Friday 21/06/19

  1. In MACRO & INVESTMENT NEWS, the Bank of England leaves interest rates unchanged and Neil Woodford gets ready for more redemptions
  2. In UK RETAIL NEWS, sales are hit by cold weather but Dunelm surprises on the upside while Dixons, Monsoon and N Brown continue to have issues
  3. In “OUT OF CHINA” NEWS, we see why America’s Apple and South Korea’s Lotte are moving out of China
  4. In INDIVIDUAL COMPANY NEWS, Slack opens with a bang, Waymo signs a deal with Renault and Nissan and McDonald’s experiments with new tech
  5. In OTHER NEWS, I bring you freaky picture…



So UK interest rates remain unchanged and Woodford prepares for more flak…

Bank freezes rates and cuts growth outlook (The Times, Gurpreet Narwan) highlights the Bank of England’s decision yesterday to keep interest rates unchanged as it cut its forecasts for second quarter growth due to Brexit uncertainty and the tricky global trading backdrop. All nine members of the Bank’s monetary policy committee (MPC) voted to keep rates at 0.75%. * SO WHAT? * Pretty much everyone expected this but there have been rumblings about an interest rate RISE given that unemployment keeps falling and wages keep rising. The Bank did say, however, that rates could rise once Brexit is out of the way to stop the economy from overheating. Let’s face it – no-one knows! Like everyone else, the Bank is adopting a wait-and-see approach.

Woodford fire sale raises £170m for payouts when fund reopens (Daily Telegraph, Harriet Russell) shows that the embattled fund manager Neil Woodford has managed to raise at least £169m in a fire sale of publicly listed shares. This will give him money to dole out when the inevitable redemptions come on the reopening of his currently suspended Equity Income Fund. He’s sold an estimated £10m of shares per day since he stopped investors from withdrawing money on June 3rd. It is thought that he cut his stake in Amigo Loans from 10% to 5.6%, sold off a third of his holding in Purplebricks and reduced his shareholdings of Redde, New River REIT, Countryside Properties and Crest Nicholson. On the upside, Car auctioneer in £2bn takeover talks (The Times, Patrick Hosking) says that Woodford may be in for a £136m windfall as one of his holdings, BCA Marketplace (the company behind, is deep in talks to sell itself to private equity buyer TDR Capital in a £1.9bn all cash deal. It is possible that rival bidders may emerge, giving Woodford an even bigger boost at such a difficult time. * SO WHAT? * Woodford will be facing a ton of redemptions when he reopens his fund so any “victory” like this could prove to be a timely boon in his time of need.



Retail sales were under the weather, but Dunelm surprised on the upside while DixonsCarphone, Monsoon Accessorize and N Brown face down tough times…

Cold weather hits UK retail sales in May (Financial Times, Valentina Romei) cites the latest figures from the Office for National Statistics which shows that unseasonably cold weather in May hit retail sales by 0.5% versus the previous month. Department stores suffered their eighth month in a row of weaker sales – the segment’s longest losing streak for ten years. Although the first quarter showed strong consumer spending, weaker data in April and May “reinforces belief that the economy is headed for a sharply weakened performance in the second quarter”, according to Howard Archer, chief economic adviser at EY ITEM Club. * SO WHAT? * The UK high street continues to suffer, but given falling unemployment and wages rising above inflation, you would have thought that consumers are going to start spending at some point in the not-too-distant future, no?

It’s nice to see a story like Rainy day trade gives Dunelm another boost (The Times, Ben Martin) because good news is pretty thin on the ground in UK retailing! Britain’s largest homeware and soft furnishings retailer actually benefited from the poor weather as consumers sought sanctuary from the cold and rain in its shops and actually spent some money whilst they were there. Dunelm came out with an unscheduled trading update yesterday which surprised the market on the upside because it lifted its annual profit expectations – and the shares got an 8.5% boost on the news. This is the company’s third profit upgrade since the start of this year and follows a management shake-up at the top of the company. * SO WHAT? * I think that this is an amazing performance for a company that should be suffering! Given that most retailers exposed to this area are feeling the pinch from a drop-off in real estate sales due to current economic uncertainty, it is almost unbelievable that it is doing so well. Still, hats-off to them!

Unfortunately, it’s back to retailer gloom in Weak phone sales hit profits at Dixons Carphone (The Guardian, Julia Kollewe) as the company’s share price tanked by 20% after

it announced a big fall in profits and “significant” losses in its mobile phone business. This is the company’s second profit warning in a year and it rubbed salt in the wound by almost halving its dividend. The group, which owns Currys, PC World and Carphone Warehouse, continues to suffer from consumers delaying phone upgrades – in some cases punters are hanging on to their phones for three to four years. * SO WHAT? * I would have thought that the changeover to 5G (and maybe new tech like bendy phones – as long as they work properly ????) will be a major boon as people scramble to upgrade for new functionality but, let’s face it, that’s not going to happen for a while yet. In the meantime, I think it’s time for them to hunker down. OK, it’s faffing around with “gaming battleground” formats at 18 stores – to be rolled out to 80 locations by the end of the financial year – where customers can play video games, but that’s all jam tomorrow stuff. As far as I’m concerned, it’s all about handset sales – and they will continue to be rubbish until 5G starts to get more popular.

Monsoon offers landlords rent cut deal (The Times, Simon Duke) highlights Monsoon Accessorize as the latest retailer to try its hand at getting rent cuts from its landlords via company voluntary arrangements (CVAs) in order to survive. It has hired Deloitte to oversee its CVA which would be part of a massive overhaul of the company and is seeking rent reductions for 135 of its 258 high street stores. Monsoon Accessorize has shut down almost 40 stores in the last two years and had a bit of relocation and downsizing thrown in as well. It says that current trading conditions are the worst it has experienced in its 46 years of existence. * SO WHAT? * Here we go again! Retailers keep pushing and pushing – but at some point, landlords are not going to cave. It seems to me that we are nearing that breaking point…

Difficulties in apparel retailing continue in N Brown aims to simply be online as its sales slide (The Times, Tabby Kinder) which shows that the company suffered from poor performance in its catalogue and mail order business, although its digital revenues were up by 3%. The company behind Jacamo, Simply Be and JD Williams kept its guidance on annual sales and profits and continues its efforts to be a destination online retailer. * SO WHAT? * I think that this company has a decent chance of carving out a proper niche given that it has an identifiable target customer (plus-size and mature customers) with less options than in other areas of apparel retailing. If it can get its offering sorted, I think it could be good.



America’s Apple and South Korea’s Lotte look at leaving China…

Apple explores moving some production out of China (Wall Street Journal, Yoko Kubota and Tripp Mickle) has a whiff of inevitability about it as Apple has asked suppliers to look at moving final assembly of up to a third of products out of China and into other parts of southeast Asia. Most of Apple’s products are currently assembled in China by Foxconn (formally known as Hon Hai Precision Industry Co.), Pegatron and Wistron. * SO WHAT? * Given the current US-China trade war and the likelihood of Apple getting used as a negotiation football in any trade relations between the two superpowers, it would be foolish of Apple NOT to look into diversifying its manufacturing/assembly base. It won’t be easy to do overnight due to the need for skilled labour, but given that overheads relating to dealing with China (especially in terms of wages and tariffs) are on an uptrend, now would seem to be as good a time as any to move at least some of its operations.

Lotte’s China woes a harbinger of South Korean exodus (Financial Times, Edward White, Song Jung-a and Kang Buseong) takes a look at the growing trend of South Korean businesses deciding to leave China behind for other countries in the region. Attracted initially by the promise of a massive market, companies such as Lotte are losing patience and leaving as rising labour costs, price competition, tightening Chinese regulation and the improving capabilities of local rivals make it a much less appetising place to do business. Samsung Electronics announced production cuts at its last remaining smartphone factory in China, Kia announced last week that it would rent out one of its three Chinese facilities and Hyundai is thinking about cutbacks. Major manufacturing groups are trying to keep some China presence but are looking to countries like Vietnam and Indonesia for better growth prospects. * SO WHAT? * It’s not just South Korean companies who are leaving China – lots of others are looking at whether the effort they have to put in to do business there is really worth it. It certainly doesn’t seem to be the promised land it was once cracked up to be for foreign firms.



Slack has a strong debut, Waymo signs a deal with Renault and Nissan and McDonald’s looks at some McTech…

In a quick scoot around other news, Slack soars on debut as US markets hit a record intraday high (Daily Telegraph, James Titcomb) shows a share price jump of 60% on the office messaging app’s market debut, riding high on markets that were buoyed by the Fed signalling potential

future interest rate cuts. Slack has never made a profit. * SO WHAT? * A great debut – but its future will depend on whether it really lives up to its billing as an “e-mail killer”. Start-ups seem to love it, but the majority of business is still stuck on e-mail. The market is definitely there, but the company’s future will depend on execution.

Elsewhere, Waymo deal adds salve to fractured Renault-Nissan alliance (Financial Times, Peter Campbell) highlights an exclusive deal between the three to develop self-driving transport services in Paris and Japan while McDonald’s tests robot fryers and voice-activated drive throughs (Wall Street Journal, Heather Haddon) looks to a future with new McTech potentially playing a role in cutting costs for the company.



And finally, in other news…

I thought I’d leave you today with the freaky picture in This picture tells you how stressed you are. What do you see? (India Today, According to this picture, I am stressed (but not too badly!).

Some of today’s market, commodity & currency moves (as at hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!

FTSE 100 *Dow Jones *S&P 500 *Nasdaq**DAX *CAC-40 *Nikkei **Shanghai **
7,424 (+0.28%)26,753 (+0.94%)2,954 (+0.95%)8,05112,355 (+0.38%)5,536 (+0.31%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

(markets with an * are at yesterday’s close, ** are at today’s close)