Thursday 30/01/20

  1. In MODES-OF-TRANSPORT NEWS, Boeing has a shocker, Tesla delights, British car manufacturing hits new lows, Brit bike-maker Norton goes under and UPS gives electric van start-up a massive boost
  2. In TECH NEWS, Microsoft benefits from the cloud, Samsung sees the light and Facebook’s revenue growth slows
  3. In REAL ESTATE NEWS, landlords Intu and Land Securities hit hurdles while UK house price growth hits new highs
  4. In OTHER NEWS, I bring you a cup you never knew you needed…



So Boeing suffers, Tesla delivers, the British car manufacturing slump continues, Norton hits the end of the road and Arrival gets a HUGE order from UPS…

Boeing hit by first loss in 22 years (The Times, James Dean) highlights the ongoing travails of Boeing as it reported a shock fourth-quarter loss and announced that it was setting aside almost $19bn to cover the 737 Max crisis (over double its previous forecasts). This figure does not take into account compensation for the families of the Lion Air and Ethiopian Airlines crashes. * SO WHAT? * Following the departure last month of former chief exec Dennis Muilenburg, the new guy (David Calhoun) hung out all the dirty laundry in the latest results. This actually led to the share price rising on the announcement, presumably as investors bet that much of the worst was already behind them. I think it’s way too early to feel relieved because the compensation claims are an unknown quantity PLUS we still don’t know when the grounded planes are going to be flying again. Clearly, the longer they are grounded, the worse the financial position will become – and the confidence in the quality of their product suffers every day. All the while, European rival Airbus sees its order books swell…

Tesla posts fourth-quarter profit on record deliveries (Wall Street Journal, Tim Higgins) highlights Tesla’s strong fourth-quarter results and it delighted investors by promising to boost sales by almost one third this year. It added that it was on track to start production of its next car – the Model Y – at its California plant, with first deliveries due in April. Tesla said that its business should be profitable from now on and the share price climbed by 11% in aftermarket trading. * SO WHAT? * These results are solid and I have to say that I think that the Model Y, unless things go really wrong, should be a great success given that it will probably have wide appeal as it is a compact electric SUV (all “hot” words right now 😎). HOWEVER, it is not the first time that Elon Musk has promised to be profitable only for the feelgood factor to crumble. Last year he said the business would be profitable, but then two consecutive quarters of contraction ensued leaving the company with a $862m loss at the

end of the year. Tesla has yet to be profitable on a full year basis – but then again, there is a first time for everything! Difficult times lay ahead as the first quarter is traditionally weak for car manufacturers, Tesla has also tended to struggle with new model launches in the past and then there is obviously the unknown potential impact of the coronavirus on both supply and demand.

Meanwhile, in the UK, British car manufacturing slumps to lowest level since 2010 (The Guardian, Jasper Jolly) cites the latest figures from the Society of Motor Manufacturers and Traders (SMMT) which show yet another fall in production (the third consecutive annual decline) at UK factories. * SO WHAT? * FWIW, I just don’t see any reason for this trend to stop. We’ve already seen Nissan’s Sunderland plant and Vauxhall’s Ellesmere Port factory lose out on making new models. Brexit has been blamed, but I just think that carmakers are just trying to distract attention away from the fact that car sales for everyone are weaker on a global basis and it’s a convenient excuse to use to disguise the fact they got too cocky with diesels even after the VW emissions scandal broke. Unless we can somehow reinvent the UK as an electric vehicle specialist, I think our car industry will be toast. Better to concentrate on batteries IMO, but even then I would have thought battery production could be largely automated.

The doom continues with End of the road for Norton (The Times, Robert Miller) as Norton Motorcycles, the British bike manufacturer founded in 1898, has gone into administration. It was struggling to pay a £300,000 tax bill and was then slapped with a winding up order from HMRC. BDO is acting as administrator.

On a rather brighter note, UPS orders 20,000 vehicles from electric-van maker Arrival (Financial Times, Peter Campbell) heralds some brilliant news for UK electric van maker, Arrival (which I brought to your attention recently following an investment from Kia and Hyndai), in the form of a huge order from UPS that is worth hundreds of millions of pounds. The vans are to be produced at Arrival’s Bicester and Banbury production sites as well as a new one in Reading, one in the US and another one on mainland Europe. Deliveries of the vehicle are due later this year. UPS and Arrival have been working together on the development of the new vehicle since 2016.



Microsoft benefits from cloud computing, Samsung’s profits weaken and Facebook’s revenue growth slides…

Microsoft posts record sales as cloud business continues to grow (Wall Street Journal, Aaron Tilley) highlights the company’s cloud business as being a key driver in its robust second quarter results, which came in above market expectations. Gross margins for its Azure cloud computing business and Office 365 apps grew to a healthy 67%. The company added that the margins were likely to rise even further from here. * SO WHAT? * This is a particularly impressive performance given that Microsoft has been spending big to boost cloud growth and catch up with rival Amazon. The signs are that Azure is on track to become the company’s biggest revenue generator in the next two to three years. Revenues from the videogames segment were weak, but were generally expected as consumers decided to keep their powder dry in the run-up to their next console launch later this year where they will once more go head-to-head with Sony. These days, I think it’s less about who is first to market – it’s more about what the game line-up is going to be like.

Samsung posts lower profit, anticipates end of chip slump (Wall Street Journal, Eun-Young Jeong) shows a mixed-bag from Samsung as, on the one hand, it announced a chunky 39% fall in fourth quarter net profit, but on the other, it predicted that this would be the year that the chip market recovered from its current slump. This latter prediction doesn’t sound like a pipe dream either

as rivals Intel and TSMC, the world’s biggest contract semiconductor maker, have announced strong revenues and forecasts. * SO WHAT? * Given that semiconductors accounted for 75% of Samsung’s operating profit in 2018, you can see why a turnaround in the chip market is so important. The company is also expected to benefit from sales of new 5G phones as the year progresses and more consumers upgrade to the new standard. Having said all that, it IS possible that the coronavirus will delay things as China is the world’s biggest market for smartphones and TVs and the second biggest market for PCs, so any delay in consumer spending will have repercussions.

Facebook shares slump in face of slowest revenue growth since 2011 (Daily Telegraph, James Titcomb) shows that the company’s share price took a sharp tumble of over 7% in after-hours trading last night as it unveiled its slowest ever revenue growth due to higher costs (in terms of hiring and covering fines). This was despite user numbers on Facebook, Instagram, WhatsApp and Facebook Messenger reaching all-time highs and revenues from advertising shooting up by 25%. * SO WHAT? * Given that Facebook’s share price has risen by about 50% in the last year, I think 7% is a drop in the ocean. User numbers are up and if Facebook can keep on top of its naughtiness (at least it seems to be trying by hiring tons of moderators to monitor content), I would have thought that the company will continue to make gains. It doesn’t seem to me like there’s anything new on the horizon that will make its share price pop – it’ll just be more of the same with (hopefully, for Facebook) fewer fines from regulators. The only caveat to that is if Facebook announces something Libra-related as I think this has fallen off most investors’ radar – but no-one’s really expecting anything on that front until next year.



Intu and Land Securities have more problems while UK house prices hit new highs…

It never rains but it pours as Intu hit by new debt blow on flagship Gateshead shopping centre (Financial Times, Robert Smith and Donato Paolo Mancini) shows that the struggling retailer landlord has yet another problem to deal with as it turns out that the falling value of its MetroCentre in Gateshead has meant that the loan-to-value ratio (which weighs up the amount of the loan versus what the property is worth) has increased, triggering stricter conditions that could let lenders impose new conditions or take control of the asset. * SO WHAT? * It’s bad enough that the company is struggling with the weight of £5bn in debt, but this latest development will raise questions about whether the MetroCentre is an isolated case or whether there are other properties in the same position. It certainly doesn’t inspire confidence…

Setback for Land Sec as sale of leisure portfolio falls short (Daily Telegraph, Sebastian McCarthy) shows another struggling British landlord as Land Securities failed to sell off a load of leisure assets including bars, restaurants and cinemas in its X-Leisure Unit Trust to private equity company CIT – the £650m proceeds of which it was hoping to put into office properties in London. * SO WHAT? * Another problem for another landlord that is trying to diversify away from leisure and retail properties. If you have a ton of money and are actually interested in buying UK retail property, there is so much on the market now that buyers are spoilt for choice.

Elsewhere in real estate, UK house price growth at 14-month high, says Nationwide (The Guardian, Julia Kollewe and Richard Partington) is yet another bit of data that shows house prices are on the up in the UK following the general election.  Nationwide’s chief economist, Robert Gardiner, observed that “Healthy labour market conditions and low borrowing costs appear to be offsetting the drag from the uncertain economic outlook”. * SO WHAT? * Recent figures from RICS, Savills and Rightmove are among those all pointing to the same thing. We’ll just have to wait to see whether this is just a blip or a trend.



And finally, in other news…

It’s been a while since I brought your attention to an invention you never knew you needed so I thought I’d bring you Amazing Japanese cup stirs your drinks for you, needs no batteries or charging (SoraNews24, Casey Baseel Hmmm.

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Some of today’s market, commodity & currency moves (as at 0832hrs 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 **
7,484 (+0.04%)28,734 (+0.04%)3,275 (-0.14%)9,27513,345 (+0.16%)5,959 (+0.55%)22,978 (-1.72%)HOLIDAY
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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