Tuesday 21/06/22

  1. In BIG PICTURE NEWS, Europe races for coal, the Bank of England is urged to strengthen the pound and Celsius continues to freeze Bitcoin holdings
  2. In RETAIL NEWS, JD.Com is a bit meh, Primark makes online moves and Ocado sucks up money
  3. In REAL ESTATE NEWS, a pre-fab house-builder hits the UK and mortgage affordability rules go out of the window
  4. In INDIVIDUAL COMPANY NEWS, an EY break-up could produce big windfalls, Euromoney gets approached and JAB consolidates moves into US petcare
  5. AND FINALLY, I bring you 3D Othello…

1

BIG PICTURE NEWS

So the race for coal intensifies, calls increase for sterling support and Celsius remains unchanged…

EU warns against fossil fuel ‘backsliding’ as coal replaces Russian gas (Financial Times, Sam Fleming and David Sheppard) shows that EC president Ursula von der Leyen is trying to make sure investment in renewables doesn’t get drowned out by the short term need for European countries to wean themselves off Russian energy supplies asap after Germany, Austria and the Netherlands have all said that they are going to have to resort to using coal plants. German firms pay for Russian fuel reliance as distress soars (Daily Telegraph, Patrick Mulholland) cites an interesting conclusion from the Weil European Distress Index, compiled by US law firm Weil, Gotshal & Manges, which shows that levels of corporate distress in Germany are currently reaching those not seen since July 2020, in the midst of the pandemic. The main reason behind this is Germany’s particular reliance on Russian natural gas. This conclusion is particularly pertinent because, in the financial crisis and Covid pandemic, this index has proved to be a reliable early warning indicator of defaults. Tricky.

Meanwhile, back home, Raise rates to save pound, Bank of England urged (Daily Telegraph, Tim Wallace and Louis Ashworth) cites one of the Bank of England’s MPC members, Catherine Mann,

as wanting a bigger jump (0.5%) that would have had the benefit of strengthening sterling at the same time as going some way to taming inflation. * SO WHAT? * This is a massive generalisation but central banks tend to raise rates too quickly and cut them too slowly. Mann was one of three of the group of nine who wanted a rate increase of more than the 0.25% the group eventually went for, so it would not be outrageous to suggest that interest rates will continue to climb as she wasn’t the only one calling for more drastic action. This is always difficult to judge because the effects of interest rate changes aren’t immediate when it comes to the underlying economy – they tend to take a few months to filter down.

Then in Crypto lender keep Bitcoin assets frozen after prices fall (Daily Telegraph, James Titcomb) we see that the crypto lender that prompted recent market turmoil, Celsius Networks, said it will continue to freeze Bitcoin holdings. Amusingly, one of the only cryptocurrencies that managed to avoid last week’s carnage was Dogecoin – but that was probably because Elon Musk said “I will keep supporting Dogecoin” and said that he continued to buy it. How ridiculous is that. * SO WHAT? * The longer the freeze goes on, the deeper the damage to confidence in cryptocurrency. Customers need to know the can get their hands on their funds when they need to and this isn’t going to do Celsius (or rivals) many favours.

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2

RETAIL NEWS

JD.com fails to impress, Primark evolves and Ocado asks for money…

China’s Covid fallout flattens JD.com’s online birthday bash (Wall Street Journal, Raffaele Huang and Shen Lu) shows that the Chinese e-tailing behemoth’s major mid-year retailing event, 618 (so-called because it happens on June 18th) recorded its slowest sales growth for at least five years, although that was still 10.3%. * SO WHAT? * JD.com started this promo campaign back in 2004 to celebrate the anniversary of its founding (interestingly, this was before rival Alibaba came up with its own promo, Singles’ Day, in 2009, which has gone on to become the world’s biggest online and offline retail event!). It is China’s second biggest shopping event by sales after Alibaba’s, but it seems that the lockdowns have taken their toll and consumers have been less willing to part with their cash than usual.

Primark takes baby steps with its first online trial (The Times, Ashley Armstrong) highlights a new direction for the budget apparel retailer as it announced a trial scheme to allow shoppers to do click-and-collect at 25 of its stores. The new service will enable customers to buy from 2,000 children’s products – 40% of which will be exclusive to click-and-collect – and will be fulfilled by a central warehouse servicing shops in the northwest. * SO WHAT? * I think that this sounds like a really good idea in that it gives customers more access to more product without increasing costs

as much as home delivery would. Formula for securing big returns clicks into place (The Times, Ashley Armstrong) highlights the fact that because the average customer basket is around £20 with four or five items, making money with home delivery is going to be tricky (Asos is having a lot of problems at the moment, for instance). Industry experts reckon it costs retailers around £12 to deliver an item and about £20 to process a return (clothes often have to be steamed), so Primark’s decision NOT to go down the online sales route sounds like a good one under current circumstances.

Talking about online retail, Struggling Ocado downgraded amid global push (Daily Telegraph, Giulia Bottaro) shows that the loss-making online grocer has had to raise £575m in new funding via share sales to investors to grow its Ocado Solutions business which provides automated warehouse tech to its customers. This happened just as credit rating company Fitch downgraded the company, warning of increased risks at its international business. * SO WHAT? * Ocado Solutions is an important business and the key behind it garnering a lot more interest in recent years from investors as they see this as the future. This helped Ocado get a rating more akin to a tech company than “just a retailer” but, with the world economy facing many challenges, its immediate future isn’t looking to great at the moment. I’d see this as a rough patch rather than a reason to panic. I like the tech side and think that there can only really ever be a few providers that have its expertise, so the barriers to entry in this business are very high.

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!

3

REAL ESTATE NEWS

Pre-fab housing gets a boost and mortgage affordability rules change…

I thought that Goldman-backed housebuilder to build Europe’s largest home factory in the UK (Financial Times, George Hammond) was really interesting because it highlighted plans by modular housing developer TopHat for a new factory in Corby. The company is 70%-owned by Goldman Sachs and, when the new facility is completed next year, it’ll be able to produce 4,000 homes per year that would make it Europe’s biggest modular housing factory! It puts together rooms, units or complete houses offsite before taking them onsite. * SO WHAT? * This sounds like a great idea as it means you can knock up large numbers of houses quickly and there is less worry about the lack of skilled labour (for which there is a shortage currently) because everything is put together

offsite. At the moment, building houses in a factory is more expensive than building them onsite, but over time the costs are likely to decrease. Interesting, no?

For now, though, UK mortgage lenders told they can scrap affordability rule for buyers (The Guardian, Kalyeena Makortoff) shows that lenders won’t have to check affordability for buyers any more! A rule to make sure homeowners could afford mortgage payments at higher interest rates was introduced in 2014 to ensure borrowers wouldn’t bite off more than they could chew. * SO WHAT? * This potentially sounds more dramatic than it actually is because the loan-to-income rules would still remain. Still, I would imagine this as being a slight positive for buyers, albeit in a red-hot market…

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!

4

INDIVIDUAL COMPANY NEWS

An EY break-up is mooted and approaches are made in publishing and petcare…

In a quick scoot around other interesting stories today, EY partners set for huge windfall if business split goes ahead (The Times, Tom Howard) show that thousands of EY’s audit partners are in line for a potential £8bn+ windfall if it decides to go ahead with splitting its audit and consulting businesses, something that it has been looking into for a while now. It is thought to be looking at floating the consulting business and selling off a 15% stake in the new company. No decision has been made yet. * SO WHAT? * Separation of the accountancy (boring) and consultancy (exciting) businesses, particularly among the Big Four accountants, has been gaining traction over the last few years as the number of accounting scandals has increased. What used to happen in the “good old days” was that companies would ask in, say EY, to do an audit (boring, costs money, but not massively high margin) on the nudge, nudge, wink, wink understanding that their consultancy side (sexy, can charge more money) would then be asked to do some

“proper” stuff. This has led to high profile conflicts of interest and increased calls for separating the businesses, which is where we are with this. The only thing is that I would question whether now is a good time for a professional services firm like this would be wise to float right now given adverse market sentiment. After all, Mishcon de Reya recently shelved its flotation plans…

Elsewhere, Euromoney in £1.6bn takeover talks (The Times, Dominic Walsh) highlights a crystallisation of Astorg Asset Management and Epiris’s pursuit of financial publishing firm Euromoney Institutional Investor, following the rejection of a number of its previous offers. The Takeover Panel now has until July 18th to make another formal offer or withdraw. The share price of Euromoney shot up by 26.1% on the news.

Then in JAB tightens grip on US pet care market with insurance deal (Financial Times, Yasemin Craggs Mersinoglu and Ian Johnson) we see that European private equity firm JAB Holding has put $1.4bn into Fairfax Financial Holdings’ pet insurance business, as it tightens its grip on the growing US pet care industry.

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!

5

...AND FINALLY...

…in other news…

How do you improve a classic board game? Make it 3D, apparently: See how the game of Othello has evolved at Tokyo Toy Show 2022 (SoraNews24, Master Blaster). It looks a bit complicated to me!

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Some of today’s market, commodity & currency moves (as at 0758hrs 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 **
7,122 (+1.50%)HOLDAYHOLIDAYHOLIDAY13,266 (+1.06%)5,920 (+0.64%)26,246 (+1.84%)3,307 (-0.26%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿
$111.00$114.65$1,833.721.227211.05292135.1991.1655721,145.5

(markets with an * are at yesterday’s close, ** are at today’s close)