Wednesday 23/10/19

1. In MACRO & COMMODITIES NEWS, we look at the latest on Brexit, Canada and and a major lithium discovery in California
2. In CONSUMER GOODS NEWS, P&G delights while Reckitt Benckiser disappoints
3. In DELIVERY-RELATED NEWS, Just Eat brushes with a bidding war and Uber gets with Costcutter
4. In INDIVIDUAL COMPANY NEWS, Continental suffers, Snap adds subs, Lyft has profits in sight and McDonald’s underperforms on lack of meatless options
5. In OTHER NEWS, I bring you a pomegranate hack…

So BoJo almost succeeds, Trudeau has a job on his hands and Rio Tinto makes a major discovery…

Boris Johnson wins Brexit deal vote but is thwarted on deadline (Financial Times, George Parker, Sebastian Payne, Laura Hughes and Jim Brunsden) shows that BoJo almost managed to get his way (with a bigger-than-expected majority of 30 MPs voting for his deal), but now that the MPs scuppered his efforts to execute Brexit on October 31st, the prospect of a general election is back on. European Council president Donald Tusk will potentially offer him a Brexit extension until January 31st, but BoJo is expected to push for an early election rather than face more delays. This will put pressure on Labour to either back an election or agree to an accelerated timetable to pass Brexit legislation.

Following on from yesterday’s election win, Justin Trudeau faces challenge of uniting a divided Canada (Financial Times, Jason Kirby) highlights the difficulties Canada’s newly-elected PM will face as he starts a second term leading a minority government. Although the economy is doing well, with unemployment close to forty-year lows and rising wages, the electorate failed to give him a majority as

critics pointed to his rather dismissive leadership style and self-imposed scandals. * SO WHAT? * Given he’s now leading a minority government, he will have to listen to others to get things done and, indeed, stay in power as the average length of tenure for a minority government in Canada stands somewhere between 18 months and two years! The deepening divide between the separatists in Quebec and the rest of the country is just one of the many things that could blow up in Trudeau’s face if he doesn’t manage to unite a fragmented political landscape.

‘Eureka’ for Rio Tinto as waste rock yields lithium (The Times, Emily Gosden) shows that mining giant Rio Tinto could be about to become America’s biggest producer of lithium for batteries following the discovery of the material at a mine in California. Apparently, it found the lithium in piles of waste rock that has just been lying around for almost a hundred years at its Boron site! * SO WHAT? * This is high-grade lithium that is used in electric vehicles, so if it manages to extract it, the discovery could have a major effect on not only the electric vehicle industry but also on the current US-China trade war as it will take away an important negotiation chip for the Chinese. Further tests are still ongoing, but if the initial discovery is confirmed, not only will it be a massive boon for American lithium supplies it will also be achievable without the need for any additional mining! Shares in Rio Tinto only rose by 0.7% in trading yesterday, but if this all pans out I would have thought they will skyrocket! 

P&G profits, Reckitt Benckiser not so much…

P&G posts another quarter of strong sales gains (Wall Street Journal, Sharon Terlep) highlights a strong quarter for Procter & Gamble as solid sales of household staples underpinned a strong performance. Revenues were also powered by price increases across all of its business lines, including its troubled Gillette shaving unit. * SO WHAT? * The company known for brands such as Head & Shoulders, Old Spice, Pantene and Pampers is now growing faster than rivals including Unilever and Kimberly-Clark after many years in the relative wilderness prompted it to hike prices and cut down its range. Growth only returned to pre-financial crisis levels last year and the company said that it was confident that it could weather a potential downturn in consumer spending better than it did in 2008 because it

has cut products that see sharp drop-offs when customers rein in their shopping habits, like makeup and perfume. It has instead focused on developing more expensive “essential products” like laundry soap and toothpaste.

In contrast to this, Reckitt Benckiser cuts sales and profit targets after tough quarter (Financial Times, Adam Samson and Leila Abboud) after its US health business and infant formula business in China contributed to a weak third quarter. This is the company’s second profit warning so far this year and comes only seven weeks after the previous CEO, Rakesh Kapoor, made way for the new CEO, Laxman Narasimhan. * SO WHAT? * Narasimhan is now doing a full review of the business and will be looking particularly closely at the company’s health business, which accounts for about 60% of sales. A new plan is expected to be announced in February at the annual results. Some are speculating whether the business could be split into two, but clearly we’ll have to wait and see. At least something is going to be done about it!

Just Eat fends off an approach and Uber gets with Costcutter…

In Shareholders hungry for bidding war over Just Eat (Daily Telegraph, Oliver Gill) we see that internet firm Prosus (the Dutch-listed arm of South African tech giant Naspers) put a £5bn all-cash offer in for Just Eat yesterday at a 20% premium to Monday’s closing price, putting a spanner in the works for Just Eat’s plans to merge with Takeway.com. Just Eat’s board rejected the offer, but it could still happen if it gets support from shareholders which some analysts think could occur if Prosus ups its offer from the current 710p to 800p. * SO WHAT? * A £9bn merger between Takeaway.com and Just Eat was agreed in July valuing the latter at 731p per share at the time. However, since then, Takewaway.com’s share price has plummeted meaning that the deal is now valuing Just Eat stock at around 600p a share (this is because the Takeaway.com deal is in shares only, meaning that the deal’s value fluctuates according to the share price). Shareholders will be licking their lips in anticipation of Prosus upping its offer and/or the start of a potential bidding war with other parties yet to emerge. Prosus was

spun off from Naspers, which made one of the best investment decisions ever when it made a £32m investment in Chinese web business Tencent in 2001 which is now worth around $130bn. You can find out more about it in How Prosus became one of the world’s most valuable companies (The Guardian, Sarah Butler).

Then Uber and Costcutter bid to corner the convenience delivery market (Daily Telegraph, Laura Onita) heralds a deal between the two which will enable Costcutter, the convenience store chain with over 1,700 shops, to sell groceries via Uber Eat’s app. * SO WHAT? * It is thought that the online grocery shopping market is worth about £11.6bn a year – which is still only 6% of the UK’s grocery market overall – but there has been a flurry of tie-ups in the sector with Asda launching an express grocery delivery service with Just Eat and the Co-Op working with Deliveroo. This all sounds great in theory but the problem is that selling groceries online or via apps remains unprofitable because of the extra costs associated with delivery. I would also say that in this particular deal between Uber Eats and Costcutter, the latter is a CONVENIENCE store and thus likely to be local. How lazy do you have to be NOT to wander to your local store?? If you want wider choice and (probably) better product, surely you just order from the supermarket rather than the corner shop?? 

Continental suffers from fallout, Snap impresses, Lyft sees light at the end of the tunnel and McDonald’s underwhelms…

In a quick scoot around some of the other news today, Continental to take €2.5bn hit as auto slowdown bites (Financial Times, Joe Miller) highlights the automotive supply giant’s decision to take a big impairment charge due to the steep decline in the car industry that has been made worse by weakening China growth. The current malaise in global car sales is clearly spreading.

There was good news in Snapchat bounces back with soaring user numbers (Daily Telegraph, Laurence Dodds) as the photo-sharing app provided reason for cheer as it increased its number of daily active users from 203m to 210m in the latest quarter. This was largely due to strong growth outside its core US and European markets. Chief exec Evan Spiegel, said that the company was on track to becoming profitable as early as this December.

Talking about profitability, Lyft expects to be profitable a year earlier than expected (Wall Street Journal, Heather Somerville) as a reduction in coupons and incentives used to attract new users has helped. The company aims to move towards a subscription model whereby users pay a monthly fee for car rides initially, to be followed by bike and scooter rides. * SO WHAT? * At least this is a move in the right direction, but even though the share price “lyfted” by over 6% on the news, it still stands at around $43 – way below the $72 level it hit in March and below its last private financing round of $47 a share. There’s also the spectre of California’s AB5 law hanging over gig-worker users, which classifies Lyft drivers as employees rather than contractors. I think that healthy doses of scepticism are still required!

Then American rivals take bite out of McDonald’s meaty menu (The Times, James Dean) shows that the world’s biggest fast-food restaurant chain fell short of profit forecasts for the first time in two years, disappointing investors. Stiff competition from rivals in the US and lack of a meatless burger on the menu were blamed for the underperformance in the third quarter.

And finally, in other news…

Watson’s Daily is all about the learning and so I thought I’d bring you this today: ‘Life-changing’ pomegranate cutting hack is blowing people’s minds (The Mirror, Courtney Pochin https://tinyurl.com/yybrwz9j). 👍