10 ★ FINANCIAL TIMES Thursday20 February 2020The rooftop infinity pool in the
Hollywood filmCrazy Rich Asians utp
Singapore on the map for film-goers.
Tourist arrivals and spending hit a
record high last year. The coronavirus
outbreak has dashed hopes that will
continue. Outside China, Singapore has
one of the highest levels of infection, as
it did during the 2003 Sars epidemic.
Hotels in the south-east Asian city
state have the most to lose.
These were almost full before the
lunar new year, in line with a record
performance over the past three years.
Room charges, accounting for almost a
fifth of tourism revenues, boosted the
earnings of local operators and
developers with hotel portfolios. These
includeCapitaLand, UOL Group nda
City Developments. Shares of the latter
have risen almost a fifth in six months.
But as the outbreak spread, local
hotel occupancy rates more than
halved to less than 50 per centthis
month. The swift reboundafter the
Sars epidemic cannot be expected this
time. The portion of tourism revenue
that comes from China, the hoteliers’
biggest market, has more than doubled
to account for a fifth ofvisitors. The
city state has no clear way of offsetting
lost tourist revenue from China.
It does not take much turmoil from
China for Singapore to face recession.
The government has published its most
expansionary budget in 23 years.
Yet property tax breaks for hotel
operators and a corporate income tax
rebate capped at $11,000 would do
little to offset losses at local hotel
operators such asBanyan Tree, which
made a third-quarter net loss. Its
shares have fallen 13 per cent since late
January, compounding a 35 per cent
drop in the past year. Yet the stock still
trades at 42 times forward earnings,
nearly double that of global peers.
Singapore’s growth contracted in the
second quarter of the Sars outbreak.
A ban on all arrivals from mainland
China guarantees that coronavirus willCoronavirus/Singapore:
hotels half-emptyhave a far harder impact. Investors
should check out of Singapore hotel-
related stocks while they still can.DP World’s ship has sailed. The ports
operator, which ruffled Washington’s
feathers in 2006 when it sought to buy
US harbours, is abandoning its public
listing. A group controlled by Dubai’s
sovereign wealth fund is buying out
minority shareholders for about $2.7bn
Investors should welcome the chance
to bail out for a 29 per cent premium to
Friday’s $13 undisturbed closing price.
It matters little that the valuation is a
feeble nine times estimated earningsDP World:
goodbye, sailorper share, the lowest since the financial
crisis. The sector is at the epicentre of
tensions created by the US-China trade
spat. A compounding effect from the
coronavirus outbreak makes a return
to health unlikely in the near term.
When DP World floated 20 per cent
of its stock on Nasdaq Dubai in 2007 it
was the Middle East’s largest ever
listing. But turnover in the shares was
just $1.3bn in 2019.This week’s deal
values the whole group at 10 times that
amount. Waving goodbye to its biggest
constituent will hurt the sleepy
exchange — it represented 80 per cent
of its total turnover.
DP World blames “short-term
investors” — a common complaint of
all who quit public markets. Alas, the
company is simply an unattractive
proposition. Ports do not exciteinvestors. They prefer companies that
use them. Groups such asMaersk fo
Denmark are focusing on logistics.
DP World has been pursuing
diversification too.The business hopes
credit markets will be more receptive
to a private company. This is naive. DP
World has already taken on $8.1bn of
net debt to help plug a hole at parent
Dubai World.
The company’s own record on
acquisitions is uninspiring. In 2019, it
paid more than $1bn for oil services
group Topaz Energy and Marine, an oil
services company. The investor
stampede out of hydrocarbon stocks
has accelerated since.
he nautical axiom “any port in aT
storm” equally applies to a lowball
offer for this unloved group. Investors
should grab it with both hands.Wall Street lovesMichael Bloomberg.
His vast fortune is fuelling his rise in
the Democratic primary polls. But
conflict of interest concerns are forcing
him to think about the future of his
financial data empire,Bloomberg LP.
On Tuesday, Mr Bloomberg’s camp
said he would be willing to part with
the business he built should he move
into the White House. With an
enterprise value of perhaps above
$50bn, a sale would be one of the
blockbuster deals of all time.
TheLondon Stock Exchange’s
mooted deal forRefinitiv, the financial
data group owned byBlackstone nda
Thomson Reuters, is a benchmark for a
potential Bloomberg LP deal. The
Refinitiv purchase price of $27bn in
aggregate is a multiple of revenue and
ebitda of 5.5 times and 13.5 times,
respectively. Bloomberg LP’s annual
revenue is estimated at $11bn,
implying a potential $60bn purchase
price. Such a huge price tag precludes
strategic buyers. But Bloomberg LP
would be a perfect fit for a consortium
of wealth funds, massive financial
sponsors, and even traditional asset
managers such asBlackRock. They all
want to put billions to work for several
years and are willing to accept returns
below the 20-25 per cent of buyouts.
Assuming that Bloomberg LP
generated ebitda of roughly $4bn, it
could attempt to raise $30bn of debt.
The largest LBO in history, that of
Texas power companyTXU, raised
$30bn of new debt in 2007 in thinner
capital markets. The remaining $30bn
of equity would be challenging. But
sovereign wealth funds in the Middle
East and Asia along with US and
Canadian pension funds would be
interested in a subscription business
that has prospered in the decade-long
bull market.
A sale process introduces its own
pitfalls. Some buyers would be looking
to curry favour with a future
Bloomberg administration. If Mr
Bloomberg wins the election, selling his
business could generate as many
conflicts of interest as keeping it.Bloomberg LP:
sale for the chiefThe demise ofSirius Minerals as beenh
predicted almost as often as that of
hedge funds. Fittingly,Crispin Odey’s
business has invested in the eccentric
Yorkshire mining venture.
The UK-based alternatives manager
wants to squeeze a higher bid price
from Sirius’s rescuer,Anglo American.
That is controversial. It is easier to
support the contention that capital
outflows spell trouble for the hedge
fund industry, as they have for Sirius.
Mr Odey’s flamboyant persona and
provocative bets — against the pound
at times since the Brexit referendum,
for example — have made him the UK’s
best-known hedgie. But one element of
his style is stock selection. This is going
out of fashion. Investors’ retreat from
hedge funds is far broader. They pulled
about $140bn in the four years to the
end of 2019, research firm HFR says.
Some pension funds and
endowments have favoured private
equity over hedge funds in recent
years, judging from steeper fee cuts
among the latter. Buyout firms have a
clear proposition — purchasing
businesses, leveraging them and selling
for a profit. Hedge funds, in contrast,
have a bewildering array of strategies.
Theequity bull market has also cut
demand forfund returns, supposedly
uncorrelated to big benchmarks.
Holding MSCI’s all-country index for
five years to the end of 2019 would
have provided an average compounded
return of nearly 9 per cent annually,
including dividend income. HFR’s
Global Hedge Fund Index rose only 6
per cent over the entire period.
Yet despite outflows, the assets run
by hedge funds are staggeringly high, at
about $3.3tn say HFR data. Current
leakage of tens of billions a year will be
a big problem only if it speeds up.
As for Mr Odey, theoperating profits
from his UK partnership almost
doubled to £16m in the year to April- The performance of his own
European Fund has given less to shout
about, down a tenth last year and more
than that last month.
Henry Steel, theOdey xecutive whoe
built a small exposure to Sirius, has
been doing better. His concentrated
commodity fund’s 38 per cent return
has given him confidence to take on
mining company Anglo American. He
Odey/hedge funds:
Sirius moneyis asking for an increase of at least 1.5p
to the offer price of 5.5p per share.
To US passive managers and private
equity firms, recipients of tidal waves
of capital, this will look like sweating
the small stuff.CROSSWORD
No. 16,405 Set by SLORMGORM
JOTTER PAD
ACROSS
1 Take a break around middle of
April (6)
4 A party fit to welcome
Republican darling? (8)
9 Tot close to hyena could
create this! (5)
10 Part of animal that strikes a
snare? (9)
11 Yellow bird (7)
12 A whole chunk of bread? (4,3)
13 After sending off No. 1,
linesman scoffs (4)
14 Wine ruined careers, head of
news admitted (8)
17 New romance found around
old country (8)
19 Teacher in toupee rejected by
university (4)
22 Agency in charge of plants
and animals (7)
24 Old boy won’t be seen with
hawk-eyed man (7)
25 One might be very cold and
also a gossip (9)
26 State of shock enveloping
infantry at front (5)
27 A Ruskin novel about
inventor’s final venture? (3,1,4)
28 Cases of swimming costumes
(6)
DOWN
1 Being thus, one is unable to
get off horse (8)
2 It is clear criminal is hard-
headed (9)3 Shorts-wearing leader has no
trousers (6)
5 Perhaps one voting for two
parties is a traitor (6-7)
6 One returning to work needs
CV with flair ultimately (7)
7 Bishop with troubles escapes
from predicament (5)
8 Some helpdesk I’m operating
for a foreigner (6)
10 Chopper logs? (6,7)
15 What might be ridiculous to a
dunce and I? (9)
16 People who make a living as
stock-takers? (8)
18 Keep an eye on idiot visiting
heathland (7)
20 Agree with critical description
of Tory! (6)
21 Margin used in a preparatory
textbook (6)
23 Scrap ending in rioting cats
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Manila Fair 31
Miami Cloudy 29
Milan Sun 14
Montreal Sun -
Moscow Cloudy 6
Mumbai Sun 32
Munich Cloudy 9
Naples Sun 15
New York Fair 3
Nice Sun 15
Nicosia Fair 19
Oslo Sleet 6
Paris Rain 12
Prague Cloudy 6
Reykjavik Snow 3
Riga Cloudy 7
Rio Sun 35
Rome Sun 16
San Francisco Fair 18
Singapore Fair 32
Stockholm Cloudy 5
Strasbourg Cloudy 12
Sydney Fair 23
Tokyo Drizzle 12
Toronto Cloudy -
Vancouver Sun 8
Vienna Fair 9
Warsaw Cloudy 7
Washington Cloudy 5
Zagreb Sun 11
Zurich Fair 11Amsterdam Rain 11
Ankara Cloudy 9
Athens Shower 18
Bahrain Fair 25
Barcelona Sun 16
Beijing Cloudy 7
Belfast Hail 6
Belgrade Fair 9
Berlin Cloudy 8
Brussels Rain 11
Budapest Sun 9
Cairo Sun 20
Cardiff Rain 11
Chicago Sun -
Cologne Cloudy 11
Copenhagen Rain 7
Delhi Sun 27
Doha Sun 29
Dubai Sun 30
Dublin Hail 6
Edinburgh Hail 7
Frankfurt Cloudy 10
Geneva Sun 13
Hamburg Rain 9
Helsinki Fair 2
Hong Kong Sun 21
Istanbul Shower 11
Lisbon Sun 18
London Hail 11
Los Angeles Sun 23
Luxembourg Drizzle 9
Madrid Sun 17Today’s temperaturesForecasts by
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17
Lex on the web
For notes on today’s breaking
stories go towww.ft.com/lex
Twitter: @FTLex
Brothers forgive but they rarely
forget. The German pair that founded
sports brandsAdidas nda Puma rea
long gone. Their famed rivalry is as
fierce as ever.
Adidas pre-empted Puma’s results
yesterday by warning that its own
operations in China had suffered an
85 per cent slowdown, denting shares
in both. Puma hit back with better
than expected numbers, sending its
stock up 8 per cent.
Fraternal animosity has been
fruitful for investors. Adidas and
Puma have made returns of nearly
4 times since the start of 2015, solidly
beating US competitorNike.
China is hugely important to both,
as it is to most fast-growing global
brands. Puma’s Asian sales were up
26 per cent last year. Coronavirus will
hurt earnings in the short term. But
how do Puma and Adidas stack up as
long-term bets?
Puma was founded by older brother
Rudolf Dassler, but is a marginally
younger business. It split off from the
business run byAdolf Dassler ecadesd
ago. Sales of €5.5bn last year are about
a quarter of what Adidas is expecting.
A lower base makes growth easier.
That explains Puma’s higher rating —
its shares trade near 35 times forward
earnings, compared with 25 times for
Adidas. A weak operating margin of
8 per cent should improve as Puma
grows up.
Asia is expected to play an important
role here. Puma’s market share in
China is just 2 per cent, compared with
high teens for Adidas. Profitability is
impressively high. Foreign-brand
trainers are status goods but are
cheap to make and transport from
nearby Vietnam. Both companies
have Chinese networks of stores.
They have learnt from luxury peers
that this allows them to charge more,
though the coronavirus epidemic has
temporarily closed many outlets.
Both groups should benefit when
the Chinese economy recovers. But
caution applies: the last time
valuations spiked was back in the late
nineties.
Prices slumped when the dotcom
bubble popped. Investors should wait
for the coronavirus to take more air
out of trainer makers’ chunky soles
before joining in the sibling rivalry.
China leads sportswear sales growth Operating margins by region
Annual change Per cent
Valuations
Price to forward earnings ratio
Nike Adidas PumaChina North America Rest of worldPumaAdidas-ChinaEstimateJapanS KoreaUS
GermanyFT graphic Sources: Jeeries; RefinitivPuma/Adidas: high tops
Sportswear makers have relied on China for growth in recent years. The region also provides manufacturers
with some of their highest profit margins, partly owing to proximity to manufacturing sites. The coronavirus
outbreak is a threat, but valuations near record highs suggest risks are already weighted to the downside.FEBRUARY 20 2020 Section:FrontBack Time: 19/2/2020- 18:35 User:joe.russ Page Name:1BACK, Part,Page,Edition:EUR, 10, 1