Wednesday 10/10/18

  1. In FINANCIALS NEWS, the Bank of England threatens the EU and Wirecard looks moonbound
  2. In HIGH STREET NEWS, Greggs gets an unhealthy boost and TK Maxx benefits from bargain-seekers
  3. In TECH HARDWARE NEWS, Google unveils some shiny new gadgetry
  4. In INDIVIDUAL COMPANY NEWS, SoftBank talks about a majority stake in WeWork and Brewdog considers an IPO
  5. In OTHER NEWS, I bring you  an idea for a new hobby. For more details, read on…



So the Bank of England points something out to the EU and newbie Wildcard makes some punchy claims…

Lack of EU preparation puts £69tn of financial contracts at risk (The Guardian, Richard Partington) is a story doing the rounds of the broadsheets today as the Bank of England has warned that contracts governing financial derivatives – which are sold by banks and used by companies to mitigate interest rate and market volatility – could be rendered illegal in the event of a no-deal Brexit. It said in a statement that “In the limited time remaining, it is not possible for companies on their own to mitigate fully the risks of disruption to cross-border financial services”. As much as £41tn-worth of derivatives contracts are due to mature after Britain leaves the EU and London is central to the process that settles these trades – called “clearing”. Ironically, it is the EU that forced banks to increase trade via London’s clearing houses following the financial crisis to make their risk more transparent and this has led to the UK being responsible for clearing 90% of EU firms’ interest rate swaps – one of the most common financial instruments traded by corporates. * SO WHAT? * The article goes into more detail than I’m doing here, but the 

main thrust of it is that although the EU might see this as a brilliant opportunity to take our clearing business, there are major doubts that the EU could cope with the sheer volume of derivatives transactions. Some bankers have likened the relocation of derivatives as handling nuclear waste and some British officials believe that there isn’t enough time left to sort this out. So actually, this might prove to be a key bargaining chip for the UK side in Brexit negotiations.

I’ve been talking recently about disruptors in the banking world and Wirecard predicts sixfold profit rise by 2025 on cashless trend (Financial Times, Dan McCrum and Sarah Provan) is another example of the trend towards digital banking. So far this year, the share price of Wildcard has doubled and it has replaced venerable bank Commerzbank in the Dax index of top companies as its market cap has hit €21bn. Yesterday, it said that it was targeting a sixfold increase in profits by 2025 as transactions volumes rise from €91bn last year to €710bn in the same period due to societies becoming increasingly cashless. Wirecard says that it authorises and processes payments for roughly 250,000 merchants, issues credit and prepaid cards and provides tech for contactless smartphone payments. * SO WHAT? * The share price has been volatile of late, but this bad boy has big ambitions.



In UK high street news, Greggs bakes up a storm and TK Maxx benefits from bargain-hunters…

Greggs third-quarter sales bolstered by drinks and pizza (Financial Times, Chris Tighe and Sarah Provan) highlights a solid performance by the high street baker as it was bolstered by an increase in the take-up of its gift cards (which it’s pushing in the corporate market as a cheap-and-cheerful reward for staff), a broadening of its product range (with healthier options) and strong trading generally. Despite everything going on around them, the company expects to have around 100 net openings in 2018. * SO WHAT? * The company certainly seems to be doing a lot of the right things – it’s even jumping on the vegan trend (!) – and could see new areas of growth as a result. At the moment, for instance, it is trialling deliveries with UberEats 

and Deliveroo and it will be opening an outlet at the recently-refurbished London Bridge, with a view to rolling it out to other sites in the UK capital. This is a far cry from when the company lost almost 20% of its market value when it announced a profits warning in May following bad weather hitting sales.

TK Maxx sales near £3bn as shoppers seek value (Daily Telegraph, Ben Woods) shows how the discount retailer is bucking the downbeat trend as it revealed sales of almost £3bn in the UK. Although turnover jumped up to 11% for the year to February 3rd, its profits fell as it invested in IT and staff recruitment. Hannah Thomson, GlobalData’s senior retail analyst, pointed out that “While high street powerhouses Marks & Spencer and Arcadia have seen their clothing market shares drop by 1.9 percentage points each over the past five years, TK Maxx has grown its share from 2.6pc to 3.2pc”. TK Maxx is owned by US group TJX Companies, which is listed in New York. * SO WHAT? * It’s always good to see some sunshine in an otherwise gloomy high street. 



In tech hardware news, Google unveils various bits of gadgetry…

Google launches new smart speaker with screen (Financial Times, Tim Bradshaw and Richard Waters) makes it feel like Groundhog Day as Google unveiled its smart-speaker-with-screen one day after Facebook unveiled its own device. The main difference with its rivals is that Google’s new Home Hub comes without a camera, which could help it swerve the privacy concerns raised over its competitors’ offerings.

It is designed to show YouTube videos, control smart home devices and have digital picture frame functionality. It also comes with both Amazon’s Alexa and Google’s Assistant. Google also unveiled a new Pixel 3 smartphone and a Slate laptop-tablet hybrid. * SO WHAT? * It’ll be interesting to see what sort of demand there’s going to be for the Home Hub, but I for one would consider it over similar devices WITH a camera as I don’t like the idea of a device sitting there, watching your every move! Still, its popularity will very much depend on price I would have thought. Do you really want to be paying top dollar for something that lets you watch stuff you can already watch on any other device and switches the kettle on?



In individual company news, SoftBank eyes WeWork and Brewdog considers an IPO…

In SoftBank discusses taking majority stake in WeWork (Wall Street Journal, Eliot Brown, Dana Mattioli and Maureen Farrell) we see that Japan’s SoftBank is in negotiation with the eight-year-old, New York-based provider of shared office space to take a majority stake with an investment that could amount to somewhere between $15bn and $20bn. It is thought that this money would come from SoftBank’s $92bn Vision Fund which already owns almost 20% of WeWork after sinking $4.4bn in it last year. * SO WHAT? * If this deal goes ahead, it could be one of the biggest deals of the last ten years. Whether they will be getting value for money is another question, however – especially when SoftBank’s chairman 

Masayoshi Son says things like “Feeling is more important than just looking at the numbers. You have to feel the force, like Star Wars”. He said this at a shareholder meeting in June.

Brewdog ready to move from IPA to IPO (The Times, Greig Cameron) looks at some potential future developments for the craft beer brewer and bar owner as it explores its options with its financial advisors whilst simultaneously strengthening its internal systems in anticipation of an Initial Public Offering. The company’s founders are aiming for a float by 2020 and are currently deciding between a London or New York listing. * SO WHAT? * A listing would help to fund expansion and give current investors an exit opportunity. TSG Consumer Partners, a US private equity group paid £213m for a 23% stake in the business last year and Brewdog already has thousands of smaller investors who bought into the company via crowdfunding initiatives. This could get quite exciting!



…And finally, in other news…

I thought I’d leave you with an idea for a new hobby that could help to relieve stress: Axe throwing takes aim at sunny Los Angeles (Reuters, Rory Carrol It sounds rather therapeutic, although I’m sure that it could awaken an inner-beast in some…

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

Some of today’s market, commodity & currency moves (as at 0747hrs 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 **
7,238 (+0.06%)26,431 (-0.21%)2,880 (-0.14%)7,73811,977 (+0.25%)5,319 (+0.35%)23,506 (+0.16%)2,723 (+0.09%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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