Tuesday 02/10/18

1. In MACROECONOMIC NEWS, Trump hails the new “Nafta”, with China next on the agenda
2. In CAR NEWS, Tesla jumps after the SEC decision and Aston Martin goes for a lower flotation price
3. In RETAILER NEWS, Aldi unveils solid numbers and Mike Ashley sacks House of Fraser senior execs
4. In INDIVIDUAL COMPANY NEWS, General Electric cuts its chief exec, Ryanair and Royal Mail have profit warnings and Deliveroo delivers a mixed bag

So Trump unveils the new “Nafta”, with China next on the agenda…

Wall Street nears a record high as Nafta deal is signed at last minute (Daily Telegraph, Tom Rees) heralds an important moment as Canada agreed to sign a revamped deal between itself, the US and Mexico just before the close of the deadline to replace the now defunct Nafta trade deal that was put in place 24 years ago. The new agreement, called the US-Mexico-Canada Agreement, gives US farmers more access to Canada’s dairy market (which is currently protected) and increases intellectual property protections in addition to updating worker and origin rules in the car manufacturing industry to make the US more attractive. * SO WHAT? * The new agreement will now have to pass through US Congress, but for now, the markets welcomed the latest development with the S&P 500 nearing all-time highs on this news. The US still has 

steel and aluminium tariffs in place for imports coming from Canada and Mexico, but many see this latest breakthrough as a step in the right direction.

US pivots to China, with Nafta deal in hand (Wall Street Journal, Bob Davis) takes the development identified above a step further by saying that now a US “home” market deal has been struck, it strengthens Trump’s hand in China trade negotiations which have, thus far, fallen short. * SO WHAT? * If an agreement had NOT been reached, it would have helped China negotiate its own deals with Canada and Mexico. The administration is hoping that “Nafta 2.0” and China tariffs will combine to make the US a more attractive place to invest relative to China and, in Trump’s words yesterday, “reclaim a supply chain that has been off-shored to the world”. Some big tech companies are already talking about pulling some production out of China in order to avoid punitive US tariffs.

In car news, Tesla jumps on the SEC decision and Aston Martin goes for a less-punchy price tag…

Tesla shares rally sharply on Musk settlement (Financial Times, Camilla Hodgson) shows that Tesla shares, which fell 14% on Friday jumped by 16% in the morning session on Wall Street yesterday. The shares fell on Friday following news that the Securities and Exchange Commission (SEC) filed a fraud complaint alleging Musk had made “false and misleading statements” about having the funding to take his company private, but they jumped after all parties came to an agreement over the weekend. * SO WHAT? * Despite this relief, the shares are still down almost 20% since Musk made that fateful tweet and none of this chat changes the fact that Tesla still has production issues. At least they still have their talismanic leader at the 

top – and as long as he’s there I am sure that (even more) investor money will continue to flow in once the dust has settled.

There’s been a lot of hype recently over the imminent Aston Martin flotation, but in Aston Martin cuts maximum share price for IPO (Financial Times, Peter Campbell) we see that it reduced the top of its price range from £22.50 per share to £20 and raised the bottom end of the range from £17.50 to £18.50. * SO WHAT? * If it floated at this value, it would miss out on a place in the FTSE100 – all things remaining equal – in the next December reshuffle. Mind you, I don’t think this would be such a bad thing as there would be slightly less scrutiny and given that its valuation is still pretty punchy – especially when you compare it to Ferrari – it is probably the sensible thing to do bearing in mind that this is a company which has gone bust seven times in its 100-year history. The shares are due to start trading tomorrow.

In retail news, Aldi puts in a strong performance and House of Fraser gets a senior management clearout…

In We’re alright Jack, says Aldi as sales jump (The Times, Deirdre Hipwell) we see that Aldi has put in another strong performance as its sales shot up by 16.4% in a record year of trading for the discounter. To put it in perspective, this is equivalent to an extra £100m of sales per month and is even higher than the 13.5% increase it had in 2016. Giles Hurley, chief exec of Aldi in UK and Ireland, is clearly not afraid of the competition as he pronounced that “We welcome competition and we are used to dealing with it. It will be a real struggle for any more complex supermarket to successfully imitate or replicate our model”. * SO WHAT? * I am inclined to agree 

with him. As I’ve said before, I don’t believe that merely copying Aldi’s model is going to work for the likes of Tesco’s new “Jack’s” brand – they will either have to go even cheaper (but surely this would be very difficult to do) or carve out their own identity. At the moment I’m not convinced. 

Ashley sacks top management at House of Fraser (The Guardian) heralds the latest development in House of Fraser’s “rehabilitation” under the new owner – Sports Direct’s Mike Ashley. In a statement to investors after market close yesterday, Sports Direct said “Following the collapse of House of Fraser on August 10 2018, and subsequent calls for an investigation into the circumstances of that collapse, the company today announces that we have dismissed the former directors and senior management of House of Fraser”. * SO WHAT? * This certainly sends a message of intent, but it’s an early step in the long road to what I hope will be recovery. No doubt there will be a lot more to follow over the coming months and years.

In individual company news, General Electric cuts its chief exec, Ryanair and Royal Mail announce profit warnings and Deliveroo serves up a mixed grill…

GE ditches chief executive and suffers shock $23bn hit (Daily Telegraph, Julia Bradshaw) signals an abrupt end to the tenure of John Flannery, who was only 14 months into the top job at General Electric, making him the shortest-serving chief exec GE has ever had (average tenure has been over a decade!). It also announced a massive $23bn goodwill impairment charge as well as a profit warning for this financial year. Funnily enough, the share price rebounded by 12% as investors welcomed this change in leadership, with Larry Culp (saviour of US medical behemoth Danaher) becoming the first ever outside to take the top job. * SO WHAT? * Flannery replaced long-serving chief Jeff Immelt as the company attempted to address its flagging share price. He cut a huge number of jobs and disposed of various businesses in an attempt to arrest the slide, but it just hasn’t been

enough. Let’s see how much slack Culp will get in turning this giant around!

Profit warnings came thick and fast yesterday, what with Ryanair share slump 12.5% on profit warning (The Guardian) as it said that recent strikes and higher oil prices would dent full-year profits and Shock profit warning hits Royal Mail (The Times, Katherine Griffiths) came due to the company missing key cost-saving and productivity targets and the ongoing decline in the volume of letters sent.

I thought I’d also mention Deliveroo sales double to £277m but losses grow (The Guardian, Sarah Butler) because of the ongoing discussions it is having with Uber about being taken over. On the one hand, its sales more than doubled, but on the other, losses at the takeaway delivery service shot up by 43% after investing in various projects such as a new HQ and some pop-up kitchens. Founder Will Shu continued to paint a bright picture for the future when he said “Our growth is matched only by our ambition. We want to become the world’s definitive food company and we have invested heavily in innovation, technology, people and restaurants”. * SO WHAT? * I believe that this kind of business needs scale to survive. It’s already doing quite well on that front, but a deal with Uber could take it to the next level.