Thursday 19/11/20

1. In CONSUMER/RETAIL-RELATED NEWS, Inflation rises, wages freeze, Halford peddles well and British Land offloads retail while in the US, Target hits the spot and TK Maxx’s parent makes an online push
2. In ELECTRIC VEHICLE NEWS, Arrival aims for NY and Panasonic has European battery plans
3. In TECH NEWS, Nvidia sees higher demand and Apple relents
4. In INDIVIDUAL COMPANY NEWS, the Pfizer/BioNTech solution looks even more promising, Norwegian Air files for bankruptcy protection and RSA accepts the takeover bid
5. AND FINALLY, I bring you an unusually specialised estate agent and a life lesson…

So inflation rises, wages go sideways, Halfords benefits and British Land disposes of retail assets while Target and TK Maxx make progress Stateside…

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Prior to this call I will be doing an Instagram Live starting at 5pm on the Watson’s Daily Instagram channel where I will be picking out a few of this week’s big stories, talking about how and why I pick the articles I do in Watson’s Daily (it’s a mixture of science AND art!) and answering your questions ***

Inflation rises on back of increase in clothing and secondhand car prices (The Guardian, Richard Partington) cites the latest figures from the Office for National Statistics (ONS) which says that inflation rose above expectations in October. The cost of food also increased a bit last month and analysts expect this trend to continue into November as the forced closure of restaurants is likely to fuel demand for goods sold in supermarkets. Despite the unexpected rise, the rate of inflation is still way below the Bank of England’s 2% target.

Then in Fifth of firms freeze wages despite resurgence of GDP (Daily Telegraph, Tim Wallace) we see that data from XpertHR shows that 20% of companies imposed pay freezes in the three months to October – which is way more than the 5% that would do so in a “normal” year. Average pay rises came in at 2%, which is smaller than the 2.5% average offered in 2018 and 2019. * SO WHAT? * As things stand right now, this does not bode well for the consumer as their collective spending power has been chipped away during this year. I do wonder whether we are going to be seeing sharp rises in household debt going into Christmas and New Year as consumers concentrate on pushing the boat out, but then again this could be blunted by others who have been quietly paying down their debts over lockdown (because they are not going on holidays, going to restaurants etc.).

Hardcore cyclists put Halfords on right track (The Times, Ashley Armstrong) shows that worsening weather is not slowing down customers’ appetite for cycling and that people are actually buying more expensive bikes, which would suggest that they are going to continue cycling longer term. At the moment, online orders account for over half of its sales and it posted pre-tax profits for the half year that were 116% higher than the same time period last year. Sales rose by 184% over the period as the company struggled to keep up with demand for adult bikes, electric bikes and scooters. Demand is such that the company said that it would be increasing the number of in-store bike and scooter technicians from 400 to 1,800 to keep up! It’s also training more electric car mechanics. * SO WHAT? * This is a quite incredible performance and I must say that my pre-covid prediction of peak gin and peak cycling (and questioning of the logic of Peloton!) were woefully misguided! I stand by this prediction in a pre-covid world, but the disease has given all of them a catalyst that no-one expected. Well done to Halfords for surfing the wave! If the momentum continues through the winter months, I would expect things to get even stronger again in the summer.

British Land ditches retail properties as pandemic inflicts £1bn hit (Financial Times, George Hammond) reflects further gloom in the retail sector as it said yesterday that it has sold over £400m of retail properties since the beginning of the pandemic. It said that the value of its retail portfolio had fallen by 15% over the period. On the plus side, its office properties fared better as British Land said that office tenants had paid 97% of the rent they owed versus retail tenants who only paid 62% of rent owed. * SO WHAT? * It seems to me that British Land and Landsec are going in the same direction as they are concentrating more on their office properties in the hope that revenues from segment will be more robust over the long term. They may well be, but it will also depend on how long the working from home trend continues IMO.

Meanwhile, over in the US, Target grabs sales from rivals amid pandemic (Wall Street Journal, Sarah Nassauer) shows that Target had a great quarter with sales rising on demand for household goods and home office supplies. Online sales were also strong. I guess the question is whether this momentum can continue, as Walmart said yesterday that it was slowing down. Then in TJ Maxx parent launches online platform as coronavirus persists (Wall Street Journal, Renata Geraldo) we see that the owner of TK Maxx (TJX) has announced that it would be launching an e-commerce platform in the second half of 2021. * SO WHAT? * It’s interesting to see that TJX is rather belatedly catching up with the times but then again, in the past, discounters like TJX, Burlington Stores and Ross Stores have avoided too much emphasis on e-commerce as they have argued that their customers want to go to physical stores. I guess that covid has given TJX an almighty kick up the backside, hence the announcement…

Arrival heads to the States and Panasonic reveals battery plans…

UK electric vehicle group Arrival to list in US through Spac deal (Financial Times, Peter Campbell) shows that UK electric bus and van maker Arrival, which is backed by Hyundai, said yesterday that it will list on the NASDAQ via a reverse takeover with CIIG Merger Corp, a special purpose acquisition company (SPAC). This will pit it against Ford with its soon-to-be-revealed electric Transit van and other start-ups like Rivian. The company wants to produces electric buses and vans from “microfactories” and will raise $660m from the listing which will help it to increase factory openings in the US and Europe. Arrival/Spacs: coming to America (Financial Times, Lex) points out that at least five American electric or autonomous vehicle companies have listed their shares via Spac mergers and although this is clearly a hot area, the fate of electric truck maker Nikola will be something to keep in mind. Expectations are high – and so are the valuations – so Arrival will have a lot to prove. A £4bn ‘mini Tesla’ choosing to list stock in US is worrying (The Guardian, Nils Pratley) takes an interesting

spin on the story as it acknowledges Arrival’s logic of going stateside to surf the EV wave that investors love at the moment, but points out that this is a slap in the face for the London Stock Exchange, given that Arrival is a British company. It makes the point that SPACs can move quickly because there is not so much oversight to contend with for the companies involved versus a traditional listing, but I guess the implication here is that American Spacs are hoovering up exciting (but risky) companies while we just look on. If we don’t act quickly to change the laws on listing, we may well miss out on more such developments.

Then in Tesla supplier Panasonic to make big battery bet in Europe (Financial Times, Kana Inagaki and Richard Milne) we see that Panasonic has announced plans to expand in Europe, with initial plans to make a battery factory in Norway. It is engaging with state-controlled oil and gas major Equinor and aluminium company Norsk Hydro in a feasibility study that will take six months. As things stand currently, Panasonic runs the world’s largest battery factory with Tesla in Nevada, but has noticeably little presence in Europe. * SO WHAT? * When you consider that battery demand is likely to increase considerably over the next few years AND the expertise that Panasonic has picked up by working with Tesla, this rollout in Europe sounds like a great idea. It’ll be a while before we see actual factories, but we are moving in the right direction.

Nvidia see higher demand and Apple relents…

Nvidia benefits from sustained pandemic-era remote work, videogaming demand (Wall Street Journal, Asa Fitch) shows that graphics chip maker Nvidia doesn’t expect any slowing of momentum as it expects continued demand for its chips in home computers, videogames and big data centres will power even better results. * SO WHAT? * It posted strong sales in Q3 but there are a few potential flies in the ointment. One is the continued Huawei-bashing, which will put downward pressure on orders – and the other is the discomfort that its offer to buy Arm Holdings is causing as the chip industry appears

to be sceptical of Arm’s continued neutrality under Nvidia. There is a danger that this discomfort may lead to many digging their heels in and scuppering the deal. If Nvidia can get the deal through, though, growth potential could be huge.

There’s good news for little guys like me in Apple gives up a slice of sales charge (The Times, James Dean) as the company announced that it will halve fees to 15% for small software developers for using its App Store. It will cut sales commissions next year from 30% to 15% for developers who get less than $1m of annual revenues via the platform. * SO WHAT? * Critics say that this is just window dressing and that it is a cynical move designed to take the wind out of the sales of the growing campaign against “Apple Tax” that is being fronted by the likes of Spotify, Netflix and Epic Games. I guess time will tell. It will be interesting to see if Google does something similar.

There’s good news for Pfizer/BioNTech, bad news for Norwegian Air and and acceptance by RSA…

In other news doing the rounds today, Pfizer-BioNTech trial data show vaccine to be even more effective (Financial Times, Hannah Kuchler, Joe Miller and Donato Paolo Mancini) shows the latest development in coronavirus vaccines as the companies announced they would submit their vaccine for US and EU emergency approval “within days” and that it has proved to be even more effective than originally thought. Superb news!

Elsewhere, Norwegian Air files for bankruptcy protection in Ireland (The Guardian, Joanna Partridge) shows that low-cost airline Norwegian Air is on the rack – not surprising considering its own government recently rejected appeals for another bailout. Then in Insurer RSA accepts £7.2bn bid from Intact and Tryg (Financial Times, Oliver Ralph) we see that the proposed acquisition of RSA by Canadian insurance group Intact and Danish insurer Tryg has been accepted by the company.

…in other news…

I thought I’d leave you today with a highly unusual collaboration between a fast-food outlet and a real estate company serving an incredibly niche customer base in Burger King opens a rental site to help fast food lovers find an apartment in Japan (SoraNews24, Oona McGee). This is just plain weird 🤷‍♂️. Then there is a very pertinent life lesson to be had in Man instantly rejected from job interview after failing trick test at reception (The Mirror, Rosaleen Fenton). This is something that I 100% agree with!