Friday 16/07/21

1. In TECH NEWS, TSMC sees an end to the chip shortage, Intel eyes GlobalFoundries, Darktrace ups forecasts and Avast causes a stir
2. In JOBS NEWS, UK vacancies are up, Hays lifts profit guidance and NHS App pinging causes staff headaches
3. In IPO AND M&A NEWS, Aurora goes SPAC-wards, Britishvolt considers a London float, Soho House’s IPO disappoints, Blackstone buys into US housing and Sydney Airport rebuffs advances
4. In MISCELLANEOUS NEWS, Revolut achieves a big valuation, Morgan Stanley follows the herd, US bank branches close, Asos sees a slowdown and another Bank of England bod gets nervy about inflation
5. AND FINALLY, I bring you a brilliant pub dog…

So TSMC gets more upbeat about semiconductor chip shortages, Intel eyes GlobalFoundries, Darktrace boosts its forecasts and Avast/Norton prompt excitement…

According to TSMC signals global chip crunch may be easing (Financial Times, Kathrin Hille), the cavalry is arriving in the form of more semiconductors! Taiwan Semiconductor Manufacturing Company (TSMC), the biggest contract chipmaker in the world (which has Apple as its biggest customer), said that it reckons the chip shortage has now passed its most painful point after over nine months. It said that carmakers will start to see a major uptick in chip supplies over the next few weeks as it increased its output of micro-controlling units (MCU, a key component of car electronics) by 30% in the first half of the year but it added that it would continue to invest in new fabrication plants, something that will reassure customers regarding longer term supply. Analysts have nudged up their automotive chip supply forecasts accordingly. TSMC: record quarter is just the beginning (Financial Times, Lex) reiterates the company’s intention to spend up to $30bn to increase capacity this year as part of plans to invest $100bn over the next three years and argues that although its share price implies a very full valuation (well, compared to US rival Intel), it looks highly likely that demand for chips will continue to increase. * SO WHAT? * This is brilliant news for customers who crave chips 😁 and it would suggest that past problems where oversupply occurred after capacity increases were made are not going to repeat themselves as the demand looks like it is going to be there for some time to come. Capacity increases are costly and take ages to implement, so the companies who make the chips understandably want to make sure they are going to benefit. Given ongoing demand for electronic gadgetry and EVs (which contain more chips than petrol-powered cars), chipmakers are clearly feeling confident about making the

requisite investment. Intel is in talks to buy GlobalFoundries for about $30billion (Wall Street Journal, Cara Lombardo and Dana Cimilluca) is another example of this renewed confidence as Intel expresses an interest in one of the largest specialist chip-production companies in the world.

Meanwhile, in the world of cyber security, Darktrace upgrades forecasts on strong demand for cyber security (Financial Times, Tim Bradshaw) shows that the UK cybersecurity company is getting increasingly confident as it detailed increased revenue growth forecasts for the full year in its first trading statement since it floated in April. Its share price has doubled since flotation and it got a nice little 5% bump up on the news. Darktrace uses AI to find intrusions on its clients’ networks and reckons that revenues will rise by 29-32% and sales by at least 40%.

Then in Avast set for bidding war after £5.8bn Norton offer (Daily Telegraph, Matthew Field) we see that the cyber security company’s share price shot up by almost 20% yesterday as investors speculated that a bidding war will break out after NortonLifeLock confirmed that it was in advanced talks with Prague-based Avast, that listed in London in 2018 (you and I know these companies better as Norton and AVG). There’s the possibility that regulators will be taking a very close look at this deal given that some estimate a combined market share of the new entity could be up to 47%. Although it’s in talks, it hasn’t yet made a firm offer but will have to do so by August 11th. * SO WHAT? * How hot is the cybersecurity market at the moment?? Very, by the looks of things! Mind you, with cyber attacks on the increase and data volumes increasing the number of hackable targets there is a lot to play for. It’ll be very interesting to see whether other buyers emerge but I expect demand to continue to grow as more companies seek reassurance of their system security. Avast/NortonLifeLock: cyber security deal needs to dig deeper (Financial Times, Lex) points out that both Norton and Avast are relative laggards but that the premium that Norton will pay should be higher given the growth potential and cross-selling opportunities.

Job vacancies are up, Hays gets more confident and the NHS App continues to cause problems…

In the world of UK employment, One million job vacancies as demand rises on reopening (Daily Telegraph, Russell Lynch) cites the latest Office for National Statistics data which shows that Britain had nigh on one million job vacancies last month. Staff shortages have been particularly acute in hospitality, care, manufacturing and agriculture etc. as Brexit (lack of European/casual workers) and furlough (“why work if you can get a big percentage of your wage sitting on your 🍑”) have kicked in. The shortfall of workers is being made worse by staff having to self-isolate as per NHS Covid app ‘pings’ 520,000 a week telling them to self-isolate (Financial Times, Tim Bradshaw, Daniel Thomas and George Parker). As things

stand currently, unemployment has fallen to 4.8% in the quarter to May but there are still over a million workers on furlough. The Bank of England reckons that this will go up to 5.4% when it comes to an end.

In other positive signs on employment, Hays lifts profit guidance but warns on wage inflation (Finacial Times, Leke Oso Alabi) shows that recruiter Hays upgraded its operating profit forecasts for the year to June thanks to “improved fees and good underlying cost management”. CEO Alistair Cox talked a good game, saying that the company saw a particularly strong recovery in Germany, Australia and the UK. * SO WHAT? * Given that Hays is the UK’s third biggest recruiter by revenue, it is seen as a bellwether of UK employment given that it recruits for pretty much everything. There are skill shortages across IT and cyber security as well as Java and Python programmers among other areas. Interestingly, Hays has increased staff numbers by 6% and plans on doing another 5% in Q1 in expectation of long term growth.

Aurora goes the SPAC route, Britishvolt considers a London IPO, Soho House’s IPO disappoints, Blackstone does another deal and Sydney Airport rebuffs an approach…

Self-driving start-up Aurora to back into Hoffman vehicle (Daily Telegraph, Io Dodds) shows that the Uber/Amazon/BMW/Hyundai-backed autonomous vehicle start-up plans to do an IPO later this year via a SPAC-merger valuing at $13bn. Aurora is building an AI system that can go into any vehicle with a view to launch its newest version in 2023. The SPAC in question is called Reinvent and it was launched by LinkedIn co-founder Reid Hoffman and Zynga founder Marc Pincus. * SO WHAT? * This is typical SPAC-fodder 😂! Massively loss-making (tick), promises huge growth (tick), something to do with the future of cars (tick). It’s got nightmare written all over it as far as I’m concerned! Mind you, it’s got Baillie Gifford investing but still, that’s not a guarantee against this being a massive money pit. I think that self-driving will become mainstream at roughly the same time as I see pigs flying past my window (so maybe in about 10-15 years time. Pigs are talented 😂).

Then in British firm Britishvolt eyes City float after rule changes (Daily Telegraph, James Cook) we see that the company that is building a £2.6bn gigafactory in Northumberland is eyeing a flotation on the London Stock Exchange following the rule changes about not having to have such a high free float and allowing dual class shares. In other words, they can hang on to more shares and do that thing where they have one class of shares for themselves (and possibly early investors) which have outsized voting rights and another class for everyone else. The dual class share structure allows them to control the company without them having to hold a majority of the shares. The company is currently considering a London flotation or a New York listing via a SPAC.

Elsewhere, Soho House shares slump on New York exchange debut (Daily Telegraph, Hannah Boland) shows that shares in private members club Soho House fell by almost 10% on its New York Stock Exchange debut despite having listed at the bottom end of its valuation range. Interestingly, there was a particularly high demand from its club members (about 20% subscribing for the maximum amount of 100 shares). * SO WHAT? * The company has a very loyal clientele – it only lost less than 10% of members during lockdown – but the fact remains that it is still loss-making. We’ll just have to see whether demand picks up, but I would actually be quite optimistic because the sort of people that this is aimed at are the ones who’ve saved the most under lockdown! I’ve been to a few of these clubs and you can understand why members are keen to support it.

Following news from earlier this week on its portfolio shifting, Blackstone doubles down on US housing with $5bn deal (Financial Times, Mark Vandevelde) highlights another big deal for the private equity giant as it has agreed to purchase a sizeable portfolio of rent-controlled appartments as part of a $7.3bn deal with AIG. Blackstone only last month bought Home Partners of America, a company that buys and rents single-family rental properties, for $6bn. It seems that the porfolio shuffle is continuing!

Sydney Airport rejects $17bn bid as investors target infrasructure (Financial Times, Jamie Smyth) shows the latest situation regarding Sydney Airport that recently received an unsolicited offer from a consortium of investors. * SO WHAT? * It’s quite interesting to see how investors are behaving as they seem to be lining up to take pot shots at Australian infrastructure assets in the belief that they can make money from investments while borrowing money at super-low interest rates. At least this latest move shows belief that the travel sector can recover!

Revolut gets a fat valuation, Morgan Stanley surfs the trend, US bank branches close, Asos sees a slowdown and another Bank of England person has a wobble…

In other big stories making the headlines today, Revolut valued at $33bn to become UK’s biggest-ever private tech group (Financial Times, Nicholas Megaw) highlights the digital banking start-up’s stellar valuation from its latest funding round that makes it worth more than NatWest! I’d say that much of today’s press comment centres on how overblown this is, but then again I guess they said the same about Tesla and all of the “traditional” car makers! It does sound somewhat toppy though.

Keeping on the subject of banks, Deal-making fires up Morgan Stanley (The Times) shows that this bank has done well, just like its rivals, on IPOs and M&A advisory and not so well on share trading and fixed income underwriting. Meanwhile, US banks close more than 250 branches in bet on digital future (Financial Times, Imani Moise) shows that US retail banks cut their networks as more customers go digital – a trend that is not just confined to America!

Then in Asos dives 18pc as holidays are grounded and sales slow (Daily Telegraph, Hannah Boland) we see that the online apparel retailer’s shares fell sharply yesterday as it said unseasonable weather and changing rules on travel restrictions was denting sales of new outfits. * SO WHAT? * Asos has benefited enormously under lockdown as customers shopped increasingly online but higher freight costs and Brexit red tape seem to have caught up with even this winner.

After we heard about the deputy governor of the Bank of England getting a bit iffy about inflation, Second MPC member hints BoE needs to tighten UK monetary policy (Financial Times, Chris Giles) shows that someone else is now getting spooked by rising inflation levels. Michael Saunders, who is an external member of the Bank of England’s Monetary Policy Committee (the group that decides what our interest rates will be) is getting increasingly minded to take action before the effects of an end to furlough start to come through from the end of September. The next MPC meeting is due on August 5th, so there’s still time to see other members have an inflation/interest rate wobble!

…in other news…

As you will know by now I am a big fan of dogs! Gotta love the one in Hilarious pub dog Begbie has his own bouncer’s badge and ‘serves’ punters at the bar (The Mirror, Bethan Shufflebotham). What a star!