Thursday 25/04/19

1. In NEWS ON CARS, both Tesla and Nissan disappoint
2. In RETAIL NEWS, Boohoo and Primark do not
3. In M&A NEWS, the US shale boom triggers a bidding war and the Deutsche Bank/Commerz thing looks far from being a done deal
4. In INDIVIDUAL COMPANY NEWS, Boeing puts a cost on the 737 Max impact and Facebook allocates a chunky sum for the expected FTC fine
5. In OTHER NEWS, I bring you a teenager’s cautionary tale. For more details, read on…

So both Tesla and Nissan disappoint…

Tesla earnings: company posts surprisingly large losses in delayed report (The Guardian, Kari Paul) highlights disappointing first quarter results for the company as it continued to struggle with production and had to raise prices on a number of its cars. Its reported loss per share was more than double market expectations and was clearly sheepish about it as it waited over an hour after the market closed to make the announcement (these announcements are usually made within the first 30 minutes of the market close). CEO Elon Musk said that poor sales were due to the phenomenon that “People just don’t like buying cars in winter”, which is a fair point – but not something that should be surprising (I also wonder whether it was because of the bad press that Tesla vehicles got from owners not being able to open their car doors because the recessed door handles froze). * SO WHAT? * Tesla has had a bit of an erratic time over the last year what with Musk’s involvement in various scandals, the sudden U-turn he had to make recently after initially saying he was going to shut down virtually all of his sales outlets to go online-only – to then changing his mind and increasing the prices of models other than the S – and then the most recent spontaneously combusting parked Model S, the video of which went viral in China. Fans continue to say he’ll turn things around, but the fact is that he continues to attract disasters while all the other established car manufacturers are coming out with new, appealing alternatives that work, don’t catch fire and don’t have their delivery dates constantly galloping off into the

future. As I keep saying, I think that the best thing for Tesla would be to team up with a proper manufacturer. If you coupled Tesla’s technical strengths with a traditional car maker’s production capacity and know-how, you could have a world-beater IMHO. Mind you, it would be difficult to see that happening as surely Musk would find it hard NOT to be the only decision-maker and he would be difficult for other senior execs to work with given his rather erratic mindset (the price of genius?).

Nissan issues second profit warning in two months (Financial Times, Kana Inagaki and Siddarth Shrikanth) highlights a rather tricky time for the carmaker since its former boss Carlos Ghosn was ousted as it announced yesterday that it had to cut its net profit guidance by a hefty 22%. It also cut a whole load of forecasts across the board mainly due to particularly poor sales in the US. Full year results are due out on May 14th. Meanwhile, Renault (which is Nissan’s biggest shareholder with a 43% stake) is continuing in its attempts to have a full merger with the company. * SO WHAT? * You would have thought that rubbish numbers like this (which Nissan says are due to one-off factors, although it’s debatable that they are quickly solvable) will make Nissan’s bargaining position much weaker in any merger negotiations. You may well think I am mad for saying this but I would not be surprised if Nissan struggle stubbornly on in a bid NOT to give the French the upper hand in power terms over a merged group – but given the current environment for car manufacturers, this could mean a lengthy period of pain where BOTH of the companies suffer. I think they will need to get over themselves and sort it out because surely they are stronger together than going solo. A bit like the Spice Girls, perhaps ????

Boohoo and Primark dress for success…

Boohoo bucks gloomy UK retail trend with soaring sales (Financial Times, Kate Beioley) shows that it is still possible to win in UK fashion retailing as online retailer Boohoo announced rising revenues and solid profits last year due to the happy marriage of its products, celebrity influencers and social media marketing. It reported revenues yesterday up by 48% on the previous year, topping market expectations of 45.5%. Revenues more than doubled at PrettyLittleThing and were up by 96% at Nasty Gal – the company’s low-cost ranges – and overall pre-tax profits were up by 38% on the year. * SO WHAT? * There is some doubt in the market as to the sustainability of Boohoo’s performance from here and I suspect that there will be some who might take their share profits off the table (Boohoo’s share price has risen by 40% over the last 12 months) and funnel the proceeds into the underperforming Asos (which is larger and whose share price has had a disastrous time of late – it fell by 40% IN ONE DAY after announcing that its half-year earnings had plunged by 90%) in the hope that the latter’s woes are surmountable.

Going from an online retailer to an (at the moment almost entirely) offline one, Primark helps cushion ABF as profits from sugar dissolve (Daily Telegraph, Ashley Armstrong) shows how the cheap-and-cheerful fashion retailer owned (rather randomly) by Associated British Foods managed to put in a strong performance for the half-year that more than compensated for the parent company’s disastrous performance in its sugar business. Primark’s operating profits were up by 25% in the period thanks to more efficient stock control and exchange rates that worked in its favour. In all, Primark’s performance meant that ABF’s guidance for the year remained unchanged. * SO WHAT? * This goes to show that there’s life in UK fashion retailers yet – and that you don’t have to be all over online to succeed! Although Primark has a website, you still have to go to the shops to buy the merch. There was recent talk about the company making moves online but ABF’s chief exec played it down, saying that introducing online delivery was still a “couple of years away”. As long as it continues to put in strong performances like this, no-one will care. However, I suspect that the moment that the retailer shows any signs of wavering the question of selling online sooner-rather-than-later will come up.

*** NEWS JUST IN – THE SAINSBURY’S/ASDA MERGER WILL NOT GO AHEAD. IT’S BEEN BLOCKED BY THE REGULATOR AND THE TWO SUPERMARKETS WON’T APPEAL AGAINST THE FINDINGS. BACK TO THE DRAWING BOARD! ***

Occidental launches a $55bn hostile bid for Andarko while Deutsche Bank/Commerzbank talks aren’t getting any closer to a conclusion…

American shale boom triggers merger battle (The Times, James Dean) highlights the current bidding war for one of America’s biggest shale oil producers, Andarko, as Occidental Petroleum swooped in yesterday with an offer to buy Andarko in a deal worth $57bn, trumping a previous offer of $50bn from Chevron, America’s second biggest oil company after Exxon Mobil. * SO WHAT? * This could biggest oil deal since Shell agreed to buy BG Group for £47bn in 2015 and shows how interest in the Permian

Basin (an area that straddles New Mexico and Texas that is seen as being the most exciting shale oilfield in the world) is hotting up. Expect more drama to come!

In Deutsche Bank, Commerzbank merger talks hit stumbling blocks (Wall Street Journal, Jenny Strasburg and Dana Cimilluca) we see that high profile talks between the two German banks to form a big “national champion” are stalling over various issues including lukewarm support from investors and outright hostility from labour unions. * SO WHAT? * Many had been expecting a merger to be announced at Deutsche Bank’s earnings announcement tomorrow, but sources close to the banks said that both sides are far from agreement at this moment in time. It is obviously possible that it could happen further down the line, but it won’t go ahead for the time being until more of the issues are ironed out. Formal merger talks have been going on for the last six weeks.

Boeing sets aside a heap of cash for the 737 Max debacle and Facebook does the same for an expected FTC fine…

Following on from its recent disasters, Boeing sets aside $1bn after fatal crashes (The Times, James Dean) shows that the company has had a first stab at putting a figure on the impact of the grounding of its 737 MAX aircraft in the wake of two major crashes and subsequent investigations. The company announced a 21% fall in its first quarter profit, cut its full year guidance and suspended its share buyback programme. Boeing set aside $1bn in the first quarter to cover charges related to fixing the problem and related higher production expenses. *SO WHAT? * It’s good that the company put a figure on this, but given that it’s not over yet, there is a very big risk that this figure could be way out. I suspect that there will be more turbulence ahead and that the world’s second biggest aircraft manufacturer, Airbus, will benefit from Boeing’s misfortune.

Facebook sets aside $3billion to cover expected FTC fine (Wall Street Journal, Jeff Horwitz) is a story doing the rounds in today’s broadsheets as it obviously makes a more exciting headline than something along the lines of “Facebook continues to smash it” etc. ????. Basically, the company’s underlying business is doing well (it posted revenues up by 26% on the year) but its profits were more than halved as it put aside $3bn to cover an expected fine from the Federal Trade Commission over the collection of personal data. * SO WHAT? * Facebook actually talked about an FTC fine being somewhere between $3bn and $5bn – and you will see that a number of newspapers have focused on the $5bn figure rather than the $3bn one. Whatever it is, it will be eminently affordable for a company that holds over $42bn in cash and marketable securities. Facebook’s share price rose by 8% in after hours trading, but has risen by about 35% year-to-date. Not too shabby! The company still continues to face other regulatory issues both at home and in Europe, but the underlying business continues to march forth.

And finally, in other news…

I thought I’d leave you today with an example of what must be in every teenage boy’s top three nightmare scenarios: Mum’s furious text as she catches son doing something very naughty on her work iPad (The Mirror, Zoe Forsey https://tinyurl.com/y68q6aaf). Oh dear!