Breakingviews - Corona Capital: Snus, Construction M&A, Capgemini



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


- Snus, cruising

- Plasterboard mistakes

- Capgemini’s resilience

YOU SNUS, YOU WIN! Chewing tobacco is enjoying a renaissance. Swedish Match, which makes non-burning tobacco products and cigars, reported a 15% rise in third-quarter sales compared to last year. Revenue increased across all its segments including snus, a moist tobacco powder which is banned in Europe, snuff, chewing tobacco and nicotine pouches. Shares rose more than 6%.

Instead of nudging people to appreciate the importance of physical health, the pandemic appears to have strengthened the draw of unhealthy habits. Even with airport duty-free sales decimated, beleaguered cigarette maker Imperial Brands expects tobacco net revenue to rise this year. Luckily for Swedish Match boss Lars Dahlgren, smoke-free tobacco products are growing even faster. But oral tobacco is also carcinogenic. The health costs of succumbing to this vice will be felt long after the pandemic. (By Dasha Afanasieva)

SUBSEQUENT MERGER-SALE. Some companies see pandemic-related buying opportunities, but others such as Boral are in retreat. At its annual shareholders meeting on Tuesday, the $4.3 billion Australian building materials supplier unveiled a deal to sell its half-stake in a plasterboard business to German partner Gebr Knauf for about $1 billion. It is also considering exiting North America to refocus back at home.

Boral’s $2.6 billion acquisition of Headwaters in 2017 turned out to be an overly ambitious bet on a U.S. housing boom. Outgoing Chairman Kathryn Fagg conceded the company overpaid and left little margin for error against risks that eventually transpired. Clobbered construction markets, for example, clipped 55% off Boral’s full-year after-tax profit. It’s generally easier for a new chief executive – in this case Zlatko Todorcevski – to take a dispassionate look at the portfolio. But there’s nothing like a crisis to expose harsh M&A realities. (By Jeffrey Goldfarb)

UNCUT GEMINIS. Aiman Ezzat can breathe a sigh of relief. After a dicey second quarter, in which the Capgemini chief executive unveiled a 7.7% organic year-on-year sales decline, the 18 billion euro French IT consultancy sprung back in the third quarter. Ezzat revealed on Tuesday that sales slumped by a more modest 3.6% on the same organic basis, which excludes M&A and currency swings. Capgemini’s share price rose 5%.

It’s particularly reassuring given European technology peer SAP’s disastrous update on Monday, which initially wiped one-fifth off the German giant’s market value and raised fears that companies were putting off IT projects amid a second wave of virus infections. Ezzat, by contrast, said on Tuesday that full-year revenue growth will exceed the midpoint of his previously announced target range. That should lend Capgemini’s share price some immunity to a resurgent coronavirus. (By Liam Proud)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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