HONG KONG/LONDON (Reuters Breakingviews) – Corona Capital is a daily column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.
– Video game M&A
ARE YOU NOT ENTERTAINED? Sony’s PlayStation 5 console, released in November, stole the spotlight during Wednesday’s quarterly results. The $126 billion company’s music and movies units are worth watching too, however.
The Japanese group shifted 4.5 million PS5 units as of end-December, making the device one of its fastest and best-selling consoles ever. That helped power a 50% year-on-year rise in operating profit for its core video-games division, to 80 billion yen, in the quarter – over a fifth of the total.
Boss Kenichiro Yoshida has been quietly strengthening other entertainment offerings too. On Monday, Sony announced a $430 million acquisition of a music service provider to independent artists. This follows last year’s flurry of deals in anime titles, games and more. Analysts at Jefferies reckon music and video games will make up over half of Sony’s operating profit in the current and next fiscal years. Shareholders have plenty to look forward to. (By Robyn Mak)
EL NUEVO MUNDO. The conquistadores sought their treasure in South American mines. Spanish bank Banco Santander’s New World-focused strategy is similarly paying off. Shares rose 3% on Wednesday after resilient earnings in Brazil and Mexico helped the lender run by Ana Botin beat a goal of underlying net profit of 5 billion euros. That offset weakness in UK and Spain.
Botin now hopes to crank up the Spanish bank’s return on tangible equity from last year’s 7%, still below the bank’s cost of capital of around 10%. If she can boost the top-line by 2% next year, while keeping operating costs and bad debt charges merely static, then Santander’s ROTE should comfortably reach 9%, the lower level of Botin’s target range, according to a Breakingviews calculation. That implies Santander’s shares should trade closer to tangible book, rather than the current 30% discount. After a nearly one-half share price rally over the last three months, Botin may yet strike gold again. (By Christopher Thompson)
WARM EMBRACE. Scandinavian video games tycoon Lars Wingefors is putting his company’s richly priced equity to good use. The chief executive of Sweden’s $9.3 billion Embracer, whose shares had risen by over 151% in the past year to Tuesday’s close, on Wednesday announced three deals worth almost $2.6 billion, including management retention incentives. At least half will be paid in equity.
It looks like a sensible strategy. The main risk for video-game publishers is relying on a small number of titles. Embracer’s Polish rival CD Projekt found that out the hard way when players shunned error-prone blockbuster “Cyberpunk 2077”, prompting a one-third fall in the company’s share price since early December. By contrast Wingefors’ group, which trades at an astonishing 93 times consensus 2022 earnings, is diversifying by buying up smaller developers. Embracer’s shares rose a further 10% on Wednesday. Wingefors is playing the game better than his peers. (By Liam Proud)
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