Thursday 29/07/21

1. In BIG/FIN/TECH NEWS, Facebook grows, Robinhood prices up its IPO, Shopify stays bullish on online shopping, Samsung has a corker and Welsh chips highlight China wobbles
2. In BANKS NEWS, Deutsche Bank has a great quarter, Santander benefits from cribs and rides, Barclays rebounds and even Metro turns a corner
3. In CONSUMER NEWS, house prices tumble, freight costs soar, staycations power tourism jobs and Spotify sees strong sales
4. In MISCELLANEOUS NEWS, we see the Morrisons latest, money flowing into a battery recycling start-up and a Dutch EV charger reversing into a SPAC
5. AND FINALLY, I bring you some of the snacks being enjoyed currently at the Tokyo Olympics…

So Facebook profits, Robinhood aspires, Shopify has faith, Samsung benefits and Welsh chips cause indigestion…

📢 It’s Thursday – so it’s time for my 30-minute Instagram Live At Five where I will run through the week’s key stories AND the one hour weekly ZOOM call for paying subscribers where I will do the same but in more detail and with much more interaction 👍 The ZOOM call will start at 5.30pm and run until 6.30pm. See you there!

Facebook growth fears despite $10bn profit (Daily Telegraph, Io Dodds) shows that Facebook managed to double its profits in the latest quarter, coming in way above market expectations. It also announced its biggest year-on-year revenue rise since at least 2017. On the other hand, it warned that growth momentum would slow “significantly” over the next six months due to regulator hostility and the ongoing impact of Apple’s privacy crackdown, meaning that Facebook’s offering has become less attractive. Its monthly user numbers also grew at the slowest rate in years although the numbers using its apps grew to 3.5bn – almost 50% of the global population! * SO WHAT? * Big Tech generally is under a lot of scrutiny at the moment and is likely to take a lot of flak over the coming months on things like data privacy, storage and usage as well as tax and other things. Facebook is putting a lot of effort into VR (it hasn’t worked yet) and online shopping (looks promising IMO as an alternative to the likes of Amazon and eBay).

Robinhood IPO prices at $38 a share (Wall Street Journal, Corrie Driesbusch and Peter Rudegeair) shows that the much-hyped share trading platform is pitching for $38 per share for its imminent IPO. This is actually at the bottom of the previously touted range of $38 to $42 and would give Robinhood an implied valuation of about $32bn, which is way north of the $12bn at its last funding round a year ago. * SO WHAT? * This will differ greatly from “normal” IPOs in that there will be a high proportion of the shares available to individual investors (up to 35%). Generally speaking, floating companies want a large proportion of institutional investors on the books early on in an IPO because they are perceived to be more stable and less likely to just flip the

shares, causing volatility – and therefore uncertainty. I think that the biggest risk in Robinhood is regulatory clampdown on its gamification of investment and its rather sketchy track record of share trading when meme stocks go haywire. Investment is NOT a game – unless you have ridiculous amounts of cash to burn!

Online shopping permanently boosted by pandemic, Shopify claims (Financial Times, Tim Bradshaw) shows that Shopify, whose tech powers retailers’ online stores and payments processes, saw quarterly revenues come in ahead of Wall Street’s forecasts but appeared to be losing momentum versus Q1 as shoppers returned to physical stores. The company’s CFO said that she thought that online retail spending would not decline and that it is now “reset at a higher level”. The company still expects rapid revenue growth this year, although it won’t be at quite the break-neck speed it was running at last year. * SO WHAT? * Although its growth rate may be slowing down a bit, the company is still trying to keep the party going by doing things like striking deals with Facebook and Google to integrate its Shop Pay (rival to PayPal and Apple Pay) and experimenting with a push into online advertising.

On the tech hardware side of things, Samsung profit rises 73% as memory-chip demand surges (Wall Street Journal, Jiyoung Sohn) highlights Samsung’s strong quarterly performance as the raging success of its memory chip business managed to more than compensate for the relative weakness in smartphone shipments. Meanwhile, Welsh silicon wafer plant review highlights security fears (Financial Times, Jim Pickard and Tim Bradshaw) reflects rising nervousness surrounding the purchase of the UK’s biggest semiconductor manufacturer by Nexperia, which is owned by Wingtech, a Chinese company. The deal had initially been waved through, but BoJo ordered a review to be carried out by Sir Stephen Lovegrove, his national security adviser, due to massive resistance from various quarters over selling something in a key industry to a foreign power. * SO WHAT? * It’s interesting to see so much kerfuffle over a facility that is worth less than $100m with tech that is readily available in China versus the relative lack of furore over the fate of the much bigger and much more important Arm Holdings, which is in the throes of being sold by Japanese owners SoftBank at the moment. We’ll just have to see how this plays out…

Deutche Bank, Santander, Barclays and Metro all have cause to cheer…

Deutsche Bank ditches cost-cutting target after bumper quarterly performance (Financial Times, Olaf Storbeck) is a rather attention-grabbing headline that shows the Deutsche triumphing for once! Things seem to be going so well that the bank said that it was abandoning its cost-cutting target for 2022 which was the main plank of chief exec Christian Sewing’s plan to revive the fortunes of Germany’s biggest lender. This came just after it did a U-turn on its previously-stated intention to cut 18,000 jobs. Deutsche announced better-than-expected quarterly results driven mainly by the investment bank. * SO WHAT? * Will Christian Sewing have to put his axe away and be given a golden good-bye perhaps, as his pruning services no longer appear to be required?? It seems strange that a bank that has just seen a constant stream of negative news over the last few years has suddenly turned around to the extent that it’s ditching its survival plan. I wonder whether they’ll get someone else in with more of a growth mindset than a cost-control mindset…

Meanwhile, Santander buoyed by demand for US cars and UK houses (Financial Times, Nicholas Megaw) shows that the Spanish bank experienced a major boost in Q2, putting it on track to exceed its target of annual return on tangible equity of 9-10%. Investors have had wobbles over its US business, but they might have to shut up (at least for the moment) because the US generated the group’s biggest underlying profit in H1 and it also made a series of US acquisitions recently. Interestingly (or concerningly,

depending on your viewpoint!), Santander is also nursing ambitions to become a key player in investment banking (remember that it recently entered into a joint venture with British investment bank Peel Hunt and stated that it wants to become a major force in European investment banking). * SO WHAT? * Given the low interest environment we’re in at the moment, banks will all be looking at “new” ways to make money, but as many know to their cost, investment banking is VERY expensive to get into and the earnings can be extremely volatile. It’ll be interesting to see how this plays out.

Profits at Barclays soar in resurgent first half (The Times, Patrick Hosking) shows that the bank obliterated consensus forecasts in its interim results yesterday as it nigh on quadrupled its H1 profits after a major upswing across its businesses. Investment banking put in a strong performance, as did the credit cards and payment processing businesses.

Metro Bank’s turnaround efforts ‘beginning to bear fruit’, says chief (Financial Times, Nicholas Megaw) shows that even the embattled Metro Bank is doing well as it announced a sharp fall in losses during H1! The bank has been a bit lost since the misreporting scandal broke in 2019 which led to the exits of both its colourful chairman and chief excutive. In order to climb out of its rut, it has been putting efforts into reducing reliance on costly fixed-term savings accounts and unprofitable low-risk mortgages. * SO WHAT? * The banks said it saw signs of a recovery in activity following the UK economy’s reopening and believes that demand could continue to gain momentum as more restrictions were lifted.

Consumers have a lot to consider but spend on travelling and Spotify…

House prices suffer biggest fall in year as tax break ends (Daily Telegraph, Rachel Mortimer and Tom Rees) cites the latest figures from Nationwide which show a major turnaround from recent trends and Is Britain’s housing market boom turning to bust (Daily Telegraph, Tim Wallace) says that it’s not just the forthcoming end of the stamp duty holiday that is taking effect – the increasingly tricky affordability, potential rise in unemployment as furlough ends and rising inflation when added together make prospects look less rosy. * SO WHAT? * I think that the most likely scenario is that the market takes a breather heading into the end of furlough and then if things aren’t as bad as everyone is expecting on the unemployment front, we could see a rebound that will continue into next year. Interestingly, the stamp duty equivalent in Scotland, the Land and Buildings Transaction Tax, came to an end in March – but although property prices weakened in April, it wasn’t disastrous – and then they recovered strongly once more. Optimists will argue that the continued trend to WFH will still power the exodus from city centres and keep demand ticking over.

Soaring freight costs to ‘hit price of toys for Christmas’ (Daily Telegraph, Louis Ashworth) highlights something

that many consumers (and inflation geeks 😁) will have to take into account as shipping container costs have skyrocketed. For instance, the cost of shipping a standard container from Shanghai to Rotterdam went from $2,000 a year ago to over $13,000 currently! Importers’ margins are evaporating as a result, meaning that they are having to increase prices. * SO WHAT? * Both Hasbro and Mattel have warned that they may have to raise prices as a result of all this, so the main message here is buy your Christmas presents sooner rather than later! This clearly doesn’t only apply to toy manufacturers!

Meanwhile, Tourism industry to create jobs in staycation bonanza (Daily Telegraph, Tim Wallace) shows that British consumers are expected to boost the domestic tourism industry enough to create up to 300,000 British jobs, according to analysis by the Resolution Foundation. On the other hand, countries that normally welcome a lot of Brits – like Greece and Spain – are expected to continue to suffer. Funnily enough, under normal circumstances, far more Brits go abroad on holidays than foreign residents travelling to the UK so it is thought that if we all took staycations, total spending in the UK would rise to over £30bn! That’s a rise of over one-sixth.

And while we are staycationing, we’re probably streaming music while we do it! Spotify hits right note with sales (The Times, Gurpreet Narwan) shows that the number of paid subscribers of Spotify has helped to lift quarterly sales to slightly above market expectations. Nice!

We look at the latest on Morrisons, an electric battery recycling start-up and flotation plans for a Dutch EV charging start-up…

In the ongoing “Battle for Morrisons” saga, Singapore’s GIC teams up with Fortress on £9.5bn Morrisons bid (Financial Times, Oliver Ralph, Jonathan Eley and Kaye Wiggins) shows that Fortress just got a big boost from Singapore’s sovereign wealth fund for its bid but Second Morrisons investor rejects £9.5bn Fortress bid (Daily Telegraph, Oliver Gill and Laura Onita) shows that top ten investor JO Hambro joined Silchester in whinging about bid price. Surely they will just up the offer (especially as they now have increased GIC financial firepower)??

Meanwhile, in the world of electric batteries, Tesla co-founder’s battery recycling start-up raises $700m (Financial Times, Patrick McGee) highlights a brilliant company, Redwood Materials, that has just raised a ton of cash to transform the US supply chain for EVs. The latest funding round implies a value of $3.7bn! Its aim is to “create a closed-loop supply chain for electric vehicles” in

the US. It already has partnerships with Amazon and Panasonic where it will break down electronic waste into powder, treat it with chemicals and then put it back into the supply chain as a raw material. * SO WHAT? * At the moment, less than 5% of lithium ion batteries are recycled – so what this company is doing is pretty fantastic, don’t you think?? There will be HUUUUUGE scope for battery recycling in the future I am sure.

Then in Dutch electric vehicle charging group to list through Apollo-backed Spac deal (Financial Times, Joshua Franklin and Ortenca Aliaj) we see that Allego has just agreed to do a SPAC merger with Apollo Global Management’s Spartan Acquisition Corp III. Allego said that they thought this was the quicker route to raise money and it follows other EV charging station companies ChargePoint and EVgo venturing SPAC-wards last year. * SO WHAT? * This is clearly a good move for the charging station company to get money in quickly but I still wonder how these players will fair in the medium term when battery technology advances and ranges increase, negating the need for massive charging networks. I personally think this is a 3-6 year story and then things are going to fall off, but this is just a guess! 

…in other news…

As many of you will know by now, I’m half-Japanese, studied for a couple of years at uni in Tokyo, worked at a number of Japanese companies (mainly as a stockbroker) and generally love the place! It’s great to see other people enjoying some of the country’s quirks in Japanese sandwiches give foreign reporters culture shock at Tokyo Olympics (SoraNews24, Oona McGee). Japanese taste in sandwiches can be somewhat eclectic to say the least! The weirdest sandwich filling I recall when living there was strawberry potato salad. Wha-?? 😱 Mind you, you just can’t go wrong with an onigiri (rice ball), especially with the classic tuna/mayo combo – but if you don’t know how to open one, here’s a handy guide: Problem solved: How to open a Japanese convenience store onigiri rice ball (SoranNews24, Casey Baseel). You can get them in the UK (places like Itsu sell them). Once you get the knack, you’ll never look back 😜 – these things are excellent (waaaaaaay better than sandwiches IMO!).