Friday 08/03/19

  1. In MACRO AND OIL NEWS, the ECB does a U-turn while Exxon and Chevron make a big statement in shale
  2. In RETAIL NEWS, Kroger suffers, Greggs sales top £1bn but LK Bennett, Primark and Quiz have a ‘mare while John Lewis cuts its staff bonus and Mike Ashley continues his pursuit of Debenhams
  3. In INDIVIDUAL COMPANY NEWS, Airbnb buys Hotel Tonight
  4. In OTHER NEWS, I bring you the correct way to reheat a sausage roll and an interesting candle. For more details, read on…

1

MACRO AND OIL NEWS

So the ECB does a U-turn and Exxon and Chevron put their might into shale…

After quite some time pretending things are going OK in Europe, ECB unveils fresh bank stimulus amid rising eurozone gloom (Financial Times, Claire Jones and Michael Hunter) shows that the European Central Bank has decided to reverse its policy of the last two years of weaning the bloc off economic stimulus measures, and reintroduce them. It will, once again, offer cheap loans to eurozone banks and hold off any interest rate rises until next year as ECB policymakers slashed GDP forecasts from 1.7% (which they announced only three months ago) to 1.1% as well as their inflation forecasts (they will be below the 2% target until 2021). * SO WHAT? * It seems to me that the ECB has been burying its head in the sand and hoping that all of this will just go away. ECB President Mario Draghi was probably hoping to eek out his remaining time in office and then hand his successor the mother of all hospital passes, but things have just got so bad that he couldn’t put things off any longer. There are hopes that a tight labour market, rises in government spending and a recovery in Germany will drag things back from the brink, but the fact is that the ECB is in a very tricky position. It can’t cut interest rates and Germany is in a  right old state at the moment what with a leadership crisis, the looming prospect of Trump turning the tariff screws even more on its car industry and banks in a state of turmoil and scandal. And then there’s the unknown quantity of Brexit, of course.

Exxon and Chevron place long-term bet on Permian shale boom (Financial Times, Ed Crooks) heralds a major development for the US shale industry as two of the world’s biggest oil companies have decided to make up for lost time and ramp up production in the Permian Basin, an area stretching from west Texas to east New Mexico. Output in the region has doubled since the summer of 2016 and now accounts for a third of total US daily production, so Exxon and Chevron’s commitment to the region is going to keep the party going (and then some). Thus far, it’s been small and medium-sized exploration and production (E&P) companies, such as Pioneer Natural Resources and Concho Resources, that have been leading the development of shale production in the Permian basin. However, they’ve had trickier times over the past two years because investors’ initial excited frenzy has cooled somewhat and it has been increasingly difficult for shale operators to raise the cash needed to develop. * SO WHAT? * With Exxon and Chevron throwing their considerable resources wholeheartedly into the Permian Basin, financing operations shouldn’t be a problem. Also, Chevron happens to own a lot of assets in the region outright, which means that its breakeven costs are the lowest in the US and both companies’ respective size should help to develop large areas in a co-ordinated way to maximise production. This will have the effect of lowering oil prices and, if they can apply the lessons learned in this region to shale operations elsewhere this will result in even more downward pressure. OPEC will no doubt be monitoring this development very closely.

2

RETAILER NEWS

Kroger’s profits get dented, Greggs passes a sales milestone while LK Bennett, Primark and Quiz suffer, John Lewis’ staff bonuses get cut and Mike Ashley continues in his pursuit of Debenhams…

Kroger shares fall as online investments dent profit (Wall Street Journal, Heather Haddon) highlights the struggles of America’s biggest supermarket chain as its share price fell by 10% in trading yesterday following news that its revenues and profits were hit by its investment in online operations. * SO WHAT? * Kroger is investing heavily in improving its offering in an environment where Walmart and others, including Aldi and Lidl, are fighting over the same customers whilst simultaneously fending off the might of Amazon. Supermarket shares have had a bit of a sell-off recently following the announcement by Amazon that it was going to launch a chain of urban grocery stores which would offer a broader product range than what is currently on offer at its existing Whole Foods stores. I guess that Kroger is at a stage where it is investing for the future but the benefits are yet to filter through. Let’s hope for Kroger’s sake that it doesn’t have to wait too much longer and/or that Amazon continues to make massive inroads to its existing business.

Savoury tale of the great £1bn British bake off (Daily Telegraph, Jon Yeomans) is a really interesting article which takes a closer look at the company that just passed the impressive mark of £1bn in sales. Not bad for a company that opened its first bakery in 1949 and now has 2,000 outlets across the UK! Greggs has, over the years, rejigged its product lineup (including the famous vegan sausage roll, of course!) and invested in technology by expanding its click and collect service for breakfast orders and experimenting with home delivery via Uber and Deliveroo. * SO WHAT? * This is an impressive landmark, but it’s not all sunshine and rainbows. Greggs thinks that there is “greater risk of a slowdown” in the second half of this year as it has tough 2018 comparisons to beat and it

will also have to deal with supply chain disruption from Brexit as well as a potentially weak pound pushing up ingredients costs. Still, it remains a compelling retail proposition with a robust position in its market and a tenant that many retail landlords value highly.

Retail nightmares persist for others, however, in LK Bennett, latest victim of high street, falls into administration (Daily Telegraph, LaToya Harding) where 500 jobs are now at risk at its 41 shops unless it finds a buyer (Mike Ashley again, I wonder?!? We might have to stop calling it the High Street at this rate and rebadge it Ashley Avenue!), Questions raised as Quiz reveals falling sales (Daily Telegraph, Oliver Gill) highlights a massive profit warning that sent shares of the fast fashion retailer south to the tune of 52% and Primark tells 200 UK staff to move to Dublin or risk redundancy (The Guardian, Rob Davies) shows the impossible dilemma facing almost half of the staff at Primark’s UK office in Reading as the clothing retailer continues to adjust to the UK’s competitive environment and changing consumer behaviour.

If that wasn’t enough drama for you on a Friday morning, in the tricky world of department stores, John Lewis cuts staff bonus pot to lowest level in 65 years (Daily Telegraph, Vinjeru Mkandawire) signifies a tough period in the venerable retailer’s history as bonuses were cut for the sixth year in a row due to falling consumer demand, economic uncertainty and weaker sterling. It also announced that it would close five “unprofitable” Waitrose supermarkets in June that would involve the loss of 440 jobs. Then in Ashley starts Debenhams power grab (The Times, Tabby Kinder) we see that Mike Ashley is intensifying efforts to get on the board of the ailing department store, even offering to step down from running Sports Direct if he is successful! Debenhams’ responded to the surprise attack by saying “The board has been engaging with Sports Direct and our other stakeholders and is disappointed that Sports Direct has taken this action”. * SO WHAT? * Mike Ashley really isn’t going to let this one go and I guess that this rather drastic action has come about following news of imminent attempts of a refinancing that could severely dilute Ashley’s 29.7% stake in the company. Get popcorn and sit back – this could get very interesting! 

3

INDIVIDUAL COMPANY NEWS

Airbnb buys Hotel Tonight…

In Airbnb agrees to buy Hotel Tonight (Wall Street Journal, Maureen Farrell) we see that the home-sharing company has decided to buy the hotel booking site Hotel Tonight, which sells discounted hotel rooms for last minute

travellers, for an undisclosed sum. * SO WHAT? * Airbnb is trying to boost its inventory ahead of an expected IPO. Hotel Tonight was last valued at $463m in March 2017, its most recent funding round.

4

OTHER NEWS

And finally, in other news…

Given that I mentioned Greggs earlier, I thought it only right to make you aware of this: Man’s bizarre trick for re-heating a Greggs sausage roll – without making it soggy (The Mirror, Courtney Pochin https://tinyurl.com/yyzqfrj7). Classy. Alternatively, if you have more of a penchant for burgers, how about this: McDonald’s cheeseburger scented candle has fans’ mouths watering and lasts ages (The Mirror, Zahra Mulroy https://tinyurl.com/y3vsrejn). A suitable gift for Mothers’ Day, perhaps?!?