Thursday 11/08/22

1. In MACRO & ENERGY NEWS, US inflation eases, Taiwan gets feisty with Foxconn, Vestas likes US clean energy subsidies, E.ON cuts the value of its Nord Stream stake and the Rhine dries up
2. In FINANCIALS/INVESTMENT NEWS, Aviva gets a boost, the Pru suffers from Hong Kong lockdowns, Admiral looks forward, Robinhood takes a bath and SoftBank has a historic moment
3. In CONSUMER SPENDING TRENDS NEWS, Tui suffers with flight disruption, Deliveroo doesn’t deliver, Bumble’s sales rise and estate agents see a continued fall in buyer interest
4. In INDIVIDUAL COMPANY NEWS, Fox predicts higher spending and Disney adds subscribers
5. AND FINALLY, I bring you a “how to” guide on escaping prison…

So US inflation eases, Taiwan gets nervous, Vestas gets hopeful, E.ON gets real and the Rhine dries up…

📢 It’s Thursday, so it’s time for the one hour weekly ZOOM call for SILVER and GOLD subscribers! *** THIS CALL WILL RUN FROM 6PM TILL 7PM ***. As usual, during this call, I will do a round-up of the week’s news and then open it up to questions from you. After that, depending on how much time we have, we will also debate the following:

• How can Deliveroo turn around its fortunes?
• Why are our energy bills so high? Follow @watsonsdaily on Twitter for the FT article you can use to answer this question!

You can just listen into the debate if you want to, but I thought I’d give you the heads up on topics for if you would like to engage. You will definitely get more out of this call if you take part in the debate, though 😜!

US inflation eased slightly in July on lower petrol prices (Financial Times, James Politi and Kate Duguid) shows that prices increased at a slower annual rate versus June (July’s figure was 8.5%), something that will be a relief for both the Federal Reserve and Biden’s government, who have come in for a great deal of criticism for failing to address inflation earlier. This level is still high, so further rate rises are still on the cards…

Given the current tensions, Taiwan security officials want Foxconn to drop stake in Chinese chipmaker (Financial Times, Kathrin Hille) shows that national security officials are keen on forcing Apple supplier Foxconn to walk back an $800m investment in Chinese semiconductor company Tsinghua Unigroup. Foxconn is the world’s biggest contract electronics manufacturer and the largest private sector employer in China, so this is quite literally a big deal. Officials from the National Security Council and the Mainland Affairs Council reckon this deal needs to be blocked. * SO WHAT? * The company had originally intended to use this deal to bolster its semiconductor business but the Taiwanese authorities worry that Foxconn’s money could be used to finance the advancement of China’s tech capability. Foxconn is in a particularly delicate position given that 75% of its production capacity is in

mainland China. On the other hand, Taiwan does not want to be seen aiding China, particularly as it wants military cover from the US and that the US just adopted the Chips Act, which is designed to restrict the flow of tech know-how to China.

In energy-related news, Vestas hails US clean energy subsidies as breakthrough (Financial Times, Richard Milne) shows that the Danish wind turbine manufacturer is looking forward to the US passing a new subsidies package because it believe it will safeguard the acceleration of renewables in the US for the next ten years. Vestas posted Q2 results on Tuesday that came in below market expectations but its share price rose by 8.6% in trading yesterday because its profit margin outlook was better than rival Siemens Gamesa. Vestas has been hit hard by massive rises in raw material and component prices, but it has been able to pass some of this on.

Meanwhile, E.ON slashes value of Nord Stream stake as Russia cuts gas supplies (Daily Telegraph, Rachel Millard) shows that Germany’s E.ON has written down the value of its stake in Nord Stream 1 by a chunky €700m as the Ukraine war rages on. It owns 15.5% of the pipeline which connects Western Russia to Germany via the pipeline which runs under the Baltic Sea. It had valued the stake at €1.2bn in March but now it says this is worth more like €500m. E.ON said it won’t be selling out of its stake for the moment.

Germany is having a right old time at the moment, isn’t it. However, it never rains but it pours – or actually not in this case as Rhine/drought: low water levels will parch the German economy (Financial Times, Lex) shows that the current heatwave has meant that river levels have fallen significantly. * SO WHAT? * This has affected logistics (inland waterways are used to ship around 30% of Germany’s coal, crude oil and natural gas) and industrial production. River levels aren’t yet at the lows of 2018, but broker Jefferies reckons that it they fall another 15cm, insurance policies will kick in. French insurer Axa has exposure in this area via its Axa Climate business.

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!

Aviva does well, Pru’s held back, Admiral hopes for better, Robinhood is not so merry and SoftBank marks a historic moment…

In news on insurers, Aviva promises share buyback after boost from rising interest rates (Financial Times, Ian Smith) highlights the insurer’s strong first half results yesterday as it also announced another share buyback (no details on the size thus far, though) thanks to better-than-expected cash generation only months after returning £4.75bn to investors. Investors loved this and sent the share price up by around 12% by lunchtime yesterday. It had been under pressure to raise shareholder returns and clearly the company is doing so. In contrast to this, Hong Kong’s Covid lockdowns hit Prudential (Daily Telegraph, Simon Foy) shows that the Pru’s pivot towards Asia has been badly affected by China’s lockdowns and said that market conditions were likely to be “challenging” for the rest of this year. Elsewhere in the sector Admiral looks past declining profits (The Times, Patrick Hosking) shows that the automotive insurer saw its first-half profits fall by48% as the rise in used car prices, parts prices and towing charges hit it badly. It raised new premiums by 16% over Q2, which is above the industry average and it doesn’t expect the second half to be much better. That said, the comparison with the first half last year was always going to be tricky because there are now far more vehicles on the road, so it stands to reason that there are going to be more accidents! On the plus side, its unsecured car loans business, Admiral Money, made a small profit for the first time since it was launched in 2017.

Meanwhile, Robinhood suffers harshest hangover after pandemic stock trading boom (Financial Times, Madison Darbyshire) shows that the much-hyped retail broker has had a harsh dose of reality since the heady meme stock days. The number of active users has fallen and its market cap has dropped by two-thirds since its flotation last summer. Its Q2 revenues were down 44% year on year – in contrast with more “traditional” brokers like Charles Schwab which reported an increase of 13% along with record profits. * SO WHAT? * Robinhood has suffered particularly acutely because its younger audience, which fuelled initial trading with US government stimulus cheques, have lost interest. Those who put their money on fintech and crypto – the hot areas last year – have been burned particularly badly. Last year, it focused on growing its customer base, but in order to survive for the long haul it probably needs to concentrate on serving its existing customers better.

Then in SoftBank set to post $34bn gain after handing over Alibaba shares (Financial Times, Leo Lewis and Ryan McMorrow) we see that SoftBank is, on the one hand, about to post a hefty gain of over $34bn, marking the end of an era when CEO Masayoshi Son bought a chunk of Alibaba 22 years ago. This latest move will take its holding down from 23.7% to 14.6% in September, when the settlement process is completed. * SO WHAT? * It will lose its board seat and things could get interesting as the smaller shareholding will mean that it won’t have to deliver on its original promise to vote according to the direction of founder Jack Ma, vice-chair Joe Tsai and other top execs. This comes just two days after SoftBank’s Masayoshi Son unveiled its worst ever QUARTERLY loss of $23bn.

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!

We take another look at what consumers are and aren’t spending money on…

Tui suffers third-quarter loss after flight disruption (Financial Times, Oliver Barnes) shows that flight disruption across Europe has hit Europea’s biggest travel company hard, pushing it into a loss for Q3 despite the strong demand. The company is pushing for compensation from airport operators and expects “to get something in the next coming month and it should be significant”. * SO WHAT? * Despite all this, Tui remains confident that it can deliver close to pre-pandemic trading levels this summer and winter bookings from UK customers are at normal levels. Whether European consumers will remain confident into the winter is a moot point, given how energy prices are set to rise sharply pretty much everywhere. If that’s the case, as holidays are very much a discretionary spend, they could suffer.

Deliveroo losses soar to £147m as cost of living crisis bites (The Guardian, Mark Sweney) continues the flow of bad news coming from the food deliverer as the cost-of-living crisis focuses the minds of customers. Although deliveries and monthly active customer numbers increased, gross transaction value per order (which is the amount customers spend on a takeaway on average) fell by 4%, although it must be said that customers were ordering more under lockdown. Still, the company did beat (reduced) market

expectations and investors pushed the share price up by almost 4%. That said, “Flopperoo” has seen its share price crater by a morbidly impressive 75% over the past year…

Then in Bumble sales rise on higher user spending (Wall Street Journal, Denny Jacob) we see that the dating app saw sales increase over the latest quarter thanks to higher spending by users on dating apps post-lockdown. That said, it cut its 2022 revenue estimates mainly due to foreign currency movements and its sales estimate for the current quarter fell short of market expectations, so the share price fell by 11% in after-hours trading. * SO WHAT? * Bumble’s performance compared favourably with arch-rival Match Group, which recently published such disappointing Q2 numbers that Tinder’s CEO had to leave. I would have thought that spending on such apps would continue to be pretty solid although the cost-of-living crisis will surely kick in given that this is very much a discretional spend.

Estate agents rue falling interest in buying homes (Wall Street Journal, Tom Howard) highlights the interesting trend that the number of potential buyers leaving their details with estate agents has just fallen for the third month in a row but the shortage in supply of houses is causing prices to keep rising (stock levels are nearing all-time lows). Transaction levels are falling and estate agents are getting more downbeat about the market going forward.

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!

Fox does well and Disney add subscribers…

In a quick scoot around other interesting stories today, Fox predicts record political ad spending in US midterm elections (Financial Times, Alex Barker) shows that Fox Corporation is looking forward to the cash rolling from an “unprecedented wave” of political advertising this year looks like it’ll overtake the amount spent before the 2020 elections! Chief exec Lachlan Murdoch even went as far as saying he thought that the fight for the Senate, House and gubernatorial races would make the upcoming November election cycle the most lucrative in US history!

Then in Disney reports earnings surge, reduces long-term forecast for Disney+ subscribers (Wall Street Journal, Robbie Whelan) we see that Walt Disney posted a better-than-expected 26% rise in revenues yesterday due to strong performances from its theme parks division and new subscriber numbers for Disney+. Having said that, it did lower its forecasts for subscriber growth whilst raising prices on its streaming offerings. It also talked about another ad-supported tier of membership * SO WHAT? * It is amazing to just sit back and consider how fast Disney+ has grown in such a short timespan. It now has a total subscriber base across all of its channel of 221.1m – and Netflix now has 220.67 subscribers! The company’s share price rose by 7% in after-hours trading.

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…

Do you remember that iconic scene at the beginning of Daniel Craig’s first Bond outing in Casino Royale where he’s chasing that guy with the rucksack? Well this parkour prison “escape” is pretty spectacular. The athleticism involved is incredible. How they managed to do this without breaking their legs/ankles etc. is beyond me! Don’t try this at home, kids!