Tuesday 17/11/20

  1. In VACCINE-RELATED NEWS, Moderna’s news boosts markets
  2. In CORONATRENDS NEWS, Home Depot splashes out, the birth rate falls, Cinemark signs a historic deal and UK Lockdown 2.0 has less impact
  3. In ELECTRIC VEHICLE-RELATED NEWS, Tesla is to join the S&P while EVs in the UK lag
  4. In MISCELLANEOUS NEWS, Walmart pulls out of Japan, Airbnb looks good ahead of its IPO, BBVA targets a smaller rival and UK house prices fall
  5. AND FINALLY, I bring you a dodgy birthday cake and a busy Christmas tree…



So Moderna’s vaccine hopeful gets everyone excited…

Moderna’s Covid jab shows 94.5% efficacy in clinical trials (Financial Times, Donato Paolo Mancini, Sarah Neville and Hannah Kuchler) highlights another promising-looking candidate to fight the coronavirus and the company said that it is aiming to submit the vaccine for approval by the FDA “in the coming weeks”. The European Medicines Agency said that it had begun an accelerated review of the vaccine. Easier distribution may make Moderna’s vaccine much more valuable (The Guardian, Nils Pratley) emphasises the fact that this vaccine could be more valuable than the one announced by Pfizer/BioNTech last week because it can be transported and stored for up to six months at -20ºC and then remain stable for 30 days in conventional fridges. Pfizer/BioNTech’s vaccine has to be stored at around -75ºC and can only last for five days at fridge temperature. On a side note, AstraZeneca invested in Moderna back in 2013 and then again in 2016 – a total of about $380m – and Moderna’s share price has quintupled since floating in 2018! Moderna/vaccines: getting warmer (Financial Times, Lex) points out that this development

could bring Moderna the vindication that it has long sought out and that its belief in messenger RNA is now paying off. * SO WHAT? * It could be many months before we see a jab from either Pfizer or Moderna and it is not yet clear how long any protection lasts BUT each successful vaccine will not only make mass immunisation possible, it will also reduce the risks of relying on a single solution. The fact that Moderna’s solution is easier to transport and store certainly makes it very compelling as things stand at the moment because it doesn’t matter how great a vaccine is – if you can’t get it to the people who need it then it is of limited use.

Funnily enough, Markets get shot in the arm from vaccine trial (The Times, James Dean and Alex Ralph) shows that global markets once again got a “shot in the arm” (hoho) from positive news on Moderna’s vaccine. Once more, bombed-out sectors like travel, transport and leisure shares were the best performers. * SO WHAT? * I suspect that we are going to see a lot of this sort of movement on news of new vaccine candidates. Even if they don’t all work, I would imagine that every instance is going to give investors increasing confidence in the face of rising coronavirus cases that an end is in sight. Fingers crossed 🤞🤞!



Home Depot goes shopping, slowing birth rates could be problematic, Cinemark makes a historic deal and the UK’s Lockdown 2.0 doesn’t look as bad…

Home Depot pays $9.1bn for building materials wholesaler HD Supply (Financial Times, Alistair Gray) shows that the world’s biggest DIY chain announced a deal to buy its former subsidiary HD Supply (which supplies building materials to maintenance and repair contractors) for a 25% premium to Friday’s closing price. This is very much an example of a company that has done well in lockdown splashing the cash. HD Supply was sold to private equity investors in 2007, just before the US housing market meltdown. * SO WHAT? * This deal broadens Home Depot’s offering and the apparent underinvestment in HD Supply gives it an opportunity to add some value and get some growth. It’ll be interesting to see whether we get anything similar going on in the UK.

I thought I’d mention A Covid baby bust is bad news for these businesses (Wall Street Journal, Saabira Chaudhuri) because it refers to a potential problem a few years from now – that birth rates are likely to fall dramatically because people put off having families during the pandemic (although you could argue that there will be a “relief boom” when the vaccines start coming). The birth rate had already been weakening for a few years prior, but a dramatic fall is likely to hit companies that make related products like baby formula and nappies, such as Reckitt Benckiser, Nestle and Danone. Stats from the Brookings Institution think tank expect there to be 300,000 to 500,000 fewer births (talk about hedging your bets – that’s a massive margin 😂!) in 2020 versus 44,172 fewer in 2019, although official government figures won’t be released until summer next year. It is basing its forecast on what happened in the 2007-2009 recession and uses the hypothesis that weaker job prospects equate to fewer births. * SO WHAT? * Interestingly, although birth rates are weakening, it seems that parents are spending more on their children so efforts are being made by companies to introduce more expensive baby food.

Cinemark, Universal usher in more change to movie-theater distribution (Wall Street Journal, R.T.Watson) heralds what could be a historic moment for movies as Comcast’s Universal Pictures has just signed a deal with America’s 3rd largest cinema chain, Cinemark Holdings, which will allow Universal titles to go to streaming after just three weekends – or 17 days – in theatres. AMC Entertainment, the world’s biggest cinema chain, already agreed a similar deal with Universal in July. * SO WHAT? * This is potentially AMAZING as, currently, moviegoers have to wait about 2½ months from a film’s cinema debut before being able to watch it at home. This move is definitely a sign of the times as movie theatres have been trying to make money under lockdown and a multi-year deal will give it some much-needed cash flow certainty, albeit at a cost to its theatre revenues. Mind you, given that most films and cinemas earn the bulk of their box-office revenues in the first few weeks of release, theatres have been jealously guarding their 2½ month window. However, now that the power has swung back very much in the studios’ favour, cinemas are having to be a bit more humble otherwise they may not survive. Under the Cinemark-Universal deal, films that gross over $50m in their first weekend can continue to have theatre-exclusivity for five weekends – or 31 days. Once that is reached, they can still screen the film but it will also be available for streaming (and the cinemas can get a share of the digital-rental revenue). I think that this is an excellent idea for all concerned and it will be interesting to see how much of an impact this will have on box office receipts.

New restrictions less damaging to UK economy than spring lockdown, data show (Financial Times, Valentina Romei) cites a number of unofficial data sources which show that Lockdown 2.0 isn’t proving to be as damaging to the economy as the first one. Stats on the volumes of people travelling to work and HGV traffic levels remain largely unchanged (which implies that factories and building sites are still mostly open) although consumer confidence took a recent hit, according to the latest data from PwC. * SO WHAT? * Clearly, the first lockdown was a major shock to the system but it seems that households and businesses have had time to adapt. Given that this is also a lockdown with a deadline (we hope!), plus growing optimism about a vaccine, I would expect there to be a smaller hit on the economy than last time although I would concede that there will be more businesses shutting down for good the longer restrictions are in place.



Tesla aims for the S&P but EVs still lag in the UK…

Tesla to be added to S&P 500 Index (Wall Street Journal, Heather Somerville) heralds the imminent promotion of Tesla to the “big boys’ club” as S&P Global announced yesterday that Tesla would join the S&P 500 Index on December 21st. The company did not make the cut in September despite having now had five consecutive quarters of net profit (you need four to get into the index) and brings with it official recognition. * SO WHAT? * This is great news for the company – and the share price has already shot up on the back of this news. Tracker funds will have to buy into it now and so I would expect more upside

from here. This will give investors a feeling of vindication but it still doesn’t alter the fact that the company’s car sales are still miniscule versus the whole.

Meanwhile, Is Britain’s electric vehicle journey moving too fast? (Daily Telegraph, James Cook) shows that we are still way behind in terms of charging network in the UK for electric vehicles despite the government is to bring forward the ban on the sale of new petrol or diesel cars from 2035 to 2030. Currently, 73.6% of new car sales so far this year are petrol and diesel, 5.5% are put electric and the rest are hybrids. Mind you, it’s not just the network that’s the problem – Johnson plays catch-up amid world’s gigafactory charge (Daily Telegraph, Michael Cogley) shows that we will need massive battery production capacity as well and that we are currently falling way short! The move to EVs sounds great, but success will all be in the execution.



Walmart exits Japan, Aibnb has good news, BBVA eyes a smaller rival and UK house prices fall…

In a quick scoot around some of today’s other key stories, Why Walmart’s might couldn’t crack Japan (Financial Times, Kana Inagaki and Leo Lewis) shows that Walmart has finally decided to call it a day in Japan after 18 years as it sold its majority stake in Seiyu. * SO WHAT? * Japan has been the graveyard of many a western retail hopeful – just ask Boots, Carrefour, Tesco and Ikea – mainly because suppliers are so strong and a foreign interloper just can’t seem to break it no matter how big they are. This means that they are unable to leverage any buying power. The new owners of the Seiyu stake, Rakuten and KKR may well be able to do more to grow the online business than Walmart ever could. Walmart will still retain a 15% stake in Seiyu, so still has skin in the game – which might be a good thing given that Seiyu is likely to have an IPO next year.

Elsewhere, Airbnb IPO filing shows profitable quarter after deep cuts (Wall Street Journal, Preetika Rana and Maureen Farrell) highlights the company’s profit in Q3, which will be very useful as it heads towards an IPO. Deep cost cuts and rising revenues since the lowest point of the

pandemic have combined to boost profits in time for a (probably) successful flotation. Nice timing – although it did warn that further movement restrictions in the fourth quarter may dampen things a bit.

Elsewhere, Spanish bank BBVA in merger talks with smaller rival Sabadell (Financial Times, Daniel Dombey) shows that Spain’s second largest bank, BBVA (with a market cap of €24.5bn) is in merger talks with TSB owner Sabadell (which has a market cap of €2.3bn). * SO WHAT? * There’s a spate of M&A going on in the Italian and Spanish banking sector at the moment as banks try to get scale in  difficult markets. Spain’s CaixaBank announced its purchase of Bankia in September, making the enlarged entity the biggest lender in the country, for instance. Sabadell’s shares rose by 25% on the news (but they were down by over 50% over the past year) and BBVA’s rose by 15%. I suspect that investors are looking at this as a potential cost savings story where both banks cut overlapping branches and reduce costs.

Then in Prices fall as sellers seek deals before duty cut-off (Daily Telegraph, Melissa Lawford) we sees that house prices weakened last month, according to Rightmove, as sellers continue to rush to make the stamp duty holiday cut-off. I suspect that the frenzy will continue with renewed vigour in the new year as the deadline gets closer!



…in other news…

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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)