Tuesday 16/11/21

1. In MACRO, OIL & ENERGY NEWS, Japan’s GDP contracted, Andrew Bailey reiterates inflation concerns, Shell shifts to the UK and power prices hit a new high
2. In SUPPLY CHAIN NEWS, Tesla supplies unfinished cars, Tyson Foods increases meat prices and Oatly goes sour
3. In REAL ESTATE TRENDS, rents rise and WeWork benefits from Back To Work
4. In MISCELLANEOUS NEWS, PE goes for GE, Airbus wins a freighter order and Bond saves Cineworld
5. AND FINALLY, I bring you a creative way to resign…

So Japan’s economy contracts, Bailey remains cautious on inflation, Shell goes with the UK and power prices hit a new high…

Japan’s economy shrinks as Olympics fail to provide boost (Daily Telegraph, Tom Rees) just highlights the fact that Japan’s economy has gone backwards over the last quarter, having not enjoyed any boost at all from the Olympics (but then again, that was hardly surprising given the travel restrictions and lack of crowds!). GDP contracted by a chunky 3%, which was a lot more than the 0.7% fall predicted by the market. Supply chain bottlenecks choked industrial production, which fell for the third consecutive month, as factories cut back production. * SO WHAT? * Whilst this doesn’t make for great reading, PM Kishida is putting together more stimulus plans and Covid cases seem to be getting under control, so I guess things could be worse.

‘Uneasy’ governor says interest rate decision was a very close call (The Times, Simon Duke) shows that the governor of the Bank of England told MPs yesterday that the MPC left interest rates unchanged in its latest meeting because of uncertainties in the jobs market. The latest inflation figures are due out tomorrow from the ONS. * SO WHAT? * I think that if the MPC doesn’t raise interest rates at the next meeting no-one is ever going to believe Andrew Bailey again because he really led them up the garden path last time. If that is the case, he should most definitely get the sack because he has done a terrible job of flagging the interest rate move (and that is a big part of what he’s supposed to be doing). What’s the point of having an idiot in charge who can’t do his job and communicate properly with the market?!? Maybe I’m being unfair. Maybe he was taking one for the team and seeing whether he could get the effect of raising interest rates without actually doing it.

I would say that the business story that’s garnering the most column inches today is Shell to shift tax base to UK and ditch dual share structure (Financial Times, Tom Wilson and Mehreen Khan) which tells us that Royal Dutch Shell (the company’s full name) is planning to move its tax

residence from the Netherlands to the UK as part of simplifying the company’s structure, which has been in place since 2005. Shell’s move is a slap in the face for Dutch and the EU (Daily Telegraph, Ben Marlow) contends that this is a win for Brexiteers and a kick in the teeth for Remainers and that big business seems to be favouring the UK over Europe when push comes to shove. Morale boost for London but few jobs coming with it (The Times, Simon Duke) points out that this is going to have minimal impact on jobs apart from a few big cheeses coming over here, including the CEO and CFO and Royal Dutch Shell: simpler structure means quicker cash returns (Financial Times, Lex) highlights similar London-ward moves by Anglo-Dutch companies Unilever and Relx and that fact that this move by Shell will make it much easier to carry out share buybacks from a tax perspective and potentially weaken calls by share activist Third Point to break the company up. * SO WHAT? * I think it’d be fair to say that most investors generally like “simple”. These unwieldy structures have been around for a while now, but it seems that their time’s up! Amsterdam’s loss is London’s gain and, given that London’s stock exchange has been losing out recently, it could do with any wins it can get…

Meanwhile, UK peak power prices to rise to second highest level since 2018 (Financial Times, Nathalie Thomas) shows that Britain has had to increase reliance on gas-fired power stations yesterday because renewables just weren’t cutting it. As a result, gas-fired power stations have have to make up the shortfall from wind farms and this resulted in an increase of power prices to over £2,000 per megawatt hour between 5pm and 6pm last night, only the second time that they have ever breached this level in recent years. The main reason behind the shortfall in power has been low wind speeds. * SO WHAT? * Over the last ten years, gas has been the single biggest source of electricity generation in Britain, accounting for almost 40% of output. However, yesterday, gas-fired coal plants provided almost 55% of electricity. That compares with coal at 3% and wind at just over 4% (just to give you an idea of the scale of the shortfall, wind has generally produced 21% of the UK’s electricity). Energy companies including Denmark’s Orsted and our own SSE have reported some of the lowest wind speeds for the last twenty years this year. It looks like energy prices are going to be higher for longer!

Tesla delivers unfinished cars, Tyson Foods ups meat prices and Oatly has problems…

Supply chain problems continue to wreak havoc in Tesla blames supply problems for its cars with missing features (Daily Telegraph, James Titcomb) as the EV company is delivering cars without USB ports and phone charging stations because of supply shortages, telling owners that they will be retro-fitted when the parts become available. Tyson Foods raises meat prices as costs escalate (Wall Street Journal, Jacob Bunge and Matt Grossman) shows that the meat giant has raised prices for beef, chicken and pork, citing rising costs and the expectation that this is going to persist.

Meanwhile, Shares fall 20% after ‘quality issue’ warning and delivery delays (The Guardian, Sarah Butler) highlights travails at alt-milk maker Oatly, which is having production and distribution issues. Its share price tanked by almost 20% in trading yesterday as news emerged that it was “investigating a quality issue” which might force it to get rid of some products. Profit margins have also been hit by higher transport costs as well as investment in manufacturing in the US but there is also increasing competition from the likes of Alpro and Danone to contend with. * SO WHAT? * I don’t think the company will care that much about its share price cratering by almost 60% since flotation because it raised the money it wanted and it can just blame all the bad stuff on supply chain issues etc. Still, it needs to use this period to turn things around so that when supply chains improve they can get back on track again. It has a good reputation with customers, which it needs to maintain otherwise the competition will jump straight in.

Rents increase and WeWork benefits from the return to offices…

Rents increase at fastest rate since 2008 (Daily Telegraph, Rachel Mortimer) cites the latest findings from Zoopla, the property website, which show that rents rose at their sharpest rate for over ten years on increased tenant demand and a limited supply of homes. Average monthly rents outside the capital increased by 6% in the year to September but city centre rents also increased as people

returned to their normal workplaces. This will just put more pressure on household/consumer budgets!

Then in Losses down at WeWork as staff return to the office (The Times, Callum Jones) we see that the trend of returning to the office is helping to boost demand for office space, narrowing losses at WeWork. WeWork reported an 11% uplift in quarterly revenue in its first set of quarterly results since its recent SPAC-backed flotation on the New York Stock Exchange. * SO WHAT? * This sounds good, but it has a looooooong way to go! You never know, though – companies who didn’t renew leases whilst under lockdown may yet come crawling back and WeWork will be waiting with open arms! 

Private equity eyes GE, Airbus wins a freighter order and Bond saves Cineworld…

Private equity buyers plot to carve up General Electric (Financial Times, Antoine Gara) shows that General Electric’s decision to split itself up into three companies is getting private equity firms positively salivating at the prospect as they will be looking to carve them up even further to extract value and get a fat exit a few years down the line. The businesses will be split into healthcare, energy and aviation divisions and each one will have the freedom to do what it wants. It aims to complete this separation by 2024, when it will join the likes of United Technologies, DowDuPont, ABB and Siemens in getting rid of the conglomerate structure. * SO WHAT? * It really does seem that we are seeing the death of the conglomerate as IBM, Toshiba and now Johnson & Johnson are all at various stages of ditching the structure themselves. As I have said before, however, these things tend to go in waves. I have no doubt that, many years hence, the conglomerate structure will return in some form or other because it really isn’t ALL bad ALL of the time.

Following on from what I was saying yesterday regarding Airbus and passenger planes, Airbus wins first order for new freighter as air cargo booms (Wall Street Journal, Benjamin Katz) shows that the French aeroplane manufacturer now has some good news on its freighter business with an order for seven variants of its A350 model. * SO WHAT? * Air freight has boomed in popularity

as shipping has clogged up spectacularly while demand to move product around has not abated. Airlines have increasingly shifted to offering cargo services as a way to get through lockdown. Given that almost 75% of passenger-focused airlines reckon that their air cargo volumes will continue to increase over the next year, ordering new cargo planes doesn’t seem like such a bad idea!

Then in Revenues pass pre-Covid levels thanks to Bond, Dune and Venom (The Guardian, Mark Sweney) we see that Cineworld’s box office revenues have risen above pre-pandemic levels in the UK and Ireland due to a full slate of blockbuster after blockbuster drawing in the punters. Cineworld is the world’s #2 operator and owns the Cineworld and Picturehouse chains in the UK as well as Regal Theatres in the US – and it saw its share price rise on relief that life was coming back to the big screen. * SO WHAT? * It’ll be interesting to see whether the momentum will continue, but I think it’s got a decent chance of doing so given that it still has a big backlog of blockbusters to get through! Mind you, Cineworld: debt and disputes cloud a brighter picture (Financial Times, Lex) reiterates the point that the company still has a massive pile of debt to address before getting too excited. There is also the sticky problem of an ongoing court case with Canada’s Cineplex to get resolved where the latter is seeking a whopping $1.1bn in damages for Cineworld abandoning a planned acquisition. Cineworld needs to get a resolution on this before it can truly move forward because a massive damages award could be crippling.

…in other news…

I thought I’d leave you with one woman’s creative way of bidding her job good-bye in Woman praised for ‘sassy’ resignation note to boss after landing ‘better job’ (The Mirror, Paige Holland). I think this is quite amusing but would advise against such a method in the real world because bosses can be vindictive and relish every opportunity to make life harder for you either by forcing you to work your notice and/or by attempting to bad-mouth you to anyone within earshot. One of my favourite resignations in my career was telling the boss that I had good news and bad news for him. He had been going on about how there were so many recent hires that he was running out of desks, so I said “The good news is that I can help you with your seating plan,” but then added “the bad news is that I won’t be here to do it. I’m resigning!”. Ahhh that felt so good! He was very nice about it, but I am a firm believer in leaving if you resign – even if the employer gives you a counter-offer (which he did on this occasion). In my entire career, I have only ever once witnessed a counter-offer working out. Outside that, many leave within a year