Tuesday 10/08/21

  1. In VACCINE, COMMODITIES & CRYPTO NEWS, BioNTech benefits, oil has a wobble, Aluminium prices continue to rise, the Bank of England ponders “Britcoin” and we see why CBDCs cause concern for banks and how crytpto exchanges plan on going mainstream
  2. In M&A AND “PARTNERSHIPS” NEWS, Cargill buys Sanderson Farms, DraftKings buys Golden Nugget, bidders for Morrisons get extra time, Philip Morris continues its push for Vectura, Deliveroo feels a nibble, Renault teams up with Geely, Macquarie buys into Southern Water and Harvey Nichols wants to offer second hand
  3. In CONSUMER TRENDS NEWS, the high street recovery slows, second hand cars sales storm ahead and Hargreaves Lansdown warns
  4. In MISCELLANEOUS NEWS, Hertz recovers and AMC Entertainment takes advantage
  5. AND FINALLY, I bring you curry-in-a-can…

1

VACCINE, COMMODITIES & CRYPTO NEWS

So BioNTech benefits, oil has a sticky patch, Aluminium prices rise and there are moves for “official” crypto and making it more mainstream…

BioNTech reaps the rewards of its vaccine (The Times, Callum Jones) shows that the German company has upgraded its forecasts for annual sales on continued strong demand for the vaccine it developed with Pfizer. BioNTech’s share price shot up by 15% on the news. * SO WHAT? * While this is clearly great, you do think about poor old AstraZeneca with its vaccine getting a right old kicking from everyone when all it wanted to do was help the world with a vaccine supplied at cost!

Meanwhile, in commodities, Oil drops amid fears of Covid variant’s impact on global economy (The Times, Callum Jones) highlights recent weakness in the oil price over concerns that the spread of the Delta variant will slow economies down, which will in turn depress demand. On the other hand, Aluminium prices melt up on booming recovery in global economy (Financial Times, Henry Sanderson) shows that Aluminium prices are heading for their highest levels for a decade as demand for packaging, construction and aerospace (among many other things!) continues to rebound from the lows of the pandemic. They have already shot up by 31% so far in 2021, after years of oversupply from China. Aluminium producers such as Alcoa and Norsk Hydro have seem their share prices boosted by 68% and 47% respectively this year as a result. It is also worth noting that, in addition to rising demand, prices are also being supported by a dent in supply as a drought in China’s Yunnan province has curtailed its hydropower generation which has resulted in local government asking smelters to cut their usage. * SO WHAT? * I guess that, as long as consumers keep spending, demand will continue to rise! Fun fact: over 74% of all beer sold in the US comes in aluminium cans and bottles.

In crypto news, How would a Bank of England digital currency work? (Financial Times, Chris Giles) provides an interesting discussion on the benefits of an official central bank digital currency (CBDC). From a user’s point of view, such a currency would be pretty much the same as using current digital payments bank accounts apart from the fact that it would be guaranteed by the state – just like cash is now – which will lower the cost of transactions as it will be less risky. The Bank of England is looking into this with increasing urgency as the European Central Bank

announced the launch of its digital euro project last month and China is already testing out a digital yuan with Alipay and WeChat. Why banks fear central bank digital currencies (Financial Times, Jonathan Guthrie) is also worth reading as it suggests that, in order for CBDCs to get real scale, central banks would have to be able to take deposits – and that could take away huge amounts of high street lenders’ main business. This could be particularly tricky if there was some kind of financial meltdown and bank customers rushed to take out their money and put it into “safer” accounts with the central bank. This could actually turn a sticky situation into a terminal one for the lenders. * SO WHAT? * I think that we really are entering into a transition phase regarding money and a switch to digital at the moment and it’s probably a questions of when, not if, we will make the move away from “analogue”. Banks look particularly vulnerable to getting their bread-and-butter business potentially taken away from them – but then you’ve got other parts of the business like lending and payments, which are also seeing increased amounts of competition. I do wonder whether there really is a danger here of banks going the way of telephone landlines – once EVERYONE had them at home, but they have dwindled over the years. Maybe the same could happen with high street bank accounts, especially if you can get racier services (e.g. share trading, cryptocurrency trading and forex) from other providers…

Then in Cryptocurrency exchanges target sport sponsorships (Financial Times, Samuel Agini and Alex Hamer) we see that there are seems to be an increasing trend for crypto exchanges as Inter Milan is about to get Socios.com as a shirt sponsor, F1 added Crypto.com to its sponsor list, Major League Baseball signed a multimillion dollar deal with FTX and StormX paid in the tens of millions for a five-year jersey sponsorship with the Portland Trail Blazers. * SO WHAT? * It’s probably not a bad idea for the companies to get their names out there and football is obviously desperate for money after last year. However, you do wonder how well this could go considering that finance companies sponsoring football teams have had a chequered history – just look at some of the betting companies and Wonga’s sponsorship of Newcastle United, for instance. This may well appeal to the right audience as presumably footie-goers are getting older these days (season tickets to premiership clubs cost a fortune, for instance) and arguably have more money to bet on things like cryptocurrency. Whether this proves to be a long-term solution is clearly up for debate, however. As I keep saying, I think that the biggest danger for cryptocurrency is regulation – and if regulators decide to nuke the sector, these sponsorship deals could go up in smoke.

2

M&A AND "PARTNERSHIPS" NEWS

There’s been a whole lot of action in M&A and “partnerships” of late…

In a quick scoot around some of the M&A and partnership deals going on at the moment, Cargill and Continental Grain buy Sanderson Farms for $4.53bn (Financial Times, James Fontanella-Khan) highlights the acquisition of the US poultry producer as demand continues to rise. The deal will boost its international poultry business in the US, a market where consumers have been eating increasing amounts of chicken as a healthier alternative to beef. The Colonel will be pleased 🤣.

Then in DraftKings buys Golden Nugget Online Gaming in $1.56bn deal (Financial Times, Ortenca Aliaj, Alice Hancock and James Fontanella-Khan) we see another deal in the fast-consolidating (and growing) US sports betting market as companies look to increase exposure of their brands and minimise customer acquisition costs as more states relax sport betting rules. * SO WHAT? * This certainly won’t be the last deal in the sector as everyone tries to put themselves in an optimal position to take advantage of an expected surge in sports betting revenues. It is worth noting that DraftKings was recently subpoenaed by the Securities and Exchange Commission after allegations by Hindenburg Research, the outfit that unveiled the dodgy-dealings of Nikola, said that the company’s tech arm was actually earning 50% of its revenues from illegal gambling markets. The effect of this latest development could prove to be a drag further down the line…

Closer to home, Morrisons takeover battle extended as CD&R given more time to bid (Financial Times, Kaye Wiggins) shows that bidders are being given more time to scrape together enough money to buy the tightly-run supermarket and Wm Morrison/Fortress: weight of funds gives buyout groups impetus (Financial Times, Lex) highlights the sheer amount of cash knocking around in private equity firms’ coffers that they are looking to invest (about $413 in Europe alone, according to estimates by Prequin!). Fortress’ offer is already quite high and it will be difficult for CD&R, who made the initial unsolicited bid, to squeeze value out of this at a higher price. Still, given the amount of “dry powder” that private equity firms have there will be more M&A to come!

Elsewhere, Philip Morris’s fresh bid for inhaler maker sparks alarm (The Guardian, Rob Davies) shows that the cigarette-maker’s controversial pursuit of asthma inhaler maker Vectura (controversial because Philip Morris International’s cigarettes tend to cause respiratory problems in the first place!) is hotting up as PMI is currently outbidding private equity group Carlyle. Carlyle’s bid had been recommended by Vectura’s board but then this was withdrawn. * SO WHAT? * Although PMI will say that this is all part of a desire for a smoke-free future, the fact of the matter is that it still makes about 75% of its revenues from cigarettes and it is morally questionable that a company that makes money from giving people breathing problems will also stand to benefit from selling them inhalers!

Things are getting interesting in the world of food delivery in Deliveroo jumps as German rival takes a bite (Daily Telegraph, James Titcomb), which shows that German

rival Delivery Hero has just taken a £300m stake in Deliveroo, prompting a share price hike on the back of bid speculation. It looks like this is just an opportune raid by Delivery Hero as opposed to an out-and-out precursor to a bid at this stage. * SO WHAT? * The industry is ripe for further consolidation as you really need scale to make the most money. DoorDash, America’s biggest food delivery company, is in talks to buy into German delivery start-up Gorillas, Uber has bought Postmates and Just Eat Takeaway has just completed a $7.3bn takeover of Grubhub. Even if a company managed to buy a chunky stake in Deliveroo, founder Will Shu still has 57.5% of the voting rights with his 6.4% holding of his “special” shares. So far he has rebuffed takeover interest from Uber and Amazon. Could Deliveroo and Deliveroo have a tie-up though? Maybe…

There’s also some interesting newsflow today on “partnerships”. Renault joins with Geely to drive hybrid sales in China (Daily Telegraph, Alan Tovey) shows that the French car company is teaming up with Chinese automaker Geely to sell hybrid vehicles in China as well as other south-east Asian countries. * SO WHAT? * This sounds like a good idea given that China is the world’s biggest car market. Still, it did abandon a previous partnership with Dongfeng last year after racking up years of losses. Maybe it’ll have more luck with Geely?

Macquarie takes control of Southern Water (Daily Telegraph, Rachel Millard) is a story that’s in pretty much all the papers today as the Aussie bank has just bought a 62% majority stake in Southern Water for over £1bn. Macquarie says that it will help the company invest in its network and cut pollution. * SO WHAT? * It sounds like Southern is pretty desperate as it was named in July as the worst polluter on a national basis in July and was fined £90m for thousands of illegal sewage discharges between 2010 and 2015. Macquarie hasn’t covered itself in glory in the utilities sector as it sold out of Thames Water in 2017 having left it £10bn in debt and sucked out £1.2bn in dividends over the ten years it owned it – all while Thames paid only £100,000 in corporation tax. Macquarie is very canny when it comes to infrastructure investment, but I’m not sure how much benefit Southern will really get from its ownership! Macquarie says it will help the company spend £2bn over the next four years to fix everything that’s causing the pollution.

And then in Harvey Nichols teams up with Reflaunt to launch resale service (The Guardian, Sarah Butler) we see that Harvey Nichols is jumping on the re-sale bandwagon by launching a partnership with specialist service Reflaunt where customers will be able to resell posh handbags, clothes, accessories and watches, earning up to 80% of the original price. Items can be dropped off at Harvey Nichols’ outlets or picked up by Reflaunt’s concierge service in London. * SO WHAT? * Re-sale certainly seems to be in fashion these days. Selfridges opened its first permanent second hand clothing space in 2019, Liberty has a permanent vintage section, online luxury goods retailer Farfetch has seen massive growth on its resale service, Ralph Lauren has launched “Re/Sourced” and Mulberry is refurbishing and selling used products online. This sounds great and certainly goes some way to address criticisms that the fashion industry gets for damaging the planet by encouraging and feeding changing tastes. TBH, though, surely it’s fast fashion that needs to do more but hey, baby steps I guess.

3

CONSUMER TRENDS NEWS

We look at what consumers are spending (or not spending) their money on…

Retail sales growth slows as rival attractions open their doors (The Times, Gurpreet Narwan) cites the latest data from the BRC and KPMG which shows that although last month’s lifting of coronavirus restrictions boosted retail sales, growth has started to slow down as consumers spent more of their money in restaurants than shops. Barclaycard spending data showed that business that did well included pubs, bars, clubs, theatres, cinemas and sporting events – so consumers are still splashing out, just more broadly.

In contrast to new car sales, UK used car sales double to second-quarter record (Financial Times, Harry Dempsey) shows that second-hand car sales have been soaking up some of that consumer demand that cannot be satisfied by new cars. New car sales are currently being hit by supply chain problems and so impatient buyers are turning to used instead, according to the latest figures from the SMMT.

It seems that the trading frenzy is calming down according to Hargreaves Lansdown shares slide after warning pandemic trading boom will not last (Financial Times, Joshua Oliver) as they said trading volumes calmed down after a particularly frenetic period during lockdown. On the plus side, the company did manage to add a record number of new clients over the last year – and it was particularly good (from the company’s point of view) that over 80% of them were under 55. This is great, but it needs to hang on to them as they get older – but at least they’ve got them to start with!

4

MISCELLANEOUS NEWS

Hertz recovers and AMC Entertainment aims to capitalise on its luck…

Hertz posts higher revenue, plans to relist amid travel rebound (Wall Street Journal, Matt Grossman) shows that car rental company Hertz has actually recovered so convincingly that it is planning on relisting on a major stock exchange by the end of this year! * SO WHAT? * This is amazing news for a company that was severely damaged by the pandemic and I am sure that a listing will give it a much-needed injection of funds…

Meanwhile, AMC talks bitcoin, GamStop with its Reddit followers (Wall Street Journal, Erich Schwartzel) shows that sometime-meme-stock AMC Entertainment announced forthcoming changes to its cinemas aimed at appealing to its “cutting edge” Reddit investors. In a usually-boring quarterly earnings call yesterday, the chief exec answered tons of questions from retail investors and one from a Wall Street analyst as it tries to appeal to the retail investors it attracted during the whole meme stock thing. One such initiative is the acceptance of Bitcoin at its US theatres by the end of the year in the US. * SO WHAT? * IMO, AMC Entertainment just got lucky with the Redditors and continues to face the very real threat of streaming. Paying by Bitcoin for cinema tickets is just a gimmick that I suspect hardly anyone will use apart from uber-geeks who want to impress their friends.

5

...AND FINALLY...

…in other news…

I thought that I’d leave you today with the rather unbelievable Japan’s new canned curry is ready-to-drink and ready to delight the curry-loving nation (SoraNews24, Casey Baseel). From the country that brought you coffee-in-a-can comes curry-in-a-can! Yum or no?

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Some of today’s market, commodity & currency moves (as at hrs 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 **
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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