Wednesday 29/05/19

  1. In CONSUMER/HIGH STREET-RELATED NEWS, UK mortgage approvals hit new highs, higher costs get passed on to shoppers, Gordon Ramsay bucks the gloomy restaurant trend and Boots announces closures
  2. In FINANCE-RELATED NEWS, Global Payments buys TSYS for $21.5bn and Aviva announces a shake-up
  3. In INDIVIDUAL COMPANY NEWS, Alibaba considers a Hong Kong listing and we see reactions to the Fiat/Renault merger
  4. In OTHER NEWS, I bring you a superb trick shot. For more details, read on…



So mortgage approvals rise, consumers pay for rising costs, Gordon Ramsay turns a profit and Boots sharpens its axe…

Record month for mortgage approvals as buyers tire of Brexit (Daily Telegraph, Tim Wallace) cites the latest figures from industry group UK Finance which shows that almost £9bn of home purchase mortgages were approved last month as homebuyers decided to get on with buying a house. This was the largest value of lending for almost 12 years, with the average loan size of £203,400 – which is the second highest amount ever. Remortgaging also saw more activity, with approvals up by 5% – the highest growth rate since November 2017. In addition to this, credit card lending appears to be calming down with lending growth of 4.1% in the year to April versus 4.3% in March. * SO WHAT? * I don’t have the UK Finance report in front of me, but the average loan size would suggest to me that this activity is more concentrated on the “entry” end of the market that has been inflated over the last few years by the Help to Buy scheme and ongoing frenzy of those wanting to “get on the ladder”. I don’t get the feeling that the number of mortgage approvals is something to get TOO excited about at this time, especially given the highly uncertain economic backdrop. The increase in remortgaging activity could be due to people opting to stay put and withdraw money while the going’s good and/or older people getting a lump sum to pass on to their kids to get that first mortgage. The calming down of credit card lending IS a good sign, in my opinion, as this will mean less overall pain for household budgets if the economy goes into a Brexit-fueled tailspin.

Higher costs passed on to shoppers (The Times, Gurpreet Narwan) cites the latest data published by the British Retail Consortium (BRC) which shows that prices in shops have been rising as retailers reduce the amount of discounting going on and pass higher costs on to their customers. Shop prices inflation has risen to 0.8% year-on-year in May – double the increase of 0.4% for April – led by non-food items like furniture, health and beauty. Many retailers have been absorbing rising costs from higher minimum wages and apprenticeship levy, a weaker pound as well as increased stockpiling in preparation for Brexit but it seems

that more are reaching the point where they have to pass them on. Interestingly, food price inflation weakened to 1.8% growth in May versus 2.2% growth in April. * SO WHAT? * It was bound to happen – especially given that wage growth is still outpacing inflation. Consumers ARE able to take these price rises on at the moment, but things could get tricky very quickly if the economy takes a turn for the worse – so I think that retailers are right to make hay while the sun shines.

In contrast to Jamie Oliver’s recent misfortunes, Gordon Ramsay defies restaurant industry struggles with rise in sales (The Guardian, Sarah Butler) shows that it IS possible for celeb chefs to make money running restaurants as Ramsay’s restaurant group, which comprises of 15 London restaurants and 23 overseas outlets, managed to make a small profit of £500,000 in the year to August 2018 after making a £3.8m loss in the previous year. Gordon Ramsay Holdings has only managed to make a profit in one year since 2012 and the man himself is now getting very excited about his new (bottomless pizza) Street Pizza concept. * SO WHAT? * This is a bit of rare good news for restaurants, but it just goes to show how hard it is to make money in this area – given Ramsay’s impressive talents and his huge worldwide following, I bet you didn’t think that with all those restaurants that he’d “only” make £500k!

High street blow as 200 Boots face closure (The Times, Dominic Walsh and James Dean) heralds some tough news for Boots, which said that 200 stores could go as part of a review of its store portfolio. The high street pharmacy stalwart, that has been owned by Walgreens Boots Alliance since 2014, has been engaged in an ongoing revamp that has so far resulted in 350 job losses at its HQ and format changes under its “new” chief exec Seb James, who started in September last year. * SO WHAT? * Walgreens Boots Alliance has 18,500 shops in 11 countries but still makes most of its money in the US and given the continued lacklustre performance of its UK arm, you just know that something has to be done. The revamp has been aimed at making the distinctions between their three main businesses – medicines and first aid, vitamins supplements and holistic remedies and make-up and creams – clearer, but I still think it’s a real mish-mash and a generally messy and uninspiring place to shop. It has a long way to go IMHO. 



The payments world continues to consolidate and Aviva has a look at itself in the mirror…

Global Payments buys TSYS in $21.5bn all-stock deal (Financial Times, Robert Armstrong) shows that consolidation in the payments technology industry is continuing apace shortly only a few months after Fiserv’s $39bn deal to buy First Data and the Fidelity National Information Service (FIS) agreement to buy Worldpay for $43bn. Global Payments’ chief exec Jeff Sloan said “Look for us to do more technology deals” as the TSYS deal was announced, so it seems that further consolidation will occur. Both companies expect at least $300m of cost savings and $100m of new revenue from cross-selling. * SO WHAT? * Simply speaking, Global Payments helps

merchants process payments and TSYS helps card issuers accept and clear payments but the combination would be even better if it could improve its transaction process software capability – and the remaining independent core processing provider is a company called Jack Henry. Watch this space!

In Aviva eyes split of UK business as part of shake-up (Financial Times, Oliver Ralph) we see that Aviva will next week announce a major shake-up of its UK business as new chief exec Maurice Tulloch puts his stamp on the business. Observers speculate that he could split the core UK business into life and non-life insurance at a meeting on June 6th. If he did this, it would reverse Aviva’s 2017 strategy of bring both businesses together. Tulloch wants to simplify the group’s structure so that each division can focus more on its own business area. * SO WHAT? * What one CEO giveth, the new CEO taketh away I guess! The Devil will be in the detail (as always), but I just wanted to mention this given Aviva’s high profile in the UK. 



Alibaba eyes a Hong Kong listing and we get the latest reactions to the proposed Fiat/Renault combo…

Alibaba looks to raise billions in Hong Kong listing (Financial Times, Louise Lucas, Don Weinland and Hudson Lockett) shows that the Chinese e-tailing behemoth is planning on a secondary listing in Hong Kong later this year that could raise about $20bn (it raised $25bn in the world’s biggest IPO back in 2014). It is thought that this move is calculated to diversify funding sources but is no doubt a response to ongoing trade tensions between the US and China. * SO WHAT? * This would be a big deal for the Hong Kong Stock Exchange to land such a whale – and it could tempt other Chinese companies with US listings to follow suit, which would be even more lucrative. As far as Alibaba is concerned, a Hong Kong listing would be great as demand for tech stocks is still hot whereas New York has gone off the boil of late. The other benefit of a dual listing would be that it would give Alibaba another option if it ever decided to delist stateside for whatever reason.

Following on from yesterday’s announcement of a potential merger between Fiat Chrysler and Renault, it seems that the overall reaction has been cautiously positive with France says planned Renault-Fiat merger must protect jobs (The Guardian, Jasper Jolly and Rob Davies) as France’s finance minister Bruno Le Maire remarked that the merger could be “a great opportunity for Renault and the European automotive industry” whilst seeking a guarantee “on the preservation of jobs and industrial sites in France” and Fiat Chrysler and Renault given Italy’s blessing (The Times, Tom Kington) showing that the deputy Italian PM, Matteo Salvini, saying pretty much the same thing – but about Italy and Italian jobs. Meanwhile, As Fiat Chrysler pursues Renault tie-up, Nissan weighs stakes (Wall Street Journal, Sean McLain and Nick Kostov) shows that Nissan – with its two decade-long relationship with Renault – could end up playing gooseberry to the Fiat/Renault love-in. Having said that, its stake in Renault could give it exposure to a broader alliance that could result in cheaper parts, more tech and more R&D – but once again, this will all have to be hammered out as part of any deal given the current shareholder structure.



And finally, in other news…

I thought I’d leave you today with an excellent trick shot worthy of those YouTubers Dude Perfect in GB gymnast nets unbelievable basketball trick shot (BBC, Nice ???? !

Some of today’s market, commodity & currency moves (as at 0843hrs 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 **
7,269 (-0.12%)25,348 (-0.93%)2, 802 (-0.84%)7.60612,027 (-0.37%)5,313 (-0.44%)21,003 (-1.21%)2,915 (+0.16%)
Oil (WTI) p/bOil (Brent) p/bGold Per t/oz£/$€/$$/¥£/€$/₿

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