Thursday 15/10/20

  1. In BANKS NEWS, Goldman Sachs profits while falling interest rates take the shine off Bank of America and Wells Fargo
  2. In PROPERTY NEWS, WeWork discounts rents, residential seems to be running out of steam but the top end is buzzing
  3. In RETAIL/HIGH STREET NEWS, ASOS performs well but is cautious while Boparan buys GBK
  4. In INDIVIDUAL COMPANY NEWS, BTS’s management company’s IPO proves to be “dynamite”, Zoom aims to cash in, Marshall Wace buys into IAG and Deloitte abandons EG Group
  5. AND FINALLY, I bring you a Nigella pasta idea…

1

BANKS NEWS

So Goldman profits while low interest rates drag on BoA and Wells Fargo…

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Goldman Sachs profits soar 94pc amid trading frenzy (Daily Telegraph, Lucy Burton) highlights Goldman Sachs’ success at making profits during the pandemic thanks to its investment banking and trading businesses. Profits shot up due to a 29% rise in trading revenues and a 7% boost in investment banking revenues courtesy of clients trading volatiles markets and companies shoring up their balance sheets amid the pandemic and engaging in M&A.

On the other hand, Falling interest rates drag on Bank of America and Wells Fargo profits (Financial Times, Robert Armstrong) shows that things were not as rosy at rival banks as weakening interest rates squeezed margins. Both banks reported higher net profits than in Q2, but most of this was down to lower provisions for bad debts. On the plus side, Wells Fargo’s mortgage business had a strong quarter on the back of home refinancings, Bank of America saw an uplift in fees for its credit card business and both saw an increase in fee income from investment banking. * SO WHAT? * Falling interest rates really killed the party for these banks as net interest income (the difference between revenues from interest-bearing assets and interest paid for financing) fell sharply. Net interest income at both banks account for about half of the revenues – which is why Goldman swerved a similar fate given its higher exposure to other revenues streams.

2

PROPERTY NEWS

WeWork offers discounted rents, the residential mini-boom seems to be losing momentum but the high end appears to be buzzing…

WeWork offers rent discounts to Covid-hit tenants (Financial Times, George Hammond, Andrew EdgeCliffe-Johnson and Stephen Morris) shows that WeWork is cutting prices around the world in order to stop an exodus of existing customers. In some cases, it is halving the rent they owe for the next few months. * SO WHAT? * This whole flexible office space thing is proving to be very difficult currently because companies like WeWork and IWG – who don’t OWN their buildings, they have them on long leases and then sublet to tenants on much shorter leases – have tenants reconsidering their space requirements on the one hand, whilst on the other, they are themselves also trying to talk down what they have to pay to their own landlords. Both companies are trying to remain positive and point out that they tend to do well in recessions as companies are less willing to commit to long leases. Still, I think the problem has three major elements: firstly, that the number of tenants is likely to decline as increasing

numbers go out of business or just retreat to their home offices/bedrooms; secondly, that there is likely to be a major uptick in the supply of office space; and thirdly, that there will be landlords out there who just want tenants at any price, meaning that they will charge peanuts, thus bringing down rents across the board.

Meanwhile, in residential property, Mini-boom loses steam as the search for new horizons falters (Daily Telegraph, Melissa Lawford) suggests that the mini-boom we saw over summer could be losing steam. Little things like Rightmove searches falling and mortgage brokers seeing a levelling-off in demand could constitute early signs of a loss in momentum. Zoopla reported that house buying activity, whilst still strong, could suffer further from first-timers not being able to get a deposit together due to lenders’ tighter lending conditions. On the other hand, Top London property in big demand (The Times, Philip Aldrick) shows that London’s super-prime property market (>£10m) has actually seen an uptick in activity, according to Knight Frank. Interestingly, 40% of buyers were British – the highest percentage in a decade – which is probably a function of travel restrictions. Kensington accounted for 14.3% of super-prime deals but demand for more outdoor space powered interest in properties in Notting Hill, St John’s Wood, Hampstead and Belgravia. Nice if you can get it!

3

RETAIL/HIGH STREET NEWS

ASOS does well but is cautious and Boparan buys GBK…

Asos profits quadruple as demand soars in lockdown (The Guardian, Sarah Butler) highlights a stellar performance by online apparel retailer Asos, powered by sales of casual wear and skincare products during lockdown. Having said that, the company’s share price fell by 10% as the company outlined a cautious outlook due to the outsize impact of the pandemic on its key customer demographic – 20somethings. * SO WHAT? * I guess that there is a limit on how many hoodies and sweatpants everyone wants/needs and although Asos has been able to cut costs and make efficiency gains at its European warehouse, the fact that its demographic is taking the brunt of coronavirus impact is likely to be a cloud over its impact for some time.

Ranjit Singh Boparan buys Gourmet Burger Kitchen in rescue deal (The Guardian, Sarah Butler) reflects further consolidation in the casual dining sector as Boparan, which snapped up Carluccio’s in May, has bought GBK out of administration. This will save 660 jobs, but 362 will be lost as 26 sites are to close. GBK was owned by South African company Famous Brands, which also owns Wimpy in the UK. However, it had to put GBK up for sale as it struggled during the pandemic. * SO WHAT? * Boparan, dubbed the “chicken king” on account of him being the co-owner and founder of 2 Sisters Food Group which supplies about a third of the chicken on UK supermarket shelves, is using current circumstances to pick up bargains in the restaurant sector. How long can he hang on, I wonder? I hope he does, for the sake of the employees – plus the fact I really like their onion rings 😁

4

INDIVIDUAL COMPANY NEWS

Bit Hit Entertainment’s IPO proves to be a big hit, Zoom aims to keep the momentum going, Marshall Wace has a nibble of IAG while Deloitte abandons EG Group…

BTS frenzy drives hit K-pop IPO (Wall Street Journal, Frances Yoon) shows that Big Hit Entertainment, the management group behind the world’s biggest boyband BTS, had a stellar performance on its market debut yesterday as it doubled from its offer price. To give you an idea of scale, its value is now about $8.5bn versus Warner Music Group Corp (one of the world’s biggest record labels) at almost $15bn and Live Nation Entertainment at about $12bn. * SO WHAT? * Investor demand was huge (retail investor demand was 600 times oversubscribed and the institutional portion was 1,100 times oversubscribed!), but the fact is that BTS made up almost 88% of its entire revenues in the first half of this year. It would seem pretty risky to me on a long term basis because of this massive skewing – but I guess investors want to surf the BTS wave while it lasts!

Talking about surfing waves, Zoom to cash in on pandemic success with apps and events (Financial Times, Richard Waters) Zoom is going to be introducing apps and paid-for events to its existing offering in order to keep the party going. Zoom’s huge upswing in popularity during the pandemic is something that the management does not want to lose and yesterday it launched a US test of a marketplace called OnZoom where anyone can promote and sell virtual events with a full rollout scheduled for next

year. It also announced a plan to become a platform for other apps – called “Zapp” – which will bring extra features to enhance video meetings. * SO WHAT? * I personally think this could be absolutely massive and potentially catapult it, in time, to reach the heights of other Big Tech companies. Zoom has undoubtedly been a “winner” from lockdown and these ideas sound like a great way to keep engagement going.

Marshall Wace takes major stake in BA owner IAG (Daily Telegraph, Oliver Gill) shows that Marshall Wace, a major hedge fund, has built up a 3% stake in IAG – interesting considering that it had been known for building up short positions in Air France-KLM and Lufthansa earlier this year. * SO WHAT? * This sounds like a brave move to me given the ongoing prospects for the airline industry. I guess that it is banking on BA not going under as a flag carrier. At the moment, state-owned Qatar Airways is IAG’s biggest shareholder with a 25% stake.

Elsewhere, Deloitte quits as auditor of EG Group (The Times, Robert Miller) highlights a very interesting development as the accountancy firm has decided to resign as auditor to the company that’s just agreed to buy Asda from Walmart for £6.8m due to concerns about its governance and internal controls. EG Group, which is jointly owned by TDR Capital and the two Issa brothers, has grown rapidly and Deloitte asserted that its governance had not kept pace with its growth. EG Group owns almost 6,000 petrol stations and posted over €20bn of revenues last year. * SO WHAT? * This is pretty interesting – and I wonder what impact (if any) that this could have on the Asda deal. Given the increasing twitchiness that auditors have these days about dodgy accounts, I wonder whether the Asda deal will face further scrutiny.

5

...AND FINALLY...

…in other news…

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Some of today’s market, commodity & currency moves (as at hrs 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 **
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