Wednesday 05/09/18

  1. In MACROECONOMIC NEWS, South Africa goes into recession
  2. In RETAIL NEWS, Amazon hits the £1bn mark, Halfords does OK on electric bikes but McColl’s, John Lewis and Fenwick have disappointing news
  3. In AUTOMOTIVE NEWS, US auto sales stay steady and Goldman Sachs predicts a tough time for Tesla
  4. In INDIVIDUAL COMPANY NEWS, personalised cancer treatment gets fast-tracked by the NHS, Deutsche Bank drops out of the Euro Stoxx50 index, Samsung joins the race to the bottom for smartphones and Lego sales suffer
  5. In OTHER NEWS, I bring you the cracking new John Lewis advert. School plays from now on will have a lot to live up to ;0) . For more details, read on…



So South Africa goes into recession…

In South Africa feels chill of recession (The Times, Jane Flanagan) we see that the country has dipped into recession for the first time since 2009 and the South



African Rand fell by over 2% versus the dollar on the news,continuing its 19% fall versus the dollar as emerging markets continue to be hit by fallout from Turkey and Argentina. The economy contracted by 0.7% in the second quarter (versus the 0.6% expansion expected by economists) after a 2.6% contraction in the first quarter of this year. President Ramaphosa’s controversial land reforms are adding to existing investor worries.



In retail news, Amazon hits a new landmark, Halfords is buoyed by electric bikes but McColl’s, John Lewis and Fenwick confirm general gloom…

World’s richest man delivers Amazon to magic $1tn mark (The Guardian, Rob Davies and Dominic Rushe) heralds a historic day for the e-tailer as its market cap hit $1tn in trading yesterday on the Nasdaq. The company has expanded from selling books and CDs to hosting websites such as Airbnb, Netflix and Unilever and its Web Services division is currently in the running to win a $10bn cloud computing contract for the US Department of Defense. It is also expanding in other areas such as groceries and healthcare. * SO WHAT? * It’s just a level – that’s all. However, it does mark a notable moment showing just how far the company – and its founder – have come. Although Apple got to it first, I have to say that I think Amazon will overtake it at some stage in the not-too-distant future as it continues to expand into different and 

more lucrative areas that often have strategic overlap making barriers to entry for newcomers in certain areas even higher. At some point, I would expect Amazon to spin off different businesses as it continues to grow, but that probably won’t happen for some years yet. It continues to be a very interesting, albeit imperfect, company.

UK retail continues to be a bit of a mixed bag as Demand for electric bikes helps push Halfords’ sales up by 2.8% (Daily Telegraph, Ben Woods) shows that investors were cheered by its latest sales figures that were boosted by fitting services, electric bikes and new workshop and car cleaning products. It also benefited from the good weather and online sales were also strong, all of which helped to push the shares up by 6.9%. Good news was particularly welcome for the company following the May profit warning which sent its shares down by 10%.

On the other hand, McColl’s sales fall as Palmer & Harvey collapse keeps hurting (Daily Telegraph, Ben Woods) highlights disappointing performance at the convenience retailer as like-for-like sales excluding new store openings fell by 0.9% in the third quarter despite getting a boost from the hot weather and John Lewis and Fenwick add to high street woe with job cuts (The Guardian, Zoe Wood) continues the downbeat mood as they announced 270 and 408 staff cuts respectively, mainly in back office and ancillary areas. This all came out as John Lewis unveiled a rebrand yesterday with another impressive advert.



In automotive news, US auto sales maintain momentum but Tesla shares will take a near-term dive according to Goldman Sachs…

US auto sales maintain momentum for now (Wall Street Journal, Adrienne Roberts) shows that most major auto makers experienced a boost in sales in August – with the notable exception of General Motors – as customers took advantage of Labor Day discounts and continued to buy SUVs and pick-up trucks. Ford, Honda and Nissan reported sales increases on the back of their SUVs, as did Chrysler which saw sales of the Jeep Cherokee jump by 85% and its Jeep Compass by 76%. GM and Toyota sales were weaker. * SO WHAT? * These figures show that automotive companies are in good shape currently but it has to be said that the year-on-year figures were flattered by weak sales in August last year when Hurricane Harvey closed swathes 

of dealerships across southern Texas. Many analysts are, however, predicting that vehicle demand will slow down going into the end of this year as interest rates trend upwards and car prices get more expensive on increased material costs and tariffs.

Tesla shares to fall 30pc in six months, says Goldman Sachs (Daily Telegraph, James Titcomb) is an interesting one because although Elon Musk actually hired Goldman last month to advise on taking the company private, it has now come out with a note to investors saying that electric car launches from incumbent car manufacturers will dent Tesla’s halo and that its share price will fall from $302 to $210 in six months. This confirms Goldman’s original stance before it had to suspend coverage due to the whole being-involved-in-advising-on-Tesla-going-private malarkey. * SO WHAT? * I think Musk and Tesla need to keep their heads down for the next few months and nail those production targets. Mind you, that’s looking increasingly unlikely as he continues to rant about the British cave diver who helped rescue that Thai football team over the summer. Maybe this is an elaborate way of distracting attention from his production disappointment – a bit like Jose Mourinho distracting attention from poor team performances on the football pitch and making it all about him. Bizarre behaviour…



In individual company news, a new personalised cancer treatment gets the NHS go-ahead, Deutsche Bank falls out of the Euro Stoxx50 index, Samsung partakes in the downward spiral of handset prices and Lego sales take a hit…

Personalised cancer treatment wins fast-track NHS approval (Financial Times, Clive Cookson) heralds an incredible medical development as a new immune therapy treatment from Novartis, called Kymriah, got one of the fastest funding approvals by the NHS in history less than two weeks after receiving a European marketing licence. Kymriah is a pioneering treatment which is a bespoke treatment for each patient as his or her immune cells are extracted, genetically reprogrammed in the lab to respond to cancer and then put back into the patient. It normally costs an eye-watering £282,000 per patient, but the NHS has done some kind of deal. It’s a complex treatment and won’t cure everyone and there are currently three hospitals going through the required international accreditation process to provide the treatment in London, Newcastle and Manchester. The NHS will pay for Kymriah treatment for patients with a particularly rare form of leukaemia under the age of 25 and expects up to 30 patients per year to benefit from this. * SO WHAT? * Isn’t this an incredible development?? On a commercial basis, this is a positive for Novartis, but I’m not really sure whether it’s going to move the needle at this stage given how expensive it is. The real benefits will come when the price comes down and more people can take advantage of it – but in the meantime let’s hope it saves loads of lives.

If Apple and Amazon’s breaching of the £1tn landmark show how far the companies have come on the upside, Deutsche Bank to drop out of EuroStoxx 50 index (Financial Times, Olaf Storbeck) shows how bad things have become for Germany’s largest bank as it is about to drop out of Europe’s leading index of blue-chip companies later this month. Deutsche’s market cap has fallen by 39% this year after reporting continued losses and insufficient restructuring. * SO WHAT? * The EuroStoxx50 index covers 50 of Europe’s biggest companies across nine sectors and currently has seven banks, including Deutsche. The main effect of dropping out of the index will be that passive funds will be forced to sell the shares (because they track the index and if Deutsche Bank stocks aren’t in the index, they won’t be allowed to invest in them) so the share price is likely to suffer a bit. Still, on the other hand, second quarter earnings came in above market expectations and the company itself said that cost cutting was on track. Deutsche Bank has got a lot of convincing to do, but if it continues to deliver on increased cost-cutting targets I’m sure investors will get back onside. In short, I think this is a pain for the bank, but I’m sure it’ll get through it.

Samsung joins race to the bottom for global smartphone prices (Wall Street Journal, Timothy W. Martin and Eric Bellman) highlights Samsung’s plans on taking on Chinese smartphone makers such as Xiaomi, Oppo and Huawei by making cheaper smartphones. In recent years, the South Korean electronics giant has been concentrating its efforts on the high end of the market along with Apple, but it wants to make sure that it gets a big slice of the action in the future as the proportion of the world population that owns a smartphone goes from the current 50-ish per cent to 77% by 2025 (a prediction from mobile industry researcher GSMA). The company is building a new manufacturing hub in a New Delhi suburb that is scheduled to go online by 2020. Once it is up and running it is expected to make 120million handsets per year, with around 30% of them going for export. * SO WHAT? * This is a great idea IMHO as the company has to keep manufacturing costs down. Also, with India expected to become the world’s second largest smartphone market after China next year, it makes eminent sense to manufacture locally. Currently, only 22% of Indians own a smartphone so the market is ripe for some stellar growth.  If it can keep its costs down by manufacturing in India, it could potentially unlock access to all sorts of other emerging markets that have thus far been effectively off-limits due to pricing. As Tarun Pathak, an analyst at research firm Counterpoint, put it “The global smartphone market has peaked, but emerging markets are growing. The battle for the next billion customers is more important than the premium market”. 

Lego sales fall as new chief executive seeks stability (Financial Times, Richard Milne) takes a look at how “new” Lego chief exec Niels Christiansen (who was appointed in October last year) is doing as he tries to turnaround the company in the face of strong headwinds in the form of continued competition from tablets for children’s attention and the downfall of traditional toy retailers such as Toys R Us. Sales were down slightly for the first six months of 2018, but the company is continuing efforts to bring the analogue environment of plastic bricks closer to the digital world of apps and smartphones. * SO WHAT? * Toymakers around the world are all facing the same problems – with Mattel and Hasbro both performing poorly and our own Hornby continuing to face challenges, for instance – but Christiansen has marked 2018 as being a year for consolidation ahead of 2019 where it should get an uplift from the Lego Movie 2. If it manages to continue to meld analogue and digital worlds (it recently launched a Duplo train for toddlers that could be controlled with an iPad) it should really help sales. Given the success of other toys that do this – and I’m thinking of Nintendo’s Labo here in particular – I would have thought that Lego is well-positioned to do some impressive things.



… And finally, in other news…

I don’t normally do this, but I have to just alert you to John Lewis’ fantastic new advert! Normally only reserved for Christmas, here is their latest offering which coincides with its rebranding: 

As always, thank you for reading Watson’s Daily!