Friday 28/09/18

  1. In UK CONSUMER NEWS, confidence falls and UK housebuilding sees sales dip
  2. In RETAIL-RELATED NEWS, Tui defies its rivals, H&M sees higher sales, Halfords has a profits warning and we see that an Asda-Sainsbury’s combo will have to lose a lot of stores
  3. In INDIVIDUAL COMPANY NEWS, Musk gets sued by the SEC



So UK consumer confidence and housebuilding take a tumble…

Consumer confidence falls amid uncertainty (The Times, Tom Knowles) cites the latest findings of the GFK survey which shows that consumer confidence fell this month on increasing uncertainty over Brexit impact. As Joe Staton, strategy director at GFK put it, “There are fewer than 200 days until Brexit arrangements in some shape or fashion take effect. The clock is ticking down and in September the consumer mood dropped a couple of notches”. * SO WHAT? * Although households remain confident about personal finances, they are far more bearish on the overall economy – which could lead to a slowdown in consumer spending further down the road. 

Interestingly, this contrasts with the findings of a monthly survey of 1,200 businesses carried out by Lloyds Bank which showed an uptick in confidence in September. Having said that, it is important to note that the business survey was carried out before Brussels rejected Theresa May’s Chequers plan.

Housebuilding slows as sales dip (The Times, Tim Wallace) shows that the number of new houses being built slowed down in the three months to June as sales went off the boil. * SO WHAT? * If this trend continues, it will make the government’s target of building 300,000 homes per year even more impossible to hit. Sales volumes have slowed down because of high valuations, bigger tax burdens on landlords and tighter lending conditions on mortgages. FWIW, I would have thought that sales will continue to slow as consumers wait to see what Brexit will bring.



In retail-related news, Tui enjoys the sunshine, H&M has solid sales, Halfords has a profits warning and the Sainsbury’s/Asda combo is likely involve shedding a load of stores…

Tui’s strong earnings leave rivals in shade (The Times, Dominic Walsh) showed the contrast between its own performance and Thomas Cook’s as it reassured investors yesterday in a trading update that it was on course to deliver a fourth consecutive quarter of double-digit earnings growth. Unlike Thomas Cook, Tui owns its own hotels, resorts and cruise ships which mean that its business is less susceptible to seasonality. * SO WHAT? * I said that Thomas Cook’s weakness was probably due to consumers reining in their spending on big ticket items like holidays as well as ongoing sterling weakness, but clearly this hasn’t been the case with Tui. It seems that not owning your own assets means that you are more susceptible to discounting by rivals, hence Thomas Cook’s problems. Tui is also less exposed to late-bookings and more exposed to the higher growth and higher margin cruise ship business.

Online shopping shift helps drive H&M sales (Financial Times, Camilla Hodgson) highlights the success of efforts by the world’s second biggest clothing retailer to surf the online wave which are now bearing fruit as instore footfall has continued its decline. The company also said that the shift to online shopping meant that there were more opportunities to negotiate better lease terms for new and existing stores. * SO WHAT? * H&M had lagged some of its rivals in optimising the balance between its online and offline offerings but it seems to be catching up. It still 

has inventory issues (i.e. they are still high), but the situation is improving and the company said that it would not be increasing discounts in the fourth quarter. This really shows how important it is to get the balance right between online and offline and that it is possible to succeed in difficult times.

Halfords warns on profits as it hikes in-store services spending (Daily Telegraph, Ben Woods) heralds more bad news for bike retailers as the company cut its profits forecast at the same time as announcing an increase in investment to become a services “super specialist”. The shares fell by 7.6% on the news. * SO WHAT? * This isn’t great timing as the company also emerged earlier on this week as a potential buyer of Evans, itself a struggling bike retailer. It’ll be interesting to see how that one pans out as I would have thought there could be some gains to be had from a shake-up of a combined store portfolio, but I’m not sure where the next catalyst is going to come from in terms of the sport of cycling itself, which seems to be waning in popularity after the massive boom post London 2012. Sure, electric bikes seem to be the thing at the moment, but it’s not clear yet whether this is a fad or a long term trend.

Sainsbury’s-Asda marriage may mean loss of 460 shops (The Guardian, Sarah Butler) points to findings by the Competition and Markets Authority (CMA) which show that there is a “realistic prospect of a significant lessening of competition” in 463 places in the UK where the two overlapped. Store disposals are a given in the event of the deal going through, but this is a fluid situation. * SO WHAT? * Negotiations are obviously ongoing, but there is a very real danger that the merger won’t go through. In the meantime, Tesco’s forges ahead with its existing offering and, of course, Jack’s. TBH, I think that Sainsbury’s and Asda will be in big trouble if it all collapses because they appear to have put all their eggs in one basket re future growth without any obvious Plan B in place.



In individual company news, Musk gets sued by the SEC, putting Tesla under pressure…

SEC sues Elon Musk for fraud, seeks removal from Tesla (Wall Street Journal, Dave Michaels, Susan Pulliam, Tim Higgins, Michael Rapoport) shows that the chickens are coming home to roost re his fateful tweet about having the money in place to take Tesla private as the SEC is now seeking to remove Musk from the company he founded 15 years ago and ban him from serving as an officer or director of any US public company. Tesla shares fell by 9.9% in after-hours trading to $277 on the news. This will rank as one of the highest-profile civil fraud cases in recent years. * SO WHAT? * I really don’t know how Musk is going to wriggle out of this one – his tweet is pretty darn clear. 

Even if his defence argues that he made the tweet in a fragile state of mind (due to production-related stress etc.), he’ll have to leave for a decent amount of time to get treatment during which would put the company in limbo. Mind you, this could buy the company time to find a successor so it may be the least bad option of the options available. If Musk is kicked out, however, Tesla would surely crater as Musk IS the company. Companies and individuals who had lent Tesla money will suddenly call in debts and the company could go down the toilet. The irony of all this is, of course, that he surely sent that tweet to p!ss off the hedge fund managers who were shorting his stock – well look who’s laughing now. I would have thought another outcome could be that the stock craters, Musk goes to rehab, the Saudi Arabian sovereign wealth fund PIF buys Tesla for a song, takes it private and employs Musk as a “consultant”. Money would come back because everyone would know that the PIF would be a credible backstop and because Tesla might get a more chastened and less free-wheeling version of Musk back. Everyone’s a winner, no? Even Musk would ultimately win as he’d have money to play with and not have the constant shareholder pressure.

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 **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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