Tuesday 12/02/19

1. In MACRO AND COMMODITIES NEWS, China engages in more US talks, UK growth hits the buffers (surprise, surprise) and there’s rising demand for both copper and cobalt
2. In RETAIL-RELATED NEWS, Burger King’s parent seeks out growth, Iceland readies itself for “Sasda” castoffs and Debenhams gets a cash injection
3. In INDIVIDUAL COMPANY NEWS, Mercedes suffers weaker sales, Morgan Stanley invests in millennials and EA’s answer to Fortnite proves to be a hit
4. In OTHER NEWS, I bring you an interesting potential job. For more details, read on…

So the US and China engage in more talks, UK growth has a shocker and demand rises for both Copper and Cobalt…

China hopeful of trade war breakthrough (The Times, Callum Jones) heralds the latest round of talks between the US and China as they get closer to the March 1st truce deadline. Clearly, the China side is just bigging it all up as they host this round in Beijing but a meeting between the people that really matter, Xi Jinping and Donald Trump, is not on the cards at this moment. Talks are scheduled to last five days.

Growth in Britain’s economy tumbles to nine-year low (Daily Telegraph, Tim Wallace) cites the latest data from the Office for National Statistics (ONS) which shows that economic growth equaled its lowest level in nine years at the end of 2018 – just 0.2% in the final quarter – and it’s not expected to improve during 2019. Rob Kent-Smith, of the ONS, observed that “GDP slowed in the last three months of the year with the manufacturing of cars and steel products seeing steep falls and construction also declining. However, services continued to grow with the health sector, management consultants and IT all doing well”. * SO WHAT? * This just confirms what we already know – that things are not looking good as we head into the uncertainty of Brexit. Buckle up, people!

After a bit of a dip going into the end of 2018, China’s demand for electric vehicles charges copper (Financial Times, Henry Sanderson) highlights a turnaround in the copper price – it’s rallied by 5% so far this year to $6,139 a ton – as we head into a period of higher demand driven by a rise in production of electric cars in China, according to analysts at Citigroup. Three times as much copper is used in an electric vehicle versus a conventional one and

Citigroup analysts believe that the number of petrol cars produced in China will fall by 9% while electric car production will increase by 53% – a net copper demand growth of 0.3%. Longer term, Citi thinks that copper for electric cars will account for two-thirds of demand growth between 2018 and 2030. * SO WHAT? * This is really interesting and worthy of note as the copper price was really rather weak going into the end of last year. I think that a rising copper price is a long term story given its use in electric vehicles and although there could be some bumps along the way, this is ultimately going to see a rising trend as EV take-up increases around the world.

Australia hopes to cash in on new cobalt rush (Financial Times, Jamie Smyth and Henry Sanderson) looks at another commodity that will benefit from an increase in electric vehicle production – cobalt. Two-thirds of the world’s cobalt is currently mined in the Democratic Republic of Congo but Australia is looking to get a piece of the action as Asian battery makers are seeking out more stable sources of supply. George Heppel, an analyst at consultancy CRU, points out that “the DRC is to the cobalt world what Saudi Arabia is to oil when it comes to the availability of supply, there’s nowhere else where you can get large volumes like you can in the Congo”, but the thing is that the DRC is very unstable politically and is notorious for child labour exploitation, making it difficult to trade openly. Asian battery makers are now looking at building relationships Aussie cobalt miners such as Cobalt Blue (South Korea’s LG International bought a 6% stake last year) and Clean TeQ (Chinese conglomerate Shanghai Pengxin bought a 16% stake). Canadian-listed First Cobalt is looking at building a North American cobalt supply via its mine in Idaho and unlisted KazCobalt, which operates in Kazakhstan, is also aiming to mine cobalt and nickel in the east of the country. * SO WHAT? * For the moment, the immediate prospect for cobalt price upside is limited as a huge amount of DRC supply is expected to hit the market – cobalt prices have fallen by over 40% since mid-November – but it is probably wise for battery makers to diversify their supply chains for the longer term.

Burger King’s parent seeks more growth, Iceland gets ready to take on some “Sasda” surplus and Debenhams announces a cash injection…

In Burger King’s parent aims for more global growth (Wall Street Journal, Kimberly Chin) we see that Restaurant Brands International, which also owns Tim Hortons and Popeyes Louisiana Kitchen (aaaaaaaargh – what happened to the apostrophes?!?!?), is looking to expand the international footprint of all three brands as they seem to be hitting maturity in the US and Canada. * SO WHAT? * This sounds like a reasonable idea, but it will need to think hard about how to slot in Tim Hortons and Popeyes into its existing international system. Fortunately, it has a lot of experience in franchising on a global scale so this shouldn’t be insurmountable.

Meanwhile, back in the UK, Iceland weighs moves for Sainsbury’s and Asda stores (Financial Times, Jonathan Eley) shows that the “mums’ favourite” is thinking about bidding for any stores that Sainsbury’s and Asda will have to dispose of to get their merger to go ahead. Clearly, stores are likely to be way bigger than their usual outlets

and so Iceland MD has proposed to redevelop them. They could also be used for the company’s larger format, The Food Warehouse, which are about double the size of their town centre outlets. * SO WHAT? * Interestingly, it seems that Iceland has been on the lookout for premises on out-of-town retail parks as traditional tenants such as Homebase, Carpetright, Mothercare and Toys R Us have been closing down or downsizing. However, they are not the only ones looking to increase their footprint – general merchandise discounters B&M, Home Bargains and Irish-owned toy chain Smyths are also sniffing around. No doubt landlords will be keen to see some competition to take up the vacant space!

Debenhams to announce £40m short-term cash injection (The Guardian, Sarah Butler) shows that lenders are going to extend the company’s overdraft limit in order to give it time to refinance its debts , but in return there will have to be more store closures and the banks will take a stake in the company. * SO WHAT? * This sounds pretty darn desperate to me – at the moment, all talk is about the financing and store closures but no-one seems to be coming up with a proper plan to turn the business around! I know that immediate survival and financing takes priority right now but the company really needs to come up with a solid plan for the future PDQ or it will just die – and all of this faffing around will have been for no reason.

Mercedes sees sales slide, Morgan Stanley announces a big acquisition and the EA rival to Fortnite gets a warm reception…

Mercedes dented by sales decline in January (Financial Times, Patrick McGee) shows that the world’s best-selling luxury car brand saw a steep fall in sales last month as problems in Asia, the EU and US came home to roost after a very strong 2018. * SO WHAT? * It seems that no automaker is really immune to the global economic slowdown at the moment.

Morgan Stanley, in its biggest deal since crisis, courts future millionaires (Wall Street Journal, Liz Hoffman) highlights the bank’s purchase of Solium Capital, which manages stocks that corporate employees receive as part of their pay packages, for $900m in the biggest takeover by a major Wall Street firm since the financial crisis. Solium has 3,000 corporate clients covering one million employees and includes startups like Stripe and Instacart whose

potential IPOs could make some of their respective employees millionaires. Morgan Stanley chief exec James Gorman is hoping that these employees could become clients of Morgan Stanley. * SO WHAT? * Morgan Stanley has an existing stock-plan administration business that has about 330 clients covering 1.5million employees, so this new acquisition looks like it’ll fit quite nicely as Solium’s millennial-and-start-up focus will slot in with Morgan Stanley’s top-exec-and-Fortune500 company focus. Morgan Stanley is paying a 43% premium to Solium’s Friday closing price and Morgan Stanley expects the deal to close by June 30th.

I mentioned this last week but Electronic Arts’ Fortnite rival powers stock (Financial Times, Matthew Rocco) shows that its new free-to-play “battle royale” game Apex Legends, a direct competitor to Fortnite, got a warm reception on release as Respawn Entertainment (the EA unit behind the game) announced that it got more than 10m players and overtook 1m concurrent players within the first 72 hours of launch. EA shares rose by 16% on Friday – the company’s best single-day performance for over four years – and continued to rally yesterday. * SO WHAT * It’s a bit early to say yet, but Apex Legends is looking like a hit and could well mean that other “traditional” developers go down the road of online gaming.

And finally, in other news…

I thought I’d leave you today with a potential job: Royal Caribbean wants to pay someone to explore the world for a month (Mental Floss, Emily Petsko https://tinyurl.com/yxl4ydk6). Sounds like a VERY nice job indeed!