Thursday 23/05/19

  1. In TECH NEWS, Huawei’s headaches get worse, Hikvision looks like it might get the Huawei treatment and Qualcomm gets a big slap
  2. In CONSUMER, RETAIL AND COSMETICS NEWS, Lowe’s has a profit warning, UK inflation goes up, M&S and Arcadia’s tough times continue while we see cosmetic acquisitions, Pret’s plans for Eat and the latest on meat-free
  3. In MONEY-RAISING NEWS, Transferwise becomes Europe’s #1 and Trainline eyes a chunky listing
  4. In OTHER NEWS, I bring you the world’s smallest McDonald’s. For more details, read on…



So Huawei gets dumped on even more, Chinese CCTV giant Hikvision potentially faces a similar fate and Qualcomm gets a big fine…

British companies drop Huawei after US ban (The Times, Simon Duke) shows that things are continuing to get tricky for the Chinese telecoms giant as three of Britain’s biggest tech and telecoms companies are cutting ties with it. Arm, the Cambridge-based and SoftBank-owned microchip group, will stop licensing its chip designs to Huawei while EE and Vodafone have decided to drop its handsets from their 5G networks. Huawei said that it will ramp up efforts to make its own chips in response. Fears over Britain’s CCTV as US puts Hikvision under scrutiny (Daily Telegraph, Hannah Boland) suggests that this Chinese company, which is one of the biggest suppliers of CCTV cameras in the world, could be next to get the Huawei treatment according to rumours that Washington was thinking about banning Hikvision from doing business with US companies. * SO WHAT? * This is obviously all about applying pressure in the US-China trade negotiations, but I have to say that Trump is playing a very dangerous game here because Chinese companies will ramp up efforts to make their own components and cut out any outsiders. It’s also conceivable that, if this takes place, China could effectively

be cut off as a market to tech outsiders. Given all the chat about the potential of the Chinese market and the efforts that have gone into improving relations with China over the years, I think that this would be a blow to all concerned. On the other hand, you could argue that Trump is just shaking things up after years of “over-accommodating” China and following through with threats that past leaders couldn’t stomach.

Qualcomm’s practices violate antitrust law, judge rules (Wall Street Journal, Tripp Mickle, Brent Kendall and Asa Fitch) heralds the latest development in Qualcomm’s legal struggles as a federal judge just ruled that Qualcomm unlawfully restricted competition in wireless chips – agreeing with findings from the Federal Trade Commission in its antitrust lawsuit against Qualcomm. * SO WHAT? * It’s a case of three steps forward, one step back for Qualcomm as its share price shot up by 50% following the resolution (in its favour) of a long-running legal dispute with Apple – but this news saw its share price plummet by 10%. This ruling could definitely damage future business for the company, so obviously it is launching an appeal. The key thing to remember here is that this could affect LICENSING for Qualcomm – and this is where it makes its real money rather than selling the chips themselves. The company gets fat fees from its patents and this ruling could force them to hand some of their licences over to rival chip suppliers, which would cut out the 5% royalties they earn on every handset up to $400. Tricky for them but potentially good for everyone else!



Lowe’s warns, UK inflation rises, there’s more retail gloom from M&S and Arcadia as cosmetics companies are snapped up and Pret announces its plans for Eat…

Following on from what I said yesterday about the success of US DIY giant Home Depot, DIY retailer Lowe’s issues profit warning on rising costs (Financial Times, Alistair Gray and Philip Georgiadis) paints an altogether different picture as this DIY company cut its profit forecasts for 2019, blaming the impact of rising costs on first quarter earnings. The share price fell by 11% in response to the news as it is obviously struggling to maintain market share compared to its bigger rival Home Depot. * SO WHAT? * As I said yesterday, market watchers monitor DIY retailers like Home Depot and Lowe’s to get a feel for the health of the US housing market. Clearly the signals are a bit mixed given that Home Depot did quite well and Lowe’s didn’t – but I’d be inclined to think that this is Lowe’s problem and not a sign of US housing market weakness.

Meanwhile, back in the UK, Higher energy bills and transport costs drive up UK inflation (The Guardian, Larry Elliott) shows that consumer wallets are being squeezed as the annual rate of inflation, announced by the Office for National Statistics, went up to 2.1% in April versus 1.9% in March. * SO WHAT? * This means that inflation has returned to the government’s 2% target for the first time in four months. Thankfully, earnings are still rising faster than prices – but still, this will be a bit of a blow to consumers.

Gloom on the UK high street continues in Marks & Spencer to close another 20 stores as profits plunge (The Guardian, Zoe Wood) as the retailer continues to try to turn its fortunes around. It is to close 72 of its big high street stores in addition to the 48 is has already shut and it will also close 25 of its smaller Simply Food convenience stores. The locations of stores that will be affected has not yet been disclosed. * SO WHAT? * Turning around something the size of M&S is no easy job and will take time. I expect that things will probably get worse before they get better – and there is even talk that M&S could drop out of the FTSE 100 index for the first time ever. Let’s hope that a slimming down, a bit of brand tinkering and some online magic from their forthcoming Ocado tie-up can turn things around for the ailing retailer. I think that this must be even more of a nightmare for landlords as M&S abandoning key sites just continues the hollowing-out of city centres – with not that many companies wanting to take their place.

Green to cut stores and staff in Arcadia restructuring (Daily Telegraph, Ashley Armstrong) piles on the retail misery as the company behind the Topshop, Dorothy Perkins and Miss Selfridges brands continues its bid for survival. Chief exec Philip Green and his wife have offered a £100m cash injection for Arcadia’s pension scheme as part of efforts to win backing for a major business overhaul. This restructuring will need support from its landlords to go ahead, with a vote scheduled for June 5th. * SO WHAT? * A CVA is not a guarantee of future survival, but it does give the company some breathing space. Still, not great for the high street as a whole.

In the cosmetics space, Cannabis firm buys British beauty brand This Works (The Guardian, Rob Davies) heralds the purchase of British beauty brand This Works for £43m by the world’s biggest cannabis company, Canopy Growth, in a deal that will see a launch of products infused with cannabis ingredient CBD to help users sleep and improve their skin. * SO WHAT? * CBD doesn’t make you “high” per se, but it is supposedly good for you and there’s been a sharp increase in the number of products containing CBD for its “wellness” benefits. Canopy will use its financial clout to help This Works internationally.

In Natura announces $2billion deal for Avon (Wall Street Journal, Patrick Thomas) we see that Brazil’s biggest cosmetics company Natura Cosmeticos, owner of The Body Shop and Australia’s Aesop brand, has reached an agreement to buy Avon Products Inc for $2bn in an all-stock deal. Natura shareholders will own around 76% of the enlarged entity. * SO WHAT? * This sounds like a reasonable strategic deal and Natura expects it will be able to cut costs by $150-200m per year. Avon chief exec Jan Zijderveld said that “together with Natura, we will have broader access to innovation and a portfolio of products, a stronger e-commerce and digital platform, and improved data and tools”. 

Moving on to food, Pret hopes to open new vegetarian outlets ‘at pace’ after buying Eat (The Guardian, Sarah Butler) follows on from Pret’s acquisition of Eat for an undisclosed sum as its chief exec outlined plans to convert most of Eat’s 94 outlets to Veggie Prets by the end of next year, pending approval from the UK competition watchdog, the Competition and Markets Authority. At the moment, it only has four veggie outlets – three in London and one in Manchester – but Pret is keen for a fast rollout. Vegan meat market is poised to mushroom (The Times, James Dean) suggests that it’s on to a good thing as research from Barclays (entitled “I can’t believe it’s not meat”!) predicts a bright future for those who are involved in supplying tasty meat-alternatives to consumers who prefer eating plants to animals.



Transferwise takes the European #1 spot and Trainline is on track (#seewhatididthere) for a nice IPO…

Transfer start-up in Europe’s top spot (The Times, Tabby Kinder) highlights the latest funding round of money transfer start-up Transferwise where investors handed it $300m for shares in the company. The company has now

raised a total of $689m, implying a doubling of the $1.6bn valuation it had at its last funding round 18 months ago. This makes it the most valuable fintech start-up in Europe!

I have mentioned this before but Trainline on track for £1.5bn float (Daily Telegraph, Oliver Gill) has now confirmed that it will be seeking a London stock market listing that will help it to pay down debt and get into profit. * SO WHAT? * I quite like this company. Unlike some others seeking a listing at the moment, it’s got a proper product, operates in a number of markets and is scaleable. Let’s see what happens when it DOES come to market!



And finally, in other news…

I thought I’d leave you today with World’s tiniest McDonald’s opens in Sweden, welcomes bees as customers (Mental Floss, Michele Debczak It’ll give you a buzz…

Some of today’s market, commodity & currency moves (as at 0837hrs 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 **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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