Thursday 21/11/24

I will shortly be launching a 10th anniversary competition that is going to have some unique prizes. One of the prizes will be to work with me in person and write Watson’s Daily for one edition (don’t worry – I’ll help you 😁). No-one has ever written Watson’s Daily apart from me – so this will be a first and, I hope, a good experience for the winners!👍

UK inflation rises to 2.3%, increasing pressure to delay interest rate cut (The Guardian, Phillip Inman) highlights the latest figures from the ONS which show that inflation hit 2.3% in October, up from 1.7% in September and above market expectations of 2.2%. This will put pressure on the Bank of England to slow down interest rate cuts. * SO WHAT? * I mentioned this on Monday, but yesterday was the “official” release. It’s not looking great here as some of the rise was due to the raising of the quarterly energy price cap – which is going to go up again in January – and then

the retail and hospitality sectors are talking about how Budget changes are going to push prices up for customers. We’ve just been served up a triple whammy of rising core inflation, services inflation and energy prices. Will it give the economy indigestion??

Meanwhile, Bitcoin hits record as Trump vows to make US the world’s crypto capital (The Times, Louisa Clarence-Smith) highlights the continued upward trajectory of the cryptocurrency as it breached $94,000 for the first time! Since Donny T won the election, its value has risen by almost 40% as the one-crypto-sceptic has transformed into a fully-fledged crypto-bro! He has promised, in typically understated fashion, to make America “the crypto capital of the planet”. He has also said that he would boot out arch-bitcoin-hater Gary Gensler, chairman of the SEC. Bitcoin at $100k by Christmas??

Nvidia’s Sales Soar as AI Spending Boom Barrels Ahead (Wall Street Journal, Asa Fitch) shows that the AI chip supremo saw sales surge yet again in Q3 and profits almost doubled! * SO WHAT? * It certainly looks like things are back on track for the company after a hiccup at its results in August where it reported some engineering issues with its Blackwell chips. Fun fact: analysts reckon that Nvidia has more than an 80% market share in AI chips! Nvidia’s dizzying growth is now everyone’s business (Financial Times, Lex) emphasises just how impactful Nvidia’s results are given its massive market power and that when it reports results, everyone reacts (it now makes up 7% of the S&P Index and accounts for 24% of the index’s gains this year!). Although its forecasts for the next quarter are only slightly above market expectations the fact is that the company has smashed its own forecasts for the past six consecutive quarters. It is also interesting to note that, because demand for its wares are so strong – and so global – that despite Big Tech and state efforts to catch up with Nvidia’s tech supremacy, the company is still quite some way ahead. I guess the difficulty will be staying there!

Apple proposes Indonesian factory in bid to reverse iPhone 16 ban (Financial Times, A. Anantha Lakshmi) shows that Indonesia’s recent ban on the iPhone 16 is having the desired effect as the tech giant has suggested that it could spend $100m on building an Indonesian manufacturing facility in Bandung, West Java. The government imposed the ban because Apple did not meet the requirement for its handsets and tablets having 40% local content. Apple and the Indonesian government are having a meeting today to discuss the proposal further. * SO WHAT? * The fact is that the Indonesian market has massive potential for Apple, being the world’s fourth most populous country, so I think that the government can chalk this one up as a real win! Given that Apple already has four developer academies in Indonesia that train students and engineers, this is the logical next step!

Palo Alto Networks Full-Year Guidance Disappoints; Shares Slip (Wall Street Journal, Sabela Ojea) shows that although the cybersecurity company’s Q1 results beat Wall Street forecasts, its share price fell by 5% in after-hours trading – its biggest one-day fall since February (but don’t panic – its shares are still up 33% year to date!). Palo Alto even raised its full-year revenue guidance and announced a stock split to come into force in the middle of next month! * SO WHAT? * Sometimes it’s better to travel than arrive and maybe investors are just taking some money off the table and crystallising their gains for now. Investors were also possibly hoping for even more bullish guidance than the company came out with. Re the stock split, generally

speaking, such corporate actions are quite popular and tend to boost the share price. Basically, if your company has done so well that its share price, say, goes to $1,000 and you have a 2-for-1 stock split it means that the company doesn’t grow, per se – it means that each share will be worth $500. All it’s doing is splitting the current shares into smaller units so, as a shareholder, if you had 10 shares that were originally worth $10,000 (10x $1,000), after a 2-for-1 stock split you will have 20 shares that are also worth $10,000 (i.g. 20 x $500) because existing shares are just split in two. It can make the shares more attractive particularly to retail investors who sometimes baulk at huge unwieldy share prices. I know there are ways around this, but there is a psychological element where some people find this more satisfying! This also means that stock splits also tend to increase liquidity because they lead to increased buying and selling activity.

Elsewhere, Sage share price jumps nearly 20% as investment pays off (The Times, Emma Taggart) highlights strong Q4 results from the business software group which reported a 21% increase in annual profits in addition to a £400m share buyback. Investors clearly loved this as buying saw the share price jump by 19.6% to an all-time high! It did particularly well in North America, which accounts for almost 50% of its revenues (the UK and Ireland accounts for about 25%). North America is its fastest-growing market. The company has also invested a lot in AI and now offers its AI-based digital assistant, Sage Copilot, with some of its products, although the company does seem to be doing this in quite a low-key way at the moment.

Then in Start-up ProRata.ai valued at $130mn after signing up UK publishers (Financial Times, Daniel Thomas) we see that the US AI start-up ProRata.ai has just agreed licencing deals with a number of publishers including DMG Media (which owns that Daily Mail), the Guardian and Sky News. Basically, ProRata.ai provides a platform through which content creators in the fields of publishing, music and video get paid fairly for their content on a per usage basis. ProRata gets revenues from subscriptions to its platform and gives 50% of the revenues to its licensing partners – who also include the likes of Universal Music, Axel Springer, the FT, The Atlantic and Fortune. * SO WHAT? * The idea is that this platform provides a way for content creators to get paid and gives some protection against AI start-ups scraping their content to train their models for free. Some media outlets have signed deals directly with bigger AI companies such as OpenAI but this provides an alternative avenue for them as well. Is this the way forward, I wonder?? A solution definitely needs to be found otherwise the overall quality of content will most definitely suffer…

In Target Shares Tumble on Earnings Miss (Wall Street Journal, Sarah Nassauer) we see that the retailer’s share price bombed by 21% in trading yesterday after it announced disappointing quarterly results and cut its full year outlook. Its efforts to push own-label brands and cut prices have clearly not worked. Target’s frugal customers leave it cheap and cheerless (Financial Times, Lex) shows that the retailer is suffering from its higher exposure to food in the food/non-food balance versus more successful rivals such as Walmart (which actually raised its revenues and profit forecasts for the full year after expectation-beating Q3 numbers!). * SO WHAT? * Over 50% of the company’s sales came from discretionary spending categories last year, with only 23% of revenues coming from food (at Walmart it is over 50%). Put bluntly, Walmart is better placed than Target to do well when consumers are feeling the pinch because it is more exposed to “essentials”, which continue to sell. However, there will undoubtedly come a point when things will improve, the consumer will get more confident and will then have more bandwidth to make more discretionary purchases. How long will that take, though – and in the interim, should the company try to change its offering to give more of a weighting to groceries??

Back in the UK, the gloom prompted by the recent Budget continues in HMV suspends store openings after Reeves’s tax raid (Daily Telegraph, Hannah Boland) where the high street music retailer has just suspended new store openings across the UK because the owner, who rescued the company from administration in 2019, reckons that the recent changes have made it too risky to invest. He had previously planned to open between five and ten new stores per year. German supermarket group Lidl warns of inflationary pressures (The Times, Isabella Fish) added to the general mood of dissatisfaction with the government as its GB chief said that it faced “tens of millions of pounds” in extra costs because of the recent Budget changes. Separately, the German discounter announced a big uptick in sales over the past year and swung into profit after posting a loss in the previous year. Will the Budget changes stop this feelgood dead in its tracks?? * SO WHAT? * Reeves took a big risk in her maiden Budget. She had to get the balance right between raising funds and not killing off the economy that had just started to show signs of a fragile recovery. At the moment, it’s not looking good – but it is early days and perhaps other macro factors (e.g. better relations with Europe, a booming US economy lifting others and an end to at least some of the wars going on at the moment) could actually mitigate the damage.

In a quick scoot around some of today’s other interesting stories, UK ministers resist car industry pressure to ease fines on EV sales targets (Financial Times, Jim Pickard, Kana Inagaki and Kieran Smith) shows that the government is going to stick to its guns on the EV targets it’s imposing on carmakers despite their pleas. There will not relent on the timetable of the targets themselves or the fine of £15,000 per car if they miss those targets. Meanwhile, Ford cuts 4,000 jobs in Europe, including 800 in UK, after slowdown in EV sales (The Guardian, Jasper Jolly) shows that the US maker is the latest company to try to cut costs amid the whole debacle of ongoing sluggish EV demand. * SO WHAT? * I think that the government is being highly unreasonable in sticking to policies that were decided years ago at a time when prices for batteries were falling every year and demand was increasing. More jobs will most definitely be lost if the government doesn’t at least make some concessions. Meanwhile, the Chinese will just continue to eat other car manufacturers’ lunch…

Santander UK sets aside £295m for car finance scandal (The Times, Ben Martin) just highlights the latest development in the car finance mis-selling scandal – as Santander UK has become the latest lender to put aside a chunky sum in case it faces a big compensation bill. * SO WHAT? * This is definitely going to hurt, but we don’t know anything for sure yet until the Supreme Court passes its judgment on the matter.

In real estate news, British Land cashes in on retail parks (The Times, Tom Howard) shows that the landlord is finally benefiting from its exposure to the retail sector after a very rough few years. The landlord managed to turn a profit over the summer as its £1.1bn investment in retail property over the last three years is now paying off! Retail parks now make up almost a third of the company’s portfolio. Such parks have become increasingly popular with retailers because they’re relatively cheap and they can also double-up as click-and-collect points. Rents and property valuations also increased over the latest quarter.

Then in residential property, Crest Nicholson warns of lower profit but reassures on problems (The Times, Tom Howard) shows that the embattled housebuilder fell short of its own profit expectations for this year but the good news is that its “new” CEO who started in June has not uncovered any more nasties. * SO WHAT? * Crest Nicholson is one of the country’s biggest housebuilders but has been hit by rising costs of fixing dangerous cladding on older blocks in addition to cost overruns in some big projects. It seemed that investors were heartened by the lack of more nasty surprises but the company has still got to get things properly back on track.

Tokyo Metro wins contract to operate London’s Elizabeth line (The Guardian, Jack Simpson) highlights what sounds like good news for Londoners – that Tokyo Metro Company (TMC) will be replacing the incumbent operator of the Elizabeth Line, Chinese-owned MTR, as operator. TMC is part of a bigger GTS Consortium that will take over the line and run it for at least seven years from May 2025. * SO WHAT? * Although Japan’s trains have a fearsome reputation for efficiency (99% of their metro trains arrived within five minutes of their scheduled time in 2022), I think they’ll have their work cut out over here! Good luck to TMC, though. Wouldn’t it be great if they could work their magic!

Then in Unilever shelves planned sale of its ice cream business to private equity (Financial Times, Ivan Levingston, Alexandra Heal and Madeleine Speed) we see that the much-vaunted sale of Unilever’s plans to sell its €15bn ice cream division has been ditched because potential private equity buyers were put off by its size and complicated supply chain. Instead, Unilever will look to spin it off in an IPO. Which side of the Atlantic will it list on, though??

Gladiator is one of my all-time favourite films (so the sequel had better be darn good!) so it’s quite interesting to see how Russell Crowe describes what went into one of the film’s most emotional scenes!