- In MARKETS & OIL NEWS, China’s stock market heads for top spot in 2019 and Saudi Aramco launches its IPO
- In PROFESSIONAL SERVICES NEWS, administrators see fat fees but KPMG and Grant Thornton have issues
- In INDIVIDUAL COMPANY NEWS, Uber faces a potentially tricky week and we look at the power of CATL and the Google takeover of Fitbit
- In OTHER NEWS, I bring you a 10year-old McDonald’s meal and perpetual Christmas on the radio…
MARKETS & OIL NEWS
So China’s stock markets have a much better 2019 and Saudi Aramco launches its IPO…
China’s stock market on track as world’s best performing in 2019 (Financial Times, Hudson Lockett) highlights the strong performance of the country’s CSI300 index – up by a third this year – despite the global economic slowdown and the ongoing trade war with the US. The Shanghai and Shenzhen exchanges have all powered upwards on the back of domestic investor confidence as well as steady international inflows. * SO WHAT? * This contrasts sharply with a disappointing 2018 when the CSI300 benchmark fell by 25%. Consumption has weathered the trade war storm quite well and the continued inclusion of Chinese stocks in the closely-followed MSCI Emerging Markets benchmark has helped to maintain capital inflows from abroad. If it’s doing this well when the general backdrop isn’t looking particularly great, you would have thought things would get another boost if Xi and Trump manage to break the trade deadlock!
I mentioned the decision for the state-owned Saudi Aramco’s to float last week but Saudi oil giant Aramco gets go-ahead for $1.5tn stock listing (The Guardian, Jillian Ambrose and Patrick Collinson) gives more detail in terms of valuation and implications. The price and number of shares are expected to be revealed on 9th November, with trading not beginning until around 12th December, but the valuation is expected to be more around the $1.5tn mark rather than its long-touted target of $2tn. This will still make the company, which supplies 13% of oil globally, the biggest publicly traded company in the world. It has offered a massive sweetener to potential investors by saying that the Saudi government will abstain from its share of dividends in the event of an oil price collapse which essentially means that $75bn of dividends will be guaranteed every year! Wow! * SO WHAT? * The company does very well from oil and when you consider that it only costs it $2.80 to get a barrel’s worth out of the ground versus the current market price of around $62, you can see just how profitable it is! That said, Crown Prince Mohammed bin Salman is keen to use the money now to wean his country off oil money and diversify into other areas.
PROFESSIONAL SERVICES NEWS
Administrators rake it in from the high street’s downfall but KPMG and Grant Thornton have their own problems…
Administrators eye £35m bill from crisis on the high street (Daily Telegraph, Michael O’Dwyer and Laura Onita) highlights analysis by The Daily Telegraph which shows that audit firms charged £34.6m for overseeing bust companies in 2018, £22.5m of which went to the Big Four: KPMG, EY, PwC and Deloitte. Administrators are called in to find solutions for troubled companies and try to get cash to pay creditors if the business collapses. They take over from existing directors and tend to either sell the company on as a whole or in parts. * SO WHAT? * OK so this figure is a guide as it can be pumped up by including things like legal fees and travel expenses, but it can also be lower because the fees that administrators ACTUALLY receive can be less than reported as some of it will not have been paid yet etc. Out of 18 companies falling into administration last year, PwC worked on six (including those of Evans Cycles, Coast and Conviviality) but EY handled the most expensive one, House of Fraser, for which it earned £6.2m. This year promises to be another one for big fees given the ongoing implosion of the high street and collapse of Links of London, LK Bennett, Karen Millen etc.
Bearing those fat fees in mind, KPMG to cull a tenth of its UK partners as part of overhaul (Financial Times, Tabby Kinder) sounds rather dramatic. The Big Four accountancy firm announced that it will cut 10% of its UK partners (that’s 65 partners in line for the chop) by Christmas following a review as part of a wider “refresh”. * SO WHAT? * Call me cynical, but this has a whiff of the PR stunt about it given that the firm had to be seen to do something following its audit of collapsed outsourcer Carillion, dodgy partner behaviour and £20m worth of regulatory fines in the last year alone. Around 45 partners leave the firm every year anyway either via real retirement or forced retirement,
so 65 is not completely out of the blue – especially when one source close to the company said that that the original hit list consisted of around 90 partners. KPMG launched “Project Zebra” this summer in an effort to cut £100m in costs, which has thus far resulted in the imminent closure of its Mayfair members’ club, the recall of employees’ mobile phones and the cutting of around a third of its 630 personal assistants. It’s also on the verge of selling its pensions advisory business to a private equity firm and has sold and leased back its Canary Wharf HQ, which netted it £400m. It wants to use the savings to go towards a £200m investment in its auditing business over two-and-a-half years. It doesn’t look to me like it’s doing too badly – but it seems like the negative newsflow on the company is probably being used as a good excuse to get rid of people that otherwise might have been tricky to sack. Maybe I’m being overly harsh, though!
The gloom continues in Times are particularly tough for auditors at Grant Thornton (Financial Times, Kate Burgess) as Grant Thornton, auditor to smaller and medium-sized businesses, has changed its year-end from June to December as part of the company’s plans to restructure the business. * SO WHAT? * This doesn’t sound all that earth-shattering on the surface, but it doesn’t happen all that often with big profile companies because observers get all nervy, thinking that there is something to hide. The company is a partnership and therefore doesn’t have the same reporting obligations that it would do as a publicly quoted one, but it did issue a “transparency report” for the 12 months to June 2019. However, it is having a tricky time currently as profit per partner fell to around half that of rivals at BDO while investigations by the Financial Reporting Council over its audits of Sports Direct, Patisserie Valerie and Interserve aren’t going to help its reputation much either. The company is losing ground in audits and said earlier last year that it could not compete against the Big Four and withdrew from tendering for FTSE350 audits. It has also lost ground against BDO as the biggest auditor of Aim-listed companies. An overhaul sounds like it is on the cards…
INDIVIDUAL COMPANY NEWS
Uber heads for a nervy week, CATL keeps its hold on electric car batteries, the Fitbit/Google combo won’t be without its issues and Fortnum’s announces a Hong Kong opening…
Given the sell-off last week of Beyond Meat following the investor lock-up, Uber slump feared if backers get out (Daily Telegraph, Olivia Rudgard) you do wonder what’s going to happen with Uber’s share price this week as a lock-up period is due to expire this Wednesday, which means early backers will be able to trade their shares for the first time since the company listed in May. One investor, who put his $25,000 consultancy fee back into Uber in 2011, could sell his shares for tens of millions of dollars and a lot of short-sellers are expecting big falls in the share price as other early backers are likely to sell to lock in profits. The company’s third quarter results are due out today.
The key to electric cars is batteries. One Chinese firm dominates the industry (Wall Street Journal, Trefor Moss) is an interesting discussion about Contemporary Amperex Technology Ltd – aka “CATL” – in China. China is the world’s biggest car market and is by some way the world’s biggest electric vehicle (EV) market and the government boosted its fortunes significantly by pretty much forcing foreign car manufacturers to use locally made batteries. As a result, CATL has become the world’s biggest maker of electric vehicle batteries. * SO WHAT? * CATL’s dominance
not only in the field of batteries, but also in the related supply chain, is creating a problem for the West to find their own equivalents. It is also now looking to develop outside China by investing $2bn in its first overseas plant in Germany (which is scheduled to open in 2021) with BMW as its first customer. It’s likely that a US plant will follow, given the country’s lack of capacity – pretty bold moves for a company that only started eight years ago! The conclusion is that other competitors and potential competitors have a huge chasm to bridge in order to catch up with CATL’s scale and production capacity.
Fitbit’s merger with Google feels more like a surrender (Daily Telegraph, James Titcomb) follows on from the acquisition of Fitbit by Alphabet right at the end of last week for $3.2bn and highlights some real concerns given Google’s sketchy reputation with data privacy and overall fickleness. Given that it went back on its promise to keep Nest (which provides intelligent thermostats) independent of Google by forcing users to link their accounts to Google and that it switched off support for Revolv (a company that makes hubs to control lights and alarms) only a few years after it bought it (thus rendering its £210 hubs useless), it’s hardly surprising that alarm bells are ringing. As a result, the Competition and Markets Authority has been called to block any merger and the Information Commissioner’s Office, the UK’s data watchdog, has said that it would look more closely at the deal. * SO WHAT? * I think that this acquisition makes strategic sense for both sides as Google gets a ready-made product that works and Fitbit gets the capacity for connectivity that Google can offer, but this article is just pointing out that the little guys are having to leave the arena to let the big dogs (Apple and Google) slug it out. This is true and certainly raises even more concerns about data privacy and overall customer protection.
And finally, in other news…
I thought I’d leave you today with the historic meal in The chosen bun: Decade-old burger’s decay livestreamed in Iceland (afp.com https://tinyurl.com/y6jp7m33). Yuck. And then here’s something for all you Christmas-fanatics out there: Radio station playing nothing but Christmas songs launches two months before big day (The Mirror, Luke Matthews https://tinyurl.com/yxej2fle). WHAT???
Some of today’s market, commodity & currency moves (as at 0944hrs green is up, red is down). THIS IS INTENDED AS A ROUGH GUIDE ONLY!
|FTSE 100 *
|Dow Jones *
|S&P 500 *
|Oil (WTI) p/b
|Oil (Brent) p/b
|Gold Per t/oz
(markets with an * are at yesterday’s close, ** are at today’s close)