Thursday 02/04/20

  1. In MARKETS & OIL NEWS, share prices fall on Trump’s warning, BP cuts capex and shale group Whiting goes under while oil tankers benefit
  2. In TOBACCO NEWS, BAT claims progress on a vaccine while the FTC sues Altria over its Juul investment
  3. In CAR NEWS, parts maker Continental sees profit margins disappear while Auto Trader suffers from secondhand
  4. In MISCELLANEOUS NEWS, Nestlé buys a pet food maker, Uber Eats moves into grocery delivery, Zoom hits hurdles and Monopoly sales are up!
  5. In OTHER NEWS, I bring you some Harry Potter news and “Club Quarantine”…



So markets slide, oil producers suffer but oil tankers do very nicely…

Markets fall again on Trump warning (The Times, Callum Jones) highlights market weakness after Trump warned that Americans faced a “very, very painful two weeks” and that deaths could number between 100,000 and 240,000. Separately, US jobs boom comes to abrupt halt (The Times, Robert Miller) cites the latest stats from the ADP National Employment Report which show that private sector employment in the US fell in March for the first time since September 2017. * SO WHAT? * I don’t think anyone will be surprised at the weak employment figures – but they are an early sign that non-farm payrolls (which is an employment measure that everyone watches very closely) will also be weak. As I say, no surprise – but this just puts a number on it. With regard to markets, I expect continued volatility as share prices shoot upwards or lurch downwards depending on what world leaders happen to say on any given day. Until we all get a handle on the magnitude and duration of the economic shock, how quickly businesses and individuals can get the handouts promised to them and what the restart post-coronavirus might look like, the markets will continue to whipsaw. This will present some rare opportunities to short-term investors as they will be able to churn their positions more frequently than normal – which will then add to the volatility…

Weak oil prices continue to bite deeply for some as BP cuts production and spending amid ‘brutal environment’ (The Times, Emily Gosden) shows that the company plans on cutting its spending by at least $3bn this year and will be

cutting production to rein in costs in response to the anaemic oil price. Shale group Whiting files for Chapter 11 (Financial Times, Joe Rennison, Derek Brower and James Fontanella-Khan) reflects the demise of US oil and gas group Whiting Petroleum as it filed for bankruptcy protection – the first big independent shale producer casualty of the coronavirus and weak oil price double-whammy. * SO WHAT? * The weak oil price is likely to kill off more companies in the oil and gas sectors – Chesapeake Energy, California Resources and Gulfport Energy are looking particularly vulnerable at the moment given their sizeable debts. There will be more to come unless something dramatic happens…

On the other hand, Oil tankers: the incredible hulks (Financial Times, Lex) shows that oil tankers are benefiting from the low oil price because global oil storage is almost full. Given this current situation, tankers have become another place to store oil while it’s cheap in the expectation that prices will go up. Many oil traders have been chartering tankers to store inventory, which has meant that supertankers (which carry 2m barrels) now cost $240,000 per day. This price represents a 600% increase over last month, according to broker Clarksons Platou. * SO WHAT? * Funnily enough, share prices of oil tanker companies like Belgium’s Euronav, Bermuda’s Frontline and America’s DHT have all weathered the market drops fairly well. Given that it is highly unlikely that more vessels will be made (because potential buyers will want to wait until the world economies settles down and because tightening environmental laws mean that new ones will have to use alternative sources of power, presumably meaning they will cost more) existing tankers should continue to experience frenzied demand.



British American Tobacco works on a vaccine and Altria gets sued…

BAT joins race to develop Covid-19 vaccine (Financial Times, Patricia Nilsson and Clive Cookson) heralds an interesting development in the fight against the coronavirus as the tobacco giant’s US biotech subsidiary, Kentucky BioProcessing, is currently growing a potential antigen in genetically engineered tobacco plants! BAT said that it was hoping to produce up to 3m doses per week from June for clinical testing. The company’s head of scientific research, David O’Reilly, said that “vaccine development is challenging and complex work, but we believe we have made a significant breakthrough with our tobacco plant technology”. Wow! If its current efforts prove to be successful, instead of killing us with its cigarettes, BAT may cure us with its vaccine! How ironic would that be?!? The company is currently looking at partnerships with the likes of the FDA and the UK’s Department of Health and Social Care and said that the project would be carried out

on a not-for-profit basis. Interestingly enough, Kentucky BioProcessing developed ZMapp – an Ebola vaccine – in 2014, so the company has form. It was subsequently bought by tobacco company Reynolds American, which was itself bought by BAT in 2017. * SO WHAT? * Yet another company throws its hat into the ring in the race to find a cure. The more the merrier!

In US sues to unwind Altria’s $12.8billion investment in Juul (Wall Street Journal, Jennifer Maloney and John D. McKinnon) we see that the Federal Trade Commission (FTC) is suing Altria over its $12.8bn investment in e-cigarette supremo Juul Labs, saying that it breached federal antitrust laws. Altria bought a 35% stake in Juul in December 2018 having, a fortnight previously, closed down its own e-cigarette business. * SO WHAT? * As you will probably be aware, Juul is facing all sorts of difficulties at the moment given that e-cigarettes have become subject to huge criticism in the last couple of years for mysterious lung complaints, dodgy advertising practices and getting younger users hooked. This will be a pain for Altria as its Juul acquisition has already cost it a potential deal to merge once more with Philip Morris International.



Continental sees profit margins dashed and Auto Trader suffers from a dead secondhand market…

Continental auto profit margins fall to zero (Financial Times, Joe Miller) highlights difficulties at of the world’s biggest car parts makers as it said that the profit margins at its auto division will fall to zero – and that many smaller suppliers would potentially go bust. The company supplies most major manufacturers, but said that it was having to cope with massive changes and disruptions to much of its business. * SO WHAT? * The auto industry was already in crisis before the coronavirus and now its very survival is hanging in the balance. I suspect it will depend greatly on how quickly affected companies can get access to the various rescue loans that are being promised by governments at this time.

Auto Trader raises cash as second-hand sales slump (Daily Telegraph, Alan Tovey) shows that car dealing website Auto Trader has launched a fund-raising for £200m as the lockdown cuts the secondhand car market stone dead. The company is doing this via a placing of 46.5m new shares with institutional investors and the proceeds will be used to boost liquidity and take pressure off their debt requirements. Measures taken so far by the company to shore up its business include allowing customers to advertise their vehicles for free during April, cutting discretionary spending, furloughing staff  and cutting senior executive pay. * SO WHAT? * I hate to say this, but if more people become unemployed due to the coronavirus, there will be a HUGE number of secondhand cars coming onto the market. People will be handing back cars they bought on PCP but can’t afford the payments any more and those who are out of work and want to raise some cash will also (presumably) be selling their cars as well – meaning that there will be a massive supply and not many buyers. I do not see the secondhand market picking up any time soon.



Nestlé makes an acquisition, Uber Eats gets into grocery delivery, Zoom faces continued criticism over security and Monopoly sales rise sharply…

In a quick scoot around some of the other interesting headlines today, Upmarket dog’s dinner a £100m snack for Nestlé (The Times, Ashley Armstrong) highlights Nestlé’s acquisition of upmarket pet food company Lily’s Kitchen for around £100m. The brand is currently sold in around 6,000 shops in 30 countries and will presumably slot in alongside Nestlé’s Purina brand, which makes things like Felix cat food.

Uber Eats accelerates push into grocery deliveries (Financial Times, Tim Bradshaw) signals a change in pace and direction for Uber Eats as it has signed agreements with various retailers, including France’s Carrefour, to deliver groceries as it ups its efforts to offset declines in its ride-hailing business. Traditional supermarkets have been struggling with the massive deluge of online orders, and although Uber Eats won’t be there for your full weekly shop it does aim to be able to deliver a more limited range of essentials within 30 minutes or thereabouts. Impressive!

Elsewhere, Booming interest in Zoom cocktail hours comes with a corporate hangover (Wall Street Journal, Aaron Tilley) highlights continued woes for Zoom as ongoing data security and privacy concerns dog the company that is struggling with its “overnight” success.

On a lighter note, Monopoly a hot property as board game sales roll on (Daily Telegraph, Alan Tovey) shows that sales of boardgames – especially Monopoly – have been sky-rocketing. According to the latest data from data company NPD, sales of games and puzzles in the UK more than doubled their market share and spending on them increased by 50% versus a year ago. Dobble (which is one of my favourites), Uno, Scrabble and Cluedo sales have all risen – as have sales of arts and crafts products and Lego. * SO WHAT? * This is all good stuff, but I would say they need to enjoy it while it lasts. In quarters and years to come, sales comparables are going to be very difficult because I think this spike will prove to be a one-off.



And finally, in other news…

In today’s “alternative stories”, there’s good news for Harry Potter fans in J.K. Rowling launches Harry Potter At Home to spread a little magic during lockdown (The Mirror, Courtney Pochin and I think that the parents in Parents convert garage into ‘Club Quarantine’ for their son’s 21st birthday bash (The Mirror, Paige Holland are absolute legends!

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Some of today’s market, commodity & currency moves (as at 0735hrs 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 **
5,455 (-3.83%)9,545 (-3.94%)4,201 (-4.11%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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