There's no good in the actions of those in France! So it’s
limited to - Evening, rather than ‘good evening’.
Tous pour un, un pour
tous! Sympathy and thoughts go out to the families and friends of all
those affected by the senselessness that occurred in France.
We are losing count of the profits warnings and revisions in
guidance on a global scale – especially industrials. The trade this week was
Rolls Royce (RR.) where the interimmanagement statement echoed the woes of Fenner
et al. A general theme about earnings and outlook that will continue for the
foreseeable future (over to Caterpillar after the JCB layoffs).
Themes from the previous week continued all the way through
and are now the reality (Weekend's EMC - NFP & Weaklings) - deflation is hurting earnings and causing a nervousness
in guidance. Those companies that are leveraged whether in oil & gas, manufacturing,
services and support are all starting to acknowledge "the world's largest customer(s) are changing / have changed their
appetite."
In the US the likes of FitBit (NYSE: FIT) is beating the trend
(currently), with what we here consider a gimmick formulae. FitBit need to overcome
a common theme of fad utilisation with their products, which are often used for
not much longer than that of a gym membership - circa 3 months (EMC research) there
after being destined for a drawer.
We have to acknowledge one reader’s wife’s
commitment to use her for an eternity! Although if you’re stuck for a present
for your beloved, you too can do your thing for wearable revenues! Wearable tech undoubtedly has mileage across the sector, but
with competition, what’s in it for shareholders? Those reliant on one arm
(scuse the pun) of the sporting sector are limited in their traction, where
they’ll have to compete with the likes of Nike+ etc.…
For some investors, they have been rewarded with the Fossilacquisition of MisFit, but for others it’ll be a cycle of confetti issuance
for equityraisings a la FitBit. There is
perhaps a hope of being acquired rather than having to justify being a viable
business that warrants a decent valuation.
FitBit’s placing (and discount) was expected and the price
is understandable when one has a quick look at the accounts. Innovation costs money,
especially where there’s a theme of a “fad
of things” emerging. The EMC considers FitBit to have an over reliance on
novelty and gimmickry that drives sales – Christmas is upon them where they
should do well. We will not comment on Fitbit inventories levels, receivables
and trade payables, they appear to be insignificant to investors – but not
those that bought into the equity issue.
Rocket Internet (ETR: RKET) call these “proven winners”
(Rocket Internet terminology from the lengthy CMD) - but we have HelloFreshbeing withdrawn (FT). Bringing into question the valuation of Rocket’s “proven
winners.” The market is getting wise to the actions of companies, especially
those that issue discount vouchers like confetti pre-IPO.
Within the commodities space we have the Icahn’tseries of Freeport McMorran (NYSE: FCX). When a major investor tries to bet
against the global outlook; one should pay attention. The market is changing,
oil will stabilise as will copper, but significant bets against a global trend
are often unwise (in the short-to-mid-term). We note the two brokers that
criticised our approach - being 40% down from our commentary, are we not
validated?
We also have trends occurring in retail space in the US that
have yet to present themselves fully in the UK - albeit consumption has been
brought forward by Help to Buy (H2B) scheme. This is propelling the
results of the house builders, but with a muted response from the market Inc. BarrattDevelopments Trading Update (BDEV), RedrowAGM Statement (RDW) and GreatPortland Estates (GPOR). This Tuesday (17 Nov 2015) sees British land
(BLND) reporting half yearly, a stalwart that shouldn’t be ignored.
US retail space are admitting the need to entice consumers
with discounts and showing the price-sensitivity in the market – evidenced in
part by Macy’s and NordstromQ3 Results. Big ticket items impacting on retail - Walmart, Nordstrom and
Macy's all showing a similar story. By big
ticket, we mean houses, cars, home refurbishments and extensions,
electronics and smartphones – yes this is a retail driver in China as well
(missed by most!) and will have consequences to this.
In the UK these themes have already hit the likes of
Kingfisher, Travis Perkins, Speedy Hire, HSS and as a wildcard Halfords.
Two companies in that list haven't helped themselves either (Speedy & HSS),
but we'll save that for those accounting gurus with more time on their
hands.
Retail will also be hurt by the rise in student debt, where
there is a suspicion that student registrations rose because of the recession
rather than a yearning trend to improve oneself. The student leverage and
consequences mean that a few generations are going to skip a housing purchase
until later in life.
If society loads a student with debt the consequences will
impact an entire generation, especially where wage growth is slowing or
deflationary. Student Fees on the increase, student loans on the increase…remind
yourself of the purpose of education?
Pearsons (PSON) education is showing the realities of the
market place. See PSON interimresults graph for a trade plan courtesy of Bloomberg ™® and one shrewd
trader.
We have Majestic Wines (MJW) reporting tomorrow - with the
trading update from Conviviality(CVR) – have they cannibalised MJW’s margins? Majestics have erased their
economic moat of six bottle minimum purchase – we will start to see the implications
of this tomorrow and average spend.
Some poignant questions for Majestic Wine’s – if the removal
of the 6 bottle limit didn’t impact on revenue, will it maintain them
longer-term? What is the customer acquisition costs of Naked Wines? Are
Majestic’s in a declining space where novelty type drinks are on the increase?
We have insufficient data for a conviction trade. We won’t comment on their
limited response from IR either and will maybe comment further tomorrow. …
Atb Fraser
In trading or taking a view, the impact of being laid off, made
redundant or hurt by the actions of some idiots may appear to be ignored. These
are never forgotten, including the implications for the families.
