Thursday 11/10/18

  1. In MACROECONOMIC AND MARKETS NEWS, UK GDP rises and US markets fall
  2. In RETAIL NEWS, Sears gets closer to bankruptcy, Ikea changes its stores, Wilko stutters and Patisserie Valerie has a nightmare
  3. In INDIVIDUAL COMPANY NEWS, Snapchat announces new shows, Fever Tree slows and James Murdoch emerges as a front-runner for the Tesla chairman role
  4. In OTHER NEWS, I bring you two life hacks. For more details, read on…



So UK GDP rises whilst US markets get nervy…

GDP grows 0.7% but slows in August, spending cools (Daily Telegraph, Anna Isaac) cites the latest data from the Office for National Statistics (ONS) which show that sales of food, booze and cars boosted GDP growth over the summer but a sluggish August posed questions about the underlying strength of the economy. The all-important service industry, which accounts for almost 80% of GDP, got a helping hand from sales of accommodation and food services in July, but these activities shrank by 1.6% in August. * SO WHAT? * This “cooling off” trend appears to be echoed in other data sets like the most recent Purchasing Managers’ Survey which also saw growth, but at a slower rate. Rob Kent-Smith, of the ONS, observed that “the economy continued to rebound strongly after a weak spring, with retail, food and drink production and housebuilding all performing particularly well during the hot summer months” although long-term growth “continues to lag behind its historical trend”.

Meanwhile, Wall Street plunges amid sell-off in technology giants (Daily Telegraph, James Titcomb) highlights Wall Street’s biggest fall since February as a

mass sell-off in tech stocks and interest rate concerns combined to power a 3.2% fall in the Dow Jones and a 3.3% fall in the S&P500. Shares in all the FAANG stocks fell, taking the Nasdaq down by 4% – its worst trading day since 2016. Neflix was down by 8% and Amazon, Apple, Alphabet and Facebook all fell by between 4.6% and 6.5%. Snap, parent company of Snapchat, fell by 5.9% to new lows. * SO WHAT? * Yes, tech stock valuations have become rather toppy – but then we live in a tech world and, for the most part, these companies actually produce real stuff that people need. Netflix continues to be at the forefront of streaming with everyone else trying to play catch-up, Google, Facebook and Amazon have all been facing privacy issues of late and Apple is getting hit by the US-China trade shenanigans. Although these companies clearly aren’t cheap, I think that there is still plenty of scope for development and that any weakness will create chances for the braver investor. If the US-China thing gets sorted I think these stocks could potentially roof it because any deal between the two sides is bound to have a watertight tech element to it. On the other hand, the longer negotiations drag on, the more the tech hardware companies are likely to suffer IMHO. The other major cloud on the horizon, of course, is if onerous legislation is put in place for data protection given recent newsflow. But even then, most of these companies will have gone through a modicum of reform as they have to comply with the European GDPR. There will be an initial financial hit, but then I would expect things to calm down thereafter.



Sears faces bankruptcy, Ikea changes the model, Wilko suffers and Patisserie Valerie’s future looks to be in doubt…

Lampert won’t give Sears another lifeline (Wall Street Journal, Suzanne Kapner) spells the beginning of the end for what was once America’s biggest retailer as Edward Lampert, who is Sears’ chairman, chief exec, biggest shareholder and biggest creditor (via his hedge fund ESL Investments Inc) has refused to lend the company money to repay $134m in debt due Monday as the restructuring plan he proposed recently failed to gain any traction. A bankruptcy filing could come within days and the shares fell 17% in trading yesterday. * SO WHAT? * Lampert has disposed of assets and attempted to cut costs at the retailer which has the Sears and Kmart brands, but it doesn’t look like it’ll be enough to save the venerable retailer as things stand. The company is facing a cash crunch at the moment as, on the one hand, it needs to restock its stores ahead of the holidays but on the other, vendors are increasingly asking for the company to pay cash up front. There will have to be one heck of a deal to drag this one out of the dirt. Given that the American consumer is spending, wages are going up and confidence in the economy is strong Sears’ continued underperformance looks particularly underwhelming, but I guess it is a company that has a lot of baggage (and I don’t just mean in their luggage department).

Ikea eyes transformation of stores in response to consumer shift (Financial Times, Richard Milne) shows the company’s continued efforts to future-proof itself as Torbjorn Loof, Ikea’s chief exec, said that changing consumer behaviour means that there is an increased need for city-centre shops and that its huge out-of-town outlets could become distribution centres. The basic idea is that the city-centre outlets gives them the shop window and then customers can get their goods delivered, changing the decades-old model where customers drive to their massive outlets, buy stuff and put it together when they get home.

It’s already happening – home delivery accounts for about 80% of orders in Hong Kong and in other major cities such as London, home delivery accounts for between 40% and 60% of orders.* SO WHAT? * The company is testing all sorts of formats at the moment to see what works and it’s really good to see a company taking on the challenges of changing consumer tastes directly and with a clear sense of urgency. I think that the company is doing the right things at the moment in order to position itself for the future, but we’ll have to wait before the retail experiments consolidate into a coherent strategy.

Store openings and ‘high level’ of lost stock push Wilko to loss (Daily Telegraph, Ben Woods) shows that it’s not all sunshine and unicorns at discounter chains as it announced a £65m loss due to big investment in store openings and high levels of lost stock. The good news is that turnover grew by 7% due to a 47% hike in online sales and 20 new stores, but this all came at a cost. * SO WHAT? * Wilko needs to make this investment in order to compete with the likes of B&M and Home Bargains and has already cut management jobs to streamline the business model. The underlying business looks pretty good, though, and the company has been taking steps to get to the bottom of the lost stock problems.

Hot on the heels of Greggs’ quarterly results, Patisserie Valerie fights for life (The Times, Dominic Walsh and Alex Ralph) highlights the troubles facing the pastry-maker-and-purveyor after news of a £20m black hole in the accounts prompted a suspension in the trading of its shares – and its CFO – yesterday. The company is conducting an investigation to determine the cause and scope of the damage. The news then got even worse as the company issued a statement saying that its main trading subsidiary Stonebeach Limited was facing a winding up petition from HMRC for an unpaid tax bill of £1.14m. Funnily enough, the petition was advertised last Friday in the London Gazette but was only noticed yesterday afternoon! Patisserie Holdings’ chairman, Luke Johnson, said of the investigation that “We are determined to understand the full details of what has happened and will communicate these to investors and stakeholders as soon as possible”.



In individual company news, Snapchat tries to enhance its offering, Fever Tree cools off and there’s speculation on Tesla’s new chairman…

In interesting individual company news bits, Snapchat unveils new shows aimed at monetising users (Daily Telegraph, Matthew Field) shows the company releasing more original TV-like shows (a mix of teen dramas and documentaries) in a mobile-friendly vertical format that will help the company to consolidate its grip on its user base and give it an edge over Facebook and Instagram. Episodes will be five minutes long and advertisers will be able to buy commercial slots.

It seems like the party’s over – at least at the moment – in Sliced return leaves investors in low spirits (The Times, Simon Duke) which shows that the company lost 10% of its value yesterday as fears increased that its popularity

was going off the boil. Yesterday’s fall means that the company’s share price has now cratered by a third in only four weeks. It had been one of the success stories of the stock market in recent years as it floated at £1.34 in 2015 to reach a peak of £39.56 four weeks ago.

Then I thought I’d mention James Murdoch is frontrunner to take Tesla chairmanship from Elon Musk (The Guardian, Patrick Greenfield) because it’s all over the press today. Musk had to step down from being chairman of Tesla (although he’s still its chief exec) as part of his deal with the SEC and apparently Murdoch is currently the frontrunner to take up the role. Murdoch is currently chief exec of 21st Century Fox but will depart once it completes the sale of the majority of its assets to Disney. Having said that, Musk tweeted yesterday that “This is incorrect”. * SO WHAT? * FWIW, I think Murdoch is a bit lightweight for the role and surely someone like Musk will find it difficult to respect someone who got where he is because his daddy gave him a plum job in the family media business. I would have thought Tesla needs someone with more gravitas and flair to cope with Elon Musk’s big personality.



And finally, in other news, I bring you two life hacks…

We’re entering that time where everyone gets the sniffles, so I thought you might be interested in How far should you stay away from someone with a cold or flu? (Metro, Adam Smith

And then I thought I’d leave you with a neat trick to lessen your ironing burden in Clever ice cube trick that means you will never have to iron again (The Mirror, Robyn Darbyshire A bold claim but worth a try, no?

Some of today’s market, commodity & currency moves (as at 0808hrs 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 **
7,146 (-1.27%)25,599 (-3.15%)2,786(-3.29%)7,42211,713 (-2.21%)5,206 (-2.11%)22,605 (-3.78%)2,568 (-5.79%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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