Thursday 28/02/19

1. In POLITICAL NEWS, we see two faces of Trump and Pakistan/India escalates
2. In RETAIL NEWS, M&S shareholders balk at the price of the Ocado deal, Ted Baker issues a profits warning and Best Buy benefits from Fortnite
3. In INDIVIDUAL COMPANY NEWS, Spotify launches in India, Lego has a turnaround and Metro Bank gets hammered
4. In OTHER NEWS, I bring you a heart-warming story. For more details, read on…

So Trump is a peacekeeper, racist, conman and cheat (according to what you read) and tensions rise between Pakistan and India…

A day of jarring images for President Trump (Wall Street Journal, Gerald F. Seib) highlighted the contrast between images of Trump as Nobel Peace Prize winner-in-waiting for work with North Korea in the summit with Kim Jong Un in Vietnam or Trump the racist, conman and cheat as portrayed as being by his former personal counsel Michael Cohen back in DC. What a day for Donnie T! * SO WHAT? * In short, nothing’s been achieved yet in Vietnam – but the question is whether Trump will demand full denuclearisation from North Korea before lifting sanctions or will he take a stepped approach lifting specific sanctions here and there as gradual progress is made (surely it’ll be the latter?). The Cohen hearing, although monumental IMHO (I watched the first few hours of it as it was live-streamed yesterday and was transfixed – I NEVER watch that sort of stuff, but it was seriously riveting), seemed to be met with indifference by the markets despite the serious allegations being made. Basically, Trump’s Republican supporters concentrated on attacking Cohen’s character rather than asking any questions about the allegations. Cohen talked about payoffs for women who Trump had affairs with (which could imply a campaign finance violation as he tried to hide the expenditures) and knowledge of the imminent release of damaging e-mails. *** NEWS JUST IN *** the Trump/Kim talks in Vietnam have ended early due to no agreement being reached over the sanctions – Kim wanted them lifted completely and Trump said no

stolen from Hilary Clinton (which suggests he could be involved in the dissemination of stolen goods) as well as various racist remarks. If any of this can be proven, things could get interesting. For the moment, however, it seems that Trump’s Republican support appears to be robust as things stand, which is why markets didn’t tank.

Pakistan and India face worst conflict in decades (Financial Times, Amy Kazmin and Farhan Bokhari) shows that things are hotting up between the two neighbours as Pakistani forces shot down an Indian military jet and captured a fighter pilot. India said that it was carrying out a “pre-emptive strike” on a terrorist training camp in the disputed Kashmir region on Tuesday, but Pakistan denounced it and carried out a bombing raid of its own (although there was no loss of life). * SO WHAT? * Tensions between the two countries (who both have nuclear weapons) are ever-present but they escalated hugely following a suicide bombing on February 14th that killed 40 paramilitary police in India’s Kashmir region, which was claimed by the Pakistan-based Jaish-e-Mohammad (JEM) militant group. Pakistan’s Prime Minister, Imran Khan, immediately called for talks with India but there was no immediate response. Commercial flights were cancelled and airports close to the border were shut down. This is the most serious escalation in hostilities between the two countries since 1971. Looking further out, you do wonder whether this could take the edge off India’s stellar growth prospects in the short term. Cynically, this kind of thing will be great news for defence equipment and fighter plane manufacturers as spending on both sides could well increase (although I’m thinking that India’s got more money to splash than Pakistan at the moment).

The Marks & Spencer/Ocado tie-up gets official, Ted Baker has a profits warning and America’s Best Buy benefits from Fortnite…

So after the rumours and then confirmation of talks between the two sides, M&S chief defends ‘extravagant’ Ocado deal (The Times, Ben Martin and Miles Costello) puts a £750m price tag on the food-delivery tie-up between them but shows that investors weren’t that impressed with M&S’s plans on how it was going to pay for it. M&S said that it planned to raise as much as £600m via a rights issue and cut its dividend by a whopping 40% to pay for a 50% stake in Ocado UK’s retail division. M&S chief exec Steve Rowe defended it as a “fair price” and pointed to annual cost savings of £70m that the company would expect to extract from the deal, adding that “this is not a gamble”. Shares in M&S dropped by 12.5% but Ocado’s price rose by 2.90% on the news. In terms of the day-to-day, Can I buy Marks & Spencer food online today: Q&A (The Times) says that you won’t be able to buy M&S food on Ocado until September 2020 (at which time it will stop offering Waitrose groceries), that food will be sold online initially (but will be broadened to other products like clothing as time goes on) and that customers who want to buy Waitrose products will have to do so via Waitrose.com after September 2020. * SO WHAT? * It probably is a high price to pay, but when you’ve dragged your feet on e-commerce for as long as M&S has, then it’s what you have to pay for turning up late to the party. It’ll be interesting to see whether these initial grumbles gather momentum or whether investors eventually decide to just suck it up and get on with it. The pressure will now be on Waitrose to come up with a Plan B. Amazon, perhaps?? That might not fly, though, given Amazon’s ownership of Whole Foods and its existing agreement with Morrisons.

Ted Baker issues profit warning after writing off £5m of unsold stock (The Guardian, Rupert Neate) heralds some bad news for the clothing retailer despite last month reporting that it was all business “as usual”. The company said that profits for the year to the end of January would be about £63m versus previous expectations of £73.5m and does not include any costs incurred by the independent investigation into founder Ray Kelvin’s “hands-on” behaviour. The company said that the £10m shortfall was due to a £5m write-down of unsold stock, a £2.5m loss on forex and £2.5m of product costs following a systems upgrade. * SO WHAT? * Not great news for a company that’s used to knocking it out of the park and this trading update served to highlight the negative aspects of what’s going on. Now I may be overthinking things here, but it looks to me like the company could be “kitchen-sinking” bad news now to clear the decks for future performance. The main remaining unknowns now will be about how much it’s going to cost to solve the Ray Kelvin thing and whether he will be forced to resign or just sit on the naughty step for a while.

Meanwhile, on the other side of the Pond, Best Buy’s profit, comparable sales rise (Wall Street Journal, Khadeeja Safdar and Aisha Al-Muslim) shows how the popularity of Fortnite has translated into strong sales of headphones and other accessories at the electrical goods retailer. Sales at the company’s stores and on its website increased for the fifth consecutive year and chief exec Hubert Joly (what a great name!) said that “We continue to see a favourable consumer environment”. He also expects to benefit from the rise of 5G and other new tech like foldable smartphones. Its share price was up by 14% on the news. * SO WHAT? * This is great news from a retailer that has struggled in recent years, but what with its services revamp, the prospect of new tech tempting customers to spend and participation in other initiatives like health-monitoring services for aging consumers, it seems that things are going in the right direction. Maybe our own Dixons Carphone could learn a thing or two!

Spotify launches in India, Lego stages a turnaround and Metro Bank gets deeper into trouble…

Following what I said on Tuesday, Spotify takes next step towards world domination (Daily Telegraph, Natasha Bernal and Hannah Boland) highlights the launch of the streaming giant’s service in India this week despite being embroiled in a legal battle with Warner Music, the world’s third biggest record label, who want to block Spotify from offering Indian consumers songs from artists like Michael Buble, Twenty One Pilots, Green Day, Katy Perry and Ed Sheerhan. * SO WHAT? * Spotify now has 200m active users across the globe and its arrival in a market with over 1.3bn people has been a long time in coming. Although the Warner Music thing is a pain, I expect this will all be sorted soon enough as it’s not really in either side’s interest.

In other bits, I thought Lego defies toy industry woes to return to growth (Financial Times, Richard Milne) was worth mentioning because it announced strong sales and profits in an industry beset with problems due to the

success of its Harry Potter and Star Wars lines. Toy makers have continued to suffer from the continued onslaught of tablets and distribution problems following the demise of Toys R Us and others, but Lego appears to have turned a corner after two difficult years.

Then in Metro’s share price tanks after second cash call in seven months (The Guardian, Kayleena Makortoff) we see that the challenger bank’s share price fell even further (down by 26%!) to new lows after it shocked markets by announcing plans to ask investors for £350m just months after a previous cash call. It also admitted that it is currently under investigation by the Financial Conduct Authority and Prudential Regulation Authority over the major accounting failure (relating to the mis-classification of real estate loans) it first disclosed last month. The share price has now fallen by 50% since the accounting issue was flagged. * SO WHAT? * Tough times for the challenger. Investors hate being asked all the time for cash – unless it’s an electric car company run by Elon Musk ???? in which case they whinge but then pony up anyway because of all the promises of riches in the future! It’s unlikely they’ll feel the same about a boring old bank.

And finally, in other news…

I thought I’d leave you with this heart-warming story today: ‘Smallest ever’ baby boy born the size of an onion breaks world survival record as he is discharged from Tokyo hospital (Evening Standard, Michael Howie and James Morris https://tinyurl.com/yy8tbpvo). Brilliant.