Tuesday 19/10/21

1. In MACRO & ENERGY NEWS, speculation increases over an early UK interest rate rise and the merits/downsides of an online sales tax while French presidential hopeful Zemmour makes waves. Russia keeps gas prices up, Goto Energy goes under and the government offers incentives for heat pumps
2. In M&A AND IPO NEWS, Aristocrat buys Playtech and BrewDog postpones its IPO
3. In CAR-RELATED NEWS, Volvo is to list next week, Pod Point gets closer to flotation, Ford invests in UK EVs and Foxconn reveals its first EV
4. In INDIVIDUAL COMPANY NEWS, Facebook has metaverse designs, THG does the decent thing and Tesco does cashierless
5. AND FINALLY, I bring you a bit of Pomplamoose…

So speculation intensifies about interest rates, an online sales tax divides, Zemmour is the new threat, Goto goes under and the government wants to push heat pumps…

Following on from what I said yesterday, Traders bet Bank of England will raise rates as soon as next month (Financial Times, Tommy Stubbington) shows that traders have gone from expecting an interest rate rise in the December meeting to expecting one in the next meeting at the beginning of November. They are now pricing in a 0.25% rise from the current 0.1% with the possibility that it could go to 0.5% by the end of the year. * SO WHAT? * This is quite a turnaround considering that before the September meeting, traders were pricing in just a single rate rise by next summer! I must say, though, that I think a 0.25% increase off the bat would be quite punchy. Given the reticence of some of the MPC’s members I would have thought that a smaller rise of, say, 0.1% or 0.15% might be more palatable with more smaller rises to come. I would interpret a sudden sharp rise as an admission that the MPC was very wrong in keeping interest rates pinned down!

Three reasons to scrap the online sales tax (Daily Telegraph, Matthew Lynn) at once recognises the current chatter about the Treasury looking at implementing an online sales tax to level the playing field between offline and online retailers – but it also argues that there are reasons why it should not be implemented. Namely, that it will slow down the digitisation of the economy when we should be speeding it up, it will unfairly target start-ups and it will be yet another tax burden on companies just as they are trying to emerge from the pandemic. Lynn suggests that it would be better instead to raise VAT or income tax because the burden would be more evenly spread. * SO WHAT? * No one relishes the prospect of paying tax and it seems that businesses are going to be paying a lot more of it over the years as the government tries to claw back money that it spent during the course of the pandemic. On the surface of it, a digital sales tax would seem to make sense given how many online winners there have been over the last year or so but there will always be losers when a tax is implemented! I think that an unintended

consequence of this could be that consumers will ramp up spending before the tax comes in and then activity quietens down significantly afterwards. The big companies will absorb it and the small companies will fret IMO.

I thought it was worth mentioning The French disrupter: Eric Zemmour shakes up presidential race (Financial Times, Victor Mallet) because this “newcomer” to the race to become France’s next president is causing a bit of a kerfuffle. Until now, it has looked like it is going to be a contest between Macron and far-right nationalist leader Marine Le Pen. However, the advent of anti-immigration writer and commentator Eric Zammour means that the right-wing vote could be split as he is shooting up the opinion polls at the moment. * SO WHAT? * Given Europe’s apparent lurch to the left with social democratic parties doing well at recent elections, it will be interesting to see whether Zammour’s rhetoric will win over the French and pull the country to the right. What with instability looking increasingly likely in Germany, a divided France would present Europe with an unwelcome headache just as everyone is trying to pull themselves out of the rubble left by the pandemic.

Then in energy-related news, Gas prices jump as Russia keeps a lid on supplies (The Times, James Worthington and Hannah Boland) highlights the fact that European gas prices have risen sharply as Russia hasn’t supplied more gas to Europe despite Russia’s Putin saying that he would, Goto Energy becomes 16th UK supplier to go bust this year (The Guardian, Georgina Quach) shows another energy provider biting the dust as gas prices remain high and UK households to be offered £5,000 grants to install heat pumps (Financial Times, Jim Pickard and Natalie Thomas) shows that the Treasury wants to encourage everyone to install heat pumps as part of the overall effort to hit the government’s 2050 net zero target. Given that UK homes make up over 20% of all CO2 emissions, this sounds like an idea but critics say that the incentives aren’t generous enough to get the population, 85% of whom rely on gas boilers, to make the switch. a consortium of non-profits and businesses reckon that a £6,000 grant would be needed per household. Heat pumps generally retail at about £10,000 😱 but Octopus Energy (one of the UK’s six biggest energy suppliers) wants to reduce the cost to about £5,500 within the next 18 months. Clearly this is going to be a marathon and not a sprint…

Aristocrat buys Playtech and BrewDog postpones its IPO…

Playtech goes up-market after agreeing £2.7bn Aristocrat deal (The Times, Dominic Walsh) reflects the ongoing consolidation of the gambling sector as the Australian manufacturer of casino slot machines Aristocrat made an all-cash offer to buy Playtech, the British gambling software company, for a 58.4% premium to Friday’s share price. Playtech trumpeted the deal as one that would create “one of the largest B2B gaming platforms in the world, enabling it to provide its customers with a truly best-in-class offer across all areas of gaming and sports betting”. Playtech/Aristocrat: cards on the table for gambling tech deal (Financial Times, Lex) highlights Playtech’s reputation as an innovator and the fact that it is

now the second largest provider of live casino games. * SO WHAT? * The world of gambling certainly seems to be coming together what with DraftKing’s offer to buy Entain (owner of Ladbrokes and Sportingbet) and 888 Holdings’ potential acquisition of William Hill’s ex-US operations. As with many things, especially when there is online involved, scale is good for profitability. Gambling is no different and I’m sure there will be more deals to come…

Meanwhile, Cautious BrewDog puts listing on ice (The Times, James Hurley) shows that the UK’s biggest craft brewer has decided to postpone its IPO, ostensibly on concerns about tricky market conditions for the hospitality industry. Co-founder and chief exec James Watt appears to have taken advice on board and said that a listing may be delayed now until 2023. * SO WHAT? * This was obviously denied but I wonder whether the postponement also had something to do with allegations of a bullying culture and possibly the need to address the issues behind “closed” doors before a very public IPO.

Volvo and Pod Point close in flotation, Ford invests in the UK and Foxconn unveils its first car…

In a quick scoot around some interesting developments in the automotive industry, Volvo to list shares next week targeting $23bn valuation (Financial Times, Richard Milne) highlights just how far the car maker has come since being sold by Ford to China’s Geely for $1.8bn in 2010 and Electric car charging company to raise £120m in London listing (Daily Telegraph, Matthew Field and Alan Tovey) shows that EV charging company Pod Point will test investor appetite in an IPO slated for November.

Meanwhile, Ford invests £230m to make electric car parts in UK (Financial Times, Peter Campbell) highlights Ford’s commitment to the UK and EVs as it announced a £230m investment in its Halewood plant in Merseyside to produce EV parts. The decision to produce electric power units at the site from 2024 will protect 500 jobs but will be conditional on the company getting £30m of funding from the government. * SO WHAT? * This is an interesting development given that Nissan and Stellantis (owner of

Vauxhall) have both announced investments in electric in the UK this year, with BMW already making the electric Mini in Oxford. What with the imminent arrival of our first gigafactory for batteries at Britishvolt (which is planning to float), it does seem like we are a) hanging on to our car manufacturing industry and b) potentially going to be a centre for battery production.

Although Foxconn unveils first electric vehicle prototypes (Wall Street Journal, Stephanie Yang and Yang Jie) sounds like a fairly innocuous bit of news, this is a MASSIVE step forward for the world’s biggest contract electronics manufacturer as it introduced not one – but THREE EVs yesterday! AN ELECTRONICS MANUFACTURER!?!?!? The prototypes were designed with Taiwanese car maker Yulon and they won’t be sold under the Foxconn brand, but under other brands. * SO WHAT? * Foxconn (aka Hon Hai Precision Industry) is well-known as one of Apple’s main assemblers. If it can bring its scaling and production expertise to the car industry, everyone needs to watch out IMO! Apparently, it has already found a European manufacturer who would sell it under its name! This development could potentially help to reduce costs for future EVs. 

Facebook wants to beef up for the metaverse, THG rolls over and Tesco does cashierless…

In other interesting developments today, Facebook to hire 10,000 workers in EU to build up ‘Metaverse’ (Wall Street Journal, Ben Otto) sounds like a big long-term plan as the social media giant said yesterday that it wanted to build a sort of parallel virtual universe where people will interact with each other using virtual and augmented reality. * SO WHAT? * This certainly shows that Zuckerberg is very serious about the Metaverse and other big tech companies – such as Nvidia, Roblox, Epic Games and Microsoft – have also been dabbling. Sounds great and is probably a welcome distraction to the current 💩-storm that the company is enduring currently! However, this is a very long term story IMO…

Meanwhile, THG founder Moulding to give up golden share after stock price plunge (The Guardian, Kalyeena Makortoff and Sarah Butler) shows that the co-founder

and chief exec of the former-darling-turned-embattled THG has decided to bow to pressure and give up his “golden” share as an olive branch to investors who have heaped criticism on Matthew Moulding. * SO WHAT? * This sounds like a nice move in the right direction but THG (which owns Lookfantastic, Glossybox, Zavvi and Coggles) has got a lot of work to do to rebuild confidence among its investor base. I think that many will be looking to key investor SoftBank for direction…

Then in Tesco takes on Amazon Go with launch of ‘just walk out’ store (The Guardian, Sarah Butler) we see that Tesco has launched a GetGo store in Holborn to rival Amazon’s cashierless store. Perhaps somewhat creepily, customers are tracked by an AI system that follows your movements by building a skeleton outline of each person rather than by facial recognition! Shoppers have to download the Tesco.com app to use the store, but other than that it looks very similar to your usual Tesco Express. Nice idea, but I’m still not sure as to how long it will be before we see a real rollout of this sort of thing…

…in other news…

Regular readers of Watson’s Daily will know that there are days when I just can’t find anything suitable for this section! And on those days, I have a tendency to show you a bit of Pomplamoose! I still find it incredible that the keyboard player in this band is the CEO of Patreon (but this band is the reason why he started it all!) 😱…