Tuesday 17/12/19

1. In MACRO & MARKETS NEWS, UK stocks continue to rise but UK and European manfacturing stay gloomy
2. In CONSUMER & RETAIL NEWS, high end property starts shifting, water bills are set to fall, UK shopper numbers weaken while Sports Direct and Franco Manca press for business rate cuts
3. In INDIVIDUAL NEWS, IFF buys DuPont’s nutrition business for $26bn, Uber exits Indian venture, FirstGroup looks for buyers of its US business, Cineworld announces a big acquisition and Netflix emphasises overseas growth
4. In OTHER NEWS, I bust a myth about beer cans…

So UK stocks show big gains while both UK and European manufacturing continue to suffer…

UK stocks jump as election result eases uncertainty (Financial Times, Adam Samson and Myles McCormick) shows continued euphoria following Friday’s general election result as the FTSE100 made its biggest one-day gain in trading since December 2018, contributing to a 3.4% gain in the last two trading days. The FTSE250, which is made up of more domestically-focused companies, also posted strong gains, although they were more modest in comparison. * SO WHAT? * Trump’s partial trade deal with China will have been another driver behind the FTSE100’s strong performance – and proved to be a boost to indexes around the world. However, the magnitude of BoJo’s victory will have done a great deal to embolden investors who had been reluctant to put money into the UK for fear of prolonged uncertainty over a number of things including Brexit. There’s still more detail to be worked out – and it’s going to be a bumpy road – so I would expect the euphoria to wear off in the fairly near future.

Manufacturers glum as business activity slows sharply (Financial Times, Delphine Strauss) cites the latest IHS Markit survey showing a UK manufacturing industry at its lowest ebb since the aftermath of the 2016 EU referendum. Service sector businesses were less gloomy but the majority of participants in both sectors said they were cutting staff. Eurozone manufacturing activity shrinks for 11th straight month (Financial Times, Valentina Romei) shows that things aren’t much better on the Continent as manufacturing activity contracted for the 11th consecutive month in December. * SO WHAT? * Although things aren’t looking great at the moment for manufacturing, I would have thought that the “phase one” US-China trade deal should calm things at least a little bit (as long as it holds!) but the benefits will take a few months to filter through. With regard to UK manufacturing, I think that BoJo’s victory could stop the cycle that we’ve seen going into the past two Brexit deadlines-that-weren’t where orders ramped up ahead of a deadline (to beat uncertainty) only to fall off a cliff for a few months as the inventory gets run down, which then repeated going into the second deadline. This should hopefully mean less of a “boom-bust” order pattern and a smoothing out of demand.

High end property activity picks up, water bills are about to fall, UK shopper numbers weaken while Sports Direct and Franco Manca call for business rate cuts…

Sales bounce for UK high-end property after Tory victory (Financial Times, Judith Evans) highlights another area that has been impacted by BoJo’s win as estate agents for “super prime” homes reported an immediate boost in sales. Overseas buyers are also keen to get involved to beat a new 3% stamp duty surcharge that BoJo will be bringing in to target them when they buy homes here, plus there’s an increased chance now of sellers becoming emboldened and asking for higher prices.

There’s good news for those of us in the real world in Household water bills to fall by 26pc as Ofwat gets tough (Daily Telegraph, Ed Clowes) as regulator Ofwat has told water firms to cut the average bill by 12% before inflation, although the actual amount will vary depending on where you are. It is calling for improved efficiency in the industry and a reduction in pollution and leaks, as well as household bills. Utilities companies will also be forced to put aside £1bn to prevent flooding as part of efforts to improve services. * SO WHAT? * The companies affected are allowed to appeal – and will have eight weeks to do so – but it would be a gamble as an appeal to the Competition and Markets Authority could actually result in a conclusion that Ofwat had been too soft. Anglian, Northumbrian, Thames and Yorkshire are the ones most likely to appeal, so they will no doubt be weighing things up.

Shoppers fail to keep pace after Black Friday surge in footfall (Daily Telegraph, Michael O’Dwyer) cites the latest data from Springboard which shows that the number of

shoppers fell in the second week of December versus the same time last year as conditions remain tough. Sky reported last night that department store chain Beales had called in KPMG to launch a strategic review of their business. Retailers will be hoping that this Saturday, dubbed “Super Saturday” in the industry (because it is traditionally the busiest day of the year for shoppers), will give them a decent boost.

Mike Ashley: more House of Fraser stores likely to close (The Guardian, Sarah Butler) continues the gloom with threats that more stores could go unless the government does a major overhaul of the business rates system. On the plus side, he announced that he expected higher profits this year due to reduced losses at House of Fraser, sending shares in Sports Direct (whose name-change to “Frasers” was approved by shareholders yesterday) up by 27%. Employees were also due to benefit from the introduction of a new staff bonus scheme of about £100m, as Ashley said that he wanted to make about 50 people millionaires. Tackle business rates now, pizza chain boss urges PM (Daily Telegraph, Oliver Gill) shows the boss of the successful Franco Manca pizza chain, David Page, joining in the retailer chorus for a business rates overhaul to avert the death of the high street. Business rates are predicted to bring in £31.8bn for the Exchequer this year and are based on the estimated rental value of a company’s property. Retailers complain that they have to pay huge sums that do not take into account falling shopper numbers. * SO WHAT? * It’s amazing that the government hasn’t done anything about this sooner given the number of retailer failures over the last couple of years (but then again, I suppose that business rates are a nice little earner for them). However, the Conservatives did say that they would cut business rates in their election manifesto so hopefully, retailers won’t have too long to wait to see some action on this, but it may prove to be too little too late for some.

IFF buys DuPont’s nutrition business, Uber and FirstGroup look to exit some overseas ventures, Cineworld eyes a big acquisition and Netflix points to its overseas growth …

IFF-DuPont $26bn deal bets on meatless future (Financial Times, Gregory Meyer, Matthew Rocco and Arthur Beesley) highlights a major acquisition by International Flavors & Fragrances of DuPont’s nutrition and biosciences business with a view to targeting the fast-growing meatless market. DuPont shareholders will own 55.4% and IFF shareholders 44.6% of the enlarged company which represents the biggest ever tie-up in the industry. * SO WHAT? * IFF investors weren’t too happy with the deal given their doubts over the success of the previous acquisition of Frutarom Industries, but the sector has been consolidating over the last year or so and this deal creates a major player with a broad range of expertise. Although IFF shareholders may be sceptical about the high acquisition price and the company’s ability to digest another big acquisition so soon after the previous one, projected cost savings of $300m per annum and $400m of revenue benefits should help to soften the blow.

There was also news today of two companies itching to get out of some of their overseas businesses in Taxi for Uber as it offloads Indian delivery arm to rival (Daily Telegraph, James Cook) where Uber is on the verge of selling its Indian food delivery business to Zomato as part of efforts to reduce exposure to poorly performing parts of the business and FirstGroup in move to sell US arm as it bows to pressure (Daily Telegraph, Oliver Gill) shows that the transport group has eventually buckled to investors who want it to offload its troubled North American

businesses and has hired investment bank Rothschild to give it some options. Businesses that are likely to be affected include  the famous long-distance US coach arm Greyhound as well as its school bus and city operations.

Then in Cineworld sees big picture in Canada deal (The Times, Dominic Walsh) we see that the UK cinema chain is aiming to increase its exposure to the North American market by buying Canada’s biggest cinema operator Cineplex for £1.6bn. This comes not long after the company’s $5.8bn acquisition of American cinema operation Regal Entertainment in February last year. * SO WHAT? * I think that this is a very ballsy move given the expense, the expected poor slate of films coming out next year and the ongoing pressure from the TV streamers. Cineworld’s chief exec, Mooky Greidinger, said that “I don’t think you’ll find anyone who’ll tell you they’re on Netflix because of the great movies. Netflix is not an enemy and it’s not a threat”. Hmmm. Still, pretty impressive.

Talking of which, Netflix reveals new data on overseas growth amid stiffer US competition (Wall Street Journal, Joe Flint) shows that the streaming giant has now started to release geographic data breakdowns in an effort to get investors focusing more on overseas growth rather than tightening domestic competition. The EMEA region has seen more than double the number of subscribers since 2017 and is the biggest non-US region for them. Latin America was also strong and Asia is showing positive signs but from a low base. * SO WHAT? * You know when things aren’t going well when a company decides to change the metrics on which it is measured! However, in this case, it may well be forgivable given the mature nature of Netflix’s domestic market. Now that growth in its own backyard is no longer stellar, it will now hope for chunky growth rates elsewhere. It’s great that it is making inroads in other regions, but the competition is increasing (which may put a cap on subscription price upside) and Netflix will continue to have to pay high prices to buy (and develop) content to keep ahead of its rivals.

And finally, in other news…

Given that many of us will be drinking a bit more than usual at the moment, I thought I’d bring this to your attention: Something you always thought you knew about beer isn’t actually true (BGR, Mike Wehner https://tinyurl.com/wcrztvy). Well I never!!! You’ll be telling me that Father Christmas isn’t real next!