Wednesday 03/07/19

1. In MACRO & INDUSTRY NEWS, Australia cuts interest rates again, China announces good news for foreign securities companies and UK construction slows right down
2. In IPO NEWS, ABInBev lines up an Asian belter and the Aramco IPO looks like it’s back on the cards
3. In HIGH STREET-RELATED NEWS, Yo! Sushi announces US ambitions, Five Guys expands in the UK and Majestic gets another potential suitor
4. In TRANSPORT-RELATED NEWS, US auto sales weaken, Tesla delivers and Trainline ticket sales fly
5. In OTHER NEWS, I bring you unusual personal trainer requests…

So the Aussies cut their interest rates again, China relents on foreign ownership and UK construction slows right down…

Australia cuts rates for second time in two months (Daily Telegraph, Chris Johnston) heralds the first back-to-back interest rate cut since 2012 for Australia’s central bank. This brings it to a record low of 1% with the possibility of more cuts to come in order to stimulate an economy that is running out of steam. On the plus side, property prices in Sydney and Melbourne, that had weakened considerably, are now bottoming out and iron ore prices are going up – which is good for Australia because they produce a lot of it! * SO WHAT? * Australia has not had a recession (two consecutive quarters where the economy contracts) since 1991 – and by the looks of things, it is doing its level best to maintain that record with a decent enough outlook. Australia really needs the US-China thing to end, though, for things to get back on an even keel.

In China to allow foreign ownership of securities companies in 2020 (Financial Times, Siddarth Shrikanth) we see that Chinese premier Li Kequiang announced in a speech at the World Economic Forum in Dalian that foreigners would be allowed to have majority ownership domestic securities companies by 2020. This signals the opening up of China’s financial sector one year ahead of schedule. Chinese regulators approved JP Morgan and

Nomura’s applications to establish majority-controlled brokerages in March, having given UBS the go-ahead last year. * SO WHAT? * Foreign companies have, up till now, been limited in how much “control” they can have over a Chinese company, so this news will at least give them more freedom to expand their China interests. China is going to become a net debtor this year for the first time since 1993, so it needs to attract more foreign capital inflows to finance its current account deficit. It will be interesting to see how and if this works well in practice. I would expect a lot of brokerages and investment banks to get involved given the potential of the China market and the maturing of business elsewhere.

UK construction industry suffers worst month in a decade (The Guardian, Phillip Inman) cites the latest IHS Markit/Cips construction purchasing managers’ index (PMI) which shows that purchasing activity and new orders fell off a cliff in June. Samuel Tombs, chief UK economist at Pantheon Economics, observed that “all three main sub-sectors – housebuilding, commercial and civil engineering – reported sharp falls in activity. The threat of a no-deal Brexit reportedly has dampened demand for commercial projects, while the risk of a Corbyn government following a general election has hindered activity in the civil engineering sector”. Everyone is adopting a wait-and-see approach, so until we get more clarity on Brexit, I don’t think the situation is going to improve. Obvious, I know – but this is just more evidence that politicians need to get their collective @rses in gear so that everyone has something to work with, whatever that may be.

ABInBev eyes a chunky Asian IPO and the Saudi Aramco float comes back on the radar…

Budweiser readies year’s biggest IPO, tapping Asia’s growing thirst (Wall Street Journal, Joanne Chiu, Saabira Chaudhuri and PR Venkat) highlights what could be the biggest Initial Public Offering so far this year and the biggest-ever listing of a food or drink company as the Asia-Pacific unit of Anheuser-Busch InBev SA, called Budweiser Brewing Co. APAC Ltd., tries to raise $9.8bn on the Hong Kong Stock Exchange. This would imply a valuation for the whole business at up to $63.7bn and investors started to get their orders in yesterday for a float slated for July 19th. * SO WHAT? * The IPO will help parent ABInBev reduce its debts and will give the Asian business, which covers China, Australia, South Korea, India and Vietnam, some money to splash on buying rivals. Given the market potential in Asia – Euromonitor forecasts that China will overtake the US as the world’s biggest beer market by sales in 2021 – you can

see the attraction of increasing efforts there, especially when other regions are maturing.

Aramco’s $2tn flotation is back on, says Saudi Arabia (The Guardian, Jillian Ambrose) highlights some potentially exciting news for advisers as the Saudi energy minister, Khalid al-Falih, said that officials are working on listing the company within the next two years. * SO WHAT? * Everyone has been wetting themselves about the prospect of a partial float of the $2tn state-owned mega-company and were bitterly disappointed when the float was pulled last summer. If it goes ahead, it will be the biggest IPO EVER. Proceeds from the float will be used to finance initiatives to wean the kingdom off oil revenues and advisers will be falling over themselves to be in on a deal that will undoubtedly earn fat fees. Just to give you an idea of the scale of the company, it reported earnings of $224bn for 2018 – that’s QUADRUPLE the profits of ExxonMobil, the world’s biggest listed oil company. The Devil, as always, will be in the detail of any deal – but if it goes ahead, a lot of companies will be earning a lot of money off the back of it. Any qualms about dealing with a regime that chops up journalists at its embassies will obviously go out of the window, but hey.

Yo! Sushi eyes America, Five Guys eyes UK expansion and Trainline sells a load of tickets…

Seafood giants unveil separate mergers as investors tuck in (Daily Telegraph, Vinjeru Mkandawire) highlights Yo! Sushi’s move in buying a majority stake in SnowFox, the #3 sushi kiosk chain in the US, for around $400m. The enlarged food group will have two-thirds of its sales generated in the US. This will be Yo!’s second aquisition in two years following its 2017 takeover of Canada’s #1 sushi business, Bento Sushi for a “mere” £59m. Fun fact: Yo! Sushi also owns Taiko Foods, UK supplier of Asian food products and bentos to supermarkets. Elsewhere, Young’s Seafood is being combined with pork processor Karro Food by private equity firm CapVest to provide “considerable scale” and “strong market positions” in its respective areas. The enlarged group will generate £1.2bn in sales – pretty chunky. * SO WHAT? * Yo! Sushi is cr@p. There. I said it. I am half Japanese, went to uni in Japan for a couple of years and worked over there for a few years more and I cannot tell you how far away from “real” sushi that the stuff they serve you in Yo! really is. That said, people seem to like what they sell, and I guess I cannot argue with that! Sushi appears to be attractive because it is seen to be healthy and feeds into the whole wellness thing that’s going on right now – so I think that there is a lot of growth potential both in the UK and the US. Good luck to

’em – but I really wish someone would do something similarly appealing with PROPER stuff! The Youngs Seafood/Karro Food surf ‘n turf combo sounds like a winner and brings a close to the air of uncertainty surrounding Youngs since it was put up for sale last year in the midst of rising cost pressures brought about by higher fish prices. More consolidation to come in the sector perhaps?

Elsewhere on the high street, It’s still a numbers game as Five Guys plans UK expansion (The Times, Dominic Walsh) shows that it is possible for eateries to do well as it unveiled UK revenues up by a healthy 23% last year following the opening of ten new outlets. It isn’t holding back on expansion either as it also said that it will be opening another 10-15 restaurants this year. Sir Charles Dunstone, co-founder of the Carphone Warehouse, owns the UK business which now has a total of 88 outlets. * SO WHAT? * Isn’t it good to hear some good news on the high street for a change?? 

Then in Fortress surprise suitor for Majestic Wine (Daily Telegraph, Laura Onita) we see that private equity firm Fortress Investment Group has emerged as a surprise bidder for Majestic’s 200 outlets – seemingly overtaking previous front-runner Elliott Advisors in the process – and has been rumoured to be lining up former Berry Bros & Rudd and ex-Tesco exec Dan Jago to run it if its bid is successful. We may get more detail on this when Majestic announces its annual results on July 13th.

US auto sales drop, Tesla delivers and Trainline remains on track…

US auto sales slipped in first half of 2019 as prices climbed (Wall Street Journal, Nora Naughton) shows the disappointing news for new vehicle sales and many expect this losing run to continue after six consecutive months of weakness. GM and Fiat Chrysler suffered in the first half and even the Japanese were having a hard time with Toyota, Nissan and Honda all reporting sales weakness. * SO WHAT? * This just confirms the global trend of slower car sales, but at least the US economy is doing OK with a tight labour market and rising wages implying that things could still turnaround.

Amid the gloom, Tesla sets a delivery record of 95,200 cars (Daily Telegraph, Olivia Rudguard) sounds a positive development for the often-embattled company as it

managed to deliver a record number of cars in the second quarter of this year. This is particularly impressive given that it had only delivered 63,000 cars in the previous quarter. * SO WHAT? * Yes, this is a step in the right direction, but while Tesla’s been having problems all of the other major manufacturers who have no such issues have been catching up and then some. Good luck to the first-mover, but competition is only going to get worse.

Full steam ahead as Trainline ticket sales climb by 20pc (Daily Telegraph, Oliver Gill) highlights good news for the newly-floated Trainline as it announced a big hike in ticket sales in its first trading update since the float. * SO WHAT? * I like this company as it has a decent market position in the UK and overseas and it is a difficult model to repliate. OK – it is lossmaking at the moment, but it has a proper product that’s hard for others to copy and generates cash. As chief exec Clare Gilmartin put it, “With the majority of rail and coach tickets currently still sold offline in the UK and globally, there is a huge opportunity ahead of us to continue to grow and innovate”.

And finally, in other news…

I thought I’d leave you with some food for thought in Personal trainer admits weird client requests – including nude workout sessions (The Mirror, Courtney Pochin https://tinyurl.com/y4pn2ufm). Whaaaat?? I personally think that the most alarming one was “oiled up, bare chested wrestling”…