Wednesday 27/11/19

1. In MACRO NEWS, China makes positive trade noises but in the UK, mortgage approvals fall and employers lose confidence
2. In CAR-RELATED NEWS, Audi cuts jobs to pay for EV investment while Ola and Bolt try to take advantage of Uber’s misfortune
3. In RETAIL-RELATED NEWS, a West End landlord suffers retail blues and Pets At Home shares jump
4. In INDIVIDUAL NEWS, Saudi Aramco gets a cornerstone investor, Alibaba does its Hong Kong float, American Outdoor splits off its gun business, drug companies face criminal charges in the opioid crisis and De La Rue has issues
5. In OTHER NEWS, I bring you a very skilled “balancer”…

So China sounds positive, but the UK is in limbo…

China raises hopes for US trade deal (Wall Street Journal, Chao Deng and Bob Davis) cites China’s Commerce Ministry as saying that both the US and China sides had “reached a consensus on properly resolving related issues”, following a call between China’s chief negotiator Liu He and US counterparts Robert Lighthizer and Steven Mnuchin. This follows weekend moves on the China side to tighten up guidelines to protect intellectual property rights, a core area of concern for the Americans and would suggest that they were edging closer to some kind of agreement. * SO WHAT? * This all sounds great, but we’ve had loads of false dawns before. We’ll just have to wait and see whether anything concrete actually gets signed. When/if it does (even if it’s just a tentative “first stage” of a broader agreement) markets will no doubt stage some kind of relief rally.

Meanwhile, things are looking a tad tricky in the UK as

House buyers vote with their feet as mortgages decline (The Times, Philip Aldrick) cites the latest figures from trade body UK Finance which show that mortgage approvals hit a seven-month low in October on election and Brexit concerns. In Uncertainty takes toll on employers’ confidence in economy (The Times, Gurpreet Narwan) we see that the latest stats from the Recruitment and Employment Confederation (REC) show slowing momentum in hiring as pessimism increases over Brexit. REC chief executive Neil Carberry said that “There is a great deal of potential in Britain’s businesses just waiting to be unleashed. With so many firms at or close to fullcapacity, it’s no surprise that employers want to invest in their workforces. Uncertainty is holding firms back”. * SO WHAT? * Mortgage approvals are seen as a bellwether of the health of the property market but I don’t think it’s any coincidence that we are now hitting lows not seen since we had the original deadline for Brexit! It’s also not going to be any surprise that employers are getting a bit nervy about increasing staff numbers when we are heading into political and economic uncertainty at the moment. These stats just give us more evidence to back up what we already know!

Audi plans cuts and Uber rivals up their game…

Audi plans 9,500 job cuts to save £5bn for electric car investment (The Guardian, Rupert Neate) heralds more bad news for workers in the automotive sector as the VW-owned marque said that this was part of an initiative to save €6bn to invest in electric cars and digital technology. On the other hand, it said that it would also hire 2,000 staff in “new expert positions in areas such as electric mobility and digitalisation”. The cuts, however, equate to about 10% of Audi’s workforce and come less than two weeks after Mercedes-Benz said it would cut over 1,000 jobs by the close of 2022 in order to hit tighter new emissions targets. * SO WHAT? * 10% of the workforce is pretty chunky, but actually these cuts are to be made over the next 5 years or so (until 2025) so actually, when you take natural attrition

and early-retirements into account as well, it may not actually be as bad as it seems. Having said that, it does show the continued pressure that automakers are currently under and it won’t do much for morale at Audi itself or the wider industry.

Given that Uber has just lost its London licence, it’s hardly surprising to see Rivals gear up to fill Uber gap (Daily Telegraph, Matthew Field) as Ola, which was founded in India and had a limited launch in the UK last year, is readying itself for a London launch in January 2020 and Bolt, which originated in Estonia and is big in Eastern Europe, will also be upping the ante following its own London launch in June. Bolt, which is backed by China’s ride-hailing giant DiDi, apparently raised almost $70m over the summer and is looking to raise another $100m to fund its expansion. * SO WHAT? * Uber is currently appealing against TfL’s decision but it makes perfect sense for rivals to up their game while the giant is down. If Uber loses its appeal, they will be able to make even more gains!

West End landlord Shaftsbury is unable to escape the retail malaise unscathed but Pets at Home gets investors purring…

Retail’s woes play out on West End stage (The Times, Arthi Nachiappan) shows that retail difficulties are hitting West End landlord Shaftsbury – which owns vast tracts (about 15 acres, in fact!) of properties in Covent Garden, China Town and Carnaby Street – as it reported a massive 85% drop in annual pre-tax profits after a revaluation of its Covent Garden properties. Chief exec Brian Bickell said that his company is going to have to downsize the retail spaces to take into account current demand, reversing a trend for larger shops that were in demand 15 years ago. * SO WHAT? * Although Shaftsbury is suffering in the same way as rivals such as Intu, Land Securities and British Land, I think that the LOCATION of its properties mean that they are easier to repurpose and re-let as I would argue that there will always be demand to be there.

Pets at Home shares jump after upgrade to profit forecast (Financial Times, Siddharth Venkataramakrishnan) shows investor delight as the retailer increased its profit expectations for the second time in three months, sending its share price up by 15% in trading yesterday. The company has concentrated on providing services for pet owners, keeping prices competitive and restructuring its vet practices. Grooming, retail and vet revenues have all done well and it looks like the company could get even more of a boost by renegotiating about 200 leases over the next five years with significant scope for lower rents. * SO WHAT? * Clearly, there was a lot to cheer about here, but the company added that Brexit could adversely affect its vet business and distribution centres given that it employs “a significant number” of EU nationals. Although the company’s share price has doubled over the last year, it is only the first time in three years that it has gone through the 245p level it floated at back in 2014.

Saudi Aramco gets a cornerstone investor, Alibaba makes a splash in Hong Kong and there are some dramatic developments in the worlds of guns, drugs and cash…

In IPO news, Saudi Aramco turns to Gulf funds to prop up IPO (Financial Times, Anjli Raval, Simeon Kerr and Andrew England) shows that Abu Dhabi is potentially stepping up to support its regional ally by investing around $1.5bn in the up-coming Saudi Aramco listing, which would pretty much cover the 1% allocated to institutions. The remaining 0.5% is intended for retail investors – and it seems that a number of wealthy families have been pushed to invest in it. * SO WHAT? * I’ve said it before, but this IPO stinks. If foreign investors don’t want to touch it with a barge pole and retail investors have to be co-erced to buy the shares, it doesn’t look good, does it! Still, as I’ve said before, I’m sure the Saudis will pull out all the stops to ensure the deal is a success.

Alibaba conjures up $11bn with Hong Kong float (The Times, Simon Duke) highlights the success of Alibaba’s flotation on Hong Kong’s stock market as it provided a rare moment of cheer against a stormy political backdrop. The shares climbed by 6.7% by the end of the day and the company said that it would use the extra cash to invest in its online food delivery business Ele.me, internet travel platform Figgy and video site Youku. * SO WHAT? * This is a secondary listing for Alibaba, which listed in New York five years ago raising $25bn from American investors. The Hong Kong listing will give Chinese investors more access to the company’s shares, which holders will be able to sell on either exchange.

American Outdoor’s split highlights risks for gunmakers (Financial Times, Archie Hall) is an interesting article that highlights changing pressures for gunmakers as they split up their operations due to fewer investors wanting to be associated with them. American Outdoor Brands (#2 gunmaker in the US) announced plans a few weeks ago to split itself into Smith & Wesson (guns) and the outdoor

products business (which sells things like knives and fishing equipment), saying that the list of banks and insurance companies willing to deal with them is getting shorter and shorter. Rival Vista Outdoors sold its gun business in July, Walmart announced plans to restrict gun sales in September after a mass shooting at one of its stores and Dick’s Sporting Goods stopped selling assault weapons (!?!?) and then all guns in about 20% of its stores. Sturm Ruger is also under increasing pressure by shareholders to adopt all sorts of new policies and resolutions and the pressure is likely to increase further as Remington is facing a lawsuit alleging that its hairy-chested marketing is at least partly to blame for the 2012 Sandy Hook shooting where 26 people were killed, including 20 kids. * SO WHAT? * I think it’s hilarious that big investors like BlackRock and Vanguard get all holier-than-thou about gun companies, but the fact is they buy the shares and stuff them in their funds! Having said that, they do sell gun-free ESG index funds, but hardly anyone buys them! I think it’s a bit like McDonald’s selling salad. Most people go to McDonald’s when they feel like having a dirty burger – they do NOT immediately think “Ah yes, I feel like having a salad today and so I’ll try to find a McDonalds”, but they HAVE to show that they are trying to do something healthy as a bit of a token gesture. Similarly, with funds supposedly putting pressure on gunmakers they are appealing to some of their “woke” investors (the “salad eaters” in my analogy) whilst really just buying more shares in them. Conventional wisdom says that the fortunes of gunmakers waxes and wanes according to the fortunes of the Democrats, but it seems that pressure is continuing to build.

Then in Federal prosecutors launch criminal probe of opioid makers, distributors (Wall Street Journal, Corine Ramey) we see that a criminal investigation is being launched in order to ascertain whether pharmaceuticals companies intentionally allowed opioid painkillers to flood communities. If criminal charges follow the investigation it could be the biggest ever prosecution of pharmaceutical companies and, so far, at least six companies – including Teva Pharmaceutical, Mallinckrodt, Johnson & Johnson, Amneal Phamaceuticals as well as distributors AmerisourceBergen and McKesson – have received subpoenas related to the Brooklyn federal investigation.

And finally, in other news…

I thought I’d leave you today with the amazing man in Gaza man masters rare skill of balancing art (AP, Hatem Mossa https://tinyurl.com/wh67wow). Wow!