Monday 13/11/23

1. In MACRO & ENVIRONMENT NEWS, Sunak is about to announce some good news, the UK is to rein in takeover screening powers, China’s carbon emissions look set to decline as it floods the market with solar components and England sees a drop in onshore wind projects
2. In REAL ESTATE NEWS, the UK housing market beats forecasts, landlords sell up and UK estate agents consolidate as they rake in the deposits
3. In RETAIL NEWS, Ikea buys a Brighton shopping mall and Pandora looks set to buck the luxury downturn
4. In MISCELLANEOUS NEWS, companies race to make EV batteries recyclable, the VC market gets a shake-up and business confidence continues to take a pasting
5. AND FINALLY, I bring you an interesting example of culinary fusion…

So Sunak has some good news, takeover screening powers are set to be changed, China’s carbon emissions are to fall and it also floods the market with solar components while the number of onshore wind projects in England fall…

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In Sunak set to reach target of halving inflation (Financial Times, George Parker) we see that the PM is set to announce this week that he has fulfilled his promise to cut inflation in half ahead of the Autumn Statement on November 22nd. It looks like the Bank of England expects headline inflation to make a big drop from 6.7% in September to under 5% in October and it looks like this could be a springboard of sorts to laying out a more positive economic picture ahead of next year’s election. Sunak said in January, when the rate was at an average of 10.7% over the last quarter of 2022, that his aim was to halve inflation by the end of the year. The main driver behind the expected fall in Q4 is a cut in the Ofgem energy price cap. * SO WHAT? * Given the situation we were in at the end of last year this does sound like a bit of a result. Still, it’s not as if the government can sit back as inflation is still way above the 2% target and there are a lot of other things to think about!

Then in UK to pare back new takeover screening powers, says deputy PM (Financial Times, Lucy Fisher and Daniel Thomas) we see that the UK’s powers, as laid out in the National Security and Investment Act, are going to be reined in to make them “more business friendly” just two years after they were introduced! Deputy PM Oliver Dowden will launch a review into the Act which gives the government the power to investigate and potentially block takeovers. * SO WHAT? * The government has been all over the place on this as the rules were non-existent when one of our biggest and most successful tech companies, Arm, was bought by Japan’s SoftBank, then brought in under lockdown to stop the Chinese and Middle Eastern sovereign wealth funds from buying all our juicy assets and now they’re relaxing them. The legislation was used to block the sale of Newport Wafer Fab to Chinese-owned Nexperia and now the proposed merger of the UK businesses of Vodafone and CK Hutchison Holdings (which is a Hong Kong-based group) is under investigation. The government is also facing a

lawsuit over using the act retrospectively to block the acquisition of broadband business Upp by LetterOne, which is backed by Russian oligarchs. I said at the time that, much as there’s argument for the protection of key companies and industries, the main problem is going to be that by acting in this way, it takes some significant potential buyers/investors out of the equation which means that remaining buyers may not have so much competition and can therefore buy assets more cheaply than they would have been able to had the Saudis and Chinese also been in the mix. As with all these kinds of things I guess that a balance has to be struck somewhere but clarity is going to be vital otherwise would-be investors might just see the UK as an “uncertain” place in which to do business!

Meanwhile China’s carbon emissions set for structural decline from next year (The Guardian, Jillian Ambrose) cites research from Carbon Brief which shows that emissions from the world’s biggest polluter could fall for the first time from next year after a record increase in clean energy investments. Although there was a significant rebound in fossil fuel demand when the Chinese government dropped their Covid restrictions at the beginning of this year, there was a simultaneous expansion of its low-carbon energy sources which turned out to have way more effect than policymakers had expected. Beijing’s solar and wind installation targets for the year were hit in September and market share of EVs already far exceeds the 20% target for 2025. China’s Spending on Green Energy Is Causing a Global Glut (Wall Street Journal, Sha Hua and Phred Dvorak) takes this in a different direction as the country’s build-out of renewable energy has created a surplus of solar components that could potentially strangle European manufacturing of said components. Prices for Chinese polysilicon, a vital component of solar panels, have halved while panel prices have dropped by 40% and Chinese exports of batteries, EVs, solar panels and wind turbines continue to climb. * SO WHAT? * The danger is that Chinese companies have been trying the usual tactic of dumping excess inventory on European markets at rock-bottom prices which is great for European solar developers but rubbish for solar manufacturers. I wonder whether the EU will include this in the current investigation into unfair state funding of various industries that it is conducting at the moment!

Back home, Onshore wind projects in England stall as no new applications are received (The Guardian, Toby Helm) shows that the government has received precisely zero new applications for onshore wind farms in England since ministers eased the planning regulations earlier this year! This is in stark contrast to major increases in investment in Germany, France and Sweden. The latest auction for offshore wind projects got no bidders because the prices that they were allowed to charge for the energy was thought to be too low. * SO WHAT? * It sounds like this has prompted some panic in the government and ministers are thought to be working on a new framework of pricing to attract more investment in the sector before it is too late. The other thing is that companies like Ørsted have been cancelling projects because higher costs just remain unsustainable. OK so the US wind farm cancellations are offshore as was the UK project that was postponed by Vattenfall a few months back – but the point is that costs are another consideration to take into account. They continue to push for more state subsidies.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

The UK housing market performs better-than-expected, landlords sell up, estate agents consolidate but they also make a ton of money from deposits…

UK housing market beats expectations (The Times, Tom Howard) cites the latest from Rightmove which says that the housing market is showing signs that this year has, so far, “been better than many predicted following the turbulent end to 2022”. The average asking price of a home these days has only fallen by about 3% from “unsustainable frothy heights” that peaked in May while the number of agreed sales is only down by 10% on 2019 under “normal” market conditions. Still, Landlords sell up in Great Britain as buy-to-let market sours (The Guardian, Miles Brignall) cites a report from Hamptons which shows that landlords are on track to have purchased the fewest number of homes since 2010 (excluding Covid) – which is more bad news for tenants as the number of rental properties on the market will have contracted as a result of this. Changes to the way buy-to-let is taxed, booming mortgage costs and new house emissions regulations have all conspired to make investment in buy-to-let less attractive.

All of this has consequences, as per Housing market downturn pushes UK estate agents to consolidate (Financial Times, Euan Healy) which shows that local agents are being consolidated by big

groups with strong balance sheets at a hastening rate as smaller agencies have felt more pressure from rising interest rates than their bigger cousins. Foxtons, for instance, bought residential estate agency Ludlow Thompson last Tuesday for £10m – and continues to be on the look-out for more! Last month, Chestertons was sold to European real estate services and tech group Emeria for £10m and there was that £100m offer from US real estate company CoStar for UK property portal OnTheMarket only a week prior to that. * SO WHAT? * The fact is that it’s a highly fragmented market with low barriers to entry and it is one of those classic businesses whose fortunes are very sensitive to wider developments in the economy.

However, don’t feel too sorry them as Estate agents rake in tens of millions from interest on rent deposits (Daily Telegraph, Melissa Lawford) cites a report from the Tenancy Deposit Scheme which shows that agents in England and Wales will this year make over £80m from £4.9bn worth of deposits that they hold on behalf of renters during the course of their tenancies! In UK common law, interest is kept by the company that holds the deposit rather than the person who owns the money. This income has been rising as rental deposits have been getting larger and locked in at higher rates. Not a bad return for just sitting on your 🍑rse doing nothing!

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Ikea buys a Brighton shopping mall and Pandora thinks it can buck the luxury downturn…

In retail news, Ikea owner buys Brighton shopping mall, its second in the UK (The Guardian, Sarah Butler) shows that a division of Ikea’s parent company (Ingka Centres, which is part of the Ingka Group) has just bought its second shopping mall in the UK for around £145m as part of its general effort to move away from its traditional big box out-of-town-megastore model to get into the centre of towns and cities. It is planning to convert an empty Debenhams site in Brighton’s Churchill Square into a new Ikea that will open within two years. This comes almost three years after it bought the Kings Mall in Hammersmith, which was also a former Debenhams site. It is also currently converting Topshop’s former Oxford Circus flagship store into an outlet which is now due to open in autumn 2024 after being delayed by a year. * SO WHAT? * This is all in keeping with Ikea’s change in strategy and business model and harks back to what I originally said at the beginning of 2021 that department stores’ demise might be Ikea’s gain given that they are right in the centre of towns and cities and need more

space than other retailers (there aren’t many retailers out there who can take up these massive spaces!). Couple that with Ikea’s big bargaining power and you’ve got an interesting prospect!

Then in Danish jewellery chain Pandora confident of bucking luxury slowdown (Financial Times, Richard Milne) we see that Pandora is looking pretty optimistic ahead of the all-important Christmas season, in contrast to what we’ve been hearing from most luxury goods retailers recently. The company is playing its card of being an “accessible gift” compared to higher end stuff and it has been experiencing accelerating growth quarter-on-quarter. Pandora is one of the world’s biggest jewellers by volumes sold. * SO WHAT? * I’m not sure I’d describe Pandora as a luxury goods retailer in the same way that I would any of the brands owned by LVMH and I don’t really believe that there will be people “trading down” to Pandora from, say, Tiffany, but maybe Pandora satisfies the need for people to have something physical that they can hold in their hands in these uncertain times that looks nice and doesn’t cost the earth.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Start-ups race to make EV batteries more recyclable, VCs get a shake-up and business confidence takes a hit…

In a quick scoot around some of today’s other interesting stories, Tech start-ups race to make EV battery recycling sustainable (Financial Times, Eleanor Olcott and Gloria Li) shows that tech start-ups such as Hong Kong’s GRST and America’s OnTo Technology – as well as giants like BASF – are working on water-based tech that will bind battery components together and make them much easier than current batteries to recycle. At the moment, recycling EV batteries is very expensive because it its highly labour-intensive and most lithium ion batteries are held together using toxic chemicals. At the moment, less than 5% of used lithium-ion batteries are recycled in the US because it’s so fiddly! * SO WHAT? * Given that the first EVs are getting to the end of their 10-year lifespan – and that EV take-up is accelerating – solving the recycling problem is getting increasingly urgent. The fact that raw materials are running out as well adds further need to use what we DO have more efficiently. More regulations are being brought in to increase battery recycling rates – for example, the European Council adopted a “battery passport” that necessitates a minimum level of recycled materials for EV and industrial batteries by 2031. 

In Investors shake up VC market by raising money to buy out start-ups (Financial Times, Ivan Levingston and George Hammond) we see that investors are starting to raise money to buy out start-ups that have been avoided by venture capitalists, getting decent companies at a discount. One example, a company called Resurge Growth Partners, is made up of VC veterans who reckon they’ve spotted a gap in the market and want to put in anything between €10-€30m with a remit to turning things around. * SO WHAT? * I guess that there will be no shortage of targets as the overall economic slowdown continues to hit businesses but then again you could argue that existing VCs are avoiding certain businesses for proper reasons. I think in the VC business in particular you have to kiss a LOT of frogs before you find any princes!

Then in Wage bills and interest rates dent confidence (The Times, Mehreen Khan) we see that business confidence in the UK has hit its lowest point this year as companies continue to face higher wage bills, according to a report compiled by Accenture and S&P Global. * SO WHAT? * Although recession looks unlikely this year, weaker sentiment isn’t great news for the prospects for 2024 – although obviously this can change. Interestingly, sentiment in the UK is still better, on average, than equivalent confidence levels around the world and in Europe!

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

…in other news…

What do you think of this?? A brilliant idea or an abomination? I just wonder whether the “sauce” to “base” ratio is right…