Tuesday 26/03/19

  1. In MACRO NEWS, Brexit takes another turn and German manufacturing hits turbulence
  2. In TECH NEWS, Apple unveils new services, Nintendo announces new Switch consoles, Inmarsat goes private and Naspers seeks a separate listing for its massive Tencent stake
  3. In HIGH STREET NEWS, Majestic gets drastic and Sports Direct mulls a cash bid for Debenhams
  4. In INDIVIDUAL COMPANY NEWS, Airbus gets a massive order from China and WeWork doubles its annual loss
  5. In OTHER NEWS, I bring you Russian competitive slapping and some sashimi art. For more details, read on…



So Brexit takes a turn and German factories hit a tricky patch…

MPs vote to seize control of Brexit (Financial Times, George Parker, Jim Packard and Laura Hughes) shows that PM May was forced to forget plans to have a third vote on her Brexit deal yesterday as MPs voted by 329 to 302 to start testing support for a Plan B in a series of indicative votes to see whether there is a majority for a softer Brexit or a second referendum. The EU has said that if the existing deal isn’t passed in the Commons this week, the UK will leave the EU on April 12th. The European

Commission said yesterday that a no-deal Brexit on that date was looking “increasingly likely”. The saga continues…

German factories ‘in the grip of recession’ (Daily Telegraph, Anna Isaac) is a dramatic headline that shines a light on the latest conclusions of the closely-watched Ifo Business Climate Index, a bellwether of economic confidence. Basically, manufacturing is still suffering from political uncertainty in Europe and sluggish demand for German goods in China which implies that Europe’s biggest economy will have a poor first quarter. However, the outlook for more domestically focused sectors was actually a bit brighter with services and construction looking particularly healthy. * SO WHAT? * Exports are key for Germany, however, and the factors that are holding it back aren’t going to change overnight.



Apple launches new stuff, Nintendo announces new Switch models, Immarsat goes private and Naspers hives off its Tencent stake…

Apple pushes beyond iPhone with launch of TV, finance, gaming, news services (Wall Street Journal, Tripp Mickle) heralds the launch of new services at a glitzy event yesterday in Cupertino. The company will be making its new TV+ app (with all that exclusive content you’ve been hearing about) available on competitors’ TVs and other devices, there will be a new credit card called Apple Card (which will be launched in partnership with Goldman Sachs and eliminate late fees and annual fees), a new subscription news service called Apple News+ which will charge $9.99 per month giving users access to over 300 magazines and newspapers as well as a new gaming subscription service called Apple Arcade. The latter’s monthly subscription price was not revealed, but the company did say that it would give access to over 100 games. * SO WHAT? * This all sounds great, but Apple is late to the party and trying to turboboost its services offering because revenues from its hardware seem to be topping out. Percentage gains so far for services have been impressive, but they have been from a relatively low base and the competition on the services and hardware front has got way better while Apple was fiddling around with its niche TV offering. Yes, it’s spending a lot of money here, but it’s peanuts compared to what Amazon and Netflix spend. It IS good, however, that Apple is opening up its walled garden in terms of hardware access to all this stuff (this is LOOOONG overdue) because distribution will be key to the ongoing success of its services. It will also be interesting to see how successful its News+ service is. If it proves to be a hit, it might help stem the decline of newspapers and offer the latter a real lifeline. Mind you, if subscribers just end up reading trashy magazines on the service, it could actually hasten the decline of quality newspapers because they won’t get paid (I believe that the amount each publication gets paid depends on how many subscribers access their content and how long readers spend on each article, but I’ll check this out and get back to you) and dumb down content as journalists are forced to be more sensationalist to get the clicks and read time. In short, my verdict on the new services are as follows: TV+ – meh, but we need to see the programming, Apple Card – whatevs, it’s just another thing to put in your “wallet”, although lower fees is nice, Apple News+ – sounds great, but depends on how much access there is (will it be limited on certain publications?),  the publications themselves and whether punters can be bothered to pay $9.99 per month, Apple Arcade – sounds good but will depend on what the subscription price will be, the quality of the games and gameplay.

Meanwhile, Nintendo to launch two new Switch models (Wall Street Journal, Takashi Mochizuki) highlights the imminent launch of two new versions of its Switch consoles in an effort by the company to keep sales momentum going into the third year. One version will be

more powerful for serious gamers and the other one will be a cheaper option for casual gamers. It is thought that the two models will be unveiled at the E3 expo in June and released a few months thereafter. * SO WHAT? * This is within expectations given console life cycles tend to be around five or six years with updated devices being introduced about halfway through to keep the party going. The Switch has been wildly successful and so it will be important to keep sales momentum going for as long as possible. FWIW, I think that Nintendo needs to continue efforts to migrate its games catalogue to use for mobile devices in preparation for a day when consoles will become obsolete. OK, so phones with foldable screens are ridiculously expensive at the moment, but as they get cheaper more people will buy them and have access to screens in their pockets that will be at least as big as devices like the Switch. I don’t think we are that far away from this state of affairs.

In UK satellite operator Inmarsat agrees $3.4bn takeover (The Guardian, Julia Kollewe and Rob Davies) we see that British satellite comms company Inmarsat has agreed to be bought by a consortium of investors led by private equity firms Apax and Warburg Pincus that effectively values the company at around $6bn, including debt. The HQ will remain in the UK and R&D spend will remain unchanged. The company has struggled in the last few years from increased competition from the likes of Elon Musk’s Space X and Richard Branson-backed OneWeb. Inmarsat currently has 13 satellites in orbit that underpin e-mail, internet and video conferencing in addition to in-flight WiFi. * SO WHAT? * This will reignite debate over the trend of leading UK tech businesses being taken over by investment companies coming after Melrose’s contested £8bn acquisition of GKN and the £24bn takeover of ARM Holdings by Japan’s SoftBank.

Naspers to shift $100bn Tencent holding to European listing (Financial Times, Joseph Cotterill) highlights a move by Naspers, South Africa’s largest media group that owns a 31% stake in the Chinese internet giant (it was an early investor), to list its interest in Tencent in a separate vehicle that will be quoted on Euronext Amsterdam at some point in the second half of this year. The vehicle will also include Naspers’ stakes in Russia’s Mail.ru and India’s Swiggy, among other global digital and e-commerce interests, and Naspers is expected to maintain a 75% stake in the new company. It doesn’t have a name yet, but it will become Europe’s largest listed consumer internet company by asset value. * SO WHAT? * I would say that this is a good move on Naspers’ part as it gives investors the choice of focusing more on its media business or its investments. Chief exec Bob van Dijk said that “As well as opening up investment to a broader category of investors, the listing aims to reduce our weighting on the Johannesburg Stock Exchange, which we believe will help us maximise shareholder value over time. Its outsize weighting on the JSE exceeds most South African institutional investors’ single stock limits. As a result, many have been forced to sell as Naspers grows”. Naspers made the investment of the century when it bought into Tencent back in 2001 – it’s now worth over $130bn!



Majestic gets drastic and Sports Direct continues to pursue Debenhams

I mentioned this in yesterday’s Watson’s Daily TV (on my YouTube channel here) but Majestic Wine to close high street stores and focus on Naked success (Daily Telegraph, Julia Bradshaw) heralds a massive revamp that will see its retail business put up for sale or run down as it focuses on its online Naked Wines division. The cash it gets from selling Majestic and its 200 stores will be ploughed into the faster-growing Naked, which was bought by Majestic for £70m four years ago. The company will be renamed Naked Wines and will trial a number of different formats. Chief exec Rowan Gormley said that “We may have pop-up shops, or high street shops, or may be at

music festivals. Face-to-face works with Naked. Where we won’t be is out-of-town shopping centres”. * SO WHAT? * You expect this sort of drastic move when a company is in its death throes, so I think that it would be fair to say that this caught a lot of people off guard. When I first heard the news yesterday, I thought that this would just make it another internet wine company with nothing really to distinguish it. However, if Gormley is serious about continuing with a face-to-face presence but in a different way, then this might just set it apart. I would have thought finding a buyer for the shops is going to be pretty tricky given current circumstances, though.

Ashley considers cash bid for Debenhams (The Times, Deirdre Hipwell) just gives us the latest on Sports Direct’s Mike Ashley’s continued bid for control of the ailing retailer. The company, which is the largest shareholder in Debenhams, announced last night that it was considering a cash offer for the business. It continues to try to fend off the advances of Ashley, but clearly he is not one to back down.



Airbus gets a China boost and WeWork doubles its losses…

In a quick scoot around other big news today, Airbus agrees €30bn jet deal with China (Financial Times, Sylvia Pfeifer) highlights one of 15 commercial agreements and 13 other deals signed between France and China following President Xi’s visit to France. The order for 300 aircraft will be a kick in the teeth for rival Boeing, which is currently having a nightmare following crashes involving its 737 MAX aircraft.

WeWork’s annual loss doubles to nearly $2billion amid rapid expansion (Wall Street Journal, Eliot Brown) highlights the impact of big expansion costs and raises questions about future problems given that its occupancy rate appears to be falling. Losses continue to pile up for the company but investors continue to throw money at it. * SO WHAT? * This sounds like a disaster waiting to happen, but as long as investors keep pouring money into it it will probably be OK. However, if that stops – and we have already seen that SoftBank’s Vision Fund is getting more reluctant about putting even more money into it – the repercussions could be huge IMHO and the company could tank badly. And if THAT happens, it could be disastrous for the whole sector as the market could suddenly be flooded with loads of cheap properties.



And finally, in other news…

I thought I’d leave you with a contrast in content today. On the one hand, we have These Russian men slap each other silly for sport (Inside Edition, Stephanie Officer https://tinyurl.com/y4g7pdvh) which looks VERY painful and then Japanese artist crafts beautiful Disney princesses, anime stars, and mythical beasts from sashimi (SoraNews24, Casey Baseel https://tinyurl.com/y292vxbq) as a bit of a contrast. Beauty and the beast, you might say!