Friday 01/04/22

1. In MACRO, ENERGY & COMMODITIES NEWS, Putin gets feisty about gas payments, the US releases oil reserves, Cuadrilla gets the go-ahead, Australia makes a lithium breakthrough and Macron loses his edge
2. In CONSUMER & RETAIL TRENDS, more UK firms aim to raise prices while house, energy and grocery prices all increase, job ads fade but Ryanair talks a good game as H&M sees momentum slow and Boots’ sales do well
3. In M&A NEWS, Toshiba gets a Bain boost, RBC buys Brewin Dolphin and Yandex wants to offload its UK business
4. In MISCELLANOUS NEWS, Shanghai extends lockdown, Trainline gets a lifeline and P&O wins
5. AND FINALLY, I bring you some April Fools’ prank ideas…

So Putin tightens the screws, the US gets all dramatic, Cuadrilla gets a boost, Australia makes a lithium breakthrough and Macron loses momentum…

Putin threatens immediate end to West’s gas supply (Daily Telegraph, Oliver Gill and Rachel Millard) highlights Putin’s latest threats to stop gas supply to the West today unless customers “open Rouble accounts in Russian banks”. This could be a serious problem for many European countries as Germany, for instance, gets 60% of its gas supplies from Russia. Some, however, are saying that this is a compromise by Putin because amounts could still be paid in dollars or euros but then converted by Gazprombank or whoever into roubles – which would mean that both sides could sort of say they didn’t back down. West must wage total economic war against Putin (Daily Telegraph, Ben Marlow) suggests that sanctions should not be lifted in return for peace, that the impact of existing ones are fading and that more stringent ones need to be put in place to put further pressure on Putin. The economy hasn’t died, thanks to the highly-regarded central bank governor Elvira Nabiullina, its stock market is making a recovery of sorts thanks to various restrictive measures being put in place and Russia’s banks have stabilised. Even the rouble has rallied to close to pre-war levels due to a ban on residents transferring money out of Russia and the doubling of interest rates. OK, so this isn’t a real recovery (as soon as those stabilising rules are lifted, there will be carnage I am sure) but the argument put forward here is that nothing short of a full energy embargo will do. A full shut-out of SWIFT could also be imposed as, so far, only seven banks have been cut off from using it and other suggestions include a full trading embargo, punishment for firms still doing business in Russia and a full commodities ban. Ukraine war and sanctions to shrink Russian economy by 10% (Financial Times, Ben Hall and Emiko Terazono) cites the European Bank for Reconstruction and Development as saying that Russia’s economy will contract by 10% this year, putting Russia into its deepest recession since the early 1990s and its GDP is set for very low growth over the long term.

In a bid to at least sound like they are being proactive, US orders record oil release from strategic reserves (Financial Times, Derek Brower and James Politi) shows that the White House announced a “historic release” of 180m barrels of oil from its emergency stockpile to calm oil prices, adding that it would impose fines on domestic oil companies that do not increase drilling. This is the biggest

ever release and will last for six months taking stocks down to levels not seen since 1984. * SO WHAT? * I think that this is just p!ssing in the wind and a bid for Biden to sound like he’s doing something. The release of strategic reserves hasn’t been particularly successful in the past – what REALLY works is OPEC getting on board, but they had a meeting yesterday and decided to resist pressure from Western politicians to open the taps and stick to their pre-existing schedule. The oil price has indeed come down since this was announced but I don’t think it has been that dramatic.

In the midst of all this, Cuadrilla allowed to delay closure of Lancashire wells (The Guardian, Rob Davies and Helena Horton) shows that the North Sea Transition Authority (NSTA) decided to withdraw a demand that the fracking firm Cuadrilla plug and abandon two wells in Lancashire, prompting speculation of the possible return of the divisive practice. Cuadrilla now has another year to come up with proposals that mitigate objections and concerns. Desperate times clearly require desperate measures.

Then in Australian refinery close to producing country’s first lithium hydroxide for batteries (Financial Times, James Fernyhough) we see that a Chinese-Australian JV (between Aussie miner IGO and China’s Tianqi) is on the verge of producing Australia’s first battery-ready lithium hydroxide. Interestingly, Australia is the world’s biggest exporter of lithium but until now it has never refined the product domestically. China is way ahead as the world’s biggest refiner of lithium, controlling about 80% of the global market. This is going to be the first of three planned lithium hydroxide refineries, the others being JVs between Australia’s Wesfarmers and Chile’s SQM and America’s Albermarle and Australia’s Mineral Resources. * SO WHAT? * This sounds like an extremely important development not just for Australia but for the West as well because it will loosen the stranglehold that China currently has on lithium. Just think if we had a similar situation with China that we now have with Russia vis-à-vis Ukraine with lithium as opposed to oil! 

Over in Europe, Emmanuel Macron stuggles to rediscover winning campaign spirit (Financial Times, Victor Mallet) shows that things have changed considerably since he made his dramatic entrance to the French presidency five years ago. The presidential election is due next month and some are worried that he’s doing too much internationally and not enough domestically to win well. There are now worries that Marine Le Pen could sneak it if he is caught napping (a bit like David Cameron on the Brexit vote perhaps??). For now, it looks like he will win, but it’s not a certainty.

Prices keep rising, jobs ads slow, Ryanair talks a good game, H&M loses momentum and Boots reports brisk sales…

I’m sorry to keep saying this every day, but household budgets are going to continue to get squeezed. More UK firms expect to raise prices than at any time since 1980s (The Guardian, Phillip Inman) cites the latest findings from the British Chambers of Commerce quarterly survey which show that almost two-thirds of firms expect to raise prices over the next three months, UK energy bills soar as benefits fall and inflation curbs consumer spending (Financial Times, Valentina Romei) shows that over 20m UK households are going to be faced with a 54% increase in energy bills from today while Universal Credit and the state pension are going to rise – but at half the rate of inflation – and Shoppers face steep increases for cucumbers, bread and eggs (Daily Telegraph, Hannah Boland) highlights the plight of farmers and bakers as they grapple with the impact of higher fertiliser costs and electricity costs respectively. Food is also going to be more expensive at hospitality venues as well because the Treasury is letting VAT return to pre-Covid level of 20% (up from 12.5% for restaurants and pubs) from today. Slowdown in new job advertisements (The Times, Arthi Nachiappan) cites the latest data from the Recruitment and Employment Confederation (REC) which shows that although there are still a lot of jobs around, the number of new ones is increasing at a slower rate. Talking of slowing momentum, House prices may have peaked as growth hits high (Daily Telegraph, Melissa Lawford) says that

some analysts are saying that we have now reached the top of the market as house price growth over March hit its highest level for 18 years with average sale prices rising by 14.3% year-on-year. It is incredible to think that prices have climbed by 21% in the two years of the pandemic. Despite all of this, Ryanair expecting a hot summer for air travel amid pent-up demand (Daily Telegraph) shows that the ever-ebullient Ryanair CEO Michael O’Leary is still talking a good game regarding the prospects for air travel this summer, although he did say that high oil prices could start taking an effect towards the end of the year.

In retailer news, H&M sales growth slows as Ukraine war hits consumer sentiment (Financial Times, Richard Milne) shows that sales growth at the world’s second biggest clothing retailer is losing steam. The company has stopped sales in Russia, Belarus and Ukraine, shutting 185 stores from its 4,700 outlets globally. Russia was its fifth biggest market before the war (about 4% of sales) but Belarus and Ukraine were much smaller.

Boots sales bring added temptation for suitors (The Times, Callum Jones) shows that total sales actually grew by a respectable 15.2% over the latest quarter despite “trading headwinds”. Current owner Walgreens Boots Alliance is trying to offload the UK high street pharmacy and potential suitors include Asda, Apollo Global Management (a US private equity firm) and Sycamore (another US private equity firm). * SO WHAT? * I don’t think that Boots is an easy retailer to turn around as it is mature, has a big footprint on the UK high street and has presence in stations and airports – which used to be a good thing pre-Covid! I think that the brand will be worth something, but making it really sing is going to take a long time IMO, whoever ends up buying it.

Toshiba rises, RBC buys Brewin and Yandex looks for buyers of its UK business…

Toshiba shares rise after biggest shareholder backs Bain buyout plan (Financial Times, Leo Lewis and Eri Sugiura) shows that shares in Toshiba got a nice little 5% bump in trading today as US private equity firm Bain Capital got closer to making a deal to take the company private by getting support from the company’s biggest shareholder. A formal offer is expected “relatively soon”. * SO WHAT? * If this went ahead it would be Japan’s biggest ever buyout and major move by private equity into the Japanese market. Good luck with whoever buys the company – it is massive and sprawling and will take a lot of unpicking to release value IMO. Will they be patient enough to do it I wonder? Or will they just separate bits out and sell things off?

Then in Royal Bank of Canada to buy Brewin Dolphin for £1.6bn (Financial Times, Joshua Oliver) we see that one of Canada’s biggest banks has put in an offer for

one of the UK’s biggest wealth managers. The resulting group would manage about £64bn that would make it the UK and Ireland’s third biggest manager. This comes less than a year after US financial group Raymond James bought UK wealth manager and broker Charles Stanley for £279m. It seems that the UK market for wealth management and financial advice is quite attractive to outsiders as a decent proportion of the population is heading towards retirement without the very generous provisions of the final salary schemes of yesteryear to finance their forays onto the golf course. Brewin Dolphin: rich offer for wealth manager should be welcomed (Financial Times, Lex) says that the offer is an attractively fat cash one and that the enlarged group will be able to benefit from decent cost savings.

Meanwhile, Russian internet giant prepares to sell UK ultra-fast grocery service (Daily Telegraph, James Titcomb) shows that “Russia’s Google” is looking to sell out of its fast-growing British grocery deliver business as concerns increase about the internet company’s links to the Kremlin. Its Yango Deli business launched in London in October last year and enables users to order groceries and hot food within 15 minutes. It currently has 1.4m users and four London warehouses and represented Yandex’s first foray into the UK.

Shanghai extends shutdown, Trainline gets a lifeline and P&O wins..

In a quick scoot around other interesting stories today, Shanghai extends Covid lockdown measures despite economic concerns (Financial Times, Thomas Hale, Tom Mitchell and Sun Yu) shows that Shanghai’s misery will continue for another 14 days where residents will be confined to their homes. * SO WHAT? * An extension of lockdowns will prolong the economic agony as this covers China’s financial centre although there are rumours that the state is preparing efforts to support economic growth.

Back in the UK, Trainline to ride out ticket storm (The Times, Tom Howard) shows that Trainline will be able to keep a bigger part of ticket sales than it had anticipated

following a review by the government and rail industry. * SO WHAT? * Currently, it earns 5% commission on every ticket that it sells via its app and website, but when the Rail Delivery Group – along with the government – started to look into commission rates in November, Trainline’s share price took a right pasting. In a worst case scenario, its commission rate will be cut to 4.75% from April 2025, which was better than the 4.5% it had been expecting. The government will, however, be building a rival state-run ticketing app, but let’s face it the public sector isn’t known for its brilliance in app development 🤣! NHS, anyone?!?

Then in P&O Ferries ‘has got away with it’, says unions as Shapps backtracks on action (The Guardian, Gwyn Topham) we see that unions are now saying that P&O’s bluster managed to win the day as the government backed down on legal action and only one employee out of the 786 fired accepted the firm’s controversial payoff. I suspect that the race will be on in the background to stop something similar happening elsewhere…

…in other news…

It’s that day again! Here are some ideas for if you want to cause spontaneous outbursts of “hilarity”: 9 best April Fool’s Day pranks and jokes for April 1 (The Mirror, Harry Thompson). Clearly, you will need to make sure that your potential victims aren’t fellow readers of Watson’s Daily or, indeed, The Mirror otherwise you may get outmanoeuvred!