Tuesday 26/10/21

1. In CONSUMER-RELATED NEWS, house sales and petrol prices hit new highs – but an MPC member wants to wait-and-see for longer – and Americans are likely to hit the credit cards again
2. In CAR-RELATED NEWS, Tesla becomes a $1tn company, UK’s gigafactory plans expansion and Volvo reels in expectations
3. In TECH NEWS, we learn more about Facebook, Amazon does a deal with UK spymasters and Darktrace tanks badly
4. In M&A NEWS, PayPal/Pinterest fails, Zooplus sees an unusual bid and Telstra gets some state help to buy Digicel’s Pacific operations
5. AND FINALLY, I bring you a toddler vs husky game of tag…

So UK consumers continue to feel the heat and Americans look ready to return to credit cards…

So, House sales to hit highest level since 2007 (Daily Telegraph, Rachel Mortimer) cites data from property website Zoopla which shows that we’re currently on track to reach the same peak of property sales as they did just before the financial crisis. In addition to this, the company found that house prices in September were 6.6% higher than they were in September last year as they got a last-minute boost from those trying to beat the stamp duty holiday deadline.

Consumers are also having to contend with Petrol price hits record at the pumps, adding to fears of cost-of-living crisis (Daily Telegraph, Alan Tovey), which shows that the average price of unleaded petrol at the pump is a whopping 142.94p, meaning that drivers are now paying £79 on average to fill a 55l tank on a family car, which is £15 more than it was a year ago. Despite this, rising prices, rising wages, rising utility bills etc. Bank cannot tame inflation by rate rise, says policymaker (Daily Telegraph, Tom Rees) puts the spotlight on one of the members of the MPC, Silvana Tenreyro, who looks unlikely to vote for an interest rate rise next week. She says that raising interest rates won’t be able to offset things like rising energy prices and supply chain disruption because they are external global factors and that energy prices in particular will calm down themselves by the time any interest rate increase can have an impact. * SO WHAT? * Tenreyro is going against what

the governor and other members of the MPC have been saying recently and the market is already factoring in a rate rise next week. I do find it somewhat bizarre that she says that raising interest rates won’t do anything to help those external factors – well it seems to me that you could say this about almost everything. Raising rates might not help those particular areas on their own (I agree with her on this point), but I would have thought that the idea of all this is to help with other factors that consumers have to contend with. I just worry that inaction now will mean that much more drastic action will have to be taken further down the line. I feel like she is standing on the beach watching a tsunami of inflation coming towards her and saying “I just think I’ll stay and watch the waves a bit longer. I don’t know why everyone is running away.”

Meanwhile, Lenders say Americans are ready to use their credit cards again (Financial Times, Imani Moise) says that major credit card lenders in the US believe that customers are ready to start increasing their borrowings after paying down balances during lockdown. Other signs that show consumers are taking on more credit include a rise in the number of people making the minimum payment or less. * SO WHAT? * This is good news for the banks as long as people make their payments. The thing is that there is so much pressure on at the moment to increase interest rates in order to rein in inflation that people may take on debt now and then watch the payments go up at a time when prices continue to rise, which will only add to their debt burden. Having said that, if wages continue to rise, this might lessen the pain – but the problem is that prices seem to be rising faster than wages at the moment. Although this article is talking about the US, I am expecting the same thing to happen over here as people will be willing to borrow in order to ensure a decent Christmas IMO.

Tesla skyrockets, the UK’s existing gigafactory looks like it’ll get bigger and Volvo has to reel its neck in…

Tesla breaks $1tn valuation barrier after Hertz orders 100,000 vehicles (The Guardian, Jasper Jolly) heralds an incredible moment as Tesla’s market value has breached the $1tn barrier for the first time after the market digested news that Hertz put in a big order. Although its valuation dipped back under the level by the close of trading, Tesla has now joined the trillion-dollar club, whose other members include Amazon, Alphabet, Apple, Facebook and Microsoft. Apple was the first one to breach this level in 2018. Hertz said that they would be delivered by the end of 2022 as part of its objective to build the biggest EV rental fleet in North America. * SO WHAT? * Nice order, good to hear that the Tesla Model 3 is now the best-selling car across Europe (the first time a battery-powered electric vehicle has been #1 in the region – impressive!) but ultimately the other car-makers are now starting to gain ground. I also hope that Hertz’s decision to have so many EV hire vehicles so soon proves to be a good one as I wonder whether poor charging networks will limit demand for this fleet.

Meanwhile, UK battery ‘gigafactory’ plans huge expansion as electric car demand soars (The Guardian, Jasper Jolly) shows that the Chinese owner of the UK’s only big

battery factory, Envision, has announced plans for a major expansion that will make its Sunderland plant among the biggest EV facilities in Europe! What do you call a factory that’s even bigger than a gigafactory?? A mega-gigafactory?? A super-mega-giant-gigafactory?? Anyway, Envision envisions a massive rise in capacity from the current 1.7 Gwh capacity to 38Gwh (versus the previously planned 11Gwh). I wonder whether such an upgrade will help to attract other companies to the UK to make their batteries?

Then in Volvo drives down its IPO valuation to rev up interest (The Times, Robert Lea) we see that the Chinese owner of Volvo Cars, Geely, has had to price Volvo’s IPO at the bottom of its stated range to garner investor interest. This means that its valuation will be more like £13bn than the hoped-for £20bn. The funds raised in the IPO, about £1.7bn, will go towards helping the company transition to zero-carbon emissions. The main sticking point for investors thus far has been the amount of control that Geely would continue to have over Volvo. * SO WHAT? * This is a bit of a slap in the face of what was a confident Volvo, but when you consider that the IPO would only account for 16-18% of the shares you can see why investors were not keen to get involved at a higher price. Then again, is Geely having control that much of a bad thing? Volvo has really developed under Geely’s stewardship, so I don’t think that its ongoing control is all that negative…

Facebook continues to labour, Amazon does a spy deal and Darktrace gets a mauling…

Facebook posts slower sales growth with Apple privacy policy (Wall Street Journal, Sarah E. Needleman) shows that the social media giant is just one of many suffering from Apple’s tighter privacy rules which make it harder for advertisers to track user behaviour. It said yesterday that its ad sales saw slower growth over the first full quarter since Apple implemented the rules. This disappointing news comes at a bad time for the social media giant, what with the whistleblower revelations in Four revelations from the Facebook Papers (Financial Times, Hannah Murphy, Dave Lee and Madhumita Murgia), a useful summary which says that the company is failing in its moderation of hate-speech, is losing control of its algorithms, is failing to control abuse and has been unable to contain misinformation. All eyes will be on the company’s upcoming event this week that is expected to outline new initiatives.

Amazon strikes deal with UK spy agencies to host top-secret material (Financial Times, Helen Warrell and Nic Fildes) sounds kind of exciting and quite scary in equal measure as the UK’s three spy agencies – GCHQ, MI5 and MI6 – have signed up to AWS, Amazon’s cloud computing division, to host classified material which is expected to

enhance the use of data analytics and AI. * SO WHAT? * There are concerns here about sovereignty given that Amazon is a US company, but this deal has already been signed and was not meant to be made public. I wonder whether, in the next Bond movie, we’ll see Bond saying “Hey, Alexa – give me the files on Tarquin Blowfelt. Oh yes, and can you play Sam Smith – ‘The writing’s on the wall” while I’m waiting. CHOOON!” 🤣.

Broker alert wipes 21pc off tech darling Darktrace (Daily Telegraph, James Titcomb) highlights the damaging effect of a broker’s sell recommendation as the cybersecurity company was accused of putting style over substance, something that shocked a market that had powered Darktrace’s share price to four times the price it floated at in May this year. It is about to join the FTSE100 tomorrow, replacing Morrisons (because Morrisons was taken over recently). * SO WHAT? * It’s rare that a sell recommendation has this much of an immediate impact – and it’s probably even rarer that the company that is subject to such criticisms actually responds. Darktrace said, in its defence, that the broker Peel Hunt had based too many of its assumptions on the network security division and not enough on other parts of the business. I personally think this is quite concerning. No doubt it’ll bounce when it goes into the FTSE (because index funds have to buy it), but I think it’s going to have to come back to investors with a more comprehensive update very soon in order to allay any fears now that Peel Hunt has sown the seeds of doubt.

PayPal loses Pinterest, Zooplus is fought over and Testra gets some state help…

In a quick scoot around some of today’s M&A news, PayPal abandons Pinterest takeover after its shareholders balk (Wall Street Journal, Orla McCaffrey and Cara Lombardo) shows that the potential mega-deal is off after PayPal’s shareholders balked at the price the company would have had to pay for Pinterest. As I said at the time, I think that the deal would have made sense from a strategic point of view, it’s just that the price would have been eye-watering.

Then Private equity rivals join up with €3.7bn bid for petcare group Zooplus (Financial Times, Kaye Wiggins) highlights a rare teaming up of private equity rivals as Hellman & Friedman and EQT who put in a joint offer to buy Zooplus at an 85% premium to its three-month trading average. Zooplus is one of Europe’s biggest online petcare retailers. Zooplus: private equity dogfight may yet yield winners (Financial Times, Lex) says that, even at this price,

Zooplus could offer great potential but the new owners will have their work cut out. Comparisons with US rival Chewy are not very flattering, but that’s probably because Chewy operates in a single market whereas Zooplus operates in multiple countries across Europe. * SO WHAT? * I think there are two takeaways from this. One is that buyout groups are paying the biggest premiums for over twenty years to get their target and the other is that this is yet more evidence of investors’ belief that there is a LOT of money in petcare. A continued boom will get lots of investors’ tails wagging, that’s for sure!

Then in Telstra buys Digicel’s Pacific operations in government-backed deal (Financial Times, William Langley and Anthony Klan) we see that the Aussie government has stepped in to Telstra’s $1.6bn acquisition of Digicel Group’s Pacific businesses in order to head off further Chinese influence in the region. The government was initially going to provide technical advice but it is now going to contribute $1.3bn to finance the deal. It sounds like this deal is all about keeping the Chinese out rather than Telstra looking for growth…

…in other news…

I left you a cat video yesterday, so just for the sake of balance I thought I’d leave you with this to start your day: Husky and toddler are melting hearts in cute video of them playing tag (The Mirror, Edward Kay). TBH, I’m not sure whether the dog is actually playing or whether it just wants to get a bit of peace and quiet 🤣.