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Position in Universe 16th / 1913

BREAKINGVIEWS-Corona Capital: GDP, Burberry, Insurers, Telstra

Thu 12th November, 2020 10:53am
(The authors are Reuters Breakingviews columnists. The opinions expressed are their own.) By Breakingviews columnists LONDON/MILAN/MELBOURNE, Nov 12 (Reuters Breakingviews) - C orona Capital is a daily column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights. LATEST - UK economy - Burberry - L&G, Generali - Telstra LOOKING FORWARD. Some things are outdated even before they are released. That’s the case for UK GDP data, which on Thursday showed the economy grew by a record 15.5% in the third quarter compared with the previous three months. New restrictions on activity have been announced since then and what matters is how sharply GDP will fall back in the last quarter. The relapse won’t be as bad as the downturn caused by the first national lockdown. But there’s little room for optimism. The economy remains nearly 10% smaller than it was at the end of 2019 and a separate monthly report revealed it expanded more slowly than expected in September and that growth in all the main sectors has slowed from June peaks. While extra fiscal*:nL8N2HO40N and monetary*:nL8N2HR354 stimulus measures were announced earlier this month, the economy is likely to need even more help to recover its pre-Covid-19 stature. (By Swaha Pattanaik) BLING AMBITION. The pandemic is prompting Burberry BRBY.L to ditch its markdown addiction. Encouraged by a return to sales growth in October, the $9 billion UK maker of 2,000-euro trench coats said it was cutting the amount of products sold at a discount. That’s encouraging. Rival Prada 1913.HK , which like Burberry is in the middle of a turnaround*:nL8N27U2NY, took a similar approach earlier to bolster its profit margins. The Italian group sold 99% of its products at full price in September against 82% for Burberry, a Bernstein analysis of bling online platforms shows. Prada is forecast to report a 30% EBITDA margin at the end of the next fiscal year against 24% for Burberry, Refinitiv data show. The shift will inevitably dent revenue at first. But investors may not mind in a year already hard-hit by Covid-19. The group’s ability to shove more full-price clothes and bags on customers will give a measure of Burberry’s luxury status. (By Lisa Jucca) DIVIDEND DIVIDE. Generali GASI.MI and Legal & General LGEN.L are highlighting the challenges of paying dividends in a pandemic. On Thursday, the 21 billion euro Italian insurer said that although it had increased its capital ratio to 203%, up 9 percentage points since the half-year, it would delay paying a dividend. Meanwhile, L&G said its final dividend would be flat this year and investor payouts would fall short of expectations. It instead plans to increase payouts by 3% to 6% annually over the next five years. The two insurers’ shares fell on the news. Investor disappointment is understandable. L&G CEO Nigel Wilson had boosted expectations earlier this year by paying a 750 million pound dividend despite caution from the Bank of England. Investors had expected the same aggressive approach when it came to the final dividend and growth ambitions. Generali, by contrast, had no choice but to stick to its regulator’s ruling. But as its capital stores build, it may play tortoise to L&G’s hare. (By Aimee Donnellan) SPLITTING WIRES. Australian telecommunications titan Telstra TLS.AX is trying to find a silver lining from the pandemic. After suspending cost-saving job cuts, the $26 billion company said on Thursday it would break into three parts with an eye toward selling its towers division. The restructuring should “unlock value” as boss Andrew Penn intends. As it stands, Telstra trades at less than 10 times expected EBITDA for the next year. The company’s towers operation and separate infrastructure unit – which houses fibre, undersea cables, and more – should each fetch higher multiples, especially as the shift online means customers have deepened their appreciation of mobile and internet services, enhancing the value of the underlying infrastructure. On the other hand, the so-called ServeCo business, which develops new products, is probably a drag on the valuation. It will take over a year to complete the carve-up, but Telstra is sending the right signal. (By Jeffrey Goldfarb) On Twitter - SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ UPDATE-BREAKINGVIEWS-Corona Capital: Lyft, Vaccine minefield, Peru*:nL8N2HX2OU ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Editing by George Hay and Karen Kwok)
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