Tuesday, 16 December 2014

Argos meets online challenge this Christmas with 'click and collect'

IBTimes UK: Argos-meets-online-challenge-this-christmas-click-collect

IBTimes UK Video Link: Argos Meets Online Retail Challenge This Xmas

Christmas present spending has hit an even greater excess this year, an estimated £350 per person and £604 per household in total, by far the largest of any European country (Figure 1).

Black Friday, yet another US consumer import of dubious merit to these shores, has fuelled a high street spending frenzy akin to that of Amazonian piranhas swarming to feed on a hapless victim.

1: British Spend Big At Christmas

Source: ING

While this might sound like the best of times for the retail sector, in reality this is far from the truth.

One only has to look at the ongoing woes of supermarket giant Tesco (LSE code TSCO), now 50% down for the year after four successive profit warnings (Figure 2).

2. The Fall and Fall of Tesco

Source: Bloomberg

Surviving the internet's deflationary effect

But why is that? As always, UK shoppers are demanding ever-better prices on food and non-food goods alike – and we have become savvy as to the price-cutting powers of online price comparison sites like PriceRunner and Kelkoo, allowing us to sniff out the cheapest prices for all manner of goods, electrical or otherwise.

Equally well, access to online shopping sites while at work in front of our computer screens is very tempting for time-poor employees, and a boon for online retailers such as Amazon, eBay and Boohoo.

This shift in shopping patterns has evidently boosted online shopping to the detriment of traditional high street footfall, with online shopping posting 12% growth and hitting over £70bn this year, according to eMarketer (Figure 3).
3. Online Ecommerce Sales Over £70bn in 2014

Source: eMarketer.com

Of course, this has not been bad news for all retailers – some traditional high street chains have in fact evolved quickly to meet the online challenge head-on.

One such successful shift in business model towards the "Click and Collect" online shopping paradigm has been Argos, whose listed mother company is Home Retail (code: HOME), with a total of 44% of sales at Argos are now ordered online (Figure 4).

4. Argos Reaps the Benefits of Click and Collect Shopping

Source: Home Retail Group

Fashion retailers bounce back on colder weather?

A second retail subsector that could see better times ahead are clothing chains, who suffered up to November from unseasonal warm weather, slowing sales of their higher-ticket winter items such as coats and boots.

With the current cold snap and the threat of sub-zero temperatures and snow to come, warm weather clothes sales should pick up sharply, with better like-for-like sales expected in January as a result.

This could fuel a bounce in the share prices of high street chains like Next (code: NXT), Marks & Spencer (MKS) and Associated British Foods (ABF; the owners of Primark) and also in smaller, fashion-oriented retailers such as French Connection (FCCN).

Bargains aplenty even before January sales

At this time of year, with Christmas fast approaching and retailers worrying more and more about shifting their inventory sitting on shop shelves, we can play a game of retail chicken.

We the consumers need to buy Christmas presents before Christmas, while the retailers are increasingly worried that they will be stuck with lots of unsold goods post December 25. Who blinks first?

Generally, shops tend to lose this game and discount goods to reduce inventories, increasingly offering discounts even before Christmas to reduce their risk of having to offer even larger discounts in the January sales.

Which of course is good news for those of us who wait until the last minute to complete our present buying.

This year looks likely to be a good one for last-minute bargain hunters, particularly in electronics and clothing.

For cheaper online purchases, I would recommend looking at discount voucher websites such as Vouchercodes.co.uk and Moneysavingexpert.com.

Alternatively, consider snapping up good value shares in retailers such as Next and Home Retail, in advance of potentially upbeat January trading statements.

Tuesday, 9 December 2014

VIDEO CNBC Europe Closing Bell Guest Host: Greek Stocks Crushed

Greece has brought forward its presidential election by two months, causing anxiety in the investment community. Edmund Shing, global equity portfolio manager at BCS Asset Management, weighs in on the discussion.

Quoted on Reuters: FTSE Tumbles on Tesco Turmoil

(Reuters) - The FTSE 100 fell to one-month lows on Tuesday, hit by supermarket retailer Tesco's (TSCO.L) fourth profit warning this year.

Shares in Tesco at one stage fell as much as 17 percent to their lowest in around 14 years, wiping some 2.6 billion pounds off the firm's market capitalisation. It later regained some ground to close 6.6 percent lower.

Tesco blamed its lower profit forecast on the cost of trying to recover from an accounting scandal and a slide in its market share.

The stock's decline also dragged down rivals such as WM Morrison (MRW.L), which retreated by 4.4 percent, and Sainsbury (SBRY.L), which fell 1.8 percent.

"It would be appear to be more of the same for Tesco. We all know that pricing pressure on retailers is intense, in particular on clothing retailers and supermarkets," said Edmund Shing, global equity portfolio manager at BCS Asset Management.

"However, this may be the last 'big bath' provisioning and resetting of forecasts by the new CEO so that Tesco can relaunch on a sensible footing."

Tesco took the most points off the blue-chip FTSE 100 index .FTSE, which ended 2.1 percent down at 6,529.47 points -- near its lowest in a month. The FTSE also suffered its biggest one-day fall since a 2.8 percent drop on October 15.

A further slump in mining and energy shares also weighed on the market. Energy stocks fell as the price of benchmark Brent crude oil touched five-year lows. A supply glut is building as Gulf producers looked ready to ride out plunging prices.

Mining stocks were also hit as aluminium dropped to multi-month lows in London and Shanghai on concerns over excess supply. Other base metals fell before China, the world's top metals consumer, releases data that is expected to show economic growth is slowing.

But specialist gold mining stocks benefited as the uncertain economic climate drove up the price of gold XAU=, with Randgold Resources (RRS.L) rising 3.6 percent.

In spite of the market pullback, Charles Hanover Investments' partner Dafydd Davies still expected the FTSE to rally to 6,800 points by the end of 2014. He said plans by central bankers to stimulate global economic growth would continue to support equities.

(Additional reporting by Atul Prakash and Francesco Canepa; Editing by Catherine Evans)

Royal Dutch Shell and BP tie-up would ease the pain for oil and gas investors

Since July, the collapse in world oil prices has been the talk of global financial markets. Brent crude oil, the global benchmark, has fallen from $115 per barrel to under $69 today, a price not seen since 2009 (Figure 1).

1: Brent Crude Oil Back to Prices Not Seen In the Last 5 Years 

Source: Investing.com

This has been painful for investors holding oil and gas stocks such as Royal Dutch Shell (RDS) or BP, with Royal Dutch Shell shareholders nursing losses of 10% since June, and BP shareholders an even more painful 15% loss since June.

Merger and acquisition activity hots up in oil

There have been a number of consequences of this sharp oil price fall, one of which has been an increase in merger and acquisition activity in the global oil and gas sector.

For instance in oil services, Halliburton is in the process of taking over US rival Baker Hughes for $35bn. But perhaps the biggest potential takeover in this sector is still ahead of us...

Could Royal Dutch Shell buy BP?

This sounds ridiculous at first flush – after all, BP is a giant company worth over £136bn at its current 425p share price (as of 5 December). However, it is perhaps not such an outlandish notion upon reflection.

2: BP and Shell Share Prices Have Gone in Different Directions Since 2010 

Source: Yahoo Finance

First of all, at today's 425p BP (code: BP.L) languishes some 34% below its 640p share price reached in March 2010, before the Deepwater Horizon disaster in the Gulf of Mexico took place, costing BP $27bn dollars (so far) in clean-up costs and damages.

In sharp contrast, RDS's A shares (code: RDSA.L) have gained 13% from 1910p in March 2010 to 2149p now (Figure 2). 

As a direct result of this widening gap in relative share price performance, BP is now only worth 64% of the total market value of Royal Dutch Shell, down from almost level pegging back at the end of 2009 (Figure 3)

3. BP's Market Capitalisation Now only 64% of Royal Dutch Shell's 

Source: Yahoo Finance

Are BP's shareholders fed up with Waiting for Godot?

We could well argue that BP's longstanding shareholders are becoming fed up of waiting for the company to regain the 640p level seen pre-disaster back in April 2010.

BP's sale of its share in the Russian TNK-BP joint venture in return for 20% of Russian oil company Rosneft is not proving a great success.

This stake is worth 38% less today than it was back in early July, thanks to a nasty combination of a falling Rosneft share price together with a collapse in the value of the Russian ruble on the back of international sanctions.

There has been increasing press speculation of late regarding a possible Royal Dutch Shell-BP tie-up, with a mooted £5 per share bid for BP equating to 16% more than Friday's closing share price, financed presumably by the issue of new Royal Dutch Shell shares.

The new Anglo-Dutch oil and gas combo would rank second by size in world oil and gas giants, only a fraction behind the US behemoth ExxonMobil (Figure 4).

4. The Largest Global Oil & Gas Companies

Source: Yahoo Finance. Note: RDS BP combination assumes £5 bid price for BP shares

Given that these large oil companies will find life less profitable in the future at these new, lower crude oil price levels, a cost-cutting (and profit-boosting) merger of these UK oil giants makes sense at present, as it would give the combined entity even greater global scale to compete for new projects. 

Worth mentioning too is that BP offers a juicy prospective dividend of over 6% - so you are paid to wait patiently! Even if a bid from RDS does not materialise, you should still benefit from an eventual rebound in oil prices as global demand grows, as crude oil prices have typically rebounded in the past after such sharp price declines!


Tuesday, 2 December 2014

Navigating the Scylla and Charybdis of inflation and deflation

Why is deflation always treated as a dirty word?

When the term deflation is mentioned, the so-called "lost" decade in Japan or the American Great Depression of the 1930s is usually evoked, periods where the economy in question contracted over a long period, resulting in mass unemployment and lower wages.

1: UK Inflation Hits its Lowest Level in 6 Years 

Source: Author, Office of National Statistics

But it is not all dark - There can be a "good" side to deflation too! The UK Government's preferred measure of consumer price inflation (Figure 1, green line) has fallen to only 1.3%, its lowest level for 6 years.

For avid Christmas shoppers, the second, blue line in the figure is great news, as it demonstrates that high street prices are on average 1.2% lower than in November 2013!

So as far as presents under the Christmas tree are concerned, our money should go further this year than last.

That is the positive facet of deflation that we can all enjoy – after all, who doesn't like to snap up a bargain in the shops?

Strong growth and falling inflation: A rare combination

What is interesting at the moment is that this period of falling shop prices is coinciding with relatively fast economic growth in the UK.

In the third quarter (July-September), the UK economy (as measured by Gross Domestic Product) grew by an annualised 3% growth rate (Figure 2), among the fastest growth rates since 2007.

2. UK Economy Is Growing At 3% Per Year 

Source: Tradingeconomics.com, Office of National Statistics

Today, this growth and deflation combination is being encouraged by lower commodity prices, most notably petrol and food prices (Figure 3).

As these two categories represent a large percentage of a typical household's regular spending, no wonder that purchasing power is being boosted as a result. 

3. UK Petrol Pump Price Lowest In Four Years 

Source: Petrolprices.com, Office of National Statistics

Much of this growth is coming from the service sector, an area which the UK tends to excel in (think of financial services including banking and insurance, or media services such as advertising, where the UK tends to lead the world).

Where can we invest to profit from this phenomenon?

Option 1: Low-cost airlines

On these rare occasions when inflation falls but economic growth is booming, what are the best areas to invest in?

First of all, let's outline some general principles. When the economy is growing at above its long-term trend (normally 2.5% or more), so-called "cyclical" sectors which are tied to the prevailing economic trend tend to lead the stock market.

These include manufacturers in sectors such as Machinery and Aerospace & Defence, plus service sectors such as Media, Transport and finally selected financial sectors such as Insurance.

Bearing in mind the relatively sharp fall in oil prices since July, at the stock level I would focus within the Transport sector on low-cost airline stocks such as Ryanair (RYA.L) and easyJet (EZJ.L), which get a profit boost from lower fuel costs, plus a benefit to sales from higher passenger numbers as UK consumers flock abroad in search of cheap holidays.

Option 2: The German stock market

An alternative is to invest in a highly cyclical economy such as Germany.

The country's DAX stock market index is dominated by cyclical manufacturing stocks such as Volkswagen, Daimler and BMW in Autos, BASF and Bayer in Chemicals and Siemens in Industrials.

In addition, the DAX index is not held back by under-performing Oil & Gas stocks as is the case for the FTSE 100, as there are no large-cap German oil companies.

4. Strong Performance From The Amundi Germany ETF 

Source: Morningstar.com

An easy way to invest in the German stock market is the Amundi MSCI Germany UCITS ETF (Figure 4), which is listed on the London Stock Exchange (LSE code: CG1) and is priced in pounds (last price: £147.57).

Thursday, 27 November 2014

Wednesday, 26 November 2014

CNBC Europe Guest Host: Video on the Juncker investment plan

I appeared on CNBC Europe's Squawkbox programme as Guest Host this morning, discussing a range of issues including the newly-announced grand Europe investment plan, laid out by European Commission President Juncker: