Tuesday 03/11/20

1. In CORONATRENDS NEWS, we take a look at what the forecasters are saying, long-term and short-term winners and losers and how coronavirus is changing behaviour
2. In RETAIL NEWS, Ocado lifts its forecasts while Alibaba makes a fashion investment
3. In INDIVIDUAL COMPANY NEWS, Nexi buys payments rival Nets for €7.2bn, China Evergrande raises $2.2bn and Serco loses a big contract
4. AND FINALLY, I bring you a scary train incident…

So we look at what more lockdown means in the long and short term and how it’s changing behaviour…

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Lockdown wipes out hopes of growth, warn forecasters (The Times, Philip Aldrick) shows that economists are, surprise surprise, cutting their growth forecasts as Lockdown 2.0 is about to kick in. The National Institute of Economic and Social Research is expecting a GDP contraction of 3.3% in Q4 – the sharpest quarterly drop since 1955 excluding the 19.8% drop in the April-June quarter. Goldman Sachs, Morgan Stanley and Credit Suisse are among the others who are also trimming their forecasts as well while the Bank of England is due to release its forecasts this Thursday. This latest development combined with the end of the Brexit transition period is likely to mean rocky conditions for the economy going into the end of this year and the beginning of next at the very least.

Ten ways coronavirus crisis will shape world in long term (Financial Times, Martin Wolf) is an excellent article which I suggest you read in full if you can because it takes a look at what we’ve already learned and extrapolates it forward. It suggests the possibility of a long wait for a vaccine, permanent economic damage, a change in the structure of economies as behaviours change, the increasing importance of tech (and increasing need to control it), possible increased centralisation of government, higher taxes on “winners”, a shift away from populism (Jair Bolsonaro, Boris Johnson and Donald Trump haven’t done well from this outbreak), increased protectionism, a shift in pace and emphasis of globalisation and a possible reset of global standards on things like the environment. Which sectors are likely to win or lose from the pandemic (Financial Times, Peggy Hollinger) is another article that I think you should read in full if you have the time because it takes a look at specific areas. Obvious winners will include Big Tech companies who help us work from home, deliver our shopping and entertain us while losers include the aviation, travel and leisure industries. However, other trends are likely to emerge. Any companies making non-essential products are likely to lose out (because people will just put off purchasing them). Those who rely on the corporate dollar will also suffer as companies chose to video-conference more and travel less (so hotels may have to pivot and convert rooms to temporary workspaces).

Behaviour is also changing as Goldman and Deutsche bank staff told to work from home in new City exodus (Daily Telegraph, Lucy Burton) shows that two major employers in London are encouraging working from home – soon to be followed by the likes of UBS and JP Morgan among others – as we go into lockdown on Thursday. Such changes could become more permanent as Schroders, for

instance, has told staff they will never have to come to the office for five days a week again. Tourism drain forces West End to consider possibility of life beyond pure retail (Daily Telegraph, Melissa Twigg) is another brilliant article which highlights thoughts about the future from the New West End Company – specifically, that Oxford Street and Regent Street will soon evolve from pure retail and become a mix of hospitality, art, health and beauty where people will also work and live. Areas with more diversification, such as King’s Road and Brompton Cross, are faring better than Oxford Street and Regent Street because they rely far less on tourism. I mentioned John Lewis last week as getting permission to use 45% of the floor space in its flagship store for offices and it is interesting to note that rents can change depending on the floor they are on. For instance, ground floor retail space on Oxford Street costs about £100 per square foot to rent versus £25 per square foot for space on the third or fourth floor. However, if you convert the space on the higher floors, you can get £75 per square foot.

In terms of specific winners and losers, though, Number on furlough in UK may double during England lockdown (The Guardian, Richard Partington) cites research from the Institute for Employment Studies (IES) thinktank and the consultancy Capital Economics which estimates that the number of workers on furlough could double this month to up to 5.5million, setting a rather gloomy scene. World’s largest cinema chain says sales down more than 90% (Financial Times, Anna Nicolaou) highlights a massive coronavirus hit to AMC Entertainment and cinemas in particular – which is likely to get worse – and Pubs and restaurants slash prices ahead of second lockdown (Financial Times, Alice Hancock) highlights the rush before shutdown as the leisure and hospitality industry readies itself for one more hurrah. Pub chains including JD Wetherspoon, Greene King and Mitchells & Butlers have now stopped deliveries and are now cutting prices to as low as 99p a pint in order to clear current stocks and having to pour it all away (because it’ll go off during lockdown).

On the other hand, some winners have emerged. Covid-19 slammed rental-car firms, then business turned around (Wall Street Journal, Nora Naughton) shows that although car rental firms suffered disaster initially as international travel evaporated, they have since benefited from more people looking to travel by car (and avoid public transport) and rising used-car prices (ditto). That whole theme about people retreating to their favourite brands (as recently evidenced by the likes of Unilever, Reckitt & Benckiser and Procter & Gamble) was also echoed in Mondelez’s sales in emerging markets bounce back (Wall Street Journal, Annie Gasparro) as sales of its snacks and chocolate (including things like Oreos and Trident gum) continued to improve while Clorox books record sales jump on disinfectant demand (Wall Street Journal, Sharon Terlep and Dave Sebastian) shows that an increasing general desire for better hygiene is benefitting companies that supply cleaning products. Clorox saw its sales rocket up by 27% – its fastest growth in at least twenty years!

* SO WHAT? * When you take all of this together, it just goes to show how society as a whole is having to adapt and that many temporary changes are likely to morph into permanent ones as our whole lives adopt a very different timetable. I think that we are all getting used to the idea of prolonged disruption – but I believe that when a vaccine is found, we will be in for another massive shift in behaviour as people joyfully return to previous pursuits – including going into the office to see colleagues! This will be the subject of a forthcoming Watson’s Monthly…

Ocado lifts its forecasts and Alibaba invests in fashion…

Ocado expects bigger profits as Covid fuels online grocery demand (The Guardian, Sarah Butler) shows that the online specialist has hiked up its full-year profits forecast yesterday by a massive 50%, sending its share price up by 8% in trading yesterday. Although there seems to be no stockpiling underway at the moment, volumes are still high. Ocado’s £200m robot deal should impress foreign markets (The Guardian, Nils Pratley) shows that things could get even better long term for Ocado as it announced that it was buying San Francisco-based Kindred Systems for $262m and the Las Vegas-based robotic arm designer Haddington Dynamics for $25m. These acquisitions are expected to enhance Ocado’s “robotic manipulation capabilities”. * SO WHAT? * Rising demand for online grocery sales is hardly surprising – but I would have thought that the acquisition of these two companies could have a positive impact on efficiency and costs over the longer term. I really believe that one of the things that

coronavirus will lead to is increased automation as companies seek to insulate themselves from a future pandemic by ensuring that they won’t have to have workers all operating in close proximity to each other. It will be a long road, but the pandemic has had the effect of stamping on the accelerator of change when it comes to automation.

Alibaba is sewing up stake in fashion site (The Times, Simon Duke) shows that the Chinese e-tailer giant – along with luxury specialist Richemont – is considering a $300m investment in online fashion marketplace Farfetch. News of this interest sent Farfetch’s share price up by 13.8% in trading yesterday (interestingly, the company is actually based in London but trades on the New York Stock Exchange). Farfetch connects luxury boutiques and brands with fashion followers. * SO WHAT? * This would be great for the currently loss-making Farfetch and contributes to the momentum that is building in the company. Farfetch is really trying to get a piece of the Chinese market and this could be a fabulous way in, especially given that consumer spending patterns have changed due to travel restrictions. It will no doubt be hoping for Alibaba’s assistance in helping it to access the well-off Chinese consumer. 

Nexi buys Nets, China Evergrande raises a ton of money and Serco loses a big contract…

Other stories doing the rounds today include Nexi in exclusive talks to buy Nordic payments rival Nets for €7.2bn (Financial Times, Arash Massoudi and Silvia Sciorilli Borrelli) which shows the Italian payments provider offering to buy Danish rival Nets in an all-paper deal. * SO WHAT? * This is the latest deal among payments providers, another recent one being Worldline’s takeover of Ingenico. Payment providers need scale as online shopping activity continues to increase, hence all the consolidation.

Elsewhere, China Evergrande shares jump after developer raises $2.2bn (Financial Times, Thomas Hale) highlights a 5.2% jump in the share price of China’s largest property group due to it announcing a big asset sale to Shenergy Group. This is an important development because concerns have been building about China Evergrande’s financial health.

Then in Serco hit by loss of nuclear submarine contract (Financial Times, Gill Plimmer) we see that outsourced services provider Serco lost a contract with the MoD to manage facilities that develop warheads for British nuclear submarines as the facilities will be renationalised. The shares fell by a chunky 12% as a result but Serco: fission trips (Financial Times, Lex) suggests that although this is a blow, Serco has managed to broaden its income base versus a few years ago, so the impact will be limited.

…in other news…

I thought I’d leave you today with the rather shocking incident in Train saved from disaster by giant whale after crashing through barrier at end of track (Metro, Jen Mills). Wow! What a save!