Tuesday 10/12/19

1. In MACRO & OIL NEWS, Japan’s economy grows and Tullow Oil has a shocker
2. In CONSUMER/RETAIL NEWS, UK employers pause, Prosus ups its offer for Just Eat and we take another look at Tesco’s potential disposal
3. In INDIVIDUAL COMPANY NEWS, Valeo’s chief thinks China’s car market has bottomed out and Amigo’s founder returns
4. In OTHER NEWS, I bring you a cat hotel and a disco for toddlers…

So Japan’s economy grows and Tullow Oil has a nightmare…

Japan economy grows faster but fears of a slowdown intensify (Financial Times, Robin Harding) cites the latest official figures from Japan’s cabinet office which show that it raised its projected annualised GDP growth rate from 0.2% to 1.8% due to stronger business investment. This would suggest that there was some decent growth momentum going on as the country approached a rise in its consumption tax rate (Japan’s equivalent of VAT) from 8% to 10% on October 1st. This tax hike is expected to hit consumer spending. * SO WHAT? * This all sounds positive, but there is a risk here that consumer spending could fall off a cliff in the fourth quarter as consumers may have brought forward their spending to beat the tax rise. This is certainly a short term concern, but given the cumulative negative impact of the consumption tax rise, the ongoing US trade war and potential slowdown after next year’s Tokyo Olympics, many will probably be hoping

that PM Abe’s recent bumper package of stimulus measures will start to kick in from the middle of next year.

Tullow shares plummet 70% after group cuts production outlook (Financial Times, David Sheppard and Myles McCormick) highlights a massive share price fall for the FTSE250 oil and gas explorer as it cut its production outlook drastically (by a third!) and announced the departure of its chief exec and head of exploration. The share price is now at its lowest level since 2000 as the former stock market darling has suffered from a prolonged period of oil price weakness. * SO WHAT? * The company will have to find a way to reduce its medium-term debt and there are rumblings among investors that Tullow Oil will have to ask investors for more money or sell off at least part of the business. Tullow Oil: downhole (Financial Times, Lex) suggests that the company’s troubles started long ago and that the production outlook downgrade is just the latest disappointment in a long line of disappointments. It says that although the company’s cash position is actually not too bad at the moment, the best shareholders can hope for is a bid as there are still risks to the downside.

UK employers slow hiring, Prosus increases its offer for Just Eat and we look at the pro’s and con’s of Tesco selling off its Asian business…

Hiring confidence among employers at seven-year low (The Times, Ben Martin) cites a quarterly study by Manpower which shows that hiring intentions for the first quarter of next year have fallen to their weakest rate since 2012, when the UK was still recovering from the financial crisis. London was the worst as the report showed that more companies were expecting to cut employee numbers rather than bolster them. * SO WHAT? * This is notable because it is the first time London has been in negative territory since 2010 and Chris Gray, director of Manpower UK, said that in the past “where London leads, the country often follows”. The usual suspects of a slowing global economy, general election-related jitters and Brexit uncertainties were the unsurprising reasons behind employers’ increasing reticence to hire. This latest report echoes similar conclusions to those found in recent releases from the Recruitment and Employment Confederation and the Office for National Statistics. The general election uncertainty thing will clearly be resolved soon enough – although things could get worse if there is a hung Parliament as no-one will be able to implement their policies.

In Just Eat: Prosus ups offer to £5.1bn in Takeaway.com battle (The Guardian, Julia Kollewe) we see that Naspers’ tech group offshoot Prosus is still keen on breaking up the agreed merger between Just Eat and Dutch rival

Takeaway.com as it raised its offer to £5.1bn (Takeaway.com’s offer is £4.8bn – all in shares, whereas Prosus’ offer is all cash). Just Eat’s board is considering the new bid, but is currently advising shareholders to take no action. On the other side, Prosus has until 1pm on December 27th to get a majority of shareholders to support its bid in order for it to win control. * SO WHAT? * There has been a lot of consolidation going on in the last few years in the food delivery segment as individual operators pursue scale in order to survive and grow amid an increasingly competitive field. Now this is a bit of a generalisation, but investors tend to prefer cash bids to share bids because it’s clean, puts a tangible value on the shares and usually gives them an exit option at a premium to the market price. I guess short term investors will be tempted by taking the money from the cash bid whereas longer term investors will be betting on future growth of the food delivery business. I expect this to drag on for a while longer!

OK, so it’s yesterday’s news, but Why would Tesco sell off its golden goose in Asia? (Daily Telegraph, Ben Marlow) takes a look as to why Britain’s #1 supermarket might be tempted to sell its lucrative Thai and Malaysian business, news of which sent Tesco’s shares up by 5% in trading yesterday. * SO WHAT? * Margins in Thailand are around 6% versus less than 3% in UK and Ireland and Tesco only recently talked about rolling out another 750 stores to take advantage of the increasing urbanisation of the population. Lotus is Thailand’s #2 supermarket with a 28% market share and its profits now count for 13% of Tesco’s total. As I said yesterday, it is an attractive asset – and could earn a high selling price, the proceeds of which could be very useful in strengthening its business back home. This could be too tempting to ignore, despite the obvious attractions of this rare overseas success for a UK supermarket.

Car parts maker Valeo thinks that the Chinese car market has bottomed out and Amigo Loans’ founder returns with an axe…

Valeo chief says China’s car market slump has bottomed out (Financial Times, Michael Pooler) heralds what could be an important development as the French car parts supplier – one of the biggest in the world – believes that China’s car market has bottomed out after a prolonged slump. The company had two profit warnings last year and said that there would be more redundancies to come in Europe but it saw an uptick in this third quarter with a 5% rise in like-for-like equipment sales in China. * SO WHAT? * This could obviously be a one-off, but if it becomes a trend it would be a very welcome one from an industry that has become accustomed to bad news! I still think that there are underlying problems in Europe in terms of demand and consumer confidence but if China is actually making a turnaround then it may serve to mitigate sluggishness elsewhere.

Chief executive bids adios to Amigo as founder stages boardroom coup (The Times, Ben Martin) is a story that’s doing the rounds in many of this morning’s broadsheets. It highlights the return of the founder of Amigo, Britain’s #1 guarantor lender, after he ousted its chairman and chief exec, with the chair of the board’s remuneration committee also heading for the exit “at the first suitable opportunity”. The business that James Benamor founded gives out unsecured personal loans of up to £10,000 with interest rates of 49.9% to people with poor credit ratings who have a friend of family member acting as guarantor. * SO WHAT? * Benamor owns almost 61% of Amigo via his Richmond Group investment vehicle and he is clearly not happy with the share price as it has fallen to just 66.75p versus the £2.75 it traded at in June last year. After suffering from rising bad debts, slower loan growth and a crackdown by the Financial Conduct Authority on the guarantor industry as a whole it’s not surprising that he wanted to step in. The share price actually rose yesterday on speculation that Benamor would take the company private given how cheap it has become.

And finally, in other news…

Given all the stuff that’s going on at the moment, I thought I’d leave you with New cat hotel in Japan lets you watch kitties right outside your window for entire stay (SoraNews24, Casey Baseel https://tinyurl.com/ulrdqlc) and the decidedly feel-good Sunday Morning Fever? California toddlers hit the dance floor at Baby Rave (Reuters, Jane Ross https://tinyurl.com/tfuj3ac). Superb!