Breakingviews - Corona Capital: ESG pause, Haidilao, Royal Mail
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.
- ESG on hold
- Haidilao expands
- Royal Mail stumbles
PAUSE BUTTON. The pandemic has forced money managers to put their good intentions on hold. Nearly four-fifths of institutional investors said their firms were temporarily deprioritising environmental, social impact and corporate governance issues as investment criteria, an Edelman survey showed. Nearly as many said the companies in which they invest were doing the same, according to the poll of 600 investors whose firms collectively manage assets worth more than $20 trillion.
This is not a permanent setback. The survey found that 96% of investors expect to increase their focus on so-called ESG practices as economies recover from Covid-19, and 88% believe that ESG-friendly companies are a better bet for long-term returns than ones that don’t put a high priority on such initiatives. An increase in the proportion of money managers interested in taking an activist approach means laggards will face more pressure to change their ways in the coming years. (By Swaha Pattanaik)
BUBBLING OVER. Chinese hotpot specialist Haidilao is turning up the heat. The $38 billion restaurant chain plans to add 400 new locations, mostly in the People’s Republic, this year, a third more than its previous estimates. Even as restaurant sales in China plunge, the group’s chief strategy officer says fewer competitors and falling rents are opportunities for expansion.
For a company specialising in meals where diners share a communal broth, Haidilao has proved surprisingly resilient amid the pandemic. After reporting a net loss in the first half, the company is expected to be back in the black in the six months to December, Refinitiv data shows. Even so, its Hong Kong-traded shares are up a blistering 83% since the start of the year, and now fetch a frothy 60 times forward earnings, twice the multiple at KFC operator Yum China. Investors betting on a quick recovery risk getting burned. (By Yawen Chen)
ROYAL MISS. The benefits from a surge of lockdown-induced parcel deliveries have been lost in Britain’s post. Royal Mail on Thursday raised its full-year revenue target thanks to a rise in online shopping but also warned that it is struggling to control costs. Manual sorting of higher volumes of parcels and Covid-19-related expenses like safety equipment and agency staff dragged the formerly state-owned group’s UK business to a 129 million pound adjusted operating loss in the six months ending Sept. 27.
Things could improve. Royal Mail has earmarked 100 million pounds of extra spending to make sure it can maintain quality in the busy Christmas period. There’s also a chance ongoing talks with labour unions will produce an agreement that will allow Royal Mail to cut costs and reap the benefits of a surge in demand for its services. The 7% rise in the 3 billion pound company’s shares on Thursday morning suggests investors are hopeful interim Chief Executive Stuart Simpson may one day be able to deliver. (By Aimee Donnellan)
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