Tuesday 03/08/21

1. In SUPPLY CHAIN NEWS, Germany and the UK have supply chain problems and M&S offers £2k to drivers
2. In BANKS & FINTECH NEWS, HSBC sees its profits more than quadruple, Goldman Sachs ups its pay, Sunak refuses to lift the bonus cap and Square/Afterpay challenges big banks
3. In GIG COMPANY NEWS, Grab hustles, NY restricts food delivery and Bolt aims at Uber
4. In INDIVIDUAL COMPANY NEWS, Tencent craters, Meggitt gets scrutinised and Cazoo prospers
5. AND FINALLY, I bring you a new udon place in London and how to make a Biscoff espresso Martini…

So supply chain problems continue to bite and lorry drivers are at a premium…

In Supply crunch in German factories threatens recovery (Daily Telegraph, Tom Rees and Louis Ashworth) we see that the worsening supply crunch in Germany is affecting 64% of industrial companies, according to findings from the Ifo institute, with the automotive sector suffering the most from supply bottlenecks and delivery problems over Q2. In fact, over 80% of Germany’s car manufacturers and suppliers are reporting shortages while Costs and shortages keep lid on growth (The Times, Gurpreet Narwan) cites the latest IHS Markit Purchasing Managers’ Index which also shows that rising costs and material shortages are limiting the current rate of growth in UK manufacturing. Over 72% of manufacturers have reported an increase in average input costs for things like commodities, chemicals, food, metals, cardboard, packaging, electronics and timber.

All of these costs are being exacerbated by difficulties in logistics as Call for action as UK driver shortage hits shelves (The Guardian, Gwyn Topham) shows that gaps on supermarket shelves will continue for some months yet if the government doesn’t do anything to address current

labour shortages, according to logistics and hauliers’ organisations. It’s likely that problems will get worse during August as workers take summer breaks and the shortage of HGV drivers is really going to bite. The shortage is so bad that employers are willing to go to great lengths to get drivers on board as per Marks & Spencer offers lorry drivers £2k joining bonus (Daily Telegraph, Laura Onita), which follows similar recent moves by others, including Tesco, to offer incentives. * SO WHAT? * Rising raw materials and logistics prices are putting pressure on more and more companies to pass costs on to the end users. At the moment, wages are going up so I suspect that a lot of these rises are being absorbed – and I also think that people are willing to pay more for things after the frustrations of lockdown (which, for some, will be financed by savings made over this period). This all adds up to a prolonged period of inflation that central banks continue to be content to ignore! It is possible that the end of furlough could take the heat out of the labour market and wages, as per End of furlough will increase UK unemployment by 150,000 says thinktank (The Guardian, Larry Elliott) which cites forecasts by the National Institute of Economic and Social Research (Niesr), but I think that if this sudden bump in unemployment doesn’t materialise (or is less than expected) then UK house prices will get a second wind and central banks are going to have to do something (raise interest rates) to rein things in.

Banks talk bonuses, Sunak sticks his oar in and Square/Afterpay could really make a splash…

HSBC boosts bonus pool and dividend as profits more than quadruple (The Guardian, Kalyeena Makortoff) highlights HSBC’s success as its pre-tax profits shot up to $5bn in the three months to 30th June versus $1bn a year earlier. It increased the bonus pool by $900m in the first half of the year and it remains cautiously positive about prospects for the full year. Talking of banker pay, Goldman to pay new recruits $110,000 after burnout row (Daily Telegraph, Simon Foy) shows that Goldman Sachs has now raised starting salaries for junior bankers to $110,000 (£80,000), rising to $125,000 in their second year following recent complaints of burnout. It has now gone from trading on its name and paying lower rates to now being among the most generous on the street as others pay around the $100,000 mark. Just to be clear, this is base salary and does not include bonus. As I said yesterday, there is talk about removing the bankers’ bonus cap following Brexit, but Sunak resists pressure to remove cap on bankers’ bonuses (Financial Times, Philip Stafford and George Parker) shows that the chancellor is putting this on the backburner for now, presumably because it won’t go down

well for bankers to appear to be stuffing their pockets with cash at a time when many are still suffering the after-effects of the pandemic. * SO WHAT? * Banks really have come out of the pandemic smelling of roses! The recent results season in America and Europe has just emphasised how well they’ve done and, powered by being able to throw some caution to the wind and the ongoing pipeline of M&A and IPOs that fill the coffers with advisory fees, they are able to pay very well – both in terms of their employees and their shareholders (in the form of dividends and buy-backs, which have been prohibited under lockdown). I think that this is likely to continue for the foreseeable future as long as the deal pipeline remains robust.

I mentioned Square buying Afterpay in yesterday’s Watson’s Daily and Square/Afterpay: a clear challenger to big banks emerges (Financial Times, Lex) goes further, saying that fintechs like Square and Afterpay are chasing new generations of customers with slicker apps and less baggage than the venerable incumbents. * SO WHAT? * It’s not just the likes of Klarna and Affirm who need to be concerned – ultimately it’s the banks as well! The fact that Square’s share price has almost tripled over the last two years would imply that investors like its moves in payments and feel that they will continue to take market share in the payments business away from traditional players. Getting scale with this acquisition will surely help keep the momentum going!

Grab meets hurdles, New York could set precedents and Bolt takes on Uber…

Grab battles effects of pandemic ahead of New York listing (Financial Times, Mercedes Ruehl) shows that the south-east Asian company that is at the centre of the world’s biggest merger with a SPAC, has hit some speed bumps ahead of its delayed $40bn New York listing as its Q1 update reflected the continued effects of government-enforced lockdowns. Its total Gross Merchandise Value (GMV) – the total value of transactions on Grab’s platform – increased by a rather anaemic 5% over the quarter, mainly because the number of monthly transacting users on the platform dropped by 20% versus the same period a year previously. * SO WHAT? * Grab’s ride-hailing, delivery and financial services offerings across eight markets including Indonesia, Vietnam and the Philippines, have suffered as its six core markets all have various restrictions in place because vaccination rates remain very low. When you couple that with increasing investor fatigue regarding SPACs and the fact that Grab has already postponed its listing until the end of the year, things aren’t looking all that brilliant in terms of prospects. The company will no doubt tout the growth prospects of its delivery and financial services business (its delivery business reported a solid 49% increase in GMV over the quarter) but will this prove to be the next SPAC dud??

Talking about delivery businesses, Big Apple takes bite out of food delivery (Wall Street Journal, Laura Forman) highlights the current debate raging on at the New York City Council about food delivery platforms. On Thursday

last week the council said that it passed five bills designed to take some of the power away from food delivery platforms and give it to “struggling mom and pop shops”. Changes include providing the restaurant’s direct telephone numbers and stopping platforms from charging restaurants for phone orders that don’t result in transactions but also the extension of temporary limits on commissions that platforms can charge restaurants. There’s also talk that delivery services should share monthly eater information with restaurants if requested by the restaurants themselves, which would provide them with valuable customer information. * SO WHAT? * Of all the food delivery firms, GrubHub is the one that’s likely to suffer the most if these changes are brought in as New York is its most important market in the US. Still, you do wonder whether these kinds of changes could be adopted elsewhere – even outside America as they become increasingly prevalent and restaurants get keener on growing their own customer bases without having to pay away for delivery services.

Then in Bolt loads up cash for shot at Uber (The Times, Callum Jones) we see that Bolt Technology, based in Estonia, announced a €600m funding round, giving it an implied valuation of €4billion. Bolt (which used to be known as Taxify) is launching a 15-minute food delivery service in ten European cities and will be going head-to-head with the likes of Uber Eats. Bolt offers car-sharing as well as electric scooter and bike rentals but does not yet operate in the US. It had a tough year last year given that ride-hailing was its core business, but all that is behind the company now as it aims to offer a string of services. One to watch!

Tencent gets a kicking, Meggitt gets scrutinised and Cazoo publishes strong sales…

In a quick scoot around some of the other big stories doing the rounds today Tencent plummets as China calls online gaming “opium for the mind” (Wall Street Journal, Chong Koh Ping) heralds baaaaaaad news for Tencent and its rivals after the state-owned Chinese publication Economic Information Daily published a story with that rather disparaging quote. Tencent, NetEase and Bilibili tanked in the early trading session before the story appeared to have been pulled, whereupon they recovered some lost ground. The article espoused the negative effects of gaming on children and called for tighter regulation. * SO WHAT? * If you add this in with something a senior Communist Party official said last week – that stopping young people from getting addicted to videogames was a top priority – you can understand why investors are getting so nervous. It sounds like gaming is the next in line for a caning from the authorities and perhaps this article was the warning shot!

Then in Jobs threat at UK defence supplier as it agrees £6.3bn takeover (The Guardian, Mark Sweney) we see that US firm Parker Hannifin has agreed a takeover deal with UK rival Meggitt. It’s the latest overseas bid for UK companies and is causing a kerfuffle over the prospect of job cuts (from the employees) and potential security issues (from the government). The offer is at a 71% premium to Meggitt’s closing price on Friday and Parker Hannifin has made a number of binding promises to the UK government to protect the Meggitt’s operations. Meggitt is a defence supplier to the government. * SO WHAT? * This comes shortly after the kerfuffle caused by the proposed purchase of Newport Wafer Fab by a Chinese-owned manufacturer and the resurgence of debate about the much larger sale of Arm Holdings to Nvidia. Sticky takeover situations are really piling up for the UK government, so it will be interesting to see whether it has the balls to shut out American as well as Chinese buyers!

Elsewhere, Cazoo sales hit the accelerator ready for US listing (The Times, Ashley Armstrong) shows that a sevenfold increase in sales for the used car website has emboldened the company’s predictions that it will hit $1bn in revenues this year as it proceeds towards its SPAC-backed IPO listing later this month. The self-styled “Amazon of the used car market” aims to disrupt the second hand market by delivering a vehicle to customers’ homes in a branded van and gives them a week to send it back for a full refund. An interesting USP and one that has clearly worked well during lockdown!

…in other news…

I thought that I’d leave you today with an idea for going out (if you are in London) in Londoners marvel at newly-opened Marugame Udon restaurant’s low prices (SoraNews24, Katy Kelly). Chicken katsu curry udon for a reasonable price, anyone?? YAAAAAAASSSSS!!!! And then if you happen to work up a thirst and am feeling a bit fancy, how about Biscoff lovers need to try this espresso martini recipe – the drinks look unreal (The Mirror, Zahna Eklund). Even better 🍸!