Tuesday 14/11/23

1. In MACRO & BUSINESS TRENDS NEWS, Cameron returns, Middle Eastern carriers buy tons of planes, BAE sales boom, British Land gets more confident and ESG faces more criticism
2. In AUTOMOTIVE-RELATED NEWS, carmakers offer more discounts on EVs as the economics of owning change, Fisker cuts production targets, Exxon moves into lithium and Continental announces job cuts
3. In TECH NEWS, Apple takes a big cut and Nvidia comes out with an even better chip
4. In INDIVIDUAL COMPANY NEWS, Diageo moves to push tequila, General Atlantic takes on more of Joe & the Juice and Avon opens its first UK stores
5. AND FINALLY, I bring you some incredible tumbling skills…

So DC returns, airlines put in hefty orders, BAE benefits from war, British Land gets more confident and ESG faces more criticism…

Did you know that there is a podcast to go with Watson’s Daily? In this podcast, I discuss two stories from the day’s edition in a bit more depth with a Watson’s Daily Ambassador, my mate Ralph (on the Weekly podcast) or a special guest. The idea of this is to help to give you more of an idea of what talking about this stuff could sound like 👍 You can find the podcasts on the buttons below:

I’ll be conducting a commercial awareness bootcamp THIS Saturday 18th November with Jake Schogger of the Commercial Law Academy! If you’re looking for something to turbo-boost your commercial awareness, why not give it a go?? Just register HERE.

In David Cameron returns as UK foreign secretary after Suella Braverman is sacked (Financial Times, George Parker, Jim Pickard and Rafe Uddin) we see the return of the former PM while the controversial Braverman was sacked in a reshuffle. Former foreign secretary James Cleverly replaced Braverman in the home secretary job. Brexit to pints with Xi: why David Cameron is a controversial foreign secretary (The Guardian, Ben Quinn) points out some of Cameron’s shortcomings – being responsible for Brexit, a supporter of the use of force in Libya in 2011 (which has since been roundly criticised), failed attempts at kindling a warm relationship with China and a chequered track record with the Middle East, among other things! * SO WHAT? * I think that this is a really strange choice – of all the jobs that he could have given Cameron (why not home secretary, for instance?) I find it pretty amazing that Sunak chose him. I guess that the good thing is that although he’s been out of politics for a while he’s still a big hitter and has a ton of experience. The fact that he’s more centrist may not be a bad thing heading into election year next year but I do thing that the whole Greensill Capital lobbying thing may come back to bite him. Basically, DC lobbied former colleagues in government to help the bank that employed him with the government’s coronavirus loan support scheme. The bank eventually went bust in March 2021, but if you’re really interested in it, you can read the excellent summary of what happened in What is the Greensill scandal overshadowing David Cameron’s return to cabinet? (The Guardian, Rupert Neate). I’m sure that political opponents will have this in their back pockets to hit the government with when the time is right.

Meanwhile, in business trends, Middle Eastern carriers place orders worth tens of billions of dollars (Financial Times, Sylvia Pfeifer and Philip Georgiadis) shows that airlines including Emirates, Flydubai and Royal Jordanian have placed some massive

orders for planes worth tens of billions of dollars at the opening day of the Dubai air show – which is particularly interesting given concerns over a potential drop in demand for air travel given the tensions in the region due to the Israel-Hamas war. That said, demand for air travel via Middle Eastern airlines is expected to rise over the next two decades. Clearly this is great for plane-makers Boeing and Airbus.

The conflict is, however, a major driver for defence companies, as per BAE sales boost to £30bn as world moves to war footing (Daily Telegraph, Howard Mustoe) which shows that orders for submarines and fighting vehicles have helped increase sales at BAE Systems to £30bn so far this year. Given the world’s increased twitchiness in the Middle East and in Asia, this is hardly surprising! * SO WHAT? * BAE made a record £37bn in sales last year as governments around the world increased their defence budgets and it looks like momentum is going to continue. The main risk, though, will be shifts in the geopolitical landscape as I would argue that there’s increased chance of sales to particular regions or countries being suddenly banned – and if that happens, it may be very painful for the likes of BAE Systems and others.

Back home, Rising interest rates wipe £200m off British Land’s property portfolio (The Guardian, Mark Sweney) shows that rising rents and increased demand for office and rental space have helped to increase profits for British Land although rising interest rates hit its property portfolio valuation pretty hard! It said that occupancy rates across its portfolio were north of 96% with retail parks hitting 99% – comparing very favourably to the broader UK retail market vacancy rate of 13.9%. Vacancies at its business properties was 4.2% versus the London office market average of 8%. It’s probably this that emboldened them in British Land: rejection of Meta stand-in marks an inflection point (Financial Times, Lex) as it decided not to install a new tenant recommended by Meta in the building that Meta was supposed to have occupied – and seek one out on its own at higher rents! * SO WHAT? * I guess this is a bit of a risky move, but given that British Land has £149m of Meta’s money to play with (this is what it cost to get out of the lease early!) it can afford to gamble a bit in the hope of getting more. Given that rents are trending up, this may actually play quite nicely for British Land!

Then in Conflict of interest fear over ESG (The Times, Ben Martin) we see that an investment strategist at Liberum, a stockbroker, reckons that there may be conflicts of interest with ESG ratings at MSCI, a major player in the ESG ratings space. It is alleged that MSCI gives higher rankings to companies that get better stock market performance! MSCI relies heavily on selling index products and so it is thought that, consequently, the ratings are more dependent on stock market returns than they are on ESG criteria. * SO WHAT? * Although I don’t think many people will find this all that surprising, I think that it’s good things like this are out in the open because ESG – in its current form – needs to be exposed for the scam that it is. Better guidance, more transparency and proper oversight is sorely needed here otherwise something that was supposed to help the environment will just face into obscurity. 

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Carmakers offer EV discounts, car ownership looks set to change, Fisker disappoints, Exxon moves into lithium and Continental makes big job cuts…

Carmakers step up EV discounts in bid to stem global demand slowdown (Financial Times, Peter Campbell) shows that carmakers in some major western markets have broadened the range and scale of the discounts they are offering on EVs in order to counter sluggish demand. Research by HSBC shows that carmakers are having to offer discounts on battery models for the first time to shift vehicles that, at one point, had massive waiting lists! In the UK, the average discount last month was 11% below RRP (the latest stats from the SMMT showed a slowdown in EV sales while Auto Trader recently said that used EV prices were falling to the extent that they were getting pretty similar to their petrol equivalents) and in the US it’s about 10% (I said last week that Hyundai and Ford were offering discounts to clear unsold inventory). * SO WHAT? * Higher prices, wobbles about charging and safety and political attacks on EVs as well as reticence by potential buyers have really hit sales growth. I’d also argue that most “early adopters” have done their adopting and that there won’t be another big upswing until we start seeing lower prices and more choice at cheaper price points.

On a wider level, Why owning a car no longer adds up for millions (Daily Telegraph, Melissa Lawford) argues that actually owning a car is getting less and less attractive these days and that sharing is likely to become more popular. The costs of running a car have increased (petrol prices are up – and so are electricity prices) as have the upfront costs of buying them – then there’s the ULEZ expansion. All the while, people are hiring cars more, living in accommodation that doesn’t have parking and taking public transport/cycle in the summer. * SO WHAT? * I’ve seen this all before. It always seems to happen when household incomes are squeezed and oil prices are high – and then we saw a proliferation of car clubs and car sharing. As far as I’m aware, that has generally

been pretty niche and limited to densely populated cities. The fact is that not everyone lives in London – and for many, it’s the only practical way of getting about (particularly as bus and train services have suffered since the pandemic). I still suspect that many people still want to have their own car even if they can’t afford one right now and that when economies recover and pressures ease on incomes that demand will go right up again. Also, I’d argue that once you have kids, life gets very difficult if you DON’T have a car given the mountains of stuff you have to cart about all the time!

Meanwhile, Fisker Shares Fall More Than 10% After EV Startup Cuts Production Target (Wall Street Journal, Sean McLain) shows that the EV start-up had a lacklustre Q3 and underperformed analyst expectations on revenues, which sent its share price tumbling in the aftermath. Not only did it miss its financial targets, it also announced production cuts. Ouch.

Elsewhere, Exxon Makes Lithium Play in Long-Term Bet on EV Demand (Wall Street Journal, Collin Eaton) shows that the oil company said that it was starting to drill for lithium in Arkansas with a view to becoming a major US supplier to EV battery makers by 2030! * SO WHAT? * This sounds like a good idea long term given EV adoption over the long term. It says that it hopes to produce battery-grade lithium by 2027 from its 120,000 acres in Arkansas that it is thought to have bought for over $100m.

Then in German car parts supplier Continental to cut thousands of jobs (Financial Times, Patricia Nilsson) we see that Conti announced that thousands of job cuts are on the cards for one of the world’s biggest car parts suppliers. Falling car production and chip shortages over the last few years have meant a tough few years and margins have actually fallen way behind a number of rivals. Although the influx of Chinese manufacturers may provide some relief for Continental the whole market is just getting so competitive.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Apple takes a big slice and Nvidia comes up with even better chips…

Apple takes 36pc cut of Google ad revenue on its browser (Daily Telegraph, Adam Mawardi) shows that Apple gets a hefty 36% slice of advertising revenue from searches in its Safari browser. This figure was shrouded in secrecy but was revealed in an antitrust trial against Google yesterday. Prosecutors representing the US Department of Justice say that exclusivity deals with phone makers and software developers have snuffed out competition. The contract between Google and Apple for Google to remain Apple’s default search engine is thought to be worth up to $15bn a year! The drama continues…

Then in Nvidia’s new super chip takes AI to next level (The Times, Katie Prescott) we see that Nvidia has just launched its most cutting-edge chips so far with better memory and the ability to train AI models more quickly. The new H200 will be double the speed of the current top-of-the-line chip and is expected to come to market in Q2 next year. Demand for its H100 chips exceeds supply by some way and the H200 will be compatible with the current model so companies can use a mix of both – so everyone’s a winner! * SO WHAT? * It’s important that Nvidia continues to evolve and improve because Intel and AMD are closing the gap while companies such as Tesla and Microsoft are also working on the development of their own chips. For now, though, Nvidia is ahead of everyone else and needs to capitalise on it while it can! The question is whether it can produce enough chips quickly enough!

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Diageo wants you to buy tequila, General Atlantic buys more Joe & the Juice and Avon opens shops…

In a quick scoot around some of today’s other interesting stories, New Diageo Boss Bets She Can Make the World Love Tequila (Wall Street Journal, Saabira Chaudhuri) shows that Diageo’s new CEO (appointed in July) is planning to take tequila global! Its popularity has boomed this year in the US and become the country’s most popular spirit and Debra Crew wants to replicate that success outside the US and Mexico! At the moment those two countries make up 85% of tequila’s sales. * SO WHAT? * Diageo has made some big bets on tequila which have seen it grow from 1% net sales in 2014 to the current 12%, which some argue makes Diageo vulnerable if other countries just don’t develop the thirst for tequila. It is now the world’s biggest tequila maker by sales. Tequila is in only half of the households in the US that buy North American whiskey and vodka. I think this is interesting because when a company like Diageo decides to get behind a drink it can really change tastes! Admittedly, it was quite a few years ago now but when I was at my first stockbroking job I remember the then-CEO of Diageo presenting to us and saying that he would be making cider more popular. At that point, cider was seen as the drink of choice for alcoholics and people who wanted to get drunk quickly on the cheap. After that, though, there was a real “gentrification” of the drink and people started to do things like put ice in it etc.! Re spirits, though, I wonder whether we’ve had enough of gin now and whether it is indeed “tequila time”?!? It does suffer from a bad rap but I’m sure that Diageo’s marketing might can solve that!

Elsewhere, General Atlantic takes controlling stake in Joe & the Juice (Financial Times, Will Louch and Daria Mosolova) shows that US private equity firm General Atlantic has taken a controlling

stake in Danish sandwich chain Joe & the Juice, seven years after it started to invest in its expansion. It has increased its stake from around 30% to up to 90% in a deal giving the chain an implied valuation of about $600m. Existing shareholders will be cashing out and the investment will be used to reduce its debts whilst at the same time powering overseas expansion. * SO WHAT? * The chain has expanded significantly since it was founded in Copenhagen in 2002, but it has seen an acceleration in the last few years fuelled by private equity money and more than quadrupled its revenues since 2016. It now has over 360 outlets globally and aims to expand in the UK, Europea and Middle East. We’ve got a Joe & the Juice in Guildford, where I live, and that place is never full – unlike similar outlets around it which always seem to be busy (and it’s on the main street as well, so no location issues)! OK so it does a decent smoothie but its prices are very high. I’m not convinced that now is a good time to expand for this chain in the UK given the squeeze on household incomes, but when things turn around it is probably well-positioned.

Then in Ding dong! Beauty company Avon to open first UK stores in its 137-year history (The Guardian, Mark Sweney) we see that Avon, the beauty company famed for its house-to-house visits, is going to open its first actual store in the UK for the first time in its 137-year history! * SO WHAT? * Its door-to-door sales model was rendered useless over the pandemic and stores will start to open here in the next two months as it changes the way it does business. The stores will have about 150 products but the full range will still only be available from its sales representatives. Its stores in Turkey have done really well, which gives it confidence to do the UK roll-out. It’s interesting to hear another “offline” brand deciding to go physical and get on the high street.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

…in other news…

I thought I’d leave you today with some amazing tumbling skills from the geniuses at Cirque du Soleil. If you’ve never been to see them and you get the chance you really should go. They are absolutely spectacular!