Monday 10/08/20

  1. In MACROECONOMIC & OIL NEWS, the UK has the worst GDP drop of the G7 and Saudi Aramco keeps its dividend despite conditions
  2. In CORONATRENDS NEWS, megadeals revive M&A while UK’s trad banks trounce the challengers
  3. In TECH NEWS, TikTok continues to attract buyer interest but must be wary of Instagram
  4. In INDIVIDUAL COMPANY NEWS, Amazon could put warehouses in malls and a British start-up grows meat
  5. AND FINALLY, I bring you a mask that you can eat with and a plant upcycling idea…



So the UK goes to the bottom of the class and Saudi Aramco maintains the dividend…

UK to plunge into deepest slump on record with worst GDP drop of G7 (The Guardian, Richard Partington) says that forthcoming figures due out from the Office for National Statistics (ONS) this Wednesday are expected to show that GDP fell in the June quarter by 21%. This means that the UK will officially fall into recession with two consecutive quarters of GDP contraction (GDP fell by 2.2% in the first quarter). The US and eurozone are already in recession but China managed to avoid it after returning to growth in the  second quarter.

Saudi Aramco to keep $75bn dividend despite dive in profits (The Guardian, Jillian Ambrose) shows that the Saudi Arabian state-owned oil behemoth remains steadfast in paying a $75bn dividend to its shareholders this year despite profits taking a massive 73% hit for the last quarter. The global slowdown in oil demand during lockdown and lower oil prices hit the company hard. * SO WHAT? * This is quite a bold move, but given how it marketed its IPO to retail punters I think they are just doing the decent thing. Saudi Aramco has managed to do a bit better than the other oil majors in the slump due to its reserves being some of the lowest cost oil sources in the world. Overall, Saudi Arabia has been quite successful, with Opec, in squeezing out nascent US competition by keeping the oil price low. Prices have recovered from the $16 a barrel in April to a healthier $40+ level more recently.



Megadeals revive M&A activity and the UK’s traditional banks surge ahead…

Megadeals lead M&A revival as big companies bulk up (Financial Times, Ortenca Aliaj, Kaye Wiggins, James Fontanella-Khan and Arash Massoudi) shows that a number of massive deals has sparked a revival in M&A activity since the start of last month as companies try to huddle together to weather the recesssion or revive deals that were delayed by the pandemic. According to Refinitiv data, eight deals of over $10bn have been signed in the last six weeks which is the fastest start for megadeals in the second half since 2007 just before the financial crisis. Deals signed include the $21bn sale of Marathon Petroleum’s Speedway petrol stations to Japan’s Seven & i Holdings and Analog Devices’ purchase of Maxim Integrated Products for $20bn. * SO WHAT? * Dealmaking activity that had been in an upward trajectory until the coronavirus stopped it dead in its tracks appears to be revving up again. Refinitiv data shows that June and July have seen over $300bn in M&A versus $100bn in April and $130bn in May and it appears that a deal backlog is now starting to work its way through the system. M&A activity is often viewed as being a reflection of confidence in the economy, but I get the feeling that the main drivers from

now could be about weaker companies getting together to weather the storm (not always a good idea) and companies making opportune purchases of companies that had previously been out of reach but that had suffered from the coronavirus.

Pandemic seals dominance of UK’s biggest banks (Financial Times, Nicholas Megaw) shows that the momentum we saw in high street banking in the aftermath of the financial crisis has had the oxygen sucked out of it since the coronavirus as the UK’s “big four” of Barclays, HSBC, NatWest and Lloyds continue to dominate. In the aftermath of the financial crisis challenger banks such as Metro Bank popped up with the aim of disrupting the status quo and providing more customer choice in the field of lending but since the pandemic hit, the big four have provided over 80% of the government-backed loans of SMEs as at the end of June. This stands in stark contrast to the four biggest US banks accounting for only 12% of similar lending over the same period. In the UK, the big four hold well over 50% of deposits whereas their American counterparts only hold about 35%. * SO WHAT? * The big four are winning at the moment but I do wonder whether challenger banks’ relative lack of “bad loan baggage” could ultimately prove to be useful in the longer term. Mind you, for that to really work, you’d have to see more government support that is targeted specifically at challengers to help level the playing field IMO given that bigger banks currently have a big advantage in terms of lower funding costs.



TikTok continues to attract interest but Instagram’s a-comin’…

Tech, financial firms eye ways to save TikTok’s US operations from ban (Wall Street Journal, Georgia Wells, Rolfe Winkler and Cara Lombardo) shows that a number of firms other than Microsoft are interested in buying TikTok. Twitter has apparently thrown its hat in the ring (but surely it will fail as it is a) not that big and b) because Trump hates it 😜) but there are others like VC giant Sequoia Capital, PE firm General Atlantic and Japanese investment company SoftBank are all among those touted as having an interest. It still looks very much like Microsoft is the front-runner, though!

TikTok isn’t’ the first – or last – app Instagram copies (Wall Street Journal, Nicole Nguyen) shows that although

Instagram is late to the TikTok party, it may still make a splash with its version called Reels. Instagram has been notorious for copying successful features of rivals’ apps. For instance, it nicked Stories, augmented-reality selfie filters, geostickers and disappearing messages all from Snapchat! Reels launched on Wednesday last week and looks very similar to TikTok thus far although there is some functionality that is lacking at the moment. * SO WHAT? * I really think that there is a danger here that Microsoft may end up buying what could turn out to be a very expensive dud. Facebook is known for nicking other companies’ ideas and there’s not really much that can be done about it legally. I would say that Facebook is far more savvy about what its users want and could use the current limbo situation as a window to form a solid base from which to attack. Yes, there are others in the frame doing something similar but I think Facebook’s Instagram is the real danger here.



Amazon could put warehouses in malls and a British start-up grows meat…

Amazon and mall operator look at turning Sears, JC Penney stores into fulfillment centers (Wall Street Journal, Esther Fung and Sebastian Herrera) shows that America’s biggest mall owner, Simon Property Group, has been in talks with Amazon about turning some of its major department stores into Amazon distribution hubs. The talks have centred on converting stores previously or currently occupied by the failed Sears and JC Penney but it is not clear exactly how many locations will go this way. * SO WHAT? * I think this is intriguing as malls used an anchor tenant such as a department store to bring in foot traffic in the traditional business model. Over the years – and especially since lockdown, this trend has been failing and so it is interesting to see that property owners are looking to get creative. Talks may yet come to nothing between the two parties, but it’s interesting that it’s even

being suggested. Maybe it’s something that could happen in failing malls elsewhere in the world? Surely this is something that would also be appropriate for out-of-town retail parks as well.

Meanwhile, Down in the lab, a British start-up aims to engineer a food revolution (Daily Telegraph, James Cook) shows that British start-up Higher Steaks has created the world’s first lab-grown bacon! The small Bristol-based company is aiming to beat much better funded competitors who have spent years trying to develop something similar. It uses stem cells to grow pig fat and muscle in labs from small samples of pigs that don’t require them to be killed. Chief exec Benjamina Bollag says that “From a small blood sample or a small skin patch, you can make an infinite amount of meat”. * SO WHAT? * How amazing is this?? Unfortunately, it’ll be a while yet before this can come to market as the current cost of producing 1kg of pork runs into the thousands of pounds. Still, rapid advances are being made and the company reckons that meats cultivated like this could make it to YOUR plate in the next three to five years! Competitors including Memphis Meats and Meatable are very well funded, but the company maintains high hopes of success.



…in other news…

I thought I’d leave you today with a rather interesting mask variation that could be used in restaurants in To entice customers, Japanese restaurant Saizeriya creates mask you can wear while eating (SoraNews24, Scott Wilson) and then there’s the “hack” that you’ve probably wondered about at some point or other but have decided not to go through with in Mum leaves kids in stitches with her trick to ‘revive’ dead plants in seconds (The Mirror, Courtney Pochin). OMG.

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Some of today’s market, commodity & currency moves (as at 0759hrs 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 **
6,032 (+0.09%)27,433 (+0.17%)3,351 (+0.06%)11,011 (-0.87%)12,675 (+0.66%)4,890 (+0.09%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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