’s lead. The UK prime minister is considering mimicking Germany’s plan to subsidise electric cars. According to the Telegraph, drivers will be given up to 6,000 pounds if they trade in their gas guzzlers for a battery-powered vehicle. Ironically, emissions-free cars were the only section of the market to register a year-on-year increase in sales last month as the rest of the market collapsed, but only by 429 vehicles, according to the Society of Motor Manufacturers and Traders.

Electric cars have accounted for just 4% of total sales so far this year, or roughly half Germany’s proportion. If Johnson wanted to double that it would cost him around 454 million pounds based on last year’s totals, assuming the full subsidy is applied. Faced with uncertain Brexit negotiations, the move might also buy him some goodwill with Nissan Motor and BMW, both of whom produce electric models in Britain. (By Christopher Thompson)

FASHION FRENZY. Wobbly brand Salvatore Ferragamo is enjoying a market revival. Shares in the Italian maker of finely crafted leather shoes jumped 8% on Friday amid hopes it could fall prey to luxury giant LVMH. This seems premature. The coronavirus crisis has clearly turned the 2.4 billion euro Italian brand into a target. But the French giant remains preoccupied with its $16.2 billion bid for famed U.S. jeweller Tiffany & Co.

At 2.7 times expected revenue, Ferragamo looks cheap compared to peers. But it’s too small to move the needle at Bernard Arnault’s 200 billion euro behemoth. Ferragamo needs a fresher look and investment. Assuming a 30% premium, a buyer would need to double the company’s operating margin and grow annual revenue by 5% a year until 2025 to earn a positive return on capital, Breakingviews calculations show. A private-equity takeover, or a marriage with a similar-sized local peer like Ermenegildo Zegna makes more sense. (By Lisa Jucca)

CHEQUE PLEASE. Suntory boss and government adviser Takeshi Niinami reckons more than 20% of bars and restaurants could fail due to the coronavirus pandemic. The owner of premium spirits brands Jim Beam and Maker’s Mark depends on the $230 billion local dining scene, and that explains why Suntory is backing Saki-meshi, a dining app that allows customers to pay for meals up to 180 days in advance to help restaurants with cash flow.

It’s similar to how American restaurants have sold dining bonds, or discounted gift certificates, but those unsecured debts can have little recovery value if the lights go out in ramen joints and tapas-style izakaya bars. With Japan’s vast economic stimulus package favouring subsidy support for premium ingredients like wagyu beef and melons over eating establishments, no wonder Suntory is tweaking the menu. (By Sharon Lam)

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