Monday 17/08/20

  1. In BIG PICTURE NEWS, the UK government moots offering loans to PE-backed companies and gold continues to rise
  2. In RETAIL NEWS, retailers push for biz rates review, Tesco takes on Amazon, Debenhams continues to flounder, Mike Ashley eyes DW Sport and Majestic/Naked Wines’ separation seems to have worked out
  3. In REAL ESTATE NEWS, the housing market booms and rents fall
  4. In TECH NEWS, Apple bends its own rules and Facebook moves to make app separation difficult
  5. AND FINALLY I bring you the world’s fastest wheelbarrow (possibly)…



So the UK government considers loaning money to PE-backed companies and the gold price continues to strengthen…

UK looks to extend bailout loans to private equity-owned groups (Financial Times, Kaye Wiggins, Nicholas Megaw and Daniel Thomas) shows that the British government is looking at potentially offering state-backed loans to companies with stacks of debt that are themselves owned by private equity (PE) groups in an attempt to save the high street. The Business, Energy and Industrial Strategy department (Beis) is trying to find a balance between helping groups that employ large numbers of people such as PizzaExpress, Prezzo or Merlin (the company that owns Legoland) without breaching EU state aid rules. * SO WHAT? * PE-backed companies generally have high levels of debt to minimise their tax bill so that they have statutory losses on the accounts despite, in some cases, being cash-generative. This means that a) they have b*gger all left to cope with a major downturn and, more specifically in current circumstances b) they have not been eligible for emergency government loans thus far because EU regulations state that companies that have losses greater than half of their share capital cannot get state support. The problem is that some of these companies are major employers and they are now suffering. Talks are ongoing with the government, but there is no guarantee of a good outcome. I suspect that many will be watching this closely around the world as the traditional PE-model of finding a target, buying it with massive debt and then adding value via new management or selling off bits and pieces has

been exposed during the current crisis and similar problems are popping up all over the world. What happens here could possibly set a precedent IMO.

Gold is flying high, but getting harder to mine (Wall Street Journal, Alistair MacDonald) is an interesting article that discusses the current strength in the gold price and recent sell-off. Overall, gold prices are up by about 28% this year and gold miners have used the precious metal’s recent rally to pay debt and increase dividends rather than ploughing the gains back into new projects. This has probably been a result of recent painful memories of over expansion following previous price hikes. Australia-based Minex Consulting says that the industry’s exploration budget is currently 63% lower than it was back in 2012 – and some of that is because finding new gold is getting increasingly expensive because it is more difficult to get out of the ground. Minex stats say that the average cost to find one ounce of gold between 2009 and 2018 was $62 – more than double what it was in the previous decade. Fun fact alert: According to the World Gold Council, all the gold ever mined can fit inside a 69 foot cube. It is present in about 0.005 parts per million in the earth’s crust versus, say, copper with 50ppm or iron at over 50,000ppm. * SO WHAT? * Gold has shot up in price not particularly because of tight supply – it’s more a function of investors buying it as a safe haven asset in a super-low interest rate environment and the uncertain economic backdrop fuelled by the coronavirus. “Peak gold” last happened  towards the end of 2011 and miners ramped up reserves and invested in new projects – only to find the price falling by 43% in the next four years. You can understand why the likes of Barrick Gold, Newmont Corp and Agnico Eagle – among others – say that they will only invest in new projects if they can be profitable with a $1,200 gold price.



Retailers push for a review on business rates, Tesco offers free delivery, Debenhams continues to suffer, Mike Ashley fancies DW Sport and the Majestic/Naked Wines separation has gone well…

Retailers plead for business rates overhaul (Daily Telegraph, Laura Onita) sounds a familiar theme as retailers continue to push for an overhaul of business rates sooner rather than later as they worry about what will happen when the current business rates “holiday” ends. Retailers have been pressing for this for years as they are a tax based on a property’s estimated value on the rental market. Currently, they are based on 2015 valuations (so they are high!) and they are not due for a review until 2023! * SO WHAT? * Given the carnage that’s going on on the UK high street at the moment, if you are a struggling retailer you will be pursuing a few things at the same time in order to survive: reducing staff costs (either by cutting numbers or getting involved in the furlough scheme) and reducing bills (not paying rent and/or negotiating new rent deals with landlords). Thus far, the government has protected tenants by saying that they cannot be kicked out for non-payment of rent – but this protection runs out in September. This means that a lot of tenants are likely to be booted out if they don’t pay rent and lawyers expect a deluge of winding up orders as landlords look to get some of their cash back. The tough times continue…

Elsewhere, Tesco to take on Amazon with premium service free delivery (The Guardian, Rebecca Smithers) shows that Tesco will be providing free home delivery to members of its premium loyalty scheme, in a move echoing Amazon’s way of doing things. Its standard delivery charge is £4.50, but chief exec Dave Lewis says that he wants this to be scrapped for those who’ve signed up to Clubcard Plus. This new loyalty scheme was launched in November last year (its more established sister is the Tesco Clubcard that now has 19 million members!) and, for a monthly fee of £7.99 members have been able to get a 10% discount on two shops worth up to £200 each plus a few other perks. * SO WHAT? * This sounds like a

pretty reasonable idea and certainly makes the monthly charge a lot more compelling IF you are at all interested in home delivery. Given how things have been during lockdown, I would guess this would make the new offering very attractive!

Buyers set to break up Debenhams ‘store-by-store’ (The Times, Ashley Armstrong) highlights the fact that retail restructuring specialist Hilco has been hired to draw up plans to liquidate the business as a last resort while Mike Ashley’s Frasers Group, Next and a Chinese consortium line up to cherry-pick different assets. The store sale process run by investment bank Lazard is ongoing. * SO WHAT? * Frasers Group says it will only take on stores it thinks it can do something with and Next has already expressed an interest in a few Debenhams stores – mainly based in Intu shopping centres, as part of its plan to create a new beauty and homewares business. There is some scepticism about the Chinese group given how things worked out when Sanpower owned House of Fraser. It’s a buyers’ market for sure!

Majestic and Naked Wines prove critics wrong as they thrive after split (Financial Times, Jonathan Eley) shows that last year’s split has actually worked out quite nicely for both companies. Majestic is now owned by asset manager Fortress and gained 150,000 new customers during UK lockdown. Online sales have quadrupled and average bottle prices are up 11%! Naked Wines has also done well. Last week’s trading statement shows that sales to new customers rose by 185% in July and total sales were 73% higher than a year ago. The business models of both are different – Majestic focuses on stores and Naked focuses on monthly subscriptions which fund independent wine makers who supply their produce. Naked is putting a lot of effort into expanding in the US as lockdown resulted in a massive spike in online purchases whereas Majestic has concentrated on a more traditional business model. * SO WHAT? * Although the original merger of the two businesses was largely neutral on a valuation basis (the combined value was pretty much the same as it was when they got together four years previously), their fortunes since separation have actually been pretty good. At the time of the deal, Naked need access to cash to grow and Majestic needed access to e-commerce nous and they have both got what they wanted in the end. Happy ever after??



The UK housing market booms while rent goes the other way…

In Housing market has busiest month in more than 10 years (The Guardian, Hilary Osborne) we see that the housing market has had its busiest month in over 10 years as Rightmove says that the number of monthly sales agreed in Britain was up by 38% versus the same period last year. * SO WHAT? * This all sounds great, but remember – we were heading into what was a very uncertain time this time last year as the country was heading towards Brexit, so it’s not as if the market was firing on all cylinders back then. The housing market was closed over the lockdown but then reopened in mid-May

with a bit of a frenzy (pent-up demand?) and stoked further by chancellor Rishi Sunak raising the stamp duty threshold. Rightmove talks a good game (it is bound to – it lists about 95% of homes for sale in the UK!) but mortgage lender Nationwide is more cautious as it believes that rising unemployment in the autumn as furlough ends will mean that activity could fall back once more.

Meanwhile, Glut of long-term rentals drives down prices (Daily Telegraph, Same Benstead) shows that prices are falling in some parts of the rental market as the collapse in the short-term letting market – that has previously been powered by tourists using Airbnb – has led to more properties being let on a longer-term basis, meaning a surge in supply on the market and a reduction in rents. This has been particularly marked in London, but outside the capital and in the regions rents are actually going up (presumably as people seek out life in the ‘burbs).



Apple bends its own rules and Facebook makes pre-emptive moves…

There’s a lot of fuss going on at the moment about Apple – and Google – taking Epic Games’ Fortnite off their respective app stores. This is all to do with Epic Games baulking at Apple’s insistence in taking a 30% slice of in-app purchases, which has led to Epic suing Apple. However, in Apple allows WeChat to ‘break strict app rules’ (Daily Telegraph, James Titcomb) we see that one former Apple exec has accused it of breaking its own strict rules with China’s WeChat for fear of being cut out of the Chinese market. WeChat has separate “mini apps” within its platform, but Apple turns a blind eye to purchases made on this particular app. * SO WHAT? * Well if you make the

rules, you could argue that you are entitled to do whatever you want about bending/breaking them! Still, I am sure that this will be used in an argument in the Epic Games case to illustrate its point about Apple’s powerful position and inconsistency in its application.

Facebook merges apps in move to counter regulators (Daily Telegraph, Matthew Field) is an interesting article which shows that Facebook is thinking about merging its Instagram and Messenger chat functions in order to make it harder for regulators to potentially break it up. Doing this is also likely to strengthen its position against Apple’s iMessage. * SO WHAT? * Facebook is trying to combine the underlying tech behind Instagram, Facebook and WhatsApp and add end-to-end encryption to all three, making them harder for governments to monitor and hackers to hack. Ultimately, this will make a potential break-up more difficult at a time when regulators continue to express concern about Big Tech’s increasing power and consider its future in its current form.



…in other news…

I thought I’d leave you today with a joyfully pointless exercise in Gardener ‘sets new speed record’ on back of homemade wheelbarrow (Metro, Tom Williams). Why 🤷‍♀️?? Maybe an inspiration for your next home project??

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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 **
6,090 (-1.55%)27,931 (+0.12%)3,373 (unch)11,019 (-0.21%)12,901 (-0.71%)4,963 (-1.58%)23,097 (-0.83%)3,439 (+2.34%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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