Thursday 18/10/18

1. In CONSUMER/RETAIL-RELATED NEWS, UK inflation calms down and Asos sees sales rise
2. In UK REAL ESTATE NEWS, UK house prices slow and Crest Nicholson has another profit warning
3. In AIRLINE NEWS, business fliers mitigate fuel price increases but Flybe has a ‘mare
4. In INDIVIDUAL COMPANY NEWS, eBay takes Amazon to court
5. In OTHER NEWS, I bring you a really cool TV advert. For more details, read on…

So UK inflation slows and Asos gains ground…

UK inflation rate falls more than expected in September (Financial Times, Gavin Jackson) highlights a broad-based fall after a sharp rise in August, according to the latest figures from the Office for National Statistics (ONS). The annual rise in the Consumer Price Index (CPI) fell from 2.7% to 2.4%, which was a steeper fall than consensus estimates. Mike Hardie, head of inflation at the ONS said that “food was the main downward pull on inflation as last year’s September price rises failed to reappear, while ferry prices dropped after their surprisingly high summer peak”. * SO WHAT? * Coupled with news of wage rises, this should ease pressure on the UK consumer for now.

Asos is sitting pretty on £102m profits (The Times, Deirdre Hipwell) heralds an impressive 28% rise in profits last year, even after the online fashion retailer invested £242m in the business over that timeframe. The investment is part of efforts to upgrade its infrastructure to give it a better base from which to launch further

expansion and it has earmarked a further £230-250m in capex over the next few years. Sales in the UK were up by 23% to £861.3m whilst international sales rose by 27% to reach £1.5bn and it continues to add new bits like a fragrance division and a gender-neutral label called Collusion. Chief exec Nick Beighton boasted that “Investors own us for growth. UK online penetration in fashion is 24 per cent. It’s forecast to rise to 32 per cent by 2023. Why wouldn’t we keep investing to capture that growth? You can easily see how Asos could become a £6 billion (sales) company”. The shares were up by 16.9% at the close yesterday. * SO WHAT? * Great news from this online retailer made all the more impressive by knocking it out of the park DESPITE spending a fortune on expansion. They have had a few wobbles in the past, but hopefully their hefty investment in an infrastructure upgrade will consolidate the company’s current position and help its future expansion. Asos now has a 7.5% market share in the UK, but in Europe and the US it is 1.6% and 0.5% respectively – so there’s plenty of room for upside. Asos: all-weather gear (Financial Times, Lex) points out that even with yesterday’s gains, the company’s share price is 25% down on the year – twice as big a fall as the MSCI Europe Retailing Index. This seems quite harsh considering the company’s strong performance.

In UK real estate news, house price growth slows and Crest Nicholson issues another profit warning…

UK house prices grow at slowest rate for five years (The Guardian, Angela Monaghan) cites the latest data from the ONS and Land Registry which show that the average price of a UK home increased by 3.2% in the year to August to £232,797, making it the lowest level of growth since August 2013. London was the only region where prices fell (they dropped by 0.2%) but the average price remained punchy at £486,304. Kevin Boa, property partner at law firm Pinsent Masons, observed that “Interest rate increases, government policy changes that have shrunk the buy-to-let market, Brexit upheaval and the reduction in EU and overseas buyers, particularly in London, all contribute to

this decline. Despite this, there remains a huge undersupply of housing, which will only become more acute over time”. If you love this kind of stuff, you should have a look at this article because there’s a really good map showing the regional breakdown.

Crest Nicholson issues third profit warning in two years (Daily Telegraph, LaToya Harding) highlights an altogether downbeat story as the housebuilder announced a profit warning and the departure of its CFO, Robert Allen. The FTSE250 company is more exposed to the south of England where buyers are being particularly cautious and the shares fell by 8.2% on the news. Stephen Stone, executive chairman, said that the company will now “focus on shareholder returns by prioritising cash flow and dividends, maximising the value in our portfolio and improving operational efficiency”. I would interpret this as meaning “OMG, we’ve had a ‘mare so we’re going to shut up and keep our heads down”.

In airlines news, business class passengers offset higher fuel prices and Flybe takes a nosedive (but you know, not literally)…

In United, Delta climb on business-class demand (Wall Street Journal, Alison Sider and Andrew Tangel) we see that airlines are using revenues from business class passengers to mitigate the 40% rise in jet fuel costs seen in the past year. Airlines are benefiting from the strong US economy and super-low unemployment rate with United Continental and Delta Airlines amongst those citing a rise in business class revenues.  United’s president Scott Kirby even went as far as saying “This is one of the best revenue environments we’ve ever seen” and the company believes that it is benefiting not only from raising prices – it’s filling more seats. American Airlines is due to report third-quarter earnings next Thursday and investors will be keen to see whether or not the world’s biggest carrier has also managed to boost revenues to cover higher fuel costs. * SO WHAT? * Great news for airlines, but fuel prices do not look like weakening any time soon so filling more business 

class seats is a real priority. No doubt seat manufacturers and companies that fit them (especially if they are being retrofitted) will be doing pretty good business themselves! 

Meanwhile, Flybe warns losses will be £18bn higher than expected (Daily Telegraph, Oliver Gill) heralds some rather bad news for budget airline Flybe as it announced a profit warning yesterday, blaming adverse currency movements and increased fuel costs, although Numis analyst Kathryn Leonard said it had more to do with weakening passenger demand. The shares fell by an eye-watering 40% in trading on the news. Flybe boss Christine Ourmieres-Widener said that “Stronger cost discipline is starting to have a positive impact across the business”, but clearly these efforts are just p!ssing in the wind. * SO WHAT? * This is just the latest lurch in what has been a white-knuckle ride for Flybe shareholders. Shares shot up in February when Stobart Group, the FTSE250 infrastructure and aviation conglomerate expressed an interest in buying Flybe, but then they crash-landed when this all fell through. Getting hit by rising fuel costs and adverse currency movements is particularly tricky for budget airlines as they can’t rely on revenues from higher-margin business passengers so they have to make up shortfalls elsewhere. Will they be able to survive this turbulence, I wonder?

In individual company news, eBay gets shirty with Amazon…

eBay sues Amazon, alleging sellers were illegally poached (Wall Street Journal, Laura Stevens) highlights the filing of a lawsuit against Amazon yesterday where the latter is accused of illegally poaching sellers for its own marketplace using eBay’s internal member messaging system. The lawsuit alleges that “Amazon has been engaged in a systematic, coordinated effort to infiltrate and exploit eBay’s proprietary M2M system on eBay’s

platform to lure top eBay sellers to Amazon…the scheme is startling in breadth – involving large numbers of Amazon representatives (“Amazon reps”) targeting many hundreds of eBay sellers, and spanning several countries overseas and many states in the United States including California)”. * SO WHAT? * The two sides have been competing for merchants and buyers for years and have been increasingly reliant on independent sellers to boost sales as Amazon, for instance, makes more money from these transactions because it takes a cut of the revenues to cover warehousing, advertising and other fees. A lot is at stake here, but I don’t expect this to get resolved for quite some time.

…And finally, in other news…

I thought I’d leave you with a very artful Japanese TV advert. Some of you will think I’m mad, but there’s something quite beautiful about it: Shiseido promises confidence for the lovelorn with their spellbinding new makeup ad (SoraNews24, Katy Kelly https://tinyurl.com/yaa5bc92).

As always, thank you for reading Watson’s Daily!