Tuesday 08/10/19

  1. In BREXIT NEWS, we look at BoJo’s options and the effect of Brexit concerns on retailers, property and jobs
  2. In HIGH STREET NEWS, Pizza Express looks dodgy and Sports Direct denies it’ll close almost all House of Frasers
  3. In CAR NEWS, Volvo gets closer to Geely on engines and electric car newbies face challenges
  4. In INDIVIDUAL COMPANY NEWS, HKEX bid for the LSE fails and Group Nine continues the digital media consolidation trend
  5. In OTHER NEWS, I bring you a smelly plane…



So BoJo battles on and we see what Brexit concerns are doing to the high street, the property market and employment…

Can Johnson defy the law against no-deal Brexit? (Financial Times, James Blitz and Sebastian Payne) looks at BoJo’s chances of being able to stick to his promise of Brexit “deal or no deal” on October 31st given that MPs passed a law last month that cuts off his “no-deal” option. Under the Benn Act, BoJo will have to write to the EU to ask for an extension to Article 50 if he hasn’t hammered out a withdrawal agreement but then there are noises emanating from Downing Street that suggest this law could be defied via a few technical means. As things stand at the moment it looks like BoJo has got two teams – one being led by chief of staff Eddie Lister that will abide by the law and all the recent rulings, and another led by Dominic Cummings, BoJo’s chief advisers, that wants to at least give the impression that BoJo is being dragged unwillingly towards a Brexit delay. At the moment, it looks very much like BoJo will have to comply with the law – which is probably why Johnson steps up election preparations as hopes fade for Brexit (Financial Times, George Parker, Jim Pickard, Laura Hughes and Jim Brunsden). In this article, we see that BoJo’s focus appears to be shifting away from a European charm offensive to a domestic one as he prepares to pitch himself as the one fighting to protect the will of the people

against the Remainer “elites” tying his hands. Brexit talks appear to be making no progress currently.

All this uncertainty continues to weigh on the economy as Brexit fears blamed for the worst September retail sales on record (The Times, Elizabeth Burden) cites the latest stats from the British Retail Consortium and KPMG which show that total sales in September fell at their sharpest rate since 1995, UK house price growth at slowest rate in six years (The Guardian, Julia Kollewe) shows that annual house price growth is looking sluggish despite rising wages, low interest rates and the availability of cheap mortgages and Super-rich renting London homes for £5,000-plus a week amid Brexit worries (The Guardian, Julia Kollewe) observes that the super-rich are opting to rent in London rather than buy given Brexit uncertainty and the uncertain global economic backdrop. Activity in the latter is also being boosted by the weakening pound (which is itself due to Brexit uncertainty). And if all that lot isn’t enough for you, Demand for staff rises at weakest rate in eight years (The Times, Callum Jones) cites a report from KPMG and the Recruitment and Employment Confederation (REC) which shows sluggish vacancy rates as employers hold off on their hiring plans to see what happens next. * SO WHAT? * So much depends on Brexit and when we DO eventually decide on something, I would have thought that economic activity is going to increase exponentially as pent-up plans start to be executed. An extension to Article 50, however, will prolong the uncertainty and pain and may well push some companies over the brink.



Pizza Express looks like it’s going to be the next high street casualty and Sports Direct denies it will shut almost all House of Fraser outlets…

After all of the news above, you might want to take a break from it all and go for a beer and pizza with a friend. Well you’d better hurry up if you want to go to Pizza Express as Debt-laden Pizza Express to start talks with creditors (Daily Telegraph, Hannah Uttley) shows that things are getting tricky at the one-time superstar purveyor of pizzas as it turns out that the company has hired advisers to help it deal with its massive £1.1bn debt mountain. The chain has 14,000 employees and 600 outlets worldwide and is owned by Chinese private equity firm Hony Capital, which bought it for £900m in 2014. Ambitious expansion comes back to bite chain (Daily Telegraph, Hannah Uttley) blames the company’s ambitious expansion in Asia for pumping up the debt considerably but also cites the factors hitting the whole casual dining sector – high rents, rising minimum wages and ingredient costs due to a weaker sterling, not to mention growing competition. The company has resorted to dishing out 2-for-1 vouchers in an effort to get punters through the door – and data from Kantar shows that 43% of trips to Pizza Express over the last year have involved some kind of offer versus the comparable industry average of 15%. * SO WHAT? * I have always liked Pizza Express but I think that, over the years, its offering has become a bit “samey” and the standard of the competition has just

rocketed. When you can buy your Sloppy Giusseppe and dough balls at the supermarket and see Pizza Express in seemingly most town centres, there is always a risk of over-exposure. Rival pizza restaurant Franco Manca shows that pizza isn’t the problem (although it does seem to me like there are a lot of Italian chains that have hit hard times recently – Carluccio’s, Jamie’s Italian, Prezzo etc.) but when you’ve got a lot of outlets and not much else to compel people to go there, it seems like the CVA-followed-by-business-failure route is not far away. Landlords will be bracing themselves for the latest tenant to ask for lower rents.

In Sports Direct denies House of Fraser closures report (The Times, Elizabeth Burden) we see Mike Ashley’s Sports Direct denying suggestions in The Sunday Telegraph that said it was going to close almost all House of Fraser stores after the Christmas shopping season. A spokesman for Sports Direct said that the company “is working rapidly on our investment programme with the House of Fraser and it is therefore totally incorrect to assume that there will be large numbers of store closures in the new year” and added ominously that “We are taking legal advice with regards to this unbelievable level of misreporting”. Mind you, given that Ashley himself described problems at House of Fraser as “nothing short of terminal”, you can see why journalists might reach this conclusion! * SO WHAT? * Wow! What an allegation to make! The thing is that his £90m acquisition of the ailing department store has left him with a ton of expensive prime real estate that he doesn’t really need in a sector that is dying. OK, so this newspaper report has obviously riled them – but is it really that far off the mark? Bad news for employees, though.



Volvo and Geely team up on engines while electric car start-ups face challenges…

Volvo cars to combine its traditional engine business with Geely (Financial Times, Peter Campbell) highlights a new development whereby the two automakers are to combine their internal combustion engine operations in order to free up resources to concentrate on electric tech. Volvo Cars’ Chinese owner, Geely, will merge both businesses into one as they see no major demand growth for internal combustion-powered cars in the future and want to concentrate on the growth potential in electric. * SO WHAT? * This is a notable development as it is the first time that there will be a full merger of engine businesses to focus on electric technology rather than the more usual joint venture/collaboration between companies. Volvo expects 50% of its cars will be fully electric by 2025, with the remainder being hybrids. Sorry to be a party pooper but I really don’t see this happening. At the risk of sounding repetitive, charging networks are useless at the moment and I am still doubtful about electricity generation capability if everyone drives electric cars and charges them at home. Unless we have proper networks – and can cope with the surge in electricity demand without having blackouts – fully electric ain’t going to happen. Hybrids are

a different story, however. I think that anyone in the business of installing home charging stations will make enormous amounts of money in the coming years! If someone could also come up with reasonably-priced street charging stations as well, they’d probably make even more!

Electric car start-ups face uphill battle (Financial Times, Peter Campbell) highlights problems that face electric car start-ups as Chinese car maker Nio edges closer to collapse despite having raised $200m last month from its chief exec, William Li, and one of its biggest shareholders, Tencent. Nio’s travails just go to show how difficult it is to compete against the established manufacturers as their cash burn is just ridiculous given high initial costs made even worse by having to scale up manufacturing to meet unpredictable demand. * SO WHAT? * So many companies have been tempted to make electric cars due to government incentives and the fact that they are generally cheap to develop and manufacture (they are basically a battery and chassis on wheels without all the faff of the moving parts in a combustion engine). However, designing a nice car and being able to make it isn’t enough – you have to match your manufacturing capability as closely as possible to customer demand while bigger and deeper-pocketed competition start to roll out their own offerings. Nio makes some very cool-looking cars, but if the demand and production don’t match, things will continue to get more expensive and Nio will get closer to disappearing. Other start-ups will be watching Nio’s fate very closely.



HKEX gives up on LSE and Group Nine continues the consolidation wave in digital media…

HKEX drops £32bn bid for LSE after charm offensive fails (Financial Times, Daniel Shane and Alice Woodhouse) shows that Hong Kong Exchanges and Clearing is officially dropping its bid for the London Stock Exchange after a three-week attempt to convince shareholders and regulators of the attractions of its offer. The question now is what next for HKEX as it tries to grow its business. LSE lives to fight another day.

Group Nine to acquire PopSugar, continuing wave of Digital Media tie-ups (Wall Street Journal, Benjamin Mullin and Lukas I.Alpert) highlights Group Nine Media’s all-stock acquisition of women-focused publisher PopSugar as the current wave of “new media” firm consolidation continues. Group Nine is backed by Discovery Inc. and owns brands including The Dodo and NowThis and the enlarged company will be worth around $1bn with Group Nine accounting for about $600m of the valuation. * SO WHAT? * This represents the third digital media deal in the last two weeks following Vox Media’s acquisition of New York Media and Vice Media buying Refinery 29 last week. It seems that the consolidation is being driven by companies wanting to combine their audiences to boost advertising revenues. No doubt this trend will continue!



And finally, in other news…

Today, I thought I’d show you how a fruit stopped an aircraft in Pilots don oxygen masks and make emergency landing when durian stinks out plane (The Independent, Cathy Adams https://tinyurl.com/yxj6mwxm). Lovely!

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Some of today’s market, commodity & currency moves (as at 0902hrs 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 **
7,198 (+0.59%)26,478 (-0.36%)2,939 (-0.45%)7,95612,097 (+0.70%)5,522 (+0.61%)21,588 (+0.99%)2,914 (+0.29%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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