Watson’s Weekly 15-08-2020

This is an amalgamation of the “best bits” of the daily weekday newsletter/blog woven together to form a concise and coherent view on the things that matter in the commercial and economic news of the week. 

THE DAY IN BRACKETS REFERS TO THE EDITION WHERE THE STORY APPEARED IN WATSON’S DAILY. Clicking on the day will take you to the appropriate edition of Watson’s Daily.

• We learned this week that the traditional UK “Big Four” banks (Barclays, HSBC, NatWest and Lloyds) continue to dominate (Monday) despite the rise of challenger banks in the wake of the financial crisis. Since the pandemic, the Big Four have provided over 80% of government-backed loans to SMEs as at the end of June (versus America’s four biggest banks who accounted for about 12% over the same time period) and they also account for well over 50% of UK deposits versus US counterparts of about 35%. Revolut announced that it trebled its losses (Wednesday) due to recruitment costs and high customer acquisition costs, but it is now aiming to focus on profitability
• ABN Amro and NatWest cut jobs (Thursday) and TSB announced that it would be scrapping all of its cashiers (Tuesday), something that has been inevitable given how customer behaviour has been changing
• Prudential sold off its US business (Wednesday) to concentrate on the more profitable Asian and African operations

• China car sales increased for the fourth consecutive month (Tuesday) due to government stimulus measures and a recovery in demand for commercial vehicles. It’s good to hear that the world’s biggest car market is gaining momentum, but too early to get excited about implications for anywhere else yet
• Hyundai announced a new electric car line-up (Tuesday) using the IONIQ name as an EV sub-brand. Fun fact: currently, 9% of all cars registered in Britain are now pure EVs or plug-in hybrids vs only 2.5% a year ago. Is the tide turning??
• The much-hyped EV specialist that floated in June, Nikola, got an order for 2,500 bin lorries (Tuesday). This is a positive development because rumblings were increasing among analysts and investors about the company being all style and no substance. This will keep the critics at bay for the moment!
• Looking at the other company inspired by Serbian-American inventor Nikola Tesla, Tesla had a stock split this week (Thursday). All this means it that an existing share gets split into smaller pieces making each share more “manageable”. For instance, if a company’s share price is $1,000 and you have a 5-for-1 stock split, it means that if you owned one share worth $1,000 pre the stock-split, you will own five shares worth $200 each after the split – there is no actual change in valuation. This tends to happen when share prices reach incredibly high levels (this has happened with Apple and Google in the past, for instance) and is meant to make the stocks more psychologically attainable. If you were desperate to get exposure to Tesla but couldn’t afford to buy one whole share, you are now able to get a part of the action courtesy of the stock split. Given that this split is likely to give access to a “new” group of shareholders (retail investors who have been waiting in the wings), this sort of action often gives the company share price a bit of a boost – at least in the short term

• In RESIDENTIAL PROPERTY, UK estate agents are worried about there being a boom-bust housing market (Thursday) as the market has been revived by chancellor Rishi Sunak’s recent raising of the stamp duty threshold. They worry that the end of this stamp duty holiday will just result in the market falling through the floor. FWIW, I would have thought that it would be prudent for him to stagger a return to previous levels rather than impose it suddenly for precisely this reason. There’s bad news for the younger generation as the Resolution Foundation thinktank believes it will get even harder to get a house deposit together (Thursday) even if there is a drop-off in house prices. It said that wages were likely to fall for this demographic – but they touted a very sobering stat. In the 90s, an average couple saving 5% for a house desposit would take 4 years to scrape it together. As things stand right now, it would take 21 years 😱! OK, so the Resolution Foundation is trying to make a point here and probably used the absolute worst case scenarios but it’s still pretty shocking
• There was a lot of comment on how the office market is expected to change. Derwent London said that the full impact of changing working practices brought on by the coronavirus have not fully filtered through yet (Wednesday) and that some companies who have already signed long leases will sublet space they don’t need for big discounts, making it harder for the likes of WeWork etc. to attract tenants at decent prices. There was also speculation that demand for centrally-located high-rise office buildings with lifts will change to lower-rise offices in the suburbs (Thursday). Working from home is making some companies rethink their office porfolio – BP is currently doing a global review that could see it cut around 50% of its current footprint (Wednesday) and US company REI is now trying to sell off a purpose-built office building before it’s even moved into it (Thursday) as it wants to pivot the workforce to working more from home!
• IN WAREHOUSING, we saw that Amazon has been a big buyer of warehousing space globally (Thursday) and that they are allegedly in talks with America’s biggest mall landlord, Simon Property Group, to potentially turn some malls into Amazon distribution centres (Monday)! It just goes to show that landlords with emptying properties are going to have to think creatively…

I define coronatrends as trends of behaviour that stem from the outbreak of the coronavirus. This week, they have continued to evolve thus:

• WORKING FROM HOME  gives us more time (Thursday), but we are also ordering more Domino’s (Wednesday), more takeaways from Just Eat (Thursday) and more meal kits from HelloFresh (Wednesday), something that rival Gousto also confirmed recently. We have also been more conscious about cybersecurity and Avast, the company behind AVG, is doing well
• IN OTHER NEWS, Apple and Google took Fortnite off their respective app stores (Friday) in response to Epic Games’ rebellion against their respective current in-app policies. Pressure is building about their dominance of apps and whether they are acting competitively. Given Apple’s lawyers are on a roll now having beaten Margrethe Vestager, I wouldn’t bet against them coming out of this smelling of roses either!

• Watson’s Yearly updates: watch this space!

My favourite stories this week were quite tame! I really liked the very cool kit in Japanese Brazillian BBQ restaurants offering take-out disposable grills made of cardboard (SoraNews24, Master Blaster) and actually felt quite emotional at Stray dog who keeps visiting car dealership is adopted by staff and given a job (The Mirror, Luke Matthews).