Wednesday 28/11/18

  1. In CAR-RELATED NEWS, European manufacturers get dinged by Trump and Tesla has a shocker in China
  2. In RETAIL-RELATED NEWS, John Lewis hails Black Friday, Greggs warms investors but Pets at Home has a vet-shaped nightmare
  3. In TECH NEWS, major players target healthcare and an Apple Watch study shows big possibilities
  4. In INDIVIDUAL COMPANY NEWS, Salesforce comes through but Thomas Cook needs a holiday
  5. In OTHER NEWS, I bring you a frightening hang glider story and a silent disco ban. For more details, read on…



So European carmakers take a dive and Tesla’s China sales are shocking…

Following on from what I said yesterday Trump tariff fears loom for Europe’s giant car companies (The Times, Callum Jones) shows that German car manufacturers’ shares fell by up to 4% yesterday after Trump said that he was thinking about slapping a 25% tax on car imports as early as next week. The official line from the White House is that no additional levies will be imposed while it is conducting negotiations with the EU and Japan, but Trump has often threatened a tax on foreign car imports. Currently, US cars shipped to the EU face a 10% import tax whereas European cars being shipped to the US face a

2.5% US duty. The stage is set for high stakes negotiations at the G20 summit this weekend!

Woeful China sales are a shock for Tesla (The Times, James Dean) shows what punitive import taxes can do to sales as the China Passenger Car Association said that Tesla sales had fallen by 70%, meaning that the company only sold 211 cars last month in the whole of China versus a year ago. Tesla imports all the cars it sells in China, but the government imposed a hefty 40% tax on car imports coming from the US in response to Trump’s tariffs going the other way. * SO WHAT? * Well now you can see why Tesla recently announced a price cut of 12% of its Model S saloon and a 26% price cut for its Model X SUV in China in an attempt to offset the tariffs. Clearly this is a short-term solution, but longer term Tesla is looking to build a car factory in Shanghai that could make 500,000 cars per year. Tesla just has to survive that long to see it through!



In retail news, John Lewis reports a healthy Black Friday and Greggs brings strong sales out of the oven but Pets at Home has its tail between its legs…

John Lewis reports record sales in Black Friday week (The Guardian, Sarah Butler and Phillip Inman) heralds some good news for the retailer as it shattered its sales records last week to clock up its biggest week ever as shoppers bagged deals on gadgets, beauty products, clothing and beds. Sales were up 7.7% in the week versus the same period last year and sales in the fashion and beauty department were up by 13.1%. It said that both online and offline trading was good, with some stores actually reporting a record week! * SO WHAT? * This is great news as everyone has been predicting doom and gloom across the high street. Yes, it is still possible that Black Friday sales may just be bringing forward sales that would otherwise have been made a bit later on in the run-up to Christmas, but if I was John Lewis I’d be celebrating this mini-win! Having said that, the CBI’s head of economic intelligence Anna Leach, continued to be downbeat on retail as a whole when she said “While it is encouraging to see headline retail sales growth strengthen in November after a weak outturn in October, the quarterly survey continues to paint a gloomy picture of the sector. Business sentiment remains poor, investment intentions are flat, and headcount continues to decline”. Bah humbug. But like I’ve said before, EVERYONE is expecting a poor performance, and while I don’t think it is fully priced-in to the respective share prices, there would be HUGE upside potential for share prices if companies confounded expectations.

Greggs has treat for investors (The Times, Deirdre Hipwell) shows that the surprise profit warning Greggs had in May was just a blip as Greggs unveiled excellent sales for the latest quarter that means a higher-than-expected profit could be on the cards for the end of the year. Greggs is the UK’s biggest bakery chain with about 1,900 outlets and, although it has built its reputation on sweet and savoury treats it has been trying to introduce healthier options such as porridge, cold-pressed juices, low-calorie soups, salads and gluten-free products. * SO WHAT? * This is great news for the baker and signals a return to form. Or as Peel Hunt analyst Jonathan Pritchard put it, “Greggs has enjoyed a stellar start to its fourth quarter, even if footfall passing its stores has been under a cloud. The patchy late spring is now a distant memory and we’d own up to overreaching to it. This is clearly a very consistent performer”. The shares were up 11% on the news.

Fiasco of vet expansion sees Pets at Home profit fall 80pc (Daily Telegraph) highlights the problems facing the animal goods retailer as it announced a big write-down on its veterinary business as it recorded a drop in profits from £40.8m to just £8m in the six months to November 11th. Chief exec Peter Pritchard said that the company has taken the view that some vet practices would struggle to pay back the £300,000 of debt needed to start a practice and will buy out 55 of its 471 joint venture vet practices at a cost of £49m by 2020. Additionally, 30 of its joint venture practices are slated for closure, potentially putting around 300 jobs on the line. On the other hand, the retail business is doing pretty well after it overhauled its pricing strategy two years ago. * SO WHAT? * This is actually an interesting example of the effect wage inflation is having on retailers as vets – and other staff – have had become more scarce, thus increasing labour costs. This could get worse going into Brexit, so Pritchard has a tough job on his hands.



In tech news, we see healthcare as an attractive area for companies and an Apple Watch study shows potential for preventative medicine…

Big tech expands footprint in health (Wall Street Journal, Melanie Evans and Laura Stevens) takes a look at the opportunities big tech companies are seeking out in the arena of healthcare. Amazon, for instance, is starting to sell software that searches patient medical records for data that will help doctors and hospitals improve treatment and cut costs. IBM’s Watson Health and UnitedHealth Group’s Optum are already in this area – which shows that there’s a market for this kind of stuff. Apple is in talks with the Department of Veterans Affairs about software that would transfer veterans’ health care records to iPhones. * SO WHAT? * Healthcare is ripe for a shake-up in the area of data because it has lagged other data-heavy industries like banking and retail, in transitioning analogue data to digital due to technical and regulatory hurdles. However, tech has evolved to such an extent that data analysis of patient records with good accuracy is now possible and it 

can now do things like help identify suitable patients for experimental drugs, amongst other things.

Apple Watch study could have benefits for preventative medicine (Financial Times, Sarah Neville and Oliver Ralph) also looks at the possibilities for tech in healthcare as a global study – with 400,000 participants – conducted by a big insurance company in conjunction with Apple has shown that people are prepared to dramatically increase their exercise levels if they are given tangible rewards. Vitality Insurance rewards customers who look after their health by giving them benefits when they hit specific health targets. For instance, participants in the study paid a lump sum – £99 for an Apple Watch 4 or £9 for an Apple Watch 3 – plus a monthly payment of up to £12.50 depending on how much exercise they took. Those who did the most exercise were rewarded with not having to pay the monthly fee! It seemed that “loss aversion” meant that the danger of losing access to a free gadget was a more powerful motivator than the desire to get the benefit in the first place! Vitality has also worked with John Hancock, a life insurance provider, to offer Apple Watch and Fitbit devices to its life insurance policyholders and Fitbit has signed a deal with Humana, a US health insurer, for its coaching app. * SO WHAT? * I think that this is a very exciting area with huge potential and takes a nice-to-have gadget up a notch to being a must-have device but it is early days yet.



In individual company news, Salesforce has strong results and Thomas Cook has a shocker…

Backlog and revenue growth power Salesforce results (Wall Street Journal, Patrick Thomas) heralds good news for the business software maker as it upped its revenues forecasts, sending its shares up 7% in after-market trading, adding to the 24% rise it has seen over the last 12 months.

Salesforce is benefitting from heavier use of its Customer Success Platform, which was behind over 20 million e-commerce orders between Black Friday and Cyber Monday.

Thomas Cook shares plunge after second profit warning (Daily Telegraph, Oliver Gill) is a story doing the rounds this morning as it announced its second profit warning in the space of two months sending its shares down by 22.6%, blaming “legacy and non-recurring charges” and poor winter bookings. Yesterday’s profit warning came just two days before it was due to publish annual results. It’s not looking good but I guess we’ll hear more at the results.



…And finally, in other news…

Are you a bit of an adrenaline junkie? Then maybe this is for you: Hang glider clings on for his life after pilot fails to attach safety harness (Sky News, OMG OMG OMG. Having survived, you can clearly see that this guy is a nutter – and master of understatement – when he said “I will go hang gliding again as I did not enjoy my first flight”.

With both feet planted firmly on the ground for the next story, you may be surprised to read Silent discos face ban by Edinburgh City Council because they’re ‘too noisy’ (Metro, Richard Hartley-Parkinson Shhhh.

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

Some of today’s market, commodity & currency moves (as at 0816hrs 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 **
7,017 (-0.27%)24,503 (-0.99%)2,682 (+0.33%)7,08311,309 (-0.40%)4,983 (-0.24%)22,207 (+1.19%)2,601 (+1.03%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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