Thursday 15/09/22

1. In ENERGY, MACRO & REGULATOR NEWS, the EU comes up with an energy plan, the UK gives more details for businesses and UK inflation calms while Google, Meta and Activision face hurdles and Amazon gets sued by California
2. In REAL ESTATE-RELATED NEWS, UK house price growth doubles but Redrow’s the latest developer seeing a slowdown and Dunelm defies doom
3. In CONSUMER & RETAIL NEWS, food prices surge, Inditex sees strong sales and Naked Wines looks dodgy
4. In MISCELLANEOUS NEWS, Disney talks app, Netflix predicts ad-subscription potential, Tesla considers battery plans, Zoom tries to broaden its capabilities, Aston Martin hits another speedbump and Kwarteng looks at lifting the City bonus cap
5. AND FINALLY, I bring you the joys of furikake…

So energy solutions emerge, UK inflation calms down and regulators/lawmakers get busy with Big Tech…

📢 HELLO EVERYONE! I’m so sorry but I will NOT be doing the usual Thursday call tonight. It turns out that my eldest son’s school has a parents’ evening this evening and because of Covid I have never set foot inside the place! I really need to go there so I hope you will understand. The Thursday call WILL be on next week, though 👍

EU targets €140bn in windfall taxes (The Times, Bruno Waterfield and Adam Sage) shows that the EU is now fleshing out its plans to pay for an energy bailout. The European Commission outlined rules for a windfall tax on oil, gas, coal and refiners in addition to a cap on electricity prices. There were also mandatory targets set out to cut power usage and help companies that are struggling with massive price increases for wholesale gas. Energy crisis: EU should seek quick wins while negotiating price cap (Financial Times, Lex) contends that the €140bn is peanuts, particularly since Liz Truss’s measures are thought to potentially cost €150bn – and we’re only a little island off the coast of Europe! It says that the key to truly addressing the problem is a) reducing energy demand (tricky to get consensus), b) improve the integration of Europe’s gas pipelines (particularly concerning LNG terminals) and c) extricate renewable electricity prices from expensive gas. On the plus side, gas prices are now softening and storage seems to be looking pretty good currently. This is all reasonably positive given the circumstances but problems still remain as per Berlin in talks to nationalise stricken energy giant Uniper (Daily Telegraph, James Warrington), which shows that Germany’s biggest gas importer is after yet more state help. On a separate note, German state profits from airline bailout (Daily Telegraph, Oliver Gill) shows that it is actually possible to implement a state bailout and come out at the other end in profit! German taxpayers made a €760m profit after the government poured €9bn into the flag carrier for a 20% stake in 2020 when it was in dire straits. The shares were sold off over time, with the final tranche being sold yesterday. You would have thought that this would be excellent news for the company, who will now have this cloud lifted from them!

Energy bill freeze hands suppliers £1.6bn (Daily Telegraph, Rachel Millard) shows that energy suppliers will still be allowed to make a margin of 1.9% under Liz Truss’s scheme to bail out households and UK government pledges to backdate energy support for companies (Financial Times, Jim Pickard and Daniel Thomas) is clearly an effort to help businesses who might be affected by price changes if the systems can’t be updated in time, following the admission earlier this week that there  may be a delay for support

due to the complexity of implementation. This is far from ideal, but if the problem is as knotty as they say it is, then I guess it’s the best they can do (although this may still prove to be insufficient/terminal for those affected).

Meanwhile, UK inflation falls to 9.9% after drop in petrol prices (The Guardian, Larry Elliott) highlights the first easing of inflation in almost a year and although this was weaker-than-expected, it is still likely that the Bank of England will raise interest rates by 0.5% when its MPC meets next week.

It seems like regulators and lawmakers are getting aggressive on Big Tech at the moment in Google loses appeal against record EU antitrust fine (Financial Times, Javier Espinoza), which shows that Google lost its appeal in the European General Court against a record €4.34bn fine for using the dominance of its Android mobile phone operating system to restrict competition, South Korea imposes record privacy fines on Google and Meta (Financial Times, Song Jung-a) shows that the state-run Personal Information Protection Commission has fined Google and Meta $50m and $22m respectively for collecting personal information without user consent and then using it for customised online ads. These fines were the biggest ever imposed for breaking privacy law! It’s not looking good in Microsoft’s Activision deal faces in-depth probes in Brussels and London (Financial Times, Javier Espinoza and Kate Beioley) as the EU is expected to do an investigation into the deal for Microsoft to buy Activision Blizzard for $75bn after the UK’s Competition and Markets Authority (CMA) became the first regulator in the world to question the transaction earlier this month. Meanwhile, Amazon sued by California over ‘anti-competitive’ pricing policies (Financial Times, Dave Lee) shows that California is accusing Amazon of holding back third-party sellers who offer their products at cheaper prices on other websites. This is the culmination of an investigation that has taken over two years to get to this point and addresses Amazon’s behaviour towards third-party sellers who are forced to accept onerous terms and higher selling fees for using the platform. * SO WHAT? * Isn’t it nice to see Big Tech under pressure for a change? Regulators have been driven back and dodged over the last few years as their power and financial muscle has ruled supreme and it seems that the pendulum has finally swung in favour of the regulators. IMO the clock is ticking here for the regulators because Big Tech is relatively weak at the moment and regulators need to use this moment of weakness to rein these companies in. I would have thought that Big Tech, on the other hand, will want to drag things out for as long as possible to give them a decent chance to return to full strength once more. 

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

House prices rise but Redrow sees signs of a slowdown while Dunelm weathers the storm…

Annual rate of UK house price growth doubles to 15.5% in one month (The Guardian, Rupert Jones) cites the latest figures from the ONS which show that the annual rate of UK house price growth reached a 19-year record of 15.5% in July versus 7.8% in July. Having said that, it is worth noting that the increase has been hugely skewed as prices dropped particularly sharply in July 2021 because of the end of the stamp duty holiday. Redrow becomes latest developer to point to a cooling market (Financial Times, George Hammond) highlighted strong profits for the housebuilder thanks to high demand, but it added that demand for new homes was cooling (without adding much detail).

I thought it was worth mentioning Dunelm’s profit forecast cushions the retail gloom (The Times, Robert Lea) in this section because although Dunelm is a retailer, its fortunes are usually closely correlated to the housing market. Given that things seem to be slowing down, it was quite surprising to see that the company decided to leave its year-end estimates unchanged, particularly as it had seen robust sales over the last ten weeks. * SO WHAT? * It certainly seems that things are cooling down a bit in the housing market but I have to say I’d be quite worried about Dunelm when the property market cooldown picks up the pace. It’s good that the government has stepped in to help with the energy crisis but inflation is continuing to rise, debt is getting more expensive and bigger-ticket items like furniture and homewares will no doubt slip on the list of priorities for most people IMO.

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Food prices rise, Inditex does well but Naked Wines looks like it’s in trouble…

Food prices surge fastest since 2008 (Daily Telegraph, Szu Ping Chan) cites the latest ONS data which shows that food prices jumped by 13.1% in August versus August last year. Some dairy products were 40% more expensive and meat prices were up by 20%. Bad news for protein lovers, then! Tough times. You can’t even get away from it if you are a vegetarian/vegan as harvests are not looking good this year either due to various heatwaves.

There was some positive news in Zara’s owner reports surging sales despite cost of living pressures (The Guardian, Joanna Partridge) as Europe’s biggest apparel retailer, Inditex, posted rising sales and profits for the first half of the year. The owner of Pull & Bear, Bershka, Zara and Massimo Dutti saw profits for the first half up by 41% to reach a new record and sales jumped by about 25% and stronger in all regions. It said that there was a sales bounce in spring when more high streets opened up and was positive about the future. Recent and current sales appear to be going well and it is continuing with plans to expand both its online and offline offerings. * SO WHAT? * This is an impressive performance, particularly given the current economic backdrop. This retailer has a brand for different price points for different age demographics

and, over Covid, shut down a lot of stores that were perhaps underperforming – meaning that they are expanding from a relatively lean base. It’ll be interesting to see how the company trades going into Christmas and whether it will benefit from more people going into the office and going to social events again – remember last year was looking pretty good and then Omicron hit, scuppering plans at the last minute.

Fears for the future of Naked Wines laid bare by shares’ slide (The Times, Dominic Walsh) highlights a cratering of Naked Wines’ share price in trading yesterday as it announced the sudden exit of a non-exec director who started only three weeks ago and the fact that it would be doing a review of the business, focusing on “increased profitability, cost restraint and improved payback”.  It also admitted that it was re-jigging its credit facility, which investors interpreted as meaning the company’s financials are looking a bit tricky. Naked Wines is due to issue a trading statement in the middle of next month where it said that it would be giving more details. * SO WHAT? * Combine this with June’s profit warning and July’s CFO departure and you’ve got a horrible mix. I would have thought that any suffering from Naked Wines will be nectar to Majestic Wines! Will it actually survive?

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

Disney outlines app plans, Netflix quantifies its ad push, Tesla reconsiders, Zoom wants to broaden, Aston Martin faces another problem and the City bonus cap might come off…

In a quick scoot around other interesting stories today, Disney’s Chapek hints at all-in-one streaming app once Hulu secured (Wall Street Journal, Robbie Whelan) shows that Disney is getting closer to group all of its streaming services under its flagship Disney+ app, which could itself be tied more closely into its theme park business. At the moment, viewers have to toggle between different apps on their devices to watch content on each service and putting Disney+, Hulu and ESPN+ on the same app could really improve overall user experience. In order to do this, Disney needs to take full ownership of Hulu, which is currently one-third owned by Comcast’s NBC Universal. * SO WHAT? * This sounds like a good idea and is something that rivals, like WarnerBros Discovery and Paramount Global are considering. I really do think that Disney is pushing all the right buttons at the moment, but it’ll be interesting to see how it weathers the ongoing cost-of-living crisis.

Staying with streamers, Netflix estimates ad-supported tier will reach 40 million viewers by late 2023 (Wall Street Journal, Suzanne Vranica and Sarah Krouse) highlights the company’s estimates that an ad-supported version of its streaming service could reach about 40m viewers around the world by Q3 of 2023. This is the figure the company is touting to advertisers and sounds quite punchy. * SO WHAT? * This all sounds great, but the key is all in the execution. It will also depend on what rivals such as Disney+ decide to do as they are all looking at ad-supported subscriptions as well and could result in ad prices coming down due to the increased competition.

Elsewhere, Tesla shifts battery strategy as it seeks US tax credits (Wall Street Journal, Rebecca Elliott and Mike Colias) shows that Tesla is now pausing plans to make batteries in its German gigafactory as it considers the possibility of shifting their production to the US in order to qualify for the tax credits on offer.

* SO WHAT? * Great for the US, not so good for Germany. The new tax credits are proving to be tempting for a number of manufacturers including ones that make semiconductors!

Then in Video meetings specialist zooms in on new services (The Times, Callum Jones) we see that Zoom announced plans to diversify into e-mail and digital calendars as it tries to broaden its offering. * SO WHAT? * I think this is a disaster and potential money pit as it is trying to compete with Microsoft’s long-established suite of services – not to mention Google’s – and I think it will lose. Badly. IMO, the company should make its existing product as attractive as possible and ensure continued smooth integration with other software. Trying all this other stuff is just a waste of time and money IMO.

In other stories, Aston Martin gears up for £150m battle over hypercar (Daily Telegraph, Gareth Corfield) highlights yet another bump on the road for the embattled Aston Martin as it has now got to fight a lawsuit launched by a Swiss car dealership called “Nebula Project” which is pursuing royalties from the sale of Aston’s Valkyrie. This all sounds rather nasty and messy – and not something that Aston Martin really needs at the moment given the fragile nature of its finances.

I thought I’d finish with Kwasi Kwarteng seeks to scrap bankers’ bonus cap to boost City of London (Financial Times, George Parker, Stephen Morris and Daniel Thomas) as this move, if made, could be seismic for the City. A cap on bonuses was brought in after the 2008-9 financial crash because it was thought that behaviour was being more driven by the desire for fat bonuses rather than the desire to do the right thing. The bonuses are limited to “only” double a banker’s salary 😁. * SO WHAT? * I think this will put the rocket boosters under London as a centre for people to come and work in finance. It has always been an attractive place to work for investment banking and this is just going to make it THE place to be. There WILL be an exodus of workers from the continent if this happens…

Want to engage with myself and the team at Watson’s Daily about these stories? Why not ask us something in the Forum HERE. It’d be great to hear what you think!

…in other news…

As you know, I’m half-Japanese. When I was a kid, I was brought up on rice. In fact, I’d go as far as saying that I prefer rice over bread! Now the thing is, rice is quite plain and so sometimes you want to pep it up a bit – so I often do the very common thing of mixing a raw egg in with some soy sauce (yes, I know some of you might not agree with the concept – but it IS great!). Alternatively, I sprinkle something called “furikake” on it (it’s a type of seasoning that also contains dried seaweed. It is AWESOME and is pronounced “FOO-REE-KAH-KEH”). TBH, it’s really for kids but I’ve always loved the stuff 😁 (if you want to try it, this is where I buy mine! This isn’t an affiliate link – it’s just that this stuff is hard to find). It is brilliant as it is, but apparently there’s a new type as per Sushi and onigiri rice balls get a new look with rollable furikake (SoraNews24, Oona McGee). This looks absolutely amazing! For me, this is the scientific breakthrough of the century 😍! You probably think I’m crazy now…