Friday 13/05/22

1. In OIL, GAS & CRYPTO NEWS, BP still faces windfall tax calls, Shell sells Russian petrol stations, European gas prices rise and there’s panic in the crypto market
2. In MANUFACTURING-RELATED NEWS, Foxconn beats rivals, Rolls-Royce is hopeful, Jaguar has chip issues and Rivian has a recall
3. In M&A NEWS, Vodafone and Three are in talks, BT and Warner talk sport and Warner Music competes with BMG to buy a back catalogue
4. In MISCELLANEOUS NEWS, Twitter sheds top execs, SoftBank has a massive loss and pressure increases for a mini-budget
5. AND FINALLY, I bring you some classic sport ads…

So BP tries to stave off continued windfall tax pressure, Shell sells Russian garages, gas prices rocket and crypto dives…

In the world of Big Oil, BP’s investment pledge fails to quell calls for UK windfall tax (Financial Times, Tom Wilson, Jim Pickard and Nathalie Thomas) shows that its pledges to make major investments in renewables are currently falling on deaf ears and they continue to face the threat of having a windfall tax imposed on them by Rishi Sunak. He said yesterday that he wanted to see more investment commitments from them “soon…[otherwise] no options are off the table”. As things stand, BoJo is not a fan of windfall taxes but has refused to rule them out on four occasions. Offshore Energies UK, which is the North sea trade body, is due to detail spending commitments from oil and gas producers next week. BP, Shell. Harbour Energy and Serica Energy are among the companies who are going to have to detail their plans.

In other oil news, Shell offloads Russian petrol stations (The Times, Emily Gosden) shows that Shell has managed to reach a deal to sell off its Russian petrol station and lubricants business (called Shell Neft) to Russia’s second biggest oil producer, Lukoil, for an undisclosed sum (presumably a fire sale price, given the current circumstances!). The portfolio is made up of 411 service stations, largely in central and northwestern Russia and a lubricants blending plant. The sale is expected to complete later this year, subject to Russian regulatory approval. Shell’s exit from its Russian interests continue…

Meanwhile, Gas prices soar as Gazprom turns off taps (The Times, Russell Hotten) shows that gas prices shot up yesterday as gas supplies to Germany were cut off while Gazprom imposed sanctions on some European firms. Gas prices rose between 14% and 20% in response. Separately, there are rumours that Russia might halt gas supplies to Finland (no doubt because of its application to be part of NATO). * SO WHAT? * There is going to be a lot of pain to come as Europe scrambles to wean itself off Russia’s gas – unsurprising when you consider that Russia supplied around 40% of its gas last year.

Talking of pain, Crash of ‘safe’ stablecoins triggers meltdown in cryptomarkets (Daily Telegraph, James Titcomb) shows that crypto investors are withdrawing their money at an increasingly rapid rate as well-known “stablecoins” like Tether and Terra, which have their values tied to real-world currencies like the dollar, have absolutely cratered. * SO WHAT? * Stablecoins are supposed to be more reliable than other cryptocurrencies because they align themselves to established ones, but Bitcoin has also taken flak in terms of collateral damage. Things got so bad that Binance, which is the world’s biggest cryptocurrency exchange, suspended withdrawals of a number of currencies. The FCA were keen to point out that there are no legal protections for investors buying any cryptoassets – including NFTs – so they said, somewhat bluntly, that “…if you buy crypto-assets you should be prepared to lose all the money you invest”.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Foxconn shines, Rolls-Royce looks back, Jaguar suffers and Rivian has a recall…

Foxconn outshines rivals hit hard by China’s Covid-19 lockdowns (Financial Times, Kathrin Hille) shows that the company famed for being one of Apple’s biggest suppliers posted its best Q1 income for eight years. In addition to upgrading its forecasts for the current quarter, the world’s biggest contract electronics manufacturer appears to be gaining market share from rivals that are suffering badly from China’s strict lockdowns. This gain in market share has been thanks to brisk demand for tablets, laptops, desktops and servers. Interestingly, although most of the company’s production is in China, it has a number of factories scattered around the country, which means that the shutdowns have a limited impact. Apple’s #2 assembler Pegatron, on the other hand, has its manufacturing capacity concentrated around Shanghai so has been badly affected by lockdowns. On a separate note, Foxconn has agreed to buy an Ohio-based factory from EV start-up Lordstown Motors as part of a $260m deal announced yesterday. The two will work together to develop new EVs. This is a pretty exciting development IMO as Foxconn is making proper moves to diversify away from being a consumer electronics assembler.

Meanwhile, Rolls-Royce upbeat amid global return to flying (The Times, Robert Lea) shows that Warren East, Rolls-Royce’s CEO who is about to leave the company after a tumultuous few years where he oversaw the axing of 10,000 jobs, has put a positive spin on how the company has positioned itself for now and for the future in a Q1 trading statement yesterday. As it is gets a lot of its ongoing income based on the number of hours its engines power planes – and that is rising because of more people flying – things are looking up for the moment, but this did not stop investors selling the stock as part of the wider market sell-off. * SO WHAT? * I would be relatively positive on the company’s prospects as aviation continues to see

more passenger traffic, but then there is the longer-term prospect of its Small Modular Reactors gaining traction as countries around the world try to become more self-sufficient in energy.

In the world of automotive manufacturing, Chip shortage sends Jaguar into the red (The Times, Robert Lea) provides yet another example of the effect of the ongoing chip shortage as Jaguar Land Rover (JLR) announced losses of £455m just one year after reporting profits of £662m. Its full year results were a muted affair, which is all the more concerning given the success of pretty much all of its rivals. * SO WHAT? * All automotive manufacturers have suffered from chip shortages, but while larger manufacturers can lessen the impact by diverting chips to their more profitable expensive cars, JLR is a much smaller operation overall and has therefore suffered from its inability to do the same thing. It is not bullish on its near-term prospects due to the effects of ongoing lockdowns in an inflationary environment.

Fresh from news that Ford had sold down some of its stake in the EV maker, Rivian recalling 502 electric trucks over potentially faulty air-bag sensors (Wall Street Journal, Ryan Felton) shows that it doesn’t just rain but it pours! Intriguingly, there was a filing dated Tuesday with the National Highway Traffic Safety Safety Administration where Rivian detailed its discovery of a front passenger air bag issue. It affects trucks built between late September 2021 and early April 2022 at its Illinois factory. It then said that it didn’t expect the recall to have a material impact on the company. * SO WHAT? * Maybe I’m being too cynical here but the timing of Ford’s sale and Rivian’s revelation look pretty fishy here – did Ford know before this? Is that why it sold? Other than that, though, a recall so soon after launch isn’t going to help Rivian’s reputation – and I wonder whether punters will increasingly turn to “proper” established car makers for their EVs making it even more difficult for start-ups to make their mark/marque (see what I did there) in future.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

M&A activity continues…

Vodafone and Three in merger talks (The Times, Alex Ralph) shows that merger talks between the two are back on as the European telecoms landscape continues to consolidate. A merger of the UK’s #3 and #4 mobile networks has been mooted for a while now but talks have never ultimately led to anything. In the past there have been competition concerns but the UK regulator Ofcom seems to have eased its position on this recently. Vodafone/Three: consolidation is needed to dial up improvements (Financial Times, Lex) points out that Three (owned by Hong Kong’s CK Hutchison) is struggling in the UK and Vodafone is under growing pressure to improve returns, so if they could get together there would be a lot of potential for cost savings as they could merge operations and save on marketing and some network costs. Getting a deal past the Competition and Markets Authority is not a given, but it does look like benefits are there to be had.

Elsewhere, BT and Warner Bros Discovery join forces to create pay-TV sport business (The Guardian, Mark Sweney) shows that BT is going to create a 50:50 joint venture pay-TV sport business that will bring together sporting rights for the Premier League, Champions League

and the Olympics. The BT and Eurosport brands (Eurosport is owned by Discovery) will operate separately initially and then come together at a later stage. * SO WHAT? * This sounds like a good deal strategically and may well help to spread the load in terms of costs. That has GOT to be a good idea!

Then in Warner Music and BMG battle it out for Pink Floyd’s back catalogue (Financial Times, Anna Nicolaou) we see that the battle for back-catalogues continues, with Pink Floyd being the latest target of investor interest. Warner Music and KKR-backed BMG in a race to buy the group’s entire back catalogue! It is thought that it could attract even more than Bruce Springsteen’s which was sold to Sony music for about $550m last year! * SO WHAT? * Private equity and big institutional investors have been going mad for buying up back catalogues – Blackstone, KKR and Apollo spent more than $3bn buying up rights last year. Normally, songs have two copyrights – one for songwriting and the other for recording (aka master copy). In Pink Floyd’s case, it is offering both, making it that much more valuable. It’ll be interesting to see what price this reaches given the very different economic backdrop versus Springsteen’s stellar sale last year.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Twitter has a reshuffle, SoftBank suffers and pressure increases for a mini-budget…

In a quick scoot around other interesting stories today, Twitter freezes hiring as two senior executives leave the company (Wall Street Journal, Salvador Rodriguez and Deepa Seetharaman) shows that Twitter is suspending hiring and aiming to cut costs ahead of an expected takeover by Elon Musk. It is not alone among tech companies shedding staff recently as Robinhood announced a culling of 9% of its full-time workers and Carvana is planning to cut 12% of its staff while even Meta Platforms has this month slowed hiring down dramatically. I guess that, until the deal completes, Twitter is going to be in limbo and will use this period of uncertainty to make tricky decisions like this.

Then in SoftBank suffers historic loss with $27bn blow to vision fund (Financial Times, Antoni Slodkowski) we see that the Japanese conglomerate is slowing down its investments after its Vision Fund posted a hefty $27bn loss for the full year, plunging the whole company into its biggest ever quarterly net loss. The share price fell to its

lowest level for almost two months ahead of the announcement. Its biggest losses were Didi Chuxing (halved) and South Korean e-commerce platform Coupang (which has lost 40%). * SO WHAT? * Big investors in Big Tech have been losing out big time of late as other investors fret about the world economy and switch out of growth (including tech) into safer, more “defensive” sectors (e.g. consumer staples, pharmaceuticals etc.). I am sure they can come back at some stage, but it has to survive the tricky times like this. Given that SoftBank still has a 25% stake in Alibaba – and that Alibaba has been the subject of extreme scrutiny by a government hell-bent on curbing Alibaba’s power – there’s not an awful lot that SoftBank can do right now apart from put on its tin hat, batten down the hatches and weather the storm.

Then in Pressure grows for summer mini-budget amid recession fears (The Guardian, Larry Elliott) we see that pressure is building on the government to do something sooner rather than later to address the cost-of-living crisis in a contracting economy. The Labour Party, the TUC and BCC are all pressing for urgent action as the latest ONS figures showed that the UK economy contracted by 0.1% in March. Tough times ahead…

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

…in other news…

I just couldn’t get yesterday’s football-related song (“Eat My Goal”) out of my head! It just got me to thinking about some classic ads of yesteryear that have some absolute legends involved. Here’s the “original” Brazilian Ronaldo with his teammates at an airport and then there’s the fantastic cage football ad – bizarre but brilliant! Figo, Ronaldo, Carlos, Henry and, of course, Cantona. But finally, given that these two ads were Nike, for balance I thought I’d finish with an Adidas ad where David Beckham and Jonny Wilkinson are teaching each other how to kick over the posts and under them! The quality’s a bit grainy, but it’s amazing to see these guys in their prime!